SEB SA

PAR:SK

Earnings Call Transcript 2018-Q4

[Vincent Leonard, Senior Executive Vice President of Finance]

Welcome to you all for our 2018 sales release.

[Isabelle Posth]

Good evening.

[Vincent Leonard, Senior Executive Vice President of Finance]

And as usual, I'll go through sort of the main highlight. Then, Isabelle will take us through the various geographies, and I'll come back with guidance, and we'll be happy to take your questions.So jumping to Page 5 of the presentation. In summary, we had another year of strong growth -- just completed another year of strong growth with annual sales surpassing EUR 6.8 billion. That's a 7.8% like-for-like growth. Very solid like-for-like growth. 5.1% on a reported basis with some significant FX impacts, as we'll see in a minute. Of that, consumer was up 4.3%, and professional i.e., mainly the coffee business, was up 12.8%. That growth was sustained in Q4 with like-for-like growth at 8.4%, reported growth at 7.8%, consumer 6.3% at EUR 2 billion and professional, accelerating as anticipated, with a growth of nearly 30%.Looking at it by region, on Page 5. Did I say 5 before? It was 4? Yes. Okay, looking at it by region and analyzing that 7.8% organic growth. EMEA was up 3.3%, made up of Western Europe at 0.4% in, I'd say, overall somewhat softer markets, fewer LPs and France that was in negative territory as we'll see, so penalized by that.Other markets, other countries, a very strong 12.5% growth, which would even have been 14% ex LP. And as you can see, significant -- major, in fact, currency impact since that 12.5% translates to 6.4% on a reported basis. We'll come back to that.The Americas were plus 0.4% for the year, made up of North America at minus 4.4%. We've mentioned throughout the year the very difficult context that we operate in, in the U.S. and Canada, in particular. So we'll come back to that.South America, up 8.2%. Here again, we can see a huge impact from currencies, since that 8.2% translating to negative 7.4% on a reported basis. Important to mention that, that 8.2% includes a EUR 32 million recognition of a tax receivable on the state, on the administration. That follows a Supreme Court decision and really provides a nice offset for the many nonrecurring events that have hurt our sales in this market throughout the year. You would remember, the May strike, big truckers' strike in May. Our lost sales is a result of difficult industrial transition in that market. And the near bankruptcy of one of our major customers in that market so that provides a nice offset to all that. And overall, we'd look at all these nonrecurring items as pretty much neutral on Brazil for the year.In Asia, strong 17.6%, with China continuing to deliver extraordinary performance at 20.3 -- 24.3% for the year. Other Asian countries at 0.9% were mostly impacted by major VMF Taiwan LP last year. Ex that LP we'd be looking at plus 4% for those other markets. Total consumer at 7.2%, that's 8.1% ex LP and then professional posting a strong 14.3% for a total group at 7.8%.On the following page, we look at this for Q4. Not that different really from the whole year. So we have EMEA at 3%. Western Europe, a little bit penalized by the yellow vests in France mostly. Other than that, nothing major versus the general trends of the year.Other countries accelerated to 17.2%, continuing a very strong performance. The Americas, North America was flat, South America at 32.4%. Again, that number includes what I just mentioned regarding the tax receivable that was booked in this quarter. So obviously, that pushes the number up.Asia, 13.9%, including China, which posted another excellent quarter at 17.1% after 3 quite extraordinary quarters. Other Asian countries at 7%, having fully overlapped the impact of the Taiwan LP. And then professional 27.4%, accelerating in Q4, as expected, as a result of the shipment of the major deals we've talked about earlier in the year.On the next page, on Page 8, we see the last 3 years growth by quarter and basically that only tells us that growth was sustained and consistent throughout the last 12 quarters, all 12 quarters above 5% like-for-like growth.Page 9. We're adding the currency view here. You can see currencies, on the whole year basis, were significant headwind to EUR 211 million or 3.2% negative growth. It should be noted that, that impact moderated in Q4, since Q4 was only 1.6% points of negative currency impact.More detail on currencies on Page 10. And in fact, you can see here quarter-by-quarter, what I just mentioned, i.e., the diminishing FX impact on sales, but still very significant on the whole year. That impact moderated in the end of the year, mostly as a result of strengthening. It's all relative, but relative strengthening over the balance of the end of the year of the Turkish lira, the ruble, the Argentinian peso as well as the Japanese yen. So that moderated a little bit impact there.On Page 11. Our top 20 markets, of which 15 in positive territory, only 2 major markets in negative territory being the U.S. and France. We have talked about these throughout the year. We'll obviously discuss that again now.A quick highlight on the professional business, delivering on a full year basis, 14.3%, on top of a strong 13% last year and with an acceleration to 27.4% in Q4 as we delivered the big deals, we've talked about in -- that were signed in the U.S. and China. So this is all being executed as planned and delivering the expected growth. Importantly, the core business, so excluding those major deals, continue to enjoy sustained growth throughout the year. Sales were slightly down in the much smaller hotel equipment business.And with that, we go through the geographies with Isabelle.

[Isabelle Posth]

Yes, good evening. I'm happy to go -- to take you through the different geographies, starting with Western Europe. As you can see Western Europe had a soft performance. This is mainly due to the fact that one, we had less loyalty programs than in 2017 and second, that the France has been difficult, and I'm going to come back on this point in a few seconds. One other point that needs to be stressed is that European small electrical appliance market has been growing more softly than in previous years. And that has been the case, especially in France, in Germany and in the U.K., whereas in the other countries, it's been performing better.Now starting with France, where sales were down for the full year but more significantly in Q4, compared to high comps. Because last year in Q4, our performance was up almost 5%, which needs to be highlighted. We had a good start to the year with a Q1, which was good, positive. And then the business proved to be more difficult. And of course with this Q4, which was a bit challenged in a market, which was overall rather lackluster and also all the changes in the retail industry, which did not help.In addition to that, we had, in Q4, the yellow vest protest impact, which effected severely our core business and this is mainly the case for cookware, for the core business, but also for the loyalty program that we had planned and scheduled and that was implemented. But -- which was not a great success due to the fact that, well, loyalty programs are directly linked to the traffic in stores. And when the traffic in-store is not good, people don't get the coupons, so they don't get, they don't do the loyalty program. So that was a difficult point for us in Q4. So clearly, we expected Q4 to be better, but all in all, what we can say is that, and what is very encouraging, is that our major innovations were really best sellers on the market. That has been the case with Cuisine Companion, that has been the case with vacuum cleaners, and especially for the all-in-one vacuum cleaners, the versatile one, for the full automatic espresso coffee machines, for the newly launched Cake Factory device, which was really a good start -- which had really a good start. So -- also, positive things but, clearly, a market that has been difficult end of the year, which has been very challenging in France.In the rest of Europe, things have been much more positive, starting with Germany, where the market, as I said before, has also been softer, but we had -- in this market, we had a buoyant business. It was driven by a mix effect with a premiumization. And as a matter of fact, if you look at our core business in Germany, it was up more than 10%. And on the other side, we had some loyalty programs, which were missing for the full year as well as, especially in Q4. But overall, if we focus on our core business, driven by all our flagships, vacuum cleaners, full automatic espresso machines, OptiGrill, cookware also a little bit, in a more moderate way. We had a very good year in Germany, driven also by online sales that grew quite significantly for the full year.So in that context, our market share was quite good and was increasing. Ongoing momentum, very good momentum also in Spain, where -- as it was the case in the previous quarters, we had a very good business in our -- again, in our Champion products, vacuum cleaners, cookware, kitchenware. But also VMF products that have been introduced as we said earlier in the year, which have been introduced quite well with a good complementation also of the VMF business in Spain. And as such, the whole business of group, saving Spain, has been increasing quite well in 2018.In Italy, the market has been, I would say, not as dynamic, but still our business has been growing mid-single digit as far as our core business is concerned. And then we added, towards the end of the year, a loyalty program on cookware and on the vacuum cleaners, which made the fourth quarter much stronger than the rest of the year.Excellent performance also in The Netherlands. Netherlands, this is a country in which it has not been always easy for the group. We're [ passing ] on comps that are not very high clearly, but this year has been very dynamic. Both on the core business, we introduced vacuum cleaners, which have been a very good growth driver over the year. We have been very successful also with the VMF products. And at the end of the year, we had a large loyalty program in Q4. So Netherlands, end of the year with a very, very good performance.And then the U.K., where we've been working in a quite sluggish environment prior to the Brexit. And market has been rather volatile, rather sluggish, but with a better view towards midyear with [ fans ]. But overall, a market which has been difficult, and our performance there has been down. In this context, Groupe SEB has gained market share in most of these countries and has strengthened its position.In the other EMEA countries, I would say that overall, this business has been performing quite well over the year with a strong acceleration in Q4. We've been gaining market share over the year, and even if we have had some significant ForEx headwinds that we have offset through price increases and that has been the case in countries in central Europe, in Russia, in Turkey. As I mentioned before, last quarter, in Turkey, we've passed several price increases. We have been able to perform very well in these countries. And growth has been exceptionally good in central Europe, which has been really a key contributor. Poland, very steadily, growing sales by more than 30%, steady over the year, and that was driven by full automatic espresso coffee machines, and especially the high-end range with vacuum cleaners, with grills, steam generators. So we are enriching the range and our product offering over the years.In other countries, like Romania and Slovakia. We have already spoken about these countries in the past. There's more countries that we have been gaining momentum, and we have been growing in these countries for now several years. Brisk momentum in Q4, and as such a very, very positive performance.Ukraine. Ukraine is the same thing. Brisk momentum all through the year in a supportive market with more or less the same products as in Russia. Growth has been hovering between 30% and 50% over the year. We're #2 there. And clearly, we have been investing these countries, and it's been very successful.Nothing major different in Russia, where quarter after quarter, we've been growing quite well. Still driven by the same flagship products of cookware, vacuum cleaners, espresso coffee machines, kettles, and also some encouraging advances regarding WMF. So again, nothing really new in Russia, momentum is good, and we continue in this direction.Turkey, overall a good business. We mentioned in Q3 that we -- following the depreciation, the very -- with the collapse of the Turkish lira during the summer, we had to increase prices, again, which was the fifth price increase in September that was done. And all in all, we maintained a good level of business in Q4, although, clearly organic growth is much more related to prices than to volumes, of course, in Q4. But globally, a good market and a good business for us in Turkey. Nothing really changes in the core business.And then sales were down in the Middle East. You know that this area is a very difficult one. Major recession over there. So sales have been down, but we had a very good performance in Egypt, where our SDA business is doing fine. And where the cookware business, which is linked to our joint venture with Zahran is ramping up. So a good business for us in Egypt.North America. Difficult. A difficult year with a very tough start to the year, as in H1, at the end of H1, we were lagging, and we were at minus 11% regarding sales. That was mainly due to a high basis of compression in 2017. You remember the Krups range that was introduced on the market. The second half has been better but did not offset totally the delay in sales that we had in -- at the end of the first half. So the business was also, as we have already mentioned in the past, heavily disrupted by the major changes that are going on in the retail industry in the U.S., and which leads to a higher volatility in the market but also on our business. So in this context, where clearly, as I said, business was tough. We had a drop in sales in SDA, but that was also linked to Krups -- to the Krups range last year. We had a good performance of Rowenta in garment steamers, it was tougher in irons. And as far as cookware is concerned, our sales were almost stable, which is not a bad performance at all. So that was for the U.S.Canada is very, very difficult year overall. And this difficulty was mainly linked to SDA. Cookware has been, on the contrary, conversely, has been much better.Mexico. Core business has been, overall, steadily positive. And that has been related to mainly the core business and essentially the core business. As loyalty program was much smaller than last year, so the core business is doing fine. Thanks to our flagship products as usual, cookware, blenders, irons, but also some newly launched products as fans, which have been quite successful, and also enriching the range with future coffeemakers and espresso coffeemakers in the market with a certain number of major customers.South America. I'll focus solely on the business. Vincent has already spoken about the one-off that can be clearly visible on the figures. So figures do not reflect the day-to-day business, which has been much, much tougher, and especially in Brazil. In Brazil, the point that we would like to stress is that we had a mixed picture in SDA, and that's mainly linked to the fact that the market in fan has not been good. We have had flat sales in this context, and the market was not good because of weather conditions. So with flat sales in this -- in fans, we've been outperforming the market and gaining market share. Our new models have been quite successful. And this is also a point that is important is that, the Itatiaia plant, as far as SDA is concerned has allowed us to regain competitiveness. And we have at the same time renewed our product portfolio, which means that things are getting better in blenders. They will get better in fans as soon as the market is also better. And in kitchen machines, we've also launched reshuffling of the range. So the recovery story in SDA has started. It's been more difficult in cookware, and this is mainly linked to the fact that the Itatiaia plant has not been ramping at -- ramping up as forecast in this area. And this explains the counter performance of Brazil, this -- sorry, it's mainly cookware.And then Columbia. Solid momentum in Columbia that has been going on over the quarters with market share gains and a very good business as well in cookware as in SDA.China, still strong momentum. Very good momentum over the year with a good Q4. Vigorous growth all year through. Supor has been continuing to outperform the market and as such to reinforce its position on the market. Regarding cookware, which is a more major market, Supor has been doing very well, leveraging its key pillars, pressure cookers, pots and saucepans, woks and so on but also streamers and products like that. So overall, all categories have been growing. And on top of that, we had a sharp momentum in kitchenware, and especially in thermal mugs, you know that this category has been a very successful one over the past years. Regarding small electrical appliances, a like-for-like growth, which has been around 30% for during the whole year, and driven by almost all categories in kitchen electrics that you all know, rice cookers, electric pressure cookers and so on. But also continued rapid inroads in nonkitchen electrics, in HPC that have been growing by more -- by around 70% for the full year with sales very dynamic in garment steamers, where Supor has now more than 20% of market share. And a very robust growth in vacuum cleaners, where we have increased our sales by more than 2.5x. So a very good momentum in HPC. And then, again, a sharp growth in large kitchen appliances, which have been growing over the year by around 60%.In other Asian countries, a very good dynamic overall. We'd say that most of our big countries have been growing in this area. Japan, very steadily over the year, quarter after quarter, posting very good growth, a little bit stepped up in Q4. We added a new products and introduced new categories like, Cook4me. We have now blenders, so we are enriching our product offering in Japan, and this, of course, helps a lot.In South Korea, also a good momentum. Still on the same products, vacuum cleaners, linen care, et cetera.And in Thailand and Malaysia, which are smaller countries, we continue our good momentum with a buoyant growth, in both cookware and some SDA categories.Last point that needs to be stressed is that we have, especially in Japan, we have a certain number of proprietary stores in the region. This has continued, and we have opened new stores in this region, in Hong Kong, in Japan, in South Korea, in Taiwan. So our direct-to-consumer policy is -- continues and is clearly enhanced in this area.

[Vincent Leonard, Senior Executive Vice President of Finance]

Thank you, Isabelle. So moving on to the outlook for the year. As discussed previously, we had a high bar in Q4. But as we stand here today along the basis of the sales numbers we've just gone through. We can generally confirm the other elements of our guidance, i.e., a growth of around 3% in ROPA (sic) [ ORfa ], in spite of what have been somewhat tougher market conditions over the end of the year, tougher than expected. And the other element, being the net debt to adjusted EBITDA ratio below 2 as announced as targeted, when we announced the VMF deal back in May 2016. So targeting to get there by the end of this year.Incidentally, we recently announced a very nice addition to the PCM setup -- PCM business in the U.S. with the Wilbur Curtis -- the acquisition of the Wilbur Curtis activities. Wilbur Curtis being the #2 player in the professional filter coffee machines in the U.S., and we expect that business to be a strong complement to our full auto business that is itself growing very strongly in the U.S.And with that, we will happily take your questions. So please, go ahead.

[Operator]

[Operator Instructions] We have one first question from Mr. Nicolas Langlet from Exane BNP Paribas.

[Nicolas Langlet, Research Analyst]

I have got 3 questions. The first one on the tax receivable in Brazil. Do you plan to -- will it [ drop off the line ] or will you consider it as a nonrecurring items on offer? Second question on France. So you had a pretty bad Q4. Have you seen any pickup in order in the first 2 weeks of 2019? Three, you mentioned that FX impact for this year was the expected impact now for 2018? And can you give us an update on FX and raw material impact for 2019 [ unaffordable ]?

[Vincent Leonard, Senior Executive Vice President of Finance]

Nicolas. I'm sorry, I really didn't quite hear the first question. So let me just check here with...

[Isabelle Posth]

Tax in Brazil and if it's nonrecurring...

[Nicolas Langlet, Research Analyst]

Yes, the tax receivable, the EUR 32 million will it be back off the line, or will you consider it as a nonrecurring revenues?

[Vincent Leonard, Senior Executive Vice President of Finance]

Okay. Now this will be part of ROPA. This will be part of ROPA, being sales tax. We've sort of overpaid over the years, and we're now getting that back. So that will -- that is reported in sales and ROPA. Your second question, I completely missed. Can you repeat it, please, Nicolas?

[Nicolas Langlet, Research Analyst]

The second one was on France. Whatever you have seen pickup in order about the first 2 weeks of January?

[Vincent Leonard, Senior Executive Vice President of Finance]

Okay. I wouldn't -- No, I don't think we have meaningful indications yet, about the quarter. It's a little early. So no, I don't have anything to share with you at this stage, Nicolas, sorry. And on 2018, I think you asked about 2018 FX and raw materials, right?

[Nicolas Langlet, Research Analyst]

Yes. And a view on 2019 as well, if possible.

[Isabelle Posth]

'19.

[Vincent Leonard, Senior Executive Vice President of Finance]

And a view of 2019. Overall, we actually saw over the end of the year, October, November, December, slightly less unfavorable FX and raw material environment, mostly FX, with a bunch of currency strengthening, as I think I've mentioned, right, the Turkish lira, the ruble and a few others. So that -- whereas, we were talking of getting close to EUR 60 million when we last discussed that item on FX. We will likely be below EUR 50 million. We see that ending up below EUR 50 million. So probably about EUR 10 million better picture than anticipated, back in October. So a better picture. 2019, this is the 2018 sales call so we don't want to get in too much into that. I think we've said before that, clearly, the FX impacts will have an annualization impact on 2019. So we'll see some negative impact from what's happened in the middle, really since the middle of 2018, all right, so some negative impact from that. And raw materials might be a little more modest, more benign. Just clarifying my comment on 2018, the impact, the EUR 10 million is largely on FX, right. Raw materials will likely end up pretty much where we expected them to be i.e. close to EUR 60 million negative.

[Operator]

We have another question from Charles Scotti from Kepler Cheuvreux.

[Charles-Louis Scotti]

A couple of questions from my side. The first one, can you give us an idea of the breakdown between volume and pricing for the organic growth level in Q4 and in the full year? Second question on China. While the growth was still at the very high level, but what explains the slowdown compared to the 9 months' performance? And do you have an idea if small domestic appliance might be included into this stimulus program to be owned by the Chinese government? Then, my third question on Brexit uncertainties. How do you manage the Brexit risk from an operational standpoint? And the last question on this tax receivable, is it included into your -- added to the ORfA?

[Vincent Leonard, Senior Executive Vice President of Finance]

So I'll answer your last question first because that was also what Nicolas was asking, I think. Yes, it's included -- it's going to be included in ROPA. And in sales and ROPA. Okay, so volume versus pricing. We'll go into that detail when we meet at the end of Feb, when we will have the final numbers, and we'll have been able to fully analyze the numbers. It will be more volume, significantly more volume than pricing. But again, we typically go through that in detail in February, and we frankly don't have this analysis fully finalized for now. China, SDA, whether it's in the stimulus package or not, we really don't know because none of that has been really disclosed or announced in any detail by the Chinese authorities. So there's only -- it's only a very vague -- couple of very vague comments so far. And we have simply no idea whether SDA will be part of that. It's not been in the past but hard to say whether that would be the case this time around.

[Isabelle Posth]

And in the past, it's been more on the large appliances, like refrigerators and washing machines and air conditioning devices and much more dedicated to rural areas. So the impact on Supor might not be very big, very significant.

[Vincent Leonard, Senior Executive Vice President of Finance]

Okay. And if I heard correctly, your third question was about the Brexit, right? And the disruptions this might have for us. So -- I mean, we see potential disruptions in 3 areas. The first being the pound. Obviously, the pound devaluation, in only the case of a hard Brexit. To mitigate that risk, we have very significantly increased our hedges on the pound. So we would be, to a large extent, protected in the short term against that impact. Second impact, supply chain, potential disruptions. There again, in order to try to mitigate that and as many manufacturers have done, we have and are increasing inventories across the Channel to make sure that we will be able to deliver even in the case of no disruptions at the border. And then, in case custom duties are reestablished, clearly, we will -- but I'd say like everybody else, we will increase prices to protect our margins, as has already been the case when -- in the last, say, 18 months as the pound devalued. And we saw many actors take pricing to protect their margin. So that would be the course of action in that case. I'm just coming back 1 sec to your last question. As in terms of booking, the tax receivable in the ROPA, it will basically come to -- so the answer is, yes, right? But it will basically come to offset the many nonrecurring unfavorable impact we've had in Brazil this year. Again, we'll go into more detail at the end of February, but just to mention an important one, we're taking a prudent position on a major retailer that's going through extremely difficult times. So that's just one in addition to those I mentioned earlier. The strike, our inability to ship on cookware, while we were transferring our industrial tool and various others that have made Brazil very difficult market for us this year with significant sales and ROPA impacts from these events. Hope this clarifies a little bit.

[Charles-Louis Scotti]

Just to make sure that I well understood. It means that without this 3 million positive one-off you would have been below your initial guidance of 3% increase in ROPA? Is that correct?

[Vincent Leonard, Senior Executive Vice President of Finance]

The guidance, the decision from the court to place in at the end of September. So we knew about it when we provided our last guidance. We were still a little unsure as to how and how much we would book, so it was neither here nor there. No, we were assuming some of it. I guess, let's say, as we guided, we were assuming some of it, but we were being prudent and not communicating about it because this was used to be a fully confirmed and finalized in terms of accounting.

[Operator]

We have another question from Mr. Steve Levy from MainFirst.

[Steve Levy, Analyst]

Just -- there's a lot of questions already answered, maybe you can come back on the North America and give more insight about 2019? 2018 and '19 have been really tough. Just with a -- to better view how 2019 will be. I know you are not giving any guidance, but just to see if some problem have been solved in '18 that we will not see in the coming year? Second thing, do we -- can we expect some hand-off from [ prep ] in the PCM division in H1? And three, now -- wanted to come back on the tax receivable and the guidance, but you answered the question.

[Vincent Leonard, Senior Executive Vice President of Finance]

Okay. 2019 in the U.S., I mean, we're finishing a tough year for our business in the U.S., admittedly in tough market conditions. But we would certainly hope for some type of stabilization of our business. If we -- as we've said many times, we are multichannel. So provided the overall market grows, we should, and we need to be able to take advantage of that overall growth. Even though there are some short-term disruptions, but over time, we should come back to, let's say, market growth. So we would hope, but I'm being prudent here. We would hope that we've gone through the worst for our business in the U.S., and that 2019 will be a little better and more stable.

[Steve Levy, Analyst]

Do you have a D2C strategy in the U.S.? A clear D2C strategy? Or you continue to sell through distributor and retailers?

[Vincent Leonard, Senior Executive Vice President of Finance]

So far, we sell through distributors and retailers, whether it's online or offline. We do not -- so therefore today, we do not have any significant D2C business. I don't have a plan to share with you to build D2C business in the U.S. I think it's fair to say that overall for the group, this is a channel, if you will, that over the coming semesters and years will certainly be more deliberately addressed by the group. So that would be in the U.S. as well. On PCM, I think your question was specifically on PCM in H1?

[Isabelle Posth]

Yes, in H1, and do we have another big deal or something like that?

[Vincent Leonard, Senior Executive Vice President of Finance]

Yes. Okay, so PCM as we've described before is a bit of a different animal, if I may say, for us with large bids that we participate in, and hopefully, win very often, introducing some potential volatility in the business. We delivered a very strong 2017, we then on top -- on the basis of some big deals. 2018 was another very good year with more big deals on top of core business sustained growth. At this stage, what we can say is that we have decent visibility to at least one big deal. And we're quite confident that, let's say, this is likely to offset the -- or to replicate, if you will, the volume of business that those major deals delivered for us in 2018, right? We have good visibility to that. Hopefully, more will come. So it's a combination, I think. As you think about PCM for next year, continuation of a decent sustained growth on the core business. And at this stage, we can probably, again, I need to be somewhat prudent here, but probably assume a similar level of big deals as in 2018. But obviously, this is -- we -- our teams bid all the time, so hopefully, we'll win more. I hope this helps.

[Operator]

We have another question from Mr. Alessandro Cecchini from Equita.

[Alessandro Cecchini, Analyst]

The first one is -- sorry, I replicate but would like to better focus on this item of tax receivable. My first question is about the Page #9, just to understand, is the part other of plus 33% is the part of this tax receivables? This is my first question. And secondly, when you speak about this EUR 32 million impact of -- in terms of sales, which is the impact in term of ORfA, is it similar or close by, just to understand? My second question is -- that is about what is your feeling of the business environment in Europe for the first part of the year? It seems to me that the last part of the year, not only France, but it's in other regions, the business plan that was sluggish, just to understand your view on this? And finally, I would like to [ back-up ] in term of E&P just to understand if the level that you will achieve in 2018 is a good base for 2019 in your, I mean, expectations?

[Vincent Leonard, Senior Executive Vice President of Finance]

Okay. So on the receivable. I think your question is whether this is included in -- on the tax receivable, whether this is included in the organic growth numbers that we have gone through, right? And the answer is, yes. This receivable has been recognized in Q4, in our sales numbers and is part of our organic growth numbers. That's why you see organic growth numbers at, I think, 32% in Latin America in Q4 that's what's driving that. So it's in there. It's in there.

[Alessandro Cecchini, Analyst]

Okay. So the -- and part of EUR 32 million is -- what is this EUR 32 million for the full year at Page 9 of the presentation?

[Isabelle Posth]

It is EUR 32 million.

[Vincent Leonard, Senior Executive Vice President of Finance]

Oh, I'm sorry, the EUR 33 million, you -- sorry Alessandro, we misunderstood. Okay, 2 things in there. You may remember, we announced the formation of a new joint venture in Egypt with our longtime partner, the Zahran family, bringing our cookware and SDA businesses together into one joint operation of which the group owns 55%. The impact of the consolidation of that business is included in the EUR 33 million. It's about half of it. The other half is, we mentioned that, I think, in Q1, is a change in, let's say, the flow of transactions in our Lagostina business in Canada. It's really -- rather than only recognizing commissions on the business as was the previous model, recognizing the full sales for that business. So the flow of transactions have been amended and results in the group recognizing higher sales. No change to the profitability of that business for us. Those changes did not impact that at all, but it impacts the way we recognize sales, and so we showed that in here, in that box. I hope that clarifies your question. The environment in Europe, right? As we see it now, I mean, we know as much as you know. We hear about some softening of the overall environment. There are obviously major uncertainties about Brexit, about Italy, about yellow vest in France or other elections in Germany. But really, in our business, I wouldn't say that we're hearing any significant changes versus what we've experienced in the later half of last year. So I don't think I have much new news to share with you.

[Isabelle Posth]

Well, the -- I mentioned, that the SDA market has been softening in Europe in the past year, in 2018. We have also to remember that we were passing on high comps. So the market has been very bullish over, I would say, at least 2016, 2017, which means that at one time, trees don't climb up to the sky, and things just sucked. So this is true. What we think is that we would probably continue to have some contrasted situations across Europe with some countries being more positive in terms of market than the other ones. Clearly, U.K. has not been very good over the past 18 months and this might continue. But probably a situation that continues to be a little bit contrasted from one country to the other one. But this market is rather resilient. We've been saying that for years and it is the case. I mean, even in periods of crisis, the SDA market has been rather resilient.

[Vincent Leonard, Senior Executive Vice President of Finance]

And on LPs. That business is by its very nature quite volatile. So 2018 was significantly lower than 2017, but it's really not a bad base going forward. I mean, it's always slightly less than the couple of points of the group sales. Hard to say what's ahead of us in 2019 because a lot of these still have to be negotiated. So that early in the year, we don't have a great view as to where we'll end up. But yes, I'd use the 2018 basis as a good proxy.

[Alessandro Cecchini, Analyst]

Okay. And just a follow up on the tax receivable, just if I understood correctly. So basically, you have lost in the first 9 months, roughly speaking, EUR 30 million of ORfA for -- in Brazil. And now you are recuperating this amount in the first quarter. Is it correct?

[Vincent Leonard, Senior Executive Vice President of Finance]

No, no, no. Let me clarify that, Alessandro. This is a claim against the state that we've had for many years. We have, over the years, over more than 10 years, let's say, overpaid some taxes. Taxes that are booked against net revenue, that are typically booked against net revenue. We have overpaid that. And we have all along claimed that this should be reimbursed to us. We won. We had a final decision, I'd say, we won a couple of instances, but we had a final decision at the end of September. Basically, mandating that the state reimburses us for all these years. So [ the claim ] corresponds to overpayment over all these years, and we recognize that receivable on the state in Q4, in sales.

[Alessandro Cecchini, Analyst]

Okay. And the impact of this EUR 32 million in term of ORfA is similar to EUR 32 million? So is roughly EUR 30 million impact positive impact on ORfA?

[Vincent Leonard, Senior Executive Vice President of Finance]

Yes, roughly.

[Alessandro Cecchini, Analyst]

Okay, okay.

[Vincent Leonard, Senior Executive Vice President of Finance]

Now again, against this, and that's why I said this is a nice offset. Obviously good news, but also a nice offset to some other costs, other nonrecurring costs we're incurring in Brazil this year associated with, as I said, strike, the industrial transition and a very prudent position that we'll comment on maybe a little more about in February. Very prudent position that we've recognized in our books in Q4 on one of the major retailers in Brazil that is undergoing major financial difficulties. The net of all that will be negligible at a group level on a full year basis, but that receivable on the state was a very welcome offsets to all that.

[Alessandro Cecchini, Analyst]

Okay. Just to be clear, so basically, whether you have, during these years, in Brazil a lot of problems that impacted you, but strikes and so on impacted you, roughly speaking, this event in any case?

[Vincent Leonard, Senior Executive Vice President of Finance]

Yes, and this is compensated -- fully compensated by that receivable.

[Alessandro Cecchini, Analyst]

Okay, okay. It's clear, but really, the only real aspect is that this tax receivable is coming from many, many years, but it's nice to have this year in order to offset the problem that amounting roughly EUR 30 million for this year, okay, clear.

[Vincent Leonard, Senior Executive Vice President of Finance]

Exactly, exactly. You get it. And same on sales actually.

[Operator]

[Operator Instructions] We have another question from Mrs. Marie-Line Fort from Societe Generale.

[Marie-Line Fort]

[ Turn ] from China, to know if you are still confident about 2-digit growth for China in 2019 despite bad macro figures that have been published this week? And also, do you expect good [ New Year's Eve ] in first quarter? And as you've seen good orders for these big commercial events? And I've got another question for WMF consumer. What is you on WMF consumer for 2018? And what is your strategy for 2019 in order to recover this business?

[Vincent Leonard, Senior Executive Vice President of Finance]

Marie-Line. So 2019 China. Yes, our view has not changed as we said recently. We -- yes, the Chinese -- the overall Chinese economy is slowing down, but as you know we have overperformed the overall Chinese economy by a wide margin for many years. And we -- without going back to all the drivers of that, the levers that drive that overperformance, we think the vast majority of them are still there at play and should allow us over the coming years to deliver, we think, double-digit performance. So 2019 is no exception. Obviously, as we've also said, we should not expect to see 20-plus growth quarter in, quarter out as we've had recently, but certainly, very good double-digit growth is what we -- that we are shooting for -- what we are shooting for in China. On VMF consumer. As we said, turning around that business is taking more time than expected, at the same time when PCM is clearly over -- Professional Coffee is overdelivering versus our expectations the consumer side of the business is taking more time. One of the elements penalizing the business in 2018 were significant LPs that had been executed in 2017 that were not renewed. We also had a number of transition issues, if you will, ending up with very high inventories in some places, or having to negotiate exiting distributor contracts to take over the business into our own operations. Getting listing -- getting listed in some markets, in international. So that transition took -- I think it's fair to say that the state of the business, as we found it, was not as good as we thought. And second, that the transition took a little bit more time than expected, but we are executing our strategy as defined at the time of the acquisition and should see that business starting to pick up in [indiscernible] .

[Isabelle Posth]

We just already started a little bit in Q4. On the international scene, clearly, we've been improving the business, which was overall weak for the year. But Q4 was better and especially in -- as far as international is concerned.

[Marie-Line Fort]

I've got another questions. Could you comment on pipeline of new products for 2019? Do you expect good pipeline of new products or some disruptive products?

[Vincent Leonard, Senior Executive Vice President of Finance]

Well either they've been announced, and -- we cannot talk about anything that's not been announced. But I'd say, probably in terms of rolling out new product, as you know, a lot of our, what we call innovation -- is innovation --is rollout in new markets. So a lot of the growth will come from rolling out our blockbusters or champion products that Isabelle went through earlier and the various upgraded versions of them to more markets. So that's really introducing our range of vacuum cleaners and new robots and new versatile vacuum cleaners in more markets, rolling out our new Foodle machines to more markets, continuing to push our blenders. And -- but there's no one single product that I would point at that is a disruptive innovation to come. But that is not how -- that is not the core of how we grow our business. We grow our business by improving our -- constantly improving our ranges and rolling them out to more markets. And again, we have a number of champion products, whether it's OptiGrill or a Cookeo or garment steamers or blenders that will continue in their new versions, upgraded versions and new roll out in new markets to drive growth.

[Isabelle Posth]

And then you have to take things also at the international level. Clearly, in China, we have -- you know that Supor has a very strong innovation dynamic, fueling [indiscernible] at range every year quite significantly. And this will continue. The same thing, as I mentioned before regarding Brazil. In Brazil, in the SDA business, we are changing. We are renewing our portfolio of products. So you have to see that also at the international level because a certain number of products that are launched somewhere else in the world, you're never going to see them in Europe. So -- or not short term, so...

[Operator]

Thank you, Madam. Madam, sir, we have no further questions.

[Vincent Leonard, Senior Executive Vice President of Finance]

Okay. All right. Then, we'll all thank you very much for attending the call and for your questions, and we will see you on February 28 for a more detailed view of what we look at as a very good year, strong topline, delivering the guidance on ROPA and strong cash generation to deleverage the balance sheet. So more details on that at the end of Feb. Thank you very much.

[Isabelle Posth]

Thank you. Have a nice evening.

[Vincent Leonard, Senior Executive Vice President of Finance]

Thank you, bye-bye.

[Isabelle Posth]

Bye.