Electrolux strategy is to drive profitable growth by creating best-in-class consumer experiences based on innovation and operational excellence. A key priority for the year has been to improve the profitability of the Group. As a result, the Group reached an operating margin of 5.2% in 2016, with four of our six business areas above the 6% Group target. Important drivers behind this positive development were strong commitment to operational improvement paired with a firm focus on the most profitable product categories with distinct consumer benefits.
Electrolux operating income more than doubled compared to the previous year and amounted to SEK 6.3 billion. We generated a strong cash flow of above SEK 9 billion.
Our Major Appliances EMEA business area continued to improve the product mix through launches of innovative products and increased cost efficiencies which contributed to a record strong operating margin of 6.7%. During the fall, we introduced a major launch of new products within the AEG premium brand, which has been well received among customers. As part of our strategy to further grow the offering in the Middle East/Africa we announced, in late 2016, an agreement to acquire Kwikot, a leading water heater company in South Africa. This acquisition fits well with the strategy to strengthen our expertise within the home comfort area and will add to our overall market reach in Southern Africa.
In North America, profitability increased significantly to an operating margin of 6.2%, mainly driven by improved operational efficiencies. Sales volumes of core appliances under own brands, such as Frigidaire, increased, whereas private label sales decreased. Market demand for core appliances in the US has continued to show good growth and increased by more than 6% in 2016. We expect market demand for appliances in North America to remain solid and to increase also in 2017.
Continued good profitability in Australia and increased demand for our products in Southeast Asia contributed to an improved operating margin in Asia/Pacific. During the year, we acquired the Australia/Singapore based company Vintec which supplies a wide range of climate-controlled wine cabinets throughout the region. Vintec has a good strategic fit with our major appliances product offering within the taste area.
Declining markets in Latin America continued to impact our operations negatively. To mitigate difficult market conditions, we are implementing extensive actions to structurally reduce costs and improve profitability. We have recently seen some slightly positive macro indicators in the region.
Professional Products showed organic growth of 4% with improving operating results reaching a strong 13.9% in the year. Part of Electrolux strategy is to continue to grow this profitable business and targeted investments in new products and channels paid off during the year.
Activities to restore profitability in Small Appliances made good progress during the year. As of 2017, the business area also has the operational responsibility for developing the global offering for ‘healthy well-being within the home’ covering floor care, air care and water care. To reflect these changes we have renamed the business area Home Care & Small Domestic Appliances.
With key areas of the operations delivering good and continuously improving results, and the right actions being initiated where needed, Electrolux has a good momentum. In 2017 and beyond, we will continue to launch new innovative products and services, with the goal to provide best-in-class consumer experiences. We focus on innovations that give consumers better opportunities to make great tasting food for family and friends, to take care of their clothes so they feel new and fresh for longer and to create a clean and healthy indoor environment. In 2016, we launched strong products with clear consumer benefits, such as multifunction ovens with steam functions at more attainable price points, washing machines with unprecedented clothes care capabilities and connected air-conditioners.
The ongoing digitalization of society affects virtually all areas of Electrolux operations. Mobile solutions and ubiquitous Internet access make it possible to interact with consumers in new ways. Digitalization also provides opportunities to develop smart connected products, as well as making operations more effective. To make sure that we are at the forefront of this development, Electrolux activities focus on five core areas: connected appliances, digital productivity, digital supply chain, digital manufacturing of modularized products and the total 360º experience of purchasing and using our products. The acquisition of the fast growing smart connected kitchen appliance company Anova, announced in the first quarter of 2017, will help us further accelerate this transformation.
Being a leader in sustainability is part of our strategy. We are convinced that we can grow profitably while contributing to society by making smarter, more resource-efficient and sustainably manufactured solutions for more people around the world. In 2016, we broadened our approach to sustainability with our initiative For the Better, which aims to focus our sustainability work around Better Solutions, Better Operations and Better Society. Electrolux is, since 15 years, a signatory of the UN Global Compact, and we are recognized as industry leader in the prestigious Dow Jones Sustainability Index.
Electrolux is well positioned to achieve its targets and visions and I would like to thank our employees and stakeholders for their important contributions throughout the year. Through continued development of innovative products and services in combination with cost productivity and stability in operations, we will continue to focus on improving our profitability towards our 6% operating margin target. Our strong balance sheet and cash flow support our strategy to drive profitably growth. The Board’s proposal to increase the dividend for 2016 to SEK 7.50 per share also reflects the focus on shareholder value creation.
Stockholm, February 2017
President and Chief Executive Officer
1) After investments.
2) Proposed by the Board.
3) Excluding costs of approximately SEK 2 billion related to the not completed acquisition of GE Appliances in 2015.