Good morning, everybody, and welcome to this telephone conference that relates to Husqvarna's launch of the new brand-driven organization. This is Kai Wärn, I'm the CEO of Husqvarna, on the line we have Ulf Liljedahl, our CFO, as well as our investor relations, Tobias Norrby. It's our intention to cover the reasons why we do this, what we expect to get out of it, the purpose, and objectives, the four divisions in the future structure, the new group management, and the next steps. After that presentation that I expect will take about 15 minutes, we will open up for some Q&A. Let me start with relating now to the PowerPoint that has been distributed, page two. What we are looking for here is to aim at the next step beyond the Accelerated Improvement Program.
The Accelerated Improvement Program is, of course, a priority as much tomorrow as it has been since I defined it quarter three last year. As you know, this program runs for 2014 and 2015, the new organization, the brand-based organization, is aiming at giving direction for the next coming years after the AIP program. The aspiration we have is market leadership. The fundamental piece here is we see a need to take a further step to differentiate our business more. We also pretty much see the competitiveness depending, of course, to our ability to respond to the customer needs we have. The brand constitutes the different business models. We are talking about the Husqvarna brand, we are talking about the Gardena brand, and we are talking about the consumer brands all related to forest and garden. In addition to that, construction is maintained as is.
There will be no change related to construction. This fully relates to the forest and garden space. The brand-based organization, as we see it, will be the vehicle to focus on the distinct and different end customers with different needs. I give some examples of that when I introduce the divisions. They are distinctly different. We see the brand equity and recognition as a vital piece for the future and moving ahead, and to continue building that and enhance that. For us, it's of course encouraging to look at construction. Construction has very consistently built the Husqvarna brand in that space, and is today by most people in that industry known as the technology leader. We see that as a role model for parts of this reorganization. I turn to page three, with the headline of the key purpose of the new organization.
What we are looking to do, if I start with the key objectives, is to strengthen the end customer focus. We are looking to enhance the accountability and ownership, and we are looking to enhance also the speed of the decision-making. Furthermore, we want to differentiate the priorities and offerings by the business models. We see that the differentiation of the business models as an opportunity to simplify the lives of many people by being able to focus there on one specific brand, and related business model. Of course, at the same time, as we do this, we want to maintain the leverage from our market positions and the scale. The solution we see is very much relating to installing global profit and loss ownerships.
We want to align the business models with their respective strategic direction, and we want to align also the business model, the strategy with the resources, and the offering, and the leadership structure. That is how we see that we can build a very strong base for the future here. While at the same time, we are not giving up on the synergies that we see in the group to make the sum of the group more than the individual bits and pieces. I'm talking here about aspects like technology, like sourcing, like logistics, sales and operations planning, just to mention a few of them. There are obviously other ones, but these are good examples of where we really do have clear synergies across these divisions that we are forming.
In brief, aligning the business model, which is brand-based with the strategy, the resources, and the leadership structure, and with its distinct offering is the part of the solution here. Thus giving us global businesses with strong leadership and ownership. I'm turning to page four, which is then the description of the four divisions, where all three are forest and garden related- Husqvarna representing about 52% of our revenues. Husqvarna is a dealer-centric brand, and very much related to the professional and the demanding consumers. We talk a lot about product performance, specifications, services to those customer groups. Gardena represents about 13% of the group revenues. This is primarily retail-centric, but it also has sales in other channels.
It can be characterized, in retail terms, at the must-have position in mobile watering, even though that the brand encompasses also electric hand tools and equipment, in parallel to the mobile watering. The third brand division within the forest and garden space is the Consumer Brands Division. It represents about 25% of the sales, and in this area, this is, of course, retail-centric. It is a lot about cost efficiency and scale and good enough specifications. You could characterize it in the retail terminology as a better position where the trade brands would be good terminology, and this would be the better, and Gardena would be an example of a best category position. 25% in the Consumer Brands, 13% in Gardena, 52% in Husqvarna, and then construction with 10%, not impacted by this reorganization in forest and garden.
As you might be aware of, we are talking about professional customers in global construction and stone industries on the construction side. Moving on to page five. How do we see the organization with the respective responsibilities for the future? We have four divisions that will be reporting externally, these four are the ones I have described, Husqvarna, Gardena, Consumer Brands, and construction. Pavel Hajman will head the Husqvarna division. He joined recently from ASSA ABLOY in Asia. We have Gardena, who will be headed by Sascha Menges. Sascha has been in charge of manufacturing and logistics recently and been with the group for quite some few years now. Consumer Brands, it's going to be headed by Alan Shaw, who joined the group August last year and who has been responsible for the Americas business unit. Construction remains with Anders Drevi.
In parallel to these external segment reporting units, we have a group operations function, which will be headed by Valentin Dahlhaus, located in Stockholm later on. Valentin has been running dealer sales and operations planning for the group recently. Ulf Liljedahl remains CFO, as is Olle Wallén, also as is in legal affairs, Per Ericson remains on the people and organization side. We have promoted Pär Åström in business development to become part of the group management. We have installed a technology office, which Henric Andersson runs or will head, I should say, and Henric has been in charge of the product development and the category organization previously. Sofia Axelsson is promoted now into group management, heading the branding and marketing, which she has been responsible for before. The Accelerated Improvement Program with its program office will also be part of management during 2014 and 2015.
To that, we have Frida Norrbom Sams, who has been heading EUAP, Europe, Asia, Pacific, in her capacity as running strategic sales initiatives. That pretty much makes up the group management going forward. I'm turning to page six in the presentation, the next steps. The new organization will be implemented gradually and be fully effective as of 1st of January from next year. That is also when we will start to do the reporting. We foresee quarter one 2015 to be the first quarter of reporting. Ulf will make some comments as to this to the third sub-bullet on this page. We will give, of course, additional details as we progress, and I think as you realize, this is a kickoff of the new organization, and there will be many steps of further detailization moving ahead.
We intend to report the further progress in relation or connection to the quarter two interim report, the 16th of July. As you noticed, we postponed the Capital Markets Day from 10th of June to September 25th. The reason was that we wanted to make sure that we had the opportunity to really go through the new organization and direction with the top management. I have had this week more than 100 people gathered to do exactly that. We have, of course, a quarter three interim report October 22nd, where further details will be provided. Before I leave over to Ulf, I just want to emphasize that nothing has happened as to our judgment of the business situation since quarter one. We talked about being cautiously optimistic about underlying demand, and we talked about the focus on the execution of the Accelerated Improvement Program.
Really, I want to end before I leave to Ulf with the same comment as I started, meaning this is a proactive step for us to give direction beyond the Accelerated Improvement Program. That's what we're aiming for. With that comment, I leave to Ulf.
Thank you, Kai. Good morning, everyone. As a result, as you may have seen in the press release, this reorganization will mean that the external business area reporting will now, from January 1, 2015, comprise of 4 divisions, meaning the three Forest and Garden divisions being Husqvarna, Gardena, and the Consumer Brands, and the Construction division. In due course, we will provide you with pro forma figures and restated figures for 2014 per division when it comes to sales and EBIT, and also have the effort to provide you with sales numbers for 2013 and 2012. Also to be mentioned is that we will by default, have new cash-generating units, meaning that there will be new revenue streams, there will be new cash flow streams, and as a result, we have to do a new asset allocation within the Forest and Garden.
That may, please observe, that may create a need for impairments of intangible assets. However, that needs to be further scrutinized, and that is a work that will take place as we go, and we will communicate that when we know. With that, I believe I hand back to Tobias.
I think with that, we will be ready to open up for questions from the audience, please.
Thank you. If you would like to ask a question, please press star and one on your telephone keypad and wait for your name to be announced. To cancel out your request, hit the hash key. Just a reminder, that's star and one for a question. We now have some questions for you. The first question comes from the line of Johan Dahl from Danske Bank. Please ask your question.
Yes. Hi there Johan Dahl here. I was wondering, could you just add some data on the split up of the manufacturing operations? How is that done? Is that a complex operation as many of the factories produce for several of the various brands? Second question, if you look on the sales force, especially in the Consumer Brands segment, what detailed changes are being done there to promote the price discipline towards your major customers in the Consumer Brands segment? Thirdly, I was wondering is Husqvarna and Gardena, is that 100% of the profits or more than 100% of the profits? Thanks.
Okay. Let me see what I can give as a response to your question. I'll start, Johan, with the manufacturing piece. Yes, the manufacturing units are distributed, allocated to the various brand divisions. That's correct. I'm not necessarily keen to be specific about that today. I think that is something we probably are open to communicate in connection to the interim report in about a month's time. We have a hypothesis about it, and we are working on validating it. I think for the most of the plants, it comes fairly natural to allocate them to the brand divisions. There are some exceptions, and those are the ones we are validating the best. At the end of the day, there will be intra-division trade between the brand divisions, and of course, we need to set proper incentive structure for dealing with that. That was the first comment.
The second was related, as I understood, to the sales of the Consumer Brands, and the price discipline. Of course, price management is going to be a vital, and it is and it will be, remains so for the future, a vital key component in creating value for the Consumer Brands. There's no question about that. I think the real benefit here, I think that has been exercised with some good results, though I think the real gain is the opportunity for the resources in the Consumer Brands Division to focus on specifically these brands with a business model of being very lean and mean, work with the cost efficiency and the scale, and go all the way, so to say, in that business model and also take that globally. I think that's where I expect the biggest benefits from that structure as such.
As to the third question you were asking about
The profit split. We are not in a position today to give you that level of detail, unfortunately. We cannot simply answer that. It is fair to assume that it's a substantial piece of it. I will not comment whether it's 100% or 75%. You will not get that specific today, but of course, it's a vital part as we have communicated in connection to previous external occasions.
Okay. Kai, can I just ask, should we read into this reorganization a significant more focus on buy versus make as it is brand-centric? Secondly, I don't understand how the evaluation of the goodwill can change due to a reorganization. I believe that impairment test was done at year-end. How has that changed till today? Thanks.
Okay. I'll take the first one, and then I'll let Ulf add on the impairment. Will there be a radical change in buy versus make? I think for Husqvarna, I don't see any real change. I don't foresee that really. I'm not sure there will be any radical changes for Gardena either. I think the new model opens up to play the various brands in the consumer brands division. We're talking about McCulloch, we're talking about Poulan Pro, we're talking about Weed Eater and Flymo, just to mention the most significant ones. It opens up, of course, to maybe more actively source certain categories of products for specific brands. Hopefully, we will be able to create a much better focus in this new organizational structure and open up some degrees of freedom, for example, for the consumer brand division, as your question related to.
I'll leave it to you, Ulf, to comment on the impairment.
Yes. As I said here before, the change is related to that today we have goodwill and other intangibles attached to a geographical approach. We now change to a brand-related approach, there will be new revenue streams, there will be, as I said, new cash flow streams. As a result, we have then to reallocate also the assets. That, as I said before, please observe, may imply an impairment. Again, it is the change of the so-called cash-generating unit that goes from a geographical approach to a brand approach.
You must have lowered the total. Is that correct then?
I beg your pardon?
You must have lowered the total expectations then, I presume.
No, it is really due to that you had a different allocation of the assets that you did not have before. It was on a blended basis on a geographical approach. Now it will be more specific to a brand approach. That is the background.
Thank you for my time.
This is purely from an accounting perspective.
Excellent. Thanks.
Our next question comes the line of Kenny Tollefsen from Carnegie. Please ask your question.
Yeah, I think that's me. I have a question on the Husqvarna-branded products. You say that it's very much oriented towards the dealer channel, but you also sell Husqvarna-branded products to retailers in the U.S. and in some places in Europe. How will you handle that? Will that be a competitor to the consumer brands then, or would you stop doing that, or?
Yeah. It is true, to start with, that we also sell Husqvarna through some very few retailers and predominantly in the U.S. Is that a competition to the consumer brands? No, I would say it isn't really because we are talking about different end customer segments that we target with Husqvarna versus the consumer brand, and it's different specifications, and it's a different value proposition altogether. I don't see that really being a question for us. Of course, over time, we have reason to believe that our industry is not going to be that different from many other industries, i.e., we will see more of multi-channel as we progress ahead. These relatively autonomous divisions that we're talking about here will, of course, have the full scope in the go-to-market in terms of channels.
It's up to their discretion, so to say, as long as we have the brand architecture being applied as intended here in the structure to go to market with that offering. It's also part of what we think is important to open up for the future. Today, I'm talking specifically Husqvarna, it is dealer-centric, and there will be no imminent change of that in any respect.
Don't you see a risk then for more sort of cannibalization if you have, say, Gardena-branded lawnmowers and not only the irrigation products, but the other ones? They could compete with the Flymo brands and the other brands in the Consumer Division. How will you handle that competition?
It's a very good question, first of all. I think we have went through fairly thoroughly the homework of the customer segmentation and how it looks like on one hand, and we have worked through also the brand architecture. Meaning what type of stretch do we want to have with the Husqvarna brand? What price points and specifications do we target? Where does Gardena respectively, the various Consumer Brands come into play? With the distinction between the various targets group of end customer segments and the distinct offering differences, we think we can handle that and see that rather as something positive than necessarily something negative.
Okay. This split up, will it make it more easier to spin one of the divisions off?
I guess you could argue so in a certain sense, it's definitely not the intention. The reorganization is not driven by that. As I emphasized, there are substantial synergies amongst these divisions that we want to remain capturing. Of course, it's obvious if you're talking IP and technology roadmaps and how we link them to product roadmaps, that's a very important area. I think with the highest share of electric and battery-related products, the pace of technology change will increase, meaning that this item and correlation is going to be even more important for the future. Sourcing is an enormously important synergy in the Group, we are, of course, going to make sure to maintain that, we won't let anything of that go. Logistics, I mentioned that as well.
No, this is to really be seen as a proactive step to position us beyond the Accelerated Improvement Program, which is running now 2014 and 2015, with aim to deliver 10% in 2016. It's to give the direction when we enter in more to the growth phase again. Right now, we're talking very much about selective growth. We want to grow our profit pools. I guess there will be a slow turning towards more organic growth as we have, so to say, shaped the product offering accordingly structured such that it's more optimum.
Okay, thanks.
As a reminder, it's star one to ask a question. Our next question comes from Johan Eliason from SB1 Markets. Please ask your question.
I guess that was me, Johan Eliason at SB1 Markets. A question on these impairments. I can understand what you said, that you're located and you will have different cash flows. A big chunk of your goodwill relates to Gardena. Is that the issue you see here now when you split out Gardena again as a separate unit?
As said, we are only highlighting it may. Where and how much we have to come back to. I can't give you a definite answer today. Of course, as you rightfully say, there is a big amount in our total intangible assets related to the Gardena trademark and goodwill. We will come back and be more specific as we go. As you understand, this is something that has to be done when we have a clear picture on how those divisions will look like the next couple of years when we make our forecasting and not least our budgets of 2016. More to tell as we go.
Coming back about what you need to tell us, will there be any other charges? You're talking about quite a big reorganization here, potentially with people leaving or plans reorganization and stuff like that. Should we have some cash impact as well from this?
Ulf, you can proceed if you want to.
As you have seen from the press release as such, this is a forward-oriented view. This is not triggered by a restructuring per se. Again, implementation costs as well as redundancies at this stage, we regard to be limited.
Limited as you see it so far. Good.
Yes.
Just finally, my next question.
Maybe if I may comment, there is a fairly big shift of resources and orientation of the direction. Of course, we have a transition phase now until January 1st, when this is fully effective. We want to make sure that we have minimum disruptions in this period of time. We are executing at this point in time also very successfully the Improvement Program. We don't necessarily want to throw up too much stuff in there. Eventually, it is my belief that this is going to be a more efficient organizational structure, i.e., leaving potential for some rationalization at some point in time. That's not the primary target of this now. This is to set the direction for the future. That's why it's about at this point in time.
It's good. To me, it looks like you're sort of going back to the old structure where you had consumer products and professional products separated. Obviously, now you also have Gardena and the construction business. Talking about the brands, you don't mention Jonsered or Klippo, et cetera, but they are not rationalized away, or they are just small parts of the Husqvarna brand, I guess.
Yeah. There are a couple of brands which we are validating at this point in time, where they fit the best and how we want to move forward with them. Those two are a couple of them, but we don't have anything specific to say about it today.
No. Excellent. Then, obviously, you have the 10% margin target, 2016. I guess that's still valid. Now, we will never know if you reach the 5% margin target in Americas, obviously. I guess it's part of this 10%. Can you say anything about what sort of targets you will focus on going forward?
No. First of all, U.S., no, you won't see that as an external segment reporting. That's correct. Many of those activities that are related to the U.S. turnaround will, of course, be equally important, and many of them relate to the Consumer Brands Division. I'm sure Ulf and I will make it reasonably transparent for you so you can follow that. Even though we might not officially report, I think we will communicate such that you can get some references with the history here. I think that we will handle and take care about.
Okay, great. Thank you.
Our next question comes from the line of Rasmus Eriksen from SEB. Please ask your question.
Yes, hi. I was wondering about the Consumer Brands Division. To me, it seems like there's a huge number of brands that all essentially serve the same clients with the same product. Is it there that you see the most synergies? That if that's managed under one roof, you make sure that Poulan is a handheld product business or whatever, or how should we look at that? They seem now to be focused on who sells the product to decide for what brand it is. Is that the idea?
Yeah, it's correct. They will have some brands in their portfolio, and it's for us to be specific about those. They need to make sense, naturally, in an overall brand architecture with well-differentiated end customer segment target groups and offering. That work is ongoing. We are quite far down the road with the validation of it. That's also why we are talking predominantly about McCulloch, Poulan Pro, and we're talking about Flymo and Weed Eater as probably what's going to plow that. There are other brands not mentioned here necessarily, which we are validating at this point in time.
The second question, normally when you have a company which has a very complex product line mix with too many platforms, normally that is an effect of having had a brand organized company. To me, it seems that your company, to some extent, has that problem, and yet you're going from a geographic to a brand specific. How are you going to make sure that the head of Gardena does not think that we also want to make the highest specified product or the head of Husqvarna, which has already been the case, goes after the volume end of the market. How are we going to manage that with it?
It's a good question again. If you look at the group structure on page five, you will find a branding and marketing office directly reporting to me. I think the brand-based structure is the right way for the future, but it needs to be based on a brand architecture that is worked through from the customer segmentation point of view and the offering point of view, such that the offering also really display a true differentiation. I would say we are ironing that one out, and there will be further steps to take on the product development side to really get it right. In certain pressure points for the future, that will be resolved through the branding and the marketing office and my involvement, if required.
I think the first point I want to make is with these brands of Husqvarna on one hand, Gardena, and the ones I mentioned on the consumer brands, they form the various business models in which we operate today, and they are distinctly different. They have distinctive different philosophies. I'm very confident that this allocate the resources to them, leadership structure, the global P&L responsibility will give us speed in the decision-making and accountability. I think the construction model proves the success of that. I'm looking for releasing energy in that sense and simplifying life for people here. We are confident that we will be able to handle those potential conflicts.
Can I ask you also, the sourcing, is that going to be in each division, or how is that organized now?
The sourcing resources are allocated into the brand divisions, but within the group operations, there is a person who is going to keep that together, and that's going to remain Martin Austermann, who's the Group Purchasing Officer today. We will have a lead buyer concept, meaning that it will be coordinated by Martin Austermann across the brand divisions. We have a very effective, in fact, program running, which we call Excite. It encompasses about 150 suppliers, but almost 75% of the spend, we will maintain that program going forward. We will have the commodities and the lead buyers and the Excite program. From that point of view, we're going to be very strict to maintain that situation. Not involving any resources from group operations in the daily operations. There's no value in that.
We're talking about very few people in group operations, but more of a specialist character, a senior character, to make sure that the structure remains and that we really capture the synergies here, that there are to benefit from, and they are substantial.
Okay. Thank you.
We have another comment from the line of Kenny Tollefsen, Carnegie. Please ask your question.
Yeah. I have a question on the big success you have had on the robotic lawnmower in recent years. In my mind, that is very much a consumer product, and it has been branded Husqvarna. Now when you're turning Husqvarna even more to a dealer channel product, will you then sort of rebrand the robotic mowers more into Flymo and Gardena and so on? When doing that, are you not losing the investment you made into that product?
I think it's a good example you bring up with the lawnmower because it's a fast-growing segment. Husqvarna pioneered the category. We are by far the market leader, and we are determined to remain so. You will find already today the robotics lawnmower under the beyond Husqvarna. You will find it on Gardena, and I think even Flymo has a version of it. Primarily, we are benefiting from technology synergies throughout the group, but again, distinctly different customer groups and channels to the market. Whereas Husqvarna here is dealer-centric. It's not more dealer-centric in the future, but it is dealer-centric today. It will remain so. Over some period of time, I think in general, we have to accept that the market is going in a more multi-channel direction with or without Husqvarna, so to say.
I don't think we have the opportunity to influence that larger scheme of direction and changes. Again, I'm coming back to the same point. The brand architecture on one hand and the product differentiation on the other hand, going with the target groups of the customer segment is the key to keep control of. If we do that, I think we are better off bringing this lawnmower offering, for example, to the market in different channels and different brands.
Okay. Thank you.
If you'd like to ask a question, please press star one on your telephone. There are no further questions. Please continue.
If there are no further questions, I'd like to say thank you for listening in. As you have heard, we see this as a proactive move for the next few years to come beyond AIP, the Accelerated Improvement Program, which is still the shorter-term priority for us. We're looking forward to share more details as we progress, the next occasion will be July 16th. Thank you very much.
Thank you. That does conclude today's conference call. Thank you for participating. You may now all disconnect. Presenters please-