Welcome everyone to Husqvarna Group's Capital Markets Day. Really nice to see a crowded room here today. I am Tobias Norrby. I head the group's Investor Relations department. We really hope we have an exciting afternoon for you all here today. Just a few reminders before we start. Mobile phones, great stuff. Please turn off the ring signals. Questions to the speakers, we will have three Q&A sessions during the day. Please save your questions for those sessions. We will have a couple of coffee breaks. Coffee will be outside to the right, where you had the light lunch. I would also like to say that this event is being recorded, will be posted on our website. You can access it as of tomorrow.
Those of you who have signed up for the dinner, the dinner will be inside this building somewhere, but it's a couple of minutes' walk. I suggest after the last presentation, we will gather outside. We will walk there together. With those few words, I would like to welcome Mr. Hans Linnarson, our President and CEO.
Thank you, Tobias. Once again, welcome to all of you. I'm very pleased to see so many people attending this meeting we have here today, and present who's going to be going forward. I will start taking you through a little bit where we are after 2012 to start with. The group now have close to 31 billion SEK in net sales here. Are there some birds out? Can we close the door? Even if you're an outdoor company, maybe we should see if we can do that. An EBIT of 1.9 billion SEK, a little bit better than last year, but not at the level at all here, and 0.42 when it comes to equity vis-à-vis assets. We are about 15,000 people employed everywhere across the whole world, and we have 22 major factories in the group.
In North America, four, Latin America, one in Brazil. We have in Europe, 12. The main factories is in Sweden, Czech Republic, Germany, and Belgium. We have even one in Norway. We have the rest of the world, five factories, mainly in China and Japan. If we look upon the sales per business units, Europe is still the biggest, 50% of the total sales. Americas, 40%. If we take out U.S. out of Americas, it's near 90%. If you look upon then Latin South America, there's a lot of opportunities for us. Construction, 10%. If we look upon the EBIT, still Europe, Asia, Pacific contributes to the biggest part of the result. Americas, still negative in improvements. We're on the way. Come back to that later on. Construction had a very good development 2012, close to 260 million SEK.
Some reflection on the financial, if we look back. If we take 2012, it started up very well for us. We had the weather with us, first quarter, both in Americas as well as in Europe. Its macroeconomic situation was mainly in the beginning in the Latin countries, Italy, Spain. Later on, quarter two in the garden season, it started to rain a lot in Europe, as you remember. Not good for our watering business at all, high-margin segment. In the U.S., we had the biggest droughts for the last 50 years. It continued the whole season. Of course, that was not good at all when it came to our business. We have worked a lot with a cost improvement program here, and you know that we announced in November a big restructuring program that's underway.
We are a little bit ahead of that program, both when it comes to savings as well as costs, one-time costs. Of course, we need to continue to do this here, and we continue to work with efficiency all over the places, not only in the production facilities, even when it comes to sales and admin. When we look back, a lot of negative things happened for us last year. What we have done now, we leave that behind us. A little bit reflection when it comes to 2012 here, and you know the fourth quarter here, which we presented yesterday. I leave that a little bit here to Ulf when he come back here to do that presentation. Going forward, how do we look upon our financial targets? The main priority the next coming three years will be operating margin to be over 10%.
Here you see a change from the previous strategic plan. We will not go for growth. Before we had organic growth of more than 5%. That will not be our main target the next coming years. Will we then not have growth? Yes, but we will have that in more selective ways. As an example, emerging markets. There we will have growth, and we will have some growth when it comes to some channels, because we will continue to have more growth in the dealer channel, not only in the U.S., even in Europe. Of course, there will be more selective growth than we've had before. That's important change here. We want to go for profitability, and when it comes to growth, it has to be profitable growth.
We might even step out when it comes to some segments or product categories or subcategories going forward, where we don't see that there are any money going forward. Of course, that too remains. When it comes to seasonably adjusted net debt versus EBITDA, less than 2.5, and we still have the dividend as before. The change we have done going forward is growth, profitable growth in selective areas, and focus on EBIT margin more than ever. This company have a very good platform and starting point. We have our strong brands. We have the Husqvarna brand, our premium global brand. We have the Gardena, maybe not global, but a premium brand, and we have McCulloch, mainly in the retailer channel. Of course, we have a lot of other, what you call regional and tactical brand. As an example, Flymo, market leader in the U.K.
There we will concentrate on Flymo together with Husqvarna. Zenoah in Japan, market leader. We will continue to use Zenoah mainly in Japan together with Husqvarna. In construction, Diamant Boart will be used as a premium brand beside Husqvarna. We will look upon all small brands during this period to phase them out to reduce complexity. We have an efficient global distribution network. We have the dealer channel, we have the retail channel. Of course, we will continue to focus on both, but of course, we want to shift more focus over to the most profitable channel, the dealer channel. Not only in U.S., that goes in Europe as well and rest of the world. We will come back later on to go through the product portfolio we have in this group. We have a broad product portfolio. Some people say too many products.
Yes, we agree. We will focus more on complexity reduction. We will reduce a number of platforms and SKUs going forward. Due to we don't need all these products. We will concentrate on products which we have the highest margin. There might be, as I said, areas where we even will stop and phase out. Flexible supply chain. I'm proud to stand up here and say we have a flexible supply chain. All our factories up and running in a very good way, high productivity, and with good quality when it comes to everything we are doing there in our factories. Today, I'm proud to stand up here and say we have a flexible supply chain. Some reflections. We have done a lot of good things in the past.
We have 20% reduction when it comes to our factories, 40% reduction of our warehouse, both central, regional, and local warehouses. We reduced our suppliers with 25%. Maybe still too many, over 2,400, if I remember right. We have increased our low-cost country sourcing with 65%. That was a target to be above 30%. We will change that going forward. We will not concentrate on low-cost countries going forward. We will focus on low-cost suppliers. That will not be a target to just go to China or East Europe. Due to we will look upon more low-cost suppliers, landed cost more than component cost. North America on back on track. As I said, we have good flexibility in our supply chain, sold everywhere. We have been very successful to attract through our nice products the dealers. The growth is a dealer channel.
We have outlined a roadmap going forward. We come back to that later on here. Operating cash flow, we are back on track. We have a lot of good products which have been launched here. We have focused a lot on launching a complete new range of professional chainsaws here during the year. We have launched a new generation of robotic lawn mowers, what we normally call Automowers here. We are the first one in this business to launch and start to sell a four-wheel walk-behind lawnmower. A lot more. I could be here and standing for two hours to talk about our products, but just these couple of examples. If you look upon going forward, we have this more concern when it comes to macroeconomic situation. We will take more conservative midterm market look.
We will be prepared if it go worse, then we have action to act if that goes, or the opposite as well here. That's mainly in Europe. As I said, focus on margin. That means that we need to focus on cost and quality. Quality is not only product quality, in everything we are doing, efficiency in everything. Then we have a lot of opportunities to continue to use the flexibility. I mentioned we will phase out some small local brands. We will look upon to phase out some product platforms and SKUs or P&Cs, whatever you want to call it, and even maybe some other customers where we don't see that there are any future and possibility to earn money. Of course, short term, we will focus on this here. Then, of course, what we did here in November, this program is ongoing here.
We have looked together with 50 people out in the organization, having activities here to look upon focus areas going forward. We have identified five focus areas where we will have dedicated people to really run these activities. Where from group management, which I will present later on here, are the sponsor. Then, of course, this product leader will be accountable that they deliver. We will have monthly follow-up. We haven't been good in the past to always follow up the activities here. Now we have a lot of good systems that we are able to do that in more controlled way than ever. Looking for the priorities. Of course, we want to secure the foundation first. That will be the first here. We are on the right way. We've done a lot of things here to be prepared for this here.
As I said, quality in everything we're doing is one area. Reduce product cost and the range of complexity. We'll continue to look upon optimize our footprints, both when it comes to factories as well as warehouses. Then drive channel management, both in U.S. as well as in Europe. Of course, that doesn't mean that we will not look upon activities little more long term. Of course, we will continue to always look upon product cost and complexity reduction. That's something you need to do all the time. We haven't been good when we launch a new product to phase out the old one. I used to say that if we had been Volvo or Mercedes, then they might have done as we are doing it, keep old products. There might be a lot of cars from the '70s out on the road.
We need to look upon that when we introduce a new chainsaw, the old one has to be phased out. That's one way how to reduce inventories as well here, focus on that. Then, of course, we need to continue to invest in technology. I think that's important. That's the reason which I come back to later on the announcement yesterday. Now when we have secured that platform, we will start to focus again on acquisitions in a controlled way. Then I said we focus more on margin, not on growth. Of course, there are growth of possibilities for us. Emerging markets is one example that we will focus more. That's the reason why we have started up to have a company in Kuala Lumpur to take care of that area. Then we will grow online, the modern way how to distribute products.
It's something we really want to continue to develop. The four strategic pillars remains as before, strong global brands, the distribution network, the product range, and a flexible supply chain. No change when it comes to our four strategic pillars. If you look upon some targets here, as I said, improved gross margin, key for us. We set up 20% reduction in platforms. That's a target to do that. That might for you sounds not ambition at all, but it is, I can believe that that's a tough journey to look upon the person who will be responsible for that. Of course, further look upon cost, not only product cost, everything what we are doing. We will continue to look upon our footprint when it comes to warehouse as well as factories. Lead time, we need to reduce lead time.
I might be well known for a comment a year ago of this 5%. There's no way that I regret what I said when it comes to this more than 5% in Americas. That's where we aim for, and we are on our way to be there. We see that we can further improve the profitability in the retailer channel in Europe. There are more to do there when it comes to profitability. I have to say, I'm very proud of this announcement. It was not a big deal here in Stockholm, but I can tell you it was a lot of positive things down in Husqvarna that we got this approval from the board to do this huge investment, both when it comes to chains as well as when it comes to invest to in-source more of the cylinders.
We will invest more than SEK 1 billion in the next coming three years in our manufacturing area. The chain will be produced down in Husqvarna. There might be, "Why not in a low-cost country? Why in Sweden? Why in Husqvarna?" We have looked upon a lot of possibilities where should we set up a factory. The more you dig into this here, the knowledge, the technology when it comes to chainsaws sits in Husqvarna in Sweden. We have our own locations there, good factories. There's a lot of positive things who talks to actually Sweden, and this will be a very high automatic factory. The labor costs have not such a big impact here. It's more that we have the technology. This is the key when it comes to cutting performance of a chainsaw.
There we don't have control of the chains before here. We come to cylinders. Of course, that's even core for us to have more control over the cylinders. There are very few suppliers available. That's the reason we said we want to, of course, invest in this as well here. That's the reason we said we want to in-source more of the cylinders, and that investment will be in U.S., in Nashville, in that factory who produce chainsaws there. We'll continue to source cylinders from suppliers as well here, but we want to have more of what we call the core competence in manufacturing in-house going forward.
That means that we will continue to have the possibility to keep our leadership when it comes to chainsaws, to be in front when it comes to chainsaws, due to that little bit the core for us under the Husqvarna brand. There's another reason why we want to have control over the chain. The replacement market is very big when it comes to chains for chainsaw, and very high margin. We want to have the full margin in-house, not share that with a supplier. There are, in that profitable segment, a potential to grow more for us going forward. There is just two main suppliers when it comes to chains today, who have more or less 90% of that.
We want to be a major player in that replacement market going forward as well here, and not miss that high margin segment with a huge potential of growth going forward. We are very pleased that we got this approval to do this investment here. Of course, that means a lot of activities going forward, dedicated people to work with this here. Of course, to implement this strategic plan, you will see more the deal at the segment by segment later on here during the day here. Of course, we need to have an organization. We have changed a little bit the group management, how we want to work here. When I go through this, I will take the possibility to present my colleagues as well here. When it comes to the finance, and IT, and investor relationship, it's Ulf Liljedahl, our CFO.
You know him since before, I think most of you. He might be among you are the most well-known person, who keep control over what we are doing. We have another person who keep control of us as well here. That's our legal affairs, General Counsel Olle Wallin. We follow all the legal things in the company here, code of conduct, and a lot of other things. Very important. We have people in organization and in communication here, what we normally call HR, or that's Per Ericson. We make sure that we have the right people going forward here. We have a new function up at this level in the organization, quality. We've had that out in the organization before, but we have lifted up that.
If you want to be up in a high-end segment here with high reputation with good quality of product, you need to, of course, have that focus on quality. We have a quality, Francesco Franzè. He's not present here today, due to he will start 1st of March. Look upon the business units, we have our three business units today. We will remain to report three business units. Internally, we will split up Europe, Asia, Pacific within EMEA to focus on that. Heading up EMEA is Frida Norrbom Sams. Previously, heading up the Nordic region in Europe. We have Asia-Pacific, Nicolas Lanus. He's actually back in Kuala Lumpur, but he will be based in Kuala Lumpur. Why do we want to have the base and the hub for Asia-Pacific in Kuala Lumpur? That's in the middle.
He will take care of China, Japan, Australia, New Zealand, and of course, all these countries, Vietnam, Cambodia, Indonesia, and India in that region to avoid travel too much. That's the reason why we have this office now established in Kuala Lumpur. We have Americas as before, heading up with Earl Bennett as acting. He will come back and present himself later on. Anders Sjöberg, construction. That's the staff functions and the business units. I repeat, we will continue to report three business units, Europe, Asia-Pacific, Americas, and construction. We have what we call process functions, who go across these business units. We have brand management and global marketing, heading up by Sofia Axelsson. She is not present here now. She is not here.
That's a function we have lifted up as well here, be global, to take care and make sure that we execute what we said when it comes to reducing the number of brands and have more synergies when it comes to all marketing activities. We have manufacturing logistics, Zacarias Mendes. We have global purchasing, heading up by Martin Austermann . Very important area going forward for us when it comes to reduce costs. We have product management and development, another key area, Henric Andersson, have been a long time in the company here. There are now people who have been less than a year in group management, and there are some people who have been in the group for more than 35 years, I guess. 33. 33, yeah. That's close to 35. For a CFO, it's 33.
That's widespread when it comes to age and experience from this company. All of them will be up here on the stage here when it comes to business-related areas here. We have done a bit change as well here when it comes to our 5 product categories here. Before we have two when it comes to wheeled, both ride-on and walk-behind lawn mowers. We have merged them together in a category we call wheeled to have more synergies between the cutting technology. There will be more and more focus in our business as well on battery products and electronic and control. We have created then 1 category to focus on all product, both wheeled and handled related to battery electronic product, both corded and non-corded products here.
Handheld petrol will remain as before here, except from what I said when it comes to battery products here. That's important. That both chainsaws, blowers, trimmers, and brush cutters, hedge trimmers. We have merged into watering hand tools as well, all these secateurs and that kind of stuff. Accessories, a very important high-margin business. We'll concentrate mainly on accessories, as well, replacement market for the chain. We took out hand tools more related to watering here. That's one change going forward here to be more focused on different product categories and where we see huge potential and what's happening in this business going forward. Summing up this here, first of all, the picture there, I hope the season will be, to start with, very dry, so we can use all this high-margin product for watering.
We have a strong starting point in this group, very strong starting point. We know, all of us, the market out there, hopefully we will be a bit out when it comes to weather in the season this year. As I said, we want to go for margin more than growth. There will be selected areas where we will grow. Of course, we want to execute the oriented strategy, focus on secure the foundation. That's the starting point. That's what we want to do. Have the right to grow and then do acquisitions. Of course, to do acquisition and grow, we need to have good profitability to reinvest in all these areas where we want to be acting into going forward here. With that, I hand over to Ulf to take care of all these figures, which are very important going forward as well.
Thank you, Hans, and good morning, everyone. I have a terrible cold, so I hope my voice will hold here, but with some good water, I hope that will help. Allow me to first actually take you on a bit of a recap. If we look at our sales development over the last five years, and here we are a bit harsh because 2008, that is really the benchmark, was a very good year for the group. We excelled in all areas, actually. Europe had a very good first half as well as the others here. 2009, Europe as well as construction was hurt by the debt crisis, no doubt. We did gain back some momentum in 2010 as well as to some extent, 2011.
2012, that we closed with the hearing that we had yesterday, you have heard about for those of you who listen in, we did in Europe face quite some challenges when it came both related to the macro environment as well as to the weather, as you have heard from Hans here this morning. That area was down some 6%. Construction, however, continued to grow and very much based on a strong product platform as well as we did gain shares in Americas. Construction continued actually a quite nice growth journey. They also have struggled in Europe, and Anders will tell you more about that later on here. Despite that, a good growth in 2012 based on the circumstances. Americas has also, as you heard from Hans here, picked up quite nicely in the beginning of the year.
We had an early spring that took off quite well. We put targets, you know, based on the history. We came with a debacle in Orangeburg 2011. We put high priorities and said to our customers that we must live up to your expectations when it comes to punctual deliveries, as well as to secure that we live up to your expectations. We did. We even excelled because based on an early spring, we actually came beyond expectations when it came to deliveries in 2012. Americas grew with some 7% in 2012. All in all, as you may see, if we take the five years approach here, the company has been flat or slightly down over a five years period.
If we take the same approach and same time distance when it comes to the EBIT development, you have heard from Hans this morning that the long-term financial goal when it comes to EBIT margin remains. We shall reach a more than 10% EBIT margin over a business cycle. During the last five years, you may see that this target has not been met, a lot related to that we have had a deterioration in Americas. Of course, a shrinking market has contributed not reaching the levels that we desired. Then we all know what happened in 2011. Construction, however, came back quite nicely after 2009 and have continued their journey now up to double-digit margin. Europe, Asia Pacific, normally a business above 14%, with the exception of 2012, where we have, as said before, faced challenges both from a macro perspective as well as from a weather perspective.
Important to confirm, the 10% EBIT margin or more than 10% EBIT going over a business cycle remains. Now the question comes, of course, what is now different towards the efforts we have put in prior years? Well, let's take a stance in the group cost structure. You can see that we split it up this way. You can see that the majority of our cost resides in purchased goods or components. 55% is related to that. If we look at our products, primarily in Forest and Garden, the value add is quite tiny, which means that sourcing and efficient sourcing is essential. Another aspect to take into consideration is that based on that we want to reach a decent profitability in the retail business, it is a prerequisite to excel in sourcing.
Going forward, it is also key, as you have heard from Hans this morning, and you will hear more from my colleagues later on today. Key for reducing purchasing cost is to reduce complexity. That is in terms of reducing the number of product categories as well as reducing the number of SKUs. Also important, and where you will also hear more emphasis put on later on in the other presentation, is that we connect R&D much closer with purchasing going forward here. Purchasing must be early in the product development cycle, securing that we have a better design for manufacturing and sourcing. You will also hear from Martin Austermann later on that we also move more from low-cost country sourcing to best cost country sourcing, or as Hans mentioned here, low-cost suppliers. Meaning we don't take only the cost into perspective.
We need to take other parameters like logistic cost, payment terms, as well as quality into account. It is landed cost that counts. We have improvement potentials here for sure. That said, it is of course continuously important to attain better efficiency when it comes to our cost to serve. There are activities put in place for that as well. Managing those cost parameters, this is not science. This is about some quite hard work, it is definitely a focus area that we put in place now that maybe we have not had that clearly put out in the past. Having those cost parameters, it is of course also important to drive the product and channel mix as well as pricing going forward in order to reach our overall EBIT margin targets here.
The two latter ones, you will hear more from my colleagues later on here when it comes to driving the mix as well as our pricing efforts. One important element with the Husqvarna Group, and especially the forest and garden business, is the pronounced seasonality. The majority of our demand in the industry resides in the Northern Hemisphere. You know that goes for Europe, it goes for North America. The majority of the forest and garden products are related to the summer season as well as the spring season. If you take this picture that is taken the 5 last years, you may see that the first and second quarter has accounted for, if you take the sales figure, more than 65% of our sales, and the EBIT is more than 90% of the calendar year.
That means that the third and the fourth quarter are quite tiny from that perspective. However, this is of course, also to be seen as an opportunity based on if we can find growing opportunities in the areas that actually match better or concentrate more to the third and the fourth quarter. Excuse me. As you can imagine, that can put tremendous leverage on the third and the fourth quarter, where we don't have the majority of our business as of today. Cash flow. You saw that from the recap of Hans. To those of you who do not know Husqvarna that well, our cash conversion cycle over a calendar year is normally that we draw cash the first quarter, we even out during the second, break even at the end of the second quarter, and then we generate cash in the third and the fourth quarter.
Looking at the years back in time here, we can see that 2012, we are definitely back on track. We generated accumulators some SEK 1.1 billion in cash. Compare them with last year, that actually was a negative close to half a billion. We are quite proud to confirm that we are now back on track here. That said, there are still, of course, further improvements to be made here and very much related to lowering the working capital. A lot is related to that that you also will hear more about, both from Sascha Menges as well as from Henric and Martin when it comes to increase the flexibility as well as to reduce the complexity, because that is really the key to success here in how we manage, especially our seasonality in a better way.
That will, of course, have quite significant impact on our cash generation going forward here. It is a challenge, we believe we have the measures to take care of that going forward. CapEx and depreciation. Well, yesterday you heard about the announcement of a SEK 1 billion investment in core technologies when it comes to saw chain as well as cylinders. As you may see from this chart here, 2013 and 2014, we will quite heavily exceed the planned depreciation related to this investment here. Then as you may see, further on into 2015, we should then be back on normal levels here. This is a heavy investment that we will take care of the next couple of years. We will also, during this period, see some additional investments in IT as well as in product development. Group funding.
As you may see from this one, this is the maturity profile here for the next coming years. The group has got a strong funding profile, as you may see here. The latest funds that we successfully raised was as late as in November. We went on to the corporate bond market and were quite successful in raising SEK 1.5 billion in corporate bonds with maturity at 2017. This was actually the first time since quite a few years back in time that we entered the corporate bond market with quite some success, which we are very satisfied with. We could confirm that the Nordic accounts took over 80% of an oversubscribed book. That put actually a quite good profiling when it comes to 2017, from a maturity profile perspective.
It should be mentioned that on top of this, we also have a SEK 6 billion unutilized syndicated revolver that is very much to be managed during the seasonality here. Our net debt position versus equity. As you also saw from the long-term financial targets, the ambition is to have a capital structure that shall meet a triple B rating, or at least a triple B, i.e. an investment grade. That means that we shall not exceed a multiple of 2.5 when it comes to net debt versus EBITDA. Looking at where we have been with net debt equity, we ended up end of 2012 at 0.59 versus last year, 0.56. We did have some quite heavy headwind when it comes to translation effects that lowered our equity with some SEK 800 million or close to SEK 800 million. That had an impact on the ratio here.
When it comes to the net debt EBITDA, we ended up close to 2.8 at the year-end of 2012. Some words about IT, because we have been, and for those of you who follow us, you have heard that we have been holding back to some extent when it comes to IT investments. Especially during 2012, and to some extent 2011, for good reasons. Here it is important that in the strategy period here we have laid out an ERP roadmap. It's twofold, actually. We have both to secure the foundation by means of investing in ERP systems in order to improve the efficiency and the effectiveness supporting the business needs. That we want to combine also with that securing a growth platform. You heard Hans touching upon it, you will hear my colleagues talking about that more. That relates very much to the online channel.
That is, of course, to support both the B2C channel as well as the B2B side. Those two are the ones where we'll have the main focus area going forward here. Both, let's say, securing the foundation for the administrative setup, as well as being on the front end when it comes to supporting the online channel going forward here. To summarize, main levers to reach our EBIT margin, as you have understood, is the focus for the next coming years, as well as to make room, of course, for further development of the company. They are to reduce cost and complexity, and the combination of the two. Lower cost to serve, i.e. improve the efficiency. Optimize product and channel mix, as well as improve the pricing practices.
Good afternoon. My name's Earl Bennett. I am going to present with respect to my business unit, the Americas. The Americas at a glance. We have got sales of approximately SEK 12.5 billion. Sales are heavily weighted towards North America. Latin America contributes about a little less than 10% of total sales. Our retail market channels are much heavier than in Europe. In the dealer channel in North and South America is approximately 25% of business. In Latin America, the dealer channel predominates. By contrast, in North America, the retail channels predominate. Among our competitors, looking at the second half of this chart, among our competitors, we are the only full-lined wheeled and handheld petrol product line. That is significant, because it facilitates our development of the dealer channel.
Despite the 2011 product disturbance, which affected quality, delivery, and our overall product production, in 2012 we retained strong market shares and we retained our customer base. Margin improvement remains a primary focus and a priority for us. One of the important levers to deal with margin improvement is product and logistic cost-out activities. My colleagues and I will talk about that during this presentation and later. We will continue to invest in Latin America. Latin America is the fastest-growing region in the Americas. It is important because it has substantial opportunity for growth. It is also important because it represents a high margin target. We are optimistic about the macroeconomy in North America. Housing is an important indicator, we think, of economic activity. If you look at this chart, you can see since 2011 housing starts, housing sales have trended upward.
If you look at the chart on the right, you will notice that chart, which shows U.S. petrol shipments of handheld and wheeled equipment, closely parallels it. You can see the downward trend through 2010, then a slight downturn in 2010, then since 2011, an upturn in both petrol equipment sales as well as in housing starts. The trend in housing, we think, should bode well for us. We think the macroeconomics of North America will be helpful to us and provide a prosperous and beneficial environment. I mentioned 2011, which was an aberration, and despite that, we retained a strong market share in our core areas. You can take a look in the U.S., our chainsaw market share is 47% for all group brands. Tractors, we retained a 34% market share. Walk-behind mowers, we retained a 34% market share.
Among all other handheld product lines, we had a strong 27% share position. This is important because it is a critical foundation to facilitate our relationships to better advance ourselves in the mass channel market. This chart reflects our diversification in two respects. One, to high margin channels, and secondly, this is important, I think, to rediversify and rebalance our emphasis on core customer areas. The left-hand side of this chart shows arrows which reflect growth or decline in total equipment volumes. By the dealer channel, then below that, the retail channels, the major customers, The Home Depot, Sears, Lowe's, Walmart, and all others. The right-hand side of the chart shows directionally our growth or decline of sales within a particular channel or within particular customers. The first point, I think there are four points to be derived from this chart.
First point is among independent dealers, which retained stability in the overall business marketplace. That's been true year-over-year for many years, that the dealer channel has remained a stable place. By contrast, Husqvarna has grown its sales in the dealer market by approximately twofold since 2009. This is a series of trends since 2009 through 2012. We are growing in the right channel, where we've got the best opportunity for margin growth. Second point, which I think is important here, you'll see that Sears, which slightly declined in terms of its total volume of shipments. I must note that Sears retains a vigorous and important position and important market share of the outdoor power equipment business. What's interesting, I think, and important is you'll note that our share of sales at Sears declined.
It's relevant because in 2009, as much as 80% of our retail channel business was directed towards Sears. By 2012 and going forward, you'll see that our sales at Lowe's have increased dramatically. Our sales at Sears have declined, and in 2012, our sales in those two particular mass channel partners were approximately equal. That rebalancing better advances us in terms of our ability to be competitive and adjust and adapt to market changes. Third point, which I think is relevant that's shown by this chart, is the fact that at Lowe's, we go to market using our brand. At Sears, we use the private label Craftsman primarily. It's relevant because it facilitates brand development, which will enhance our ability to develop premium pricing. Fourth point I think that's relevant here is if you look at all of the mass channel players in the U.S.
marketplace, The Home Depot, Sears, Lowe's, and Walmart. Among our competitors, we are the only company that really is a major player at all of them. We retain a strong commercial relationship with all of them. That's relevant because it facilitates our ability to adapt to market changes. This chart shows two facts, I think, which are relevant. One of which is it emphasizes the size of the U.S. marketplace. SEK 80 billion is the size of the outdoor power equipment industry in the U.S., huge marketplace. Canada and Latin America are smaller. This chart shows a second and important fact, which is that Latin America is growing at the rate of three times that of the more mature Canada and U.S. marketplaces. The North American marketplace is consolidated. Six primary players and in addition to ourselves.
It's important because within our competitive landscape, there are really only these six players who are really significant major players. Allow me to add a few noteworthy observations about each of these competitors. Toro, it's a wheel product company. It limits its distribution in the mass channel to The Home Depot. It has a strong, vibrant commercial presence. Two, Cub Cadet and Troy-Bilt are brands of the MTD company. It's a very competitive company in the mass channel, has a strong after-sales support system. Craftsman is the brand of a subsidiary of the Sears holding company, primarily goes to market through Sears and its related or former affiliates, Sears Canada and Sears Hometown Stores. What is noteworthy, I think, are its efforts to externalize the brand in other channels other than itself.
Number 2, its efforts to use methods other than brick and mortar for purposes of advancing its sales. Echo is a handheld company. It limits its distribution to The Home Depot. It actually has an exclusive arrangement with Home Depot. It's a handheld company, as I said, with the longest warranty in the marketplace. Stihl is, of course, a handheld company. It has a strong dealer message and a strong dealer proposition. It retains a strong position in the commercial lawn and garden. Deere, of course, is a global company. Among our competitors, it distinguishes itself because lawn and garden and forestry is not a core area of its activities as it is with us and our other competitors. Has a strong lawn and garden presence and goes to market through 2 mass market channels.
Let me talk a little bit about our brand portfolio in the Americas. Our core brand, of course, is Husqvarna, which we position as a premium brand in the dealer channel. It's important to note in the mass retail channel that after 2012, we'll limit the use of Husqvarna in the retail channel, and we think that will better align it with its premium position in the dealer channel. We also go to market using the Gardena brand in the mass retail channel in Canada. It's, again, another premium brand. Tactical brands include Poulan and Poulan Pro at the middle price point, and Weed Eater at the opening price point. Weed Eater is an extremely well-known brand, as is Poulan. Important tactical brands, we use them both in the dealer as well as in the mass retail accounts.
RedMax and Jonsered are important brands to us because they represent premium brand opportunities which facilitate a strategy of permitting us to go to market where there could be channel conflict between a particular customer and another customer. Blue Bird is basically a specialty brand. It's noteworthy that Dixon is largely a regional brand used in our Midwest in the tractor side of the business. Jonsered is used in both the dealer and the mass retail channel for tactical reasons to contend with conflict. Let me move on. As Hans noted, our strategic priorities include driving channel management in the U.S. Channel management is going to be managed in a number of different ways, and it's important for a number of different ways. Let me spend a little bit of time on that. We've got to refocus our portfolio of mass partnerships.
That's important to better align our brand in the retail as well as the dealer channels to facilitate premium pricing. It's important to maintain a balance, and that balance between retail customers will help us address market changes. The third important aspect is it permits us to maintain scale where scale benefits us. Increasing the share of our dealers and distributors are important to us because it permits us to grow that channel, which frankly is an area that's most favorable to margin enhancement. We've increased our share dramatically. In the last 2 years, we've increased our dealers 500 a year-over-year. We've done that in a number of different ways.
We've invested in human resources to focus on specifically dealer identification and selection and recruitment, so that we had, and we are growing what we think will become a very strong aspect of this company, a strong, vibrant dealer network to sell premium priced product. It's also important because it permits us to balance our overall portfolio in a way that enhances Husqvarna and at the same time permits us to go to market in the MPP and OPP price points. Price increases are obviously a focus and priority for us. Our levers include price. Price is going to be made possible through three different aspects. One, we've got to leverage our key relationships. We've got to leverage them both in terms of the mass channel, and we do that through brand and product. That is going to be a critical component of our strategy.
Second of which is we've got to leverage innovation. As my colleague, Henric, will talk about, innovation is a pillar of the company. We see it on a regular basis, and we see it take form in any number of different ways. Some of the more potent examples are the fast tractor, which we introduced in 2012. It took off. We probably sold 35,000 units in 2012 alone, almost exclusively through one channel, the retail channel at Lowe's. That product was advantaged and advanced dramatically through a series of advertisements by Jimmie Johnson, the renowned NASCAR racer in America, through advertisements which were made available through our relationship with Lowe's. That kind of synergy facilitated an extremely good relationship. It facilitated the sale of a high margin product. It advanced our image as a source of innovative, cool products.
This year, we've got two products, again, in the walk category. One is the all-wheel drive lawnmower, which is going to be extremely well specified and offered at a price point that's probably the highest among the walk behind category that we've ever done. As good as that product is, it may be eclipsed by the Blade Brake Clutch product, which is going to be really important in the marketplace. It permits people to have a safe operating unit. Its price point is going to be positioned below the all-wheel drive. It is going to be a winner. These are two products around which there's extreme excitement in the U.S. mass retail channel, and I think it's going to be a successful product in the dealer channel. These are margin-accretive activities as well.
These are products that'll permit us to get high margin. That is going to translate, we think, in terms of brand awareness, which will facilitate premium price point in other products. Henric will talk about other products as well. I don't want to suggest that the handheld innovations are eclipsed by the wheeled innovations. The contrary is true. We've got tremendous handheld innovations being generated throughout the marketplace. Third point, focus on high-margin products. We've got to focus on products where we can historically generate, develop high margins. That includes the Z-Turn product. We'll sell that through both the mass channel, which will have probably the best placement in the mass channel through our Z-Turn product at Lowe's. We'll also have great products in the dealer channel. We've got professional Z-Turns, and we've got residential Z-Turns.
Evidence of strength of that effort is that 2011, our residential Z-turn market share was about 6%. 2012 had grown to 20%, and we think we're going to grow it more. Let's talk a little bit about product cost and complexity. These four aspects are important, and we're going to drive this through cross-functional teamwork. These kinds of activities don't occur without strong tactical planning, strong teamwork, and deft execution. We think we're going to be able to accomplish that. Brand and product complexity reduction, step one. Step two, product and conversion cost reduction. Our productivity measured by cost conversion was dramatic in 2012. We probably drove out tens of millions of SEK of waste in cost conversion alone. This is an area where we have a lot of opportunity.
We've got flexible factories, and to be able to drive out waste in cost conversion is critical, and it's also critical that we do it through cross-functional teamwork. Third area, reduce cost to serve. We have defined projects to reduce cost to serve. That means optimizing warehouse location, optimizing freight activities, and that will facilitate higher margin, and it's important and critical for us. Let me move on. Let me just emphasize the distinct channel strategies between the retail and the dealer channel. Mix pricing cost reductions are critical for margin improvement. Mix involves not only products like the Z-turn, but it also involves a renewed focus on core activities like parts and accessories, high-margin areas, great opportunity for growth, really a function of attention to detail, setting priorities correctly, execution. It's also necessary to facilitate our growth in the commercial lawn and garden business. It's a foundation for that.
So it accomplishes two tasks, and we're going to give that renewed attention this year. Our dealer profiling investment has paid off. We've invested in over 1,000 dealers in the last few years in merchandising. So we've gone in, re-merchandised most of our dealers. It's facilitated an extremely first-class professional environment for our dealers, which have enhanced our premium reputation for our brand. I mentioned dealer growth, and that will continue. We have this goal of 500 new dealers a year. That's going to continue. We're going to continue to invest in operational improvements. I mentioned the activities in logistics and warehousing, but we've got other activities in B2B, B2C world, and that's going to be important. And then finally, on the dealer side, leveraging new product offerings. I talked about the innovation, I talked about the products, and I talked about parts.
On the retail side, we're going to continue to invest in the Husqvarna brand. I mentioned the fact that we're going to limit the Husqvarna brand going forward in the retail channel to try to better align itself with the dealer channel as a premium brand. That's going to be a critical strategy. We're going to drive mix through innovation, features, and marketing. That's a critical objective. We have to execute cost-out programs, and we have to do it not only to reduce cost to serve and cost of goods sold, but we're going to do it through cross-functional teamwork. You're going to hear my colleagues, Sascha, and you're going to hear Martin talk about those kinds of activities today, and they are occurring, and they occur within the three factories, the three primary factories that are in the forest and garden world of North America, and they are ongoing.
We also have to improve our pricing practices. We have to be strategic and make sure that we are thinking clearly about how we're going to market and sell our products. Our strategic priorities obviously include accelerating the emerging market growth in Latin America. We've got a strong platform there. Latin American sales have been up 20% year-over-year since 2009. We've got sales in the neighborhood of three quarters of a billion SEK. It's an established marketplace. In Brazil, we've got a 20% market share, and Brazil represents 70% of our sales within the Latin American marketplace. We've got a priority to expand distribution there, and we're going to do it through increasing emphasis on dealer development. It's been working, and we think we can accelerate that activity.
Finally, it's important, and Henric will talk about this, we will tailor an assortment of products to better compete in Latin America. It's noteworthy that we have a factory in Brazil, and we'll continue to invest there. It gives us the ability to provide local products and to create market efficiencies using our manufacturing presence there. Summary. Margin improvement is going to occur through reducing product cost and cost to serve. We've got to improve our mix. We've got a strategy to get there, and we've got to do it through price realization. The negative trend of 2011 has been corrected. 2012 was a stabilized year. With that, I'll end. Thank you very much.
Thank you, Earl. Let's open up for questions from the audience, please. Earl, Hans, Ulf? Please state your name and company.
Yes. Hi there, good afternoon. Thank you. It's Arne Frissner from Goldman Sachs. I was curious, and I'm not sure who should answer it, but maybe you, Hans, just on your new targets, you're emphasizing margin expansion over growth, I guess, which is encouraging. I'm curious to understand why you haven't introduced any returns target, and particularly in light of the fact that it seems to me that two of your main strategies to grow your margins is insourcing through, amongst other things, building this factory, but also high margin M&A, I assume very capital-intensive decisions, which presumably should drive up margins relatively automatically. What's the thinking here? Thank you.
Should you start with M&A?
Yeah, we can start saying that based on we have not communicated any return on capital employed or return on net asset targets externally, it doesn't take away that we have those internally. It is a conscious decision. We have not chosen to communicate any of those externally. What you have heard from what we are talking today, we imply a lot about that, how much we also focus on our cash generation going forward here. There should exist no doubt in that return on capital employed is high on the agenda internally. Again, we have chosen not to communicate any of those targets externally.
When it comes to start to invest and insource a lot of things here, of course, I didn't mention that there are what we call make versus buy. There might be some things which we produced or do in-house, which will be outsourced as well here. That's not that we stop to do that, but there will be more focus on to insource what we think is core to the technology and what is core for us to produce and secure that we have the capacity in-house and not rely only on some suppliers. That's one reason why we do this here. Of course, we will continue to outsource things as well, which are not core for us.
Thank you very much. Can I just one quick follow-up just on your investment? It's just a very short one. Are you planning to sell externally these chainsaw chains and cylinders, or you're only producing for yourself? Can you give us any idea of what proportion of your own demand you will be covering, so to speak?
We will not sell this. It will just be for in-house. Over the years, we will have everything when it comes to chains in-house, but that's more long term during these 3 years here. When it comes to cylinders, we will never have all the capacity in-house. That'll be a combination in-house as well as rely on some suppliers. Chains, we will have full control over the years, but no OEM salesman can change at all.
Yes. Hi, Rasmus Engberg with Handelsbanken. I just wanted to start with a very basic question. It seems as though in the presentation that the targets are to be achieved in 2016. Could you just say whether that is correct or if you have any comments on when you will start to do in excess of 10% margin?
It's over a business cycle.
Okay. Didn't you say a couple of years ago that you were going to take your or m aybe I'm mistaken. Okay.
We always said here, 10% over business cycles here. Of course, we want to come up about 10% as quick as possible. We, of course, need to realize the facts as well. We've always said over business cycle.
Okay. The second question is, do you think that the 10% margin can be achieved with SEK 31 billion in sales? If not, how much are you prepared to sacrifice of unprofitable sales to get there?
I think there's two way how to do that. Of course, you can increase the sales and keep the margins where we are today here. What we have said here, that we go more to focus on margin, that we will be more selective when it comes to where we see that we have a high-margin product, and we have some areas where we have really low margin. We have even some sub-categories or categories where we actually lose money. We will investigate if we will continue this, what you call investigate the future of some product categories here or sub-categories here. That's one way how to do it, but it's a combination. Of course, we will continue to grow, but we will do it more selective here, and that means that we focus on some areas and some customers and some product categories as well here.
You can go two ways. We can take down and only focus on high-margin products and go down to SEK 25 billion, the money, but that's not what we want to do here. We want to continue to grow the company, but not as we have said in the past here. That's one way how to do it. As someone has said, just exit U.S., then you are there. That's not what we want to do. We want to continue, we believe that we are able to come above 5% in U.S. here.
The understanding then is that it's going to be achieved with some growth from here?
Yes.
Organically.
Organically, when it comes to selective.
Yes
Focus on margin. Not only that we want to take market share. We are not going for market share as you can do here, because it has to be profitable growth.
Yeah. Johan Dahl, Penser Bank . A question to Earl with regards to, you talked about your U.S. competitors. How would you describe your relative cost position in the U.S.? You showed some impressive market share, but still profitability is lousy. Can you talk about how the rest of the industry is developing? We've seen some changes to the offering in the mass market. We've heard about Briggs taking away products in the mass market, for example, and some other competitors as well. Has that in any way impacted the situation for the next season?
That's a number of different questions. Let me address the first one. We don't have access to the internal cost to serve or cost of goods sold of our competitors, so it's difficult to assess how we stand relative to our competitors on cost and cost out activities. Briggs is, in fact, exiting certain marketplaces with products, both on the walk behind as well as on the ride side. We think it does offer us opportunities and will give us an ability to secure business in various channels, specifically mass retail. We think it's an opportunity.
Okay, just a follow-up on that. You mentioned there that you were accepting to leave both categories and customers to improve profitability going into the next season. Still, when we hear you talk now about the listings for next season, you say it's satisfactory and you're not being very explicit with regards to, is it up or down? What's the price impact going into next year? Is there anything else you can add to that to back up what you're saying with regards to customers and categories?
When it comes to pricing here, all over here, we will not give you exactly the price increases due to that we don't want to get public here. There will be price increases. We have already done that here for 2013 here, both in Europe, Asia Pacific, as well as in Americas, when it comes to price increases. We go more for price increases. That goes back a little bit again to on behalf of sometimes volume in some areas. We are more selective even when it comes to price increases. We don't go as before average. We go market by market, brand by brand, and category by category. That varies ups and down when it comes to some categories as well when it comes to price increase.
We have a complete new pricing model here, where we look upon price revenue and what we call price waterfall as well here. We look upon net price increases here. You can increase prices with 5, 6, 7% even more, but then you give away that. That's the reason why in this new pricing model, we look upon the net, what we give away later on here. That's the change here, and more selective than before here.
Yes. Hi, Anders Trapp from SEB. Two questions, please. First, how will you make sure that your supply of saw chains will continue on a satisfactory quality and price level during the period when you're building up your own capacity? I guess your supplier is not very happy about this.
No, they might not be too happy. Of course, I talked to the CEO of our supplier when it comes to chains here. Earlier this week. We will continue to have a good relationship with them due to we saw some other products from them, which we'll continue to do here, and that will be over time. We have an open discussion with them here. Of course, they are a public company as well, and you saw maybe the effect of that announcement in that company, and his task is the same as me, to do the best for his company. Of course, he was not satisfied. We have a long-term contract, which he need to fulfill, of course. That's actually a good balance here during these three years, we have a long contract with him.
It's a good balance to phase out and phase in these activities here.
Okay. The second question is regarding your market shares in the U.S., if you could sort of give that, if you look on your own brands only and not the private label included.
On an overall basis, the Husqvarna brand has a 10% market share in 2012. That reflects a 4% increase since 2009. Is that helpful?
Yeah. Very good.
Yes, David Halldén from UBS. In your three-year strategic ambition, you mentioned that you want to further consolidate the footprint. You have right now 22 manufacturing sites, as you mentioned, of which 12 are in Europe. You're right now moving volumes to Poland, et cetera. I was just wondering what can be done on the footprint when you talk about consolidation? Right now we're talking about investments, which of course are expected to be value added, but what can be done on concentration?
Of course, we always will look upon the manufacturing footprint here. What you call, we always investigate the future of some sites here, and we'll continue to do that. As I said here, of course, that's another focus area, to look upon the footprint, both when it comes to the number of factories we have here in the company, as well as the number of warehouses here. That's something we will continue to look upon here going forward. More than that, I can't comment when it comes to that part, of course. There are some restrictions with how much I can talk about that.
How much of your components today or what you produce is being shipped overseas, so to speak? For instance, you have, if it's one or two in Latin America on the production sites. I'm just thinking, when you talk about how to take cost out of the production chain, if there's a geographic element in that as well on freight costs.
Sure, the freight cost is very important. We see transportation cost is going up a lot. That's the reason why we look upon where we have our major factories here, that we concentrate professional products into Husqvarna, Sweden, and then more consumer professional into Nashville, and when it comes to the low-end, into China. I can't really answer that question. You might know that, Sascha.
Couldn't we save that question until we have heard Sascha's presentation, and then we can come back to you? There will be a Q&A after Sascha's presentation as well.
I really don't know how much we ship between the factories.
That's okay, we can save it. Thanks.
He might have opportunity to check that if he doesn't know it.
Thank you. Tom Bennett from RBS. A quick question regarding M&A. I see it coming back on the agenda in 2014, 2015. What are your plans around that in terms of amounts you want to spend and kind of focus areas for the M&A activity?
I have no comment to that at all. We will look upon what's available out there, look deeply into what makes sense for us to do. We'll look very deeply at what's available for us and what makes sense. Other than that, I don't want to comment when it comes to that part.
That's fine. It's generally more smaller add-on transactions rather than bigger transactions?
No comment. Can be both.
Okay.
I can start. Yes. Christer Magnergård from DNB. Two short questions. Firstly, on the chainsaw, the chain aftermarket, how big market is that, roughly, do you think?
I don't know exactly how big the market is here in percentage, but when it comes to replacements for a chainsaw, of course, the chain is a major part of that segment here. When you use, or you have used a chainsaw and you hit a stone, then you know that you can't use the chainsaw anymore. You need to change the chain immediately. I think it's a big part of that segment here. I don't know exactly, but it might be 70%-80% when it comes to replacement markets all over.
Which in SEK means?
I don't know. We can come back to that question.
Secondly, when I looked at the presentation, you talk about securing the foundation in 2013. Does that mean that 2013, again, will be a year of investment and the EBIT margin improvement will come in 2014, 2015? Or should we see that already in 2013?
I think the plan is that we will see an EBIT margin going up 2013 here. Of course, it's a lot of factors which we can't control, weather. If we have a good weather, I can go back to the reference 2010. If we have the same weather, you will see, of course, a complete different EBIT margin, 2013 vis-a-vis 2012, definitely. Of course, we have some effects of this restructuring program coming into 2013 here. There we take a more conservative way than in the past what we go out and promise here when it comes to savings from all activities here. We'll not promise more than we can deliver. We are a little bit more conservative to give numbers when it comes to savings for different activities.
Of course, if the weather is with us, we see a complete different situation, especially the second quarter of the year. That's key for us. We will see where this takes us here already end, beginning of February. Just an example here how it works when it comes to garden business. I will use U.K. as an example. The Easter is key in U.K. when it comes to garden seasons. The two first week before Easter has to be fine and nice weather, the Easter has to be nice weather, the third, the week after, is important as well in U.K. If these four, five, six weeks are with us, we can say immediately U.K. will perform good. If not, we can say the garden season in U.K. is gone.
Just an example in a country like U.K. where they're so focused on the Easter when it comes to garden business, how this weather can change very rapidly. Just an example for a market. That's key for our main brand Flymo, of course, due to that's a garden here, how fast it can change.
Just one.
Easter is early this year, by the way.
Just a final question. You're talking about margins around 10%. Historically, your margin range before 2008 was extremely stable, between 9% and 11%. What kind of margin range should we expect going forward when you talk about around 10%? Is that 13.7%?
Well, there is actually a small greater than sign before the 10%, so that is what you should have. We don't put any range. We just say it should be more than 10% over a business cycle.
Björn Enarson, Danske Bank. A question on how you look upon the market growth development that we have seen in the past, and if you see that there's different characteristics going forward in the overall market in Europe and the U.S.
I think we can take U.S. we save the European after we have had the European presentation. You can take the-
We take the U.S.
Yes.
We have an optimistic view of the market. If you take a look at the broad bands underlying the outdoor power equipment sales, if you took a look at that chart, which I showed, which showed growth slightly inclining through after 2011, we think that's going to continue. If you took broad bands by product category underneath there and you looked at, for example, chainsaws, other handheld equipment, tractors, and lawnmowers, you'd see a reasonably stable band throughout all those categories. There hasn't been substantial change with one possible exception, that is that there's been slightly declining sales in the walk and the ride mower category. We think that that probably indicates that individuals are not renewing products, and I think the industry takes the view that that should eventually lead to an expiration of life of equipment. It should create an opportunity.
Is that the response?
Yes. That's fine. I've also heard that comment that there's been some longer times before replacements. You're seeing that as a potential catch-up.
Yes
effect. Then apart from volumes, looking at price mix, will we see a bigger impact on price mix going forward given the presentation that you've held here then on focusing on margins, et cetera? That goes for Europe as well.
In America, we think we should see improved price and mix through re-emphasis on the Husqvarna brand and away from private labels. We think we should see it through refocused efforts on specific categories where we should be able to generate higher margin, specifically as an example, parts, accessories, Zero-Turn products, and renewed emphasis on our core brands, our sweet spot, chainsaws.
For Europe, we save that podcast for Frida as well.
On the U.S., last question on U.S. dealer channel measures that you have taken the last couple of years. When that program was announced, you obviously said that it comes along with quite a lot of cost in penetrating that market, and it would take some years before you have had reached a sufficient penetration for having a positive net result from some those investments. Where are you there right now?
Yeah. Clarify, restate your proposition so I can make sure I got it.
I think that you said when you launched that program that you are about to increase the exposure to U.S. dealer channels, that it is quite costly in ramping up those new distribution channels, logistics and marketing, et cetera.
It's relevant to note that we've been engaged in the enhanced profiling activities year-over-year since 2010, and we've profiled over 1,000 dealers. We'll continue that pace. It'll be about consistent with our past activities. The amount of increased investment will be consistent with what we've done in the past, and we've achieved a lot of traction, as evidenced by the fact that sales in the dealer channel have nearly doubled since 2009, measured by pure US dollars. We're getting traction that's measurable, and our investment pays off very quickly. It's a quick repayment cycle. On the efforts to grow dealers and our goal of 500 a year, which we did in 2011 and 2012, that again has a quick repayment cycle.
Is it fair to assume that it takes one year for-
Yes
a new dealer to be profitable?
Yeah. That's fair.
Thank you.
Hi, Johan Eliason, Sjöberg. Just coming back to these dealers, adding 500 per annum, you have 25,000 in total. How does that number stack up in the U.S.?
We probably have 3,500 dealers above a size that we consider optimal. Probably have another 2,000 dealers. The challenge is, of course, to grow dealers who have a sweet spot of size, and that's going to vary by marketplace. It varies town to town. To make sure we've got the right dealers in the right locations is principle, and to make sure that we've got dealers at the right size to minimize our cost to serve and to achieve economic efficiencies is the goal. There's no particular objective in terms of a certain number, but the idea of growing 500 a year is a function of our own perception that market penetration gives us that kind of opportunity going forward.
Then I didn't quite understand your comments regarding the Husqvarna brand in the U.S. retail channel. Could you?
Sure
say it in a simpler way?
Yeah, we will limit the use of the Husqvarna brand in the retail channel to one mass channel partner after 2012, and the goal is to enhance its premium status.
Is that for all product categories?
Right now.
I think that's not the secret here, that we shift more and more over to Lowe's when it comes to this kind of brand.
Thank you. My name is Ola Aronsson. I'm here from Dagens Industri. I'd like to ask, you have this 10% margin goal for the EBIT, and you say it's over a business cycle. Could you clarify what you mean by over a business cycle?
It's a million-dollar question. Well, we don't have a good definition of a business cycle. I doubt that we can actually explain it in number of years, but we see it from a downturn in the business cycle as to an upturn in the business cycle. It's a number of years.
That doesn't put that much essence into the word business cycle, really, when it comes to numbers. It's a number of years.
It's a number of years.
Yes. Okay. A second question to Hans, actually. I'm just curious. I believe if you want, you can retire at 62. How long are you planning to stay on as a CEO?
Do you want to have an honest answer?
Yes.
Yeah. That's not my decision. It's up to the board.
If it's up to you, but it isn't, obviously, but how long do you want to stay on?
It's up to the board.
Okay. Thank you.
Okay, I don't think we have any further questions right now, so let's have a leg stretch and some coffee outside and get back here in about 20 minutes at half past 2:00, and coffee is served out to the right.
[Music]
Feel the wind blow. Feel the coldness through my bones. Give me shelter. Keep me safe and keep me warm. Just hold me close. Feel the warmth around the dawn.
Okay. Welcome back, everyone, and welcome on stage, Frida, who will take us through our operations in the EMEA region.
I'm actually not just going to talk about EMEA, I'm going to talk about Asia-Pacific as well, because as Hans mentioned earlier today, we do report Europe, Asia-Pacific as one unit, even though we internally have splitted it now into EMEA and Asia-Pacific. Sales was slightly down 2012, SEK 15.4 billion, mainly due to weather. We had a very wet year, which is not good for our watering business in Europe. It's not good either for the people going out in the forest trying to cut down trees. If it's too wet, you can't get the trees out. The business unit consists of mature markets, France, Germany, Japan, Australia. Semi-mature markets, Eastern Europe and emerging markets, where we also include Russia. Split between emerging and mature, roughly 90% is mature business. We see a clear growth potential on emerging markets.
Opposite the U.S., which my colleague, Earl, went through earlier, 65% of our business is done in dealer channel. If you look at the market split in Europe, Asia-Pacific, between dealer and retail, the dealer market is approximately 60% of the market. Our sales is 65% of our sales. It is quite stable that way. If anything, the dealer business for us is growing. One of our key strengths is our closeness to early adopters. With that, I mean the first movers on any given market, the people that are willing to try new things, new innovations. Roughly 15% of the market, but the mass market will follow these people. We are very good in talking to those people. I'll come back to that. We have strong brands. We have roughly 30% market share with our brands in Europe, Asia-Pacific. We have been able to grow the dealer channel.
We will continue to grow the dealer channel, and we have increased our focus on emerging markets. The guy over there is Alexander Sokolov. It is not a coincidence that the four top positions at the World Championships in logging in 2012 all used Husqvarna chainsaws. The winner used the same saw as you see over there. These are the first movers when it comes to professional people. They use Husqvarna. We are also going into commercial lawn and garden more and more. Also professional users, first movers there. When it comes to the end consumer, first movers, the robotic, where we are the clear market leader. We have been doing robotics for the last 20 years. Now is when we see competition trying to enter that segment. A bit on markets. Red ones, mature markets. Blue ones, emerging markets.
If we start with the mature markets, what you can see is that many of the mature markets are actually flat. The three major mature markets, Germany, France, Japan, 40% of the market value on mature markets, relatively flat. That does not mean that we don't have growth opportunities in these markets. It means that we have some segments that are growing, for example, the robotics, for example, within handheld. We do also have segments which is actually declining. One example there is, for example, we can see that in Europe, petrol lawnmowers are actually declining a bit. What we see over here are actually some mature markets that are actually growing, but they are about 15% of the market value, and that's mainly in Eastern Europe and South Africa. If you look at the emerging markets, the by far largest market is actually Russia.
Sticking to the BRIC definition , we treat it as emerging. We have a very good footprint in Russia. Russia is growing. Might not be growing double digit in 2013, but definitely above 5%. We have ASEAN, which can be translated into Southeastern Asia. Again, Hans spoke earlier about that we're setting up an office in Kuala Lumpur. There's a lot of opportunities in China, Southeast Asia, India, which we want to be able to capture early. Those markets require an early entry. We were early in Russia. We have been in China for years. You have to be among the first movers, and we have to capture the professional users on these markets. If you look at Africa, we are building up our competence in Uganda, Kenya, Nigeria, countries that will grow significantly over the coming years.
Channel-wise, and I'm coming back to that little later on, mature markets, that's where you have a retail. If you look at emerging markets, retail is very limited. You can see it in Russia, but still very much towards the called open markets. But otherwise, it's dealer channel. One of the key things with the dealer channel is that it's very fragmented. You have loads and loads of small to medium-sized customers out there. You need to be present. You need to have a service offering because they expect you to service them so they can serve their end consumers. Their end consumers are usually more demanding than your retail. And in order to really capture, for example, an emerging market, you need to very early build up this after-sales offering. We're actually very good at that.
Looking a bit at our competitive landscape, what we can see is that loads and loads of our competition are trying to play both channels. If you remember the Americas' quite consolidated base of competition, this is quite scattered. A lot of our retail competition is trying to come into the dealer channel because it's more profitable, it's more higher end, but again, very fragmented customer base, and it requires that you do have the right service level towards your dealers and the dealers towards the market. You need to have a service network. Some of these on the dealer channel, like Tanaka, Shindaiwa, Asia Pacific only, but quite strong there. If you look in our retail channel, we have something down there called private label.
What we can see is that a lot of the retail chains are actually building what were earlier referred to as private label into private brands, where they actually invest in their brands. That means in the retail channel now that there are more brands than ever competing for the same space. What is interesting also to note with Husqvarna is that we have a very strong position on our home market, Sweden. We also have strong positions on all the surrounding markets. We also have strong positions on the markets surrounding Germany, where Stihl is based. We are also growing in Germany. Again, scattered landscape, but really it is not that easy to enter the dealer channel. If I then move into Europe, Middle East, Africa's brand portfolio, we focus on three core brands. We have Husqvarna as a dealer-only brand.
We invest in our dealers, they invest in us. We have a selective distribution agreement with our dealers to ensure that the service levels and the professionalism of the brand is kept. Gardena, the leading water brand in Europe. We also use it in the dealer channel. In mass retail, we have Gardena again. We also have full range of battery electric products under Gardena brand within handheld. We also have our growing retail brand, McCulloch, recently launched actually only a little over a year ago. It's growing. We can see that it captures market shares on important retail markets such as France or Germany. We use Jonsered in a tactical way. Jonsered is a dealer brand. It's very limited in mass retail, but we have it at a couple of customers. Klippo is Nordic. It's lawnmowers, high-end petrol professional lawnmowers.
Flymo is U.K., it's one of the best-recognized brands in the U.K. If we then go to Asia Pacific brand portfolio, as I said, Asia Pacific, you have the mature markets and you have a lot of emerging markets. Husqvarna is our dealer brand and it's dealer only. Gardena and McCulloch are present mainly in Australia and New Zealand. We have a little bit of Gardena and McCulloch in Southeast Asia in our dealers because there is no retail present there. We then have Zenoah, which is the strongest brand in Japan, and is also present in Southeast Asia. Going into our strategic priorities, channel management in Europe. Over the last few years, we've been running what we call the Dealer Business Development Program with the objective to increase further our dealer sales.
If you remember, 60% of the market is dealer, 65% of our sales goes through the dealer channel. We want to increase that further. When we see competition trying to enter, we want to be closer to our dealers than ever. We invest in them, they invest in us. We want to have the right dealers and have the right incentives for dealers to grow with us. One of our key things, coming back to commercial, lawn and garden, as I said, we are very good in forest. We are growing what you call commercial, lawn and garden. We are focusing on making sure that we capture all the professional users, landscapers, arborists, et cetera. We upgrade our dealer base constantly, make sure that our dealers can make a good living together with Husqvarna long term. We also focus a lot on developing our after-sales offering.
We do service business training. We have Husqvarna University. We focus a lot on spare parts, accessories, a very high margin profitable segment for us. We also start up what we call Shop Profiling. We are currently offering our dealers Shop Profiling 2.0, we have put it into a number of shops so far across Europe. What we can see immediately, because that changes the layout of the shop, it also enables us to go in and actually work with the dealer to see how can we optimize your shop floor. We can see an instant payback in increased sales where we do this. Will we be able to do it in every shop? Well, it will take some time because the dealer also needs to invest in this program. This is not Husqvarna going in. It's actually a mutual investment from both sides.
Pricing model, we have a very transparent pricing model being rolled out across Europe, where we want to ensure that our dealers see a transparency that they see that they make money, and we make money. The second part of this is that we want to optimize our retail margin. A bit earlier, I spoke about the fact that we have also competition now from our own customers in retail through their private brands. We want to improve our retail profitability. It's not bad. We want it to be better. We want to be closer to our key accounts using the definition of a key account that there is a mutual interest to grow together. We need to address that private brand business is actually growing. It's a very small part of our European business. We only do private label if it enables us to do more branded business.
What you actually see on the picture here is a sneak preview with one of our major key accounts. We are actually doing category management on petrol handheld. The numbers you see there, somebody is wondering, why is the numbers over there? This is actually taken from their internal training material for their shops. This is being rolled out as we sit here. That's one example of how we can work together with the retail key accounts. They gain, we gain. We work a lot more with shop floor management merchandising. We put a lot of focus on watering, petrol, handheld, and battery, I know my colleague, Henric, will come back a bit on battery. We also constantly strive to reduce our cost to serve. With that, I mean our logistic costs, our admin costs.
We're also running a sales performance program to make sure that our sales guys, we can get the basically best possible output out of our sales guys. Emerging markets growth. We want to expand selectively in emerging markets. Key priorities, Russia, China, Southeast Asia and Africa. Africa is vast. We want to focus on Southeastern Africa, moving across to the western part. Put more focus on the Husqvarna brand. Remember, this is dealer more or less only. We focus a lot on handheld and tillers. Henric will come back to the emerging markets assortment. We want to accelerate further in Russia. Russia is a huge country. It's fast-growing, very long transportation sometimes from one end to the other, which is also why we want to invest more in our warehouses over there.
We do see that we need to close a couple of gaps in Asia and Africa, finding the right distributors, and in some cases, we will set up our own sales companies. We need to strengthen the dealer base. What is interesting here is that we also need to educate them when it comes to safety, how to use accessories. Basically, we have to help them to grow the after-sales market, which also requires that you have a lot of knowledge in this area, which Husqvarna has. We also work constantly on strengthening our people and our organization. We work a lot through local presence, local people. Interesting here is just a very quick story from India. We sent one of the former logging champions, again, a guy using Husqvarna, on a two-week road trip in September last year around India, actually only covering two states.
India is also a big country. He did 35 stops together with one of our Indian distributors. They reached over 100,000 people during those two weeks. We see that by very small means, we can reach a lot of people in these markets. To sum up, I believe we have a strong starting point. We have a focus on the dealer channel to grow it further, and also then our after-sales offering. We want to optimize our retail margins by working closely together with our customers, and we want to accelerate growth in emerging markets. Thank you.
I like to take you through the construction business. To start, I like to describe what our construction business is because the denomination construction is a very wide range of businesses. We can divide our construction business actually in two business areas. The one we talk about construction, and the other one we talk stone. In the construction business, we are focused on sawing, drilling, and grinding, machinery for sawing, drilling, and grinding, and all consumable diamond tools to support those products. In addition, we also have developed a product range of remote control demolition robots, which is very high linked to our sawing and drilling because many times a wire and wall saws are used for demolition work, and it's the same contractors that mainly procure this type of light demolition work today.
All these construction business we do in one single brand, Husqvarna. It's a very global business. The second business area is our diamond tool for the stone market, the stone. Here the brand is Diamant Boart, a leading brand in the diamond tool for the stone industry. We don't sell any machinery. We provide diamond tools for the machinery that exists in the market, a kind of industrial sales, selling direct to quarries and the processing industry. Both these brands are today the leading brands in its industry. Looking at the market trends in the market that we work in, the value of our market is roughly SEK 20 billion. We can split that. It's about SEK 16.5 billion for the construction and SEK 3.5 billion for diamond tool for the stone industry. These two markets are totally different.
As we are operating in highly sophisticated product methods, the construction market that we work in is very much focused on the Western markets, North America and Europe. That's a majority of those markets. The rest of the world is less than one-third of our market. In the rest of the world, Australia and Japan are the dominating markets. I can take an example. The sawing and drilling contractor business in China, for example, is less than the Scandinavian market today because our products are not that much used in new construction. It's mainly used in renovation, rebuilding, and repair. The future opportunities in China are, of course, huge. It's just a question, how soon is that market really triggering? It's growing, but it's still small. Looking at the stone market, it has changed rapidly in the last 10 years.
The key market there is the emerging markets. That's where the quarries and the processing mainly take place. Europe used to be more than 50%. It has changed. The European market is focusing on the quality products today, the high-end quality natural stone products. Of course, with the change in the Southern Europe, there has been a lot of that business that has been lost lately. U.S. is more of a stable market. It's depending on the residential market development. Development trends of the market here in 2012, the construction market still contracting in Europe as well as stone, heavily in stone. We see a recovery that started in North America, which was a big portion of our growth in 2012. Our sales growth came from North America. Of course, we see a clear and steady growth in the emerging markets.
However, those markets are still small. It's absolutely key for us to maintain a sustainable growth that our Western world market is recovering and provide that growth we are looking forward to. Market drivers, as I said, repair, rebuilding, and renovation. We see that markets with a well-established rental distribution have a higher penetration of our products than markets without. We see that the rental distribution does develop in the markets, which is a benefit to us. Increased labor cost is also very important because our products are normally competing with low-cost labor in the emerging market. Increasing labor cost provides opportunities for our product systems. Major competitors, none of our competitors really trading today in the total product range that we are providing. Hilti is today our biggest competitor in terms of the global market.
Tyrolit used to be, but they're losing grounds, but also a global competitor. Saint-Gobain mainly in the distribution side, rental and distribution, not in what we call the contracted direct sales business. Stihl, of course, our major competitor on power cutters, but strictly in that product areas. In diamond tools, we have two Korean companies that are our largest competitors today, Ehwa and Shinhan from Korea, but only in diamond tools. There is a number of small and local competitors, fragmented market companies in most of our markets. Based on the market situation, of course, our sales is also split. This is 2012 sales due to the growth in U.S. North America is today our biggest selling regions, but Europe falling very close. Latin America growing for us, specifically Brazil, that is a booming market right now for our type of activities.
We have, of course, Asia Pacific, but there Australia and Japan is the major market, but China is growing, of course. Africa is mainly South Africa, which is a market for our product today. If we look at the manufacturing footprint of construction, we have today a very well-balanced manufacturing setup. We have 8 specific factories for the construction products, specifically located where they are due to the product they manufacture. We have, of course, the Husqvarna main factories, an important supplier of power cutters and electric products. We have 2 factories in China, one for equipment and one for diamond tools. That's our low-cost factory for, let's say, the distribution products mainly. We have one diamond tool factory for construction in Europe and one in U.S., which basically do the same thing.
It's for the professional products that need high service, short service time to those 2 markets. For stone today, we have 2 factories, one for the segments and one for assembly. Segments in Belgium and assembly in Portugal, Keystone factories. Well-balanced for the need to service our key markets. Construction growth track record for those who haven't followed, this is the development we have. As you can see, construction business was heavily affected by the recession that started already in 2008, and we dropped more than 30% of our sales and business with, of course, a tremendous impact of our profit margin due to that fast drop. Since then, we have secured our foundation, and we now really focus on growth and coming back because we are a double-digit profitable business and should be in that range.
We are now up to 8.7 in 2012, but we also have, if we compare, have to understand that we are spending more in R&D today, about 2% more than we did in 2006 and 2007. We also, due to the investment the group do in IT, have about 1% higher IT cost compare. We have to have that in mind when we compare EBIT margin back in the 2000. Double-digit level, that's the type of business we should be in, double figure. To sum up, we can say we have, in construction, gone through a consolidation journey. We consolidate the brand portfolio very early from our acquisitions. 2 brands, Husqvarna in the construction, Diamant Boart in the stone business.
We made significant restructuring during the recession time here in 2009, closing factories, consolidating sales organization with the Forest & Garden, with the common back office in many markets to reduce cost, and also trimmed our sales organization where we lost markets like south of Europe. We also fully integrated those acquisitions in terms of organizations, brands, products, manufacturing, and all our acquisitions that we made are fully integrated according to those plans and strategies we had. That, with being part of a strong mother and being able to maintain a high R&D and product development investment during this time, have actually really strengthened our competitive position during this period. Right now we further move products and the manufacturing volumes to our low-cost factories.
About half of the machinery or the equipment that we develop is developed to be produced in our Xiamen factory. A lot of our diamond tool business that are volume related are manufactured or transferred to our China diamond tool operation. Product leadership is key for us. We have the strongest product portfolio today of our competitors, and we have the Husqvarna heritage behind us. We focus on performance, we focus on ergonomic design, and we focus on improving the operator's environment and saving time for our customers. Very few of our customers own our products. They are normally employed to use our products, and efficiency and time saving is key in our product development. That's how we would like to lead and change our industry. I'm not going to go through this. Example, every year we have a selectively strong product launch.
For 2013, we take our diamond tool further with the DiaGrip2 technology, where we improve efficiency up to 30% by being able to control position of the diamond in the diamond tool. Speed is key and becoming more and more important on diamond tool instead of cost. We also launch our biggest R&D investment, the high-frequency product range in handheld. It's a total new platform that provide a number of products that are being launched now in 2013, with the aim to replace our hydraulic products. There's a clear trend to replace hydraulic products with high-frequency electric products going forward. Our strong diesel floor saw program will be replaced this year due to the Tier 4 emission regulation for off-road machines that come in place here in 2013. Construction have a strong platform to leverage growth, so growth is key going forward.
We are clear market leader, leading brand positions, as I said, strong global sales and service organization. Service is key, and very important, we have a very strong profitable North American business to capture on when this market now recover further, which we expect in 2013. We have a well-balanced manufacturing footprint with a low-cost diamond tool, which was a joint venture which we acquired the remaining 20% here in mid-2012. Today, this is 100% owned operation in China. A continued strong R&D investment, which will give us promising profitable product launches as we go ahead. Our strategies is that we have secured our foundation. Now it's act for long-term success in terms of growth. That's the key in our focus. Priorities, ambition, of course, we are depending on the Western market's recovery.
Here, when they recover, we need to take leverage and take advantage of our foundational products because there is clearly opportunities, even if there is not growth to take market shares. Specifically focus on Central Europe on the contracted direct sales, where we have good market share growth opportunities. We have the growing floor grinding business, which is the fastest growing construction business in our product areas, and we continue to focus to take advantage of that growth and invest. Then take full advantage on our low-cost diamond tool, both for stone and construction, to grow our diamond tool business, which follow the machinery. Focus on emerging markets. We have investment and growth organization in Brazil, Russia, China. Now we continue with Mexico and other markets where we have our own sales organizations.
These are key market areas to capture the market when it's coming now as repair and renovation is increasing in these markets. Then we will continue to maintain our sustainable R&D investment to continue to provide innovative products to drive and support our growth ambition. Then working capital. We are a low-volume global business. We have worked with our account receivable. We can further improve our inventory situation by improving the flexibility, improve our forecasting, and the supply chain to reduce our inventory level. Summarize, secure foundation. We have a market leading brand and product portfolio. Focus is and priority is growth. Thanks.
Thank you, Anders. We open up for questions from the audience for Frida and Anders. Ulf, you can also come on stage.
Hi there. Thank you. Just a quick question on construction, actually. You've had obviously very impressive growth for a few quarters. I was just curious to ask you two things. One, if you look into 2013 on the European renovation construction market, we've heard plenty of companies saying that the weakness has spread north. Where do you see the biggest risks for disappointment and biggest potential for positive surprises in 2013 if you look in Europe? Secondly, I was just wondering, you had negative organics in the fourth quarter. I'm not sure if that suggests that we should expect that to continue going into next year, or if that was just because of the very strong growth experienced earlier in the year? Thank you.
Who can predict the European market? I wish I could, but in general, of course, we expect Europe to be challenging as we go forward. South, we don't see any recovery. We see continued drop, actually, in south of Europe. I don't think the Northern Europe will get worse. We have market share opportunities, so even with a stable market. It's clear there is no projection of big growth in Europe in 2013. It's fairly flat market situation. On your question about the fourth quarter, we have to remember we had a very big order last year to Saudi Arabia in 2011. We were actually a little bit up, but it's clear it was the European market situation in the fourth quarter that gave a lower growth for us in the fourth quarter, 2012.
You wouldn't be wanting to single out France or Germany or Italy or any of those markets seeing slightly different trends from each other?
No. Actually, the positive for us in the fourth quarter was that France and rental was actually recovering in the fourth quarter, that was a good trend for us.
Thank you.
I had a question to Frida with regards to, if you look on the European market, and especially within the electrical segment, which is now a specific category, what's the growth in that particular category compared to the other categories? What's your market share in that space, and how do you aim to grow this going forward?
Okay. If we start with the overall market on battery and electric, the battery part is still fairly small. The corded part is quite large, especially, actually, in U.K., where we have significantly smaller gardens. We see a growth starting with the professional users. That's why we want to capture them, and that's why we're focusing the Husqvarna brand now to more professional products. Henric will cover that more in detail. When it comes to market share, we have a good position on the professional side, and also on the consumer side, also within retail. I'm not commenting specifically on market share there.
Okay. Also, on your mass retail exposure in Europe, what lessons are you learning from the U.S. developments? Could you also give us some guidance on profitability in mass retail versus dealer channel, and what the trend is in mass retail?
Well, we have never in Europe been as exposed as the U.S. has been to mass retail. Overall, the retail channel is smaller in Europe than the dealer channel, and we don't see a change there. We see that dealer continue to grow. As I said, we are focusing a lot on the dealer channel. We have a strong presence too in retail, but we are avoiding the lower segments. We are focusing on the middle to higher segments in retail. Yes, we are profitable, but we can see we can twist it further.
Hi there. Johan Treger. Coming back to the battery products. In general, how big is electrical products of your portfolio? Specifically on batteries, are those products profitable yet for you?
Yes, they are. When it comes to the exact size of the portfolio, I'm going to have to ask you to wait till Henric can probably answer that better than me.
Yes, on Europe and the dealer channels, where do you see the largest potential in Europe? You have a fairly high share of your own sales today in the dealer channels. What kind of market shares do you see in different sub-regions within Europe, and where do you see the largest potential going forward?
Actually, we see the dealer channel growing across most of the mature markets in Europe and also into Eastern Europe. We also include Russia as an emerging market in Europe. We see a good spread, actually, of the growth. We obviously see a lot of growth in our core areas, such as handheld. As I said, we see also a growth starting up now in battery.
Dealer growth has been higher than the mass retail for some time?
I think the mass retail might be more affected in Southern Europe of the market conditions. Dealer is a little bit more high end, and it's more demanding customers, plus the professional users, and especially the professionals, they need to renew their products. When it comes to mass retail, again, we are not that exposed to those parts of mass retail that are mostly affected by the crisis.
Should we expect that your exposure to dealer channels will increase also going forward?
Yes.
When looking at emerging markets, including Russia then, when it comes to profitability, I understand that for the group as a whole, the profitability, the mix is a little bit weaker in emerging markets. Is the same for the dealer channels?
No. Well, emerging markets is basically the only dealer. It's a very different assortment. In emerging markets, you have primarily handheld and wheeled, and Henric will come back to that, but we do have a specific focus on those products into emerging markets because you need to have a bit of a different assortment there.
Expansion into emerging markets, will that be enhancing to margins or will it be negative?
Well, it should be good for the margins.
Thank you.
Hi. Chris Magnergård from DNB. Question on Europe. It seems that Triton will acquire GGP. Is that something that should change the environment in Europe at all?
First of all, we don't know that. It was just a speculation in the newspapers. If that happen, you shift an ownership here. For us, it doesn't mean anything here when it comes to shift ownership here. There might be, if there will be new owner, that they might go more for volume. We never know. We don't see any woes if it's Triton or 25 banks own GGP.
Okay. Secondly, when it comes to Asian competition in Europe, how has that developed over the last years? Have you started to see more Asian competition coming into Europe, or are they still not present except for the low-end categories?
You can see them in some low-end categories, typically with a single product or a couple of products. It's not a full offering, and even in mass retail, you do need to have some kind of service offering. If you don't have that, you might be in for one year, maybe two years, but then you're out again because you can't offer the service needed to the products. We see them, yes, but very limited so far.
Okay, the final question on the construction. It has been something that we have discussed over the last couple of years, whether the construction really fits into the Husqvarna Group or not. We can once again talk about the synergies. Are there synergies? You earlier talked about whether construction should grow a lot to really have a meaningful impact on the Husqvarna Group. Do you see the acquisitions, for instance, within this category?
First, I want to answer. Construction fits into the group here. There is no intention at all that that's for sale. I repeat that several times. It's not for sale. I do that once again here. When it comes to synergies, you can comment that it is more in the technology area.
Construction has been part of the group since 1958, if you go back, and diamond tools since 1987. It's a long and close history. Then I have to say also, 25% of our business is power cutters, with very close synergies in technology, two-cycle engines, et cetera. That's the most profitable part of our business, so it's a key part. The way of doing business, the service is very similar, if not exactly the same as a service and dealer business as we talk about. Also the product development on ergonomics and low weight efficiency. I think the whole methodology and construction fits and works. If we look at the group, we all cut something, cutting grass, cutting brushes, cutting trees, and we cut hard materials. It's a good fit.
You can just look upon these two products. One with this cutting equipment, and this is another cutting equipment. Basically, under the skin is the same product.
We took the early step of focus on diamond tools, the cutting equipment, and I'm happy to see that the group do that now for the chainsaw because it's an important part, the combination between the power head and the cutting equipment going forward to get an efficient product. It's not just power head, it's a combination that is key today.
Yes. I had a question on Europe. If you can explain a little bit how you see the differences in the decline in demand in Q2, Q3, and Q4. Is it weather? Is it the cycle, or where do we stand right now in your business as you see it?
In 2013?
On 2012.
2012. Well, as I said, it was a very wet 2012. That impacted in mass retail, of course, our sales of watering. It also has an impact on the people, the forestry workers and also the hobby users going out into the forest. Otherwise, we also saw. 2011, we had an extremely strong snow year towards the end of 2011. We did not have the same kind of sales out of snow products in 2012.
You haven't seen any sort of cyclical downturn? I think there were some comments about that yesterday in the European market later in the year.
Well.
Yeah.
No, go ahead. Sorry.
We haven't seen that any shifts here. Coming back to snow, we have to comment that a little bit here. That was planned already in the beginning when we did the budget for this year. We said that snow will go down after all these strong winters because we are filled up All the consumers is now for us here. That was a decision we took, of course, affected a lot quarter 4 and even a little bit quarter 3, of course. A shift I will not say that we have seen.
Definitely some tougher macro.
A tougher macro, yes, of course, we see that. That has affected us. As I said, I think in the beginning here, we were not seeing so much in the beginning of the year. It was mainly down in Italy and Spain. I think you comment a little bit, Spain for stone was affected a lot. Lately, third and especially fourth quarter, we saw a change going north here. That have a big impact in the fourth quarter that our customer, while it is more lay back here and wait and see, the orders are very good. Of course, they need to have a call off. They're seeing that are waiting, what's happened. More ready what's happened, they are, of course, with our retailers as well, and with our customers. That has been a shift in end quarter 3, but definitely during quarter 4.
Of course, we can't predict what will happen here. Normally, if we see good weather, when it comes to the professional products, we are not so much affected of what's happening in the economic environment here, normally, if you could look backwards here. Of course, the more consumer-oriented we are, of course, the more we'll be affected in that segment.
Just a detail maybe, the chart that show the size of the markets and the growth rates 2013 to 2015, is that your forecasted growth for the markets in 2013 to 2015, or is it someone else's, and/or is that what you base your planning on?
Well, we do use market research companies on all the major markets. Some markets are very difficult to predict. It's very difficult to predict how big is really the OPP segment of some markets, like Russia, for example. It's not an absolute science. It's the best estimates we have to base our market. We do believe, though, that it's as correct as it can be. We do put a lot of emphasis into business on market intelligence.
I noticed that most of the West European markets were at zero level for the average 2013 to 2015 growth rate, if I read it correctly. Will it be correct to assume that the pattern would be down in the beginning of this period, 2013 to 2015, and up a bit later in the period?
I think most of these Western European markets have been flat for quite some years. They are mature. I don't think that has changed much. I think, of course, as Anders was saying, we can't predict how Europe will develop, unfortunately. As Hans also was saying, the orders look good this year.
All right. Thank you.
If we have no more questions, then it's time for another break. Let's be back here at around quarter to 4:00.
Welcome back, everyone. Let's start with the last session of the day, and please, Henric Andersson on stage.
Now we will talk about products here for the next 20 minutes or so. We have market-leading positions in most of the segments where we participate today, and of course, that provides a solid foundation for the group strategic pillar having a competitive product offer. Here we for sure have benefits being a global player and being active in many technology fields, because there are real synergies to be had, sometimes on product level, but on component level, technology level, concept level between different areas. Just taking a very trivial example, if you want to step into battery-powered chainsaws. If you're done into battery-powered products like robotic mowers and you're into chainsaws, you will have a lot of synergies and a much easier journey. That's a very trivial example. To have market-leading positions, you have to consistently outperform competition.
You can, of course, do this in many different ways. The first one that comes to mind is, of course, in terms of product performance, et cetera. A challenge we have, and a challenge any organization have when it comes to product development, is that you need to make decisions today that will be judged 2-5 years later, when the customer will go and buy something and choose your product at that time versus what the competition have there at that time. That's a real trick. To make that even more interesting, at least that's my perspective, is that the customer preference might be different at that time than it is today.
Something that is very important to us is to live extremely close to our applications and to our customers, to really understand what are all the factors that affects how you cut a tree or how you cut grass, to understand all those different things. Also understand what happens with technology. What can technology do for us in that application three, five years from now when technology might come down in price to be readily available? We also need to make sure that we truly understand what's going on in the competitive landscape, what goes on in terms of demographics, what goes on with regulations, et cetera. This is an absolute core area for us to be really good at this, and I believe that we are really good at this as well.
This product that we show here on the slide is one example where we launch a new professional chainsaw that has unmatched power and acceleration in its class. Nobody's even close. That, of course, we accomplished by doing many different things, but the example I am trying to make now is that part of that is that we have an AutoTune system, which is electronics that optimize performance of the machine. There we applied for our first patents over 15 years ago. Just to show how important it is to be active, to work long-term, to understand where things are going, and when technology is ready, when the market is ready, then it's time to put it into the market. That's just one little example. I believe we have proven over the years that we have a strong record of innovation.
Of course, over the last three years, we have launched much more products than what is up on the screen here. These are a few examples of major launches or that were very innovative one way or the other. I will not take the time to go through them all here. I would rather focus on a few that will come for this year here now for 2013. One example or one product that's coming is the new professional trimmer family, the 525. Here, just like for the chainsaw, we're delivering unmatched performance. Nobody else is even close to the performance that you get out of this product. At the same time, we have reduced emissions and fuel consumption, and we have reduced complexity. As an example, in terms of complexity, here we're going from seven platforms down to two.
It's part of platform reduction I mentioned the chainsaw before. We have a top-handle chainsaw that we will be launching during 2013 as well. We'll also deliver unmatched power versus the competition, et cetera. There's several on this theme, and it's really our continuous strive for perfection. A lot of, specifically the professional products, is really chasing perfection to give that little bit of extra performance every time when we come out with a new product. Hans mentioned this one, Earl mentioned this one, which is the all-wheel drive lawn mower, which is an example of another kind of innovations. This is more where we innovate for consumers.
It's very important that we identify true customer needs, that we translate into something where we can offer a benefit, and we pack it as a feature that we can show it very clearly what it is, the customer understands what it does to them, and they can put a value on it. The all-wheel drive is a great example. It is basically a standard lawn mower, but we add this feature of four-wheel drive. By doing that, we can differentiate in a very, I would say, commoditized market segment. By doing that, we can both drive sales, but we can also improve our margins. Earl mentioned a couple of other ones that we did in 2012. The fast tractor. I think you missed the tight turn tractor that we also did. You talked about the BBC. Another one that will come during 2013 is the rapid release blades.
Most of you know how cumbersome it is to replace a blade on a lawn mower, especially on a tractor, because you need the tools, and you need to be down there, et cetera. Here we can do this without a tool, so it's a latching mechanism. That way, consumers can actually replace the blades much more often. Of course, all consumers see that as a benefit. For us, it has even further benefits because customers will most likely replace the blades more often, which is a good thing from an aftermarket perspective. They will be more happy with the mower because the results will be better. Then on top of that, to fit our latching system, you actually need a unique blade. That way, we can also benefit from that from an aftermarket perspective.
These are a few different kinds of innovations that we're doing to really try to target the consumer market. Another kind of innovation is when you truly change the market. Of course, we're not changing the market right now in that sense. The innovation here came earlier, where we basically went from selling lawn mowers to basically selling a service of a maintained yard all the time, which is something entirely different, and that is truly innovative. Here, we started that work 20 years ago, and now 20 years later, this market is really taking off and growing really fast and has done that for a few years. Now more and more people are stepping into this market segment. What we do here for 2013 is that we launch our third generation of robotic mowers. Fourth, if you include the first solar mower.
Here we now take the new step in terms of performance and reliability, because a lot of what we sell when it comes to robotic mowers is really that service, that it should work every time. It should never be that you come home after your vacation and it's stuck somewhere. A lot of the refinement in this segment is really to make sure it works all the time. Here we're making a new step change to make the machines even smarter, so we can secure that it can handle more complex yards and be even more reliable. Of course, it's key that we stay ahead here. The new generation, we update mechanics, we update hardware, we update software. Everything is new.
It's a new platform, where we actually can build on in the future because new technology will come, and we need to make sure that we are prepared so we can accommodate them on our products. That's a little bit on the position we have. If you look at the future here and our strategic priorities, there are two main areas that my organization will focus on. One is the reduced product cost and complexity, very much together with Martin and Sascha, that will come up here later on. The other one is to continue to invest into the right product platforms and make sure that we are staying innovative. I will touch on that a little bit later on. Talking about product complexity. This is not rocket science, but it's a lot of hard work, and it's a lot of hard discipline work.
We will have a lot of activities that can give us results immediately, and there will other activities that will take a bit longer. If we start to the left here, it's really where we can get results quick. It's basically range management. How can we reduce the number of SKUs that we sell between different markets but also in a market? How can we do that just being better structured, organized, and make sure that we do not lose sales in the process? The next thing that gives even bigger impact is if we can consolidate platforms. Takes a little bit longer time, but that's something we can do. Then we have what Hans mentioned in the beginning. We also need to deselect a few things.
Do we need to be in all the little small segments where we are today, or should we streamline it a little bit? Here we have a few things where we can get fairly quick results. A little bit more medium-term, so to speak, is standardization. That is to make sure that we, within platforms, across platforms, use the same parts every time instead of inventing something new every time. This also creates some We need some discipline, but it takes a bit longer because you really need to design it in. It also require that you have the same R&D solutions, and also you have the same manufacturing processes and things like that. The next step that gives even bigger impact, but takes even longer time, is true modularization. It's basically Legos, where you create subsystems and you put them together in a smart way.
That way, you drive down complexity all the way through the supply chain. That takes clearly longer time before you see the results. Here we have a few projects on the way already, but before we see a real impact here, it will take a while. This is really a journey that we need to embark on. Ultimately, the goal is, which Hans also mentioned, is to reduce the number of platforms by 20% here by the end of this three-year period. Reducing cost. Complexity really plays into this one as well, not just because you get greater volumes when you purchase or nothing goes out the source, but also for return on investment in R&D. The R&D effort to reduce cost in a product, if we sell one or 1 million, doesn't really matter. It's the same effort.
Of course, with less complexity, we get much better return on investment when we do the cost-out activity. There's a clear link between complexity reduction and cost. We have value engineering, which is somewhat of a fancy term, but at the end of the day, that is also just discipline and hard work. The top level of that is really to make sure that we feature the products right for what the consumer actually is willing to pay for. We do not have features in there that they're not really paying in full for. Really to have a more structured approach where you evaluate your features and if you get paid for them or not. That's something that we need to do in a more structured way going forward. The other extreme, if I go to the bottom, is pure cost-out.
You challenge an R&D team together with manufacturing engineers and purchasing people and maybe the supplier themselves, and basically task them to deliver the same thing but at a lower cost. This is basically just a lot of hard work. Here we have come pretty far getting this up to speed in the U.S., primarily now supporting Earl's business and in the retail business. This is where we've come the furthest. Here we're even testing a new IT tool that actually helps. It links with our CAD systems where we can actually simulate different manufacturing methods. We can even simulate doing it in-house or source or if it's worthwhile going to low-cost countries versus being close by, et cetera.
It's of course not, as a system, 100% accurate, but it gives guidance to the engineers very quick, so they actually review more options before they lock in a solution. This is something. It's still very early, but where we have some positive results. In the middle is, of course, to make sure that we review specifications, materials, but also platforms. Often, we sell a certain product to the customer, and it's based upon one platform. Could we do the same offering to the customer, but based upon another platform and by that, bring the cost down? Okay. This is cost and complexity. The other thing is then investing into select areas, targeted areas. Then I talked about trends a little bit before.
There's so many things we need to make sure we all the time stay on top of, so we make good decisions when our products are out there, we are well-positioned. There are a few things. We have a long list, of course. This is a very high-level summary, we can see we have an aging population. It puts more requirements on ease of use, on services, et cetera. We see changes in buying behaviors. Customers are much more Internet-informed, and will transition more and more into even purchasing over the Internet. That actually have an impact on products, because if we want to ship those products direct, et cetera, then we need to make sure that the products are ready to be shipped direct, et cetera.
Not saying that we will in this time frame, we need to make sure that the products are ready when we are ready to go to the market that way. We also see that gardens are changing. In heavily dense areas, gardens are getting smaller and smaller and requires different kinds of machines. We see gardens moving up on roofs. We see gardens being vertical on walls. Finding green areas in the cities takes new shapes. Here it's important also we stay on top of that to understand what implications do that have on our products. Frida mentioned, Earl mentioned commercial lawn and garden is a big opportunity for us. That is a segment that is growing. We need to make sure that we are there with the products.
Frida particularly talked about increasing competition in retail and also the trade brands, a little bit about the supplies coming from China and so on. This is something we need to be prepared for. We have the growing emerging markets, I will come back to that later on. We have new technologies, just a couple of obvious examples with battery and robotics that, of course, are here to stay and is something that will grow. On one hand, we will really step up our activities in cost out activities and in reducing complexity. At the same time, of course, we cannot lose our edge when it comes to innovation. To make this work, we need to make sure that we are very clear on where we spend our resources and to be very disciplined in when we execute.
The key now is we have revised our product strategy a little bit to be much more precise. What are the core areas where we should really put the additional attention from an innovation perspective? Are there certain business areas where we should increase the activity? One example could be emerging markets. Another one could be battery and robotic. There are several of these where, for business reasons, we need to make sure that we are aligned and make sure that we really put the efforts in where we need them. The third bucket here is the real long-term work. As I said before, with the AutoTune, we had worked with it for 15 years before we put it into the product.
I'm not saying we worked all the time for 15 years, but sometimes you have to wait for the next step in technologies to happen and so on. To make sure that we are very disciplined in what technologies are core to the company, which are the ones where we really need to stay at the forefront. In this area, over this period of time, I will spend more money and resources than we did in the past to make sure we secure the leadership in our core technology areas. Just to use the picture, one obvious area is engine technology for handheld products. Of course, we have to make sure that we always are leading edge here.
There are a bunch of others of these that we also have here on the list, that we need to make sure that we have a long-term approach, and we make sure that we're always in forefront from a technology perspective. If you take a couple of specific areas, we have battery. There was a question before, how big was the electrical business of the total? Today it's still less than 10% of our sales as a category. There are pieces of that business that is growing very fast. As I think Frida said, the corded part of that business is fairly stable or even somewhat, for us, declining, and it becomes more and more commoditized and so on. We have the robotic that is really taking off, and in several markets is now a true category on its own.
It has become a big part of the total lawnmowing market. We see this coming now in many different markets. We, of course, have our new battery-powered handheld products, that market is still extremely small, but growing. I didn't have one of those here, unfortunately. They are out at the other place. We know it's coming. What's driving this is, of course, ease of use, low noise, and the environmental awareness, et cetera. There are a lot of reasons to believe that the battery part will grow in the future. Technology will become cheaper and cheaper. This is an area that's growing. We need to make sure that we are 100% engaged in this segment and make sure that we are part of it, even though short term on the handheld side, we should have very reasonable expectations.
It will take a while, and it will be different from one application to the other. In the robotic area, we are the clear market leader. We started out with 100% market share. Now, of course, the key is to make sure that we keep it as high as we can when more and more people step in. Here we are, of course, investing a lot and making sure that we are staying in the lead. On the battery price, particularly the handheld products, just one thing that could be important to know is that we need to go pretty wide from the beginning in terms of the products. Because in this segment, the customer buy more of a system.
When you have invested into one battery pack, you tend to buy your next product-- if you bought the chainsaw, when you buy the trimmer, you will most likely buy the trimmer from the same manufacturer. We need fairly quick to get up with a wide range to make sure that we are system supplier here. It's a little bit different than from the petrol side where the mentality is a little bit different. Emerging markets. Again, both Frida and Earl talked about that as well. These markets have a big growth opportunity for us. In these markets, handheld products will for sure lead away. Even professional products will lead away. As time go, we will complement that with some wheel products, then primarily we are looking into the tillers.
One strategy we have that we will accelerate here going forward is that when we launch new chainsaw, for instance, when we launched the new that I showed on picture before, then it's a smart move to take the product that one replaced, the proven product that we are phasing out, and actually move that to a factory close to the main market, if that is to Brazil or to China. Make sure that that proven product that is actually better suitable for that market with less complexity in terms of electronics and those kinds of things, and use them for the emerging markets. This is something that has been done in many different industries. We have done it, we just need to make sure we are accelerating this.
Basically taking proven handheld professional products, when we are retiring them, so to speak, in the developed markets, we move them to the emerging markets. That's one thing. Second thing is we need to make sure that we adapt these products better. Here, I think we have been a little bit too stubborn, if I reflect a little bit, we need to do more adaptations to fit the market. Adaptations can be simple things like detailing or tweaking of products. It's not major design things. We need to design for specific applications. Just like in the developed world markets, we think about cutting trees and so on. In a lot of these markets, they are working with coffee or tea or palm oil and a lot of applications, that are big applications that we're not traditionally into.
Here we need to make sure that we also pick the ones there that are important to be a player on those critical markets. There will be some dedicated product development for specific applications. As I said before, we need to make sure that we can add some wheel products to go along with this offering. It's really the pro handheld that will lead away, the other things will come as we go. Some enablers or just things that are important for success. Time to market is absolutely key. I mean, not just for innovation that everybody thinks about, but also when it comes to complexity and cost.
Ultimately that means return on investment to make sure that we keep the pace up in what we do, and that we have a robust process and that every time we run the cycle that we do it better than we did the last time. Second thing is primary development. It's a little bit what I said before about these core technologies and the really long-term work that's outside our generation plans that are really looking for the future, but also for the really innovative or technically challenging things to be a little bit more disciplined to lift them out, take them to a proven concept before we move them into projects. Make sure that we do that in a more robust way. When we don't, the experience is that our time to market is not what it's supposed to be.
Third thing, product differentiation, always key, especially when we start to reduce platforms. In the end of the day, we need to make sure that whatever our offering is, it needs to be relevant to the consumer we're targeting and the brand that we are selling. Here it's very important that we become even better and smarter in how we differentiate between different brands, channels, and for different consumers. The last piece is industrial design. That our products look good is very important. Doesn't matter if it's for consumer or homeowner, for professionals. Attractive design is important. Even more important is that they look right. Look right, I mean, for instance, if you want to sell the most powerful chainsaw, ideally it should look like the most powerful chainsaw.
If you want to sell the most lightweight chainsaw, it should probably look like the most lightweight chainsaw. If you want to sell an all-wheel drive lawnmower, Earl, we want it to look like something that's four-wheel and all-terrain, right? Design is more than making it look attractive. It's very much to make them look right to help us to sell the right thing and to convey the value the product have to the consumer. The third component is, of course, to make sure that we're consistent across the brands we have. That's why I would like to emphasize the design here. That's a key thing for us. Summary, three points. Starting point is actually good. We have strong positions, market leadership positions in most of our segments. We will continue with a high rate of innovative product development.
We will be very disciplined, though, and selective where to push this. The third thing is that we will step up our activities in terms of reducing product cost and product complexity. I think that's what I have. Thank you.
Okay. We've shared a lot and you've heard a lot about our customers, about how we address the markets, about the products that we are producing in order to serve the markets. I will talk about how do we actually get this to the customers. I'll talk about manufacturing and logistics. We talked about the footprint, I don't think we need to talk about this map further, but perhaps a little bit more information around our sites and how they are split. We talked about the left site. This is Forest and Garden now. If we look at the share of FTEs, meaning employees, we see that the majority of the employees, or half of the employees, I should say, sits in the U.S., in the North American sites. We have the four sites in Asia plus Brazil, which operate with around 1,500 employee of FTEs.
Europe is around one third of the employees, versus two thirds of the sites. You see that this average size of the factories in Europe is, of course, smaller also given the different product mix we have. Remember, we have watering sales largely in Europe. We don't have that to that extent in the U.S., and clearly no manufacturing of that in the U.S., et cetera. To give some numbers, we are operating a footprint which produces around 8 million units of handheld products every year, around 4 million units of weed products every year, and watering, now it's not so easy. This is a wide range of products. I'll come back to that. It's around 40 million products every year that we send into the market. It's obviously quite an operation we are operating here. What's the challenge here?
Maybe you may say, what keeps me awake at night in order to operate this footprint? Some of the themes that I come to here have been explained, but give me, please, a couple of minutes to also explain what that means for manufacturing. The first one is clearly around seasonality. It's been mentioned a couple of times today. What we see in the financial development and the overall sales development, et cetera, is, of course, even more amplified within the factory, specifically if we are focused on a specific segment. We have the majority of our sales in Q1 and Q2. That means we are ramping up production towards the end of the calendar year, it's the high season really also in Q1 and Q2.
That in itself is not that much of a challenge that is different to other seasonal businesses, you may say. I think a key challenge that we have compared to somebody who's producing Santa Clauses and chocolate for Christmas, for example, is that at least they know that it's every time December 24 that is the key date. We don't know that to that extent because that leads me to the second point, we have the weather influence in it. The weather is largely influencing when the season for a certain product category starts, how long the season is going to be, and how amplified or how strong the season is going to be. An example that has been mentioned, let me reiterate. If we have a very dry season, we need a lot of watering products.
We've got lots of work ongoing in the factories doing the watering products. Obviously grass is growing slower because it's very dry. That means we need less cutting equipment. You can continue that story further. We need to find a way, and we believe that we have a good To respond to that flexibly, and I think we've got a decent setup, as Hans explained earlier, on flexibility. Also, we believe that's the next step we need to take to even drive that further into the next dimension. I'll come back to that later. Lastly, the third challenge is a quite wide product arrangement. Product assortment. Product range, sorry.
We're talking, if you wish, from a small shovel for the garden up to a car-like tractor or a robotic mower or a combustion engine where we are pretty vertically integrated and really produce those engines ourselves because this is a core competence we need to own and want to own and will own. It's a wide assortment that we operate in those factories with. That means, of course, that each factory has a different focus and different challenges and opportunities for that sake. That said, what does that mean for manufacturing logistics in terms of supporting the strategic priorities of this group? It's, of course, to further optimize the footprint, and that has been discussed earlier. I'll come back to that. We've done a lot in the past, and of course it will continue.
Even more so, it's about how do we use the base that we have now even more intelligently in order to balance the mix between local, regional, and global production, and hence increase flexibility. Let me come to that in a little bit more detail here. As for any business from a manufacturing or a supply chain point of view, product availability is key. How do we get the products to the customers when they need it? In my opinion, and/or in our opinion, it's even more important in a seasonal business because you have a short window, right? It's quite unforgiving. If you're not there and the season's over, there's no demand. Having the right product at the right time where the customer picks it up or wants to pick it up is key to be successful.
Excuse a little theory around it, of course, there's theoretically three levers to get there. One is we drive inventories up. If we have, in theory, infinite inventory, we have infinite product availability. I would say that's theory because practical, I don't think that is the case. Even more, we don't want that. I trust you don't want that. Our answer cannot be more inventory. It's more about having the right inventory and rather less inventory. This is not the solution. If Frida or Earl, for that sake, could tell us from the manufacturing side exactly what they're going to sell Monday morning in two months from now, it would also be pretty simple for us, we can say. Of course, in a seasonal business, as I described it earlier, forecast accuracy also from an operational point of view is very challenging.
Whilst we see jointly a lot of improvement potential still in this, it's nothing that will make the trick eventually. We will never be at 100% or even at a normal consumer goods company forecast accuracy that is just worrying about campaign activities and so on. It's the weather that drives a lot. Then there's only one answer. If it's not inventory and it's not the forecasting, we can only drive the reactivity of the chain or the flexibility of the chain. There's a couple of levers we can pull, and some of them have been mentioned already, and some I'll go into a little bit more detail now. One is the footprint, and you've heard me saying that already before. It's about how we balance what we produce where.
Similar to what we said about sourcing, it's not about the low-cost country per se, it's about the best cost sourcing. It's similar, you can make the same total cost argument, of course, for our own production and where do we allocate which product in order to respond in the best way with the least inventory. I come back to that. Warehouse consolidation is a key driver, and we've driven a lot in the past around, of course, reducing cost, also reducing inventories. The even bigger impact from my point of view is in a seasonal business, we need to keep the stock as long as possible central in order to have the late decision point whether to send the merchandise to, for that example, Southern Europe or Northern Europe or whatever. Warehouse consolidation helps. Supply chain integration. It's not just the factories.
Then, of course, within this footprint, you have the factories themselves that need to be flexible and quick and changing over products and so on. I would say that this is normal homework of a factory that we are driving. The second one is, it's not just the factory, it's the supply chain integration. How do we make sure that our factories are well and better connected to what's happening on the market and towards the suppliers? It's about information flow. How quickly do we get signals from the markets through our factories to our suppliers and the ones in front of them. Also, how can we make sure that we've got a good oversight of the physical flow of the material and can do that as quickly as possible.
Ulf has mentioned earlier that there's also an intent to, a plan to strengthen our ERP setup, and that will be also a vital element in that respect in order to increase transparency and process integration. Lead times. If you're running an operation or a seasonal business which has a month season, if I take a trimmer, for example, I come back to that example later, three, four-month season, you cannot operate that with a component flow of six months, right? There's a mismatch. The shorter we can reduce lead times, the more we can strengthen product availability while it's not doing it with inventory, but actually flexibly. That is something that we need to do inside the factories, but also, of course, moving towards the suppliers, and Martin will come to that later as well. Lastly, complexity.
I will not go into a lot of detail because Henric has explained it, but of course, that is a key driver in order to increase flexibility. If we have more sales on fewer SKUs, it allows to be much more flexible in terms of safety stocks and positioning of our merchandise. Range reduction will be key, but also later product variation, and we're taking nice inroads in order to create products more for manufacturing and making sure that we can decide on which variant it's going to be as late as possible in the process, in an ideal world, as late as in the final warehouse. Footprint is not a new story, and has been also the initiative of the last years. Quite some, as I mentioned earlier, quite some has happened. We've reduced factories by 20% over the last three, four years.
Same with warehouses, or even more with warehouses, we've reduced by 40%, specifically in Europe, reducing a lot of national warehouses and consolidating them in fewer regional centers. For example, out of Ulm, we're serving by now all Southern Europe up to, of course, the German-speaking regions, up to Belgium, Netherlands, but also down to Sevilla and Sicily. That helps to, of course, increase flexibility for a seasonal business. Both are journeys that we believe need to continue. Obviously, I would also say the big steps we have taken. Coming back to the factory, there's two factories that are high on the minds, I would say, at least I guess so. I pick them out. One is Orangeburg, and it's been mentioned also earlier by Earl. I think it's good to say that we are back on track and have a very well-running factory as we speak.
A lot of the issues that we were facing 18 months ago are far behind us. A key area of improvement in this has been the whole setup of the material flow and the warehousing within the factory. Now, mind you, Orangeburg is our biggest facility producing tractors, which is really like an automotive manufacturing. It's huge volumes coming in. We're talking hundreds of loads every day going in and also going out. Having said that, in season, of course. Having said that, managing the material is key, and there's been quite some upgrades to, number 1, include all the raw materials and components into the facility and site management, ensuring that there is much more seamless product flow.
Secondly, we upgraded the whole material tracking with barcoding and scanning systems, which is what you obviously do in these kinds of environments, but it helps us to manage much better the material flow. We also manage our trailers and other improvements. Big step forward there, but also from the capacity and capability view, we've significantly upgraded. As you remember, we've moved the Zero-Turn from Beatrice into the Orangeburg facility. We have now a setup where we really have a good match with capacity as it relates to welding, as it relates to painting, to support the seasonal business. Also in terms of dedicated lines for key products, specifically separating the really complex professional products from the less complex products. It's working very fine. Productivity and throughput are up again and back on track.
We've reduced the raw material holdings and component stock compared to where we were. We're also looking forwards to early to announce, of course, but we're looking forward to also getting the ISO certification for quality first time during the first quarter of this year. Another facility closer to where we sit right now, Poland, our factory in Mielec. The intent of that facility is to be a wheel hub for Europe, and it's up and running. Running well, with high delivery performance, high quality. We have a very good rider assembly line where we do all the riders that used to be in Sweden, eventually in Poland.
We've got a very state-of-the-art assembly system that supports the complexity of the range by also allowing a one-piece flow, but also supporting, of course, the kind of workforce we're getting in Poland, specifically around temporary workers, to make sure we get this in a good balance to support quality here. Second, an assembly line for the walk-behinds, which is pretty straightforward, but is combining all the walk-behind products we moved there, Klippo brand, as an example, and running also very well. Well-integrated, something which may seem obvious, but if you create a new factory with a new team and lots of new people, we need to make sure it's integrated well into the supply chain of the rest of the Husqvarna Group. That is working very well. We will be completing that transfer by the end of 2013 with the final move from Sweden.
That on two factories. How do we continue to think now about the footprint going forward? I mentioned that earlier, we believe, and I'm convinced that it's about balancing the need for flexibility and efficiency. Further optimizing total cost and inventory whilst improving delivery performance further. To take an example, let me take that example of the trimmer that you see up there in the middle. A trimmer, as I mentioned earlier as an example, is quite a seasonal product, so we have a short season and relatively unpredictable. For that product, it's of course much better. Actually, it's not very nice to transport because it's very difficult to package, right?
Doing such a product, we are much better off doing it close to where the market is rather than doing it far away with eight to 10 weeks lead time in between and lots of risk around stockholding or product availability. That is a product where we would like to be much more flexible and much more in the direction make to order. Our business, specifically in retail, 24 to let's say 72 hours of order lead times for the customer. We will never be in a final make to order state, but it's the direction and the pull thinking of a factory that we're implementing here. If you take the other extreme, where we can go for more global efficiency, it's the products that are more predictable, that are less complex or less bulky to transport, that have less variance. Example here is the entry-level chainsaw.
A chainsaw is a seasonal product as well, don't get me wrong. On the other hand, it also has two seasons. There's a spring season and a fall season that helps us. The risks are reduced, and we can go even more for efficiency. Then there's many other products that lend themselves to that. Then there's some in between where we may not be as local. Of course, we need also efficiency of combining volumes into a region, serving many markets. That may be here more the example of tractors and I think also the, and riders, the Mielec factory is a example of that. That said, our aim is to further rebalance that setup.
Making sure that we serve our markets even better with less inventory and still being in a better total cost situation by taking those effects into account. We know these potentials are there and we see good developments already. On components, it's the same thing, obviously. Obviously doing the components, you can even say it's a little bit less risky to do them far away, but it's the same thing, specifically if there is not the same amount of standardization and a lot of complexity. Those initiatives will help. Even more so, it's about make versus buy. Hans alluded to that earlier as well. We believe that there's a couple of areas where we need to even strengthen our manufacturing footprint because manufacturing is a key element of how we create value and how we protect also our competence and stay ahead of competition.
Of course, saw chains and cylinders that were announced yesterday is a prime example of this, which I will not go into more detail here now. On the other hand, there are some where we can also afford to be less integrated, you may say, and rather use the global sourcing markets than doing it ourselves. That will lead to some shifts as well. The future direction is we will rebalance what we do where, and that may mean that we move some products from one factory to the other and vice versa. Of course, also it means as we realize more potentials to consolidate, we will do so as well. Then talking about the footprint is only that much of the equation, of course. That's a structural element of it, and it's key for us from a cost and a flexibility reason.
Of course, manufacturing is also about what's happening in the four walls of the factory. I will not bore you now with lots of details around what we're running internally, but it's clear some of the initiatives that Henric has mentioned and were mentioned earlier also by Earl around reducing cost. Manufacturing is a key part in it. We are supporting that, but also to drive flexibility. You may recall, the ones in here who follow us a little bit longer, is that we launched a lean production system or our way of lean production a couple of years ago, end of 2009, which we call HOS, the Husqvarna Operating System. I'm proud to say that this program has really gained very nice traction across the sites and is delivering nice results.
Driving improvements within the four walls of the factory, that is the initial focus, whether it's cost, quality or flexibility, which is, I think, a key differentiator also to other lean production system, that our flexibility issue is so dominant in our seasonal business. We've also rolled out HOS by now to logistics because there we need to do the same thing, specifically in our own warehouses, of course, in terms of driving waste out and getting flexibility up. We also, and had first pilots also with suppliers, and Martin may come back to that to also drive with the HOS concept, the total cost optimization between us and them. Good work ongoing, and I'm looking forward to further drive that, and it will deliver further benefits. That said, what is the summary? In our view, the consolidation of the factory and warehouse footprint is well underway.
It's not over, it's never over. Also the big step is taken. It's now the further need is to balance the mix of global, local, and regional production and make sure that we further optimize the total cost. Lead time reduction is a key element in this in order to drive flexibility and hence also decrease inventories whilst maintaining and increasing further delivery promises. Lastly, HOS as a key umbrella to drive operational improvements within the four walls of the factories, but as said, also moving out. Moving out to suppliers as well. With that said, I hand over to you, Martin.
Thank you, Sascha. My name is Martin Austermann, and I'm responsible for Group Global Sourcing, and of course, that is the topic I'm going to talk about. The first part of my presentation is give you some update on some figures and procedures that you understand a bit our sourcing area and our sourcing exposure. In the second part, I think my colleagues related already to that a couple of times, is the big cost reduction project we are running in the group. You've seen that already from Hans. A couple of big achievements. These were two of our key KPIs in the group. One was the reduced supplier base. You remember that a couple of years ago, Husqvarna had a lot of acquisitions.
Besides Gardena, it was Zenoah in Japan, it was Jenn Feng, and of course, when you buy companies and you add a complete new supply chain to your supplier base. We worked this supply base down more than 25%. You have to know even the gross number was much higher. We moved a lot of production to Poland as we have also localized suppliers there. We moved a lot of production to China, we also had to create new supply base, and we got a lot of new technologies such as battery or electrical motors. The gross number in our supplier reduction is even more than 35% if we add these developments into new countries or new technologies. The net number is still more than 25%.
This, of course, when we talk about complexity, supplier alignment, supplier management, this is key for us to drive further and have a better focus on these key suppliers. The other element, low-cost country sourcing. Hans talked already briefly about this, that we will change the agenda here a bit. Of course, this was a common trend in all the industries that everyone said, "Okay, we now need to go to China. We can save 20%-30%." Of course, we did this exercise as well. We could increase significantly with 65% as a part here of the low-cost country sourcing. We go to the next page, you see on the right side, these are where the suppliers are located in terms of spend, and then the order is in falling magnitude of the spend.
There you see that emerging countries such as China, Eastern Europe, Taiwan, and India are now on our list. China is, of course, obvious. We have plants there. We have our own purchasing organization there, so we know the market pretty much, and it was more or less an easy start there in China to get the localization. Nowadays, we not only serve the Chinese factories, of course, we have a lot of export from Chinese supplier into the European supply base or the American supply base. Eastern Europe was a bit left behind in the group, but we took big initiatives once we decided to start the production in Mielec or even before. Now also we could say after two years, I think, production on Mielec, that we have localized more than 30% of the purchase volume of the assessable purchase volume now in Poland.
By end of this year, we will be above 50%. The journey will continue, especially in the mechanical areas such as metal parts, plastic parts, and aluminum casting parts. You see Taiwan and India. We also have a purchasing office in India where we mainly buy casting parts such as cylinders or gearboxes and other parts. Beside that, you also see that we are still in our big sourcing countries where also our factories are. U.S., Sweden, Germany, and Japan. The left side shows you a bit our raw material exposure. This is not our purchase exposure as such, so it's a raw material exposure, and that includes direct raw material purchases as well through our suppliers. You see that by far, the steel exposure is the biggest with 37%.
Partly, we buy the steel ourselves for the factories in America and Orangeburg and McRae , but we also buy lots of steel through our suppliers. We don't buy the steel as such. We buy stamped parts or turned parts or fasteners or these kind of things. Number 2 is plastic. We also buy some plastic materials ourselves, but very low. The majority is bought via plastic parts through our suppliers. That's another big area. We have aluminum. Why aluminum? In every engine, you find a lot of aluminum. The gearboxes and the housings, the cylinders, pistons are all out of aluminum. Again, we don't buy aluminum ourselves. We buy through our suppliers.
We have a couple of smaller areas such as oil, copper, lead for our motors or the lead batteries for the tractors, liner boards for this packaging, and a lot of other diverse material also such as rare earth material, palladium for the mufflers, et cetera. When we have a short look into our purchasing cycle, maybe it is interesting for you as well, how do we work? First of all, as in the group, we work on a three-year strategy. What is inside this three-year strategy? It is more or less the KPIs, the headlines, what do we want to drive, what are our priorities in terms of supplier footprint, in terms of material consolidation, standardization as well. We turn this into a commodity strategy, how we call it.
We have about 30 significant commodity areas, such as engine is the biggest one or cylinders or pistons. We have 30 of these. We make an explicit commodity strategy for this specific area. There we talk about activities, supplier development. Do we need more LCC suppliers or more localization, or what are the needs for a period of three years now? When we have done this, of course, we get into the annual cycle, that typically starts for us in September when we do the price agreements with the suppliers for the following year. We need to make sure that all components are available, that the quality is right, set up for the season, which typically starts in November, December with the first production. That is basically how our activities are linked.
I said I will talk to the last piece here of our strategic activities, and that is the product cost. You have seen this already from Henric, I want to emphasize once more how important this is for production and also purchasing, especially the first piece. As said, we want to take out 20% of our range, we want to invest in standardization and modularization. Why do we want to do that? One piece, as Henric mentioned, is utilization. If we have equipment also with suppliers, if we order 20,000 a year, you also have a depreciation in the piece price. If you can lift this volume up to 40,000, of course, immediately depreciation goes down, you can get the prices and the cost down. This, of course, also goes in further automation.
If you have higher volume, you can concentrate more, buy more equipment or new modern equipment to run the process much more efficient and get the cost down. That is why mid-term and long-term, like Henric said, this left side is also so important and one of the biggest levers we have in purchasing to get the cost down. Henric talked about the middle piece, I will give a couple of examples on that as well. Where do we see it? You have to see this really as a linked model, also we, of course, take activities on top of these, you see these in direct material cost reduction, the conversion cost, that is mainly our production cost, the logistic cost, where we also have programs to reduce it. You have seen this chart from Ulf earlier this morning.
Our COGS stands for 72% of our sales. The biggest piece there is either direct material or raw material, which is 55%. The conversion cost sits as 16%-17%, and in the conversion cost, we also have the inbound freight, whereas the outbound freight and the warehousing sits here in SG&A. That means, okay, if we want to get cost down, we basically also have to concentrate on the material. Here you see again the different elements, the direct material, the conversion cost, and logistics. How do we want now to drive this cost reduction program? I want to take one after the other here. First, direct material. Again, the biggest piece, 55% of the COGS. We will start in two weeks from now, we will start a big supplier program.
We have a big supplier day in Husqvarna, where we want to address a significant message also to our suppliers. In the past, we were pretty much focused on, okay, what do we do next month? What do we do in three months? What do we do in one year? That was a bit the focus we were working on. We're addressing a significant expectation to our suppliers. It goes for cost, it goes for quality, it goes for delivery. Sascha mentioned how important delivery is in our very seasonal environment, it, of course, also goes to technology. We need the supplier to support our new products. We are not just talking about 1% or 2% price reduction. It's more. We not just talk about 10% quality improvement or delivery. It's much more. We will have very ambitious targets there.
The message to the suppliers is as well, we want to work on a three years program with you, like we have said here, right? If you invest now in the relation to Husqvarna, you don't need to risk that after one year, we take away the business from you and then you have lost it and the investment you have done in our relation is gone. Now it's different. If the suppliers commit to our program, then they will get in return, they will get a three years agreement from that. That's significantly different to what we have done before. Part of that agreement is also that we want to do a complete value stream mapping with our suppliers. That starts going with the team. We have done that already a couple of times.
Going with the team to the supplier, see how the material flows through its production, how the material gets into our plant, where do we keep stocks, do we have the right stock levels at each point, or can we improve the whole system? We definitely think, we have some proven projects here, that there is a significant potential in that area. Like Henric said already, we have these value engineering and product cost comparison, also product tear downs. You really put the product apart. You take also some competitor's product and see, okay, what can we learn from others? Where are we better or where the competitors are better, where can we get further cost reductions? Sascha said already, localization inbound, outbound, or insourcing, outsourcing. We will reflect our situation once more.
As we said already, we will invest in cylinder production. We will invest in chain production. There will be other areas also where we will do some outsourcing because the leverage is better either outside or inside our company. Cost versus quality. In the past, we didn't have really a good assessment. We took also some risk moving some parts or some technologies to China. We found out the quality costs we had later were much higher than what we could save before. We have to have a more solid quality assessment program with our suppliers, and that is now in place that we have a clear assessment on this topic. The other element is conversion costs, that typically sits in the factory area with Sascha. Here we talk about lean manufacturing, the HOS, the H-O-S, what Sascha talked about. It's capacity utilization.
We know now all factories are not utilized to the best degree. When we move some products around, we think we can do much better. It's about line rates, balancing the lines as such. It's about, of course, overhead reduction, waste, scrap usage, and material flow and flexibility. We see that also here, even if we have this HOS program already since two years, three years, still significant potential. Another area is logistics. Just as an example, if we have now maybe two suppliers north in Sweden, they ship to our plant in Husqvarna. Do we make sure that they use the same truck, that the same truck is completely loaded? Because a truck from north Sweden to Husqvarna is the same cost if it is fully loaded or half loaded. Not in all cases today.
We have significant potential here in terms of truck utilization or container utilization when it comes from America or from China. Also, the whole piece of the supply chain management in terms of material planning, warehouse planning, inventory, supply inventory, and rates. We still see lots of potential in our company. You may ask now the question, okay, isn't that what I read there, isn't that state-of-the-art, what companies do already for years? I would say yes. We do also some of these elements already since a couple of years. What was missing a bit in the past was also complete alignment with our teams, with our agendas. Just a couple of examples here which come to my mind when I speak about that.
In the past, it could have happened that R&D was working on a new project and was looking for new technology and purchasing was surprised that something like this comes up. R&D complained about sourcing. Sourcing came back from suppliers, they have brilliant ideas how to reduce the cost. They went back to R&D. They say, "Okay, I don't have any time for you. I have to care my new product launch." Or maybe we have moved a supplier to India and purchasing felt very great because they had a 10% piece price reduction. Then in the factory, that part was missing, and at the end of the day, we had to fly in that part and maybe even have caused more cost than before.
This is, of course, a bit over-stressed, that situation, but I want to make sure that alignment on these activities is absolutely essential. We now have a structure in place where Sascha, Henric, myself, we are driving these activities, and all the people below us are working in cost teams to get the costs out. It's around products or it's around suppliers or it's around processes. This teamwork and alignment should really make the difference here. Also how we steer that project. We have a very clear project ownership. We have the people working on it, and we have ambitious targets to really get the max out of this. We are fully committed for this program, and we think it's not out of range. It's possible to run this program. Also imagine we have 15,000 people in Husqvarna.
Probably we have another, I don't know exactly of course, but roughly another 15,000, 20,000 people at suppliers which permanently work for us. Just imagine all of these people have just one idea every year. How much cost or improvement you can drive out of that? The organization will make sure that this will happen this year and the next two years. Short example on a couple of value engineer things we did recently in the last year that you also get a bit of feeling where is the money. Going from the left, here you see a chainsaw. We could drive the cost down for a muffler because we took it from black coating to aluminum casted part here. Or we redesigned the cylinder for this product to make it better manufacturable, and here we got a 10%-15% cost reduction.
A very intelligent way, of course, is in the middle on the top. We wanted to add a feature to the product, which was easy start. Beside that, we could take out some products, and we even have now a new feature on the product, and the product is SEK less this function. The low one is, of course, a very impressive one. We introduced an optimized clutch design for lower spec products. We took up a low spec clutch into a higher spec product and could save with that more than 50% of the cost. The Automower was also mentioned a couple of times today. You have around that area where you want to mow, you have a boundary wire, and that in the past was out of copper.
We found out that also a mix between copper and aluminum will work perfectly as well. Aluminum is only 20% of the cost what copper is. You can imagine there was a significant cost reduction behind this as well. When it comes to sourcing, in summary, we continue with our supplier programs, the reductions, and also the link together, the alignment with our suppliers. What I sometimes say we need to work as a gearbox, that we have gears with our suppliers which really turn into each other and have good momentum to run. We see large opportunities, what said before, in these value stream mapping, value engineering. We will, of course, also, like I said before, improve our purchasing practices going forward, initially with the supplier day in two weeks from now.
We will continue to improve on quality, flexibility, and risk management with our suppliers. Thank you. Give back to Pierre.
Right. Thank you, Martin, Sascha, and Henric. Now we open up for questions from the audience, please.
Thank you. Björn Enarson from Danske Bank. Getting back to your EBIT margin target there, when you did your math and ended up at 10% target or at least 10%, could you comment a little bit on how big we should look at sourcing or plant consolidation or mix or phasing out old products or et cetera? If you can quantify that a little bit, how we end up at 10% or how you have thought about that?
Who of you want to answer that question? You are in line and work together. Maybe Ulf [inaudible] .
I bring a note.
There's a mic there on the table.
Thank you. No, I don't need that. You can hear me, can't you?
For the webcast.
Sorry. I need a minute. As you have seen, this is of course a significant part of reaching the EBIT margin . I think, again, you have to see it in the combination. As I mentioned, and as you have heard here all day, we talk about pricing, we talk about the cost of goods sold as such, we talk about the cost to serve, and we talk about driving the mix. All four are as relevant, of course. If you look into our cost structure, you can also see that the 55% is related to raw material and components. Of course, a significant part should come out of that.
Again, to have in mind, and as we have heard now from Henric and from Martin, important is to see not just driving the cost down per se. It is important to have the cooperation between R&D and purchasing to really get the next level and the next benefits out of this cooperation, that's where we see the potential.
Have you done When you have looked at it, have you looked at the different measures from a certain EBIT margins, like the average recent years of 5%, 6%, and that certain measures will take it to at least some 10%?
We have made pretty, let's say, serious evaluation based on what the activities you have heard here today. I'm not prepared to go in and exactly specify what it is.
Thank you. Second question is, we touched upon that before. It was about the Asian competition, and I think that the answer was that it was important to have a service network or some aftermarket activity to defend against Asian competition. Is it possible to quantify how big share of sales could be related to aftermarket business? Where you think that you kind of safeguarded against such low-cost competition?
When it comes to aftermarket here, then, of course, we need to have set up in all these regions here. When it comes to aftermarket in these areas, China, for example, of course, we need to look at the competitions we have there as well. When it comes to aftermarket, then we have components used to supplies as well here, and that is a competition as well here, of course, when it comes to pirates and all these things here. That's, of course, a challenge when it comes to that. I don't know the specific numbers. I don't know if you have that.
No.
No.
I get that a certain % of your sales is sold to clients or customers that don't really ask for aftermarket service-
No
through the mass market retail.
No, I think most of them are our customers, both in retail and actually in the dealer channel, have spare parts or accessories as well here. There are maybe very few who take care of that by themselves here, mostly work with us when it comes to that part here.
Thank you.
There may be a handful which do it by themselves.
Yes, hi there. It's Arne Frissner from Goldman Sachs. I've got a couple of questions for Henric, actually. I was just trying to understand a little bit on sort of this shift, this launch of electric products. First of all, do you make your own motors in the same way as you, as far as I understand it, make a lot of your own engines and have a lot of core technologies there? Then related to that, I was just curious to hear your thoughts if you saw, if that is indeed what we're seeing as sort of a development towards more battery-driven products, that you can see some of the power tool makers or traditionally sort of strong electric battery-driven handheld suppliers moving into your area.
if you could just give some thoughts on, you mentioned reduced complexity and with the risk of being wrong here, but if I compare it to maybe the powertrain or something like that from the auto side, it seems to me like you're now running multiple platforms, so to speak, on the powertrain with electric, then you have the robotics with a lot of software, and then you obviously have your traditional petrol drivetrain.
You have to help me if I don't remember all the three questions now. If I start from the beginning, if we make our own motors, and for the most part, we do not, but we are actively part of the design of them. One of the key things for us going forward, of course, is that when we transition or when we offer a battery-powered product, we need to secure that the performance and experience from that battery product is what we believe it should be on a chainsaw, trimmer, and so on. Then, of course, the motor is a critical part. We are heavily involved into the design of it, but not necessarily manufacturing. Help me with the second question now.
Just if you see a risk that some of the sort of power tool makers will make it into that, your traditional stronghold.
I mean, it's always a risk that anyone steps in, of course. The important for us is to really focusing on the application. What we bring to the table is that we know everything there is to know about how to use a chainsaw, how to use a trimmer, how to use a hedge trimmer. We need to make sure that we play to our strength and that we leverage the heck out of that we know the application better than anyone else, and that's where we put our focus. If others step in, they might come in with some scale advantage on electronics, but they start with a real uphill battle on application and such. There's always a risk, but I haven't seen those indications.
I can add a bit. Let's take the motor in our battery products. We have done a very good engineering job here together with a supplier, and we have some patent agreements with that supplier, et cetera. The motor performs that strong that all our competitors now coming back to ask, "Can we buy that motor?" That also shows a bit that the strength should sit in engineering and not so much in the production itself. Also the volume is quite low for us now. Maybe at the later stage when the volume comes up, we also decide to produce motor ourselves. That is not finally decided what we do. Actually it's too low volume to do it.
Can they buy the motor?
In discussion, yeah.
The last question was about platforms and drivetrains.
Yeah, just complexity. You were talking about reduced complexity. To me, it sounds that on one level, there's an increased complexity and implication for R&D.
Just like Martin described here on supplier reduction, there's been a gross number that has been much greater, and then certain things we have done has forced us to increase. It will be the same thing here that, of course, some of our efforts into battery will increase complexity. Also, some of the things we want to do for emerging markets will increase complexity. We need to make sure that we reduce complexity overall, because there's so much to be done with existing business, and that's where we need to focus to bring that down. When we can, we need to make sure that we use the same components and those things between petrol and battery when it's appropriate.
Thank you very much.
Hi. Christer Magnergård from DNB. A question to you, Henric. You talked about range management, standardization, modularization, short-term, medium term, and long term. How long term is long term? How many years away is that?
The scary thing in the R&D world, long term can be very long term, right? No, we have projects already in the works that will be modular. It is in the works. It's just that before that have impact in the bigger sense, I would say that modularity will really not have an impact within the three years that we're talking about.
I've asked the same question several times.
Yeah.
Thanks for the help.
The key efforts would be to make sure we really do a good job on the range management and the standardization. That's what's going to give us the results in the three-year period. We need to start the journey so we have a good development outside this three-year journey as well.
Secondly, this program looks relatively similar to Electrolux Global Operation Program, which saves roughly 3%-3.5% of sales. Any comments on that?
Yeah. You might know that I'm coming from Electrolux. That's my comments to that. It happens to be like that.
The size of the program long term could be as big, or how should we see it?
Coming back to it with your first question when it comes to here, we will focus more on what we call primary development. That means that we will have a generation plan for long term. Maybe some components feature will be on the market maybe from five, seven, 10 years ahead. It's a little bit more long term here. We haven't focused so much on that. We call it primary development here. We have more been there with next coming three years.
That is something we have to focus more on. That's coming from Electrolux as well. Now, of course, a lot of things which we have brought in from Electrolux. It's natural, we were part of Electrolux for, I think, 20, 25 years. Of course, we have used good things from Electrolux as well.
Finally, just on that you're bringing all the suppliers to Husqvarna. You talked about price cuts by more than 1%, 2%. Will that come into force already this year, or is that for the next three years? How should we see that?
The total program, as I said, should be on three years. We have a target behind that. Of course, the first year as we start it now will be lower value, and it will be escalated then in the second and third year in our program. Yeah. We should see something of that this year.
Thanks.
A question on product innovation. You talked about your ambitions for product development and innovation. How much money are you putting into that process in absolute terms or percentage of sales, and how has that developed during the last couple of years? As you benchmarked that against your competitors, what was your conclusion there for the Husqvarna Group?
If I remember the numbers, correct me if I'm wrong, it was around 2.8% or something like that?
It's actually up to 3%.
Three, two.
We have been hovering on that average for quite some years.
Yep. That one has been fairly stable. Yep.
Are you below or above the average in your perspective? What's the key KPIs to measure innovation?
First question, I think it is very difficult to compare with any competitor because we have a much wider range than anyone else. We have to try to carve out handheld and then compare to Stihl, and that's not public, and so it becomes very difficult. My opinion is that I would say we are well-balanced. I don't have any reason to say that we are either ahead or behind. I think we are well-balanced. Yeah, I think that the challenge going forward here now, or that we need to do, is to make sure that we are much more disciplined so we can free up resources to go after cost and complexity reduction without losing innovation. That's why we need to really be disciplined in what segments that we want to focus and what segments we either want to downplay or even exit.
On the reduction in or the increased low-cost country sourcing and reduction of suppliers, how much have you actually saved during the last couple of years? Procurement savings. Obviously, it has been offset by something else given the group's results. If you do just look on the procurement net, have you been successful or not?
Yes, we have been successful. On the other hand, you give already the point we had the last three, four years, we had significant increases and headwind from the raw material areas.
We also had to face issues out of China because there has been a big increase in labor rates. Also exchange rates out of China was also pretty much unfavorable. We had to use all the saving activities to more or less offset these external threats. Going forward, you may ask, okay, don't you have the same situation in future? We actually think that raw materials will stabilize throughout the next two or three years so that we won't have that situation again, what we had the last two or three years.
That's very interesting to hear that net on procurement, you haven't actually realized much then, as of today. Is that correctly understood?
Yeah.
Clear. Oh, no.
Carl-Johan Bonnevier, DNB Carnegie . Sitting in the equity market, you always know that when a company starts to talk about new ERP solutions, it's a dead company for quite a long time. How are you going to handle that in practice rolling this out? How far-reaching is your rollout, and what's the key dates for it?
Do you want to take that, Ulf? Ulf, take it.
Well, as you saw from my presentation, we talk about two parts of it. One is to secure the foundation, and we don't talk about the big bang implementation here. We see it over a number of years. I don't give you exactly how many years. We took a halt in 2012 for good reason as well as end of 2011 because we were in a strange position here. We will roll it out, and that will be beyond this strategy period as well.
Who is your partner in it?
We have many partners in that.
How many systems are you running today, and what's the target to how many platforms are you looking to have in the future?
We go for at least to consolidate down to two or max three platforms here. It's hard, depending on what you ask upon. We talk about admin systems, we talk about customer-facing systems. We talk about supporting Sunshine in production optimization systems. We have a number of platforms today, and they will definitely consolidate to, say, a handful.
I have a question on earlier in the presentation today, you talked about increased investments in online sales. Maybe not so much in the three-year period, but still, I wonder what is driving your idea about that? I guess it's changed consumer behavior and consumer buying patterns. I also wonder if that sort of decision is partly driven by the emerging, how to say, threat from private brands. Finally, also, what kind of logistical challenges will it mean with increased online sales with you in the middle?
First question here, the online. I think it's important for us to be online more than we have been in the past. We see more and more that coming up here, and we see more and more of our dealers online as well. We said we prefer now to be prepared, and when this really takes off, to be there, to not just sit and wait if this takes off or not. We decided to spend a lot of money and invest in online here to the IT system and so on to be prepared when this really takes off, both when it comes to U.S. as well as in Europe here. I think that's important for us to be prepared there. The second question was, I'd say, like Henric now.
Just wondering if that has increased investment in online sales for your sake, if it has anything to do with the private label becoming private brand or not.
That was not the reason why we took that decision to be there. Because we need to prepare for that as well. We just said, now we need to take that huge investment to be prepared to be up and running when all this really takes off here. If not then, we will be behind our competitors. That's a little bit investment for the future as well here. Of course, that's a lot of money into that when it comes to investments.
Does it also mean you need to invest in a change to different logistical system if you're going to serve customers yourself or end customers yourself?
Depends, of course. Of course, the online business is a different business than sending pallets to retailers, there's no question. Of course, it also depends on what is the final strategy we're choosing in terms of what are the intermediaries, or is it a final direct system? I would say that in a couple of our warehouses, we actually have quite good, I would not say sufficient, but quite good base facilities. You think about spare parts business, it's a 1Z and 2Z business as well that goes to customers on very short order lead times. Of course, the scale is a different one.
Fredrik Ivarsson. Just a question on Orangeburg, and when you say it's back on track, what does that really mean? Are you as efficient as you were three years ago, including the efficiency gains you were targeting or?
If we are as efficient we were for three years ago, I would say no, we are better off than we were for three years ago when it comes to Orangeburg. Orangeburg, for us, is maybe the state of the art. What's good when something like that happens, you focus on that, and you see how we've been able to fix that. You transfer all these good things over to other factories as well here. I'd say, for us internally, we don't talk about Orangeburg today. It's just one good factory among all other factories here.
Yep.
I think that's a little bit to say. You are all welcome when you are in U.S., call earlier, we can show the factory at Lunda. We are very pleased to do that. We bring a lot of customers down there to really show this is actually up and running here, we have even proven that when it comes to deliveries here. You are welcome. Call Earl when you are in U.S.
Thank you. Coming back to the EBIT margin target again. Should we look at this program as continued incremental savings each year once you are done with the measures that you have presented here today?
Meaning you want to see it as a linear development or?
Linear or not, is it a continuing improvement that we should expect for a couple of years?
Well, say like this, the whole idea with what we are presenting now is based on continuous improvement. This is what we say now will be focused for the next three years, there will be other initiatives pairing up with that as well. This is what we want to lift out and present to you as of today.
Thank you. We touched upon this before, but if you look at history and the typical range between trough margins and peak margins, I guess the intention is also to narrow those. Is it possible to give your idea of what the typical cycle, what kind of range we would have on EBIT margins?
You mean when we are in the top as well as in the bottom? I won't give you any. It comes back to we give you the blend of more than 10% EBIT margin over a business cycle.
Thanks.
Okay, no more questions, then please some final words from Hans.
Summing up this here, first of all, I think it's have been a lot of good questions here, and I think with all these questions, of course, we have learned a couple things by ourselves as well when we listen to each other here. It is always good to have some question from outside as well here, because normally we discuss a lot internally, so it's have been very helpful for us as well here. To repeat here. We want to secure the foundation. High quality, that's key for us in everything we are doing here. Of course, reduce product cost. You heard it several times. That's key. That we need to be in front when it comes to the cost and increase our margin there.
We know that it's a tough environment out in the market here, and of course, we go for price increases as well here, more selective way than ever, but of course, we need to do both. We see there are more possibilities when it comes to reduce flexibility and costs and increase the margin on that way. That having said that, we of course need to do price increase as well here, and that's what we are doing even for this year. We will continue with the footprint. I think that's key to optimize all the factories here, and maybe in the future, reduce the number of factories. That's something we always look into here. Drive channel mix. We will continue to focus to dealer segments. I repeat, not only in U.S., we will do that even in Europe.
We will not be on behalf, that we will not continue to look and develop the retailer business here. Of course, we need to look a little more long-term as well here. Of course, we need to continue always to work with continuous improvements in all areas here. That goes as well here. Normally, we are focused a lot in the production to have more lean manufacturing, more increased productivity. That goes as well in admin, in sales. We have a huge program going on. I think you, Frida, mentioned the Sales Performance Program that we look upon that have more efficiency out of our sales force.
That's more or less the same way we look upon what we have done during the last maybe 30, 40 years in the manufacturing part, to look upon how can we be more efficient, in the sales area as well, with new tools, MRP system and so forth here. As well as see that these gentlemen out on the routes can visit more customer than they have done in the past. Of course, we need to invest. Henric have been through here, all this new technology here. Of course, we need to invest more in our new products and new features. We really look into what's happening. That's the reason why we had already dedicated now one category to a little bit the future when it comes to battery products as well as electronic and control.
There will be in our products more and more of this kind of stuff, electronic and controls, than we had in the past. We will start to look more than we have done in the past when it comes to what's the potential out there. Is there any companies which can be acquired? Both when it comes to new technology areas or they can be even in the aftermarket segment. We are open for everything here. We start to look upon and dedicate people for that as well here going forward. We said that we will go for focus more on margins than growth. That haven't said that we will not look upon growth. We will do that in a selective way. We have mentioned emerging markets, but that can be in some product segment as well here.
Of course, in the robotic area, we will continue to grow that business here. Many people ask us, "What about watering in U.S. with this growth we had last year? Is it possible?" Yes, but not in U.S. We need to look for U.S. in a different way. There might be some states where we can use that. That, of course, what we are looking for. That's the same when it comes to robotic mowers . There are maybe possibilities even in U.S. to sell this kind of product, but I think then we look upon some regions, some states in U.S., not look upon U.S. as one country. Of course, there are possibilities for us to grow our business here in a selective way. We talked about online. That's a little bit where we need to focus to be here.
We will invest a lot in this online. There, of course, we need a lot more investment in IT. That's what we have decided to do here, to be prepared when this really takes off here. Of course, what remains, which we will not change and be consistent, that's when it comes to our four strategic pillars. We want to continue to use our strong brands, well-known brands, as we have in the company here. That remains, the three brands which are primary for us here. Of course, we have primary local brands as well, which have been mentioned here earlier, both from Earl and Frida. Efficient global distribution network. I think the next 5, 10 years, we will see in this business dealers as well as retail.
If you go back to other consumer products, brown and white goods, there have been a shift more to a lot of big retailers. In our industry, it's not the same. We see more and more that there will come new dealers popping up. Next generation want to modernize even the dealer channel here. In this business, it has been a little bit different, and I think it will be the next coming years as well. We will not see the same change and shift from independent dealer to big buying groups or retailers, as we have seen in brown and white goods. That's the reason why we want to spend and invest more in dealers. That goes as well for Europe, as well as in U.S. If you take what you call emerging market or Asia, it's more or less 100% dealers to start with.
The product is key, of course, to have good products here. There might be that we will exit some products as well going forward. The portfolio we have is too wide. We have too many products, and we will, of course, use and look upon the complexity reduction. We will phase out during these three years a couple small brands which we don't need. We can't have 20 brands. We will reduce that. That takes time, and we need to do that step by step when you change from one brand and focus on our primary brands. Of course, we need to do that. Of course, that will help us to be more flexible in the supply chain. In this business, seasonalities and all these weathers can shift from one week to another. Of course, we need to have a more flexible supply chain.
That means that we need to be more flexible even in the front end. That means our sales force has to be more trained when they make contact with our customers, and the whole forecasting system. That goes as well back to our suppliers. They need to be more flexible as well here. That's a little bit what we will talk about when we have this supplier day as well. We want them to be more flexible. I think these four strategic pillars remains as before here. Of course, 20% reduction platform, that might not sound much, but it is more than you believe, 20% here. Reduction of product cost is key for us. Maybe these three gentlemen here, they're maybe not in full agreement when I start to push them for this. Hans, it's too high a target you set up internally here.
When we start to look into this, yeah, maybe that's doable. Sometimes I say, make the impossible possible. If you are committed and work together, you can do more than you believe. Of course, we are continuous, as I said several times here, Sascha, we look upon when it comes to the footprint here. Lead times, we need to be much faster in the future. We are on a way to have more than 5% EBIT margin in Americas. That's our ambitions here, and there's no question for us to change that target. I think it's very important to further improve the Europe retailer profitabilities here. We are very profitable on watering products in Germany and German-speaking countries here. We need to focus to be even more profitable in some other product categories as well here, and look into that.
That's the reason why we said further improve Europe profitability. That's not only in U.S., it goes as well here into the European area. That's a little bit of Frida's target as well. Of course, we have dedicated, as I said earlier, people to four, five focus areas who will dedicate their resources, and will be measured on this here, and are accountable that we reach our targets we set up here. The difference with this strategic plan and before, it's not just that we have presented that for the board and then finally put that file behind us Due to we will now start activities to support this strategic plan and have dedicated people, which we will measure ourself. We, from group management, each of us are sponsor for all these activities here.
Every month when we have group management, we will follow up where we are, both when it comes to time what we have said, when it comes to cost to do this here, and saving. Of course, there will be some cost involved to do all these focus areas here. I think that's a little bit what I want to bring here. That's a little bit different way how we look upon a strategic plan today than in the past. We want to have an activity out from this as well. Lots of companies, I've done that by myself several times. I don't know how many strategic plans I should have if I looked backwards here. Just sit there and collect dust. That's a little bit what we want to do now here, and that's maybe the biggest change compare with what we have done in the past.
As well that we want to go for growth, we don't promise more than we actually can deliver. It's very easy here to come up with a lot of nice figures here, we want to stay here year after year and can say, "This is what we said, and we have delivered." I prefer to deliver more than less. That's a little bit how we look upon going forward here. Very key for Ulf and his team to really follow up this here, that we do this here. Another area which is important going forward, you see there's more and more things going on when it comes to code of conduct. That's the reason why we have Olle involved in this as well, that we learn, all of us, when it comes to behave in a good manner.
Due to the more you go into East European countries or China, of course you need to learn how to work in these different countries here. We need to have a follow-up on that as well here, from group management the whole way down here. That's a little bit what's going on here. What happen now when we have done this here, are we happy now? We will collect a special what you call top management people to really now roll out this here. We had a team session here, I think it was in December, where we went through lot of different areas with this team here.
We have thought that this team will now do these activities, and then we have a person who will be climbing on these people's back, what you call a PMO head, which will follow up all these activities here going forward here. Hopefully, when we see each other after quarter one and quarter two, that you can see a lot of improvements. We need in this company a little bit luck as well. You know what that is? The weather. Of course, we hope now for a very early spring, a little bit the same as last year. We hope that the quarter two will be more in favor with us than last year. I think that there will be a good result in this company here.
I think we need, Frida and Ulf, a little bit luck there out in the marketplace here when it comes to weather. With that, I will hand over to you, and thank you all for coming here, and then you Tobias go through what's happened now.
Thank you very much, Hans. With that, we conclude the presentations for today. Those of you who are joining the dinner, let us meet outside the auditorium in a few minutes, and there will be some staff showing you the way to the dinner area. Please do bring with you all your belongings, coats and bags, whatever, because you will not go back here afterwards. We also have some small gifts for you outside that we urge you to take home and enjoy. With that, thank you very much. Thank you for coming, and hope to see you soon.