Hello, everyone. Welcome to the presentation of Husqvarna Group's report for the second quarter of 2020. My name is Johan Andersson, responsible for investor relations here at Husqvarna Group. I will be the moderator here today. On the call, we have Henric Andersson, our President and CEO, and our CFO, Glen Instone. Henric and Glen will present the report. Afterwards we'll open up for questions. Let me also remind you that this session is recorded and will later be published on our website. With that, I hand over to Henric.
Thank you, Johan, good morning to everyone. All in all, I must say that we delivered a strong second quarter. We grew our net sales by 3%, if adjusted for consumer brands exits and FX, we ultimately delivered a record high operating profit. Q2 was, due to COVID-19, as you can imagine, extremely volatile, where April resembled late March with dramatically declining sales. As markets gradually reopened, demand also picked up, in June we achieved a strong double-digit growth. This was also driven by a high interest from consumers staying more at home and spending more time in their gardens. The COVID-19 effect on our business is actually very heterogeneous, we can see a few patterns. One is that we can see that our pro business is generally more affected than the consumer business. That was also the case during the global financial crisis.
We can also see that dealers have been more affected than our retail channel partners. That's largely because the dealers were to a larger extent in lockdown, whereas the retailers could continue to operate at some kind of capacity. Of course, it varies a lot between different countries and different regions. Early on, we outlined a COVID-19 strategy, and I must say it has proven to be effective. First and foremost, of course, we focus on the health and safety of our employees, but we also took decisive steps when it comes to cost avoidance measures. We also decided to keep all our operations running, which I think was an important piece to later on be able to respond to the surge in demand late in the quarter.
Ultimately, I think this really indicates that we have an ability to quickly adapt to changes in our business reality. All in all, we then delivered a record high SEK 2.2 billion EBIT for the quarter, and that corresponded to a 16.3% margin. Another positive is that we improved our direct operating cash flow, where we generated SEK 2.3 billion. Our financial position is strong with the net debt decreasing with SEK 3.6 billion compared to last year. Glen Instone will elaborate further on this in a minute here. If we look to the bottom right on the slide. As you know, we also track our business strategy progress, and one of the important KPIs is how our robotics and battery are developing as a share of our total group sales over the rolling 12 months.
As you can see, that is now 16% compared to the 15% that we showed last time. If we then move to the next slide here, we can see that we also have a lot of product introductions during the year. Being an innovation leader in our industry, we also this season, of course, had many great product launches, both in the key growth categories, but also in our winning core. Just to give a couple of examples or maybe three different examples on this slide. We have the AquaBloom, which is a solar-powered watering system for balconies and terraces. As you might know, city gardening is a quickly growing segment, and the AquaBloom here can help you in that sense that you don't need electricity, and it always makes sure that your plants are watered.
We also launched a new Automower, the 305, which is a Husqvarna-branded mower hitting that €1,100-€1,200 price point, which has been a great success this year. We have also started to pilot our EPOS system and also some different new business models in the professional segment. I will come back to that a little bit later on. We're also accelerating our innovation efforts pertaining to digital solutions. The two most prominent ones are the Automower Connect and the Gardena smart system. Here we now have 600,000 connected devices and 400,000 active customers on our platforms, which is quite a big improvement over the 300,000 last year. All in all, we had a good lineup of products this season. We also have a good exciting pipeline for next year. Let's come back to that at a later point.
Let's now shift gears and review the different divisions, starting with Husqvarna. As you know, Husqvarna is largely depending on the dealer channel, and it also have a sizable pro business. Here we were quite affected by the COVID-19 situation. Net sales are down about 2% compared to last year if adjusted for about 550 million SEK in exits. Husqvarna very much experienced that volatile quarter I mentioned earlier with a steep decline in sales early in the quarter and a steep incline towards the end of the quarter. The operating profit is down slightly in the quarter. We have been driving a favorable mix. We have been decisive when it comes to temporary cost avoidance activities. Those could not fully offset the negative impact coming from lower revenue, lower production volumes, as well as higher costs to accommodate social distancing, et cetera.
In total, the margin in Q2 was now down 13.4% compared to 14% last year, clearly better than what we feared just a couple of months ago. To be honest, I believe that we have been able to protect our profit extremely well here. Also very encouraging is that the Husqvarna division generated a positive cash flow in the quarter as well. Another good thing is that we, during this difficult time, actually also managed down our inventories. We reduced by 16% in the Husqvarna division. On a rolling 12, our margin now is 8% compared to 8.6% last year, largely for the reasons I just mentioned for the quarter. Shifting to Gardena. At Gardena had an absolutely splendid quarter. Fantastic performance.
Gardena is executing diligently on a very good strategy, and they really managed to resonate with the passionate gardeners, and is a little bit on a roll, and has been for quite a few years. At the same time, Gardena is a little bit more consumer and retail-centric, and is largely dependent on the DACH markets. Here there has also been a more favorable demand situation stemming from customers staying at home, spending more time in their gardens, and has not been as affected when it comes to lockdowns as the other two divisions. Sales are up 24% if you adjust for SEK 140 million in exits. In the second quarter, we grew the EBIT by 50%, so quite some leverage. The result was largely generated by the top-line growth and favorable product and geo mix.
Of course, there's also an element of improving the result here with some temporary cost avoidance measures, just like for the other divisions. For the rolling 12 months, our EBIT is now up over 40%, and we now have an operating margin then at 13.5%. Shifting to construction. As you know, this is our most cyclical business overall, and it's strictly targeting the professional market. It had a very tough start to the quarter, with sales being down 18%. We could see this trend also in the global financial crisis, where construction was affected to a much larger degree than the forest and garden business. Good news, though, is that the demand started to come back also for construction and was actually flat in June. Also, the construction division, similar to the Husqvarna division, has been very good at protecting its profit.
Comparing to the financial crisis, if we look at the relationship between top-line reduction, so to speak, and the EBIT percentage, I will say that we're a couple of percentage points higher this time in relation to the sales drop than where we were in the crisis. I think we have done a good job here. And also in Construction, we generated a positive cash flow in the quarter. With that, I hand over to you, Glen, to run through the numbers a little bit more in detail.
Thank you, Henric. Good morning, everyone. Let's start off with the profitability trajectory slide that's served us pretty well for some years now. You'll see now on a rolling basis, rolling 12, we're at 9.2% EBIT margin. Looks pretty flat there to last year where we ended at 9.3%. It's just worth noting that at the end of Q1, our rolling EBIT was at 8.9%. Quite a notable uptick in the second quarter on a rolling basis. We're pretty satisfied with where we've brought the margin up there during the quarter. Moving on and putting a little bit more detail onto the income statement and what Henric has been describing there for the respective divisions. Of course, net sales, as reported, were some 2% down, and when adjusting for FX, it was actually also 2%. Very little impact on the top line from an FX perspective.
I'll come back to that. We had roughly SEK 700 million of exits in the quarter, which meant adjusted net sales were +3%. Just to clarify the exit situation, we guided full year from SEK 2.2 billion. Q1 we had some SEK 1.4 billion, SEK 700 million Q2. That does leave approximately SEK 100 million that we expect will be reduced in the remainder of the year, and we stick with that guidance. Moving on to the gross income. In absolute terms, it was flat SEK 4.6 billion with the margin actually increasing from 33.5% to 34.3%, so 80 basis points. Main drivers are an improvement from the positive mix. That was giving us about 0.8%. Of course, a large element of that coming from the watering growth in Gardena, which is margin accretive. We had a continued benefit from the exit of business. We had a continued positive price in the quarter.
That was actually generating roughly SEK 100 million of positivity in the quarter. We did have a downside on the FX, that's all coming from transaction effects, that was roughly SEK 70 million, all hitting the gross margin. As Henric alluded to, we also had lower factory production levels in the quarter. Partially conscious because we want to continue reducing the inventory and partially because we added additional social distancing measures. That was about SEK 130 million burden on the quarter, which was about 0.9%. Strategic investments were actually very limited on the gross margin in the quarter, roughly SEK 15 million. Moving down to the SG&A, reduced slightly in absolute terms from SEK 2.5 billion-SEK 2.4 billion. From a percentage perspective, moving from 18.1%-18%. The main drivers are a reduced absolute figure due to the exits, of course.
We have a lower cost to serve, but we take some SG&A out as a result of that. We see no FX impact in the quarter on SG&A. That's all hitting the gross margin. The rest, the savings really are coming out of the savings initiatives that we've been taking during Q2. Just to clarify, the FX, as said, SEK 70 million negative on GP, all transaction effect offset with some hedging impact there and no impact on the SG&A. From an SI perspective, in the quarter, it's been at a much lower rate. It's roughly SEK 45 million, of which SEK 30 million is hitting SG&A and SEK 15 million into the gross profit. Like for like operating income increasing from SEK 2.125 billion up to SEK 2.19 billion. 15.4% moving up to 16.3%.
Moving down the income statement, we have no items affecting comparability, so we can move past there. Finance net was a little bit lower than we've been previous quarters. That is really coming from a lower U.S. funding rate, basically a lower debt in U.S. dollars and a lower interest rate attributable to that. I would actually expect that our H2 finance net is probably going to be at a similar rate to the H1, i.e., roughly 190 million SEK would be credible to use. The tax rate there is a little bit higher in the quarter, 26% versus 24% last year. That's basically due to the higher earnings that we have sitting in Germany, particularly of course, in relation to the Gardena watering business. Still, from a full year guidance perspective, we remain with the 23% plus minus what cents on that.
Okay, turning the slide onto the cash flow, which I think we should spend some time on and something which we are pretty satisfied with going into this COVID-19 situation at the beginning of the quarter and certainly where we see ourselves ending the quarter. The cash flow, we came up to SEK 2.3 billion, versus SEK 2.1 billion last year. It is worth saying that the main drivers in that actually is a lower inventory build of SEK 800 million delta on the inventory during the quarter. Accounts receivable have increased. That is really the change in the sales in June that added then into the accounts receivable. Of course, they will then flow back into the cash flow during Q3. Payables have actually extended slightly as well by some SEK 300 million.
I would like to say, and just reiterate what Henric said, from a cash flow perspective, all three divisions generated a positive cash flow in the quarter. Husqvarna and Gardena, roughly SEK 1.2 billion of positive cash flow each in the quarter, and Construction, roughly SEK 100 extra in the quarter. SEK two and a half billion positive cash flow in Q2 isolated. Okay, moving on to the capital efficiency, which is still disappointing from our perspective. We're not going to shy away from that. However, we have made a step change and turned the curve. Moving that curve on the capital efficiency is not always the easiest. On slide 10 now, of course, COVID-19 hasn't supported this given that we've had some volatile sales, but still, I think the fact we've turned the curve now on the capital efficiency is a big step for us.
From a guidance perspective, of course, the financial target remains that we want to have our capital efficiency below 25% of net sales. This is unlikely to happen in 2020, of course. We need to get on the positive trajectory as we are, and make 25% a credible 2021 target. We need to be bringing this down into the 26%, 27% by the year-end. I believe with the inventory measures that we're taking, and a strong accounts receivable management, that is very much achievable. Okay, moving on to the balance sheets and adding a little bit of commentary around the balance sheet, I would say. A couple of figures stand out, of course. The first one is the inventories. We reduced with SEK 1.5 billion in absolute Swedish krona in the quarter versus Q2 last year. That's something we're really pleased with.
Within that, there's a very small FX component, roughly 100 million SEK. Still, it's 1.4 billion SEK of absolute reduction, which represents around 14% inventory reduction. It's worth pointing out as well, that is the fourth consecutive quarter that we've taken inventory down versus the corresponding quarter in the prior year. Receivables, as mentioned on the cash flow commentary, is up, and that is very much the sales delta from June, so nothing alarming there. We've got a very strong receivables management program going on and serving as well during the COVID times. Just to comment on the net debt. That's something else I feel we should be extremely proud of in the quarter. We actually improved net debt with SEK 3.6 billion. Most of that, of course, coming from the improved cash flow from operations of roughly SEK 4.4 billion.
A little bit of negative impact coming in from financing activities onto the cash flow. Little bit of positive currency effect into the net debt. Of course, we have paid a reduced dividend versus last year, but still paid roughly two-thirds of the dividend versus prior year. That's something we're particularly proud of. Okay. Then I think just moving on to the final slide before I pass back to Henric. A slide we use each and every quarter is the net debt to EBITDA, which has been a ratio that we've been following since our inception, I suppose, as a company. That has taken a turn down for the positive in this case, now at 1.8 net debt EBITDA ratio, which of course is representative of that SEK 3.6 billion reduction in our net debt.
With that, I will hand back to Henric to give some more forward-leaning remarks for the group.
Thank you, Glen. Just wrapping up, let's call it the past then. I think when it comes to the COVID-19 and our strategy for that, I must say that we have managed this situation in a very good way, and we have effectively protected our employees, which was our main priority, but we've also been able to run our business. I think one of the important things that we decided upon was to keep all our factories running, although at a low rate, was very important to be able to quickly respond to the surge in demand that we experienced in June. I think that we have also proven that we have a capability to quickly adapt to changes.
This is something that we need to be very good at, and that we have quite some experience from since we largely act in a seasonal and weather-dependent business. Finally, I think it's appropriate also to really give recognition to my colleagues around the world that managed this very difficult time. On one hand, dealing with COVID, on the other hand, to actually delivering a record quarter at the same time, which I think was a fantastic performance. Moving on to strategy. Even though in the midst of a pandemic, you have to become a little bit more here and now, but you can, at the same time, not lose sight of the long term.
We have a group business strategy that we developed together in the management team last fall, and it's ultimately focusing on the customer experience, on expanding into services and solutions, in accelerating robotics and battery products while we are developing our core business. That strategy stands, and that is absolutely our foundation. Yes, we had to quickly adapt and scale a few things back in the second quarter. Yes, of course, we are working in management continuously to see how we can fine-tune it and how we can dial certain things up, and maybe dial a few things down. The direction as such, it doesn't change. Now I will, over the next couple of slides, give you a few examples on some of the progress that we have made in executing our strategy. Did you now skip? No. Okay.
If you start with robotic lawn mowing and maybe focus a little bit more on the professional side. First of all, we believe there's a huge opportunity here. First, because it's an untapped market, of course, but also the labor is a large piece of the total cost for the green space professionals. There's often also a shortage of skilled labor in peak season. We have now been testing a couple of different things to really enter into that market, and we have really advanced in both the go-to-market dimension and in the technology dimension. Starting with the more go-to-market dimension.
We are now testing what we call Robotics-as-a-Service, because we think that could be a very interesting concept since you are basically eliminating some of the perceived risks with switching to the concept as such, particularly when you are introducing something that is novel to the market. It will enable the customer to exactly know the operating cost and to monthly be able to match that towards the revenue and the contracts that they have. That's why we think there is a big opportunity. We are testing this with 150 different units at this point in time, mainly in Sweden and Germany, with very good feedback. The other piece, and we have talked about that before, is EPOS, which is basically that we can change the way you operate since you do not need to permanently install boundary wires.
We instead use virtual boundary wires or boundaries, ultimately. This is something that we are piloting with 100 different products out there in the U.S., in Germany, in Sweden, and France. The feedback also here is very good. For those of you that are in Stockholm, you could, for instance, see this at the Vasa Museum or at the Drottningholm Castle if you have some time during the summer here. If we then move on, talking about battery, two days ago we took a big step where we announced that we are co-founder of a 18-volt consumer battery alliance. We did that through Gardena, and we have this alliance together with Bosch.
The whole point here is that we see that for consumers, there is a huge advantage of being able to use the same battery across all the applications that you have around your house. The alliance we are forming will be one of the largest cross-brand alliances in the world. At the moment, there are already 20 million compatible batteries out in the marketplace here. We call this Power for All, and it's based upon Bosch's 18V green battery system. Of course, we can also here tap into their capabilities and into their scale. Already for next season, 2021, Gardena will convert its entire range to this Power for All battery system. Ultimately, this amplifies our electrification ambitions, but specifically in the 18-volt consumer segment where we see this benefit.
When you move up the specification ladder, we still see the merits of optimizing the product for the application and to get the most performance out of the different products. Okay. Another important part of our strategy is sustainability. It has always been a vital part of our strategy. This year, yet again, I will say, we made a strong commitment in this area by the introduction of Sustainovate 2025. As you might know, Sustainovate is our long-term approach to drive sustainability transformation in our industry, and we do that by applying our innovation capability to the segment. What is new with Sustainovate 2025 is that we, to a larger degree, also want to inspire others to do the right thing. We will be mainly focusing on three different opportunities. It's about carbon, it's about circular, and it's about people.
In each area, we have very distinct aspirations on the difference that we want to make. Over the last five years, we have reduced our absolute CO2 emissions by 25% while increasing sales by 17%. This is largely driven by the shift towards battery and robotics products. Our new carbon target is recently approved as a science-based target, and it's in line with the ambition to limit the global warming to one and a half degrees. It's a very decisive step that we're taking, and it's a bold ambition that we have. We have also signed up as a certified NASDAQ ESG transparency partner going forward here. I will say that we have some important management changes that we have made during the quarter.
One is that we have hired Karin Falk to head up the Construction Division as of September 1st, and she will also be a member of the Group Management. Karin brings over 30 years of experience and expertise from B2B and from customer solutions and services, which of course are central to the Construction Division, but also to the group as such. Prior to joining Husqvarna, Karin was the senior vice president for service and customer quality at Volvo Trucks. Another important recruitment is Robert McCutcheon, who has been appointed the President of North America for the Husqvarna Division as of June 1st. Prior to joining Husqvarna, Robert served as the President and Managing Director of the Americas for Britax Child Safety. Robert brings over 20 years of experience and expertise in consumer products.
Two very important recruitments for us, and I wanted to just take a brief moment to also bring that to your attention here. To conclude, in closing, let me summarize the main messages this morning before we open up for the questions here. All in all, we have delivered a very strong second quarter, actually a record quarter despite the COVID-19, and it is largely driven by the strong growth in June that we could accommodate, and it's also due to the decisive cost avoidance measures that we took. We have an effective COVID-19 approach that has proven successful, and personally, I'm very proud of how the organization responded to this challenge. We also delivered a strong cash flow and now have a very strong position of not just here and now. We also have a full focus on our strategy and how we are executing our strategy.
Now the main discussions are how do we best dial up on the vital few items that really makes a difference going forward. I guess with that, thank you for your time. We're now happy to answer any questions. I'll leave it back to you, Johan. Thank you very much, Henric and Glen. We are now ready to start the Q&A session. Please, before you ask your question, state your name and company, and please limit yourself to two questions per participant. With that, please operators, start the Q&A session.
Thank you. If you have a question, please press zero then one on your touch tone phone. If you wish to be removed from the queue, please press zero then two. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press zero, then one. Our first question comes from the line of Christer Magnergård from DNB Markets. Please go ahead.
Yeah, hi. We start with Gardena. You will most likely have a very strong 2020, even if there are two quarters left of the year. Looking at 2021 and 2022, do you think you will be able to grow sales from the exceptional 2020 levels we are seeing now? What will, in that case, drive that growth? Second on the same thing, profitability has also made an impressive jump from 2018 and 2019 levels. Given the favorable mix and the temporary cost savings, is it fair to assume a slightly lower normalized margin for the division going forward?
Hey, Christer. Let's start with the first question first, so to speak. The growth in Gardena stems from a couple of different things. Part of it is that they're executing on a very good strategy, and they do that in a diligent way. They have also managed to resonate well with the passion of gardeners. I think that way, of course, we carry with us also into next year and in the years to come. From that perspective, I think we can be optimistic for Gardena. At the same time, I think this year we had a little bit extra boost stemming from people spending more time at home, spending more time in the gardens, which likely increased the interest. The question is how much of that increased interest will remain over time? I think that is a little bit more difficult to judge.
The third dimension is that we have had a pretty good weather condition this year for the business overall, I would say. This has been a good season from that perspective. Mixed bag. I think part of it might be a little bit artificial for this year, people being at home, but there's also some underlying reasons to believe that Gardena will be strong also in the future. When it comes to the profitability piece, I think that you have a couple of dimensions of that one as well. Of course, with this kind of growth that Gardena has experienced, we have leverage, but we also have an exceptionally good product mix. It's a lot of watering, and it's also a lot around the DACH region where we have very good profitability. There is a product and geo mixed dimension.
Of course, there is an element of the temporary cost mitigation activities that will not sustain over time. I think that the reasonable way of looking at this is that with the growing Gardena business, we should also be able to grow our profitability. However, we can probably not expect the same kind of development going forward. I don't know if you want to chime in there, Glen.
I think it's reasonable, Henric, what you said. Nothing more to add there.
Okay. My second question, if we can say that the first question was one question, is on working capital. You said that you're going to release about SEK 1 billion in working capital from the exited consumer brands. Has that all materialized now, or is it still something that we should see going forward?
There's probably a minor amount still to come through, Christer. By and large, we released some last year, we're releasing more this year. I would roughly take 25% of the exits that we transition into released working capital. It's probably the magnitude of SEK 500 million of released working capital.
Thanks.
The next question comes from the line of Johan Eliason from Kepler Cheuvreux. Please go ahead.
Yes. Staying on the subject on Gardena, did you see a significant shift into the online channel? Can you give any light on that? Do you think that could actually have a more sustainable improvement for you going forward?
We could say that for Gardena and actually for the Husqvarna division, we could see that the online channel did grow this year, which I guess is natural to expect. There is no reason to believe that will start going the other way going forward. I think that is one of the things with COVID-19 that I think it pushed the business a little bit more into the online channel. I think that will just continue, and I think Gardena, being such a strong brand, of course, benefits in this sense as well. However, I think it's important to remember that Gardena has not been as affected by the lockdowns as the other divisions. Also the more customary retail channel has been doing very well for Gardena this quarter as well.
Okay. On robotics, you mentioned it is 16% of sales now. How was the growth there? Was it 16% grown from 15%, as you pointed out, mainly an effect of you choosing this consumer brands business, or was there actually an excessive growth for robotics as well, explaining this like sense?
Normally we always talked about combined robotic and battery. If you zoom out a little bit, we can say that this segment had the same development as the rest of our business in the sense that the beginning of the quarter was really depressed, and then it's a very strong development towards the end of the quarter. That looked the same for this segment. We can say that for robotics and battery combined, that grew faster than the group on average. Just to add a third dimension to the whole thing, since we don't specifically talk about robotics normally, was that from a market share perspective, all the indications that we have, the latest information is from end of May, by the way. With that information, it indicates that we took some share.
Good. Just U.S. robotics, it was a big topic last year. How does it look today? It's not a normal year, obviously, but do you see any positive movements?
I think we need to look at that from a little bit bigger perspective, which is the commitment we are making, the investments we are making, the dealers that we are onboarding, and the Husqvarna service corporation we have developed to help service but also help with installation. I must say that we are really making headways over there, even though sales have been fairly erratic, depending on the lockdown measures and particularly affected the installation part of the business. I would say that it's nothing out of the ordinary, but we are continuing to push, we are continuing to develop that market, and we have made some headways and position as well also going into next year.
Okay. Thank you very much.
Thank you.
The next question comes from the line of Fredrik Molander from Pareto Securities. Please go ahead.
Hello, everybody. First of all, related to the very strong consumer demand that you are seeing or were seeing in June, particularly, should we interpret that as growth rates having continued to increase all the way throughout June? Or did you see some sort of moderation towards the end of the month?
I think that it was largely increasing, but the last few days it started to level out a little bit. Moderate is probably the word you used, which I think is a good way of describing it, and that's also what we saw going into the third quarter. Early on in June, it was a dramatic shift upwards, and then towards the end, it started to be more balanced, but at a high rate.
Okay. Is that comment valid for both the Husqvarna consumer business as well as Gardena?
Yes.
Okay, perfect. A question on expenses. Very good cost control in SG&A, particularly related to selling expenses. Just wondering, admin expenses looks to be up some 16% or so. Any temporary effect here that you could highlight?
No, not necessarily. I think that of course, we've had to change some of the incentive commissions, et cetera. It's pretty much in line with our expectation for the quarter. I wouldn't say there's anything unusual in the quarter that we've reported.
Okay, that's helpful. Thank you.
The next question comes from the line of Olof Söderhamn from ABG. Please go ahead.
Hi, gentlemen, it's Olof from ABG. I just had a very quick question, or, well, a question at least, around EPOS and the professional robotics pilots. It's very exciting, of course. You have lots of pilots. Do you think this could be commercialized fairly quick? If you're getting positive feedback already now from these products.
I think we can answer that question from two different angles. I think from a product perspective, absolutely yes. That is something that we can commercialize already for 2021. I think the other dimension is when we tie it into potentially sell it as Robotics-as-a-Service, then it is a little bit more difficult to commercialize it quickly, but something that we will start doing in 2021 as well. I think it takes a bit longer to get that off the ground.
Thank you. What's your initial thoughts on this? Is this about the size of having this product or offering in 2021, 2022? Will it be notable for Husqvarna Division, or is it something that sort of you'll talk about, but we won't really see it in the numbers?
I think that the magnitude in the first year will be moderate. Of course, our ambition is that the pro segment, as such, should be clearly noticeable in a few years' time. I think we should more look at it as a decisive step from our side to really build a new leg to stand on in robotics and not just be in the robotic space. It's not flicking a switch where it looks different immediately.
No, of course.
Just to add to that, Olof.
You're building a leg, sort of growth leg for Husqvarna, I guess, on top of the robotics that you have today.
Glen, you were trying to say something.
No, I was just going to add to that, Olof. I think it's important with some, the more we do it as a service, that it becomes a good recurring revenue stream and not only a sort of one-time sale. It might be a slower burn, but over a longer period as well, which is healthy.
Yeah. Just maybe we're going into too much detail. How that service, when you think about Robotics-as-a-Service, is it in areas where we have 12 months of cutting grass, or could this be applied to Sweden? I mean, what's your thinking here?
No, it could be applied anywhere. It just needs to look a little bit different depending on usage and things like that. We can of course include storage over the winter, preventive maintenance for next season and things like that into a program, and then we put them back out again when the season starts. That's how we look at it.
Perfect. Thank you very much.
The next question comes from the line of Karri Rinta from Handelsbanken. Please go ahead.
Yes. Thank you very much. Firstly, about the sell in versus sell out, because there's some hardware retailers that have been reporting even higher sales growth numbers that you reported for Gardena, and definitely for higher than you reported for Husqvarna. What's your best sense of the channel inventories in the retail channel and in the dealer channel? Would you expect those, if they are low, would you expect those sales to materialize already in Q3? Or is this more than about what kind of a sell-in season you will have in the first quarter? That's my first question.
If I will answer that one from two different angles. I think, first of all, looking at some of these channels, they generally report on bigger, larger categories than ours. When we review point of sale and things like that, we have clearly been holding our own in the second quarter. That's the indication we have. That's a first comment. Then to your ultimate question, we deem that the inventory levels are somewhere between normal to normal low, so to speak, in the trade at this point in time. I would say slightly below normal.
Any difference between different categories, or does that apply to most of them?
I would say that it applies generally speaking, but of course, if you pick a few Gardena categories, for instance, where we have seen a tremendous growth and we have not been able to take all orders even, then there's likely very low inventory in some of them.
All right, good, thanks. The new president for the North American Husqvarna divisions, what would be his, I don't know, top three priorities going forward?
We are fully committed to continue on the journey that we're in North America, making sure that we bring the profitability up on that business to a level where we want it to be. I think that is the number 1 priority, and right now he's spending his time to assess the business, and to be quite honest, I'm looking forward to his perspectives on how he would like to see to further improve and enhance and develop that business going forward. I would say that is the main priority.
All right. Fair enough. Since that was such a short answer, I'll venture a third question. You mentioned that robotics and battery are 16% of your sales, and I guess most of that is in the Husqvarna unit. Just assuming that all of it is in the Husqvarna unit means that 28% of that unit sales come from robotics and battery. Can you give us any sense of the split between the two and maybe more specifically, robotics Husqvarna in Europe? Just to get us some ballpark sense of these different important categories.
I mean, we're normally not going into those details, but there is a meaningful Gardena business both in the robotic space and in the battery space. It's not just a Husqvarna play, but what we can say is that it clearly has its center of gravity in Europe from a geographical perspective.
The next question comes from the line of Björn Enarson from Danske Bank. Please go ahead.
Yes, Enarson from Danske. I have two questions. First one is on the pro business within Husqvarna. Have you seen any more positive trends there towards the end of the quarter or towards the early part of this quarter? If you also can give an indication of how big the pro business is within the Husqvarna division. That's the first question.
Okay. I would say that all our businesses show the same curve, meaning that a steep decline early in the quarter and a steep increase in the second kind of a deal, but very different absolute levels. The pro business went down further and is a little bit slower in picking up, but clearly showing the same kind of trajectory. For Construction, it goes even deeper and only came up to flat in June, so to speak. The pro business is absolutely also recovering. That's the first question. I think the pro for the Husqvarna Division, I know total company, Glen, if you take the specific.
Yeah, isolated Husqvarna division, it's roughly a third would be deemed as pro. Roughly a third, 30, 35%. Yeah.
Okay. Thank you. On the Husqvarna division again, back when we had the consumer brand reported as a standalone business, the Husqvarna division had a pretty decent profitability in Q3. Now with the consumer brand is exited, Husqvarna coming back to more of the traditional profitability than we have seen in the last few years? What's your comment on the consumer brand impact on the last quarter for Husqvarna division during the Q3?
Yeah, good question, Johan. I think, of course, we still have some overhead that we need to carry through from the traditional consumer brand business into Q3 and Q4 with the larger facility that went from consumer brands to Husqvarna. There's an additional overhead burden in the second half. It's fair to say that we have a fairly weak comp when looking at the last couple of Q3s for the Husqvarna division. We have some optimism there. As Henric said earlier in the call, we're really coming into professional season now from a sales perspective towards the end of this quarter, where it's much heavier from the chainsaw demand, and that's where we expect then, of course, Husqvarna division to come into its own, so to speak.
Okay.
I was probably a bit elusive there with answering the question, but yes, we feel there's some positivity upside there. Disregard the fixed overhead burden that the division carries still.
Yep. Okay. Thank you both.
The next question comes from the line of Henrik Christiansson from Carnegie. Please go ahead.
Yes, Henrik here from Carnegie. Just one question on cost avoidance. If you could say anything about any government support you received in the form of grants and use of furlough schemes, et cetera. If you can quantify that, how much that has benefited in the quarter?
Yeah, absolutely, Henrik. As we went into this quarter, of course, we didn't know how bad it was going to be, and therefore we put the brakes on in many areas, which led to some pretty heavy cost avoidance. That did mean that we at least applied for some government funding. What we've decided in recent days given the strong quarter is that we're going to repay the short time working allowance support that was possible in Sweden. We've actually backed out of that, so we haven't actually taken any benefit of the Swedish part. Outside of Sweden, it's actually been very small. It's immaterial in the scheme of things. Hopefully that answers your question. The figures we're quoting on the short time work allowance and furlough schemes is not reflected in the savings initiatives we talked about.
Basically, zero impact in the quarter and for the first half of the year?
Very little, yes. We actually reversed it out in Q2 there, so that we paid it back this week.
Perfect. Thank you.
The next question comes from the line of Oscar Bredengen from Berenberg. Please go ahead.
Hi, good morning. If we were to talk about sort of the black swan here now with construction being down some 18% and bit different dynamics there, how should we think about Q2 now? Are we experiencing more flat recovery towards the end of the year, and that we should see sort of a flat year-over-year development in the coming quarters? Are we still supposed to expect material decline with further negative operating leverage on earnings for the Construction Division?
I think if you look at the Construction Division, it was a very steep decline in late March and in April. The market started to recover also in construction. June was actually at the same level as last year. The difficult thing now is then what do we think about the rest of the year?
Like for all our business, a COVID element, but particularly in construction, there's also more the how does the different economies develop? The construction business is more affected by uncertainty and especially in the economical climate. I think that is the issue. Basically, we were back to same level as last year in June, for the rest of the year, it will be about how the economies develop, I would say.
Okay. Thank you. Just my last question. It was originally guided that the exited sales now was going to be some SEK 3 billion-SEK 3.5 billion in cost avoidance related to the group restructuring. As we're now more towards SEK 3.6 billion in guided exited sales, what's the actual cost that's being taken out on the group level so we can look at the profitability development?
Yeah. I think we were quite broad on the exits. We thought it'd be slightly more last year, Oscar. We thought it'd be SEK 2 billion. It was more SEK 1.4 billion. Original guidance a year ago was to be SEK 1.5 billion. We're saying it's going to be SEK 2.2 billion. We're there or thereabout, I would say slightly more this year versus last year. The cost that we said we would take out in relation to that, of course, we took a restructuring reserve. Should have had roughly SEK 250 million of cost savings on the back of the exited business. By and large, that came through last year. We have a little bit of carryover into this year. It's minor this year.
Just to note, of course, we took an additional restructuring reserve last year in relation to the Husqvarna Division for some additional, let me just call it headcount alignment, where the savings are coming through this year as well. We have some restructuring from launch in 2018 and some restructuring launched in 2019. That feeds through to the P&L. They're both very much on track. Again, 250 plus 100 was the two figures, and they're both very much on track.
Okay. Thank you. Can I just ask, because you've also guided down CapEx for the full year now towards more SEK 2 billion, but still you're sort of accelerating the growth for the Gardena division. Can you just talk a little bit about that, how you plan on doing that? Is that more coping with current demand because you're running low on stock in order to meet the strong demand? Or should we expect an increased growth driver for the Gardena division in the coming years?
We still feel we can work within SEK 2 billion that we guided on. The new forecast for 2020, that might look a little different when we divide it between the divisions. Of course, Gardena continues going from strength to strength, and therefore we are going to release some capacity investments. We still feel we can work within SEK 2 billion despite those additional investments we'd like to make for Gardena.
Okay. Thank you very much.
We have a follow-up question from the line of Christer Magnergård from DNB. Please go ahead.
Yes. Let me start with a follow-up question on the admin cost side. I would like to have a bit more clarity in why that was up SEK 100 million to a new all-time high level. Admin cost is almost twice as high as it was 10 years ago, roughly. Can you give some more color on why you have that increase and why you expect to have that increase?
Yeah. I think there's two sides to that, Christer. Of course, versus the 10 year ago scenario, then we're comparing without IFRS 16, where we're putting leases into this. There's quite a difference on the lease profile within that and the depreciation that goes in then to administration. It's hard to compare versus 10 years ago. If we look at purely into the quarter, then of course, we have had to take some additional incentive reserves at the end of Q1 when the result was as bad as it was, of course, we had to release. During the quarters, the result has improved, and we've had to take some additional incentive reserves. That's by and large what it is.
Okay, thanks. The second thing was coming back to Q3 and a bit of follow-up on Björn's questions. More on the cost side. Last year, you had quite a negative effect from the destocking in the U.S. What was the impact from that last year? The second thing was that you had high strategic costs, SI costs last year. Are you expecting to have an increase in that or a decrease?
Let's start with the second question, Christer. On the SI side, we really compare this year-on-year. In the second half, we'd expect to have an increase versus the rate of last year. It is year-on-year increases that we're talking about, and we would expect them to dial that up in H2, in preparation for next season in the various aspects, whether that's additional capacity investments, whether that's additional go-to-market preparation or additional marketing activity even in the second half of the year. We would expect an increase. Just clarify your first question again, Christer, on the releases.
Sorry. Yeah. Last year, you had quite high inventories going into the second half of the year. In Q3, you had destocking effects, if I remember right.
That's right. I think it was the first time we were bringing it out that we had an absorption effect, and it's fair to say it should be better in H2 this year versus last year. That's a fair assumption.
Okay. Well, thank you. Have a nice summer.
Thank you. You too.
We have one more follow-up question from the line of Johan Eliason. Please go ahead.
Yeah. Hi, it's Johan again, Kepler Cheuvreux. Just a follow-up on this battery alliance. If I understood you correctly, could you just confirm, you aim to keep your own battery design for the high-performance battery handheld products like chainsaws. Then what's the logic? I understand it from your point of view, that you want to be able to sell the Gardena brand with the battery, sort of that fits many other products. From Bosch point of view, which have a big hand power tool business as well, what's the logic here? Are you sort of paying premium prices on the batteries you will buy from them going forward, and you simply think that it's worth a premium to be able to offer this ubiquity for the batteries you have in the Gardena brands?
The main purpose why we are doing this, of course, is that we think it makes sense for the consumer. Having one battery is better than having many different ones. As long as you have a simpler application that is fairly feasible. That's why it makes sense in the consumer segment, but it doesn't make sense when we talk about Husqvarna's prosumer segment or in the professional space. That's the rationale behind it. For us, there are a lot of benefits, of course, also that we can now focus our efforts on developing the new products instead of also developing batteries and chargers. From a cost perspective, we of course also do this because we want to tap into Bosch scale. There's no such thing that we are talking about paying premium prices for some reason.
I think this was more that Bosch and Gardena together, so it made sense that they're both so strong in the channel and towards that customer segment, so it made sense to found this together, and then trying to invite others to primarily build more application areas with the purpose and the aim to try to give the customer a good solution with one battery.
You say it's basically not impacting your gross profit margin on the battery product in Gardena negatively, potentially positive or?
Yeah, I would say it's more on the positive side, and particularly since we don't need to invest in batteries and chargers in the same way as we would have had to do otherwise.
Okay. Excellent. Thank you very much, and have a nice summer as well.
Thank you.
Okay, I think that was the final question for today. We thank you everyone very much for joining in today, and as we have said before, have a really nice summer. Thank you.