Earnings Call: Q4 2019

Feb 4, 2020

Ladies and gentlemen, welcome to the presentation of Husqvarna Group's report for the fiscal year 2019. My name is Johan Andersson, responsible for Investor Relations, and will be the moderator here today. Here in Stockholm, we have Kai Wann, our President and CEO and Glenn Instone, our CFO. Karin Glenn will have a presentation first, and then afterwards, we will conclude with a Q and A and start with the floor here in Stockholm, and then we have a number of participants over the telephone conference that will also have the opportunity to ask questions. So with that, I hand over to Kai. Thank you and a special thanks for you who take the time to come here and participate in this announcement call. Given that Q4 is a seasonally smallest quarter, we spend more on the larger perspective of 2019 and then conditions going into 2020, which we would expect you are quite interested to learn more about. But first, of course, inevitably some comments as to Q4. First of all, I think it's fair to conclude it's a mixed market we see in the quarter. Starting on a positive note, Construction North America actually pretty strong. And that also proves that the new management is starting to get traction in the changes they have done. It looks very promising for the future. Forest and Garden North America continued the destocking situation particularly larger trade partners. And on the back flip, the backdrop of the relatively weak demand in the season second half, which of course was expected. It wasn't really in any way surprising for us. And we took a very firm stance in the quarter to lower our manufacturing rates to on one hand compensate for the decreased volume, which is minus 2 comparable currencies for the group in the quarter and actually reduce inventories with SEK600 1,000,000 in the comparable currencies, which is a fairly significant amount as we realize. And that means that the production rates were a lot lower of course than the demand as such in order to reduce with that type of number. And hence, we saw quite some under absorption coming through. And that combined with the mix, of course, burdened the quarter. On the other hand, there were some positive one offs from the net of asset sales and write downs. But all in all, excluding items affecting comparability minus €310,000,000 versus €282,000,000 prior year. So I think we don't have much more to say about it. I think the important thing is that we'll talk more about it 2020. We've taken the beating. So there is no knock on effects going into 2020 when it comes to, for example, under absorption that's behind us. I think that's an important message at the start. But staying a bit in 2019, looking at the larger picture of the year, it's actually despite a very challenging forest and garden season, a truly good year for us. Maybe to start with some positions in the market, we have kept our shares. We might even have gained something on the robotic side despite less impressive growth numbers. We are somewhere between 5% 10% for the full year, but the market has not been very favorable. So that might still be a positive. We definitely gained share in the watering, that's pretty clear, as well as in Concrete Floor and Surfaces where we have acquired entities. And you will remember the Permalar Matrix, the HTC and the takeover, the carve out of light compaction from Atlas, which has delivered double digit growth in that space. So that's a pretty good result. Operating income, of course, if you look at the group, plus 1% in total adjusted for exits and then to achieve operating income of plus 21% is not necessarily bad either. We're quite pleased with that. And in parallel to that, you also see on the cash side significant improvement, of course, from the result to start with, but also the working capital. Glen will talk more about details, but that's pretty good. So reinforced positions and good results and I think that's what we need to do to look at that once in a while also on the annual basis. We'll see more of that soon. So if we then move over to the 2020 season, destocking is behind us. Now it's about ramping up for the season. So that's good. That's a strong thing. If you look at the offering and I'll give some more details later on here, we have quite a lot both on the product side as well on the solution side. So we feel pretty strong on that side. But it's also important to emphasize, we continue on the same path, meaning we have pretty strong efficiency program to start with. On top of that, we have also the additional restructuring we announced Q4, which is supposed to give €150,000,000 of improvements. And we are also continuing to press on with cost additions into strategic initiative areas. So we're balancing these things. And then not to forget the fact that we are finalizing the exits of the consumer brands business. We started to announce already in 2018. And in total over the 2 years 2019 2020, it's very much in line with what we said at that time. Actually, we ended up a bit lower in 2019 with SEK1.4 billion, but then yet again here it's going to be a bit above what we said at the time. But in total that fits very well with what we said from the beginning. So and that's an important piece here to leave that behind and then be sort of say clean in this structure going forward. So that's all looking pretty good. So the growth rates not that impressive, the 1% all in all still, I think that can cater for heavy game market share. So you remember our ambition of being 2 percentage points ahead of the market, I wouldn't exclude that we actually are that indeed with that number, but that's still to be verified. Gabriela 3% construction 5% and Husqvarna 0%. So that's how it splits out. But then looking then at the operating income since 2013, you can see then that we actually have had a CAGR of 16% in this period of time. So we are 3.9% as you know. Margin has shaped up. Yes, we took the dip in 2018 as a consequence of the really long and dry summer extending into the fall, which was not great for us, of course. But all in all, I think that's not a bad development. And you remember then the number for last year 21% above that. So there's nothing that actually says anything else than this group should continue on a positive note going forward. Looking at the financials, a little bit more granular, minus 2% in the 4th quarter, net sales currency adjusted minus €310,000,000 versus the €282,000,000 you saw that and the gross margin impacted, of course, primarily by the lower volumes, the under absorption and the product mix. And product mix in this context relates also quite a bit to Gardena in the way that if you recall that that season 2018 was extending all the way into October. So they were selling watering products all the way throughout October, which is not at all So it was more a normalization of the season for Gardena in 2019 that we saw. But of course, it had an impact also on the group. Full year, the minus 1% adjusted for the exits sorry, plus 1 correction, plus 1. The 21%, we talked about the margin improvement from the €790,000,000 to €9,300,000,000 and the main constituents of that being on the positive side and the price increase, restructuring, efficiency and some positive FX, but also offset by the raw materials and tariffs, which close to balance the FX advantage and the continued investments growth initiatives. I mentioned additional restructuring that we launched very much also as a consequence of the fact that we were so successful with the ones we initiated 8 of 2018 going into 2019. So we had the momentum to carry through that. Looking at Husqvarna, the quarter not a fantastic story, of course, but if you look at the sales minus 5 adjusted for exits, you realize that that's not too bad actually and particularly then considering the strong reduction of manufacturing rates in order to enable that inventory reduction. Some growth in Europe, but as I mentioned weak in North America. Looking at the full year, flattish, but then operating income 15% up and 1 percentage point of operating margin improvement, not what we expected, but still, I would say, acceptable from that perspective. Gardena being a bit more negative on the operating income in the quarter than maybe some of you would have expected that that very much relates to exactly what I mentioned being the watering season being normalized not having watering sales in October. So yes, and again, the volume of course supported that. And we are also pressing on with a good pace with cost additions for the strategic initiatives, positioning ourselves for the season 2020. You will see a bit more about that soon. Altogether, a record year, 30% improvement of the operating income. We're pretty pleased with that on the 3% of increase excluding consumer brands and FX adjusted. So that's good. So from 8% margin to 10.2 percent quite strong. Of course, there's a fair bit of both price and mix improvement in that and as well as the restructuring of the bits and pieces that was taken in from the consumer side as well as efficiency improvements. So a great year for Gardena. Construction also ends up quite well, 7% in the quarter, seemingly a great improvement of the operating income with 42%. But remember, their reference, Q4 was fairly weak to start with and then they also had some 17% increase in absolute number. And what supported that was, of course, volume, price, efficiencies and currencies as well as the integration that they have taken. And as you heard me say, it's behind us actually and they're starting to see the top line growth of those activities now. Definitely have delivered fully on the improvements of the results that we foresaw at the time when we did those acquisitions. Leaving the financials a bit aside looking at other important aspects of sustainability, which we implement under the terminology or the headline of Sustainability and that's how we integrate it into our operation. We're quite proud of what we have achieved. We actually set in 2015 a target in terms of intensity reduction, but we have actually achieved an absolute reduction of 25 percent versus 2015 of 25%. So we are soon to launch new even more ambitious targets on the back flip of this success. And there's no difficulty at all to motivate our organization to continue to lead. And you will recall, we were the first one to actually have scientific based targets validate our ambitions and have them approve our targets on the 2 degree trajectory of CO2 reduction. And as you can imagine, we are aspiring a bit higher than that now. But let us come back to that in March, but there's a lot more to be said on this topic, but we are doing pretty good actually. Moving on to look at some of the products that are worth mentioning, starting up at the left, Aqua Bloom is actually a solar driven flower watering system for balconies and terraces. There's quite a lot of city gardening going on. So that's quite an interesting product. So you don't need any electricity at all. So you just put it there and the solar light will drive that. We're quite optimistic about that. It's a completely new innovation. We will have new high performance pro battery products like chainsaw is going to be launched tomorrow actually, which is taking showing yet another level of performance of battery based products, which is not there in the market. We talked about the EPOS technology, the virtual boundaries, which is then being introduced to selective professional users. And with the acquisition of the trowel business from Wacker Nuson quarter 4, we also have power trowels that are being introduced right now as we speak at the Wello Concrete in Las Vegas U. S. That's being introduced and Husqvarna base. So that's quite an intensive work to bring them into our system. That's good. We have entry models for robots 305 Husqvarna to compete on somewhat lower price points as well in the market as well as hybrid based riders for professional use. Just to mention some few physical products on more the app side, the most exciting launch is actually My Garden, the My Garden app, which is then containing things like the Garden Planner that we talked about. We have 130,000 gardens uploaded, which is not bad. And I mentioned this before, people spent last season about average 68 minutes sitting working in this app, the Garden Planner as such. Now it's integrated in this My Garden app. Tutorials, inspirational content, feeds, etcetera, but also for some countries like Germany, you can start to book your garden services through this app. So we take on a new level here of trying to build services and interact with end customers all in line with the strategy we talked about at the Capital Market Day September. The Automobile Connect app is packed up a bit with the user interface. We'll get more statistics. We start to be able to buy spare parts, blades for a robot or other things. Gardena's smart system has also then being equipped with chatbots, some optimizing when it comes to scheduling and as well as if you want to protect your hedgehogs or other animals that are night active during the night, there are ways to deal with that. So that's just to give some flavor of what's going on. I think with that, I'll leave it to Glenn to talk through a bit more of the details of the financials. Thanks, Kai. Okay. Good morning. So a little bit of detail and then of course we'll no doubt have some more detailed questions as well. So as Kai mentioned, on the quarter the sales adjusted for currency and exited positions, exited positions were actually just over 200 in the quarter, 1.4 in the full year. It was actually a minus 2 and the full year plus 1. The gross income came down from some 26 percentage points to 23.5. Large constituent in there, of course, is, as Kai mentioned, under absorption rates. So we had a positive impact of FX of roughly SEK 90,000,000, positive hitting the GP and a negative of about SEK60 1,000,000 hitting the SG and A on the from a translation perspective. And then we had some tailwinds that continued through the year on price. And then of course, as I said, really the negative mix volume effect and the under absorption in the factories was a negative impact. Onto the gross margin. Down into the SG and A, that moved up slightly in the quarter actually from 30.6% to 31.4%. Percent. Again, that is really the impact of that translation effect through FX, which was a SEK60 1,000,000 negative effect onto the SG and A. A little bit of SI is also flowing through in the quarter, SEK30 1,000,000 hitting the GP and SEK20 1,000,000 hitting the SG and A, So 50% in the quarter on the strategic investments, which culminated, of course, in a €310,000,000 versus €282,000,000 There is a line in there which is standing out pretty much on the other operating income. We had the sale of an asset in the quarter, which was very much planned. Just to be clear, it was the sale of a warehouse and logistics building. That was netted off, unfortunately, with a bad debt in the quarter as well as a small asset impairment. So of the magnitude SEK100 1,000,000 on the quarter. Items affecting comparability. We talked in November that we would have a restructuring largely relating to a fixed cost reduction of magnitude SEK 200,000,000. We've booked SEK 183,000,000 in the 4th quarter. There could be some small carryover costs coming into Q1, but again no more than the SEK200 1,000,000 accumulated. Finance net, I think it's pretty close to last year and the big differential there being the IFRS figure, which actually is the differential of SEK7 1,000,000 in the quarter. Tax rate, I think, is a bit strange to talk about given it's a negative result in the quarter. I think it's more appropriate on the full year. So the full year, which I think this is what we're here to really talk about and not about for seasonally small quarter. Gross margin improving that from SEK28.2 to SEK29.9 million, SEK 670,000,000 positive FX flowing through into the GP and then SEK320 1,000,000 negative flowing through into the SG and A. So a net SEK350 1,000,000 coming from FX, which is very much in line with the guidance we issued as we went through the year. We also have strategic investments, which we've continued with, albeit at a lower pace, SEK130 1,000,000 hitting the GP and about SEK90 1,000,000 hitting the SG and A. We of course, we'll see it soon on the cash flow. But as Kai alluded to, we did put the brakes on significantly in our facilities, our manufacturing facilities purposely. We came out of Q2 with a high inventory. We continue Q3 with a slightly higher inventory and we've continued in Q4 to really adjust our inventory position. The balance sheet shows some SEK200 1,000,000 of inventory reduction. But actually if you FX adjust it, it's a SEK600 1,000,000 reduction we've made in inventory, which I think is notable and of course has a negative impact on absorption, but absolutely the right thing to do and of course makes our balance sheet somewhat leaner. SG and A, we actually moved up from 20.4% to 21.1%, sorry, and the main impacts of that, as I said, is the negative FX with a little bit of the continued investments into strategic initiatives. Moving down the P and L. I just want to again highlight the asset sale. On a full year basis, the comparable figure is actually SEK60 1,000,000 and that is a gain from the sale of an asset, a bad debt and some asset impairments netting to SEK60 1,000,000 on the full year. That is comparable with SEK55 1,000,000 in the same period of 2018. I think in the full year that figure now is comparable with a one time benefit we had in 2018, which again came about through an asset sale of a facility in China. So not a notable item on a full year basis. A record operating income, dollars 3,915,000,000 that is a record for this group and we're pretty proud of that. 9.3% is where we landed on the margin level. Items affecting comparability. It's basically the carryover from the 2018 program and then which was roughly SEK42 1,000,000 and then the SEK183 1,000,000 from the 2019 program. As said, there could be a little bit of top up in Q1, but maximum SEK 15,000,000. Items affecting comparability, some negative impact from exchange rates there. IFRS 16, which is SEK28 1,000,000 a little bit on the interest net, but pretty much comparable on a full year basis. Tax rate, we guided actually at 22% to 23%, 19% was the full year tax rate. So we're pretty pleased with that. A couple of reasons for that. This sale item actually had a positive impact on our tax rate. And actually we had a GEO mix that actually played into us a little bit from the taxation perspective. But long term view again, I think we stick with the guidance of 23% plusminus 1%. So 22% to 24% is good for guidance. So full income for the period, €2528 versus €1213,000,000 resulting in an EPS, which is more than double prior year. So I think a pretty solid and strong performance. Cash flow. And we do say cash is king, and we should spend some minutes here. We moved up from SEK1.3 billion to SEK3.8 billion. And the big items in here, of course, are the improved operating result, which was about SEK700 1,000,000 the IFRS impact of SEK400 1,000,000 or the depreciation, which would be give or take SEK200 1,000,000 And then the big working capital release was actually €2,000,000,000 on inventory during the course of the comparable 2018. Because we slowed down the facilities in the 3rd Q4, we actually had a lower payables level, accounts payable. That was roughly €1,000,000,000 lower. So between inventory and payables, you can say there's a net SEK 1,000,000,000 gain. Accounts receivable was slightly better than the prior year, about SEK200 1,000,000 and CapEx levels actually landed at the same level as 2018. So a real positive on the cash flow. The disappointing one, and we were really disappointed coming out of Q2 here, is on the capital efficiency looking at it in relation to net sales. We maintain and we said this in September to have a 25% of net sales as our target. Coming out of Q2 with such a high inventory and this being a rolling figure, we knew we were going to fall short of our target. I expect this is not going to be a 1 year turnaround. I think it's going to be more like 2 years before we get to the levels we talk about, I. E. The 25%. But I would expect going through Q1 and Q2, you start to see the trend in the right direction down towards the target levels. As said, the balance sheet, we feel it's in a better position than it was 12 months ago, particularly when it comes to inventory. SEK200 1,000,000 as reported, but SEK600 1,000,000 when FX adjusting. The net debt, which we normally try to call out and the bridge item is on there. We've increased net debt from SEK99 billion to SEK11.3 billion. So SEK1.4 billion increase. And that's some positives coming from the cash flow, of course, give or take SEK 3,000,000,000. And then we have some negative effects from the cash flow from financing SEK 1,300,000,000. We've continued with a dividend payment in relation to 2018 payable in 2019 of SEK 1,300,000,000 and then a slight increase on the pension liability of SEK300 1,000,000. And that actually culminates in our net debt to EBITDA ratio staying somewhat flat of where we've been on a rolling basis of 1.9%, so well within the investment grading that we're working with and we're using this metric for. And at that, I'm going to pass back to Kai for some closing comments. Thanks, Ken. Okay. So we looked at the financial development this last 6, 7 years and we noted the CAGR growth rate. But I think we want to summarize it. I think we also need to look a little bit without getting into any details here and now, but at what we have been doing in parallel to improving the financial results and it's a fair bit of ranging from the customer focused organization that we installed in 2014, 2015, then customer moving out the decision making much closer to the customer, bringing accountability and speed. I would also like to emphasize the culture of strong efficiency programs, which has been a key pillar, a cornerstone for us. Funding, of course, the strategic initiatives and in that sense, but I think the word to emphasize is the culture. This is the way how we do things each and every year and that will not change. The focus on the leading brand and the positions has been quite significant in this period of time and some of you will remember that Gardena has gone from some 60% plus to 85 percent of total revenues. We dealt with the consumer brands topic. We had one hypothesis. It failed in 2017. We dealt with it. And now with this year, it's going to be behind us completely. And the capability expansion we have put into everything that relates to the software side, IoT, smart, etcetera. And I think in parallel to that, we have dealt quite successfully also with the petrol to battery shift, which is a reality in our industry just like in so many other industries. So in total, it's a fair bit of transformation, which is actually both organizational as well as strategic and we're quite proud of that journey. Now I would have liked to have Henrik Andersson also standing here, but we discussed about the issues that to conclude that he is doing bringing more to the sales force in North America with whom he is together at the World of Concrete that you will see him soon enough. But I'm personally very glad actually with Henrik taking over in April, because he has a lot of experience from this group and it brings continuity, which is quite important at this stage. And he has, of course, been part actively putting down the strategy, which we formed last year. So that's a good thing as well. I think I'll leave it with that and then we can open up. Yes. Thank you very much, Karin Glenn. And then we will start the Q and A session. And we will start here in the floor in Stockholm. So please say your name and company and then ask the question. Yes. Christa Meinegold from DNB. Firstly, question on inventories in the trade channel. If you can comment on that because it has been an issue this year. Going into 2020, what do you see in North America, especially but also in Europe? I can start. Inventories in trade, I would say, are lower than they were 1 year ago. And I would describe them as normalized by now. Actually, we probably misjudged a bit the inventory level, particularly at the dealer structure beginning of 2019 because of the upbeat purchasing. We thought it was already average at that time, but actually ended up being a little bit above. So if anything, it's somewhat lower. But I would describe them as average by and large. I think that's the important comment. So there is no reason to be fearful of, so to say, production rates being lower as a consequence of further cautiousness. But there is maybe to one more point relating to it. For example, in Europe then with 2 seasons not being fantastic either, a bit more cautiousness. So maybe there is a little bit more push towards later part of the quarter as such, but the inventory level is not the topic. And quarter 1, as you remember, by the way, is always about March. It's a January, February, March, so everything is actually decided in March in the quarter. That's the magnitudes of the numbers. And in terms of the order book you have for 2020 or the listings, can you comment a bit on the mix you have in that order book in terms of where you see the strongest growth and where you see less growth? And also if you see more price pressure on robots for 2020? So let's start by answering the question going back into 2019 and remembering how the season played out. Actually, Q1 in 2019 was great. For example, Husqvarna had plus 9% adjusting for exits in the quarter. Gardena had plus 6 adjusting for exits. It was a good start of the season. I think the disappointments actually came with Q2, Q3 and Q4. So they were kind of midyear those quarters. But the Q1 was fairly well, it actually was very strong. So that means it's a tough reference, particularly for Husqvarna. So give and take, a wash is not unreasonable to expect, again, adjusting for the exits. And remember, exits for Husqvarna are going to be big first half of the year. So it might be as much as SEK1 billion sitting in the Q1. For Husqvarna, yes. Yes, for Husqvarna. Just to give you a number here of the magnitude, Gardena's situation is maybe a bit more favorable in the way that the purchasing pattern here from many of the multichannel universe it's actually pushing to get orders in the fill up the shelves earlier. So it's a little bit different than the dealer channel. So they might be a bit stronger in that situation and definitely should be a plus in all circumstances. If the Husqvarna situation is more flattish, I think realistically Q1 and then upside comes in the other quarters. Gardena starts will reasonably start very strong and there's no reason to expect anything else from construction than what we've seen. So just to give you that flavor. Then as to the second part of your question, price pressure on robots, I don't think that will go away, but it's more the matter about the performance of the products versus the customer target groups you're heading. If you go to Biltema or whoever, you will find, of course, opportunities price wise. But still, I think we are proving to be the ones that work throughout the seasons and people recognize that. So but you also see that as I mentioned, we're also introducing a lower price point product with Husqvarna. So of course, we've noticed this and we take impression on what's going on. But I think performance and quality, even performance throughout the season is, of course, components of what we bring, maybe Epic Adena or Husqvarna that others still are working to get close to. Then the final question, the Holy Grail, 10% margin, we have changed that for a couple of years now. Do you think that will be achievable in 2020? What are the positive factors and what are the risks? Is it achievable? Of course. There is nothing that fundamentally has changed our view since the Capital Market Day in September about the journey going forward. And I think, again, please look at 2019 as a sign of strength that despite the disappointing season, the difficult season, we ended up with 9.3%. That also shows that we could have been there already this year should things have moved with us. But in a somewhat normalized season, there is a fair chance to get there, actually to be a bit above the 10. But but don't extrapolate that too far, but on the right side. And then remembering the minus €2,000,000,000 exits on the consumer side, on the top line side. I think we had another question there. Yes. I always thought you would leave when you have had achieved a 10% margin, and now you ran away a bit earlier. But we'll see how far you'll get into by April. I was more curious about this petrol battery transition. If you look at 2018, how much of your revenues was sort of petrol based versus battery based? And you know that we are not specifically calling out the battery products. We lump them together with the robotics. That total is about 15%, but we also talk about the expectation of those 15% growing pretty much with the same number plus 15% versus market that average over time should be 2% to 3%. So that gives a couple of percentage points per year of improvement of that. And the rest is, of course, everything from electrical products, but net connected on construction site to petrol and watering, etcetera. So I'm not sure whether I just want to talk back to reverse this petrol one to 1 like that, but you see the magnitudes of what we're talking about here. And the SEK 2,200,000,000 on sales you're leaving, is that all petrol? Yes. So the mix will definitely be better, is it? Yes, correct. Okay. Good. Do we have any other questions here in Stockholm? Then let's see if we have any questions over the telephone conference. Please, operator, can you start the Q and A session over the Thank you. We'll now take the first question. Please go ahead. Your line is open. Hi, Karl and Glenn. This is Clara from SEB. I was just wondering if you could quantify how much the under absorption cost on the gross margin in the quarter? I'll give a big magnitude color on this. I think if we try to put it together with the volume and the mix change in the quarter, it would magnitude SEK 200,000,000. All right. Thank you. And then Gettiem, it was a bit too weaker year on year looking at earnings. And if I understand correctly, then it was in part explained by higher marketing costs. How did you say that this would develop into this year? Maybe I start, Cai. So Gardena in the quarter did look a little bit weaker in some cases. Two reasons for that. As Cai mentioned, we had a prolongation of the watering season in the prior year. Really the October sales were high on watering in 2018, which had an impact of course in the 2019 comp. And then we've continued with the strong SIs, which by and large in that division of course is marketing that we want to, stronger position going into 2020. All right. So if I interpret that correctly, then you will increase marketing costs a bit? That is the intent, absolutely. And then the last question is about the coronavirus. You mentioned in the report that you do not expect any significant disturbances related to the outbreak, but they could become material if problems remain in March. Could you explain your exposure? I think to start with, I mean, we have worked with Chinese component suppliers for decades. There's nothing new. We have production ourselves there. We normally take some height for what we foresee as usual after the New Year in China, meaning that they have higher attrition among people. They struggle a bit to get up the production rate. So that's all normal. That's nothing new. The question is, if the lockdown that has been there now, the extension of the New Year is going to kind of continue for a longer time. And then the statement was, well, we don't we are not too concerned over the next few weeks. But if this would be a situation that we would see also in March, of course, there will be an impact, which is then becoming material, not only in the Asian product sales, but also into Europe and North America. And I think you should interpret it in the way that even a product that has for the sake of it 100 components, if there's one which is missing, you still have a big problem. So and that's how you should see it. So the backlogs would start building in that event. So I don't think our situation is any materially different than many others. And part of the problem is, of course, also to detect the sub supplier behind the supplier and to see perfectly the whole chain and that we haven't kind of worked through to the full extent, yes. But we are, of course, looking into that as we speak to see what could we then alternatively source elsewhere, etcetera, and how could we, for example, deal with getting booking priority logistics for critical components, etcetera. So I think what we will do now going forward is to be try to be as proactive as we can to deal with the contingencies that might arise because it's in nature unpredictable here. So we just need to deal with that with scenario based planning. All right. Thank you. So just do you have any idea of how much of your products that actually have components that are sourced from China? There's quite a few, of course. Maybe the most obvious example would be petroledattery trimmers. That's a typical product with a fair bit of content functionality. But there are also components in other categories all the way into robotics. But again, we are not worried about it, If this is being, so to say, deliveries are normalized towards the end of the month, we should be okay. You shouldn't have to worry about that. It's the March scenario that starts to become troublesome. Okay. Thank you very much. Thank you, Saketin. So, of course, also being in the midst of the season then, which is would be less good as everyone would like to. All right. Okay. Thank you very much for taking my questions. Thank you. We'll now take the next question on the phone. Please go ahead. Your line is open. Good morning, everybody. This is Frederic at Pareto speaking. Questions on robotics in North America and on the commercial side as well. Obviously, wheels is a bit weak in North America, but how are you progressing with robotics? I think you told us that you were doubling your sales in robotics in North America over the last season. And also if you can give us an update on the commercial progress as well within robotics please? So that's absolutely correct. We talked about give and take a doubling rate for North America that also holds water for the full year. And again, I think what we walked into the season with even higher ambitions. I think some of you know that. But I think what we saw is what we've seen also in other markets like Germany previously, France, etcetera. It takes some time to build the category and maybe we were overoptimistic about how quickly we could do that. We are putting quite a lot of resources to build even more installation capacity, competence about the category as such and hopefully we will see that paying off. As to the professional entries, there has been a huge demand for the virtual boundary product. And we try to sort of say select together with the one so there's a goal with the ones who have the best conditions to really do something with that. So that's where we are at with that. And then of course, we have other models, which are increasing with a good pace for the professional space. But in the total, it's still fairly small. So it doesn't change the big numbers yet. But again, we are very optimistic about where this can take us for the next few years. So it's going to be a lot about sort of ramping that up, of course, for that period of time. But it's a very huge interest, I should say, to participate with virtual boundary based products. Okay, good to hear. And on the EPOS technology, could you provide us with some pricing details or at least in comparison with your other solutions with the wired solutions? I refrain from talking price at this stage about that. So we want to put this season down and come back to that topic a bit more generally. Thank you very much. That's it for me. Thanks. Any other questions over the phone? Yes. We'll just take the next question now. Please go ahead. Your line is open. Hello. Can you hear me? Yes, we can. This is Karl from Berenberg. I was just wondering, in terms of the production of robotic lawnmower units, from my understanding, a lot of it is being produced in Durham, U. K. Now that Brexit is a fact, how should we think about the production units of this fast growing product category going forward? If I start. Well, we did already a couple of years ago start up a second manufacturing plant for robotics pretty much as a risk mitigation at the time because we can't have so much of a key category in one plant. Imagine if there would have would be a fire or something. So in the Brno in Czech, we have our second plant for robotics. So we have the capability actually to deal with this situation. We are not particularly stressed over the Brexit situation and what that would cause. We have stock at the right places. We should be well equipped to deal with this season. So it should be a small issue actually. It shouldn't be an issue at all for us. Okay. Thank you very much. Did we have a final question over the phone, I think? We do. We'll now take the final question. Please go ahead. Your line is open. Hi. It's Olof with ABG. Just very quickly. First on robotics, Is there any change in your profitability in this segment if we look at 2019 versus 2018 maybe? And how do you see the outlook for this given that maybe you have higher growth in I would suspect higher growth at least in Gardena robotic lawnmowers at a slightly lower price point than Husqvarna 1? I think we commented last year around that we expected gross margins to reduce as a consequence of increased competition. We have kept it up fairly well actually also for 2019. So it's not a huge difference on that side if we look at the Husqvarna side. But it's correct to say that there is a bit of more pressure on the Gardena side, but still looking quite strong and not the least also because of the whole smart offering that goes with it and which is an important piece meaning automatic watering irrigation in combination with robot moving and what's related to that. So I think that's part of the larger piece. I don't know if you want to add something to that more details. That's fair enough, Guy. I'll go over with you. Fantastic. And on working capital, Glen, we would love to see the 2 percentage points improvement over 2 years. What will be the main drivers? What actions are you taking to give us some confidence that this will come through? It's very much on inventory, Olof. We need to be more proactive on our inventory management. We've recently over the past 2 years at least invested in a system that will help us with our S and OP planning on a much broader scale and that's important to us. That's now rolled out globally in most of the categories. So that's going to be our number one item. We can't come out of Q2 like we did in 2019 having such a high inventory level, then we are chasing it. So we need to be much more proactive in season and not reactive out of season, I would say, to the inventory situation. So I'm pretty comfortable with the payables and receivables. Of course, there's always housekeeping we can improve there and slight tweaks, but it's really going to be an inventory matter. Okay. Thank you very much. Thanks for taking my questions. Okay. Thank you very much. I think we don't have any further questions on the telephone conference. Do we have any final question here in Stockholm? Yes, we have one, Karim. Yes. Thank you. Karri in Handelsbanken. Maybe a follow-up on the robotics in the U. S. You mentioned that you would put more installation capacity in place and you have some campaigns with Lowe's and with dealers. But don't you think that or do you think that you need to put more effort into direct to consumer marketing? Because my sense is that consumer awareness of this category is still very low. So as long as they don't know that this product exists, then they are pretty early in the journey of buying one of these things. So do you have any plans on increasing your direct to consumer marketing in the U. S? I think you're making a good point, Kari. The awareness of the category as such in the larger scheme of things is still relatively low and it's a bit of an exotic thing. So I think your conclusion is the right one. We need to further reinforce that. That's absolutely correct. And there are ideas about how to do that. But it has also been a lot about having the right type of understanding for the category, the competence relating to it and the installation capacity, because we see the worst thing that can happen us is that people who do not understand the category take on to install and they leave the customer with a bad experience. That is not allowed to happen. That's why we need to build it with that type of base of people who really have the competence and know how to bring the customer experience we want to see. But your conclusion is correct, Kari. Okay. Thank you very much for that answer. So I think with that question, we conclude today's conference. And thank you very much for participating. And then we will see you next time in the end of April. So thank you very much. Thank you.