Earnings Call: Q2 2017

Jul 18, 2017

Welcome to the quarter 2 interim report announcement at Husqvarna. Altogether, we are quite pleased with the quarter two results, and I'll explain a bit why I see that very positively. You may choose to look at the sales, you may choose to look at the absolute level of the EBIT, you may choose to look at the margin, EBIT margin development or you may choose to look at the cash flow, altogether very strong performance from the group. If you look at it a bit more granularly, you will see that the 3 divisions in profitable growth mode, namely Husqvarna, Kadena Construction are doing very well and we will look into that a bit. A bit disappointing on the consumer brand side and I'll talk naturally a bit about what's behind that in this quarter. But we are continuing the execution of the profitable growth strategy and we are continuing to invest in the strategic initiatives along in parallel with further efficiency improvements. So I think that's a super summary of the quarter. If we then look at the traditional pictures, we will look at like the results development, the EBIT. You will see now that we have actually some 16 quarters consecutively of improvements. You will see that the rolling 12 month operating margin is now 9.6%, which is actually 1 percentage point higher than it was last summer at this point in time. So 9.6% rolling 12 months. So we are approaching the 10 percent margin that we have been striving for quite some time. So a good step forward in that respect and the absolute level, as you will see, also constitutes a good step forward. So we're quite pleased with the results development for the group. We're also talking about the profitable growth strategy, and you will have seen that last year, the 3 profitable growth divisions were at 3.3 percent net sales increase for the full year. Now the 12 month rolling is actually a notch higher. It's at risk 5.2% with Husqvarna being at 5.2%, percent, Karina 5.8 percent, construction 3.9 percent. This is all organic. So the acquisitions at constructions are excluded from this number. I think you will see then how we have moved from the 3% level, which could be maybe a proxy for the market development over time, up to another level. So we take that as a positive support for the fact that a profitable growth strategy actually works and pays off. If we look at the financial highlights altogether, yes, we have 8% well, you will not pivot, 8% currency adjusted increase. You will see then that we actually had SEK 2,000,000,000 in EBIT result, which is the best quarter ever in EBIT terms, 15.3%. I'm quite pleased with that 16% increase. Yes, there is some currency support in it, but it's a good underlying result and there is leverage on the 8% of sales increase. You heard me talking about the 9.6% versus the full year and now I talked about the rolling 12% 1 year ago, which was 8.6%, the full year last year was 8.9%. So you see the movement in that respect and you see the gross margin improvement, may that be rolling 12 versus last year or may that be for the half year period most visibly. There is a positive mix supporting this and we have a good momentum, I think. It's also quite pleasing to see that the cash flow is following suit. And Jan will say some more comments around how that is built up between the operating working capital improvement and the result improvement. Husqvarna division, 5% currency adjusted improvement year over year, primarily driven by Europe. Robotics, battery based products continue to constitute the growth engine in this part of the season. And let me also just make one comment around the season and the weather. Yes, it was indeed a bit cold, a bit slow at the beginning of the quarter, but when we summarize the quarter 2, there was no real weather impact at all, irrespective of whether we are looking at North America or Europe. But it was true, it was colder at the beginning and particularly in the north and there are of course specific markets that has been burdened by weather like Russia who had snow all the way into June actually. So there has but if we aggregate it altogether, Europe has been, I would say, average and that also means that the end of the quarter was more favorable. For example, for Gardena, Continental Europe, so a bit drier, which supported the Gardena position. We'll talk more about that. But I just wanted to take that off the table since there has been a little bit unproportional large attention paid to that lately. Good. So we have the mix, we have a little bit of currency, but we also have burdens from continued cost additions related to the strategic initiatives. Altogether, quite satisfactory. We are at rolling 12%, 13.7 percent EBIT margin and for the half year 17.6% versus 16.8% last year. Moving over to Gardena division, very strong and actually at the backdrop of the dry weather, particularly in June. So in Continental Europe, 11% up, driven by primarily the watering category, but also categories like robotics, like the smart, the combination of robotics and irrigation, also driven by hand tools, they have all performed quite well actually. And as you will have heard before, we pursue this strategy with the geographic expansions, sales channel expansion and there has been in the magnitude of 60 new SKUs this season. We see the leverage of the sales not very surprisingly, 26% increase of the operating income now being 24.3 percent EBIT margin versus 22.5 percent and for the half year, 20.2 percent versus 19.2 percent. So very pleasing to see the development. Also, if you recall the last couple of years, strong development of Gardena. So we are really on a positive trajectory here. Now a little bit the disappointing part, not necessarily in terms of sales moving on to consumer now, it's up 9%. So how do you interpret the 9%? Well, actually, it says less about this quarter, more about last year's quarter, too, which was under average. It was really difficult from a weather perspective in North America in 2016. So this is what I would describe a normalized sales situation from a burdened quarter by weather last year. So 9% in itself is nothing spectacular. Actually, we would almost have expected more, but it has been a very competitive retail space, a lot of campaigns and it's also a combination where we have had for us a bit of an unfortunate product mix as well as a geography mix with Europe a bit declining and North America then over average growth. And if you look at the product mix, what I'm referring to there, it's really a higher share of products relating to lower price points that has been sold, so with less margin content. So there is this is a mixture of campaigns, but more than that, it's a mix aspect of lower price point sales in high quantities and geography mix that you should interpret. So it's a little bit unfortunate in that sense for us. And then of course, we have burdened the quarter with €30,000,000 So if you look at the €80,000,000 that should actually be €110,000,000 if we would spell that out explicitly a bit more clearly versus the 147,000,000 but still a disappointment. There is no discussion about that. So the long and short of that is that the margin improvement trajectory will be slower than anticipated, meaning with the quarter 2 being so important of the quarter in the full year and the season, this will be a sideways move this year. And it also means that the old aspiration of a 5% margin in 2018 is not realistic as you will see. If you're talking about margin improvement per year of up to maximum 2%, I think then you're probably in more realistic ballpark numbers. So it's a disappointment in that perspective, but we are pressing ahead and the €30,000,000 one off burden we took is relating to further efficiency measures we are taking related to the Nashville site. So we are making that a bit more lean and mean for the future. Really going forward, I would say the measures are solid. They are firm. May that be cost efficiency improvements or may that be adding new product in the pipeline for listings in the future. So we are still very confident about that we will see the improvement, but we have to accept that it will be slower. The target remains, the 5% target remains, there is no hesitation around that. And I want to be perfectly clear about one more thing, The group target of 10% and our ability to reach the 10% is not burdened. Of course, it's burdened, but it's as realistic as it was before. Just looking at last year, we had an improvement of rolling 12 months with 0.3 percentage point for the second half of the year. And if we would have the same type of improvement this year, theoretically, hypothetically, we would be at 9.9%. Now whether we for the end of this year will be at 9.9% or 10%, I don't know, but we are going to be very close about the 10% region give and take something up or down. I don't have the visibility to be quite honest about it, but the momentum is there to believe in that. And so there is no hesitation about the group target about 10% it stands. We will reach it this year, latest next year as we have communicated before. And it's going to be close irrespective this year. Okay. Moving over to Construction. Construction had a great quarter with 16% currency adjusted increase of sales, margin wise also an improvement of 1.2 percentage point, 16.2% became 17.4%. 30% increase of the operating income, so good leverage. Huge part of that was actually attributable to the acquisitions of H2C and Pullman Ermator, 2% organic, a little bit lower than what we actually expected. But North America has been a little bit in a wait and see mode. Now everybody seem confident that they will need to materialize the projects quarter 3 going forward. So we don't foresee that being more than very much of a temporary decline in the construction space in North America, which has also pulled their construction operations for quite some time as you will probably recall. But it's a broad geographical and product category sales increase, and it's also been favorable for the margin development. Good. I think I'll leave it for Jan to continue with some comments on the financials. Okay. Thank you, Kai. Well, as Kai mentioned, successful execution of profitable growth for our 3 divisions in profitable growth together with an increased sale of consumer brands. So 9% currency adjusted made the group go up to 8% on top line for the quarter to close to 13,100,000,000 and 8% was also the improvement currency adjusted for the 1st 6 months, bringing the group up to 25 point $8,000,000,000 of top line or net sales. Looking at the gross income in the quarter, an improvement of slightly over $500,000,000 compared to Q2 last year. Part of that, of course, being the positive currency effect, part of that also even though to a minor extent being the acquisition of Pulman, Ermater and HTC. But also then behind this is, of course, an operational improvement and that is mainly then related to the volume, of course. Increased sales in all divisions, all regions, if you take a look at it on consolidated level and more or less all categories where watering, battery products, including robotics, increased over average, which then also brought a positive product mix into the figures. And also we can see and start to see now the effects of a persistent work with product quality the last years impacting the results positively in the Q2 and for the 1st 6 months as well. And if we talk about something negative on gross income, we were into that before, additional costs related then to profitable growth initiatives that is then accounted for in cost of goods sold and that is then mainly related to R and D. And for the 1st two quarters, looking at the gross income, we have an improvement of close to SEK 1,200,000,000 with the same explanation as I gave into the quarter of major positive effects, being currency, being volume and also to some extent the acquisitions of Pullman and Martin HGC in Consumer Construction Division. Besides then product mix, which is also impacting positively for the full year end product quality, We should also mention the divisional mix effect where we see Husqvarna, Gardena and Construction growing more substantially, whereas then we have consumer brand for the full year with a lower growth and they also have a lower than average profitability. So we get the positive mix from that as well. And also cost out activities or efficiency measures, as we call it, mainly then impacting direct material positively despite then some headwind from raw materials. If we move over to the indirect costs, the SG and A costs, they increased in the Q2 with some $250,000,000 Close to half of that is related to currency and the main part of the other half is then related to our profitable growth initiatives that is registered in selling mainly then. And also, of course, we get an impact even though not that big, but from HTC and Pulman. And of course, with the higher volume, we have the logistics costs that are somewhat higher than last year. And if we take a look on the 1st 6 months as regard to SG and A, around $600,000,000 higher than last year and with the same explanation as in the quarter, bringing then the quarterly operating income to slightly over SEK 2,000,000,000, an improvement of SEK 275,000,000 where we have currency effects of some SEK 120,000,000 and then, of course, the operational improvements. And after purchase price allocation, amortization, the impact on operating income from the acquisitions are limited. Operating margin improved to 15.3%, an improvement of 0.3% compared to last year. And for the 1st 6 months, we have an improvement of close to or over NOK 500,000,000 bringing the operating income over slightly over €3,400,000,000 Financial net, minus €123,000,000 dollars Last year, we had positive FX effects. This year, we have no FX effects in the financial net. That's the reason behind the deviation. But we also see higher interest costs and that was related to higher average net debt during the quarter and also some interest rate differences on financial instruments. And for the 1st 6 months, financial net is close to $50,000,000 more negative than last year. No currency effects in the comparison. It's all related to interest costs and related to the higher average net debt and interest rate differences on financial instruments. That meant that we had a net income of SEK 1,400,000,000 for the quarter, some SEK 140,000,000 better than last year, net margin 10.7 percent, earnings per share SEK 2.43 and net income for the full year then some SEK 370,000,000 better than last year, bringing the net income close to SEK 2,400,000,000 Moving over to balance sheet. And we have seen a strength in Swedish krona towards the end of the quarter, which meant that when we compare June last year with this June, there are few effects of currency actually in the balance sheet. Non current assets increased mainly as a consequence of the acquisition made in Construction Division, but partly also impacted by the high or higher CapEx we have experienced the last 12 months. Adjusted for currency and acquisition, inventory a little higher than last year. We have increases in Husqvarna Division Gardena and decreases in construction and consumers. Trade receivables, somewhat higher than last year in local currencies, reflecting then, of course, the higher sales in the 2nd quarter. And trade payables, they were some $600,000,000 higher in local currency and adjusting for acquired businesses, reflecting then also the higher volume in the quarter for all divisions. So all in all, that meant that operating working capital, I. E. Inventory plus receivable minus payables, were more or less on the same level as last year. But adjusting for the acquired businesses, it was somewhat lower when we ended June this year. The net debt increased some SEK 0.1 billion compared to June last year to SEK 7,800,000,000 mainly, of course, then affected by the acquisition of net some SEK1.6 billion, which was more or less than offset by the improved cash flow during the Q2, mainly this year. All in all, net debt increased with some $800,000,000 from year end and that's, of course, related to the seasonality. One of our targets, 3 financial targets for the coming years is to have an operating working capital that is under 25% of the net sales when we end each year. Whereas the Q1 brought us further away from that target, we can see now in the Q2 that the combination of strong sales and substantial reduction of operating working capital during the quarter made the target more achievable when we ended the Q2 here. And talking about operating working capital, the seasonality pattern of building up working capital in the Q1 and releasing it during the second was valid, of course, also this year. Operating cash flow adjusted for acquired businesses was then $1,500,000,000 for the 1st 6 months, which was an improvement of some SEK800 1,000,000 compared to last year. The improvement was related then to the 2nd quarter where we actually had an increase of some SEK1 200,000,000 of cash flow compared to the Q2 last year, which brought the cash flow in the quarter up to SEK3.6 billion. Dollars Both for the quarter and for the 1st 6 months, this was both related to working capital due to the higher sales through the 1st 6 months being converted into cash, but partly also to the effect that we had more of net inventory coming into the year due to the extended season concept that we have in U. S, whereby we increased the number of fixed term employees and decreased the number of temporary employees to have an earlier, slower and longer ramp up for the season. And by that, of course, we carried higher inventory net coming into this year compared to 2016. And of course, the other big thing with the cash flow is to improve earnings. We have improved earnings of some $500,000,000 contributing to the cash flow. This was to some extent offset by the higher CapEx compared to last year, reflecting the profitable growth initiatives that we have. And of course, the mirror of cash flow is partly the net debt. And to fulfill our ambition to have an investment grade rated company, we need to have strong earnings and strong cash flow in from the operations in relation to the net debt we have. And it was rewarding to see that we were able to generate internally the source of funds we needed to make the 2 acquisitions in construction divisions of some $1,600,000,000 With the net debt more or less on the same as last year and the improved earnings. Of course, the net debt to EBITDA went down to 1.5 times from the 1.8 times we had end of June last year. And the effect, of course, of improved earnings and cash generation contributed to the improved profitability. Key ratios, both return on capital employed and return on equity continued to improve around 1.5 percentage to 2 percentage units, respectively, if we look to June last year or year end last year. And as regard to average number of employees, we can see now that volumes, the ambitions and acquisitions are contributing to the fact that we are moving away from a deduction of average number of employees to increasing the average number of employees for the first half of the year. By that, Kai, I leave to you to summarize the quarter. I'll keep the summary short and sweet. So all in all, a very good quarter as you heard us talk about in respect of sales, absolute EBIT, EBIT margin and cash flow for the group. Three divisions doing really well and a bit of a disappointment in terms of consumer. And the message is clear, we feel we have a proof of concept for the strategy. We are pressing ahead the strategic initiatives, fueling the growth and financing them through these internal efficiency programs that we are executing. And actually, I can also say that we are just about formulating also yet another third program for the years of 2018 2019 with the same purpose. Okay. And with that, I'll leave over for Q and A. And we will start with questions from the floor here in Stockholm first. It's Chris Simeonenko from DNB. I would like to talk about the disappointment first. Sorry. All other 3 divisions very well. But consumer brands, you talked about the mix effect and that consumers are basically trading down. Given that you now see because that seems like a temporary thing that could come back. But when you say that the margin recovery will take longer time than it previously expected, it feels like you think that this is a structural thing, that the new mix you see in Q1, Q2 will continue to be there for the next years or so. Is that correct? Or it's just do you think the mix will revert? The mix could very well revert, but the big question mark is really if the amount of campaign price levels that we have seen this season is going to, so to say, disappear or being reduced for the next year to come. We saw quite some campaigning last year about this period of time due to the poor seasons. I think there was certain amount of desperation to get the quantities and volume out and sell through. Now we saw that campaigning actually being, if anything, reinforced and in combination with then the reinforced purchase of lower price points. Exactly where that's going to end up is very hard to say, but I think we need to assume it could we need to prepare for to live on these levels. I think that's the response to your question. But I wouldn't exclude the possibility that we will see a return to the higher price points, but it's also a matter about new product developments and how well we actually manage to sell the values of those. So there's a task for us there also to review the level of innovation in the new product development. And talk about the 5% margin targets, we have talked about that target and the similar target for the U. S. Business a couple of years ago. It seems like Holy Grail almost. Given that you had a strategy to get to 5% by 2018 and now you see basically flattish for 2017 on 0%. What is the new strategy to take you to 5%? What because I guess you have already implemented quite a big strategy to get there to 5% by 2018, which will not succeed. No, it's true. I mean, we are pressing ahead with the efficiency measures. We are making the manufacturing and logistics footprint even more lean and mean. And SEK 30,000,000 was the last example of that. We have went through 2 or 3 sites. Now we look now we take a grip around the 3rd site. So there's no question about that. But I think we also need to utilize some of the strengths and one of the strengths we have, which we haven't fully explored is the robotics area. And we will move in heavier with robotics into the next coming seasons then. You have seen, we have prepared the market, but we haven't made the step change. And now we are eventually looking at that hopefully step change for the next season. So that's one thing in response to it, but it's much broader. The answer is much broader. So it is efficiency improvements. It is the new product developments and the pipeline for that, but it takes time. So I think we were clear from the beginning that 'eighteen was the 1st year of filling in new products and then 'nineteen is going to be an increased level. And that's the message we have had since 1 to 2 years back and still holds. Nothing has changed in that respect, definitely not. So that's where we are. And then you had a good teaser about the 3rd program. Is it possible to give anything on that already now or when we went through this? No, I mean, we have been I think we were very transparent about the accelerated improvement program that we were running in our end of 'thirteen to end of 'fifteen because that was simple, because it was all profitability improvement. Now once we start and we were running a second program then 'sixteen and 'seventeen, which we called Fit for Growth, which was then to a major extent supporting the growth initiatives and to some extent margin improvement. And now we're moving into a next phase with the 3rd program for 2018 2019, again principally supporting the additional costs for the strategic initiatives of growth. But we are not overly keen to talk about the numbers because it just reveals more than it actually gives any benefit to anybody. I mean, it's not in our interest to be too transparent about it, but it's going to be in the same magnitude that we have seen previously. So we think we can maintain the level of improvements for the years of 'eighteen and 'nineteen compared to, for example, 'sixteen and 'seventeen. But again, we press ahead with the strategy, We add costs and you also see that both in terms of people that's not all blue color and related to the volume. It's also quite a lot related to sales penetration, R and D increases, etcetera. So there are substantial shifts of employees behind those numbers that we see as a total. Final question just on the raw mats FX for 'seventeen, 'eighteen maybe and also inventory levels we see in the beginning of the Q3? Well, we will continue to see headwind from raw materials. As regard FX, normally with the seasonality and how we are hedging, etcetera, Reflecting that, we have taken the positive effects this year for the currency. So we will have somewhat more positive currency, but we will continue to see the negative raw material more or less as we have seen it in the first half of the year. So net, we are saying raw material FX slightly over $200,000,000 plus, meaning as you can calculate yourself, it's not that much left in the second half for us. 2018, as it looks today, will not be positive on raw materials. So presently, we see more of headwinds than anything else coming into 'eighteen. Inventories as well, will follow the same pattern as we saw last year, I. E. As I was referring to, we have the extended season concept in U. S. Whereby we start to build earlier, but slower. And that will also have an impact on inventory coming towards the end of this year. If you take a look on the cash flow curve, you can see what happened actually compared to 2015 and 2016, and that's mainly related to how we actually are handling our production system then mainly in U. S. Then. Olof Sverdrup, ABG. Just a question on Gardena. You had some incredible growth going on here. Is it possible to discuss that in more detail where it's coming from? How much are you outperforming the market? What's the geographical expansion doing? And also to discuss the plans going forward. Is this is it just a one step up in growth this year and then it will level out? Or how should we think about it in coming years? Thank you. Yes. I think first of all, I mean, Gardena is the division with the highest weather dependency. So if you have that dry weather in Continental Europe like we had in June, you will see the impact of it. So the volatility of that business from the weather component is the largest, number 1. But we are actually increasing the geographical penetration. And I have talked about this year, we have taken on the U. K. Market for the first time in a serious way. That's a start of at least a 3 year, I will call it, investment to really become somebody in that market. So we look upon that as an investment of a 3 year cycle. But it's also channel penetration, it's new product developments and it's also a further expansion of the Smart Garden concept. So we see a very rapid increase of the amount of customers using the Smart Irrigation. And of course, we are building up a wealth of data. We are expanding the offering quite substantially and I would like to come back to that maybe connection to Q3 and give an idea of what's happening in terms of functionalities that's being brought into that system because it's a very interesting space that we are the only actor in if you look at it today. So we want to maximize that growth. We are very upbeat about what we should be able to do with Gardena to continue, but of course, as you noted, you need that weather component to get these type of numbers improvement. So let's be clear on that. But if you look at the last couple of years, I think we have been around 8% net sales increase comparable currencies. And that has been an underlying rate, which we have managed to stay at. I don't think it's unrealistic to expect anything similar. And then remember the variation then on that number during quarter 2. Bjorn Enarson, Danske Bank. A question on consumer brands again. Are there any delays on the strategic product launches that we have talked about or the robotics or that the take rates was not as great as expected? Or is it more of this unfortunate mix development that you've seen. I would point that the product and the geo mix as the main component and the third one being the price campaigning element. I think that's how you should look at it in if you look at the single components of that, that's the right sequence. So the more pronounced impact from, for instance, robotics that, that is a 2018 theme? Yes. I think we yes, we have started this year, but it's a small it's a rather insignificant number in the overall total for this year. And it has to be somehow because you need to prepare the channels, you need to take your positions. I think 2018 and even more so 2019, we will see the true impact of that effort that we're going to do next year. Okay. And on construction growth, slowed a little bit, is this just a quarterly volatility or is it That's how we see it actually. The expectation is that we will return to a higher organic growth rate in North America. There has there was an expectation that the Trump infrastructure efforts would materialize a bit earlier, that hasn't come through. And now everybody sits with a lot of other projects, which they need to put into implementation. So among the customer base out there on a broader scale, there are expectations about an organic increase for quarter 3. Still to be seen, but that's what we hear from various channels in the market. And lastly, maybe you said this, but just to wrap up, on the 3rd program, what you're saying is really that we should expect a similar cost level on SG and A level and a similar net cost efficiency that we have seen? As we have a profitable growth strategy, of course, we want to see some leverage of the SG and A as we grow. But there is a not insignificant component added from the strategic initiatives. So if you would have looked at the same type of operation as in been a very good leverage. There's no question about that. So it's both a gross margin aspect, but an SG and A improvement. But then we have the additions in both those dimensions, particularly SG and A related to brand marketing and sales expansion. Some of the R and D, I guess, ends up in the COGS. But these are the 3 major single biggest elements of the strategic initiatives, the brand investments and R and D and as well as the sales penetration. And that will look pretty similar in 'nineteen as we have seen or seeing now. I don't know if you can add something to that. Well, yes, more or less. I mean, the same and it's actually why we're doing this is to get the leverage, meaning that we have to, as Kai said, be able to fuel the growth with the strategic initiatives, but also keep or make the core more efficient. So that's part of this program. And it's a little new touch since we are addressing the full SG and A, also personnel costs before it was more pinpointed to certain areas. Yes. Okay. Thank you. The program has been very COGS oriented historically. Now we've included SG and A to a high degree. Anurag, Nordea. You're talking about year over year higher costs related to growth initiatives. Can you please quantify to understand the underlying margin improvement in weather? We have not done that. Sorry to disappoint you, Stefan, here, but we have never done that. Actually, we haven't been that transparent. But we took a step change last year, added costs for 'sixteen for the first time of any magnitude. We had a similar step increase this year and we if anything, there is an increasing size of those steps. But we haven't quantified it so far. We will need to think about how we're going to do that. So sorry to disappoint you on that. And the trend going into next year? It's going to be even higher investments and cost additions in SG and A related to this and as well R and D and COGS. But those we have had and they have been out balanced by the other improvements that you see in the COGS. The gross margins have improved as you've seen for quite some few years despite the additions. Maybe we should add it, Kaj, as well that, of course, this is not like we have a plan in this rolling, irrespectively, of what is happening. So of course, this is gated and faced in such a way that if we have some disturbances, especially on the growth for our profitable growth divisions, that we have possibilities to mitigate some of that with the sort of less of profitable growth initiatives in a certain year. But I mean, that's Kaj is describing the plan in PowerPoint. So let's see if PowerPoint becomes reality. Yes, there's always. There's always a reality. Yes. The plan is nothing, planning is everything. Operator, can we open for questions from the telephone audience, please? Your first question comes from the line of Johan Eliason from Kepler Cheuvreux. Please ask your question. Yes. Hi, this is Johan at Kepler Cheuvreux. First, coming back to Gardena. You mentioned that obviously the 11% growth was partly weather related. But would you be able to separate out somehow the geographic expansion, for example, going into U. K? Did that add 1 or 2 percentage points to the growth to the quarter? And is this just filling up the inventories at these new retailers this year and then for a step change. And then next year, we will sort of probably have a more of a flattish development there depending on the sell through, obviously? Or how should I think about the geographic expansion impact on 2017 'eighteen basically? Thank you. Johan, the major impact is coming from the weather. If you have a dry month, the Gardena products are going to sell through like nothing else before. So if you look at the modest April, fairly modest May, the factor in June was probably something in the magnitude of 5 times what we had an increase in April May, at least a factor of 5, just to give an idea. And that's the impact you get. And the wisdom from Gardena is you normally have good weather sometime in the sea. So the question is when you will have it. This year it came in June. And back to your geography point, we had the core is, of course, in the DACH region, including Benelux and adding Benelux to that, that's where we have the core of Gardena. So that growth was double digit, a bit higher though in what we call the focus markets, talking about Scandinavia, Iberica, U. K. So we had a higher growth rate in those other geographies to answer your question. But the core was also doing fine back to DACH, German, Austria, Switzerland and Benelux. Okay. And regarding this geographic expansion, do you think there is a step up next year to come? Or is this a gradual rollout over the coming 3 years? I would say it's a gradual emphasis of those expansion markets, which is going to come. Now back to the other point there about the inventories. What happened last year was there was a disappointing end of the season, meaning that some the inventory in the trade was a bit higher for Gardena. We flagged that very clearly. We said the demand in quarter 1 is going to be lower and we saw that coming through. We have no visibility whether that's going to be the case this year or not. But the only thing I can say is that the beginning of quarter 3, beginning of July was at least positive for Gardena back to Continental Europe. So but that doesn't say anything about this when the season ends. When it ends for Gardena, it normally ends very rapidly and abruptly. So I think that I need to be clear about that. So that good start of it doesn't say where it's going to end, But the start was good, yes. And then just on consumer brands, you say you still target the 5%, but 2 year per annum improvement is probably more realistic. Are you and I think you said something about flattish this year. So you're expecting sort of around breakeven this year as well and then we should have 2% per annum in the best case for 'eighteen, 'nineteen? Or how should we think about it? Do you have you put another year as the target date for the 5%? I think you have understood it quite correctly, Johan, with the remark that there is a huge variation with the years and let's not get too depressed by this quarter 2 performance because if you look at the whole last year, we actually started that year with a minus 120,000,000 EBIT. We were having a 160,000,000 FX headwind and we balanced that up to a breakeven. So there are big swings. I think you all need to have a little bit of caution in both directions actually with consumer. It's a volatile beast, so to say, we're dealing with and that's going to continue. That's not going to it's kind of inherent in that business model a bit. So there might it might be a quicker improvement and there might come another setback. But I think you're if you're talking about the basic expectation, I think the way you formulated, summarized what I tried to say, I think it's a reasonable summary, yes. And with this trajectory, you're still sort of confident that consumer brand has a future inside Husqvarna? I'm only working with this hypothesis, Johan. There's no other hypothesis here. Good. And then finally, just a detailed question. Your depreciation and amortization was up quite significantly in the quarter year over year, SEK 73,000,000 How was this split between the increased CapEx and acquisitions? There was, of course, an acquisition impact here, but that was the minor one. It's more related to the CapEx that we have seen increasing the last year and now being turned into depreciations. So that the CapEx is the big part. Yes. And then talking about the CapEx, are the chains up and running as you wanted it now? Or how does it look like? I would say yes. We are on a very, I would say, steady increase, not spectacular, but it's steady. And again, the important thing for us has been to have the right quality of the chains, and we do. And there are ideas about further launches second half of this year, new chain types. So we are progressing and it is going to contribute. But again, the important thing is that the user experience of those chain is going to be outstanding versus everything else in the market. Which is also then, of course, part of the depreciation. Thank you. There are no further questions on the phones at this time. So with that, I'll say thanks for your attention. Thank you very much. Bye.