Earnings Call: Q1 2017

Apr 21, 2017

Good morning and welcome to Husqvarna Quarter 1 Result Announcement. I'll jump straight into the situation of the overview of the quarter 1. And actually, we are quite pleased with the start of the year. It's a very confident purchasing behavior of the trade partners that we see and particularly a strong preseason in Europe. I think you are all aware that quarter 1 for us is pretty much a sell in to the trade partners. So it actually doesn't say much about the sell through, but it says of course a lot about the confidence amongst the trade partners. And we see particularly that that has been strong in Europe. We see also that the volume we have had on the top line has materialized into significant improvements and operating income as well as the margin. And we are pressing ahead with the profitable growth investments, but you see already in the quarter that it has paid off in a good way. Also like to draw your attention to the buildup of our capabilities and position in the concrete surface and floor area where we have now, I would say, created a leadership position. I'll talk a bit more about that. But let's come to the result improvement to start with. We have shown this picture now since some time back and you will see the margin respectively the operating income and you see that the margin now takes another uptick. So we are on a rolling 12 month basis at 9.3% to be compared with 8.9% for the full year of 2016. The statement we have had before is that we expect to reach the 10% margin in 2017 or latest 2018. If anything, quarter 1 gives confidence to believe that we have a chance potentially already this year. But I think we want to remain with the previous statement that quarter 1 at least gives confidence that we are developing in the right way. Looking at the financial targets, we also have top line growth as one of them. For the 3 profitable growth divisions, you will recall Husqvarna, Gardena and Construction being a profitable growth where we expect to outpace the market and also from a profitability point be above average of the market. And if we look at quarter 1 for those three divisions, we will actually see 10.5%, which is really pleasing and satisfactory to see. So we are really glad with that start of the year. So that's good. Looking at the financial highlights for the group, 7% FX adjusted top line, whereof 6% are organic, 1 percentage point that relates to the acquisitions in the Construction divisions. You will see the margin have improved with 2 percentage points. You will see the gross margin, sorry, and the operating margin with 0.9%. And of course, in between, there is an element of burden from the strategic initiatives that we are pressing ahead with for the profitable growth. To go forward for the 2nd year. We took quite some efforts last year to put into what we said inject energy into the profitable growth journey and we are continuing this year with yet another step level on that. So that's a little bit of burden, but still 0.9 percentage point operating margin improvement for the quarter, 10.3% to 11.2% we think is good and operating income then is up 22% compared to last year. Looking at the weather in the season, it has been favorable in Continental Europe. Let me be clear about that. Continental European space. North America from a weather point of view has been okay with the exception of the 1st couple of weeks in March, which still are important weeks for us. So there is an element of burden for the North American market for the first half of March. Looking at the situation right now, the weather conditions are okay. So there's nothing that indicates any problems in North America for that sake or for Europe. Returning back to the bullet points here, we have had of course beyond the volume impact also mix impact, both in terms of, you can say, country mix as well as product mix, divisional mix. And we have net of raw materials a positive currency effect and Jan will come back give some more details on that. Earnings per share 30% up. So all in all, that's good numbers. Husqvarna division, 11% up currency adjusted growth, which is really nice to see and the margin the operating margin here going from 15.5% to 16.4 percent. Strong development robotics and battery based products, but also traditional products like walk behind petrol, lawn mowers, etcetera, are doing well. Not surprising from the comments I gave, Europe is really what's leading the quarter and it's really the region that's pulling ahead here. North America stable in that sense. From a result point of view, yes, volume, product mix, currency supports particularly the Husqvarna division here, but we also do continue with our growth initiatives in the quarter. Gardena, maybe this is a bit of a surprise also versus the guiding we gave last quarter where we actually talked about an expectation of a flattish quarter pretty much on the backdrop of a weak end of the season last year. We didn't expect that, but the net effect of the Continental European weather and the confidence that that brought together with new products, new channels, new geography penetrations has actually changed the picture. So we ended up with a 9% increase. But let me also tell you that the February year to date was still not at all looking that fantastic. So that was in line with the guidance. So actually March that ticked it. And I think to some extent, there is an element of sell through in parts of Continental Europe that we have seen. Hand tools is doing great. So is robotics. And just to continue on the path, I think quarter 4, we showed the fruit collector, another hand tool that had a huge success at that part of the season. Now we have then what we call the Star Cut, the pole sequator, which is doing really great and has received fantastic reviews in Amazon and other locations. We are pressing ahead, as I mentioned. And from a geography point of view, we are making now taking on the U. K. Market. And this is a start of, let's say, a 3 year journey rather than anything else to grab a position in that market where we have been underrepresented historically. We have a higher operating income, yes, but we have a little bit of margin deterioration pretty much burdened by the efforts from the strategic initiatives in growth, but I would say under control. Consumer Brands, the little negative for us amongst all the good stuff here, minus 4 sales wise, kind of adjusted. So we have two things. I mentioned the weather piece the 1st couple of weeks of March, but the big thing is actually a different purchasing behavior we see from a couple of the big box retailers who have applied a more stricter just in time purchasing pattern, meaning that there is some shipments that has been pushed over into Q2. I want to emphasize from our point of view, this is a periodization effect. So there's no change in any expectation of the year. The way we talked about the sales for the year was flattish to some single percentage point of increase and that still remains. So nothing has happened in that respect. But the quarter looks a bit weak, but you need to have some patience here into quarter 2. And also remembering quarter 2 wasn't that spectacular last year, was actually burdened by a tough weather situation in North America. But I also want to emphasize on the positive note here, Europe has been equally good for consumer brands. So that's a good consistency. The McAllo robotic flow mover, you look at that, has been introduced, not turning any numbers around big time this year, but it will become important for the next years to come. I'll say some more words around that. From a results point of view, a little bit disappointing. I think that we couldn't beat last year's reference, but the combination now of the lower volumes, but also the lower production pace as a consequence of a flatter production schedule that we run over the season made that difficult, but that should look a bit different for quarter 2. 1.5% operating margin versus 1.9%, of course, many of you sit here and think what about the 5% EBIT margin in 2018? I think we were very clear at the Capital Market Day that that's a stretch goal. That remains a stretch goal. We are not leaving it in any sense, but everybody realizes this quarter doesn't make it any easier for us. But we still hang on to it and I'll look I'll comment after the main part of the season is behind us earliest after quarter 2 about that. But we are still on that journey. Nothing has changed, but it's a tough goal, of course, given the starting point of where we are now. Construction, great story. 18% currency adjusted increase were down 9% organic. The major part of that acquisition based increase is Fullman Hermatter. I'll talk a bit about them as well. But I think talking about the organic part, it's both geographically well spread as well as from a product category point of view. So the most pleasing part here, I would say, from that point of view is that Europe as a broader geography is doing a lot better than we have seen before. I mean construction has been pulled the last couple of years from the North American market. We communicated that quite clearly, but now we see a broader based European demand increase, which is nice to see. Operating income and margin, of course, takes a big step up here from 9.2% margin to 11.8%, which is nice. No question about that. And the Polman had a good contribution to that as well. And I guess, Jan will make some comments specifically as to that. What I would like to draw your attention to is actually what we are doing here. We are building a leadership position within the concrete floors solutions and actually there are 3 acquisitions DTS last year, which is the resin based tool manufacturer and floor grinding consumes a lot of tools. It's a perfect application for consuming tools. And then we now have the dust and slurry market leader with Pullman, SEK 300,000,000 turnover with them and then HTC which is the market leader in grinding. So together with our own abilities, together with our penetration and reach into the market that these two actors haven't had any comparison to, we think we can do something really great here. And really talking about complete solutions from the tool to the grinding to the dust and slurry part and optimizing that. And the macro is strong and good because environmental law legislations are getting tougher, which puts higher requirements on dust and slurry. And then fundamentally, come back to the page here, these type of floor solutions where you don't put any epoxy paint or anything, just grind it and polish it to the right surface is becoming much popular, much more popular. So it is an over average growth in the segment. It's an over average profitability and we have taken a very clear leadership position now. So give and take some SEK750,000,000 there of revenue increase through those three entities. And of course, the coming years we need to make something really visible and tangible out of this. With that, I'll leave to Jan to make some more specific comments about the financials. From an income statement point of view, but more as you will see challenging from a capital efficiency perspective, partly as a consequence of the higher volume that affected more substantially towards the end of the quarter, resulting then among other things in a high level of accounts receivables that we were unable to cash in during the quarter. And also one remark about the weakening Swedish krona that happened towards the end of last year. With that, the comparison with Q1 2016 becomes affected by those differences. And this is especially the case as regard net sales and as regard balance sheet items. Operating income was positively impacted affected by then around NOK100 1,000,000 positively due to the general weakening of the Swedish krona that was then more positive than the negative effect we get from strengthening dollar with our U. S. Footprint. Moving over to net sales of the group. As Kai mentioned, up 12% in Swedish currency on Swedish krona in the quarter, but adjusted for currency 7%. And as Kai mentioned, around SEK100 1,000,000 was the effect of acquisitions. That is close to percentage units and the acquisition is then what happened in the beginning of this year for Pullman Air Martyr and then we had DTS that happened in the 2nd part Q2 last year. Gross income improved with over NOK 600,000,000 compared to last year. Here we also have a positive effect then on the currency. But except for that, the improvement was mainly related to the higher volume in all divisions except then consumer brands that Kai mentioned. We also got a mix effect that was positive with the substantial improvement of volume of robotics and also a quite substantial effect from the divisional mix, I. E, Husqvarna, Gardena and Construction are growing, whereas consumer brand with a lower than average profitability and gross income level is then decreasing sales. At the same time, we must mention that also consumer brand, despite the volume decrease, were able with cost reductions to maintain the gross income level they had in last year. On the positive side, we have continued cost out activities mainly related to direct material impacting positively, of course, then somewhat affected by the increased raw material prices, but net positive effect. And we also have in the gross income additional costs related to our profitable growth initiatives. And when we talk about gross income, that is mainly related to R and D costs. Kairos Intuit, selling and administrative expenses, SG and A increased with some SEK 375,000,000 and the increase of SG and A costs was partly related to currencies, but also partly related to our profitable growth initiatives where the bulk of costs actually are concentrated. We also see that the logistic cost, which is part of the SG and A increased and that is, of course, due to higher volume, but also due to the higher inventory level. All in all, an operating income improvement of some €250,000,000 to €1,425,000,000 whereas some SEK 80,000,000 was related to the net of positive currency effect and increased raw material cost. And the guidance we are giving for the full year is that that will be somewhere north of SEK200 1,000,000 for the full year of a positive effect. All in all, for the quarter in operating margin that is 11.2%, close to 1 percentage units better than last year. Financial net, pretty stable compared to last year where we have higher interest costs mainly related to our increased funding needs and also as relates to interest rate differences from financial instruments, but that was offset with somewhat lower negative currency effects this year compared to last year. So all in all net income that was very close to SEK1 1,000,000,000, around SEK225,000,000 better than last year and net margin of 7.8%, meaning an EPS of SEK1.72. Balance sheet. And this is, of course, something that is heavily affected by currencies since we are using the balance sheet rate when we are transforming this into Swedish krona. And with a substantial part outside Sweden of our operation and a substantial footprint in U. S, we get affected by the general in Swedish krona and depreciation of dollar compared to March last year. So if you take a look, for instance, on the non current assets, they increased by some SEK2 point 4,000,000,000 where SEK0.7 billion was pure currency, SEK1 billion was related to Pulman Herrmannter acquisition and $700,000,000 was related then to the higher CapEx level that we saw in 2016. Adjusted for currency, the inventory increased with some $350,000,000 compared to March last year, mainly related to the higher volumes in Husqvarna division and Gardena, partly offset then by a lower level of inventory in consumer brand, reflecting their lower volume this Q1. And as I mentioned, we had higher accounts receivables. Taking out the currency effect in local currencies, we are talking about SEK0.5 billion more or less. And as I said, the higher volume that we saw in the quarter happened very much towards the end of the quarter and thereby leaving the accounts receivables on a high level. Accounts payables on the other side were on the same level as last year if we take out currencies despite the high volume. And this was a consequence of an earlier pre bill for the season '17, than last year and also partly related then to our new production concept in major U. S. Factories with more fixed and less temporary employees and also a concept where we are flattening the production curve compared to what we did before. With higher inventories and receivables in local currencies and a stable payable level, Of course, we get an operating working capital that has increased. It has increased in local currencies of €800,000,000 And if we take in also the currency effect, we are up SEK1.6 billion of operating working capital compared to last year. And of course, this €800,000,000 of currency effect is also transferred into a high net debt that end of March were up some €1,600,000,000 to SEK9.8 billion compared to March last year. Besides the currency effect of around SEK800 1,000,000, we also have here an effect of the acquisition of Pulman and Mater. So whereas good things are happening in the income statement, we cannot be satisfied with the capital efficiency here in the first quarter. And as you know, one of our three targets is related to that. It's related to have an operating working capital that is under 25% of net sales measured in the year at the year end. And this Q1 actually brought us further away from that target with an increase, as you can see here, with more or less 1 percentage units compared to March last year and now we're up to 28.1%. With the unwinding of working capital that starts in the Q2, this ratio will improve and measures are put in place to improve this further. But capital efficiency is very much about changing behavior and it takes time to change behaviors and it will take time before we see the leverage of such activities in the operating working capital. The fact remains, we were less working capital efficient in the Q1 of the year and that, of course, affected cash flow negatively. The seasonality pattern over built up of working capital in Q1, reflecting then the demand and how slightly over or under minus SEK2.1 billion. Was slightly over or under minus SEK2.1 billion and that is a deterioration compared to last year of some SEK400 1,000,000, once again related to the operating working capital that increased, but partly offset by the improved earnings. And our ambition is to have an investment grade rating as we have today. And to fulfill that ambition, we need to have a strong earnings, strong cash flow in relation to our net debt. One important key ratio that we are following is, of course, then the net debt to EBITDA. It deteriorated, as you can see in this slide, slightly compared to end of the year despite then the increased EBITDA, but that was not enough to offset the increased net debt that we saw in the Q1. We are presently just below 1.7 times. But despite the deterioration of capital efficiency, the profitability measures are improving. For example, return on capital employed as well as return on equity, they are 1% to 2 percentage units better than March last year and also have improved since year end. And as regard the number of employees, we can see that they are still decreasing and we were some 225 less of full time employees when we ended this quarter compared to the Q1 last year. With that, Kai, before you summing up, I think you have something around a milestone for the company. Yes, we do. We do. And the milestone is about robotics. And innovator of this category already in 1995. And we these machines, they work too well almost, so we had to buy back the solar power. This is actually unit number 1 or 2 or something. It's really one of the very first ones. We bought it back just recently. But that's how it looked. You may think that solar power driven robotics movers was a bit ahead of its time, 'ninety five and actually it was. But I think it was quite innovative and a good start of a great journey that we are on. And I think the point there are several points to be made, of course, but I think that was the 1st generation back in those days until 'ninety eight and iteration up to Generation 1, 2003 then the 2nd generation and now being in Generation 3 mode. Of course, we have learned a lot throughout these years, how you create reliable results over a season, how you make it silent, how you avoid tracks in the grass and how you make it safe. I think these are probably the main criteria why people choose to do this with robotics and actually you buy more or less a solution for maintaining your lawn in the garden. So 1,000,000 units sold and by far the biggest actor in the market is, of course, quite pleasing for us to see. And I think that's one milestone, but I think the more important thing here is a couple of other points. What about the penetration level in the market from a value point of view? Of course, from a volume point of view, those are going to look even tinier, these shares in the various countries. So Sweden from a value point of view would be close to half of the lawn moving market value, whereas you will see Germany being less than a quarter and France even less than half a quarter. So there's a lot of potential there. I would point at Sweden, Switzerland as the most mature European markets, U. K. Being pretty much nowhere still just like U. S. So there's a lot of untapped potential here, of course, I think is one of the messages. And again, if you would have looked at the volume shares, this would have been about half of what you see here, those shares. So this is a value game so far. But there is a point here about volume because you will be aware, I would expect that we have since quite some time, of course, Husqvarna being the main brand, but also had products with Gardena since some years back with the group technology. But I think the point is we do see now that the entry levels are starting to create volumes and we don't want to be only a value play in this category. We also want to tackle the volume play and the entry levels. And we will position McCullough for that part. And that's why I say strategically, it's an important decision. From a P and L perspective, it doesn't make much difference in 2017. But in a couple of years, it will make a difference as well. So I think that's a couple of messages about robotics, which we think are important, but it's not all about robotics. It's I'd also like to emphasize the battery based products. I think we have the approach that we want to have an equally competitive offering for the battery based products as we have for the petrol offering, which is still going to remain the most important for quite some time to come. So I think the way where we started this was to have a high performance range from Husqvarna some 3 years back. And Gardena then introduced some products, but the weakness of our position was rather into the consumer space where we have been fairly thin. So we have now introduced Husqvarna branded consumer based range this year. And one of the big retailers actually is also included in that in U. S. And we are pressing ahead with more products here, may that be Gardena, may that be Flymo for UK. I think the point is we have expanded offering 75% since end of 'fifteen. So in 5 quarters, we have 75% more SKUs than to be technical about its stock keeping units. But it's really a widening of the range. So let's not all get stuck with the robotics daughter in our mind, but actually this is equally important. The message that I've been giving at the Capital Market Day is that we are growing with well above 20%, and that's as much as I will say today as well. I can only reiterate that there's no change. It's equally valid for both these categories. And we are positioning ourselves to be an important player in this area. We're not going to get stuck in the petrol even though it is very important for us. But I mean the trend with petrol to battery is taking place all around us and will happen of course in the Forest and Garden space as well. Summing up, I think we are pleased with the start of the year, the pre season, good confidence in the sell in and you heard a comment about Europe. We have the profitable growth strategies in place in some time. We see in quarter 1 a good positive impact of that. It's working. We will we continue to press on with further investments. So this is like walking in a spare. We took a certain amount of additional costs last year. We add to that now again this year. At the same time, of course, as we work with the efficiency improvements to get some leverage was on the bottom line. And I think the other point to make here summing up is the position we take in Concrete Grinding and Floor Solutions where we are very optimistic what we can do in some time. So by that, I think I will leave it open for questions. Good morning. Christa Meiningold from DNB. The first question I have is related to the operational leverage you have in the business, which is good on the gross income, but as pointed out, very high selling expenses here in Q1. What can we expect here going forward? Is this a step up you expect to continue with having also in 'eighteen, 'nineteen? Or is this kind of the level we have now as a percent of sales on selling costs? Could you start, Christian? Yes, I can start. Of course, as I mentioned, S and A is to some extent impacted by currency, natural. And the other part is, of course, the profitable growth initiatives. And of course, we stepped up the game in 2016 and are doing this year as well, which means that we are creeping up the level of SG and A. But of course, our aim is to get leverage on this. And that is something we are focusing on. Then there are some effects, which is spilling more over to the Q1 this year than it did last year, commercials, logistic cost, as I mentioned, etcetera. So there are some things, but the trend is that we will have with this profitable growth initiative somewhat higher SG and A cost, yes. I think that's a fair comment, and then adding to that. I think after the 2nd year now that we press on so to say with investments, we will make a review of where do we find the payback of these investments, where will we redirect something, will we brake in some areas. So I think we are give it a go now based on the strong efficiency improvement we have underlying in the business. And then at some time, you always need to make that review and see what makes more sense and less sense and rebalance. But fundamentally, we have, I think, a melody where we have so much growth opportunities that we want to explore. So we will need to be a bit bullish about it. I think that's probably from a direction point answer to your question. And then the second question is related more to the Easter and particularly basically to Gardena, which I think had a strong March. Is that related to the Easter effect? Or what do you see in terms of that? If I start, yes, we had a positive day effect in quarter 1, which will be a burden for April, so to say. That's true, but I think the dominant influence was rather the weather. I wouldn't that's why we didn't emphasize the days eventually. Actually, in some earlier version here of the release, it was in, but we took it out because the dominant effect was actually the weather in the season in the Continental Europe that was dominating it rather than the Easter effect actually. Agnieszka Vilara, Kanyegi. If you can talk a bit about Gardena. You seem to be surprised by the growth during the quarter. Do you feel that you are taking market share? And can you also elaborate on your activities and expanding to new geographies and new sales channels? It's much too early to talk about taking market share in quarter 1 knowing that it's predominantly a sell in. I think to some extent, actually there has started a sell out within retail and Gardena products that actually tipped it to become so positive. But I wouldn't dare to talk about taking market share based on that. But if you look back with Gardena then being at 8%, 9%, of course, that is well above the market. And the watering category as such is probably just a couple of single percentage points of growth for the full year basis looking back. So definitely Gardena is on a very strong track, but it's pretty much channel penetration, it's geography and it's product innovation. It's all those dimensions. And then talking about geography, the major bit that we add this year is U. K, of course. We took on the Nordics last year, and we have increased the penetration in the Nordics. I think that that's visible, but also who might have made any detailed studies into it. And of course, we are equally interested in the Southern European space to take a stronger position. So these are some geographies, but also looking a bit East, Poland, Russia, important markets, which we tackle. And then just one question on the robot lawnmowers. If you can take a look at the penetration chart that you showed, Can you just clarify if the penetration rates relate to the sales, annual sales rather than the fleet that is out there? This is sales. That should have been more clear about it. Thank you. This is penetration in terms of sales as share of the total sales in the long moving market. And just as an indication for us, if you could guess what's the penetration in volumes, for example, in Sweden when it comes to the whole fleet? That's less than half of that. If you say the accumulated installed base, yes, then it's a lot less. It's less maybe. Now I'm really guessing. I'm looking at Sofia in the back here, but I would say if you say 10% to 20% probably is a fair guess. Okay. Thank you. Volume wise, installed base. Olof Larsson, SEB. One question from Mel. Mel. The growth initiatives that you're investing in, which is driving SG and A cost upward in this quarter and also last year, how fast do you expect dosing initiatives to start to generate growth? I think actually part of what you saw this quarter is generated by that. It's always very difficult to be that specific about the quarter. It's probably not meaningful even. But definitely, there is an element of that in the quarter that you see. There's no question about that. If you look at the character of the strategic initiatives, it's brand and marketing investments, it's about R and D and sales penetration, I will say, as areas, I would say, this is probably the most important ones. And we see already and you saw it here, for example, in the battery based product with 75% increase of SKUs that's available in the market. That means something, of course. So I think there is a direct one to one effect in that particular case. Sales penetration, normally, you would say it's a year to 1.5 years before a salesperson pays off, I would say, definitely a year before they pay off and really impact. But given that we started a year ago, yes, you will see that impact from that part throughout 'seventeen and increased, of course, into next season reasonably. And the investments that you're taking this year, we should assume 2018 this will start to kick in as well and then some extra impact in 2019 and onwards. Yes. That's the whole idea. And let's see. We need to prove it, but that's the idea and the hypothesis. Yes. Bjorn, maybe I didn't follow, but did you quantify the cost or your investments for the gross initiative that is holding back leverage a little bit? I didn't do that specifically, but I think last year we talked we gave some visual impression of it compared to the FX hit that was €430,000,000 or something, if I remember correctly. And we said it was not far from that type of level. And give and take, we are pressing on with a similar type of level this year, just to give you an idea. And we should expect to see that also next few years? I didn't say that. I think what I'm trying to verbalize here is that we will make a review of the strategic initiatives towards the second half of the year and see what really has paid off and maybe redirect, stop some things, add in other areas and I mean all the natural things you do, the continuous assessment. And then we will look at 'eighteen and see whether we make yet another step in equal size or not. That's not defined at this point in time. So that's an open question. But definitely for this year, we press on. Perfect. One remark, it's not only SG and A. This amounts we are talking about. As Kai mentioned, there are several things, R and D is part of that as well. And that comes and affects the gross income. Okay. And how much did you buy back the solar mover for? Sofia, help me out. We don't know, I think. But it's a great story. I mean that it continued to work. I mean, it's fantastic. More than the cake. Operator, can we open for questions from the telephone audience, please? Thank you. Your first question on the phone comes from the line of Johan Eliason at Kepler. This is Johan at Kepler Cheuvreux. Congratulations to good numbers. I was interested in your move into this grinding business in the construction part. Is it correct that you paid almost 3 times turnover for Pulmonary Martor? If I look at your cash flow, you've spent sort of SEK 942 2,000,000 in the quarter. And is this the sort of same price you're willing to pay also for HTS to come later on? Thank you. You have been reading the interim report correctly. And we are not saying anything about HTC because they are not the same animals, so to say. But let's see when we come into the coming quarter and then we will reveal what those numbers are if we are successful with the HTC acquisition. Yes. And adding to that, I mean, Fulman Hermita is an exceptionally profitable business. So that I don't think is what you should expect necessarily or what we pay in general terms. I wouldn't extrapolate that too much. And one remark, since we're into accounting, of course, this means that the purchase price allocation with goodwill and immaterial assets or intangible assets are then, of course, high, meaning that they are depreciated or amortized in this Q1. And that's why we are saying that Pulmonary Mortu impacted positively. But when we also made acquisition, we said that it will not have a significant or substantial impact for the full year. So of course, the good performance of Pulmonary Marte is to sum what offset by these amortizations that we do on a group level for acquisition. Yes. And that was actually my next question. So these PPAs, how much were they in the quarter? And what do you expect for this year and going forward from the acquisitions that you have closed so far? As you can see in the interim report, some SEK 450,000,000 was intangibles and they are depreciated between 5 to 10 years, meaning that the impact was not that big all in all of Pulman and Mator. We are not giving any clear figures on different depreciation rates, etcetera, because there are different asset types like brand, like licenses, etcetera, or technology, etcetera. Your next question comes from the line of Rasmus Enberg, FHB. Yes. Firstly, thank you. I wanted to ask you, what was the impact of raw materials in the quarter, Ruxi? We are actually pretty specific in this quarter since we are saying that currency was €100,000,000 and net currency raw material was €80,000,000 So then it's 20.25 Thank you so much. That saves me the reading and I'll hit. And the acquisition, how much did that impact EBIT roughly? Limited impact. So I think maybe we are not talking amounts, but a small impact. And also, of course, that is related then to construction. So the improvement of construction is too limited, as we talk about operating income, limited extent impacted by Pulmonary and Morte. The rest is the underlying business that are doing great. But of course, net sales is 100% impacted by Pullman and Mortar acquisition. Yes. I'll try to figure that out. Okay. And then a question on this changing buying pattern in the U. S. What do you make of that? Are you maintaining your production plans for the year? And you also update us what channel inventory looks like in the U. S? I want to be clear and I try to be clear. I mean, we don't see any change in demand as a consequence of this different purchasing behavior. It's just that they are more strict about just in time shipments. So they put more burdens, so to say, on us, not very surprising, but and some of those orders slipped into quarter 2. But again, it doesn't say anything about the end customer demand and sell through. So that we judge and assess equal to before. But of course, it's a bit of burden on the inventory that Jon talked about before. But that's only your inventory, but not channel? Correct. Not channel inventory. Okay. Your next question comes from the line of Olof Sederholm at ABG. Yes. Hi. It's Olof from ABG. Just a quick one on growth, particularly in Husqvarna and Gardena. Your financial targets talks about growing faster than the market. And do you have an assessment of what you think the market was growing for those divisions and how much you were able to surpass that? Actually, we are in the midst of making a very thorough review of the market growth. But I mean the general statement we have made is that it's historically been very much in line with GDP over a period of time. And value wise, if you say 3%, probably it's not it's probably a good proxy for the thing here for the last few years in that magnitude. But I think we need to be very cautious about extrapolating this number of 10.5 now for the 3 profitable growth divisions and the 11 for Husqvarna, 9 for Gardena for example, to 20 market share gain or loss. It's too early in the season and in the year to talk about that. We need to see a lot more sell through data before we can dare to do that. But it, of course, shows that they think that we have a very competitive offering. That's, of course, natural interpretation, which they will promote. That's obvious. All right. Perfect. And on Gardena specifically, since there are a number of things there with geographic expansion and penetration sales channel penetration that you know and can control, is it possible for you to split out how much that added to organic growth? I'm not in a position that I want to do that necessarily here and now. That we will need to, I think, build a story which is more solid over a longer series of quarters rather than one specific quarter and make that meaningful. So I'm sorry, Olof, I'll be declining to answer that question. Fair enough. Thank you very much. Your next question comes from the line of Erik Gunnarsson at UBS. Please ask your question. Hi, everyone. Yes, I have a follow-up questionnaire on the raw material impact during the quarter and also what you expect during the years. So you said that you have about €20,000,000 headwind of raw material in Q1. How much of the spot price increase year on year do you see filter through on that number? And do you expect it to accelerate as we go through the year? We saw limited impact and that's also, of course, how we are doing the contracts with our suppliers, etcetera. And that will, of course, then as we go on, be somewhat more material than we saw in the Q1. Do you want to give any guidance of where we end up for the full year? And also where we could end up for even the current spot prices for 2018? Well, I have said that north of €200,000,000 the net of currency and raw materials. And then we can say that maybe we are closer to as regard currency and closer to 100 if we talk about raw materials. And in terms of contracts and so, would you is that expecting that the current spot prices are filtered through all the contracts and also the lag that you had in outsourcing product pricing? This is based on the best of our knowledge and the knowledge we have of our contract as well. So yes, everything that is the recent information is in there. Okay. Thank you. One additional piece, I think, just to remind you, I mean, the main part of the production is, of course, the first half of the year. So the main material impact is also going to burden the first half. So lower rate here in the second half. All right. Thank you. And there's currently no further questions. Okay. There seems to be one more question. It's Christoph from DNB again. When you talk about the Gedienda entering the U. K. Markets, how big is the addressable market in the U. K. For Gardena maybe in comparison with the Germany or in other markets? And what kind of market share do you normally have in Europe, not like Germany, but other countries? If you look at the mobile watering, Gardena is the number one by far in Europe since many years back. In some of the other categories, it might look different. If you look at hand tools, it's also a huge player in the premium segment, whereas of course the volumes in the more entry points is also considerably in the hand tools region. But as a premium player, it's a number one together with other actors like Fiskas, just to mention one name. Electric, not that large. If you would look at these type of products, handheld products saw fairly small player in the bigger scheme of things, but still robotics becoming a significant player actually throughout the last years. The addressable market, I don't want to be very specific, but U. K. Is the garden market in Europe. It's an enormous potential for us in there. I don't want to quantify, but I can just leave it with it's a huge potential. So the potential is there. It's more what can we do out of it. And I think you should look upon this as a start of a journey that's going to take more than 3 years to really materialize anything that's near the ambitions we have, but we will need to invest. I think you should look upon 2017 and probably 2018 also as an investment years for us, net investments to build the brand awareness, the brand preference, to create the channels in the market. We have taken a retail position this year and there's a lot more to be done in the garden centers and other channels. So it's I think we are trying to shape it. It's going to take at least 3 years to make something meaningful, but the potential is enormous for them. So to think about Gardena as a high growth division with more flattish margin profile over the next years, is that your assumption? I think that's it's not bad. I think that's what we're striving for. Yes. And then the last thing you said in your presentation about consumer also Construction Products is that you have the ambition or something like that. That's to make this tangible and visible in the future. I'm not really I mean, you just said it in the last part Ideally, I would like it to become a larger share of the group to Ideally, I would like it to become a larger share of the group to get the right sort of valuation because it has been a little bit too small in the group and hidden in the group. So from that point of view, it would be nice to expand. And I think fundamentally, we have all what it takes to expand it in a good way. I think we have the technology, we have the geographic reach, we have the leadership, so to say, from a product point of view, a very good momentum. And I think this is a good test now. How do we tackle and acquire growth of SEK 700 1,000,000 and what do we do out of it. And depending on the success of that, we will be more bullish or more cautious. But if you ask me today, I'm quite upbeat about what we reasonably should be able to do in this constellation with 2 market leaders, which fits the structure and the culture of our Construction division. Great. Thanks. With that, thank you very much for your attendance and attention. Thank you.