Good morning, welcome to Husqvarna quarter one result announcement. I'll jump straight into the situation of the overview of the quarter one. 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 pre-season in Europe. I think you are all aware that quarter one for us is pretty much a sell-in to the trade partners. It actually doesn't say much about the sell-through, but it says, of course, a lot about the confidence amongst the trade partners. We see particularly that has been strong in Europe. We see also that the volume we have had on the top line has materialized into significant improvements on operating income as well as the margin.
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. Let's come to the result improvements to start with. We have shown this picture now since some time back, and you will see the margin, respectively, the operating income. You see that the margin now takes another uptick. 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 one gives confidence to believe that we have a chance potentially already this year. I think we want to remain with the previous statement, that quarter one 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 three profitable growth divisions. You will recall Husqvarna, Gardena, and Construction being in profitable growth, where we expect to outpace the market, and also from a profitability point be above average of the market. If we look at quarter one for those three divisions, we will actually see 10.5%, which is really pleasing and satisfactory to see. We are really glad with that start of the year. That's good. Looking at the financial highlights for the group, 7% FX-adjusted top line, whereof six are organic.
One percentage point then relates to the acquisitions in the Construction divisions. You will see the margin have improved with two percentage points. The gross margin, sorry, and the operating margin with 0.9%. 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 second year. We took quite some efforts last year to put into what we said, inject energy into the profitable growth journey, and we're continuing this year with yet another step level on that. That's a little bit of burden. 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. Not necessarily that much up in the Nordic countries, but definitely in the continental European space. North America, from a weather point of view, has been okay with the exception of the first couple of weeks in March, which still are important weeks for us. 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. There is 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 could say, country mix as well as product mix, divisional mix.
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. All in all, that's good numbers. Husqvarna Division, 11% up currency adjusted growth, which is really nice to see, and the operating margin here going from 15.5%-16.4%. Strong development, robotics, and battery-based products, but also traditional products like walk-behind petrol lawn mowers, et cetera, 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. 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. The net effect of the Continental European weather and the confidence that brought together with new products, new channels, new geography penetrations, has actually changed the picture. We ended up with a 9% increase. Let me also tell you that the February year to date was still not at all looking that fantastic. That was in line with the guidance. Actually March, that tipped it. 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.
Just to continue on the path, I think quarter four, we showed the Fruit Collector, another hand tool that had a huge success at that part of the season. Now we have what we call the StarCut, the pole secateur, which is doing really great and has received fantastic reviews in Amazon and other locations. We are pressing ahead, as I mentioned. From a geography point of view, we are now taking on the U.K. market, and this is a start of, let's say, a three-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, we have a little bit of margin deterioration, pretty much burdened by the efforts from the strategic initiatives in growth. I would say under control. Consumer Brands.
The little negative for us amongst all the good stuff here, minus 4% sales-wise, currency adjusted. We had two things. I mentioned the weather piece the first couple of weeks of March. The big thing is actually a more stricter just-in-time purchasing pattern, meaning that there is some shipments that has been pushed over into quarter two. I want to emphasize from our point of view, this is a periodization effect. 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. Nothing has happened in that respect, but the quarter looks a bit weak. You need to have some patience here into quarter two.
Also remembering quarter two wasn't that spectacular last year. It was actually burdened by a tough weather situation in North America. I also want to emphasize on the positive note here, Europe has been equally good for consumer brands. That's a good consistency. The McCulloch robotic lawn mower, we'll 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. That should look a bit different for quarter two.
1.5% operating margin versus 1.9%. Of course, many of you sit here and think, what about the 5% EBIT margin 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. We still hang on to it, and I'll comment after the main part of the season is behind us earliest at the quarter two about that. 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, 9% organic. The major part of that acquisition-based increase is Pullman Ermator. I'll talk a bit about them as well.
I think talking about the organic part, it's both geographically well spread as well as from a product category point of view. 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. Construction has been pulled the last couple of years from the North American market. We communicated that quite clearly. 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. Pullman 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. Actually, there are three acquisitions, DTS last year, which is the resin-based tool manufacturer. Floor grinding consumes a lot of tools. It is a perfect application for consuming tools. Then we now have the dust and slurry market leader with Pullman, 300 million SEK turnover with them, and then HTC, which is the market leader in grinding. 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. Really talking about complete solutions from the tool, to the grinding, to the dust and slurry part, and optimizing that. The macros is strong and good because environmental law legislations are getting tougher, which puts higher requirements on dust and slurry.
Fundamentally, going 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 more popular. It is an over average growth in the segment. It is an over average profitability, and we have taken a very clear leadership position now. Give and take, some SEK 750 million there of revenue increase through those three entities. Of course, the coming years, we need to make something really visible and tangible out of this. With that, I will 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. Also one remark about the weakening Swedish krona that happened towards the end of last year. With that, the comparison with first quarter 2016 becomes affected by those differences. This is especially the case as regard net sales and as regard balance sheet items. Operating income was positively affected by then around SEK 100 million, positively due to the general weakening of the Swedish krona that was then more positive than the negative effect we would get from a strengthening USD with our U.S. footprint.
Moving over to net sales of the group, as Kai mentioned, up 12% in Swedish currency, in Swedish krona in the quarter, but adjusted for currency, 7%. As Kai mentioned, around SEK 100 million was the effect of acquisitions. That is close to a percentage point, and the acquisition is then what happened in the beginning of this year for Pullman Ermator, and then we had DTS that happened in the second quarter last year. Gross income improved with over SEK 600 million 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 on Consumer Brands that Kai mentioned.
We also got a mix effect that was positive with the substantial improvement of volume of robotics, also a quite substantial effect from the divisional mix, i.e., Husqvarna, Gardena, and Construction are growing, whereas Consumer Brands with a lower than average profitability and gross income level is then decreasing sales. At the same time, we must mention that also Consumer Brands, 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 a positive effect. We also have in the gross income, additional costs related to our profitable growth initiatives. When we talk about gross income, that is mainly related to R&D costs. Kai was into it.
Selling and administrative expenses, SG&A increased with some SEK 375 million, the increase of SG&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&A increased, 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 SEK 250 million to SEK 1 billion 425 million, where some SEK 80 million was related to the net of positive currency effect and increased raw material cost. The guidance we are giving for the full year is that that will be somewhere north of SEK 200 million for the full year of a positive effect.
All in all, for the quarter and 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, also as relates to interest rate differences from financial instruments. That was offset with somewhat lower negative currency effects this year compared to last year. All in all, the net income, that was very close to SEK 1 billion, around SEK 225 million better than last year, net margin of 7.8%, meaning an EPS of SEK 1.72. Balance sheet. This is, of course, something that is heavily affected by currency, since we are using the balance sheet rate when we are transforming this into Swedish krona.
With a substantial part outside Sweden of our operation and a substantial footprint in U.S., we get affected by the general depreciation in Swedish krona and depreciation of dollar compared to March last year. If you take a look, for instance, on the non-current assets, they increased by some SEK 2.4 billion, where SEK 0.7 billion was pure currency. SEK 1 billion was related to Pullman Ermator acquisition, SEK 0.7 billion was related to the higher CapEx level that we saw in 2016. Adjusted for currency, the inventory increased with some SEK 350 million compared to March last year, mainly related to the higher volumes in Husqvarna Division and Gardena, partly offset by a lower level of inventory in Consumer Brands, reflecting their lower volume this first quarter. As I mentioned, we had higher accounts receivables.
Taking out the currency effect in local currencies, we are talking about half a billion SEK more or less. As I said, the higher volume that we saw in the quarter happened very much towards the end of the quarter, 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 higher volume. This was a consequence of an earlier pre-bill for the season 2017 than last year, also partly related 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 SEK 800 million. If we take in also the currency effect, we are up SEK 1.6 billion of operating working capital compared to last year. Of course, this SEK 800 million of currency effect is also transferred into a higher net debt. That end of March, we are up some SEK 1.6 billion to SEK 9.8 billion compared to March last year. Besides the currency effect of around SEK 800 million, we also have here an effect of the acquisition of Pullman Ermator. Whereas good things are happening in the income statement, we cannot be satisfied with the capital efficiency here in the first quarter. As you know, one of our three targets is related to that.
It is related to have an operating working capital that is under 25% of net sales measured at the year-end. This first quarter actually brought us further away from that target with an increase, as you can see here, with more or less one percentage point compared to March last year, now we are up to 28.1%. With the unwinding of working capital that starts in the second quarter, this ratio will improve. Measures are put in place to improve this further. Capital efficiency is very much about changing behavior. It takes time to change behaviors, 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 first quarter of the year, that, of course, affected the cash flow negatively.
The seasonality pattern of a buildup of working capital in Q1, reflecting then the demand and how the pattern of sell-in, sell-through is. We can see that that is valid for this year as well. Operating cash flow adjusted for acquired businesses was likely over or under minus SEK 2.1 billion. That is a deterioration compared to last year of some SEK 400 million, once again, related to the operating working capital that increased, but partly offset by the improved earnings. Our ambition is to have an investment-grade rating as we have today. 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 first quarter. We are presently just below 1.7 times. 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 one to two percentage units better than March last year, and also have improved since year-end. 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 first quarter 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. The milestone is about robotics. Actually, you will know that we were the innovator of this category already 1995. These machines, they work too well almost, so we had to buy back the solar power. This is actually, I think unit number 1 or 2 or something. It's really one of the very first ones. We bought it back just recently. That's how it looked. You may think that solar power-driven robotic mowers was a bit ahead of its time, 1995, and actually it was, but I think it was quite innovative and a good start of a great journey that we are on. I think the point, there are several points to be made, of course, but I think that was the first generation back in those days, until 1998, and iteration up to generation one.
2003, the second 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, how you make it safe. I think these are probably the main criteria why people choose to do this with robotics. Actually, you buy more or less a solution for maintaining your lawn and the garden. 1 million units sold, by far, the biggest actor in the market is, of course, quite pleasing for us to see. 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. 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. 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. There's a lot of untapped potential here, of course, I think is one of the messages. Again, if you would have looked at the volume shares, this would have been about half of what you see here, those shares. This is a value game so far.
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. 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 McCulloch for that part. That's why I say strategically, it's an important decision. From a P&L perspective, it doesn't make much difference in 2017, but in a couple of years, it will make a difference as well. I think that's a couple of messages about robotics, which we think are important.
It's not all about robotics. I 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. I think the way where we started this was to have a high-performance range from Husqvarna some three 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. We have now introduced a Husqvarna-branded consumer-based range this year. One of the big retailers actually is also included in that in U.S. We are pressing ahead with more products here, may that be Gardena, may that be Flymo for U.K.
I think the point is we have expanded offering 75% since end of 2015. In five quarters, we have 75% more SKUs than, to be technical about it, stock keeping units. It's really a widening of the range. Let's not all get stuck with the robotics thought here 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. 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.
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 selling. You heard a comment particularly about Europe. We have the profitable growth strategies in place. In some time, we see in Q1 a good positive impact of that. It's working. We continue to press on with further investment. This is like walking in a stair. 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 also on the bottom line.
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. By that, I think I will leave it open for questions.
We will start with questions from the floor here in Stockholm first.
Good morning. Christer Magnergård 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. As you 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 2018, 2019, or is this the level we have now as a % of sales on selling costs?
Would you start first? You can start.
Yeah, I can start. Of course, as I mentioned, SG&A is to some extent impacted by currency. Natural. The other part is, of course, the profitable growth initiatives. Of course, we stepped up the game in 2016 and are doing this this year as well, which means that we are creeping up the level of SG&A. Of course, our aim is to get a leverage on this, and that is something we are focusing on. 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, et cetera. There are some things. The trend is that we will have with this profitable growth initiative, somewhat higher SG&A cost. Yes.
I think that's a fair comment. Adding to that, I think after the second year now that we press on, so to say, with investments, we will make a review of whether we find a payback of these investments, will we redirect something? Will we, so to say, put the foot on the brake in some areas? I think we just give it a go now based on the strong efficiency improvement we have underlying in the business. At some time, you always need to make that review and see what makes more sense and less sense and rebalance. 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, the answer to your question.
The second question is related more to the Easter, particularly basically to Gardena, which I think had a strong March. Is that related to the Easter effects or what do you see in terms of that?
If I start, yes, we had a positive day effect in quarter one, which will be a burden for April, so to say. That's true, but I think the dominant influence was rather the weather. 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 indices in the Continental Europe that was dominating it, rather than the Easter effect, actually.
Thanks.
Agnieszka Wyrska. 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? 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 one, 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. I wouldn't dare to talk about taking market share based on that. If you look back with Gardena then being at 8%-9%, of course, that is well above the market. The watering category as such is probably just a couple of single percentage points of growth for the full year basis, looking back. 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. 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. Of course, we are equally interested in the Southern European space to take a stronger position. These are some geographies, but also looking a bit east, Poland, Russia, important markets which we tackle.
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 annual sales rather than the fleet that is out there?
This is sales. I should have been more clear about it. Thank you. This is penetration in terms of sales as share of the total sales in the lawnmowing market.
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.
Installed base
It's a lot less. It's less maybe, now I'm really guessing and looking at Sofia in the back there. I would say, if you say 10%-20% probably is a fair guess.
Thank you.
Volume wise. Installed base.
Olof Lisshammar, SEB. One question from me. The growth initiatives that you're investing in, which is driving SG&A cost upward, in this quarter and also last year, how fast do you expect those 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 a quarter. It's probably not meaningful even. 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&D, and sales penetration, I would say. As areas, I would say these are probably the most important ones. We see already, and you saw it here, for example, in the battery-based product with 75% increase of the SKUs that's available in the market. That means something, of course. 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 a year and a half before a salesperson pays off, I would say. Definitely a year before they pay off and really impact. Given that we started a year ago, yes, you will see that impact from that part, throughout 2017, and increased, of course, into next season reasonably.
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 our 2019 and onwards?
Yes. That's the whole idea. Let's see. We need to prove it, but that's the idea.
Mm-hmm. Thank you.
The hypothesis.
Yeah, Björn, maybe I didn't follow, did you quantify the cost or your investments for the growth initiative that is holding back leverage a little bit?
I didn't do that, specifically. I think last year we gave some visual impression of it.
Yeah
compared to the FX hit that was SEK 430 million or something, if I remember correctly. We said it was not far from that type of level. Give and take, we're pressing on with a similar type of level this year, just to give you an idea.
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 all the natural things you do, the continuous assessment. Then we will look at 2018 and see whether we make yet another step in equal size or not. That's not defined at this point in time.
Okay.
That's an open question. Definitely for this year, we press on.
Perfect.
One remark. It's not only SG&A.
No
amounts we are talking about. As Kai mentioned, there are several things. R&D is part of that as well, that comes and affects the gross income.
Okay.
How much did you buy back the solar mower for?
Sofia, help me out. We don't know, I think.
I have no idea.
It's a great story, that it continued to work. 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. If you could please ask your question.
Yeah. Hi, 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 Pullman Ermator? If I look at in your cash flow, you've spent sort of SEK 942 million in the quarter. Is this the sort of same price you're willing to pay also for HTC to come later on? Thank you.
You have been reading the interim report correctly. We are not saying anything about HTC, because they are not the same animal, so to say. Let's see when we come into the coming quarter, and then we will reveal what those numbers are, if we are successful-
Okay
with the HTC acquisition.
Yeah. Adding to that Pullman Ermator is an exceptionally profitable business. 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.
One remark, since we are 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 first quarter. That is why we are saying that Pullman Ermator impacted positively, when we also made acquisition, we said that it will not have a significant or substantial impact for the full year. Of course, the good performance of Pullman Ermator is to somewhat offset by these amortizations that we do on a group level for the acquisition.
Yes, that was actually my next question. 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 million was intangibles, they are depreciated between five to 10 years, meaning that the impact was not that big all in all of Pullman Ermator. We are not giving any clear figures on different depreciation rates, et cetera, because there are different asset types like brand, licenses, or technology, et cetera.
Okay, great. Thank you very much.
Your next question comes from the line of Rasmus Enberg at Handelsbanken, if you could please ask your question.
Yes. Firstly, thank you. I wanted to ask you, what was the impact of raw materials in the quarter, roughly?
We are actually pretty specific in this quarter since we are saying that currency was SEK 100 and net currency raw material was SEK 80. It's SEK 20-SEK 25.
Thank you so much. Saves me the reading involved. The acquisition, how much did that impact EBIT roughly?
Limited impact. I think maybe we are not talking amounts, but a small impact. Of course, that is related then to construction. The improvement of construction is too limited as we talk about operating income, limited extent impacted by Pullman Ermator. The rest is the underlying business that are doing great. Of course, net sales is 100% impacted by Pullman Ermator acquisition.
Yeah. I was trying to figure that out. Okay. 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 can you also update us what channel inventory looks like in the U.S.?
I want to be clear, and I try to be clear. 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, they put more burdens, so to say, on us. Not very surprising, some of those orders slipped into quarter two. Again, it doesn't say anything about the end customer demand and sell-through. That we judge and assess equal to before.
Okay.
Of course, it's a bit of burden on the inventory that Jan talked about before.
That's only your inventory, but not channel-
Correct.
Not channel inventory. Okay. Thank you so much.
Your next question comes from the line of Olof Cederholm at ABG. If you could please ask your question.
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. 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. The general statement we have made is that it's historically been very much in line with GDP over a period of time. Value-wise, if you say 3%, it's probably a good proxy for the thing here for the last few years in that magnitude. I think we need to be very cautious about extrapolating this number of 10.5 now for the three profitable growth divisions, and the 11 for Husqvarna, nine for Gardena, for example, to any 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. 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. On Gardena specifically, since there are a number of things there with geographic expansion and 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 along a series of quarters rather than one specific quarter and make that meaningful. 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 Eric Gunnesson at UBS. If you could please ask your question.
Hi, everyone. I have a follow-up question here on the raw material impact during the quarter and also what you expect during the years. You said that you have about SEK 20 million headwind of raw material in Q1. How much of the spot price increase year-on-year do you see filter through on that number? Do you expect it to accelerate as we go through the year?
We saw limited impact, that's also of course how we are doing the contracts with our suppliers, et cetera. That will, of course, then as we go on, be somewhat more material than we saw in the first quarter.
Do you want to give any guidance of where we end up for the full year and also where we could end up for, given the current spot prices for 2018?
Well, I've said that north of SEK 200, the net of currency and raw materials. Then we can say that maybe we are closer to SEK 300 as regard to currency and closer to SEK 100 if we talk about raw materials.
In terms of contracts, 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. Yes, everything that is the recent information is in there.
Okay. Thank you.
One additional piece, I think, just to remind you, the main part of the production is of course the first half of the year. The main material impact is also going to burden the first half, so lower rate in the second half.
All right. Thank you.
There's currently no further questions.
Okay. There seems to be one more question.
Let's say, Chris from DNB again. When you talked about getting the entry in the U.K. markets, how big is the addressable market in the U.K. for Gardena, maybe in comparison with Germany or any other markets? 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, it's also considerable in the hand tools region. As a premium player, it's a number one together with other actors like Fiskars, just to mention one name. Electric, not that large. If you would look at these type of products, handheld products, so a fairly small player in the biggest 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 it. I can just leave it with, it's a huge potential. The potential is there. It's more what can we do out of it? I think you should look upon this as a start of a journey that's going to take more than three years to really materialize anything that's near the ambitions we have. We will need to invest. I think you should look upon 2017 and probably 2018 also as 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, there's a lot more to be done in the garden centers and other channels. I think we are trying to shape it.
It's going to take at least three years to make something meaningful, but the potential is enormous for them.
To think about Gardena as a high-growth division with more flattish margin profile over the next years, is that a fair assumption?
I think it's not bad. I think that's what we're striving for. Yep.
The last thing you said in your presentation about consumer, also construction products, is that you have the ambition or something like that's to make this tangible and visible in the future. You just said it in the last part of the presentation, so it maybe didn't mean anything, but do you have any more plans to do more M&A and to do this division even larger in the future?
Ideally, I would like it to become a larger share of the group to get the right, so to say, valuation, because it has been a little bit too small in the group and hidden in the group. From that point of view, it would be nice to expand. 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. I think this is a good test now. How do we tackle an acquired growth of 700-plus million SEK, and what do we do out of it? Depending on the success of that, we will be more bullish or more cautious.
If you ask me today, I'm quite upbeat about what we reasonably should be able to do in this constellation with two 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. Take care.