Good morning. Welcome to Husqvarna's quarter one quarterly report announcement. We are pleased with the first quarter of the year. I think that we have pretty much concentrated on the margin improvements the last couple of years, as you will recall. We are in the corner, taking the new direction of moving increasingly into profitable growth expansion. We are also starting to invest in activities supporting that. Short-term, that's a burden to some extent to building the growth engine that we intend to form. I think we are very pleased that we have managed to balance the cost of the currencies, the currency headwinds, and the cost of the investments and still show a little improvement in the quarter. I'll talk you through how we see that happening and why that happened.
It is, as you will realize, a continued trend of improvements. The underlying pace of improvements is equal to previous years. Net sales, very satisfactory to see that all divisions show a plus, including consumer. I'll be more specific about that as we continue. I mentioned the headwinds of the currency is somewhat lower than what we guided. We guided 250. Jan will come back more to what we now see for the full year. We are actually on plan with the consumer brands division. I don't think the message is we are ahead of it, but we are according to the plan. You will recall that the plan is we're aiming for a break-even this year. We still believe in a +5% operating margin for 2018. We increased operating margin, the income then with SEK 54 million all in all.
Cash flow positive in the sense less bad. We are seasonally always negative for us, but it's improved as well as the net debt. Looking at the development of the EBIT in absolute numbers, you can see then that we have now doubled principally from the SEK 1.5 billion level of 2013, with the rolling 12 being now above SEK 3 billion which is pleasing. Margin, fairly flat-ish. We have also been clear that the 10% original target is not in the cards given the huge headwind of the currency this year, so that shouldn't be any surprise for you. I think margin is one thing. We also need to balance that with absolute developments. At the end of the day, that's what brings the dividend capability. I think that's a fairly good curve at this point in time.
Looking at the financial numbers, we are now with the 5% sales increase up to SEK 11.36 billion of net sales. We have had a slight increase of the operating margin from 10.2%-10.3%. You will see that little improvement from 8.2%-8.3% on the rolling 12 months as well. You will see the 12-month rolling sales being SEK 36.6 billion. Operational improvements delivering according to plan. With that, we have talked about the activities we are running on cost outs, direct material, which we are pressing on doing, just like we have done in the Accelerated Improvement Program. We added indirect material to that. We added also a higher focus on productivity and logistics. Altogether, we have a vital piece of the improvement engine right here.
Of course, we are also helped by the volume increase, by the product mix, and by price increases altogether. These two buckets are so to say, bringing the result improvement despite the currency headwind and despite the investment we also take in the growth initiatives as cost additions. Looking at the divisions one by one, we will see Husqvarna being up 4%, currency adjusted, and very much pulled actually in this time related to the EMEA region. Maybe I should back out and say that the season, by and large, it's no major change 2016 versus 2015 in Europe. We have had a couple of, I would say, reasonably favorable spring season starts in Europe, and you need probably to go back to 2013 to have some difficult ones, and then 2012 was equally difficult with a long winter.
North America has had a couple of later spring season starts. This year, North America, and now I'm talking generically, had a strong positive February, we were very optimistic going into March. March turned worse. All in all, I would say the Q1 seasonal start in North America wasn't anything particular in any direction. What looked very promising turned a little bit less favorable, and the result of it was nothing particular to talk about. I don't think we have any reason, as a super summary comment to the season, to expect anything extraordinary out of Q1 or Q2, for that sake. There is nothing there that you should put into your possible Excel sheets. Returning back then to Husqvarna.
EMEA pulled the train a bit on the Husqvarna side, and so did from a product category point of view, the robotics, which continue expanding in a favorable way, the robotic mowers. Of course, we are expanding the offering, and we do have very positive press in terms of test results. There is an audience now and a crowd of maybe magnitude of 20 actors, tests shows very clearly that Husqvarna comes out in a very strong and mostly leading position. We have those positives here. We have the volume, we have the product mix. There is an element of price as well, but we do have SEK 135 million of FX headwind, and we do have the cost related to the investments in growth. All in all, a little decline to SEK 844 million operating income versus SEK 897 previous year.
We think this is a strong result, given what we are battling here. I move on to Gardena. Looks exceptionally strong now with 17% increase in the sales year-on-year. I would say directly that part of that is due to the strong Q3 we had last year, which meant that the trade left the year with lower than average inventories. If you would look at those 17 percentage points, about half you can probably allocate attribute to normalization of inventories in the trade. The other half relates more than to the expansion in terms of channels, customers, and new product introductions. We will soon look at a film showing the most interesting of those product introductions. It's a strong situation. We could have maybe expected even more result-wise if we wouldn't have had the currency and also those investments in growth.
Talking about the major expansion here of the product offering is Smart Garden, which is really where we, as the first actor, connect automatic watering with automatic moving. I think many people recognize the problem of coming back to your garden after being away for one or two weeks, and it doesn't look like when you left it. That's what we start to deal with here and try to resolve. It's very interesting case. It's being introduced down in Germany, Austria, Switzerland, Benelux at this point in time. For next season, we will go broader, the headline is Smart Garden, and you will hear a lot more about that as we move ahead. Absolute numbers, SEK 204 million became SEK 226 million operating income. We think that is okay, maybe somebody would have expected more leverage, the reasons were the ones I mentioned.
Let us shortly look at a film. I think it's a minute, not much more.
Now for the very first time, smart technology meets your passion for gardening. No matter where you go, the GARDENA smart App takes care of your lawn and plants. The GARDENA smart App lets you connect from anywhere at any time. You can control your entire garden intelligently with a single app. The smart Sensor is garden intelligence at your fingertips. It measures light intensity, temperature, and soil moisture. With the smart Water Control, you never underwater or overwater. It's a fully automated watering system. No matter how long you're away, you can always come home to a perfect lawn too. The smart Sileno+ robotic lawnmower gives you a carpet-like lawn and the freedom to do the things you really love. The GARDENA smart system is the only system that connects both intelligent watering and lawn care. Out now only from Gardena.
I think you all realize the potential in connecting these type of things and automating your garden. I think what this represents now is just the start of a journey that will be quite exciting as we move ahead. We are thrilled by it, let's see where it ends up. You realize we are investing in this, that's part of the answer to when I talked about cost for driving profitable growth. Moving over to consumer brands, this is quite satisfactory. We have had, and I emphasize, positive sell-in to the trade partners. I don't want anybody to sit and extrapolate that we necessarily will be in positive territory for the sales for the full year. What I said after quarter four was we expect a flat to slightly negative year from a sales perspective, that still holds water, that statement. The sell-in is positive.
The focus for us will, as you will recall, be the turnaround of the results. We are aiming at a break even for the full year. So far, I think we are doing great. Impact from operational improvements to large extent, and also price increases for the European part of the business. Remembering that 80% sits in North America here, but still important to compensate in the European area on price as well. We have a good start. We have a good momentum. We are very clear on the improvement activities, but we also have one account in North America which we strategically are reducing, and that puts some burden on the sales development. It's not an insignificant, it's one of the larger accounts.
That puts some pressure on the sales throughout the year, and I think the first year where we expect sales increases truly for the full year is 2017. Of course, quite pleasing to see that despite the FX impact of SEK 55 million, we managed to turn the -SEK 11 to SEK 64. Construction division, +6% sales-wise, comparable currency, driven very much just like before by the North American space. Very strong momentum also in the product launches. There was a huge German construction exhibition last week in Munich called Bauma, and I think we came up very clearly as a market leader in that environment, so we feel quite pleased with that observation.
The one little negative here is the stone industry, marble and stone cutting, multi-wire applications, predominantly Brazil, but also south of Europe, Middle East, being a bit weak, and then burdening the overall number, which could then have been even a bit more favorable. Increase of the operating income from SEK 74 million to SEK 89 million, 8% became 9.2%, continuing the margin improvement journey. We are now at 12% rolling 12 month, which is also a good result, we think. I think with those divisional comments, I'll leave it to Jan to talk more about the financials and the details.
Okay. Thank you, Kai. First quarter very much in line with expectations. We talked about the stable or slightly improved top line when we entered into this quarter. When we closed the books here in March, we saw that we had an increase of 4% in Swedish krona, but also a slight negative effect on our top line, and that's mainly related to the USD, meaning that in local currencies, we were actually up 5%. Gross income some SEK 200 million better than first quarter last year, despite the negative currency headwind, and that is related to the sales, of course, the higher sales in all divisions, and also all divisions experienced general price increases. We also had, as a group, a positive mix, both coming from the product mix as such, where we saw profit pools like Automowers and watering products increase substantially.
Also, we get a divisional positive effect, i.e., we have more increases on the top line in Husqvarna, Gardena, and Construction, and lower increases in Consumer Brand with a lower profitability rate than the rest of the group. We should also remember the Consumer Brand as such made an impressive journey during the first quarter compared to last year. Even though the AIP program has been closed, we are continuing in the same way of focusing on cost-out activities, which meant that we had a clearly positive effect on direct material compared to last year. On the negative side, if we should say something negative about the gross income, is the strategic initiative for profitable growth. We are talking about higher R&D costs in that sense, and that impacted negatively on gross income.
If we move over to the selling expenses and the administrative expenses, they were some SEK 130 million higher than last year. Two main effects. One is, once again, affecting the SG&A expenses, the strategic initiatives for supporting the profitable growth, which is one part, and then also a negative currency effect. All in all, operating income SEK 1,166 million. That is an improvement of close to SEK 55 million in the quarter. As we had mentioned before, negative currency effects of around SEK 215 million compared to first quarter last year. That is last year we had over SEK 200 million plus on hedges. This quarter we have no effect on hedges at all, so we are taking the currency effect directly without any, so to say, support this quarter. Kai mentioned about the full year. First quarter turned out a little more positive than we had expected.
We were talking about SEK 500 million for the full year, whereof half more or less in this first quarter. Now it was less, meaning that we are now expecting less on the full year. We are talking more in the terms of an expectation of SEK -450 million for the full year. Operating margin, slightly improvement to 10.3%. Then we had financial items that were negatively affected by the increased or higher cost for interest rates, mainly then related to rates in US dollar. Since we have a substantial footprint and thereby borrowing in US dollar, that affecting both the borrowing costs as well as financial instruments related then to the interest rates. Furthermore, we had some periodization effects that impacted positively last year, slightly positively, and slightly negatively this year. Comparing the quarters, then we get an effect of that as well.
All in all, net income SEK 761 million for the quarter, some SEK 25 million lower than last year, giving a net margin of 6.7% and earnings per share of SEK 1.32. Talking about our U.S. footprint and also about the dollar, we see in the balance sheet the effects of that since this is translated to spot rates. We had a decrease of the US dollar during the first quarter, which means that in Swedish krona, we get an effect of the weaker dollar against the krona compared to March last year. All in all, as you can see, non-current assets down, despite then the fact that we have higher CapEx than depreciation, that is related to that we had a sell-off of a factory in China in the second part of last year.
We see a quite substantial decrease of inventory, SEK 1 billion between March last year and March this year. Half of that is currency, the other half is real improvement in local currencies, and it's related to consumer brand division, whereas the higher volume impacted the receivables in local currencies. In local currencies, receivables are actually up with some SEK 300 million, even though they are down here in Swedish krona, that's due to the currency once again. Accounts payable, lower than last year in local currencies, minus SEK 250 million, meaning that the net operating working capital, i.e., the inventory plus the trade receivables minus the accounts payables, were more or less in local currencies, the same level despite then the higher sales and the higher volume and the Swedish krona lower.
That meant also that we had a better capital efficiency in all in the quarter compared to last year. Our cash conversion cycle for the net operating working capital, i.e., how many days we need to turn the net operating working capital around one time, decreased with one day here in the first quarter from year-end to 95 days. As a consequence of an improved capital efficiency, we also see that the net debt is going down, SEK 1.9 billion compared to March last year, half of that is real improvements. That is our cash flow minus the dividend. The other half is then once again related to currency and to lower pension liability, which in its turn is related to higher discount rates. SEK 8.4 billion was the net debt at the end of March this year.
We have a seasonal pattern clearly seen in the cash flow and also how we fund ourselves, of course, and that is related to the buildup of working capital in the first and the second quarter when we start to release it, especially in the third and the fourth quarter. Operating cash flow adjusted for divested assets slightly over minus SEK 1.7 billion. That was an improvement of close to or some SEK 500 million compared to the same period last year. Mainly then related to working capital, which show a lower increase from year-end than we experienced last year. Also of course, impacting positively the improved earnings. On the other side, negatively, we are having an impact from capital expenditures that we expected for the full year, and that is related to our initiatives for profitable growth. We saw that started to impact here in the first quarter.
This slide on net debt to equity. These are rolling 12 numbers. As you can see, we see the trend of gradually reduced net debt in this graph. With that, together with stable or increased equity, we get the net debt to equity ratio that actually decreased quite substantially here in the first quarter, some 20 percentage units or 0.2 down to 0.6, 60%. If we take the stance from this slide and looking at the rolling 12-month number, it's a little under 60% on a rolling 12-month basis. Key ratios. Well, we get and we see the positive impact from the improved earnings and improved capital efficiency in the quarter. Capital efficiency here expressed as capital turnover rate increased slightly then. The target of 10% as an operating margin, that is still valid.
Since we're putting efforts also on the capital efficiency, it's gratifying to see that it is starting to give effects. That meant also that the return on capital employed improved since last year with close to 1.5 percentage units in this quarter since year-end, 0.3, which is good. This path is something we have to follow if we should get real profitable growth. The trend of decreasing average number of employees continued also here in the first quarter. We were some 250 less employees than March last year, mainly as a consequence of a lower footprint in U.S., and also some structural measures that we took towards the end or the second half of last year. Kai, for you to sum up then.
With that, we wrap up before the Q&A. Summarizing, all in all, again, a good quarter for us. Continued trend of improved performance. I'd like to emphasize the bottom right of this page where we say the priority for the group remains being To offset both further currency headwinds expected and to finance profitable growth initiatives. You will recall, we talked after quarter four that this year will be a bit undramatic from the external point of view, going mostly sideways, and the commitment we have given is to be able to balance these two aspects or something better. I don't want to leave you with the impression it will be significantly better, because that would probably be to be ahead of realities. The previous statement is still valid.
A bit cautious on that because I saw some comments already this morning, which was extrapolating this a little bit quicker than what we have stated. We stand firm to what we have said before, which is at least compensating for the currency headwinds and the investments in profitable growth activities or slightly upwards. I think that's the long and short of our message before the Q&A starts. Tobias, please.
Let's open up for questions, please, and we'll start with questions from the floor here in Stockholm.
Hi. Anders Trapp, SEB. I have a couple of questions. To start with the growth initiatives, if you could say anything, something about it. You only spoke about Gardena here and now and growth initiatives and the Smart Garden. What else are you doing in terms of growth initiatives outside that, and is it other divisions than Gardena? Could you say anything about how much it has weighed on the numbers so far?
The second part I'm a bit unwilling to enter into, Anders. Sorry for that. We don't want to be specific about it. Another way to look at it is to say that the improvement pace we talked about being something underlying, improvement pace we talked about previously, somewhere between SEK 500 million-SEK 700 million for the full year. I think that still is a reasonable assumption. I know it's a bit wide, it's not very specific. That's as specific as I'm prepared to get. The first part of your question, what other initiatives do we see? There's an array of them, of course. If you look into a Husqvarna division, of course, we are expanding the robotics category very quickly. We are expanding battery-based products quickly. We are working with business development measures in the dealer channel.
We are working with expanding our positions in the commercial lawn and garden. Just mention some examples of areas that we support in the Husqvarna division. Gardena, as we looked at with the Smart Garden, that it's also, I think, important to remember its geographical expansion. That's a theme for Gardena. Even more multi-channel positions. We have seen how we have increased penetration and maybe visibly for some people being up in Sweden, not the least, you will now see us in new outlets versus previous years. You have that type of expansion. Construction has been very much in the profitable growth mode. Very much focusing their activities on increasing the sales penetration in key markets and further press ahead with the product offering expansion. That would be some examples. Consumer brands being then more in the turnaround mode, as you will recall.
Even though, of course, we are also looking into not only defensive measures for them, but also adding product categories. I think for next season, you will most likely see robotics products being entered through the consumer division as well to explore on the technology edge that we're sitting on here. We will add things naturally also to the consumer brands going ahead. These are some of the examples, Anders, that I can give you off the bat.
One question also on the. You said that you continue to do strategic reductions with a key U.S. customer. How long are you going to do that? Where are you growing or with whom are you growing if you're reducing on maybe the biggest one? How big is the one that you want to reduce your exposure to now?
Let me elaborate a bit. We are growing with two out of the four big box retailers. We are flat with one, and we are reducing one, in fact. The one we are reducing with is still second largest in absolute numbers. That gives a feel for the proportions. It has shifted a lot during the last couple of years. We took a big step last year. There are more steps probably to be taken to find the right balance here, and that's what burdens the situation, as I mentioned. The rest is actually, by and large, for the year, fairly flattish, maybe slightly positive.
Thank you. Rasmus Engberg with Handelsbanken. On the matter of geographic expansion, don't you think that the U.S. is becoming ready for robotics?
Yes. The answer is yes. We are actually, for the first time, seriously going about it this season. We have, I think, brought it to 600 point of sales areas, and we have educated certain dealers, certified them for them to be able to support it. I think you see 2016 being the first year where we actually go about it in some serious way, but the results will rather be 2017, 2018. It's time, yes. So far, the little we've seen of the season, there is definitely interest in it.
Do you sell it as a retail product, or how do you position it?
It will be a dealer product in the U.S. to start with to give the service. I think we need to be realistic. This is market development at this point in time. You need to make the consumer aware of how do they go about this concept, what does it really offer in terms of benefits and values versus what they got, that takes time. It's simply our time with customers here.
The second question. The chainsaw chains. Can you give us an indication on where we stand in that if there are any potential impacts in 2016 or 2017 that we should think about?
First answer is we are introducing chain for the second half of this year to the market. I think we mentioned that already at the previous announcement, that still holds water. It is, for us, hugely important that the quality is the priority number 1. We can never compromise around that. If we introduce this chain, it better be good, it will be good. That sets the pace. We have the performance in place. We have had sufficient of tests out there, we feel very relaxed with that part. Now we just need to trim in the ramp-up of the production then start to add further chain versions, because this is not like it is 1 version of chains. It's actually a whole set of different chains with specific characteristics, that will take some time.
I wouldn't overemphasize any impact on the result in 2016 nor 2017. Actually, realistically, rather 2018, 2019 to see the positive contribution from it. Versus two years ago, this is a delay, but I would say versus the communication from half a year ago, it's probably pretty much the same.
You don't expect that it will be as you ramp it, that it takes additional costs, or those are not-
Shouldn't be any further costs on a year-to-year basis. Unfortunately, you don't have the big contribution yet either. It will come.
Then just a final question on consumer brands. I would guess that the gross margins are fairly low, so the impact, the big improvement we see there is not really to any significant extent the sell-in. It's more on the cost and price side, or?
It's a combination of account management, as a consequence also the value before volume, and the cost outs on the products. That's what you see. That's correct.
Thank you. Natalie Falkman from Carnegie. A couple of questions. You mentioned that your investments in organic growth are somewhere between SEK 500 million and SEK 700 million. Do you see it as a normalized level, or is it pushed higher this year due to Gardena, due to Husqvarna?
Maybe I was unclear. When I talked about the SEK 500 million to SEK 700 million, that is the underlying result improvement ability we have shown the last couple of years, and which my comment was to say, yes, you can count on that being also the case for 2016. A part of that is consumed by the increased cost, the additional cost for the strategic growth initiatives. That's how you should read it.
The investments in growth, do you see them as normalized right now, that you will continue to invest in the coming three to five years, or do you see them as extra high right now?
I don't think there's actually an extra high right now. I think what we're trying to do is to build a bit of what could be characterized as a growth engine. We need to fund those activities, and there is an increment to be taken this year. There will be another increment next year, but hopefully financed then by the volume increase. That's how we look upon it. You will see further growth initiatives being funded next year's P&L, but compensated by the volume increase.
Thank you. The question on Gardena and your new offering there, could you just explain a bit more what will be the pricing point? Will it be additional cost for promotions? What are your targets for maybe one year, three-year, five-year in time?
We're not very specific about that yet. I think it's a little bit like when you have digitization initiatives. The business case, it becomes a bit more like what you believe in versus what you need to believe in, so to say. We are a bit cautious to go out there with a number because it is extremely difficult to predict. Intuitively, we are very convinced about this, but we need to see the sell-through. It's a new concept, and we're going out with a fairly, you could say, complex product in predominantly a retail channel, and that we need to see how that will work out. I'll refrain from making specific comments as to it. Price point-wise, it is from a system point of view, maybe rather like EUR 2,000 level than anything else.
Are there many retailers, distributors that are actually taking that offering to the consumer? Or do you start with the smaller proportion of your distributors?
We're taking a fair share of the retailers in that region, but not the complete lot, but a fair share. I don't have the exact number of point of sales, but give and take, a fairly high number, probably three digits.
Just a last question on FX. It was a bit high, 142, I think. Should we expect it to stay there above 100 for the coming quarters?
Well, as we said, it was 215 compared to the first quarter last year. As I said, it was then related to the fact that we had hedges last year. If you remember, we had a positive effect, actually, first quarter all in all on currencies. Now we don't have any effect at all of hedges, of course, we are now taking the full burden of the FX. We said that we are now a little more positive for the full year, talking more of 450 than 500. If 450 is the case, and we have taken 215, then we have more or less half of that coming through also here in the remainder of the year. Of course, just by taking the activity in the quarters, main part of that fall in the second quarter, of course, when we have the high activity.
I had a question on financial net-
Yes
other than the FX.
Should we take?
Sorry, my questions was maybe not very clear. It was on financial net.
Okay. On financial net.
Yes.
Sorry. I thought it was. When I talk financial instruments, of course, you can see it in our year-end annual report, we have equity hedges, and of course, the interest rate effect on the equity hedges are into the financial net as well. It's not only the borrowing that is affected, it's also the financial instruments that we use for equity hedges that impacts financial net. As I also mentioned, there are some effects of more of a prioritization character, which is then going in from the other comprehensive income into financial net. Sometimes that is slightly positive, which it was in the first quarter last year. We had only SEK 55 million of negative financial net, which was rather low. This year it's a slight negative effect this year.
The difference then becomes bigger than the, so say, the effect each year. They go in two different ways. That is a part of the effect on the financial net. All in all, it's also the higher interest rates mainly than related to the USD that is affecting borrowing and those equity hedges. Okay.
Stefan Stjernfelt of Nordea. Is there a timing impact between the first and second quarter this year due to the early Easter?
I would play that down. We don't foresee that to be any significant impact.
Björn, Danske Bank. Question on depreciations. Looking ahead, should we expect any material changes there in the second half or looking ahead into next year? If you can say something about what you believe working capital, so sales should be what we should be expecting long term. We've seen some changes there. Again, on financial net, if you can quantify the borrowing part or the other part, then I can calculate the other one.
Okay. Start with the depreciation. Of course, depreciations are also affected by how we translate foreign currencies into SEK, and of course, stronger dollars means higher depreciation, not because the depreciations has increased, but that's also a currency effect. We are moving up on CapEx, and of course, that will gradually come in as depreciation. We are also in a situation now when we are focusing more on profitable growth, and that will fuel, so say, CapEx going forward. There was a question on working capital, and we are focusing now on working capital, especially then what I call the net operating working capital, inventories, receivables, and accounts payables to bring the net down despite having this journey of profitable growth or growth, because that's a necessity for us. Otherwise, we will have a problem of funding ourselves when we expand.
We have put up targets on that we will be able to decrease this with 5%-10%, the days, the coming years, and that is what we are pursuing. Of course, how much in money it will be will also be dependent on how much we grow. That is the guidance I can give. On the financial net, no, I will not give the exact figures. Of course, as I said, a big part of that is related to the borrowings. Just as an example, I think you should go back and take a look on quarter by quarter. You will understand that there is some volatility. Last year, we'd had SEK -55 in the first quarter. Second quarter, we had SEK -139. That was not purely funding. It was also this volatility between other comprehensive income and financial net that impacted there as well.
If it will be positive in the next quarter, I can't promise because that will depend on interest rates, currencies, et cetera.
Yeah. Okay, thanks. it doesn't sound that we shouldn't expect a material headwind-
No
from depreciation on EBIT margins.
Not a substantial headwind.
No.
Not from that, no. We have other headwinds.
You should say something to CapEx for the year.
When we are talking about CapEx, I've said before that we had last year SEK 1.4 billion of CapEx. We are expecting some SEK 100 million more, could be then SEK 1.6 billion, something around that. It will also depend on when we are paying things. I'm a little vague on that, but more.
Hi, Anders. I have a couple of other questions. First, I wonder on the robotic mowers, how much will you sell in Sweden? I guess there's some question now about Elsäkerhetsverket and their view on one of your models. If that spreads to others, you know what that could mean. It would be good to know roughly how much you sell of robotic mowers in Sweden.
Let me start by talking a bit about that situation. I was recently, I think the other day here, Elsäkerhetsverket stopped one model due to a claim that it didn't fulfill a certain standard. We have tested this with Forskningsinstitutet. That was previously Statens Provningsanstalt, and they have applied a certain standard throughout the years when they looked at robotics equipment. Now, we have a different standard being applied to by Elsäkerhetsverket without motivation. We haven't had the chance to understand why they have introduced another standard and claimed that there is a problem. We have made an appeal towards that. It doesn't prohibit anybody from sell out to the market, but it prohibits us to sell to the trade partners.
I don't think there will be any material impact of this at all in the numbers, which is important, and it's only, as you point out, Anders, related to the Swedish market. The magnitude of the Swedish market, the size of it's not the largest market at all anymore. That you will go down to Germany to find from a market perspective. Of course it's still a significant market, but not at all the largest. I don't think you have reason to be nervous in your estimates or assessments. I would today play this down, in fact, and let's see where we end up with appeal.
All right. Thank you.
Operator, let us open up for questions from the telephone audience, please.
Thank you very much. If you have a question, please press star one on your telephone keypad. The first question's from the line of Michael Bush. Please go ahead.
Yes, good morning. Just a brief question. When looking at the sales performance and focusing on Husqvarna, looking back over the last five quarters, while obviously this quarter there was growth of 2%, it's been gradually slipping down from obviously slightly inflated 23% just about a year ago, it's been slipping. Do you expect some sort of flattening on the future growth of Husqvarna being the core division?
You're talking about Husqvarna brand division?
Yes.
No, I wouldn't draw that conclusion, actually, that you have reason to expect that. We are fairly confident that on a short term, we continue with the type of pace we have.
Thank you very much.
Thank you. The next question's from Johan Eliason. Please go ahead.
Yeah. Hi, this is Johan Eliason, Kepler Cheuvreux. Just a question about your private label strategy. Could you update us on that one? Is that related to the reason for you still scaling down with one of the major U.S. big box retailers? Thank you.
Private label is not part of the core of the consumer brand strategy. It is part of what we actually do. It's a part of the legacy of what we have been doing throughout the years. It's not part of building brand assets. Of course, we try to build our own brand assets, and there are good brands here with McCulloch, Poulan Pro. We have Weed Eater, we have Flymo, and other brands here in the portfolio of the consumer brands, and these are the ones we give priority to. That is not the primary reason why we are scaling down with what we call the risk account. I think the risk account terminology says more about what this is about, and I refrain from commenting financial status, but it's an element of the equation, of course.
Excellent. I understood that you are sort of not willing to give too much guidance on the financial net because of these hedges. Will it be mainly currency related, this fluctuation going forward? Is there anything else we should take into consideration when sort of trying to pencil in the development on the financial net?
The financial net, as I said, can from time to time have plus and minuses. Over the year, it becomes quite insignificant. In a separate quarter compared with the quarter before, that could be swings there. I think you should use more of the last year and then take a look on the interest rates and the net debt development, which is then clearly positive. That is more how I can guide you. We should remember that of course our funding and thereby our financial net is reflecting our footprint
Which is then to a big part related to U.S. dollar and U.S. dollar rates and euro and euro rates.
Okay. Excellent. Thank you.
Thank you. Once again, it's star one if you have a question. The next is on the line of Erik Gunnarsson. Please go ahead.
Hello, this is Erik Gunnarsson, UBS. I guess I have just two clarification questions here. Jan, when you say that you have an effect from the hedges hedging, just to clarify, you are continuing with the same strategy when it comes to hedging going forward?
That was a yes. That was the answer. We are having the same strategy.
All right. I didn't hear that.
Yeah.
Thank you.
Short and sweet.
Hello? Sorry.
Yes, please.
All right. All right. The next one I have was that if you could elaborate a little bit on the chainsaw ramp-up as Rasmus was asking about. Can you comment anything on the cost that you take today? How that affects the margins today, and in what divisions?
I don't think we are too specific on the project costs for that. The ramp-up, as I said, will be over some few years here. We are talking into 2017, 2018, which we will expand the range of products and the quantities within each product category, so to say, each chain type, I should say. I think that gives you an idea what I'm trying to say here.
All right.
Of course, it is the Husqvarna division that carries this today.
All right. Just a follow-up on that. Do the chainsaws, will they apply into the consumer brands as well?
No. These chains that we are aiming to produce and introduce would start second half of the year relate to the professionals and semi-professionals. The reason is simple. This is the group that consume the biggest amount of chains, and it's very profitable in the aftermarket, and that's what we're targeting. Whereas the big numbers of chains are in the consumer area, the profits are not going to be there because the specifications of those chain types is much lower. Hence the focus on the pros and the semi-pros.
Thank you.
Your next question is on the line of Dan Johansson. Please go ahead.
Hello. Thank you very much for taking my question. I was wondering, a couple of years ago, Russia used to be a pretty big market for you. Can you perhaps size the current run rate of Russian sales and give a little bit of an update of what you're seeing there?
Russia has been a very significant market, not the least in chainsaws. Quite important. I think we used to say it was give and take about 3% of revenues. That has been reduced throughout the last couple of years. However, we see a stabilization now on the current level. Start of the year, if anything, is kind of promising. We have lost probably, I don't have the exact number now, but give and take, a third. At least a third of that market has evaporated in the meantime, but now looking a lot more stable, potentially an option for rebounds. Let's see, because I think you should read it in the way that many of the loggers and the pros, they have used spare parts to kind of survive with their old machines. There is a limit to that, and maybe that is what we see now.
That third, is that in sheer volume terms, or is that including any FX effect?
I'm talking in value terms.
Thank you very much.
There are no further questions at this time.
Thank you for taking some more questions. On capital allocation, your net debt is decreasing. Your working capital target's achievable. How do you view that? Do you see the potential to become more interested in acquisitions?
If I start. Of course, as we have stabilized the situation, as we are gradually moving into the profitable growth as our core focus now, at least for three of the four divisions, acquisition is definitely an interesting aspect. The reason why I talk very little about it is that before you have filled up the pipeline, takes time, and there's not that much reason to make big noise about it. I think behind the Smart launch, there was a little tech acquisition of Koubachi in Switzerland that helped us with IoT technology to some extent. They will be very helpful as we expand that offering as a kind of center of excellence to build on for that. That's a small example. Micro-irrigation, Australia was another with Neta. That was end of 2014.
We are doing small things, construction, we've done some small things, but it's not significant, and you would need a pipeline to have reason to talk about. We don't have that type of situation with the pipeline, so that's why I keep it a bit low.
There hasn't been really an internal focus to find the potential targets yet?
There's always different things to actively procure and be out there, like some companies have been very successful doing. Swedish companies like Assa and Atlas Copco and other people. We are not there, and that's why I'm very cautious. We have focused to a large extent on the profitability improvement. Now we are in shape to deal with these questions, and of course, we are doing parts of the homework, but it's not so tangible yet, so I have reason to talk about it.
Just the last question on FX and your strategy for now the currency are more moving into your direction. It will be less than SEK 500. How do you view this extra money? Do you view that as something that will trickle down to the profits, or do you see that as potential to maybe increase your investments in growth?
I start with what I want to think. No, we have been very specific in our business plans, which are the strategic growth areas we pinpoint, and we're very specific about the investments for those. The short-term ease of the pressure on the FX does not change that at all. In that sense, yes, it will trickle down. Yes, it should.
It appears we are out of questions, it's time to conclude. Thank you for coming, thank you for calling, and see you on July 15th for the half-year report. Thank you.
Thank you very much.