Warmly welcome to the Husqvarna Q4 and Full Year announcement. We are quite pleased as we look back to 2015 in several respects. First of all, of course, related to the result improvements, which is quite substantial. Beyond that, I also like to comment on, as you are aware, we have made quite a significant reorganization, end of 2014, that became effective 1st of January 2015. As you can imagine, many things can go wrong when you make large restructurings, as we did. We introduced a brand-based organization, and I am very pleased to see that the new organization is running with stability, energy, and is full with good ideas of how to develop the business going ahead. Let me get into the summary of the year, respectively the Q4. Starting with the quarter, we see a continued trend of improvement.
The seasonal loss that we still struggle with, even though I think over time we would aim to balance that out. In the near term, the next couple of years, we probably need to accept that we are going to remain in losses. But we reduced it to SEK 212 million from the SEK 265 million, excluding items affecting comparability. Two things in favor, the sales volume on one hand and cost reductions on the other hand. From a divisional perspective, Gardena and Construction was supporting the improvement the most. So Full Year, 27% of EBIT improvement, close to SEK 3 billion, compared to reported SEK 2.3 billion previous year. Operating margin, as you can see, was one percentage point uptick. The main driver of the improvement throughout the year has been the Accelerated Improvement Program.
We actually closed the program with the end of 2015, even though we will see some Full Year impacts from the program as we move into 2016. We see improvements on the cash, the net debt, and the solvency ratios are quite satisfactory and pleasing. We have defined further initiatives to keep the improvement momentum going into 2016 as well as 2017. We need to do that because we have a fair bit of currency headwinds in 2016, what we can see. We also want to a larger degree, support a lot of good ideas for profitable growth initiatives. So we need to balance these forces, and we want naturally to offset these negative forces from that perspective with the improvements in other areas. From a dividend point of view, we remain with the SEK 165 as the proposal from the board.
I think that should be seen in the light that we have a lot of good organic growth ideas predominantly that we want to push and steam ahead with, and we want to reinforce our position as we continue into 2016. The financial highlights for the group is that all divisions were in positive, excluding the Consumer Brands, and I will get back to some specific comments. We will see on the gross margin here quite a hit from the transactional currency impact. So that is a clear negative here. We have had hedges, and Jan will talk a bit more about the mechanism around that. But we see very clearly the positives from the cost reduction program and AIP. Full Year, as mentioned, a lot of positives here on the cash and the net debt as well.
Adjusted for the FX, sales was down 1% for the full year, but you see the inflation on the top line, we reported 10% up. Quite a difference, considering that we all in all haven't had that much of currency impact on the result in the year. Little bit positive, but not from the early part of the year. EBIT margin-wise, -3.7, excluding items affecting comparability. Jan will talk about them a bit more later, compared to the 5% previous year. The 2% in the quarter from the sales perspective, adjusted for currencies. Moving into the divisions. Husqvarna, good sales development, mainly driven by North America, all in all 6% currency adjusted for the quarter, as well as, by the way, for the year. Quarter four remained on the pace we saw for the year.
Maybe not so impressive result-wise in the quarter compared to last year, bearing in mind then that we have had the growth in some lower margin segments. We have had a lower production volume all in all, and we have some negative impact hitting the EBIT line. I think for the full year, though, we are satisfied remaining on a good EBIT level of 13%, and some SEK 276 million then of EBIT improvement to SEK 2,284 million. Gardena had a fantastic quarter three, you will recall, some of you. A good weather season down in continental Europe, which brings also the positive into quarter four that the inventories and trades are a bit below average. The pre-season selling started quite nicely. Also we have some in-season regions on the Southern Hemisphere, predominantly New Zealand and Australia here driving improvements.
Beyond that, I think from the volume perspective, affecting the result is improved productivity, we have also throughout the year aimed at matching cost with the revenues in a somewhat better way, which has also supported the result improvement here, which looks quite good. Of course it is. I rather emphasis and look at the total year with an 8% sales increase and a fantastic result development. Of course, we get the leverage from the volume development here. Remember, this is on the back of a great season. We see the margin and the result development, very pleasing. There's a lot of good things here as we look into 2016 season. I comment on that a bit later. Consumer. Again, we are quite pleased, in fact, with a couple of things here. First of all, the decline is somewhat smaller for the quarter.
Still we are managing to be comparable despite the 10% sales reduction to be comparable in result development compared to last year, there is a fair bit of currency burdening the quarter as well. I think it's a little bit more than SEK 40 million. We are on the right path. If you look at the full year, maybe that's better from a result point of view. SEK 155 million became minus SEK 120. Given the minus 16% on the sales development, that's quite an achievement. I think that's how you should see it, you will hopefully recall that we have given priority to value before volume. This is a conscious move. Maybe we even took a bit more than I would have expected a year ago, it was the right thing to do.
We have been into a mode of shrinking to the profitable core. As we move into 2016, looking at this comment, I can say that the main share of the value before volume priority is behind us. You will not see these type of declines when we go through 2016. We might still be in a somewhat negative territory, but it will be like single digits from a sales perspective. The target is still to make a break even for 2016 for the Consumer Brands division. Nothing has changed, and we remain with ambition of 5% for 2018. It's tough, but it should be doable. We stick to that. At the core of the improvement throughout the year has been the Accelerated Improvement Program. A lot of cost out activities, a lot of account activities as well, naturally.
Related to the minus 16% is also some management of what is described as risk accounts. All in all, looking a lot better as we start to look into 2016. Construction continuing on a favorable path. Good margin improvement, result improvement. This is the division that is supported by the currency development in contrast with the other three. If you look at the full year developments, if we're going from some 10.6% to 11.8% EBIT margin, quite satisfactory on the back of some 6% sales increase. Backing into the quarter, North America remains the driver for the sales development, just like for the rest of the year. Whereas Europe has, in the quarter, had a mixed development. Some countries like U.K., Switzerland are slowing down quite significantly, whereas others have maybe bottomed out, like France. In fact, Sweden is doing fine.
Poland, et cetera, is also doing fine. We get the impact on the result from the volume, the mix, and the currency, as well in the quarter as on the full year. You will probably also recall that we have invested throughout the year in sales resources to build the market penetration. You could say, talking profitable growth, Construction is the unit that is the furthest ahead of the division. Whereas we then are looking to bring Husqvarna and Gardena respectively then into the profitable growth mode throughout 2016, and accelerating that stepwise into 2017 as well. With those comments, I leave to Jan to talk about the financials.
Okay. Thank you, Kai. I think we should start with what Kai was mentioning before, that in the beginning of the fourth quarter, we actually made a press release relating to restructuring in some of our countries, and restructuring them relating to manufacturing footprint and our logistics footprint mainly. That was then referring to things that were going to happen in U.S., in China, and in Sweden. We were provisioning or assessing that that would be around SEK 150 million of provisions that we were going to account for in the fourth quarter. When we have detailing this out, we can see that it is SEK 153 million that is hitting then the fourth quarter and is accounted for as an item affecting comparability. Last year, if you remember, we had the write-down of or the impairment of goodwill of SEK 767 million in the fourth quarter.
The restructuring provision and costs are hitting mainly the Construction division with around SEK 70 million, the Husqvarna division with around SEK 50 million. We expect savings from these measures coming in gradually, but fully implemented as of 2018. When I talk about operating income going forward, it is excluding these items affecting comparability. Summarizing the fourth quarter from a financial point of view, except for the improved volume, which we have not seen earlier in the year when we make the quarter-to-quarter analysis, we are seeing the same underlying trends as been valid for the first three quarters, also here in the fourth quarter.
As you remember, we experienced a shift from currency tailwind for the first half of 2015 into a currency headwind as from the third quarter, that is also valid here in the fourth quarter, where we have had currency headwind of some minus SEK 45 million. The normal seasonality as regards lower sales in the fourth quarter is, of course, also reflected here in the financials. Starting from the top, in the fourth quarter, we saw an increase of 7% in nominal terms on the top line. As Kai mentioned, 2% currency adjusted, for the full year, we were up to some SEK 36.2 billion, a 10% increase, everything was actually related to currency. Taking out currency in local currencies, we were actually down with 1% on the top line. In the fourth quarter, we saw a slight improvement of gross profit.
Of course, if we take out the currency effects, which was very negative, as Kai mentioned, impacted quite substantially. If we take out that, we can see that the underlying effect of the volume increases, an impact from the shift in divisional mix with an increase of 6% for Gardena, for Construction, for Husqvarna, a drop of 10% in Consumer is impacting positively. We also had some headwinds from underlying from the mix related to high sale in U.S. of wheeled products, also to some extent to customer mix. AIP program continued to deliver. We are seeing quite substantial improvements on the direct material. Of course, on the manufacturing cost, it's a little more difficult with the drop of volume that we are seeing in our U.S. footprint. Total selling and admin, somewhat lower this year.
Also that currency effect, underlying a slight decrease of logistical costs. Operating income, excluding restructuring goodwill, improved SEK 55 million in the fourth quarter, SEK 265 down to SEK 212, SEK 55 million. Currency negative of SEK 45, meaning that the underlying improvement was SEK 100 million. As I said, increased volume and net operational improvements. Operating income for the full year, SEK 2,980 million. Over SEK 600 million better than last year, similar trends as I described in the fourth quarter, but of course, with more sizable amounts. The biggest effect comes actually from the mix, being the divisional mix and also to some extent the product mix. We had, as we mentioned before, better or lower direct material costs.
We had slightly better prices. That was to some extent offset by the volume, the 1% currency adjusted lower sales, and the higher ambitions reflected in somewhat lower R&D costs and somewhat higher development cost and higher SG&A costs. Operating margin went from -5% to -3.7%. On full year, operating margin improved one percentage unit to 8.2%. Tax rate in the fourth quarter, high, which is positive since we are in a negative territory. That was an effect of losses in high-tax countries and gains in low-tax countries. For the full year, a tax rate of 24%. Net losses in the fourth quarter was SEK 239 million, whereas the net income was close to SEK 1.9 billion for the full year, giving a net margin of 5.2%.
Balance sheet, normally affected by currencies if you are a company like Husqvarna with a big operation outside Sweden. As the euro depreciated from end of 2014 to end of 2015 and the dollar appreciated, those effects are more or less offsetting each other. We see non-current assets being then the intangibles plus the property, plant, and equipment, more or less on the same level as last year, despite then having a higher CapEx compared to the depreciation. That is an effect of slightly positive, or what do you call it, currency effect, but also the fact that we have been selling one of our factories in China. Adjusted for currency, we can see the inventory increasing with around SEK 100 million.
That is related to finished goods and the Husqvarna division, whereas we saw a decrease in the Consumer division, of course, reflecting then the lower demand and the lower sales in Consumer. The receivables decreased actually less this year in the fourth quarter than it normally does or did in 2014. One reason for that was that we had high sales towards the very end of the year, and of course, that was left in the receivables. As the accounts payables were some SEK 75 million lower than last year, we got a quite substantial increase of our working capital. As the inventory increased, the receivable increased, and we also had a decrease on accounts payable. We were actually up with SEK 500 million on working capital compared to the end of 2014. This was offset by higher provisions and also higher current liabilities.
Net debt all in all decreased some SEK 850 million compared to the end of last year. That was due to decent cash flow and also to the fact that we had lower pension liabilities. It was down to SEK 6.4 billion towards the end of the year. In the fourth quarter, the net debt improved with SEK 300 million, which meant that the net debt to equity ratio, since we had a dividend also in the fourth quarter, went down to 0.49, which was 0.1 lower than last year. Moving over then to cash flow. Even though that we have improvement of the earnings, it was not fully recognized in the cash flow since we had that increase of the working capital, that impacted negatively with SEK 550 million on the cash flow.
Investments for the full year was more or less the same as last year, SEK 1.4 billion. That was, as I said, similar level as last year and in line with at least our expectation. That meant that our cash flow for the full year was somewhat over SEK 1.7 billion, an increase with SEK 300 million compared to last year. In here in the fourth quarter, we saw the enormous seasonality pattern when the receivables are coming down, which meant that we had an operating cash flow of close to SEK 400 million. Net debt to equity, despite the net debt reduction of some SEK 300 million in the fourth quarter, the net debt to equity level was more or less at the same level as in September. As I said, resulting in a lower end of the year level than we had in 2014.
Last year, we must remember though that the equity was hit by this impairment of goodwill with SEK 800 million, which of course affected also the net debt to equity ratio. Moving over to key figures. We have the positive effect from the improved earnings and also the positive effect from higher nominal sales, partly offset then by a deterioration of capital efficiency as we are seeing the working capital increase. All in all, we have a positive impact on the profitability ratios, return on capital employed, and return on equity with, if we take out then the items affecting comparability, with 2%-3% percentage units compared to last year. This has also been done, as you can note it on the bottom of the slide, with less average number of employees.
We are talking about close to 800 less average employees in the Husqvarna Group for 2015. That is mainly a consequence of the lower demand in U.S. and also to some structural measures that has been taken during the year. Kai mentions something about the hedges. I talked about the SEK 45 million in the fourth quarter of currency. When we discussed this in the third quarter, we were talking about the effect of the hedges being some SEK 350 million negative. We are also indicating that it would be more since we have some transactional exposure on top of that. Since we are not hedging all flows, the hedges is not between 75%-100% for the coming six months.
Now when we are closing the year and take a look on the exposure we have, of course still the hedges are the big effect. We are talking about around half a billion of currency headwind that will hit us in 2016, and it will hit us with around 50% in the first quarter. That is a pretty heavy currency headwind starting the year with. It is also the division that are having the majority of this negative effect is Husqvarna division. I think that is important to state for your assumptions going forward of these divisions and the company. Kai, please.
Thank you, Jan. Summarizing a bit. The last couple of years and the Accelerated Improvement Program has been quite a success. I talked about that several times. You can see here that we have increased EBIT with 85% of the last couple of years, which we are quite pleased with, of course. We have seen deliveries in terms of what we call the profit pools, the product leadership areas. We've seen the direct material costs, and we've seen a complexity reduction in the magnitude of 30% in terms of stock keeping units and platforms. All in all, very successfully executed. If we would take the currency rates we had at the time of the launch of the program and just adjust for the translation effect on the top line, we would be at 9.7%, and we stated 10% in 2016.
I think versus the assumptions we could oversee at that time, I think we are even ahead of what we said. We're quite pleased with that. As you have heard, there is an interesting situation right now with the big FX headwind, and of course, our desire to also steam ahead and support some really good growth initiatives in the division. The ambition is to continue the strong improvement momentum in 2016 as well as 2017 that we have had the last couple of years, even though for 2016, that will be utilized to balance the negative influence. We hope to be able to balance that for the full year. As you heard from Jan, that might be a tough challenge for Q1, particularly where we have half of the SEK 500 million to burden us. For the year, that's our ambition, to balance it.
We will see the result kind of leveling off, and as that year comes to end, we will see the improvement pace then supporting next step result improvement. What we are doing then is, of course, nothing has changed. We are working with ambition of 10% EBIT margin, as we have talked about. We continue the material cost out that we have done successfully. We have the indirect materials and logistic costs that we're going to take under heavier scrutiny, as well as right sizing of the footprint and some optimization of SG&A. It's a fairly broad spectrum of activities we will do on the cost side. I want to draw your attention also to the fact that we expect to get some support from gross profit, from the divisional profitable growth plans that we start to execute.
That work was done end of 2014, beginning of 2015, and as we progress into 2016 and even more pronounced in 2017, we expect that to materialize. It should support. That 10% margin target remains. As you can hear, it's not in the cards for 2016, and we made that pretty clear in Q3. We still work with it, and we'll see when we get there. Last page. Maybe avoiding to repeat what you have heard, I jump to the point here, which is an indication about Q1 and how we're doing with the pre-season sell-in. Actually, we describe that as stable to slightly positive, and that may go from a divisional perspective, that may go from a regional perspective. We don't see anything else than that we should come out stable here.
As always in an array of different scenarios, but maybe where Gardena is going to benefit the most from the strong Q3 last year, meaning that the trade inventories are going to be lower than average, implicating that they reasonably will go in heavier in Q1. To that comes also the launch of what we call a Smart Garden initiative, where we have connected through Internet of Things, the robotic lawn mowing with the automated watering. That is under the headline of Smart Garden. We will launch that selectively, particularly in Germany, Austria, Switzerland, Netherlands for the 2016 season, then go broad 2017. We see quite an interest in that, as well as some expansion with some channel partners.
Gardena is probably on the higher end of the spectrum, but we expect everybody to be on the right side here for the first quarter, including Consumer Brands. I think I talked sufficiently about the scenario, about the improvement activities and the challenge to offset the FX, so I leave that for the moment. With that, I open up for questions.
Operator, we will start with questions from the floor here in Stockholm.
Yeah. Hi, Johan Eliason, Kepler Cheuvreux. Just a few question. Pricing into the season, how does that look?
I'm normally a bit shy talking specifically about pricing, but I can say it has been positive throughout 2015. We expect it at least to be stable for this year.
You will keep some benefits from probably lower raw materials?
Again, it's a spectrum of different categories, regions. We will see occasions where that works to our benefit. We will see occasions where that's going to be neutralized by aggressive customers.
You had lower manufacturing in Q4, which I understood was mainly related to Husqvarna. You talk about the pretty good pre-season. What's the reason there for the lower manufacturing volumes?
I think if you looked at the cash, the operating working capital development, we are not overly proud. If you try to understand why we are a bit higher in 2015 compared to 2014, I would say it's probably related to some glitches in the organizational setup and the processes that we established at the beginning of the year. We walked into 2015 being a bit heavy on the inventories. If you start on the wrong foot in our seasonal world, it's difficult to compensate it at the end. We left it a little bit too heavy, I think is fair to say.
Just housekeeping of this SEK 153 million in the quarter, how much is cash impact?
Pretty little in the quarter, actually, since these are both personal layoffs and they are materializing mainly in the beginning of the year. It is very limited in this quarter.
Yeah.
Going forward, you can say that the big part of this is related to cash flow out in the beginning of the year. You have some write-offs of impairment of assets as well.
Yeah, I thought the depreciation was fairly high in the fourth quarter, wasn't it?
Well, since we have had CapEx increasing, we will of course gradually see increasing depreciation as well. It's not that effect.
Okay, thank you.
Natalie Falkman from Carnegie. I have a couple of questions. First, on the FX. You mentioned after the Q3 when you had SEK 350 indication that you will manage it and neutralize it. Now you say that you neutralize even the SEK 500. How much of that is coming from the gross savings? I guess you have gross savings, net savings. How much of that is coming from what you believe will be better volumes?
That's a good question. Again, I'm a bit cautious being too explicit about it, but the assumption is probably that the major part, a little bit more than half at least, should be from the cost side.
The other half from improve?
Price. Of course, we are all affected. There are others with the similar structures we have, and they also need to increase prices. Of course, we try to make some price management as well.
I have a question on the organic growth initiatives. Could you just elaborate a bit more how it looks like on the ground? Also when you expect to see the because you have solid growth in majority of your divisions. Do you see another improvement leg up because of your current? Should we see it in 2017, or should we already see it in 2016?
I think we will see a gradual increase given equal conditions in the market, which there never is really. Assuming there would be, you will see a gradual increase of the growth rates of the three, let's say, profitable growth divisions, excluding Consumer Brands from that for the time being. Again, it's an array of different initiatives and activities that are going on in Husqvarna, Gardena, respectively, Construction. It's hard to really pinpoint that particular initiative that is the significant one. I think that is rather something we can elaborate around. We have the intention to have a capital market day in September. I think then we get the time to actually be a bit more elaborative about something like that. It's hard in this format to make it justice, in fact.
Okay, the last question, if I may. The robotic lawn mowing. Do you see any increased competition in the robotic lawn mowing pressure from the low price producers? Just how you see that, because it's positive for your mix when the volumes goes up there.
The short answer is yes. Of course, we see an increased competition. There's probably some 20 people out there trying to have success with the product. Luckily enough for us, we are the market leader. We are the benchmark when it comes to reliability and see these products working throughout the seasons. More and more of the people who test these products have realized that you cannot test them like it was a gas walk-behind type of push mower product that you go out and cut with once a week. This is a different type of setup and concept. Yes, on one hand, increased competition, but on the other hand, we are feeling we have a very strong product range. We have a good penetration of the market. We have not seen that we have lost any shares.
Tentatively, I have to say, because we haven't fully summarized it. I have Sophie here who will do that for us. We have no reason to believe we have lost any share throughout 2015. We have managed to maintain it. We have managed to maintain price stability despite all that increased competition. It will take its toll at some point in time, but we are also doing our best to keep ahead of the game.
Thank you.
Operator, we have no more questions from Stockholm, so open up from the telephone audience, please. Operator, are you there?
If you do wish to ask a question, please press star and one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Your first question comes from the line of Rasmus Engberg. Please ask your question.
Yes. Hi. I was wondering if you could give us an update on the chainsaw chain factory. Where are you in that process, and are there any key dates ahead for that project?
Yes, Rasmus. That's another good question. We are aiming to start to introduce chainsaw chains by the second half of this year. That's the plan. We are a little bit delayed versus the initial schedule that was done end of 2012, early 2013. On the other hand, there's a huge amount of manufacturing process steps to get right, and there is no compromising around the quality, so we accepted that time there. That's of course the priority also now. Whatever gets out there has to be good. The plan is for the second half of the year to start to ship.
Yeah. The second question. You have, I think, talked before about the earnings improvement of SEK 500 to 700 million as an average. How does that look going forward, and can you give some sort of feel for what it looks like 2016 versus 2017?
You're talking about the chains specifically?
I can't remember. You called it
Oh
earnings improvement, I think, or something.
Okay. Okay, Rasmus, I misunderstood you. You're talking about the improvement pace, so to say, of-
Yes
of the.
Yes.
Okay. Yeah. That's correct. We talked about SEK five-SEK 700 as a pace we have had a couple of years.
After quarter three, I was a bit more cautious and said something along the lines of maybe we will not fully be up to that speed for 2016. I think, in fact, the underlying pace will remain at that level, and it will need to remain at that level to accomplish what we talked about to compensate for the FX and these other activities. We have, if anything, become a bit more bullish about that. Again, a lot of activities, a lot of good initiatives in the divisions here will support it, so we believe we can hang in there.
Okay. Thank you.
The problem for me, as I mentioned before, is you will not see that in the year-to-year comparison here.
No.
I think you understood that by now, that's the trick for us this year.
Yep. Thank you.
There are no further questions on the phone line.
Okay. I'd like to thank for your attention and thanks for coming here. Thank you.