Good morning. Welcome to the quarter result presentation. Pleased to see you here. As you might have noticed already this morning, it's a positive start of the day for us. I will talk a bit about that, naturally. Let me get into the very first overview of this quarter. If we try to summarize the quarter, we have had a good demand overall. If I try to qualify that a bit, we have had a good stock in the North American space, and I'm emphasizing sell in, stock in, because really, we haven't sold out anything to customers. The point of sales has not yet really started. The 9% increase you've seen in North America is more an expression of that they have stocked up. I'll come back to that a bit more when I talk about North America specifically.
In Europe, we have had a favorable weather start, as you have noticed. We are a lot better off this year compared to last year. Last year was characterized by a late spring, and this situation is a lot more favorable. Throughout March, and also the beginning of April, looks a lot better, as you have noticed. Which is, you can say, a general observation for Europe. That's all nice. I think you might have the weather with or against you, so to say. For me, it's important that the structural improvements are continuing to materialize, and they have in fact done that. We are pleased to see that the Accelerated Improvement Program has contributed significantly to the result improvement of the quarter. Behind that are particularly some various aspects, namely material price reductions, profit pools.
We emphasize a lot the focus on the main brands, Husqvarna and Gardena, the leading product positions, which represent then our profit pools. Selective growth, I think, is a theme for us. In addition to that, we are working with a turnaround in the U.S., and I'll say some more comments to that soon, which are also coming in as expected and in a positive way. Worth to note is also that the construction area is delivering very well. They are not as seasonal as the forest and garden area, but they are seasonal in some respects. January, February normally are slower months for them, and they had a very strong March. They really delivered well all the way through the geography.
All in all, we had a 7% net sales increase, and we had a leverage then, as you can see, in terms of the operating income, which was up 31% then. That's nice. The continued working capital focus support, of course then, for example, net debt equity ratios. We do continue with that focus, and you will see us continue doing that going ahead. I think this is a bit the summary of it, and let me then from that overview, get into the geographies and the business areas. First of all, the numbers for the group. The 7% currency-adjusted increase of net sales up to SEK 9.7, a little bit shy of SEK 9.7 billion. Gross margin increase with a little bit more than a percentage point. EBIT improvement here from 7.6% to 9.3%.
If you look at the 7%, we had support from all the business areas, so in terms of sales. The EBIT then, of course, supported by the volume, obviously. The mix also was behind that. I mentioned the material costs, but I think it is worth to notice also that we had the FX against us, and Ulf will come back and comment a bit specifically what is behind the SEK 45 million. In that sense, yes, it was a strong quarter for us with a headwind of the FX and still that improvement of the result. Solvency ratios improved as a consequence then of the operating working capital focus and the improved result as such. Europe, Asia, Pacific, 5% up in net sales. The dealer channel is delivering according to expectations. We are working with a strategic focus on that very clearly.
From a geography point of view, we had a fairly broad positive view of the development. However, as always, there are certain emphasis, and particularly Germany, Austria, Switzerland has been increasing the most in this quarter. Russia is a bit of a decline, but not in any drastic way. I could mention also that we have worked with price increases to compensate for the decreasing value, the depreciation of the ruble. Beyond that, there is nothing dramatic about our position in Russia, if anybody sits wondering about that for the moment being. Coming back to the selective growth. Is 5% good in terms of net sales or not for us? I would say it is good because we have emphasized, and I have emphasized a lot since I came in, selective growth. That means growth in areas where we do have leading positions and an over average profitability.
Typically, robotic mowers, pro handheld equipment, and mobile watering. These areas are key for us to enhance the positions in, and we have in fact succeeded with that, I would like to say. Again, the early spring, of course, has given a support to the net sales improvement. From a results point of view, the volumes, of course, support us, the product mix that I talked about, and the channel mix with the dealer sales. All those are with us, and the reduced material costs are important. If you look at the EBIT margin, 13.5% to 15.4%, it is a good step forward. Currency effects in Europe are slightly positive, though. We had about SEK 5 million or something. You will come back to that, I guess, later. Right. Americas, 9%, good level.
Again, it does not say anything about how this season will develop, really, because as a consequence of the late spring, which has just started in Northern America and Canada, we do not really know how the sell-out is going to look like. We do not have that transparency. You can notice that the actors in the trade, the retailers, et cetera, they have the confidence, obviously, to stock up as if they are expecting a good season. For sure, now they are sufficiently stocked, even though they might have been a little bit short then in terms of stock leaving last year coming into this season.
Part of the 9%, I think you should read also as they are normalizing stock levels from a little bit lower levels as a consequence of the prolonged season last year, because we did, in fact, have a good Q3 last year, an extended season, and that supported us. I think it is also quite important for us, as we have talked before, that we are continuing the growth in the dealer channel. Many of you know that this represents about one-third in North America for us, which is quite different than in Europe, where it has a lot higher gravity and mass. We had, in fact, a growth of 12% in the dealer channel, which is pretty much in line with what we had last year. We are continuing on that growth pace in the dealer channel, and that is very satisfactory to see.
Getting over to the profitability improvements. Yes, in fact, quite a lot of the material price reductions have related to the retail offering as such. We have really focused on improving the competitiveness of that. We see results of that. We see the sales channels mix as you saw, that I mentioned, and you also see the headwind of FX, the SEK 36 million. Despite that, you can see that the result has improved substantially from 3.3 percentage points to 4.8% EBIT margin. That is quite satisfactory. I would like to emphasize that the organizational change we undertook beginning of the year when we divided the organization into two profit centers, one for retail, one for dealer, is showing very promising results. We do see that it releases a lot of energy, and it brings the focus to the right point, which is the result improvement.
We are reinforced in our belief that this is the right way forward. If anything, that is also very good for us. Let me move on to construction. I mentioned that we had a positive development in construction, 11% net sales. From a geography point of view, good improvements across the lines. Even the Southern European space, the so-called PIGS countries, showed a nice development. Southern America, very strong. Brazil, not the least. In general, a very positive development. We have behind this, as a cause for this, we have a strong product offering, and we have increased the market penetration during the last few years. We see the effects of that combination of the increased market penetration and the strong product offering. A lot of R&D has gone into the products. We have a real nice competitive offering.
In many respects, I think Husqvarna is becoming the benchmark in the construction industry for this type of equipment that we represent. That is not what we see on this picture, but we have also introduced a high-frequency system called PRIME, which is showing very promising results, and it is very well received. I think I mentioned that last time, and that trend is continuing. We have emphasized the introduction so far and concentrated it into Europe, but we will expand that as we go ahead. From a result point of view, of course, we do have the advantage of the volume increase. We do have the advantage of the fixed cost leverage as such with additional volume. Despite the headwinds, we are improving our EBIT margin from 6.5% to 9.8%. Again, January, February, somewhat slower, March, really strong.
Normally you would expect quarter two, quarter three to be relatively stronger quarters for construction. We already now up to 9.8% EBIT margin. That's really satisfactory. We are a bit upbeat, as you can hear, about the construction prospect. Okay, with that short market overview, I'll leave over to Ulf to talk you through the financials.
Thank you, Kai, and good morning, everyone. Just a brief remark before we move into the numbers here. Just want to draw your attention to that we have made a minor restatement. We have sales from Sweden to certain distributors in Americas, where we have actually moved the responsibility from Europe, Asia, Pacific to Americas. You will see that in the report that we have made a slight restatement of the 13 numbers. We talk about on a full year basis, some SEK 216 million and SEK 26 million of operating income, that is to make that comparable. That is, of course, reflected in the report here. You have that, I believe, on page 13 in the report, so you can see more specifically what that is about, the minor adjustments, that is due to move of responsibility.
If we then move into the P&L, as you have heard from Kai, a net sales development that definitely contributed to the operating income. If we look at the gross margin development improvements of 1.1 percentage points, quite satisfactory. If we just look at the curve here and look at the 12-month rolling, you can see that one is then lifting here compared to where we were 12 months ago. 26.3 versus 25.2, 1.1 percentage points improvement, a lot related to the material cost, where we are, as you know, consciously working with lowering the cost with different projects, that has contributed with close to two percentage points. As you have seen, we have had some headwind when it comes to FX, that is attributing some 0.6 negative.
Then we have, based on the Accelerated Improvement Program, a lot related to the profit pools, we have improvements when it comes to mix to some extent price, that is attributing some 0.9 percentage points improvement. The residual is roughly related to that we increase slightly the R&D expenses as we go forward. Net, 1.1 percentage points improvement. Going back then looking at the SG&A, a slight increase of some 4.6%, if we look in relation to sales, as you know, we have a lot of variable costs relating, not least when it comes to transport and warehousing. If we take the SG&A in relation to sales, we are lowering that ratio from 17.5% last year to 17.0% this year. Of course, a good development when it comes to saving programs that is now close to the level of full year saving.
If we take 2012 as the comparison, we achieved some SEK 34 million incremental savings in the first quarter of 2014, and we assume that the full year saving of some SEK 220 million will be obtained in the second quarter. Again, important to know, we shall put that in relation with 2012 as the benchmark. That was also the year when we took the cost related to that saving program. But that is following plan. Moving down then and looking at the EBIT, generating some SEK 903 million versus SEK 688 million last year, and that generates then a margin improvement up to 9.3% versus last year, 6.7%, and quite an achievement. Of course, related to the increased volumes, the lower material cost, and the improvements of the price mix.
If we look at the currency effect, as you saw previously, that had an effect in the quarter of some negative SEK 45 million year-on-year. We still have an impact when it comes to the Australian dollar, the ruble, the Canadian dollar, as well as the rand. But we did get some positive impact of the stronger euro, and I will come back to the guidance for the full year later on here. But negative SEK 45 million year-over-year in the first quarter. Finance net, moving further down, minus SEK 96 million versus minus SEK 86 million. And we can see that, of course, we have the lower interest rates, and we have a lower net debt, but that is offset by the revaluation effects on interest rate differential in the hedge contracts. So a slightly higher level compared to last year same time.
Tax, we amounted to some SEK 191 million negative compared to SEK 135 million last year, and that corresponds to a tax rate of some 24% in the quarter. If we then move into the balance sheet, we are quite satisfied, as you have seen from Kai's presentation as well, that we are able to continue the conscious work with the working capital, and not least that the inventory is below last year's SEK 8.3 billion, and we generated some SEK 7.5 billion in the quarter. So adjusted for currency, it is a decrease of SEK 0.7 billion, and that we believe is quite an achievement based on that we actually had a growth. Accounts receivable up, but that is as a result of the increased sales.
That is quite natural. To mention here that the days of sales outstanding are improving, and that is now versus last year, 62 is now on a level of 59 days. So we have a good momentum also there. Moving then over to the cash flow. This is the curve that I normally show you, and the blue one is then 2014. As you may see then that we are close to SEK 2 billion negative, slightly worse than last year, but still following quite well the 2013 curve. Then we shall have in mind that CapEx increased with some SEK 88 million to SEK 292 million, and a major part of that is related to the manufacturing facility for chainsaw chains in Husqvarna that represented some SEK 56 million of the increased SEK 88 million.
That also have, of course, a good impact when it comes to the net debt equity ratio.
That is also improved versus last year. We are now on a level including pension liabilities of 0.73 versus last year's 0.90. If we would exclude the net pensions liabilities, we have now net debt equity of some 0.61. Key figures, I believe I have mentioned a majority of it. You can see now that the CapEx is increasing as we go, and that will also increase for the residual of the year, and I will soon come back to that later on here. We also can see that some of the capital ratios are improving as a result of better EBIT as well as a good management of the operating capital. Some guidance for 2014. CapEx, I said last time we met, should be in the range for the full year of SEK 1.5 billion.
It remains on that level, whereof some SEK 460 million approximately is related then to the investment in the new production facility of chains in Husqvarna. We also mentioned at the time that we will have SEK 100 million of startup costs that will have an impact on the P&L as we go in 2014. Roughly 19 have been assumed in the first quarter of 2014. Depreciation amortizations for 2014 will be in the range of SEK 1 billion to SEK 1.1 billion. Tax, I estimate to be in the range of 20%-24% calculated on the income after financial items. Finally, the FX. We have based on the closing rates as of March this year, we have seen some strengthening of the euro. Previously I guided you from a negative -120 to -150.
I put the range now of some -100 to -120 compared with 2013. Still, we have a pressure when it comes to the Australian dollar, Canadian dollar, rand, as well as the ruble, but we have seen the strengthening of the euro that makes me lowering slightly the negative impact for 2014. With that, I'll leave it to you, Kai, for the summary.
Right. Again, a good quarter for us, based on the demand situation I described, but also in my mind, even more important, the fact that we structurally see the improvements from the Accelerated Improvement Program, because the weather will be with us or sometimes against us, but these structural improvements, they will continue to persist. That's important. Also, again, emphasis on construction with a very positive development, a continuous focus on the operating working capital in parallel to these things. Our difficulty to say something about quarter two, more than being cautiously optimistic about the demand. The reason for that fundamentally being that we don't have the transparency, as I pointed out previously. Stock in, good. Sellout, we haven't seen really taking off in North America yet, so that makes it extremely difficult for us to make any projections in that direction.
I guess some of you might sit with exactly that question on your mind, but we will not be able to answer it in any further detailization or detailed way. From a macro point of view, of course, we are, as we then point out, cautiously optimistic and somewhat more optimistic about North America than Europe in general. The good thing then in Europe is what I emphasized, that we see the selective growth in the areas where we do want to see it, and that we would expect to continue. As we move into the season, there will be more wheeled products, and wheeled products has a little bit lower margin content. There will be some influence on that in the quarter 2. That's the summary of the quarter. Again, wrapped up. Accelerated Improvement Program.
We will elaborate more on this at the Capital Markets Day that I will come back to on the next page. Just to repeat again, what is it that we are referring to when we talk about this Accelerated Improvement Program? Number 1, we are aiming for 16% operating margin for EBIT margin for 2016, and finalize the program by 2015, the full year impact in 2016. Point number 1, you heard me talking about that quite a lot, the focus on the core brands and the leading positions. We have, in fact, done one small alteration since we launched the program externally in October. We started internally even earlier than that. That is the addition of parts and accessories, which is a part of our profit pools, and which is underexplored.
I think we have come to the conclusion, we have an opportunity to do more in this area, and we will do more in this area to get our fair share. The base of the profit pools is related to the leading product positions that I mentioned, the robotics, the mobile watering, and the pro handheld equipment. Of course, the focus on Husqvarna and Gardena, remembering that we have about 13 brands in the portfolio. I talk about two here, we have 13, in fact, just so we have the full picture here at hand. You need to be clear about what is the important thing amongst those 13 brands, and how do we allocate resources, investments, and that's pretty clear, I think. Bullet two, the dealer and the retail business model differentiation. Yes, these are fundamentally different worlds, business model-wise, strategically.
We'll touch a bit more on that again at the Capital Markets Day, how we see that developing. You remember the reorganization we did in the U.S. in February. That has started to pay off well. There will be further steps to take throughout the year in this differentiation of the business models. The further measures to turn around the U.S. is working fine. There's a lot of contractual aspects, of course, related to the big retailers. How do we continuously improve those contracts? Is one aspect. How do we optimize logistics to a better degree? How do we have an even more efficient cost to serve? There is more to get out in terms of productivity for the North American side as well. These are all aspects related to bullet three. As you saw, good delivery quarter one.
The plan is to be at 5% EBIT margin by 2016. In general, related to the Accelerated Improvement Program, there is nothing that has happened in between the last quarterly announcement and today that makes us believe this is going to be a lot more, a lot less, a lot quicker or slower. Fundamentally, the message is we are on plan. It might look a bit better temporarily, but I don't want to oversell that. We are on plan. That's the message. It's a significant part of the improvement of the result in quarter one, yes, but it's on plan, no more, no less. Operational excellence. We talked a lot now about the direct material cost reductions, which is significant, which has a very immediate impact. There are other aspects relating to this.
We're talking about the sales and operations planning to improve our ability to respond to variations in the market demand. We're talking about the complexity reduction. We are on plan with the complexity reduction. However, there will be no P&L impact of the complexity reduction during 2014. I haven't said that before either, so there's nothing new in that respect. I just want you to bear with us that these are things that do take time before they materialize. They will come into 2015, they will come in 2016, and all the way into 2017, in fact, when we talk as a consequence of the complexity reduction. Because first you need to take them out of the catalog, so to say, and then they need to get out of the stock, and then you start to see the savings. That's a fairly lengthy process.
We're talking about 30% complexity reduction in terms of platforms and at least the same value in terms of SKUs, Stock Keeping Units, what actually we keep in stock. Those are some of the most important parts of operational excellence. Number five, I emphasized that before, emerging markets. Strategically important emphasis for us is Brazil, Russia, China. Of course, also Southeast Asia will not help us reach the 10%, but it is fundamentally important for the future positioning. That's what the program is about. We will elaborate at the Capital Markets Day on June 10th, and you're all, of course, warmly welcome to participate. It will be in Husqvarna physically. I don't know, Tobias, you might want to add some comments, but if I start, and you feel free to add something if you think it's important.
We will elaborate around the Accelerated Improvement Program, become a little bit more clear. Maybe not as much as you would in all the details, but at least we will be more clear about what you can expect and when and why. We will also lift our glance a bit and look towards the 2020 horizon a bit. We will do some product events, and there will be some type of manufacturing visit as well. There will be a full day. We think it will be quite interesting. At least we like to believe so. Tobias, any comments from your side? Beyond that, no? You're fine. I think with that comment, I'll leave the floor open for questions.
Yes, we will start with questions from the audience here in Stockholm.
Hi, Anders from SEB. I have a couple of questions. First, a housekeeping question. Group costs of SEK 61 million. Is that the level to expect going forward? It used to be like SEK 40, it has been SEK 60 now twice in a row.
You will see a slightly higher pace, we have had some extra costs in the first quarter that brings it up to the SEK 60. You should account for the range of SEK 50-SEK 55 going forward here.
All right, thank you. The direct material costs were down, the complexity, of course, hasn't happened yet or the reduction of complexity. How have you been able to cut your direct material costs?
It has been a very, let's say, focused activity between the purchasing and R&D people. I would say for the quarter one, probably two-thirds relate to purchasing activities, and a third relate to redesign and engineering involvements. It is still more commercial activity, but as we move throughout this phase, you will see the pendulum swing over to the higher degree of engineering-driven material cost reductions.
Purchasing activities means pressuring the suppliers, basically swapping to fewer and longer series for them, et cetera?
All those things.
Yeah. Actually on the construction business, basically a very quick calculation showed like 50% operating leverage on the sales increase or on the operating profit increase, I guess. You referred to volumes and-
Fixed cost leverage
I guess we shouldn't expect 50% operating leverage for every volume going forward. Was there anything more there?
Maybe you want-
We have had a very favorable product mix as well, and also how the regions are split here. Although we can see some positive effects in Southern Europe, that has not really generated. France is a very important country for us. We haven't got the full leverage there, but a very positive product mix and a favorable country mix based on leverage in U.S. as well as in Brazil.
Maybe additional to that, a very good utilization of the production units. We have had a high efficiency in those. Of course the marginal effect becomes quite strong in that situation.
One final question. You mentioned that you had some positive experiences in the split up of dealer retail organization. What type of positive experiences are you referring to?
I think this type of clear organization and alignment with the business model fits the North American space very well. Clear accountabilities, clear alignment with the business model and the strategy, so to say. We can see that it releases energy, it brings the right focus, and we see real good self-confidence of the organization when they do act in these positions. I also like to emphasize the new leadership. We brought in Alan Shaw August last year, and he has a lot of retail experience, which I think is hugely valuable for us to succeed since this is the major share of the market, two-thirds. All those things, they come together. Of course, the backbone of Husqvarna is more the dealer channel, particularly in Europe.
That's where the DNA is gravitating around that area, and if you look at the relative competence, it's higher in the premium area in Europe than it is in the retail. Hence the importance of the local competence here to deal with these big retailers is hugely important, and we feel we have that type of competence, and we have the support in the organization to deal with it. I think that's what I'm referring to.
Yes, Björn Enarson, Danske Bank. You are talking a lot about the impact from the cost savings in these results. You also have a very good volume development and mix development. Is it possible to shed some light on what is the main driver for the earnings improvement?
Yeah. I don't like to be too specific, let me give you an indication. If you look at the result improvement, it is a little bit to more than 50% driven by the Accelerated Improvement Program, the rest would be then the volume, so to say. Again, we know there are many pluses and minuses behind that bridge. I've talked a bit about it, but you can at least say it's 50% and maybe a bit more.
It's, I guess then more in the U.S. and less so in Europe.
If you're looking into the aspect of direct material, that's a true observation, yes.
Mix comps in Europe also, I guess, very easy in the area.
We have mixes in various senses. We have the channel mix, which is favorable in U.S., yes. It is favorable in Europe too. We have the profit pool element, so to say, of the mix in Europe, which is of course also not negligible. I think if you look at it that way, I wouldn't emphasize North America.
Okay.
Both are benefiting from that effect. If you distance yourself to the whole thing of forest and garden, then my comment is true. A little bit more than 50% related to the AIP program.
On sell-through activity, in Europe, I guess, early spring, you should have seen some sell-through already now, or at least very early April.
Let me be transparent and say that April was a tough month last year. It is better this year. What we've seen so far of April is better. On the other hand, during the second quarter 2013, we saw a very good May and June development. Whether that will come this time, I don't know. I won't speculate around it either, because it doesn't bring anything to the table. So far so good.
No weather forecast
in April. No, not yet.
Thank you.
Operator, can we take some questions from the telephone audience, please?
Thank you. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. You have a question from the line of Rasmus Engberg. Please ask your question.
Yes, hi. I wanted you, if you can help us shed some light on the complexity reduction, in particular, whether you see it mainly being a reduction in the number of brands or in the number of specifications in each brand that we should be looking at going forward?
The complexity reduction will be a reduction of brands. I don't want to be specific because of commercial reasons, but it will encompass brand reduction. It will encompass reductions of products within principally most categories. We are sitting with, you could say, a lot of products in each category, we have opportunities in both tail cutting as well as maybe dealing with some overlap of higher quantity sales type of products and try to combine them to even higher volume, thereby get leverage, advantage in many ways. You will see that really going for both those sides of the yard, so to say, the tail cutting and dealing with the high volume products. In many product categories, including reduction of brands. It's a fairly broad thing we're talking about. Yes.
Thank you. My second question relates to the chainsaw chains project. I think last time you talked a little bit about the potential market size. I was just wondering if you could elaborate a bit on what you include in that market, if it's still around $600 million and $700 million. If you could shed some more light on that geography category or which type of chain you're actually targeting here.
It's correct. The total aftermarket here we're talking about for chains is in the magnitude of $700 million. The absolutely important part and vital part of it is related to pro chains. That's where the value sits, the profitability sits, and that's where we have the target quite naturally, being in the premium and the high-end of the chainsaw area. There's no real new information. There is no new assessment, and the fundamental principle here is that we have maybe 10% of that off the market, and a fair share would be in the region of 30%.
That's where the business case is actually located.
Yeah.
Geographically, again, Europe, North America.
Yes. This is the total market, including a sort of non-professional chains as well, or?
Yes, it is. The value of that is not that interesting, really. The value of the aftermarket sits in the pro area.
Yes. Okay. Thank you.
Your next question comes from the line of Johan Dahl. Please ask your question.
Yes, thanks for taking my question. On the topic of the raw material cost reductions, I was wondering, clearly purchasing seems to have done a great job in the first quarter. Are you able to say how much of that reduction is sort of price changes for raw material? How much is structural improvements in the group of that 2 percentage points improvement? Secondly, I also wonder, to what extent have you involved your suppliers in this process? I'm basically after your visibility going forward with regards to these raw material cost reductions. For example, engine suppliers, if it's a long-term commitment for 3 years for further reductions, if you could say something there.
Yeah. First of all, what we're talking about is really component purchases, so it's not raw material. It's the component purchases that we're focusing on because the raw materials, they are pretty much set by LME, et cetera, London Metal Exchange, and they are what they are. These are relating to negotiations for components and parts. Of course, with key suppliers like engine suppliers, we have already longer term agreements. What we're trying to do now is to move, to a larger extent, a bigger share of the supplier base to longer term agreements. Of course, giving them the opportunity of more security of future volumes, but also the 2 of us the opportunity to work more structurally with the cost reductions. I think that's an important aspect.
We will have a huge gathering in 3 weeks in Charlotte in the U.S. with global supplier base, and I think there's going to be some 300 of them, around 200, 300, I don't know exactly, but that magnitude. We will talk pretty much about this, and we have a specific program which we call Xcite, and which relates exactly to establishing these longer term relations, and building continuous improvements together to a larger degree than what we maybe historically have managed to do. This is a vital piece in the concept of getting them to share in and also be prepared to reduce their prices of the components.
Is it a fair assumption that you're taking low-hanging fruits, which we see this quarter, or is your visibility good going forward on similar improvements in the coming quarters and years?
I tried to address that a bit previously, and I think we might have early on in this program, relatively seen higher purchasing impacts, whereas as we move through this period of time of 2014 and 2015, we will see the pendulum swing towards more engineering-driven redesign cost reductions.
Okay. Just a quick follow-up. Can you please address your production rate in the first quarter, how that compares to last year? Basically to help us bridge fixed cost absorption Q1 2014 versus last year. You came in last year with very high inventories and a weak start to the season last year.
Johan, we can say that if we split it up, of course, we have had a tougher start in Americas based on that was a tougher startup with the season here. It is more on a normalized level now. I think what you saw last year in terms of under absorption that we took consciously in order to reduce stock, that you will not see this year. More specific than that, I'm not prepared to be.
Can you say anything how much that is in the bridge compared to last year?
No. That is baked in the residual there, so there is no specifics on that.
All right, thanks.
There are no further questions from the phone lines at this time.
Hi, this is Johan Eliason at Kepler Cheuvreux. Just a question on this focusing on profit pools and then profitable products, et cetera. What's the impact in the competitive market situation for you? Are you seeing competitors moving in, or are your stronger brands or better products taking share to compensate, et cetera?
I don't have any statistics for the quarter, and I think you probably have some understanding for that. If we look at the numbers, we are at least on par with the market, most likely ahead of the market in these areas. At the same time, we see in areas like robotics very clearly that new actors are moving, and I think there are up to 18 brands now on the market available for robotics products in Europe. It's getting a bit hotter in this area. Everybody sees the growth, and wants to take part of that. For sure that will play a role as we move ahead. I don't think we should forget the fact that we are at our third generation of products. They are at the first, and there's a lot of learnings to be done by our competition.
If we continue to invest in a very decisive way, we have a fair chance to remain at the lead in this area, and it is very profitable still.
How big is it for you?
I don't think we have communicated that specifically before. Let me talk in terms of market share. We are at least around half of the market is with Husqvarna. Maybe a little bit more than half of the market still. We enjoy a very favorable position still. The question for us is of course, how can we secure to stay in the lead given that we have all these actors, where some are big technology companies moving in. That's of course a nice challenge you could say, to deal with.
Robotics is obviously a European issue, but I guess you are focusing in the Americas as well on certain profit pools. What are you seeing there?
The one that we emphasize the most for North America is professional handheld products. That's part of the dealer channel growth. I wouldn't say it's a major share, because that wouldn't be true. The major share of that growth is still within the wheeled area. It's as a percentage increasing. We are doing the job in the right way, but in absolute amounts, it's still a smaller share, so to say, of the overall increase as such.
We could add the accessories as well, as you saw.
Yes. That's a good point.
I have added to the first slide here. That is also a contributor from that perspective.
Hi, Andreas Lundberg with ABG. Follow-up on the competition in Europe. If you look today compared to maybe three, four, five years ago, how is the competitive landscape in the European market?
You would need to look at the market by category. You will need to talk about wheel, you will need to talk about handheld products, you will need to talk about robotics, et cetera. I talked about robotics. I would say it's a bit more static than robotics in these other categories, because robotics is a huge expansion. Husqvarna was pretty much on its own 10 years ago. Now, I mentioned there is something like 18 actors on the market. Of course, handheld products is very much dominated by a couple of large actors still. You have in the retail space, of course, actors coming in with Asian origin, for example. So you see a high penetration, but it hasn't changed the landscape that drastically yet. It is stepwise changing it, but it's not in any dramatic way.
Do you know the value of the European market today versus maybe five, six years ago?
I know it pretty well right now. I'm not sure whether we should get into this discussion here now. I'd rather say that this is something that fits pretty nicely when we talk about the perspective at the Capital Markets Day. I'll move it there and keep your curiosity alive. Let's bring that into the Capital Markets Day to give some perspective and shed some light on that question.
Okay, thanks.
Operator, I believe we have two more questions from the telephone audience, please.
Your next question comes from the line of Jonathan Hanks. Please ask your question.
Hi there. Good morning. Just a quick one. I'm just wondering whether you could shed any light on what you believe the weather impact was in Q1 in Americas. Just more longer term, just wondering whether you could update us on how your CapEx investment in your chainsaw plant is progressing. Thank you very much.
The weather had no real impact on the demand in U.S. quarter one, since it is a sell-in stock-up question quarter one. It means that they haven't started a sell-out. That's what it means. It doesn't say anything really about demand. The fact that they filled up to this degree showed that they have some confidence, and they were a little bit under stocked, as I emphasized before.
Okay, thank you.
I wasn't fully sure, can you repeat the second question a bit so I really get what you're after here?
Yeah. Of course. I'm just wondering whether you could shed any light on how the CapEx investment in the chainsaw plant is progressing. Is everything on plan? Just give us a general update there, please.
Yeah. The brief answer to that is it is on plan. We have previously communicated it is supposed to be in the magnitude of SEK 450 million to SEK 500 million this year, CapEx. This is the major year then for the CapEx. Additional to that, we will have project costs in the magnitude of SEK 100 million, those were about SEK 60 last year. This will then diminish, there aren't that much CapEx left than for 2015. There will be some, it will not be that significant that it sticks out.
We can confirm that installation of production equipment is in full swing now, so we are peaking during 2015 when it comes to CapEx as well as activities here.
Okay, great. Thank you very much.
Sorry, 2014.
Your next question comes from the line of Johan Dahl. Please ask your question.
Thank you very much. Kai, you mentioned briefly about complexity reductions having effect 2015 to 2017. Could you also address or put it into context how we should think about the top line developing as those effects come in? You're entering discussions now with major retailers for the 2015 season, if you could shed some light on how you approach that.
If we do go ahead and execute this without managing to transfer to other products and to other brands, there would be an exposure in the magnitude of up to 8% net sales. I think we will be able to reduce that to something like a couple of percentage units. What is extremely difficult to assess, that is the value of focus. What does it mean that we can focus our resources to an even larger degree on less brands, less products? Organizations that do have carried through these type of programs, they are normally convinced about that that is not insignificant. We haven't seen that yet.
I'm a bit cautious, I say there might be some effect negatively here for us to absorb, with a conviction that that's not going to impact the bottom line, that there could be some net sales effect of this, but no bottom line really, or very limited. Potentially there could be one of costs related to brand reductions, yes.
Did I understand you correctly that your at risk is 8% in net sales? Was that in U.S. or group or?
That's a group figure, it's a theoretic value. It's not my message. My message is that my assessment of the risk will be in the magnitude of two to three percentage points of the sales. I do believe we can even turn that around and make something neutral and potentially even positive with it in this time frame, given the ability to focus resources. As you can hear, it's a very difficult matter to be extremely analytic about.
Yeah, that's very valuable. Thank you very much.
Yeah.
You have no further questions from the phone lines.
Okay. Thank you very much for your attention. Tobias, any?
With that, I think we're going to wrap up. Please turn to our website for further information on the Capital Markets Day. Second quarter report will be released on 16th of July.