Welcome to this quarterly presentation of the results. My name is Kai Wärn, I'm the CEO to Husqvarna since beginning of July. I have with me Ulf Liljedahl, our CFO, and Tobias Norrby, our IR responsible. We will guide you through this presentation. I presented myself in the conference call July 17, I think, or 19th. As I won't do that again, but maybe I could take the opportunity to say some few words about what I have done throughout my first 90 to 100 days. I've obviously done what you would expect, which is to spend a lot of time getting into the operations in various bits, pieces, and parts of the world. Been traveling into various countries in Europe. I've been a couple of times over to America, and I've been traveling over to Asia and visited three countries there.
I met some customers, of course, naturally in Sweden, also down in Europe, met a couple of the largest retailers in America. I'm starting to dig into the realities of our operations, and I met also a couple of key suppliers in that period of time. I'm starting to see the patterns, and the way things are looking internally. I hope I will be able to respond to some potential questions you might have later. With that short introduction, I think we are getting to the point. What we will do is that I will present now the overview. Ulf will give you the financials, after that, I will continue talking about the accelerated improvement programs, we will take the questions. You're aware of how we go about this, okay? Good.
If we summarize the quarter, I think, first of all, it's a great quarter from a sales perspective. We have net sales increases in all business areas. We are up 8% in Europe, we are up 20% in America. Construction is up 6% in comparable currencies. I think that's a very good starting point, of course. What is a more mixed bag is, of course, looking at the earnings of that increased sales. Europe is delivering an improved margin, and we are satisfied with that, it's stable for construction, I guess part of the questions I would expect from you relate to North America, where we obviously have not delivered according to expectations. I'd like to emphasize also that we have a very good cash flow in the quarter. We are proud of that achievement.
With that, I'll move over to the financial highlight page three. You can see then that the group sales increased 12% in comparable currency. Again, positive for all business areas, and especially then for North America. The EBIT improvements. Yes, we have impact of the higher sales in a couple of the business areas. We have impact of the reductions of staff. We have through the over average increase in North America, a negative business area mix. We have the inefficiencies in the U.S. supply chain. I would say that's the effect. I will get back to the root causes of that, because this is what we see, but at the end of the day, this is the tail, and not the root causes. We have been successfully continuing reducing our inventories, which have supported a good cash flow.
I think those are some of the major comments to make on the group level. With that, I take the opportunity to move over to Europe, Asia-Pacific. As you see, the increase was 8%. Yes, I think in general, I didn't make the comments initially, but I maybe should have. It has been a very favorable season, Q3, both Europe as well as in America. It has also had a period of dry weather in Europe, which has supported good watering season. The watering products have an over average gross margin. That obviously contributes to the result improvement as well. On the other hand, as you recall, the season wasn't that favorable for us in Q2. It started late, but it was also prolonged and extended.
We put a small minus on the handheld from a sales point of view because it is flat year-on-year. We would have liked to see that being a bit more positive. On the other hand, I see that as one of the potentials moving forward. I'll comment a bit more about the handheld later on. From an EBIT point of view, yes, we have the impact of the sales volume. We have the impact of the stock reductions. We have the impact of the product mix read predominantly the watering products. I should say there are some under absorptions impacting negatively. On the other hand, as a conscious result, of course, of the inventory reductions we are pursuing. SEK 289 million versus the SEK 238 million last year's quarter. Margin-wise, you see it going from 7.7% to 8.9%.
I think we are satisfied with that improvement as such. Now moving over to North America, which I guess is of high interest for you. We had a fantastic sales development with the 20% comparable currencies. Again, prolonged season, favorable weather conditions. Last year was also year of drought. The reference in that respect maybe is artificially somewhat lower. The big issue is, of course, that we didn't manage to get the scale advantages from that sales increase. I mentioned that we had inefficiencies in the supply chain, yes, the root causes are to be found in high complexity in the offering, in a relatively weak internal process capability, and particularly, I would like to emphasize the sales and operations planning where supply and demand meets, and we have opportunities to improve that a couple of notches.
Generically, I would like to emphasize that the end of the season is always difficult to predict, and now it was extended, and we didn't fully cater for that good demand extent and duration in time. I think this is the logic. These are the reasons why we didn't manage to get out the scale advantage. Of course, I should emphasize on the other side that the mix is very unfavorable because we're talking about very positive sales in the retail channel, and with products that are rather opening price points than anything that has to do with premium price points. That combination with a very competitive product segment with relatively low margins to start with, and the inefficiencies caused this disappointment in plain language, because it is a disappointment to us internally, obviously.
I think the good news is, we know what we need to do, and we are dealing with it already now. We have learned from that. I think we are capable to handle the variations in the smaller scale, but this large variation in volume, we didn't have the capability to handle in the right way. We proved that, unfortunately. Again, doing mistakes is one thing. To improve and learn from them is absolutely imperative, and we are doing that. Let me assure you about that. This is something we are taking with us into next year. Now, I will get back to talking complexity reduction when I speak about the accelerated improvement programs. In order to be really competitive in the retail segment, we are not talking 20% complexity reduction, but a much higher number.
In my mind, reducing the complexity enables us to be more efficient, not only to handle these type of variations in a better way, but also to take the benefits of being more efficient, rationalize. There is an element here of competitiveness in the retail segment that we need to deal with that was really provoked by this sales volume variation. With those comments, I proceed over to construction. I mentioned the 6% comparable currencies year-on-year. High demand in all regions. I would like to point out maybe Brazil and the diamond stone cutting, which multi-wire concept, which is very successful. We had the volume advantage, yes, we had a lower factory utilization again as a conscious move to reduce inventories, and we have an FX impact. At the end of it, EBIT is comparable to last year, which I think is satisfactory given those circumstances.
We have a year-to-date 10.1% versus 9.2%. Maybe I should have taken the opportunity. Please allow me to go back to Americas, because I missed to make one point, which I think is important. Yes, we are disappointed naturally with the EBIT development in Q3, -SEK 97 million last year to -SEK 126 million. The fact of the matter is year-to-date, we were at SEK 73 million last year, and we are in fact more than double of that now with SEK 161 million. I think we need to keep the perspective a bit right. We are in fact improving. I don't think you should miss that point. Still, Q3 is a big disappointment. Okay. Now proceeding the presentation, I'd like Ulf to take over and talk through some of the P&L effects and the balance sheet.
Okay. Thank you, Kai, and good morning, everyone. Let us jump into the P&L. As you have heard from Kai, no doubt, if we look at the sales figures, if we look at the composition of them, they are, of course, not satisfactory. To start with, we have within Americas, of course, a channel as well as a product mix that is disadvantageous. Also if you look at the group level, we have grown more in Americas at a lower margin versus Europe. There is, of course, a significant portion related to the business area mix as well. If I try to guide you through, if we look at the gross margin as reported, was 26.3% versus last year, 27.7%, a deterioration of some 1.4%, a dissatisfying deterioration for sure.
FX, I would attribute some 0.3 negative. We then come to the mix, and primarily then related to the portions I mentioned here, some 0.6 percentage points should be attributed to that. We then try to isolate the inefficiencies that Kai talked about here, it is as much as 1 percentage point that relates to that. However, as you also heard here from Kai, we are having some improvements when it comes to some of the initiatives that we talked about at the Cap Market Day that are coming through in the P&L, as well the savings from our reduction program. That in the gross margin is giving some positive contribution of 0.7. There you have the main buckets here.
As you can hear, quite a significant portion related to mix, 0.6, as well as to the inefficiencies in our supply chain of 1.0, attributing them back to the 1.4 in deterioration. Moving further to the SG&A, in percentage, well, we do have an improvement. We are on a 23.1% compared to last year, some 24.4%, if we adjust for translation effects. In that figure, we do have, of course, some effect of the restructuring program. I'll come back to that later on here. We see some increases when it comes to brand and selling expenses in the quarter per se. Moving down to the EBIT. We are on, as you can see then, on SEK 206 versus SEK 197. As I said, roughly then par on last year, but with a decreased EBIT margin to 3.2% versus 3.4%.
Again, negatively impacted by currency to a less extent, as you know, in the third quarter versus the first and the second quarter, but still some SEK 27 million year-over-year. The main components here for the deteriorating margin is the strong growth in North America with the lower margins, as well as the inefficiencies attached to that. Savings from the restructuring program is on total EBIT, some positive SEK 56 million for the quarter. We add now what we have after nine months, we are running at SEK 112 million. That means we have said to you previously that we count for the 2013, we shall achieve some SEK 160 million. We are pretty confident that the residual here of SEK 50 million-SEK 55 million will be delivered in the fourth quarter.
As you can hear from that means that we are up on full-year speed now. That means also for next year, the promised SEK 220 million should be in line with what we have said before. Moving down to the financial net. We have been running on a quite favorable level. Based on that, we have been driving the cash flow, and by that, reducing the debt and gaining some from the interest rates. In the quarter, though, we have some revaluation effects on the interest rate differential on the hedge contracts that is giving us some negative effect, moving it to SEK 111 negative versus last year, minus SEK 93. Tax, based on a quite small quarter, as you can see, it is a residual of some minus SEK 3. I come back to the guidance later on. We are year to date on a tax rate of some 24%.
Moving forward and looking into the balance sheet. The main attraction here is, of course, that we have now been quite successful in driving down the inventory. To some extent that we are having under absorption in our factories. If we look the way we have been working now for the first nine months here, we have more and more been able to reduce inventory. As you can see, moving it from SEK 6.8 billion down to SEK 5.9 billion is quite an achievement. Also on the trade receivables, if we look at the days sales outstanding, we have moved there from 64 days last year to 60 days this year. I would say the working capital management is actually making good progress here, and I think that is one of the main takeaways for the quarter, but also for the first nine months.
Again, the result of that is that this curve I have showed you, at least since I started in Husqvarna, to show the seasonality, and I think this is giving also the evidence of that we are performing in a quite good pace. That said, we are not still satisfied. We will continue this journey. This is a continuous improvement project, and I think the organization have really teamed up to answer on those requests here, and we are, of course, continuing that journey going forward as well. A lot related to the inventory and the reductions in all areas, primarily in the Europe, Asia-Pacific. That in essence, has also meant that we have been able to reduce our debt to some extent. Looking at the net debt/equity ratio, it is now down to 0.57 versus 0.68 same time last year.
Some key figures, maybe not too much to mention. I normally focus and concentrate on the CapEx number. You can see that one is slightly higher, mainly related to the chainsaw manufacturing in Husqvarna. We have a lower pace than anticipated beginning of the year, some related to the activities are lower, we also do foresee some carryover. I will soon come to the guidance of the CapEx here. Worthwhile mentioning is also the average number of employees going down quite radically and of course related quite a lot to the reduction in force program that we are running. Also, I think achieving gradually improvements when it comes to flexibility and how we flex in and flex out with our employees. Some guidance. Starting with the CapEx, I said last quarter, SEK 1.3 billion for the whole year of 2013.
There will be some carryover to next year, I am now around the figure of SEK 1.2 billion for the whole year of 2013. If we move forward to the depreciation and amortization, we are in the range of SEK 1 billion-SEK 1.1 billion when it comes to depreciation. Tax guidance remain for the full year. We are in the range of 20%-24%, calculated then on the income after financial items. Finally, the FX, I also remain in the span of SEK 350 million-SEK 370 million negative full year 2013 versus 2012. I believe with that, I hand over to you again, Kai, for some summary.
Thank you. Summing up, a very good demand, a very good sales number, in the quarter throughout all the business areas, and regions. We did improve the results, but not to the extent we would have expected. We talked about Americas sufficiently. We are very satisfied with the improvement in cash driven by the working capital reductions. With that, I'll take the opportunity to move over to talking a bit about the accelerated improvement programs. When I do that, I want to emphasize that we are talking about forest and garden. This does not encompass the construction. The focus is forest and garden because this is where we have the issues to address that I will talk about. You know the target for the group is 10% EBIT margin. That, of course, remains. There is no hesitation about that.
That's where we're heading for, and setting out to deal with. What I will talk a bit about now is five various aspects. The focus on the premium brands and the leadership positions. We'll talk a bit about the dealers and the retail channel and their business models and how we can differentiate them going forward. Further measures to turn around U.S. operational excellence, and last but not least, emerging markets and opportunities that are connected to that. Starting with the brands. We have two major brands that we want to capitalize on going forward. We're talking about Husqvarna and Gardena. They represent some 60% of the revenues, but surely a significantly higher share of the profit. This is, you could say, a profit pool related to those two brands. We also have at least three leadership positions that we want to leverage on even more going ahead.
Professional handheld products, we're talking about the robotic mowers, and we're talking about the watering products. These are areas where we actually can do even more to expand our positions and to even more actively pursue expanded sales. Starting with the handheld, we have now a very competitive range in the market. You did see that it was flat, for example, in Europe, but we have very good opportunities to start to expand that moving into the next season. Built on that strength. We will certainly explore that. Robotic mowers, we are market leader. It's a highly profitable segment. Will it come under more price pressure? Most likely. We have a huge scale advantage that we are benefiting from in this area, and we will make sure to remain doing so. We have more than 50% of the market share in this segment.
Has a very healthy growth. I think the question for us here is how do we stay on top of the game? There are many people entering, of course. Still, we are on our third generation of robotic mowers. The others are in the first generation, principally. It's a matter of how do we maintain the advantage we have in this segment. In watering, we have a great opportunity, I would say, in the next one to two years, predominantly related to geographical expansion. I also see further product development impacting as we move beyond that time window. Geographical expansion is the theme here for the next period to come. These three leadership positions maybe represent some, give and take, 40, 45% of the revenues, but a substantially higher share, of course, of the total earnings. That's one thing.
Allocate more resources and investments to these areas. What you miss here is McCulloch, which is a retail brand. Will we leave that brand? Will we drop it? The answer is no. We will remain with it, but we will not invest to make it a global retail brand. It has strength in Europe and some other geographical locations, but we do not intend to invest the money there. We will invest the money here. Leaving the brands and the leadership position, moving over to the business model differentiation. As you are aware of, we have these two business models to deal with, but I want to emphasize they are fundamentally different. Whereas the retail really is a matter of price points, cost management, and scale. We can't really set the price to any large extent.
Our choice is, do we want to take a position in a certain price point segment or not? That's the question. If we actually take the decision to do it, we better make sure to be competitive dealing with that product. It means cost management is imperative, and it's volume and scale, and it is a bit good enough. That's absolutely contrary to what we see in the dealer channel, where it's all about product performance and specifications, selling the value. It is about premium brands. It's about solutions. There are two different worlds in which we are operating, and we need to make sure that we are competitive. The point I'm doing is we need to increase our competitiveness in the retail side, because Husqvarna culture comes from the dealer culture. We are proud of the best products.
We have fantastic products and innovations throughout the years. That's not the question. The question is, how do we really stay on top of the retail game, and how do we utilize the volume synergy between these two? We are unique in the sense in the market that we are active in both these channels. Most are active in one of the two. I like to believe it's a strategic advantage to be in both of them, but we need to pave the way to really utilize to the full benefit. The point is the retail channel. This, of course, goes for product offerings, but it also goes for cost to serve. We're talking about the full thing here, and particularly in the retail channel. The margins are thin, and we need to adjust according to that. Having said that, I'm moving over to U.S.
Even though it's a bit of a disappointment in quarter three, we still had more than the doubling of the results here to date. Yes, we are even this year doing significant improvements, and there has been significant improvements since 2011 in the previous years. Further measures are required, that's pretty obvious. We are talking about speeding up the margin recovery, and we need to do more of value versus revenue. Revenue growth is less important than margin improvement, and it means we need to prioritize that even harder going forward. It means obviously the dealer channel growth is not new, but we will maintain the focus on the dealer channel growth. You know that roughly one-third of the revenues in North America is dealer-oriented and two-thirds retail, which is a big difference, of course, to the European market, where it's the opposite.
We have two-thirds in the dealer channel and one-third in the retail. As I was alluding to before, we have a big issue related to complexity reduction. I will soon show a picture showing that we have raised the bar from 20% to 30% to the group in terms of reduction of platforms. Really, in the retail, the question is rather a number of 40%, 50% complexity reduction than anything else to reap the full benefits of the scale advantages we need to install to be competitive in that business and earn money. We're talking about reducing brands, yes. Platforms, yes, and stock keeping units. We need to also work on the key processes. I mentioned the sales and operations planning as maybe at the centerpiece of that. We need to look through the whole supply chain and footprint.
Not excluding anything, but not necessarily implying that I believe that we can close any of the big three plants we have in U.S. That's not the message. For sure, warehouse optimizations, maybe office optimizations, et cetera, whatever there might be. This is also a matter about how do we interact with our suppliers? How do we really involve them in helping us reducing costs? How do we give them scale advantages such that they are motivated to do the journey with us? It's not all in-house. It involves our supply chain all the way to the supplier and the dialogue with them. Of course, everybody realizes the complexity reduction is not a quick fix, and it isn't. Some things we can do, and I'll talk about them soon.
If we're going to get to anything like 40%, 50% complexity reduction, we will need to do some redesign of existing platforms to merge them into new platforms that have this fundamental capability to provide a scale advantage. That will, of course, take some time when I talk about platforms I'll proceed over to exactly the complexity reduction on a more generic group level. If you make a classic quadrant-like matrix looking at gross margins per SKU, stock keeping unit, and you look at the sales of those stock keeping units, of course, the lower left is where you like to make your rationalizations to start with. We have quite an opportunity here. In fact, we think we can go all the way up to 30% by principally penetrating that corner.
This will be done, and the goal is to have done this reduction by end of 2015 versus the starting point of 2012. Beyond that, to do further complexity reduction, I think we need to think about putting in fresh engineering resources to consolidate platforms, going from three to two, et cetera. This we can do by taking out low sales volumes and low margins, low profitability aspects. Again, understanding, I think it is important to emphasize, this is not only about the product and the product cost, the COGS. It's also bringing costs throughout the whole company. By doing this complexity reduction, we are enabling taking out costs all the way from supplier interactions to sales and marketing. Also, under operational excellence, we intensify our efforts to take out material price reductions, direct material price reductions.
If you look at the component purchases as share of the revenues, it's about 42%, excluding raw materials, because that's much more commodity-driven and much more difficult to deal with. The target we have set out to do here is to, versus the same reference, end of 2012, take up 10% until end of 2015. We are quite specific here about that. That is a combination of purchasing and R&D. It's not one of the two, it's the combination. Some of them, of those percentage points, can be realized through smarter negotiations. In many other cases, we need to do redesign to actually facilitate that cost reduction. It's a combination of the two. Last but not least, emerging markets. When we talk emerging markets, we're talking Asia-Pacific, we're talking South America.
Both those markets, both those regions, I should say, they are quite dealer-centric, which is advantageous for Husqvarna fundamentally. Both those markets are pretty handheld-oriented. Yes, there are some differences related to Europe and North America. You have fundamental changes in the way that agriculture might be more important. You might have palm oil plantations. You have commercial weed to deal with, which brings some differences in the product. Yes, we do need to respond to that, I think we're talking about modification to a large extent of products that fundamentally can be used in a beneficial way in those markets. We're also talking about supporting quite substantial lead time improvements to the market. Today, we are shipping a lot of products still from Europe with a much too long lead time, we need to shape that up by installing distribution centers in the regions.
That's no rocket science. That's a task for next year. The customer responsiveness and allocating shares of R&D supporting them will come, that will not have an impact necessarily on 2014, it has potential impact talking about 2015, 2016. I think with doing these things, we have the fundamental conditions to say double in five years. The reference is not 2013, rather 2014 and moving forward. You see my point? We need to do this. These are enablers for accelerating the growth in these markets, the responsiveness in terms of R&D and the logistic solutions. Having that installed, we can accelerate the growth in those regions. This is as far as we have taken it for the moment. This is my first reflections and thoughts.
I'm confident that this will help taking us to the 10% EBIT margin that we have as a target. I will not necessarily answer when that will happen today. If you're asking me, will you do it for 2015 or will it be 2016? That's nothing I'm capable to answer. What I can say is we will continue quantifying these programs as we move ahead. By next meeting, we hopefully can be more specific about what will impact when than I am prepared or capable to do today. With those comments, I'd like to say thank you and leave over for the Q&A session.
We can start with the questions from the floor here in Stockholm, please.
Stefan Stjernholm from Nordea. A question on your targets, 30% and 10% decrease from 2012 to 2015. Where on this journey are you now at 2013?
The company worked with the ambition to reduce 20% of the complexity until 2015, since you installed the program. When exactly did you start that program? Well, we presented it at the Capital Markets Day. Of course, the journey started during beginning of 2013. As you know, there is a lead time for those projects. We are in the startup phase.
No material impact so far?
Well, as I guided you in, if we look at the margin, where we should see the impact of it together with the reduction in force program already in the Q3, we have some 0.7 percentage points in improvements. You could say that is also the blend for the first nine months in 2013. I think it's fair to respond to you that the major bulk of this, of course, 80%, give and take, it's going to be 2014, 2015. Maybe another comment, just to be clear, the positive impacts of the complexity reduction will be with the start of season 2014, and the full impact of the complexity reduction will be for the season 2016, because we have done this work until end of 2015, meaning it's effective for the season 2016. We're living in this seasonal world, and it's front-heavy quarter one and two.
That has an implication, of course.
You want Ola to answer? If I could ask two questions. Firstly, on the U.S. operations in the third quarter. As the season was prolonged, I assume that retailers called in and reordered and you obviously accepted those orders. Could you explain to us the logics here when you chosen to supply your retail partners on those profitability levels? Is it a problem of governance in the U.S. organization? Just help us understand how that occurs. Secondly, if you could help us understand also the production problems. What sort of production is that related to? Is it production to fill in for the current season, or is it for next season, or what sort of products is that related to?
I think, the contracts are established through the listings. Then I think our colleagues are identifying to a very high degree with the customers, they're doing everything they can to provide products according to the requests. Maybe at the expense of going an extra mile, almost too far, accepting too high expediting costs. Imagine you have a situation where you have a supply chain set up with certain efficient deliveries, those cannot meet the excess demand. You will have to go to supplier B in order to solve that additional capacity request to a higher cost. That's one example of the manufacturing implication of what you would have to do. Then being late in the process caused by introducing alternative suppliers, you also eventually end up having higher expediting costs.
I think if you think in those terms, I think you're getting closer to the answer of your question. In hindsight, you can say, should we have bent over backwards to get those volumes? Maybe, maybe not. The important thing I want to emphasize is we are learning from this exercise. Of course, at the centerpiece here is the sales and operations planning and what type of flexibility do we install in the supply chain to cope with these type of variations that actually do occur. I want to emphasize the importance of the flexibility element in the supply chain to be able to respond to this in an ordinary way, meaning reaping the benefits also of the scale advantage.
What does that imply for listings going into next year, both with having the new improvement program in place and also with this third quarter in hindsight? It says to me that you're very cautious about listings next year to reduce complexity and focus on profitability.
Let's be clear about it. The most of the listings are being set in the summertime. The most of what we're talking about for 2014 is set. The stage is set. Now it's for us to deal with that and be more efficient dealing with that type of listings that we have, in fact. There are certain bits and pieces that we can open up for discussion, the large picture is pretty much set. The primary focus is then to how do we go about the cost of those thin margin products that are in fact delivering scale, such that it's going to look different next year on one hand. Number 2, how do we install this planning ability that is enhanced such that we can cope with the variation in a much better way? I think these are two key aspects.
Just a quick follow-up, if I may. On McCulloch, what was the strategy there? You were very brief there. Is it to do anything about it? Not invest.
Are you selling it?
No.
Is it just continuing as it is? Basically doing nothing?
I think we should look upon it from another direction. The company has taken quite some investment to put McCulloch on the map. We will, of course, harvest the benefits of that. It has a strong standing in the European markets. It is not necessarily so that we will make it a true global brand. We will not invest the marketing spend that would be required to take a strong position in North America with McCulloch. We have other brands we can use for that, and we don't need yet another brand. I think our situation is the opposite. We should reduce the amount of brands more aggressively. We proceed with McCulloch. It is an important product for the retail channel. We are not going to fulfill the ambition to make it a true global retail brand. I think that's the message.
Okay. I think we will take some questions from the telephone audience, please, operator.
Thank you. If you wish to ask a question over the telephone lines, please press star and one and wait for your name to be announced. Your first question comes from the line of Björn Enarson of Danske Bank. Please ask your question.
Yes, thank you. Björn at Danske. One question on the dealer channels expansion, as has been ongoing for quite some time. You have revised the target for how big that proportion of sales could be going forward? Thank you.
No, we have not revised any targets in that sense. The target is really growth-oriented in that channel. We will maximize the growth in the dealer channel. That's what we're talking about, I think there are quite some opportunities taking yet more steps proceeding.
Looking on the retail channels, do you indicate that you played down your growth efforts in the U.S. there or more focused on bottom line, or how should we look upon the overall volume growth for the U.S. market or Americas?
We will, in fact, absolutely prioritize margin over revenue growth. That's absolutely true. Having said that, as I commented earlier, to a large extent, the listings are set and done. We will try to open some minor discussions here and there, but it will not be moving the needle that much in terms of revenue generation for next year, so I wouldn't model that to any larger extent.
I also had some questions on timing of the actions and the cost for these actions, but I think you have, I guess, said as much as you can, or is this possible to, in a way, give an indication of what kind of cost these extended actions will trigger?
I don't think we are talking about any significant short-term one-off costs for what I described so far.
Thank you.
Your next question comes from the line of Anders Torp of SEB. Please ask your question.
Yes, Anders Torp here. I have a couple of questions on the timing as well, basically. First of all, did I hear you correctly when you say that there was no year or date set for the 10% target, was that correct?
It has never been set for the group, and it's not being set today. No, that's true.
All right.
I think there has been a statement from my predecessor, Hans, about the North American-
Yeah.
5% margin target, that still remains.
Yeah.
He said two to four years, one year ago, that hasn't changed.
Yeah. All right. Very good. Also, I wonder if you could comment a little bit on the impact of the seasonality of the business, both on selling and production and that impact, what it has on the timing potential of all these actions. Basically, I guess, nothing can be done this year because of the season, the production-wise starts right now, I guess, or very soon. Is that fair then to assume that basically the absolute majority of what you're talking about will be really in 2015 and 2016 rather than 2014?
I think it's a fair conclusion you're drawing that the majority of the impact will come in 2015. It will spill into-
Yeah.
-the season of 2016, but you will see some impact in 2014 as well, and not necessarily for the pre-bill season, which starts about soon or now. Definitely there could be cost reductions introduced throughout the season as such. I think you're correct in your assumption, yes.
Very good. You say that price point management is important. Does that basis, deciding on whether or not to participate, I guess, in a certain price point, does that indicate that you will actually maybe exit some price point or at least reduce your presence in some price points in the retail channel?
I think it's fair to say we are reviewing certain placings and price points in various product groups in connection to the strategic rationale. It is reasonably obvious, I think, that we have an interest, for example, to go all the way in chainsaws down to opening price point, that might not be equally true in all other product categories and areas. I think we want to see that also in the setting of a strategic context.
A final question-
Again, that is nothing that impacts 2014 necessarily to any large extent. It will in fact have some impact as we proceed into 2015, yes.
Final question also on trying to differentiate more between the retail and dealer channel. Could it include having exclusive brand for the dealer channel in U.S.?
I would say if you look at the Husqvarna brand, it is principally exclusive for the dealer channel. There is one exception to it, and that probably will remain. I think you should see it as predominantly a dealer-exclusive brand. You have Jonsered, for example, as well in North America. That's a dealer brand. I think to simplify the world, you can treat it as if it is exclusive. It's not fully true, but it's sufficiently true.
I guess the question is if the dealers agree with that or not.
I think we are aligned about that. I think you need to see the other side of the coin, which is if we do have a Husqvarna at one of the major retailers, that also creates demand. It creates publicity, it creates demand. It's generated a lot of commercials around that position. There could be, in fact, a positive impact on the dealer channel by having it introduced at select retailers.
Perfect.
That dynamic is not black or white. You need to have a larger context view at it.
Okay. Thank you.
Your next question comes from the line of Kenneth Toll Johansson of Carnegie. Please ask your question.
Yes. It's Kenneth here. I'm a little bit surprised that you probably will show losses for Americas this year when it's actually a pretty good year on the market. If you fail in increasing your profitability in North America, could you divest that business or is it too sort of coupled with the business in Europe?
Let me be clear. There is no scenario in which we are divesting Americas or the retail, for that sake, in Americas. It's an integral part of the business and the strategy. It will remain so. I think our task is pretty simple, is to make it deliver results, not 2020, but a lot earlier. Really recognizing what I said before.
Yeah. Okay. Another issue, you talk a lot about a lot of complexity in North America and a lot of platforms and products and so on. You have also, since Husqvarna was listed, there have been a couple of acquisitions with some competing brands and so on. Do you see a need to do more integration of those acquisitions? Like integrating manufacturing and products, bringing all your chainsaw products in your group onto the same platforms and things like that in order to simplify the product structure in the group?
My impression is that those acquisitions have been integrated. That's not necessarily the question. I think we haven't maybe gone through the full exercise of exploring the opportunities in the product portfolio related to that. That means our life is fairly rich in terms of product.
Yeah.
Maybe unnecessarily rich.
Finally, do you think that you will keep the dividends unchanged or do you have to lower them?
Do you want to? Well, it's subject to board of directors decision. We have an AGM that finally takes that decision. I think you shall see it in hindsight, the way we have been working with our cash flow despite then a lower net income, I mean, the work we are doing with the balance sheet, I think, well, you have to draw your own conclusion. I said it is subject to a board decision, then it's AGM.
Yeah. The management recommendation to the board is not to cut it dramatically.
Still early days to say.
Okay. Thank you.
Yes. Hi, Rasmus Engberg from Handelsbanken. I had a couple of questions, needless to say, about the U.S. business. Firstly, can you help us understand why your planning system was surprised by a 20% recovery given the decline you had last year? Is there something wrong with that system overall?
I'm not in a position to give you a good answer on that specifically, no. I'm sorry.
With regards to your reporting systems in the U.S., are they really up to date and you have a fair picture here in Stockholm on how they're doing on a daily basis?
Well, that I wouldn't say is the rationale or the reason behind it. It is locally related on how things are working. As I said here, we have a number of issues related to it, but taking the reporting system back here or governance issue, that is not the issue.
You have seen this throughout the quarter.
I mean, we follow statistics weekly.
Yeah. Right. On to the 2014 season, as I understand it, you've done most of your negotiations already.
On the retail side.
On the retail side, yes. Are there any sort of significant impacts in volume or price mix to be expected for the coming year based on that?
I wouldn't emphasize that necessarily. I would say to the larger extent, it is a continuation of the positions we have had. There are always changes, old things leaving, the other thing entering. In the larger scheme, that will not make any larger change, no. Again, back to the slide I showed about the business models. I think we need to be clear upon, for us, the decision is more, are we taking that position in that price point or not? It's not really that much of a price negotiation in retail. It's more, do we have a competitive offer for that position? We have the price increase opportunity in this dealer channel because we can sell the value. It's not really those dynamics in the retail. There are two different sets of worlds in that respect.
Finally, given that you're sort of loss-making or break-even in the Americas for the third year, how many of your retail SKUs are actually profitable? Is it a few that are profitable, or is it a few that are hugely loss-making? If you want to describe it to us.
I don't intend to get into that level of detail here and now. What I would like to emphasize, though, and take the occasion to say, is that we have a new Executive Vice President for North America, Alan Shaw, who came in 1st of August. I was part of interviewing him, and he has a broad background from Whirlpool, from Char-Broil, and he knows the retail model inside out, you can say. Whereas he is new to Husqvarna, he still is very familiar with this industry and the dynamics. I'm very confident that he will be able to take the required measures that we have talked about and described on this page of further measures in North America. We are completely aligned, let me put it this way.
Just coming back to the question, is it a few things that need fixing a lot, or is it many things that need to be fixing a little?
It's a tough one. Maybe we are somewhere in between. It's easy when it's polarized, but if it's not
Tom Bennet from RBS. A quick question regarding your target of 10%. It doesn't look that ambitious. It looks like if you fix the U.S., you won't have to be there if you get to the levels you probably anticipate there. Is this a step towards increased profitability above 10% as well, or are you targeting 10% long term?
I think the way it's formulated is as an average over a business cycle, which meaning during favorable conditions, we should be above it. I think it is realistic, it's ambitious. I think we need to get close to it before we start thinking about moving it yet another notch or level. We have a bit to go, but we will get there. I don't have any hesitation about that. I also think we need to have respect for the fact, again, back to this page, that the competition is really intense in the retail area. Of course, there is a lot of new entrants who are prepared to enter with quite tough conditions. To expect any price increases of that corner is unrealistic, I think. We need innovation, and if you have innovation, you're probably rather bet to introduce them here.
Again, you just give sufficient innovation to try to differentiate a little bit, to defend a little bit of price premium, price point-wise. The issue short-term is to make ourselves really competitive and profitable in the retail channel. That's the task short-term, North America.
Operator, do we have any more questions from the telephone audience, please?
Your next question comes from the line of Adrian Keatley of Citigroup. Please ask your question.
Yeah. Hi. I had two questions. First, can you just say a little bit more, you commented in the construction side that you were seeing a bit of a slowdown in the U.S., what that is. Secondly, just on the numbers, I just wondered if you could help me a little. You gave the impact of mix, the negative impact of that. That doesn't seem to square if I take the contribution of that as the negative with the degree of the U.S. profit fall. Are there any other things that are going on there, or is that mix effect, is it greater than that within the U.S.?
Do you want to take construction first?
Yeah.
I think we saw, according to my memory now, a slowdown on the power cutters in North America in the quarter. We do not really extrapolate that any further into the future. Fundamentally, we have a very competitive a product range in the construction area, all the way from the power cutters into the wall saws, the floor saws, and the diamond tools. Demolition robots is expanding rapidly. I think fundamentally, the setup in construction is geared for further growth, also in North America. That's where I would leave it for the moment being, if you comment on that.
Yeah. I don't know if you recall what I said on the margin bridge, the deterioration of the 1.4 percentage point, 1 percentage point is allocated to the supply chain inefficiencies that we discussed here, as well as the mix. Now we talk about the group. Bear in mind, it is mix when we compare specifically that Americas have been growing with a low margin per se, versus a Europe, Asia-Pacific. Relatively higher growth in Americas. That gives, in the group, some 0.6 percentage points in business area mix. On top of that, if you isolate Americas, as you have heard here before, we talk about a retail channel that is attributing a lower margin, we have wheeled products that in turn is giving a negative product mix as well.
The mix impact do have quite a significant impact of the result of Americas, in combination with the supply chain inefficiencies.
Would it be double the 0.6 if it was just looking at the U.S.?
Well, I don't go in and disclose exact, because we only look at the gross margin for the group. It is a significant portion, as you can understand.
Okay, thank you.
Your next question comes from the line of Andreas Lindberg of ABG. Please go ahead.
Yeah, thank you. Most of the questions have been answered, but I think you touched upon that you saw some opportunities to expand your professional handheld products into next season. Where do you see those opportunities?
In fact, I see them pretty much across all geographies. We have a very competitive offering now on the pro side that has been introduced, and that is about to prove itself. Based on that, I see definitely very good opportunities to expand that.
Is it to new dealerships or is it your existing customers?
Existing dealership can sell through a lot more of those products into season 14.
Okay. Could you also touch upon the inventory levels in the channel for both customers?
Kai, you take that one. Do you talk about our inventory levels or
Your customer inventories.
Okay. If it's a trade inventory, I'll take the comment. Due to the extended and good season in quarter three, our impression is that they have a lower inventory leaving this season than they had coming into the season. That's our view of it in general terms.
Okay, that's true for both channels?
Yes.
Okay. What's your own take on your own inventory composition?
We have taken a step to rationalize our inventories, as Ulf has described. We think we can continue that journey, the issue for us is, as I was alluding to in an earlier question, to increase also our flexibility in the supply chain, our ability to respond to the volume variations. I think that's one of the key aspects here going forward.
Just to add, Andreas, you all know that we have talked about complexity reduction. Of course, it has a P&L impact, it will also, of course, make our balance sheet even more healthier, because complexity is also driving, of course, tying up more operating capital.
Okay, thank you.
Your last question comes from the line of Anders Torp of SEB. Please go ahead.
Yes. One final question. You did increase sales basically compared to a year ago by half a billion SEK. Same time, your inventories are down more than SEK 1 billion, I think. Yes, you are talking about underabsorption basically as impacting the results. I wonder if you could say something about the degree of this underabsorption's effect on EBIT.
Well, if you look again, we say underabsorption related to inventory reduction is mainly Europe, Asia-Pacific. The one percentage point that I talked about in the GP, in the gross margin bridge, is really related to the inefficiencies that we have described here.
Yes, exactly. Inefficiencies is one thing, underabsorption from choosing to reduce the inventory is a different thing. That normally means a negative impact on earnings. My question is really relating to that.
Yeah. If you take in the quarter to a less extent, the majority of that was taken in the first and the second quarter, and there we are up to maybe, say, 0.5 percentage points if we looked at the total group.
Right. Thank you.
One final question from the floor in Stockholm.
Thank you very much. Kai, as you have traveled in the group now, and I assume made a thorough analysis of the U.S. operations, you would think that your major categories in the retail part, walk-behind tractors, you should have significant scale compared to your competitors. What's your analysis of the industry as such? Is it a poor industry in those categories? In your judgment, what's the relative position there of Husqvarna? You're highlighting several measures that will improve that, obviously, is it just to catch up? Is it to get ahead? I'm interested to hear your view on the industry.
Number one, it's a very competitive category we're talking about, or set of categories, walk-behind riders. There are competitors earning more money than we do. I know for a fact also that some of them operate with much less amount of platforms than we do. I think these measures are directed towards the core issue of the competitiveness in those categories. I don't know if that fully answers your question, but I hope it does.
Are you seeing any signs in the industry that it's recovering or doing things to improve?
To increase the profitability in those categories, you need to be really utilizing the scale advantage, or you need to bring that little extra innovation. I think we have examples of that which have been successful. We're talking about the garden tractor, we're talking about the four-wheel drive on the walk-behinds, et cetera. They have been doing pretty well. The majority and the bulk of the volume is really here at extremely exposed for this competitive pressure, and that's where we need to get to terms with it.