Morning everyone, welcome to Husqvarna's first quarter results presentation 2013. The presentation will be conducted by our President and CEO, Mr. Hans Linnarson, and our CFO, Mr. Ulf Liljedahl. With that, please go ahead, Hans.
Thank you, Tobias, once again, welcome and good morning. To focus on the first quarter here. To summarize the first quarter here, I want to start with that. When it comes to Europe, it's very easy. Cold weather, the macro situation, as well as currency. Very negative. Three bullet points which have heavily impact of the European business here. I started up with a negative part here. Two positive areas. Americas, especially U.S., actually where we see a huge improvement. We see that the EBIT margin are up and the margin are up. Thanks to that, we are focused a lot when it comes to get America up again here. I come back to another picture later on when it comes to Americas here. As well as for construction, continuing recovery, high EBIT, and margin for construction.
Thanks to a lot of investment in new products. As you know, in, I think it was the first week in March, or maybe before Easter, it was announced that Kai Wärn will take over as the CEO and President of the company here from 1st of July. That means that I need to stand up here and defend even half-year report here. I will support and then leave the company here and retire at beginning of 2014. A tough start here. I just saw an article here when I saw this graph here, I changed note to the headline challenging European weather conditions here. If you take London, Berlin, and Paris, that covers the main and center of Europe. The average temperature March this year vis-à-vis last year. Why is this so important?
Due to that if you see this cold weather, especially in March, have had heavy effect on us in the garden area. The grass can't start to grow. The temperature has to be in the ground plus six degrees, otherwise nothing happen. A lot of people have said to me, "Yeah, don't complain, Hans, the sun shining up to 15, 20 degrees here in the afternoons in Central Europe or in U.K." The most important for us is that actually the average temperature during the nights has to be above zero degrees. That's key for us here. Been very cold during the nights here. If you take London, U.K., it's a very important garden market for us. Of course, all these big retailers in Central Europe, they haven't had any sell-out here that have stopped, of course, our sell-in during March here.
If you look upon the financial highlights and over to that here. The sales declined 4%. Sales developed actually very good in American construction and a huge downturn in Europe, Asia Pacific, mainly Europe. Of course, lower EBIT margin due to lower sales, and then the currency effect for us as well. The Swedish krona vis-à-vis both the euro as well as the US dollar. We are forced to take some action to slow down the production due to the drop in sales here, especially for the European market here. Lower factory utilization here due to that. What's positive is that we continue to focus on cash flow as well here, so not only to recovering U.S. High focus on cash flow. That's mainly due to low inventory and receivables. Inventories, of course, due to that we stopped to produce in Europe.
A little bit high in Americas. Over to Europe, Asia Pacific here. As I said, the downturn was more in Europe, Asia Pacific, 7% down. Late spring, there we see especially the drop in sales was in the retail channel here, especially in March. Of course, we have seen effect of economic situation. It continue even this year. When it comes to retail channel, why are the retail channel in Europe down more than the dealer channel? Due to that in the beginning of the year, we sell a lot of watering products into the retail channel. The main channel for watering product is retailer, less in dealer. Of course, the main market is in Central Europe and back to the cold weather. They have more or less stopped all deliveries when it comes to watering products.
Lower EBIT due to sales, of course, half of the decline in EBIT relates to currency effects. Of course, utilization in the factories, lower factory utilization, product as well as a little bit channel mix here as well have affected the result in Europe here. When it comes to product mix, we have seen here our robotic mowers continue in Europe to sell very good even this year. Less weather effective than the rest of our products. Don't ask me why, but it's just effect we have seen here. Of course, product mix relates to watering products with very high margin have affected Europe, especially in the last part of the quarter. Over to Americas. Down 2% in sales.
Americas, especially U.S., started up extremely well in January, February, even if we need to be aware that last year, U.S. was a high quarter when it comes to demand in the marketplace. In March, the sales dropped there as well here. Even in the mid part of U.S., it was extreme cold weather suddenly. It was even snowing down in South Carolina and as well as North Carolina. High sales in Canada and Latin America. We continue to grow and focus on the dealer channel vis-à-vis the retailer channel here. We continue to focus and have effect of that, of course. EBIT and margin improved a lot. We said that we want now to increase the prices for this year. We have done that, you've seen, even if we have done that, the volume drop is not related to that.
It was possible to increase the prices more than we thought here in America, especially in U.S. Our three main factories in the company is located in U.S. We have seen this effect and the focus we've had in the factories given us a good results here. All these factories are up and running very efficiently. Now we start to focus in Orangeburg to reduce the product cost as well here. It was a less priority last year, but that's a high priority this year. As I said, the channel mix as well here have given us this good result in Americas. I'm rather pleased to see the development in Americas and that all this focus and effects have given us a good result. Here you see a graph.
I'm going up over to another slide here now, where we see the EBIT margin the last six years. We are back to 2010, 3.3%. I can't really see why this journey shouldn't continue to come back where we should be here, 2008 figures here, above 5% EBIT margin. There's no reason to see that shouldn't continue this very good development in Americas, then coming back, especially in U.S. Here we are pleased to see this curve. Over to construction. Sales, more or less unchanged. Very big mix. Rather flat in North America and down in Europe, mainly in southern part of Europe. Up in the rest of the world. Continue recovery when it comes to EBIT and margin in construction. We have seen a positive mix. We have seen the effect, as I said in the beginning here, of all these new products.
We've been seeing here, the main market in Europe, France, have started to recover. We've seen, actually, in the quarter that France is coming back again here from a very low demand in construction business here last year. Over to Ulf here to take us through the figures.
Good morning, everyone. As Hans have elaborated on the sales, I thought we dive into the gross profit and gross profit margin immediately. As you have seen, if we take the quarter one 2013 versus quarter one 2012, there is a dive in terms of one and a half percentage points down. To make it simplify, you could say that actually relates to three components. FX, of course, has an impact from a transaction perspective. I would account some 0.7 percentage points of the one and a half related to FX. When it comes to under absorption due to the lower volumes, very much related to Europe, of course, as you heard from Hans here, I would attribute some one percentage point to that. What is positive here is that we can see the impact of the price increases.
We have some tailwind from the material, not only based on a macro perspective, but also the initiatives that you heard us talking about at the Capital Markets Day latest here. Together with some of the savings initiatives taken and announced already last year, we see that this is possible to offset, definitely the negative mix impact that we have, both from a product perspective, mainly Europe and watering, as you heard from Hans here. We started last year, as you know, watering was quite good in the first quarter. It has definitely not started the same in 2013. There we have a negative mix. We have, of course, a heavy regional mix based on that, the dive in volumes in Europe or EMEA is much more significant than what we have in U.S.
In essence, you can say we have the FX of some 0.7, we have the under absorption of one, we have a offset based on positive price, material, and savings taking care of the negative mix portion here. We go back then to the P&L again, moving down to the SG&A, we can see that adjusting for translation effects, we have an improvement here as well. Some, of course, related to the lower volumes. Also here, I think we may declare that we do see savings kicking in now from the restructuring as well as from other measures taken. Still, of course, not able to fully match the downturn in sales, meaning the ratios are, let's say, not following in full here, but still a pretty good development going forward here.
Further down, EBIT ending up on SEK 688 versus SEK 930 last year, a decrease of some SEK 240-plus million, resulting in an EBIT margin of 7.6% versus 9.5%. Impacted, as we have said, of currency some SEK 135 million year-on-year, representing quite a significant part. Lower sales volume and utilization. We do have some offsets when it comes to price, material, and the savings from the restructuring program. I would allocate some SEK 25 million of the SEK 160 that we had promised for 2013. Some SEK 25 we have identified in the first quarter, meaning that a lot of the program that we have identified is, of course, back-end heavy of 2013, as we have disclosed previously. Finance net improved, minus SEK 86 versus some minus SEK 134. Main reason, decrease in lower interest rates or lower interest rates, but also a lower net debt versus last year.
Tax for the quarter ending up on 22%, some SEK 135 versus SEK 163 last year and a 20% in tax rate last year. We move over to the balance sheet and some of the highlights there. Of course, we see inventories are down or below last year, SEK 8.3 billion versus SEK 8.5 billion. However, adjusting them for translation effects, we are roughly flat year-over-year. Trade receivables, though, are down, that we are quite proud of. Yes, some related to the volumes, of course, but also that we have some good momentum in the initiatives taken here. In essence, we do see a improvement in the working capital, I come back soon to that in the cash flow statement. Also, a lot has happened related to the IAS 19, we have some information here. I will not go in depth with the effects.
You can see that quite comprehensively in the report, and there is also more to be seen on the webpage. Major difference is, of course, that the net debt has been affected with some SEK 1.4 billion in terms of both the revised IAS 19, but also that we have moved some of the debt, previous pension liability from an operational liability up to a financial liability. All in all, some SEK 1.4 billion. I refer to there is more to be seen on the webpage as well as in the report. Liabilities, in essence, the net debt amounted to some SEK 10.1 billion at the end of the Q1, compared with some SEK 10.7 billion one year ago.
If we then look at the operating cash flow, you can see this is a curve that we have normally shown to you, and you can see now comparing them with 2011 as well as with 2012, we can see that we are trailing on a better level in 2013. We had an accumulated operating cash flow negative some SEK 1.8 billion, and that is better versus last year that we were trailing on some negative SEK 2.4 billion. Of course, the majority is related to that we have a lower build-up in operating working capital inventory to a less extent, a lot related to accounts receivable.
Some improvement of some SEK 650-plus million, which I think is a good indication that although volumes have gone down, we have been able to balance some of it, and there are also the additional initiatives taken that actually are shown in the cash flow generation here. Net debt versus equity. You can see the ratio is 0.9 after the Q1 compared to 0.95 last year. Here the reference is also to that we have now the revised figures, so this includes the effect of the IAS 19. Should we exclude those net pension liabilities, we would have had comparable numbers being end of the Q1 2013 of 0.78 versus last year, 0.8. Some key figures, and here, as you know, normally I don't go through all of them. Worthwhile mentioning is the higher pace of the CapEx.
You can see that we are on SEK 203 million after Q1 versus last year, some SEK 164 million. Average employees, as you can see, go down quite heavily here. Major effect here is, of course, the manning reduction that we announced. We also see improved efficiency. You heard from the Capital Markets Day the importance of now being more able to run the factories in a flexible manner. We can see some result of that. We are also changing some of the temporary employees we have had before, working more with hired employees, which is also the benefit of being more flexible. That said, we don't have the full flexibility we want to achieve yet, but at least we see momentum in the right direction here. A lot coming, of course, from U.S., not least. Then some guidance. CapEx for 2013.
With reference to last guidance, I said we should end up in 2013 with some SEK 1.7 billion in CapEx. Based on the lower activities, we adjust this one now down to some SEK 1.4 billion. Still, as you know, a quite significant part of that is coming from the previously announced facility for manufacturing of chains, as well as the expanded capacity for manufacturing of cylinders. That still is some SEK 0.4 billion-SEK 0.5 billion of that SEK 1.4 billion in total. So downward adjustment from SEK 1.7 billion to SEK 1.4 billion. When it comes to depreciation and amortization for 2013, it will be in the range of SEK 1 billion-SEK 1.1 billion. Then we have the tax guidance, and as you recall from the Q4, I said I was not prepared to give you any guidance for this year.
I will now give you a range saying that it is between 20%-24% calculated on the income after financial items here. And here you can also see that this mirrors some of the still, I would say, the interpretation of the proposed regulations are still somewhat uncertain, but the range given now should be seen somewhere between 20%-24%. Recalling that Q1 ended up in 22%, we believe the range is applicable. FX, yes, major impact first quarter, and of course the krona has, when we look at till end of March, strengthened further, ending up in the 135 in the first quarter year-over-year. I said last time, SEK 200 million on an annual basis year-over-year. This I will upper now to some negative SEK 300 million compared with 2012.
There is an upper adjustment of the FX impact for the whole year of 2013, SEK 300 million negative year-over-year. With that, I hand over to you, Hans, for the summary.
Thank you. A short summary before we open up for questions here. As I said here, huge downturn, both when it comes to sales and EBIT margins when it comes to Europe. When it comes to Asia Pacific, I want to mention that we have seen a good development in China, in that region here. Very good and positive development here, both when it comes to top line as well as margin improvement in China. Then when it comes to America, as I said, especially U.S., a good improvement. Hard work has given us the results. And both when it comes to EBIT and margin improvements, so we've seen a good development there. And we continue to focus on the dealer channel. Of course, that doesn't mean that we'll not look into the retailer channel, but there is more focus nowadays in the dealer channel.
In the past it was the opposite. Very good to see that construction continue to develop high EBIT margin and very good mix when it comes to margin on the product as well here. Thanks to hard work during the years here to look and focus on new product development. Improved cash flow. We continue to focus on cash flow. That's key for us to improve the cash flow in the company here. Of course, when it comes to the manufacturing part here, we need to adapt to the sales here and act. That has given us a good improvement when it comes to inventory levels in Europe here. On the other hand, negative when it comes to absorption in our factories here.
The announced staff reduction program is on track, but the full effect come the second part of the year here, actually are running as planned, a little bit better than planned. Give a little bit short outlook for the quarter which has started up here. When it comes to how have April started up, a little bit the same path as we've seen in March. All of us are living here, mainly in Europe. We know the weather haven't improved a lot. What we see now, of course, it start to take off, but there, of course, always sell in is delayed due to our customers need to sort that sell out. We see now an improvement in sell out. Now we actually can see hopefully here coming in late and beginning of May that the sales takes off here.
Of course, a lot weather related when it comes to this here. Once again, Kai Wärn will start up and he start 1st of July here. That means that we see each other even of the half year reports here. Kai, of course, will join us as well here. He have already started up here. You have possibilities to ask him questions as well here later on. With that, we start up for questions.
We would like to start with questions from the floor here in Stockholm.
Anders Trapp, SEB Equities. I have three short questions. Just one about 10% fewer people employed in the quarter versus a year ago, where those really were, in terms of geography and function. Second question is on the weak sell in of the watering products. Is there any reason to believe that the weak start or the weak sell in will have any kind of ramification on the sales level going forward in this year? Thirdly, about being a bit more aggressive on raising prices, have that led to any type of market share losses?
Okay, when it comes to people reduction, it's mainly in the U.S. in the Orangeburg factory. As you know, we focus a lot to be able to deliver last year, starting up Q4 2011 here. It's mainly related to our big factory in U.S., but it's a little bit all over the place, but mainly in U.S. and Orangeburg. When it comes to the watering business, of course, will that take off and we are able to recover? Yes, I hope when it comes to that, for extremely hot May and June, dry and hot for at least four weeks, even five weeks. That will have a huge effect on the result bottom line due to the high margin we have there, especially in the central German-speaking countries, where we have our main markets. Price increase, yes, we have done price increases here.
Of course, when you increase prices, especially what we have done in U.S., we will lose market share. We will always be affected. You always done that calculation here. I have to say, when it comes to U.S., we haven't seen that. No reactions here when it comes to that we should have a lost market share at all here. What we see here, market share is all stable. In some areas, we even have been able to increase market share. As we said during the Capital Markets Day here, we will focus now on selective growth here. That means that we will even step out of some areas here. That, of course, in some subcategories, we will lose market share, That's we who decide that we do that here than to focus on other areas.
I'm surprised to see that still, we were able to increase the prices a little bit more than we thought. That's good looking into 2014 as well.
May I just actually follow up also? You actually mentioned China doing well, growing sales, et cetera. How big is China for you?
China, of course, the company is a very small market for us, but we see the market is growing more than we thought when we had dig into that here. When it comes to chainsaw, for example, we have underestimated the size of the market in China. We see that as huge possibilities for us here. We've seen a good development in that area. Of course, in total, a small market.
Carl-Johan Bonnier, JRS Securities. What's your take on the, say, the inventory levels at your consumer level out in Europe for the moment? Is it normal for this part of the cycle, or are we at lower levels for the moment?
Within this trade, especially when it comes to the retailer channel, it's higher than normal, much higher in the retailer. Normal in the dealer channel. Of course, due to weather, it's very high. That goes back to that we have a lot good sell-in in the beginning of year and more or less stopped in March.
When you look at the dealer channel in the U.S., as you point out, that's one of the strong points. Do you see growth both on the number of dealers and the sell-in amount to each dealer still?
Yes, we will, of course, continue to develop the dealer channel, but that we know maybe we have less new dealers here. We will focus on the good ones here as a selective growth even in the dealer channel here. We will see that the number of dealers will grow, and we see even the development when it comes to sales within these different product categories will increase as well in the dealer channel here. We are prepared with lots of new products here, and actually, those lawnmower here on the Americas here, we are the first one now to introduce a four-wheel, all-wheel drive lawnmower, and that's mainly for the American market. There's lots of new products to boost for the sales in the dealer channels here. We are prepared for that product-wise.
One final question. Looking at seasonally, obviously, your balance sheet is the weakest at the end of Q1. Looking at what happened now with the pensions, is there any risk that you fall outside your financial covenants? Do you see any scenario where, say, there might be a risk for new issue?
No, what we have done, we say it like this: the covenants and the IAS revision is taken care of from a covenants perspective. I don't see any risk from that perspective.
Behind you, [inaudible].
Yeah, hi, this is Johan at Schroders. Just one question about this CapEx cut. You previously said SEK 1.4 billion, now SEK 1 billion, roughly. What impacted you in this quarter seems to be weather and currencies, where are you cutting your CapEx on the back of that?
Well, based on the initiatives we put up was based on, of course, a different Q1 development. Starting with replacement assets are less, also we do hold back and being in more, let's say, reprioritize some of our projects, that goes all across the line here. Very much is related to our manufacturing entities, for sure, based on the lower volumes.
For this year or next?
For this year.
Okay, thanks.
Hi, this is Rasmus Engberg with Handelsbanken. I wanted to ask you had SEK 25 million in savings in this quarter. I just wanted to know how much was in the Americas and how much was in Europe, if you can give us that.
I would say that it is split pretty evenly from this perspective. As you understand, it is still low figures, and those we gradually are expecting to grow. As Hans mentioned, and as I said, it is back-end heavy. More is supposed to come here from the European perspective going forward in Q2, Q3, and Q4.
On the back of that, can you walk us through the earnings improvement in North America? There is SEK 65 million of EBIT improvement, of which SEK 8 million is FX. Then you say on positive price and positive mix. It doesn't seem to add up unless these are very, very small figures.
Well, no, still small figures, but we still see a significant improvement year-over-year. I would say you have three components. We drive the mix, we drive the price, and then, of course, we have better utilization efficiency-wise. That said, we still have more to do, but if you look at year-over-year, we see improvements in all three areas, which is what we have declared in previous statements here.
More like if I take 1% price, then there is nothing left to explain. The price increase would have to be smaller than 1%, is that correct?
Well, I don't give you exactly what is what. We have said the blend or giving out the blend of prices, we say in some areas we raise prices, in some areas we are not raising prices. That is the differentiation that we now are driving much harder than what we have done in the past year.
I'm not missing something negative in all that.
Yeah, you have the volume piece, of course.
Volume. Okay, thanks.
Björn Enarson, Danske Bank. A couple of questions. On production costs in the U.S. mainly, how do you see those developing? Are they continue to come down going through 2013, or are we at a quite good level right now, so we should expect the same kind of efficiency also in the next couple of quarters?
Well, we have continuous improvements here. What I think was shown here by the chart is that we have seen the turn in the first quarter, and the expectation is that this shall, of course, continue, because otherwise, at the end of the day, if we are going to reach what we have declared previously, the 5%, 2-4 years from now, we have to continue that journey. No doubt, there are volume pieces as well. I think we proved with the downturn in volumes, we are still able to offset what we came out from last year. As you recall from last year, we were not able to push the price or work as hard as we wanted from a cost perspective. That I think we have been much, much better in 2013, and that journey will continue.
Your target of at least 5%, is that predominantly based on production cost, or is it mix, I guess mix definitely, but also a volume component in that estimate?
Well, of course, tailwind from volume is important, as said here, based on that, we will be tougher on price. We can also see that we will sacrifice some volumes. That needs to be offset by both being better in how we purchase and how we drive cost in our product, as well as how we drive the mix from retail over more dealer, as well as within the retail channel per se.
A comment here to the efficiency in U.S. here. We've seen with all this focus here that we will continue. We also seen actually the motivation coming back among the people in U.S. here, even in the whole Husqvarna Group here. All these positive signals that all this hard work have given us result, give, of course, a lot of opportunity to continue to work with this hard work to reduce product costs and efficiency, not only in the factories, of course, in all places, in admin as well, in the sales organization as well here. We are focused to look at productivity improvements outside the normal, to focus on in the factories. I see a lot of spin-off effects of this debacle we had in U.S., which are very positive for the entire group.
You also said that watering was quite a good market last year, and I also recall that the U.S. market was quite good also last year, to say the least. You had a significant growth. Looking into Q2, I recall that the European market was quite weak due to an unfavorable weather situation. Is that what you see, or are there any markets last year that were in the product segments that hold up that we should expect tougher comps than what my expectations are, at least?
If I go back to last year, product segment to hold up very good last year was the robotic mowers here. We don't see any indication that should actually slow down for this year at all here. That's a surprise for me that this product doesn't seem to be weather-related here. We can't really see that there are any areas where we can see a drop vis-a-vis last year when it comes to products here. Of course, coming back, watering is important for us, especially, let's say, in the month of March, April, and May, and June. Then the watering season is over. It's a short season when it comes to watering product, and very important for us.
That segment was quite weak in Q2 last year.
Yes. Correct. The start of Q3 as well.
Yeah. Thank you.
Operator, we can have questions from the telephone audience, please.
Thank you. If you do have a question on the telephone, please press star and then one on your telephone. Your first question comes from Johan Dahl from SEB Bank. Please ask your question.
Yes. Hi there. Johan Dahl here at SEB Bank. I had a question on pricing. You clearly elaborated on the price performance in the U.S., where you seem to have been successful and also at least defended market shares. You're also clear on your ambitions in the U.S. in 2014. You talked on the capital markets about European pricing, and clearly given the effects here There's a clear need to raise prices. Could you talk a little bit about what you're doing there and why you have been unsuccessful, at least to my judgment, in the first quarter in raising prices?
Yes, you are correct. When it comes to the price increase, we have been able to do that more in U.S. than in Europe here. What we see here in Europe, we need to harmonize the prices here within the European marketplace here more than focus on country by country here. Of course, we have not been able to increase the prices in Europe for this year as we have done in U.S. here, and a little bit lower level than in previous years as well here. Of course, all this new media open up for our customers can measure our prices more than they ever have done here, and look upon this year. It's more complex in Europe today here to have the selectivity price increases here than we've had in the past.
That will be more harmonizing price within the different product categories over the time here going forward. Of course, more tricky in Europe than in U.S. for us.
It's a bit of a strange situation when you raise prices in the U.S. and still you seem to gain market share. If you look on Europe, what's your appreciation of market shares and listings in the first quarter and 2013 season in Europe?
When it comes to listings here, we need to go back to the third and fourth quarter last year when we do all these activities with customers here, when they select which suppliers they will have here. What I have seen here with the new products we have, the listings have been very good for this year here, both when it comes for pre-orders, when it comes to dealers here, due to all these new products and how we are working within the companies and the focus areas we have here. That part is still remaining here, the good listings here for Europe. Of course, we have also discussed these price increases here. We have done price increases even in Europe, but it's most selective within different product categories, under different brands as well within different countries as well here.
Are you unhappy with the performance on prices in Europe, Hans?
No, when it comes to the market condition, actually, and the competition we have here and how they act, of course, we need to, of course, be in balance with our main competitors are doing when it comes to price increase and campaigns and other discussions here. I have to say I'd be pleased when it comes to this here. What we have done here, we use our payment terms here. That's another way how to increase prices here. Go from 90 days down to 60 or 60 to 30 days. We worked hard with that part as well here. That's, of course, a kind of indirect price increases as well here. That compensate a little bit that we haven't been so successful in direct price increase in Europe as we have done in the past.
Okay, final detail. Would you be able to say, give any numbers with regards to the under absorption effects in Husqvarna in the first quarter compared to sort of normal situation?
No. Well, Johan, I gave you in the bridge, I don't know if you heard that, but in the gross profit margin bridge, I gave you that one percentage point I would allocate, if you look year-over-year, that is due to the under absorption in factories all across here. Of course, a lot related to what is happening in Europe for sure.
Great. Thanks.
Thank you. Your next question comes from Christer Magnergård from DNB. Please ask your question.
Hi, it's Christer Magnergård from DNB. A follow-up on that question on the under absorption effect. You also said that April has started slow in Europe and that retailers have quite high inventories. Does it mean that you will have more production cuts also in the beginning of the second quarter in Europe? Do you think that will affect earnings as well?
For the time being, we haven't said that we will further slow down the production level here. We follow that every week. Every Friday, we go through actually how the week has been, how we look upon the next week here. Every Friday we follow up which action we need to take. So far, no planned action to reduce production.
Secondly, the new currency guidance, FX guidance on 13. Is that based on the currency, the FX rates we saw by the end of March, or is it today since we have had a quite depreciation of the Swedish krona?
No. Christer Magnergård, I have to take the stance here by end of March. That is a valid observation. It's end of March. I have not taken into consideration the slight, let's say, changes we have seen beginning of April, yeah.
Great. Thank you.
Thank you. Once again, on the telephone lines, if you wish to ask a question, please press star and then one. Your next question comes from Aaron Ibbotson from Goldman Sachs. Please ask your question.
Yes. Hi there. Good morning and good luck, Hans, to your new ventures. I've got three questions. I guess two of them have partly been answered. Firstly, if I look at free cash flow generation over the last three years, you have spent 100% of that on dividends. I was just asking, in light of your sort of expected ramp-up in CapEx, if your creditors are at all asking you to maybe consider reducing your dividend, and also if that has influenced your decision to sort of slow down the ramp-up. Secondly, just on this underproduction or under absorption for the second quarter, I hear what you say that you're looking at numbers every Friday, but I was just looking at the inventory days, which at least according to my calculation, hit an all-time high and FX-adjusted probably even higher of over 100 days.
I was just thinking if you were going to try to work more aggressively bringing that down. Finally, just to follow up on the FX guidance. Again, I am a little bit confused, just as the previous question here. The SEK/USD cross is flat since if you do year-end, quarter-end to quarter-end, but in all other instances, it's weakened. The EUR/SEK cross, which I assume you're exposed to as well implicitly by a EUR/USD cross, if you take quarter-end to quarter-end, the krona has strengthened a little bit, but not much in all from now versus when you reported or now versus year-end, it's clearly weakened. Should we basically ignore that guidance if we assume FX flat from here, or what is driving these increased expectations of FX headwinds? Thank you.
I can start a little bit with the inventory levels here. Coming back to what we do here to explain it more how we look upon this here. Every Friday, we look upon the order income and the order stock here. Of course, we look upon the inventory situation we have and try to estimate a little bit, even in the trade here, and then we base the production capacity out of that. Of course, we have lots of different parameters which we need to look into as well. Our ambitions is to lower the inventories. No question about that.
If we then take your first question regarding the decision to down guide the CapEx, that has no bearing on how much we shall pay in dividend. As you know, and I think I said that last time, this is a board decision, and it's subject to an AGM. That is some time still left for that. The rationale for guiding down the CapEx is purely related from an operational perspective and based on what we have seen the first quarter. FX guidance, well, I don't know how you look upon it, but if we take year-over-year, there is definitely further downward trend, if we take March 2012 versus March 2013, and I refer primarily to the EUR/SEK development. As said, when it comes to the guidance of the SEK 300 million, that is to be seen standing end of March this year.
Yes, you have to make your judgments based on what the impact can be based on the slight changes we have seen in April.
What we should compare is December end to March end, and that 3% move causes an extra SEK 100 million of headwind, and the 3%-4% move in the other direction since then, presumably then, if we assume that it remains around SEK 860, you should actually have then a SEK 50 million benefit versus previous guidance? Is that how sensitive you are? 3% move in EUR/SEK on nine months gives you a SEK 100 million swing. It sounds very sensitive versus my model.
Well, you can see more of the sensitivity if you look in the annual report. It is, of course, the bearing I have on the hedge contracts that I cannot tell in detail what they are related to. You have to take the guidance based on what has happened since end of December until end of March. From what is happening from March until today, that is some judgment you have to make on the sensitivity.
Okay. Just to clarify on the first question, my questions was primarily related to if creditors have suggested to you or somebody else that you should consider lowering your dividends.
There has been no such discussions, no.
Okay. Thank you.
Sorry, is that same line? Thank you. Our next question comes from Johan Dahl from Penser Bank. Please ask your question.
Yes, hi. Could you give any details with regards to the quarterly split of those remaining -SEK 150 or so on the FX? It clearly had an impact on the first quarter. It would help us a bit, I think.
Sorry, could you repeat that one?
Yeah, just the quarterly effect of the FX. It had an impact clearly here in the first quarter. We know your product flows are different from each and every quarter, is the Q2 expected to be positive and the remaining negative effect in the second half onwards?
No, you will have significant negative effects in the second quarter as well.
That's great.
That is the trend.
Okay, thanks.
Thank you. Our next question comes from Veronica Ek from Reuters. Please ask your question. Veronica, your line is now open. You appear to have no further questions.
Okay. There seems to be no more questions. With that, we would like to wrap up and welcome you all back on July 19th when we report second quarter results. Thank you and goodbye for now.