Earnings Call: Q1 2012

Apr 26, 2012

Okay. So welcome everyone to this conference call regarding Husqvarna's full suite results. We will follow the normal procedure here. Our CEO, Mr. Hans Lineachan, will start with an overview of Q1 operations. And then our CFO, Niko Lyudel, who will take you through some details of the financials. And then we will open up for questions and answers. And with that, I leave over to Johan. Thank you, Tobias. Very welcome all of you to discuss Q1 results here for 20 10. So summing up is the liquidity on high level here. I'm very pleased with the results for the Q1, I have to say that, I say last year. This Q3, there have been a lot of discussion of what happened in U. S. Here. And there we have seen huge growth for us, small growth in all segments for us, all product categories, putting pork and garlic as well as in production. Then we look at Europe and we look at the flat, vis a vis America. And that's a little different between the different countries here. If you look upon the southern part of Europe, of course, effective economic situation in this country, Central and North, where we have seen a more stable growth than the market in the relative growth here. Then we'll take the Americas here and here, vis a vis Europe here. You see in net sales, group is up 9% here, mainly driven by U. S. To Americas up 19%. Then of course, the market, as I said, have been up here. And we have grown with the market. In some categories, they're looking market share, in short more than the market in Americas, in U. S. It's a very good development plan. In spite of all these problems we had with the deliveries here last year, we worked hard when it comes to the supply issues here we have. And then I'm very pleased to see how we have been able to capture all these benefits and it's ready to deliver. I want to mention already now, as you remember, the focus for us was in U. S. To be able to deliver. So, I have customers with good quality products, little bit of some costs. So what we need to really see here that come forward that we continue now to work with efficiency and productivity in our factories. Then when it comes to construction, it has a double digit growth, very good and mainly driven to viewers as well with the same situation in construction in Europe vis a vis Fort and Garden in Europe. And you know that innovations in products is key for us. Last year, we launched a lot of new products for the auto market, Q3, Q2. These new products have been very well received by the trade. So we're seeing good potential when it comes to the McCulloch plants, the new Husqvarna, professional chainsaws as well as the robotic mover in the Gardena brand in the retail channel channel here. Of course, we've had higher operating income here as well, improving a lot from sales. And then if you look on the financial highlights here, as I said, group net sales increased 9% with the U. S. As the main driver for this. The EBIT rise to 38%, mainly driven by higher sales, lower production costs as well as currency effects. We have said that we want to continue to look upon the channels we have here. And we have been focused to grow in the dealer channel. We have been able to do that during the Q1 as well. So the mix between the retail channel and the dealer channel has been good during the Q1 for Adrienne. Then if we go into the business areas, I'll start with EuropeAsia Pacific here. When it comes to sales, we were more or less flat this year. We had very good Q1 last year. This is more than 1% adjusted here for the Q1. And as I said, the demand in Europe was a bit different. Southern part of the Latin countries, we know what's going on, Greece, Spain, Italy, Nordic countries. Of course, we have been affected with that. While when you take Germany and the northern part of Germany, we're going to say in the market. So that's a good mix in it for us as well. Then in our Capital Markets, which are very important for us here during the winter. It's Australia and South Africa, it's what we call going under. In Australia, the market down there has been affected by lots of rain, flooding, affecting the material. While in South Africa, the weather is still a lot of good. So the tone on the chart is a little mixed, 1 up and 1 down, so a little flat during the quarter. I'm pleased to see that the EBIT level and development of this high margin we had here almost 18%, we remain to keep that margin in a high level here in spite of what's happening in Europe right here. As I said, the product launches have been very successful here. There is a call range of new products, which has been launched and sold into the trade here during the Q1, has been very well received here. So I think that's a good start when it comes to the new product here to unleash my colleagues around here, which is a new huge investment for us, which we did last year. As well, we have now started launch started to sell the Gazziano robotic mover into the retail channel. We haven't done that before. So far, very good sell in. The we see this product is very positive. So let's see now when the season starts here, how they sell out and continue. But so far, so good. So all new products we launched last year, we got to sell this year, Europe as well, a very good start. And then over to Americas, of course, to stay here today, it's easier to put both Americas, literally, quarter 3 and quarter 4 as well. As I said, Ole, a very strong first quarter in America, America, especially U. S, a lot. Here the weather has been in our favor, very good start for the weather in the spring here. Very good high consumer demand as well here. And then we see sometimes as you have heard MOLA, the company report, the one report, we see economic recovery in U. S. Because we do that as well. It has helped as well here. And once again, this is the hard work we have done to pick up when it comes to supply and the factory productivity and efficiencies, giving us effect that we are able to deliver. No issues at all when it comes to deliveries from these payments. Secondly head down in Georgia, very good work here. Then as we said earlier during quarter 4, we do that on behalf of a little bit the cost. So the key priority for us was to secure that we can deliver to our customers and we have full feedback. And then we have even grown a little bit more in some projects than the market. So that's taking market share in some projects. And then the EBIT has improved as well here. That's of course not in the level that it should be into the growth. There we need to continue to work with efficiency in the supply area and increase the productivity. So more to do that. Then to go over them to our smallest business unit, construction. During the quarter, the development for construction has been very positive as well here, double digit growth and mainly driven by U. S. As well. Production have been it is a little bit of the southern part of Europe here. The stone business is key for us in the last quarter this year. And there we have had slow development, basically, the rest of Europe here. So Sachin, when you see Europe, follow the region, follow the garden as well, when it comes to the Q1 results, when it comes to market. EPS margin continues to recover, by good development in the quarter for such whole course clearly lock the volume. Then have in mind here, the Q1 here vis a vis ratio affects €40,000,000 in one time cost for construction here. And I think Ulrik will come back to that later on here. So all over, when it comes to the Q1, I have to say, once again, I'm very, very pleased with the development that we've been able to fulfill this third point of time to deliver here, which was key for us to really look into this year. So with that, I hand over to Jules. Thank you. And good morning, everyone. Let's then move over to the King Camp statement. And as you have heard from Hans, sales up, currently just some 9%, very good growth in the Q1, very much driven by Americas then. If we need to just move down to the gross operating margin and the gross operating income, you can see as strong sales, we did deliver improved gross operating income as well of close to €290,000,000 versus last year. The gross margin ended up by 26.7 percent versus 26.6 percent last year, same quarter. And we should have in mind, of course, that in the last year's quarter, we did have both the disturbances in Morrisburg, SEK120 1,000,000 as well as we had the restructuring of construction that did affect the cost of goods sold last year. So in all fairness, those should, of course, be adjusted for. And we have a GAAP. We did have some headwind of currencies, but the residual and the gap versus last quarter is very much related to that. We have now a strong regional mix based on that. We have much higher sales in America that a natural region mix involved. But also, as has been mentioned here, we are not satisfied with productivity as yet, those related to the U. S. Entities but also in general. And here, of course, are some of the explanation towards last year. If you go back to 2010, and we can look at this curve here, you can see that we are close to what delivered in 2010. For 2011, there is a gap and again 2 components, region mix as well as the productivity. If we move further then and look into our SG and A, you can see that just because of compensation effects, they were on the same level as last year, roughly €1,700,000,000 And if we look in relation to sales, we had a leverage here. We ended up in 17.3% versus last year, roughly 19%. Also here last year, of course, we had the impact of the disturbances in Orangeburg of £30,000,000 and we did have tailwinds in this quarter of currency effects. If you take those into account, we have €100,000,000 spec higher SG and A versus last quarter last year. Very much related to that we have a higher sales that drives higher transportation as well as warehousing costs. And those are quite variable. And also we have higher spend on branding here. IT, we have talked a lot about last year. Those costs in our fee are at a lower level than what we had last year same time. And that was in accordance with what we discussed in in the benefit of the activity in 2011. So the primary GAAP or explanation to the GAAP in the SG and A, transportation, warehouse is very much related to the higher sales, and then we are spending more on the banking and marketing building costs. Moving then down to the EBIT ended up in the Q1 of $915,000,000 compared to last year $652,000,000 and EBIT margin of 9 point 3, and we had in last year of 7.5. Again, we had total Orangeburg effect in Q1 of 100 and 50, and we had here with some of the cost related to construction of 1,000,000 that should be taken into consideration. Tailwind in total currency is £67,000,000 year over year, very much related to that we have now positive effect of the hedge contract as we move into 2012 signed up in 2011 and also we get in the Q1 a year over year effect positively of 67%. In the report, we have also now been a little bit more explicit than what we have done before to support you in doing your analysis here, and we think that should help you in understanding the current impact of the historical growth. In a minute, I will come back and guide you also how we are doing on the remainder of Page 11 when it comes to FX. Moving down to the finance net. We ended up in 121 negative versus 3 last year. We do have a higher debt, I'll go back to that in a minute. And of course, that affects the higher interest rate per se. And then we have some effect of the market to market valuation of the interest rate component in our FX derivative. So there is a negative effect of those valuations of those proceeds. That explains the gap between last year and this year. Tax ending up to 162,000,000 compared to 105,000,000 percent. We told you previously that we have the average rate of 29%, and we get the benefit of our financing set up with Belgium That gives us on a yearly basis roughly SEK180 1,000,000. If we spread that over the full quarter, we came down to roughly this quarter roughly 21% in tax rate. Moving then further to the balance sheet, I would say the line that still of course attracts some attention is the inventory value. As you can see, it's still on a quite high level, ending up in SEK8.5 billion versus last year, SEK7.4 billion. Should we adjust this for currencies, we have now a GAAP of roughly SEK900 1,000,000 slightly less than what we closed here. And then we had a gap of roughly BRL1.1 billion. And we can see that we have in the Q1, we have less buildup of inventory than what we had in the last year. Still we didn't carry this forward here, but there are of course continued work now to drive the stock values low or down in terms of 2nd and third quarter here. Trade receivables, just a brief comment there. We sense we have a good control. We can see on our days of sales outstanding, they are lower quite significantly lower than last 66 days versus 74. The best expense is in control here. The main focus and you also know the background that we had a bunch of built up of inventory last year. And we are gradually driving that down as we go forward now. And liabilities, net debt ending up of some $9,400,000,000 of course very much related to the buildup of the working capital here. To be prepared, we last year €8,300,000,000 And we have some negative effect of $140,000,000 related to changes in a change rate. But the main reason related to the higher debt is of course related to the working capital impact here. Looking then into the ratio net debt versus equity, we are in the Q1 on 0.8 percent in gearing versus 0.69 percent, 0.7 percent in last year. Here we have also a component that the equity is lower than what we had end of March last year. And that is due to that the dividend paid in April was anticipated already in the March closing and that lowers the equity with some NOK69 million. So that is one component. We did also have some translation differences in cash flow hedges that gave a negative impact of roughly SEK400 1,000,000. Cash flow, And this is a graph that we have showed you here the last quarter and this is to illustrate the buildup of cash during the season as well as during the year for the group. And as you know, Husqvarna is normally then drawing cash the 1st and second quarter. We have used and I have used Page 10 as a bit of a reference point based on issues we 2011. We think Japan is a bit of a better reference point for good reasons, of course. And as you can see, normally then we draw cash in the beginning of the year, which is breakeven mid year, and then we generate cash at the end of the year related to the stock build cost and when we go into season. And then we get of course our payments from the accounts receivable at the end of the year. And as you can see, we have a now a trend Q1 that is on par with what we did in 2010. So that we take a good sign. Although we still say that we are on a too high level when it comes to stock value and that is the primary focus of course. But we sense that we have activities now that also proves in the Q1 that we have drawn less cash than what we did in 2011. Also should we mention here we have less CapEx and of course an improved earnings that is of course the benefit to the operating cash flow. Key figures, I normally do not go through all of them. I mentioned a few and the one that we expect some attention in CapEx that you can see a slower pace, but this is primarily a phasing issue. So we'll come back in a sec here to the guidance for the year, but this is purely a phasing that we are running on a lower CapEx level in the beginning of the year. Average number of employees, as you can see, this is, as you know, defined as full time equivalents and somewhat higher than where we were last year. This is very much driven from a volume perspective. And of course, we do have some more over time, etcetera, in the process here that is explaining. If we look at the year end number of heads, we are on par roughly what we were last year. So we are not more people in the group than what we were last year. Before Hans coming in to the summary, some guidance and traffic for 2012, I will name SEK1.1 billion. So on par with the expectations, no change here, although we do have some chasing in the beginning of the year. Tax guidance also remained 59% and then you should knock off the roughly $108,000,000 to $200,000,000 to hit evenly over 4 quarters to arrive at a decent tax rate. If you look at the FX, if I see you end of last year that we should have a positive impact of some SEK50 1,000,000 to SEK70 1,000,000. Here I would like to say I remain in that plan. We are in the lower quarter. So that means we will have some negative headwinds at the reminder of 20 12 regarding FX exposure. This is, of course, now based on the forecast for FX exposure outstanding as one effect on the exchange rate situation that we had end of March. Can I hand over to Hans to give some summary? Thank you. Summing up this year, we've seen a very good top line for the group here, mainly as I said here driven by U. S. While the European market has been very stable every last year. Top priorities for this year and for the quarter is to secure that we're able to give customer service and deliver our products on time with right quality. I'm very pleased how we have been aided from the fact is mainly to handle this year, not only in U. S, all over. We have had good all over the factories to secure that we are able to deliver. Course, there was a lot of focus on what happened in Oilsbury last year, but we worked with all factories to improve the quality when it comes to the delivery on time. And we have even enabled this to go across with the market as well take market share. A lot of our cash position. Then of course, we are not satisfied when we cancel the earnings of Americas. We need to continue to work hard to improve the efficiency and productivity mainly that in our factories all over the places, yes. And for the group, the but the income has improved as well here. We kept high margins in Europe. And I think I'm pleased that we have been able to do that in spite of more or less a flat top line vis a vis last year. Then of course we have improved operating income even in U. S. And we continue to develop as well in construction. We're good here even if we need to do more as a sale when it comes to the Americas. Cash flow and also the high priority for this group here. And you will see in the graph here, we improved a little bit this year from last year. But key here, what we improved on, of course, is inventory. So really, we look at this. Here, we have a cost financial team working with that was the full stress management here. That is down the hemophores as well work with bone disease as well as pain to see. Finally, capital is the future here. Hope you look for the near future of the Western U. S. Markets, still at the same level, positive. And hydrocarbon Kopaglia last year. And then when it comes to Europe, Asia Pacific, more or less same level as quarter 1. In zone, in the southern part, it's better slightly up in the northern campus. Of course, we need to really look into this year, continue the hard work to improve the EBIT margin. Main focus in the mix is well construction and of course continue to keep this high mix margins we have in Europe. That's the hard work we have to do that. Then of course, we need to continue. We are just into the season here to continue to keep this pace we have now when it comes to delivery and keep the focus here. Then hopefully, we will have the weather with us here. You see here, given the help of the spring will come here as well here. We are, of course, a company working with seasonalities, where it mentions garden products or land dependent on the weather alone. And as I said, so far very good in U. S. And then hopefully, you will see that that will be the same development in Southern, Central and North Europe as well here. So with that, we open up for questions. Hi. My name is Daniel Gerson, Schirmacher. I was just curious about this market share change you talked about in particularly North America. What's the ride on movers? How has your market share developed a bit here? Then when you come to ride on product, we have to divide them in what we call the effect of the U. S. I think that's what you are focused on here. When compared to the rider products, we lost some of the sales last year that, but we are unable to achieve a little bit here, but not in the same way as we have done with other cash this year. So still more to do when we come to come back when we come to the level we need to be on the sectors. When we come to riders, we take the Swedish and Polish produced. We have gained some markets in the segment we are. But the U. S. Still has more to do. And what product are you taking most market share in right now either North America or Europe? On all over with the professional chainsaws, the robot take over, Swedish 40 100 to say today, riders and I think being there, taking a lot of market share. And then finally, just how does the retail inventory levels look right now? In North America, the retail inventory levels are low. When it comes to Europe, it's more or less same as last year, normal level, very low in Q1. Hi, Entrep. I want to come back to the question of operating leverage. Looking at business, so U. S. Sales, FX adjusted up something like €850,000,000 or so. And adjusted for the special costs from last year, I guess, and also, I'm not sure how much of the FX was in the U. S, but it's a very low increase in EBIT, especially if you compare to the €8,000,000 increase in sales. I wonder if you could talk a little bit more about that and if we expect it to be better in the future. No doubt. I mean, we expect it to be better in the future. But we shall also then recall that we said very clearly last year, our primary target for the season of 2012 is focused on delivery performance and with a solid quality. When we now have proved in Q1 and we have even exceeded expectations, see better leverage see better leverage as we go forward here. And that is, well, again, consciously a decision taken already last year. Also, Andre, with 90% growth in Americas, of course, yes. And you said that inventory levels or trade levels are low. Does it mean of course, yes, it's been the actual sales to consumers have been high in the quarter as well? Yes. Correct. That's great. About weather, I mean we know up till March, but what about April weather in the U. S. And Europe? In Europe, the weather continues to be very good for us, still very good. When it comes to Europe, yes, you can look outside here. You are here in Stockholm here. The spring is not coming yet. We want that, of course. And then we look at Central, Bean, they are normal, given the France is a very good market for us here. That put the benefit down there this week here and sell degrees. Of course, that's what we want in France. But if you then go further south, very good spring is coming here. And we know, of course, the weather will come in all places in Europe. As I said, in Australia, that we, of course, have problem with weather and flooding over Good. Also you had mentioned you had above the ticket growth on beer business. Was that U. S. Or Europe or both? As we have said earlier, we wanted to focus a little bit more on the dealer channels here because we've got the whole world here. But then of course, not on behalf of the retailer. We focused that as well here, But we have said that we want to grow more in the dealer channel compared what we have done in the past. Also you mentioned how the financial method was some kind of one per item in terms of what's the size of that? Well, I would say in order to guide you as we go forward here, of course, with the net debt we have now and how we look upon the financing position, the delta you had between last year and 'twenty, roughly half of the delta is related to the revaluation of all those hedges or forward contracts. One question. You mentioned you need more measures to increase activity in the U. S. Are there any special type of measures except focusing on delivery performance or it's basically going back to normal situation when it comes to focus on cost and not only on delivery performance. What we are focused on is the G2 margin, that goes as well for cost as well as price, yes. And we are working more than ever with what we call KPIs to really follow-up what we are doing is follow-up the improvements we are doing here. Of course, we need to do more than normal when it comes to improve our efficiency and increase our digital margins here. We can't do either what we had to do both. Yes. And Kenneth Hall from Carnegie. If we look at the U. S. Operations, how much of your sales there is your own manufacturing costs or your own value added? What I'm trying to get at is how much of cost base in the U. S. Do you have to play with in order to increase efficiency? Well, if you take based on the nature of the production, I mean, a lot is, of course, related to assembly. I mean, that means that we have a lot of costs in terms if you take the engine that is a significant part of the product at the end of the day. But I would like where I can come on to countries, how thick and how good should we be able to get beverage here. I mean we work on both. We have to work on efficiency as well as we have to work on our supplier base. But again, for America, for the Q1, I mean, America has been very much on delivery as well as performing from a quality perspective. And there is more. Okay. Then another question. Last year, you said that in order to protect delivery security and so on, you saw the production much earlier already in the Q4 for the selling season. Now you have proven that you have a good delivery time and so on. What will you do this year? Will you start earlier in Q4 this year ahead of the next selling season as well? Or will you push it out into January in order to have a better cash flow for this year. Now when it comes to the production here, it was not only for the U. S, we need to start in the Q4 to ramp up because in the garden season, we have a very short time. It's more or less mid January to end of maybe in June. So of course, it's impossible to ramp up the factory when it comes to the supply here. So we need to continue to stop the production in the Q4 here. That goes for all back procedure. And of course, we need to learn a little bit more and work harder when we cancel the forecast from what we call outside team. In fact, we work more team side out. We need to look and listen to what's going on in the market and focus more, of course, when it comes to the long shipments we have from U. S. To Europe here. Though we still have room for improvement when it comes to calculate what we call goods in transit, obviously. So but the fair guess would be that the higher inventory levels we saw at the end of this year will not completely go down to the level they were before, but they will be a little bit higher also in coming years. Now we need to get back to normal level here. And where we we have a garden season that's normally over in September. In September, we should have the lowest inventories. And then we should start mid end of October ramping up again here. Of course, you need to come back to normal inventory set. We don't have that. No doubt about that. Okay. Thank you. You. You want all the tape How much of the extra cost that you identified with Orangeburg last year? How much of that was recovered in your mind? Well, based on the extra cost of last year, the character of those was very much of mitigation character, meaning that we had consultants coming in, we had a lot of extra help coming in to secure, especially in the Q1, secure, I mean, yes, power deliveries. What we see now and based on the, let's say, the margin deterioration versus, of course, when we exclude those costs, it's more of the natural lack of productivity. So right now, it is you could say that now we are back to running a plant in a normalized way where we want to utilize immunoptics in driving continuous improvement. And the extra costs that were identical it were a one off character, the reason that we also had a lot of external support into the factory. And that support not there today. Okay. Also, you referred to drop drilling better in the coming quarters. Could you the last question is, what measures have you taken? I mean, what are the identifications that you're doing in Q2 to actually improve leverage? From a productivity perspective, you mean? Yes. Well, in general, we have all measures that the fact that a plant manager that has on his day to work with those churns, we don't have to work more over time than necessary, we don't have to take lead in shifts, etcetera, driving down productivity as we told them. Then as Ron said as well, it's very much related to that we secure our forecasting and do that in a proper way. We get some leeway that we now have proven give us also some leeway to work with continuous improvement as we call. As you listen to the next season in terms of the question and as you plan prices and so forth, have you I mean how is that discussion evolving within this quarter? Are you would you be thinking differently in terms of gaining margin shares, which you've done in this quarter you claim opposed to pricing? Well, in terms of prices, we didn't work with that. I've been not fleeing for that yet due to something. What we work on here, as I said, we also improved the G2 margin. That goes as well for cost as well as price. And we don't have the luxury to do either cost or simply we have to do both here. And that's, of course, a working process, which has always started up. We want to develop a we're looking for what we call a line review. It was a little bit in line with the new product we will have as well here to launch here during the autumn year for selling into 13 here. But of course, you look into the different ways how to work with the pricing going forward within the different regions and countries chemicals. Just a final question. Could you please get an update on the how the stage of stock and you've had accepted them for a couple of quarters now. Is it new product? Is it old product? And why, to be honest, we'll have it for 1 or why should they do now to sell it at a normal prices? If you look at the we said here due to the shift we have an event to ramp up the factories here to be because it delivers here. That was planned even though. Then if you remember, it happened last year, it was 2 year for all producers when it comes to LOMO. The market could result for all here. And of course, we had a little bit more inventories coming into autumn here. And we kept this year due to how we had in the both this will be strong. We haven't done that. Then of course, what we suggest now with these inventories, we produce a little less. Of course, that's working to improve the forecast here. So we need to look upon the forecast plus vis a vis the inventories here. So that will not be we go there will be lots of discounts on products here. Then of course, when it comes to sales, sales in new products, then you normally need to do something here. It's just a new product, which has to be on the market, and then we need to take notes, the old one here. Otherwise, we don't do that this time. So we have to work with the processes to secure that we are able to take down this year. But maybe I think you find this too much. Why wasn't we talking in the first You said the Q1, normally you have a face fill up the, what you call, a fraud and share space in the showrooms here. And then there is a ticking wave when it comes to repeat orders. We sell in when they have sell out, we start to sell in for repeat orders here. That's good normally for 3 processes here. And the last process here in use, but you have a last, what we call, selling here when we get Lomas as any home, that took the results for July, August here. It normally can be very good as well. That was nothing special for us. It was all over for the suppliers here. And to be honest to you here, and we have looked into No one really knows why this happened here. We continue to sell the robotic homes, but something happened there. There. But we don't see much yet it should be the same case this year. And I think we shall also take note of him that I mean actions are taken in terms of that until the inventory is less than what we saw last year. So I mean we take actions now as Hans said to adopt and adjust the production here. So we gradually drive it down. Of course, we want to sell out to the trade, but we are also looking from a perspective and securing the key parts of that process. Rasmus Engberg with Handelsbanken. Just to ask you if you could clarify, given the weather we've had in the Nordic and Central Europe in April, are you at this point in line with last year or is that how we should understand? Yes, correct. We are in line with last year, a little bit above in U. S. In Europe you are in line. Yes, and in US a little bit continued the same as we had in Q1. And then I have a second question about Europe. You have some organic growth in Europe. You have $72,000,000 of FX on EBIT. You have a positive geographic mix in Nordics and Germany outperforming and you see you're making market share in high end products. Why is the margin flat? Is that because you're only producing now or It's back to that as we said. It's not only U. S. We are also now, I mean, productivity percentage leverage per se of the sales growth, we are not satisfied as yet. That's where the focus is. For Europe to less and majority related to U. S. But as you correctly say, when we have some FX and the mix drive, we still see that there is potential for additional leverage that we have not achieved in the Q1. Some is related to that. Again, it's not one course. I mean, when we say productivity and efficiency, I mean, we look all across the P and L. Do you think that is working down on inventory will have a material impact on cost absorption this year or is it small? I don't think that we have a major effect on absorption. Okay. Operator, we can open up for The first question comes from the line of Peter Piper from JPMorgan. Please go ahead. Yes, good morning. It's Andreas here from JPMorgan. Two questions, please. When you talked about the big improvements that you still need to make and are planning to make, how much of that can you do within a garden season? And how much of that really for next year, if you could give us some indication how that breaks down? And the second question, what have you seen in terms of price increases for engines, particularly in the U. S? So a coal supplier of yours was pretty vocal about getting prices up this year. Has that hurt your profitability in the U. S? When it profitability in the U. S? When it comes to the quality improvements here, of course, even if we are in the season, it's very important to work within the practice of improvements when it comes to efficiency as well as productivity here. 2 different things here. So we are working with that. That's something you need to work all over time, whatever you are in the season or in the low season here. And when it comes to the low season, value, of course, can do a lot of changes if you want to change layout and so forth here, of course, what we're doing in the season here. But coming back to, of course, we need to really look upon if we have the right level now when it comes to overtime as well as the which is 10 cheaper we have, take them in and out here. That's the only flexibility we have in the season. So that's of course something we work on all the time. It's something that fact we can work more or less daily on. And then was the price increase on engines here. Of course, we have been able to offset the price increase on engines here. You normally always have the price increases on the supplies, and then we need to really work hard for the purchasing organization. So Lutekon to keep is under control here, and we're able to really look upon what can be done to offset the price increases here. But we are feeling good when it comes to keep that under control here, not only for the engines but for all other components as well here. And of course, we have been a bit with oil prices going up, we have a capacity here. Thank you. Next Two questions, if I may. Just one clarification. It's Arne Indupena from Goldman Sachs. First of all, I just wanted to get your and for us, you've mentioned it, your expectations of growth in the U. S. In the Q2. You said that you expect sort of growth to continue into the Q2. Are you expecting similar type of year over year development as in the first quarter? I assume not. I mean, if you know how much you think was sort of pulled into Q1 because of the weather? Secondly, just on your cash flow development. You appeared sort of content with or relatively pleased with tracking the 2010 development. I was just curious to see sort of the €1,000,000,000 or so that we lost in 2011, if you expect to give back one back or if it's loss? And then finally, just a clarification. Are you now fully happy with the operational efficiency of Orangeburg and apart from, as you mentioned, general productivity improvement as I assume as you're working on the flow of product as well as the big issue is that now and you're not sort of having any additional cost in relation to that? Then when we come to your first question here, how we look upon the quarter 2 here, Will that be in part with what happened in quarter 1 here? I don't know. What I said here, we only can look here weeks ahead here. So what we see in the start of quarter 2 here, we have seen the same development as quarter 1 in U. S. Then what happened here in May June, we need to come back to. So I can't really predict what's happened there. And then if I take the last question as well here when it comes to operational efficiency in the orange wood prices, if you meant last year. And of course, the efficiency in the factory here, as I said earlier, we have seen and be very satisfied what we have done there. But of course, to secure those priorities, to secure deliveries. We have been able here to do that. The food works a lot with overtime. So I think that's a little bit what we need to really look upon here is to increase the productivity. We normally talk about productivity 6% productivity. I think all the industry calls you 6% productivity here. But what we look for is net offset inflation of 3 sales. We want to have a productivity of, let's say, 2%, not 6, that's more important to us. You can see that we can offset the inflation on the cost here. So we're talking about the net 2% productivity, that they can even be more than 6% cost. Normally, I think you've heard it from the industry, which you're using here. But we focus on net because that's what goes into the bottom line. Okay. And finally, cash flow, I mean, using the graphs more to secure that you understand the pattern of our cash flow generation. And as we had a lot of extraordinary items in 2011, we felt and I felt it was more representative of 2010. And also showing that I mean we have a less less of build up in the Q1 than what we had in 2011. And that means the pattern more similar to 2010. Saying that, no more reference to that should be made versus 2010. Of course, we have an ambition to improve and give them evidence to 2010. But I mean, for now, we are quite satisfied what's going on in the Q1. That's very helpful. And can I just ask for clarification, maybe I'm not getting it here, but when you say that you've seen the same development or similar development in Q2 versus Q1? What do you actually mean by that? You mean that you're also seeing roughly up 20% from last year? Or are you seeing that the sales level in April is running similar to it in March? Or what does it mean? Let's see, you mean when it comes to the sales, yes, top line? Yes, top line in the U. S, yes, for Americas. When it comes to the top line in Americas, as I've seen here, the start is more or less at the same level as quarter 1 here. Absolute levels per week. Is that what you mean by that? Yes, yes. But I can't predict what's happening. I don't underline that all the time here. But so far, in line. Okay. Thank you very much. Our next question comes from the line of David Hodges from UBS. Please go ahead. Yes. David here from UBS. Now much of my questions have been answered on the U. S. Productivity. You mentioned the cans and the assembly cost, etcetera, and you also mentioned plastic slices up on the cost of the sold. If I aggregate carbon plates, stainless steel, aluminum and copper, I'm still sort of down 10 ish percent year on year on materials, just sort of not particularly as you mentioned on the oil price, but I mean what sort of levels are you hedging at for the rest of the year? And what sort of tailwind did you have on raw mats in the Q1 When it comes to raw mats, not just for the quarter 1, we haven't had any really tailwinds yet, rather than more headwinds here due to the plastic. And that goes back to the transportation cost as well here due to then the leases went up as well here. So of course, when you cancel quarter 1, no real tailwinds in chemical prices or raw material here. You even heard the copper is up as well here. We've been able to offset a lot of these riskants, a lot of efficiency within the organization here. Yes. And the substantial cost, of course, started bouncing up in January across the board, as you say. And the question is, for the rest of the year, when do you start dropping in sort of volume for next year? Is it sort of at what price levels? Is that during the Q3, the end of Q3 or? When it comes to looking for purchasing here, we have some where we have price and agreement quarterly here and some for full year. That's something we saw around the whole year here. So I can't really say that this is what will have effect for COPCO or whatever in oil price the rest of the year here. So I will not go into that detail here. So that's a little bit the market price as well here when it comes to this year. Can you say which of the materials you have an annual sort of renegotiation on and which you have more of a 12 month, 4th year renegotiation? When it comes to steel and plastic, it's mainly quarterly here. When it comes to then other components like the electronic components and that's just part of engines that we have annual. But when it comes to more when it comes to steel and this is more or less quarterly. Our next question comes from the line the U. S. Dealer side, are you still adding dealers? What about the ones that you signed up last year or the are you able to sell more to them or less because of the pickup last year? Any person that would be grateful? During the Q1, the dealer sales have been very good here, and we're able to have received orders from the dealers we gained last year. And that's what's important that you can continue to have these repeat orders with the dealers on board here. So all over, very good development when it comes to increase the number of dealers as well as increase in their sales in this channel in U. S. Do you have any numbers on how many dealers you have signed up now? No, we're not going to that. Okay. And the ones that you did sign up, are they, you say, repeat orders? Are you able to sell more or less because the hiccup? Just due to the market here, we are selling more. Wonderful. Many thanks. Yes. Thank you. And coming back to the issue with the European leverage again, should we continue fine tuning or do you have expectations of seeing some major leader in operating leverage or are there some specific items that you have been tempted to address immediately? That's the first question. No, I think you shall see, I mean, again, it is a continuous work. And I mean, there won't be any leads per se, although I mean, we gradually should improve as early as Q3 and Q4. And yes, thank you for that. And on the dealer side, also a follow-up. You mentioned last year, it was you had some initial costs associated with that launch and your intention to penetrate that market more significantly. Is the are the margins coming up on the dealer side now when you are having repeat Yes. When it comes to the margins through the dealers, we are in line with what we had before in some areas or regions slightly after. But then, of course, what we have done to support the dealer business here, as mentioned earlier, when it comes to SG and A, we have had some special market activities here when it comes to launch and have more brand awareness of some products here. As you're seeing here that the S and A in the market was up a little bit busily last year. But mainly to support the new products as well here and the new launch of the core lock. Yes. Thank you. And I guess those launches will continue as long as you are continuing expanding that offering in the U. S. Because I guess for some time you will have the kickback from routine orders from those that you benefit initially. And at some point, you should have a positive net debt development for this segment. Is that next year or is that some years ahead or? When it comes to marketing activities, we are doing this brand building. You can see that there's a kind of investment here. And then you will never pay back later on here. When this will will happen in the next quarter or next year. That's something I will not go into and speculate when it comes to that year. But of course, the investments we have done last year, you normally do a lot of marketing activities here, you've seen that have helped us for quarter 1 here as well here because we have a time effect when it comes to all these investments here. And you see dealers, is that still some 20% of regional sales? Once again? The dealer sales in U. S. Is still some 20% of the safety in the region? I will not comment how much the dealers are. Don't know how the share of the regional sales is coming from dealers in the U. S. Where I'm not sure? That's 30%. Roughly 30%. And then last question. You have been holding back on major processing measures and also on a May activity. Considering on the productivity issues that you've had. Are you now again looking forward and more comfortable about initiating those kind of actions? We will always continue to be cost conscious here in this company here. We always have to look upon how we use the cost going forward. That doesn't mean that we see now that we have a good top line development. We will change how we work here. We're pleased here. G2 is important. That means all costs as well as price here. So we'll not starting to spend money which does not give us next year, of course, for marketing activities as well as investments for IT activities here. And Andre, do you have any reason to look for that now, which you said last year were a little bit under whole internal issues? No, there's no reason for us to change what we are planning in marketing activities. Discuss acquisitions at all here. Of course, as I've said here, if something pops up, of course, we will not neglect it, but I will not go into that. Champion always look upon what's available out there, and that's what we are doing as well here. Thank you so much. Thanks. Okay. Then so with this, we wrap up. And we thank you and welcome you all back on the 19th July when we report 2nd quarter results. Thank you. Thank you. Thank you very much.