Good morning. Hope you're doing great. Let me start by directing a thanks to all of you to come here. We are fully aware of that some of you have been up very early and taken the burden of coming to this event. We will try to really make something useful for you throughout this day. It's a fantastic video, isn't it? If you look at the heritage we got, few companies can really put up something close to that. It fills you with a bit sense of pride. Fills me with a sense of pride being representative for this company. As to this day, what can you expect us to do and to talk about? Obviously, we will talk a lot about the Accelerated Improvement Program.
Not only I will do it, not only Ulf Liljedahl that you have heard talking about it before, Some other of our colleagues. Some three more colleagues will talk about the Accelerated Improvement Programs. We have chosen areas which are critical for the result improvements. They will really talk about areas that do matter when we look at the profitability improvement. I would expect most of you to be aware that our Accelerated Improvement Program is the program with which we aim at getting a 10% operating margin by 2016. We will give some color to it, some nuances. We will give you a feel for where we are at, The amount of resources that are also involved in this program. We are not talking about some few people involved in this program, but a lot of people being involved in this program.
I hope we are able to give you a feel for how that looks like. That's pretty much what you can expect from the AIP scenery. We will also spend quite some time talking about innovation, product, services. You will have a fair chance to experience our products about midday. We cross our fingers that the sun will be with us and shine a bit, at least. It looks temporarily, at least, a bit better, Let's hope it stays. Afternoon will be very much about the strategy, which were the strategic questions that we tried to answer, and that led up to the conclusion of the new organization that we announced June 12th. What do we really see now in terms of the new organization?
We have the four divisions that we will use moving forward, fully effective from January 1st, which means what we are doing here in the afternoon is really giving you a chance to glimpse into the door. We open up the door a bit. You will get a feel for the point of departure. You will get a feel for the priorities that these people have, some of the activities you can expect them to push, Some formulation going forward. We will not give you any targets, financial targets for the new divisions. I'm just saying it up front We can take that off the discussion. We are not in a position to do that. Why aren't we capable to do that?
We have said the new divisions are going to be fully effective January 1st, which means we don't have sufficient financial stability yet to even formulate that to any accuracy. We just need to work through the whole thing. We will comment in the presentation during the course of the day what will happen with quarter four, the restatement of 2014, and then onwards, how we will look into it. Really, the target setting is a question for the first half of 2015 rather than anything else. What we will do is to give you a feel for where are we about profitability-wise during 2013 in the various divisions. You will get a reasonable impression of the starting point from a profitability point of view, and you will realize that they are quite different.
Not very surprising, they are really very different, those starting points. I think that is what you can expect from the day. Of course, we have set out talking about 2020 in the strategic work, really what this is about, it's a direction, a strategic direction where we're heading. Of course, there is something beyond AIP. I'll come back to comment on those aspects as we walk through the program. My role right now is principally just to give you a little bit of an introduction of who we are and the AIP before letting my colleagues up on stage and talk about AIP, which I think is going to be very interesting for you to listen to.
The idea we have is that the questions we will take after my presentation, after the AIP presentations, including Ulf Liljedahl's, which will cover the financial. We will take some 20 minutes for questions. We'll try to work it through in that sequence, and that should be maximum one hour. We can take a session for the Q&A. All right? Perfect. Let's go. The starting point is profitability and focus first. We have really put up a kind of framework here about growth on the X-axis and profitability on the Y-axis, today is going to be about the journey, how we see ourselves moving up to capture the full potential of the value growth that this company possess. Also recognizing we aren't up in that quadrant at the starting point. That's what this day is going to be about.
Not very surprising, we are talking about the profitability and the focus because obviously if you want to achieve an ambition we have now, principally doubling the operating margin in three years, you need to focus a lot. There are sacrifices to be done in order to achieve that. We have agreed on where we are prepared to take them. This is what the journey about. This is about Accelerated Improvement Program, improving the profitability, recognizing that the starting point is not satisfactory by any means. Next step, having the full faith and belief that we will deliver on the Accelerated Improvement Program. What is beyond Accelerated Improvement Program? What are we going to do when that's achieved? How do we secure that we hit the ground running after the 2015 season when we go into 2016?
We have said that the activities in the Accelerated Improvement Program should be finalized by end of 2015. We have the full year effects coming into 2016, and we need them to get it to 10%. Activity-wise, we want to, of course, move forward. The starting points are different as you will realize later when we look at the details. It's going to be all about expansion and profitable growth. That is why we took the beating now during the course of the winter to go through the strategy work, to really create the foundation of what constitutes the right basis for an expansion for this company beyond AIP. That's the 2020, which I commented upon the strategic direction. There's nothing magic about 2020 as such, it's just a timeframe that we are setting.
I think you got, principally, when I was setting the scene for the expectations, you got the idea of the program. We will spend the morning now looking at our point of departure, the Accelerated Improvement Program. We will listen at some innovations. We will then go out and have a lunch outdoor and have some product experiences. The afternoon will be dedicated to the next phase, which is then the expansion and the profitable growth and the divisions. Three, you could say, reasonably distinct blocks constitute the program on today. We think it's a lot of material. Let me, just to get the starting point for the group right here, say something about Husqvarna beyond what you saw now in the video. We think we have a unique platform, in fact, in many respects. Welcome. Please take a seat.
We have a unique platform, in many respects. Some of them are listed here. Unfortunately, you can't sit at the front row. It doesn't work. We have typically number 1, 2, or 3 positions in the market from a market share perspective, really strong market positions. You could also recognize that we have innovation in many of the product areas and a leadership, we believe, in many of these categories and areas. We have a huge portfolio of brands. Some of them global leading brands, some of them more of regional character, still playing an important role on the regional arena. We have a huge strength through the two main channels, the dealer channel and the retail channel. Probably more than 25,000 dealers built up over many years of partnership.
When I say many years, I'm talking about rather 40, 50 than five to 10, just to give an idea. It's a huge period of time here under which these positions, relationships have been built. Not all of them, of course, that long-lasting, still a fair share of the relations are over a very long period of time, which leads you, of course, to the conclusion that these people are very loyal. They don't turn around, they don't turn their back to you by minor reasons. They need good reason to turn around. So do we normally. In the other channel, we have relationships with the major retailers on a fairly global basis. Also that channel represents a strength for Husqvarna, which is worth commenting upon.
All in all, you know the figures fairly well, about SEK 30 billion in turnover, we are about 14,000 people as a full-time equivalent basis. The seasonal variation, of course, make that number vary a lot as you realize. Those are some of the characteristics. Let me also just go back to the heritage, because this is a bit rare. The rifle factory, 325 years ago, by the way, I think the last rifle was manufactured 300 years later, 1989. Over kitchen products, sewing machines, bicycles, motorcycles, lawnmowers, Norrahammars Bruk, over to chainsaws, and then some really important innovations with the anti-vibration, the white finger syndrome, with all the vibrations that were present before this anti-vibration came into effect. Fantastic innovation, followed up with an automatic chain brake 1973, followed up then 2009 by an AutoTune, which is then optimizing performance and emissions.
Rider areas where the cutting deck is in front of the machine, giving fantastic maneuverability, demolition controlled robots for the construction area, 2009, Anders will talk more about that as we proceed later. A lot of people are getting into robotics now lately. We have been there close to 20 years. Next year, we will celebrate 20 years. That says something. Of course, we have learned a lot during that period of time, which the others need to go through in respect of the learning curve. Lately, huge developments into the battery product areas, but also other inventions like the all-wheel drive.
All in all, this just gives you a little feel for what's happening, but there's a lot of things going on, and really the entrepreneurial spirit and innovation capability is at the core of what Husqvarna possess and brings as one of the strengths going forward. How is the industry looking like then? We think that it's fundamentally an attractive industry. First of all, if you're looking for a proxy of the growth, the best one we can find is somewhere in the range of 2%-3% for the forest and garden piece. You have heard me talking about it and probably my predecessor that the season overrides the business cycle developments, and that's true, but over some period of time, this is a fair figure that our research have documented. In this market, there are huge variations in terms of growth.
If you look at various regions, if you look at various segments, you have great growth areas, but you also have the opposite, obviously. You have some sizable profit pools in some areas, whereas in other areas, you will find it being the opposite again. You really need to be clear upon where do you have the growth, where do you have the profit pools, and how do you work with those in the right balance. Competition, largely established competitors. I don't need to dwell on all of them. Typically Western world-based established players. In the mass consumer segments, you will see some Asians entering to larger degree. Then we talked about the dealer channel, which is then representing a major chunk of the market, being fragmented, being built on long-term partnerships, which is a strength, of course, if you have established yourself in that way.
Are we without reservation, content, and happy with what we're doing? I think the answer is no, we aren't, because in some respects we haven't really been able to materialize on the full value capturing here. It's pretty obvious, may that be looking at the EBIT margin, may that be looking at the sales development. Of course there are reasons behind this that we will discuss. I'm not interested to discuss about what happened 2007 or 2008. I think we are in this situation, we are looking forward, and I think that's the aim of this capital market day.
Of course, there are strategic considerations related to this period of time that we will talk about and give you a feel for why have we experienced problems to really get the financial leverage out of the market positions and the innovation? That we will try to elaborate a bit around as we proceed, but rather in the afternoon than before lunch. If you look at the financial targets, we have three of them in this company. Dividends should be more than 40% of the net income. Tick, not a problem that has been done. Net debt, EBITDA ratio should be less than 2.5 at least now. It's a tick. We are on the right side of that. The third financial target is where we fall short.
It's pretty obvious when I came into the picture, and it was obvious before as well by the way, that we need to fix the profitability. The vehicle that we installed was the Accelerated Improvement Program. Let me say that there were improvements ongoing, of course, before I entered the scene. That's nothing magic with my entry. There was a lot of good activities installed, which I inherited. What we did with the Accelerated Improvement Program was we firmed it up. We raised ambition in some areas. We firmed it up. We made a stronger resource allocation to it, and we following it up through a program of the structure. I think that's the message I want to bring. There were good activities ongoing. Built on those, we looked for the format to step up and really raise the ambition.
Again, profitability improvement, yes, but it demands focus. Which are then the focus items of the Accelerated Improvement Program? We are talking about five, and nothing has really changed. There is a minor change that happened, I think beginning of this year when we realized we need to do more with parts and accessories. Beyond that, it is exactly the same program as when we launched it October last year. This graphic though, there are numbers, but don't put too much attention to it because they don't really say anything. They slipped in there, but they don't really tell you anything about the magnitude or something like that. First bullet, focus on the core brands amongst the 14 brands we have. Where do we have the largest potential for growth of profit? It's with the core brands. Let's focus our investments on those brands.
Let's focus on the areas where we have leadership positions. Frida will come in and talk about soon how she has worked with what we call the profit pools and the leadership positions. How can we explore them even further? Which we have been successful this year, and she will give you some examples of that. This is, of course, a hugely important item in the program. Dealer retail business model differentiation. Really coming from the understanding that these are fundamentally different channels with different characteristics. How do we actually make sure that the offering is adapted to those to a larger degree going forward? Let me take number four before I get to number three. Operational Excellence really is hiding some very important aspects. We have the full material cost reduction behind Operational Excellence. We're talking about 10%.
You will hear Martin Austermann and Henric Andersson talk about how we're working with that, which is hugely important. We have the material cost reduction, we have complexity reduction, but we have also process enhancements. We are extremely challenged, being in a very seasonal business. We need to have a sales and operations planning that is very responsive, and the whole supply chain. That is also the characteristic that we are dealing with here. Both the Operational Excellence item here, material cost reductions, as well as profit pools, particularly in the handheld, are parts of the turnaround of U.S., as well as increased growth rate of the dealer channel.
There are also other elements that we have where we have the whole supply chain optimization, ranging from. Alan Shaw is sitting here, and you will have the chance to listen to him later, and ask questions by the way, but the whole supply chain is subbed for enhancements. May that be from the very start of the supplier interaction into the S&OP to the distribution out to the customers. Really you can't read this as, okay, that's the profit pools, that's the material cost reductions. These items are also part of the turnaround in U.S. When we have talked about Americas reaching 5% EBIT margin by 2016 for the group to be able to reach 10%, these are elements of the 5% EBIT margin in Americas. Am I being clear on that point? Okay.
The fifth one, emerging markets we put in there because we recognize we just need to do a lot more than we have done historically in the emerging markets. It won't help us really with the profitability in this timeframe, but it's hugely important for us to make sure that we get things prepared for raising the bar and ambitions going forward. We're talking about product developments, we're talking about distribution capabilities and other aspects. These are the five items in the program. Four contribute to the results in result improvements short term. The two most critical ones are material cost reductions under Operational Excellence and the profit pools. That's why we now choose to give you the chance to listen to some of the people talking about that. Please, Martin Austermann.
Thanks Kai, and good morning, ladies and gentlemen. My name is Martin Austermann. I'm heading up the group sourcing function, and I will do the presentation together with Henric Andersson, who is heading up the technical office. As Kai said, we will talk about point 4, the group operational excellence program, and specifically, we will talk about material cost reduction and complexity reduction in the group because we think that's a major enabler for the company to get the cost down and to improve our processes. Kai mentioned it already, why focusing on materials? Materials in our cost structure stand for 42% of the group's cost. It's very obvious that when we run cost reduction programs, we have to have focus on the material side.
As communicated earlier, the target we have given us is a 10% reduction to be achieved by 2016, versus a base of 2012. That, in a summary, what you see here should be achieved on one hand, cooperation with suppliers, purchasing activities together with suppliers, but on the other hand, also a lot of engineering things that could be change ideas. This slide gives you another, more detailed picture of our composition of the different commodities and our cost structure. Once more, the 42% components. There is another roughly 10% on raw material. You see the other elements of our group cost structure. When it comes to commodities, what do we buy? Number 1 are the engines for our products, like tractors and lawnmowers. That's the biggest commodity we have.
On the other hand, we also have a lot of mechanical or raw material-dependent components, such as steel, plastic, casting, electric components, but also a smaller piece and which is also growing. It's product and accessories. As Kai mentioned, we are investing heavily in the parts and accessory business. That's, to a certain degree, also sourced components, and that is growing as well. Coming to the program, what we have launched. It's easy to say, "Let's go for 10%." The question is, what do you do? How can you do it? How can you achieve it? When we started the program last year, we had a lot of meetings with the teams and really challenged ourselves. What is the way going forward now to achieve this 10%? Because we never did such a big achievement before.
There were mainly 4 elements which we thought are key and should be a bit of a paradigm change as well to be successful. One is that in the past, we worked a bit in silos. Purchasing was doing negotiations with suppliers. R&D was doing some improvements on their side. Operations was doing some improvements on their side. It was never really aligned. What are the priorities? What are the effects? Sometimes we did something in sourcing, and then the quality deteriorated. We really formed teams around products to look at the whole cost structure of the product. That was number 1 and was very key. Number 2 was that we also not just look at cost. As Kai also mentioned before, it's also about performance. It's about lead time. It's about flexibility. It's about quality.
It's all ties together. We just cannot make a cost exercise to the deterioration of quality or whatever. It ties together, and we even have to improve in these areas. Number three was that we need to have a much different integration for the suppliers than we had in the past. In the past, our attitude was we were tough purchasing. We were pushing on the cost and tried to achieve our annual savings. We moved a lot of stuff to Asia, but that came a bit to an end. Now we had to change, like I said, also the paradigm to move or to work with the suppliers into a different direction.
To be more open, but not being soft, of course, but being very ambitious, but really unlock the potential, what we have, certainly, when we really work as a team and work together on the same topics. Number four was also an element what Kai said. We launched a very strong program with easy messages, what people can buy in and what can be also monitored and controlled in a very easy way on a monthly base. The program tracking is another key element to drive it. When it comes to the later two ones, supplier integration and also the project monitoring, we launched a program which we call EXCITE. It's a nice word, I think. I like it. It stands for Excellence Through Common Initiatives and Teamwork with the supplier. That was launched earlier last year.
Again, you here see the scope of this program with the supplier. It talks about supply chain flexibility, it talks about cost, it talks about quality, and it also talks about working capital to that degree. All the elements what we want to improve in the company is supported by this program. How did we do it? Of course, we cannot do it with some 2,300 suppliers, which we have globally for direct material. It was clear from the beginning that we need to have a clear focus, and we have now 150 roundabout suppliers in our program, global suppliers, and they represent roughly 70% of our spend. In the first element, I said we first had to distinguish the supply base. Who is our strategic partner for the future? Also, are the suppliers willing to buy in and support our program?
We established a quite cooperative supply base by doing supply days, et cetera, and sharing this information with the suppliers. Again, the mode changed a bit from just pushing, pushing a bit more to the cooperative base to really unlock the potential, what we definitely have in the supply chain while working together. There you see also the other two elements commit to develop a long-term relationship. That's another key enabler. In the past, our company only worked on a year-over-year commitment for the supplier Adjust the season, and then we switch over to another supplier. Now here, the starting point of the program was we make a three years business commitment to the suppliers. They will have access to new products, to businesses of new products, with preference to other suppliers who are not in the program.
On the other end, the suppliers need to buy in, into our business targets and into what we want to achieve. By doing that, like I said, unlock the potential, what is there when you really tie up your forces, when you really work together on all elements, with the logistic people, with the R&D people, with the financial people, et cetera. On the next page, we have the business targets for the program. Key is flexibility. As we are in the very seasonal business, we cannot have lead times like 3 months or whatever, then the season maybe is even gone or over. This is key and we are asking for suppliers to have a 5 days lead time, and that of course, can be achieved on one hand, and that is also important to say, it's not a one-way program.
It's a give-and-take program. We ask a lot of stuff from the suppliers, but suppliers get lots of support from our company. We support, of course, here with a much more sophisticated sales and operation planning, which was installed last year, so that the suppliers have a much better visibility of the demand, what we have and can do a much better preparation of the season, et cetera. In return, we get 5 days lead time, which will allow us to have a much more flexible build-up of products and serve the markets to the opportunities which are there. Cost reduction, 10%, like I said before. On one end, it comes with a 3-year commitment. Supplier can invest in more productive, production processes, logistic processes, et cetera. Another big piece, of course, comes from what is Henric talking about, value engineering, value chain analysis.
Let's go through the paths of supply chain. Where do we produce what, in what steps, and is it really aligned? What can we improve? We also installed a team, a Kaizen team, to help the suppliers to achieve this with workshops, et cetera. Of course, a big, big enabler, but that will come a bit later is the complexity reduction, where Henric will talk to. Quality is key. Again, there's, of course, first of all, a customer expectation. On the other hand, here we talk about more process stability. When the supply quality is not stable, we have a lot of problems in the production, rework, additional costs, time delays, et cetera. That's why we are really fighting for a very solid quality level, and we are making good progress here. Last element, the DPO.
Basically, when you talk about working capital, it's DPO, DSO, and of course, the stock we are keeping. That's a big element, and we are working here together with two banks in the U.S. and in Europe to support also the suppliers on getting better interest rate in return for a more flexible supply chain and longer payment terms, what we have here. Just a short statement. You may wonder where we are. Now is one and a half year since we started the program. We are absolutely on track when it comes to cost, but also when it comes to the other elements. Communication is key. As I said before, when you want to work in a team, first of all, within our company, but then also take down the hurdles when we communicate with our suppliers. We have established a very structured communication matrix with our suppliers.
It goes with a global supplier day. You see some pictures here. The last one was held in Charlotte in May this year. We also have a quarterly business review with the suppliers. We really talk about targets. What did we achieve? What are still the challenges for the next period, et cetera? We also have quarterly webinars to really line up. I hope that's the first piece of the presentation that you get a bit insight what we are doing completely different to what we have done before. Again, we are very happy to achieve our results, and also our EXCITE Program was awarded by Procurement Leaders in London earlier this year by being the best supply chain initiative globally for 2014.
It's not only that we achieve the results internally, it also respected externally as a very good, outstanding program we are driving here and with the results we are achieving. Build on that, Henric Andersson, our head of TO office, will go more in the other enablers, the complexity reduction and the VA/VE activities. Thank you.
Thank you, Martin. Let's see if we can get Yep, it's working. Good morning, everyone.
Good morning.
Over the next few minutes here, we will go into the wonderful world of value engineering. Looking at this, before I actually come to value engineering, I will take you through a little bit of a. Complexity reduction is, of course, a way to lower cost in itself. On top of that, it's also a great way to get leverage on all your value engineering efforts. Obviously, the engineering effort is the same if you sell one a year or 10 million of something. You really get leverage of all your activities if you address your complexity. Within the scope of the Accelerated Improvement Program, we are really focusing on the range management piece because that is the one that can truly give results within the time frame that we have.
Range management is really to review how can we continue to offer what we need to offer in the market to get the business that we are after, in a way where we need less platforms and less SKUs. Of course, getting rid of platforms has much, much bigger impact on the company than if you get rid of SKUs, simply because a platform truly goes through the entire supply chain, whereas a SKU is typically something late in manufacturing and then market-facing, so to speak. You get the biggest bang when you go after your platforms. Here we set some aggressive targets already when we met a few years ago, where we said, "We're going to take out 20% of our platforms." Here's where the acceleration piece really kicked in as one example, which we said, "No, we need to do more.
We're going to take out 30% of all our platforms and 30% of all our SKUs." Which is of course not something that's very simple to do in such a short period of time, but something where we have proven to be successful, and we are also in this area on plan. We are, of course, starting to look into opportunities within standardization and modularization. They will give very little to no effect within the AIP time frame. They will give us further potential in the future, beyond 2016. If we then go into the value engineering piece in itself, ultimately, what we're trying to do is to reduce cost of the product without compromising quality, performance, or the experience of the consumer. That's really what value engineering is all about, and you can do that in many different ways, of course.
There are three specific ones that we have mentioned here. One is about featuring. Many times, we might actually end up giving features away for free, or we just make the product too expensive. In some cases, we have actually said, "Okay, this feature, we can offer it as an accessory instead. We don't have to roll it into the product." That could be one example of value engineering. Something much, much more technical is, of course, when we're changing technical specifications, when we are changing materials that we're using and things like that. Where we spend most of the time is really in the design for cost. That is basically where we try to just find a different technical solution that delivers the same thing. This requires quite some discipline and quite some effort and some real efforts, basically.
What Martin said before, purchasing activities together with the value engineering activities will deliver 10% cost reduction on components. As Martin also said, yes, we are on plan. Kai alluded to this in the beginning that this does not come without a lot of hard work. What you can see on this slide is basically, the little orange slice there in the pie chart is how much of the engineering resources we historically or normally would have had in cost and complexity reduction. Then to the right, you can see how much resources we have on it in the AIP mode. Basically, on a group average, we have tripled or quadrupled the efforts that we put into this field. It's pretty significant, and this is also on a group average perspective.
As you well know that different products in our portfolio have very different situations. Some are really in emerging segments, really in the growth mode where we do much less of this, of course. There are other segments that are much, much more mature and maybe even under more margin pressure where we do much, much more. This pie chart looks very, very different between different product segments, but this is the company overall. Just to get a feel for the activity level, we're talking about well over 1,000 activities that we're running just in the value engineering side, just to get a flavor for it. Another thing you can see on this one is that maintenance is a pretty big portion of where we spend our R&D efforts. That's really a result coming from our complexity.
We have a lot of brands, we have a lot of product segments, we have a lot of platforms, we have a lot of SKUs. We actually have a lot of suppliers, Martin. All that requires a lot of R&D work. Just to keep the ship afloat, we need a lot of R&D resources to just handle it. That's another benefit with the whole complexity reduction, that if we address that, which we now are in a disciplined, systematic way, that will actually free up a lot of resource that we can put into innovation, technology development, and into new product development. It's also important to recognize in this sense that, yes, we are shifting a lot of resources into this right now, but what does that mean to the group? Does that mean you will be less competitive, less innovative going forward?
That's absolutely not the case. We have a pace of innovation that is higher than anyone in the industry, and we have had it for a long time. Devoting some resources to this for a short period of time will not have an effect on this. When I come back up on stage a little bit later, we will talk about products and innovation, and you will see all the things we're coming to the market with here in 2014 and also a little bit the thoughts for the future, that there's no issue when it comes to the innovation pipeline. A couple of examples just to make this with value engineering and complexity reduction come to life, if you will.
To the left, you can see a mower deck for a tractor, most of you probably have a tractor or at least had a tractor, you know that the mower deck sits very close to the ground, obviously, and outside the vehicle. It's not all that rare that you're actually going to bump into a tree or a stone or a house or a fence or something, and you dent it. What we do on some products is that we install a reinforcement, so you do not damage your deck when you do this. In the past we had a bent tube. We realized when we went into this, how can we solve the same thing for the consumer but at a lower cost? What if we just stamp a piece of metal?
We tool, we stamp, we get the exact same structural integrity, we get it to a lower cost. Again, same result for the consumer, lower cost to us. If you look to the right on this picture, you can see a very important product for us, which was the next generation of professional trimmers, 23cc, 26cc. To the left, you see the number of platforms we had to cover that market segment in the past, to the right, you see how many platforms we need after that product to offer the same thing to the market. That's also a very concrete example of true complexity reduction. Another aspect when it comes to value engineering is basically the time it takes.
Looking at this one, you can kind of see an illustrative example of the cost reductions over time, you can see the composition changes quite a lot. In the early years in this process, a big portion of the savings will come from purchasing, at the end it will become more and more engineering. That's simply because of the time aspect. In purchasing, you basically start an Xcite program, you start to discuss with your suppliers, you sign a contract, you have a new cost. Whereas in the value engineering world, you first of all need to figure out what you want to do, how you're going to do it, you design it, you need to prototype it, you need to test it.
If that worked, you need to order tooling, you need to test it, you need to deplete your old parts, you need to get your new parts in, you can start production. That's simply a time aspect. In the end of the day, it doesn't really matter when it comes to the AIP. It's just that the composition of the result, the composition of the saving will come early on from purchasing later on from the value engineering side. Finishing this one off a little bit, I think Martin started out this way let's finish this way. This has truly been a collaboration. There are very few big purchasing decisions or activities that do not require R&D support.
It might just be testing, but sometimes to help to evaluate or assess a supplier or review drawings or tolerances or whatever. There are very few to say no engineering changes or value engineering activities that do not require purchasing support because we need RFQs, we need new parts, sometimes new suppliers. The whole trick in this is that we have been very disciplined on one hand. We have a solid plan, we have had good teamwork, and we have had a disciplined and structured execution. All in all, we have delivered to plan so far, and we're 100% confident that we will hit the 10% mark by the end of the AIP. Thank you.
Thank you, Henric. Right. I'm Frida Norrbom Sams. I'm going to take you forward in the value chain now. We're going to talk a bit about the front end as a part of the AIP, Accelerated Improvement Programs. Let's see if we can get this one to work. Yes, there we go. I'm going to start out a bit broader and talk about the general sales initiative. I'm going to take you into the profit pools, leading product segments, which I refer to as profit pools going forward today. Then I'm actually going to share some real-life examples with you. Selective profitable growth is really about focus, transparency, accountability. Focus. Well, short term is really on what will provide a contribution to the EBIT within 12 Be very specific to the organization. What do we want you to do? Why do we want you to do it?
Transparency. People need to see. Today, if you go down to the first-line manager, the sales manager, he's measured on an integrated P&L. He knows that he is contributing to the business performance of the group. He or she, I should say. Accountability is about getting the organization, as I said, the why, the what, and the how. The how is really where the organization comes in because we want them to help us with the how. We have a lot of global initiatives. We have global marketing programs, initiatives, how to run dealer development, et cetera. Not one market is equal to the other. As Kai mentioned earlier this morning, we have pockets of growth. Coming back to the focus, we have markets growing faster than other markets. We have different target groups depending on our core brands. We have different product segments, different profit pools.
Today, the end user is not sticking to a channel. They are multi-channel. They are all over the place. We have to be where they are. Based on this, on the regional local level, people's been working out how can we make the why and the what happen. It's really amazing to see the power and the innovation and the creativity in the organization. We have a performance management model with KPIs. As I said, we're measuring people on P&L. We're also having measurements on KPI model, and it's also on price optimization, and it's on how they grow the profit pools, given the targets they can achieve on their specific market. We can call it focus, transparency, accountability, or simply performance culture. We have a lot of products.
Narrowing it down to profit pools, professional handheld, chainsaws, trimmers, brush cutters, blowers, robotics, watering, and accessories and parts. As Kai also mentioned, we added accessories and parts a bit later. It's a great add-on sales possibility. Fantastic. People live and breathe this today. Result-wise, well, a significant part of our net sales growth this year is based on the profit pools. Taking you into some of the examples. If we start on the pro handheld, chainsaws in the U.K., basically what we've done in the U.K. is we've gone out, we've worked a lot more with training, making sure that our dealers got the unique selling points, and this is not just petrol, it's battery as well. What fits which target group? How do you convince the end user? Working with the dealers, being out in the dealer shops, not just demoing, but actually helping them sell.
Having the dealers being out on the road, meet the end user where the end user is. Being more online. Results, double-digit growth. I cannot mention robotics without talking about the French Revolution. The great thing about robotics is that it's not just growing sales, you're actually developing a market. This is early adopter's market still. There is no market for this product unless we create it, and we are the market leader, we drive the market. Even if we've had a lot of good initiatives in various countries, we need to make sure they reach other markets. What we do is we collaborate. We have our dealers meet each other from different areas, talk about what they do good. Best practice sharing. We do the same internally. We actually took dealers, for example, from Sweden, they've spoken to the French dealers.
We utilized part of the global initiatives such as the Automower Competence Center. We have worked with a lot of marketing. Hopefully, some of you have seen the PR initiative on the Laziest Summer Job, eight countries so far since 2011. Very successful. In France, we added a few things, tested it. Satisfaction guaranteed or refund. Member gets member. If you have an Automower and you recruit family or friend to buy one, we give you a voucher in our dealer shop. Parties. We'll bring the barbecue, you bring the guests. Excellent conversion rate. Last but not least, the Automower tour. This year, we've hit more than 100 cities in France with local Automower Competence Centers, dealers being present, selling where the end user is. Results, we've doubled the market. Watering. Watering has been too confined into retail. It's really been too much retail.
Example from Czech, took it into the dealer channel. It's great. One section in, close to the cashier desk, it starts moving. Result, double-digit growth. Accessories and parts. I have to talk about Poland here. They've worked great with bars and chains, but they also worked with other accessories. What they have done is basically two parts. First of all, the dealers are now classified on their ability to sell accessories and spare parts. Second, mystery shopping. The dealers sign up for a program where we do mystery shopping and check how they handle the accessories, how they sell them to the end user, and how they bring them out of the store to get a better turnover and flow. Again, more than double-digit growth. Really strong performance. This is great. This is some examples.
What we do, as I said, is we make sure our dealers share across borders. We make sure that we share this internally across borders. Stealing with pride. This is how you can see that the how from the organization can actually be transformed into new global initiatives that is then being fed down locally and then being fed up again. At the end of the day, it's all about performance. Thank you.
Good morning, everyone. Good morning.
Good morning.
For those who do not know me, I am Ulf Liljedahl. I am the Group CFO. You have heard a lot of good activities from Martin, from Henric, and from Frida. Very valid activities and quite sophisticated activities. How do we now secure that this is not only smooth talking or nice promises, but actually are conveyed into the P&L and actually show result? The best evidence we can show you is actually to look at our gross profit margin development. This is showing the 12-month rolling curve, that you now can see is really pointing in the right direction. I mentioned, for those of you who listened in to the second quarter hearing, I talked about the delta of some three percentage points year-over-year. At the time, I explained it with that actually two out of the three relates to the Accelerated Improvement Program.
In terms of the operational excellence that you have heard Martin and Henric talk about, as well as the profit pools, i.e., we drive the mix towards the profit pools, and we also drive the mix when it comes to channels. Clear evidence, definitely you may see in the first half year of 2014 that this program is delivering. What should be remembered is that, and I come back to soon here, the characteristics with our business. The majority of savings in any calendar year 2014 and onwards, the majority of the savings will be revealed in the first half year, and that goes with our seasonality of our business. Talking about that, let me dwell some about the characteristics of our business.
This chart, starting with the left one, shows that the majority, roughly two-thirds of our sales, and this is even taking a 5 years approach and average. You may see that two-thirds of our sales are actually residing in the first half year of a calendar year. Looking at the EBIT, you may see that actually 100% of the EBIT remains with the first half year. That is something that you need to carry with you. This is the nature of our business and of course, very much related to where we are positioned. We are in the northern hemisphere. We are related to a spring and a summer season, and that, of course, have an impact on how the business, let's say, remains during a calendar year. If we dig one step down and I will try now to take you through three different graphs here.
Starting with the top one, looking at the seasonality by product category. The top one with the curves is actually an average product fully assessed distribution by % per quarter. Starting with the handheld, the orange line here. You can see that that one is fairly evenly distributed over the four quarters. However, behind that, you shall recall that in the first half of the year, it is a lot of trimmer sales. In the second half of the year, it is a lot of chainsaws and blowers. It looks as it is pretty even across the year. Again, we have different mix when it comes to the product categories. Looking at the wheel and the watering, you can see that definitely the characteristics of those two is that they are heavy in the first and the second quarter. That of course goes with the season.
You can even see that in the watering we are normally peaking in the second quarter. We talk a lot about weather in this company, but it has an impact, no doubt, and the season has an impact of this company. Specifically for you who make the analysis, this is important to have in mind that the strength we have in the first half year is important to carry with when you make your projections here. This is at least an attempt to give you a bit of a flavor. This is an average over the last three. Move down to the middle section. I just want to point out at least one piece of it. This is actually showing the variation that we could have versus an average quarter, a maximum and a minimum.
Taking the average quarters and just see what volatility could our business have here. One piece definitely sticks out, and for quite a few of you, it is not a surprise. The watering piece is quite volatile, and not least if we look at a prolonged season. A third quarter for us is very much depending on how the weather turns out when it comes to the watering business, whether we get a prolonged season or not. As you may see, that also creates quite a hefty volatility over time. Finally, the bottom piece here, the main takeaway here is to see also that the first half year, it is very heavily dominated by wheeled. Whilst the second half is heavily dominated by handheld.
Again, the purpose of the last two slides is to give you the flavor, the characteristics of our business, and not least important for those of you who make the projections of our business to have this as a rule of thumb going forward here. Another piece that definitely have an impact is the FX exposure. I normally guide you every quarter how we look upon it for the reminder of the calendar year. The two major currencies that have an impact on this company is the EUR, the SEK versus the EUR, as well as the SEK versus the USD. No doubt, a weakening SEK versus the EUR benefits our company. However, I think it is important to not forget that we have some peripheral currencies as well that has a quite an impact.
It is the Russian RUB, it is the AUD, as well as the CAD. Those characteristics are also important to have in mind that the RUB, as we have a lot of handheld chainsaws that we sell second half, the RUB has a higher impact in the second half of the year, as an example. Same goes with the AUD. They go into season this time of the year. I mean, for that reason, we have a higher exposure of the AUD the second half of the year or a higher impact of it. Whilst then the EUR is, of course, residing more in the first half of the year. Again, a bit of a view. This is taken from the annual account from 2013. This some of you at least have already seen. Again, important to have in mind.
The bars represents the net currency flows before and after hedging. Some about the CapEx. We had some tough years in 2011 and 2012, no doubt, we put constraints on the CapEx for good reasons. We launched, as you know, a big investment here, a new chain manufacturing. We will talk more about that later on today. Close to SEK 1 billion, that will definitely have a heaviness and have had a heaviness in 2013. We are having some SEK 400 million attracted to 2014. There will be some carryover into 2015 as well. As you also can see, in 2014, if you exclude the chain manufacturing CapEx related, we are back, let's say, to a normalized level because the planned depreciations in this company is around SEK 1 billion to SEK 1.1 billion.
Again, we do carry now a quite hefty investment in 2013, definitely in 2014, some carryover in 2015. Where we will take this when it comes to 2015, I will come back to you as I normally do in connection with the fourth quarter. Finally, some words about the balance sheet. As you saw from Kai Wärn's initial presentation, one of our financial targets had been the net debt EBITDA, and we have said less than 2.5. We were quite satisfied to see that we actually broke that level in the half year of 2014. We have, let's say, ticked off that target as of now, which is good. Of course, this is a result of the continuous work we have had when it comes to reducing our working capital. Also the strength of a better or an improved EBITDA, of course.
I would like to point out, and you heard Martin talk some about what we are doing on the supplier side. We are reducing inventory. That is a result that we are becoming more efficient and we have a very good focus in the company right now. This is, of course, a tough nut to crack because coming back to the seasonality of this company, what is key for us is to secure the flexibility. That is really the key to reduce inventory here. No doubt what Henric Andersson has talked about will gradually also improve our inventory levels because reducing the number of SKUs, reducing the complexity in our company will have a positive impact on the inventory levels as we go as well. Accounts receivable, I must say we have always been in good control.
All three, I must say, there is a very good focus, and it has paid off. It has paid off in terms of that we have reduced it and we have been able to amortize our debts and we have a good development when it comes to this ratio. Wrapping up. You shall leave with the impression, and I trust you will, based on what you have heard about the Accelerated Improvement Program. This program is on track. We are delivering, and we will continue delivering. It is a prerequisite, no doubt, to reach the targets. The main impact, as I have shown you, not least in 2014, will be visible in the gross margin and continue to be as we go. Paired with a strong cash generation.
No doubt, this has been vital input for the coming strategic intent that you will hear more about during the afternoon, to now also set and build the platform for future growth of this company. Okay, thank you. That kind of summarizes the first session. We are into the Q&A. I would like to ask my colleagues who have presented to be up here so we can smoothly change between us as the questions come in. Please.
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You are.
Yeah. Can you hear me? Johan Dahlstens. I was wondering, the platform reductions that you described, quite significant changes. If you look, especially in the consumer business, if you try to tie that together with the price points, can you describe how that may change and how that will look? Will you be relevant in more price points in consumer business or much fewer? Or if you could talk a little bit around that to understand your footprint in that business going forward?
Who starts? Take your part.
It's two different questions. The first question is really how we go about the platform reduction as such. Up to this point, we haven't really stepped out of any business. We have really tried to figure out how can we continue to address the markets we're in with less complexity. That has been the main focus on the platform side. The second question is more difficult, and maybe I should defer that one to Alan when he starts to talk about the Consumer Brands Division later on, and some of the thoughts on how to address the market, et cetera.
Maybe I can give a comment there. We haven't stepped out of any price point we're in, and we are looking at making sure that we cover the relevant price point for our industry. What we have noticed, though, in the past is that we've probably been too ambitious in having too many choices for that price point when it's not really required by our customers, nor by the end user. That has actually been fed back in from sales, back into R&D saying we can actually reduce.
Okay. No impact, basically, if you look on just the 2015 season.
No impact.
Thanks. Also, finally, maybe, Ulf, you can answer that. I was wondering, you talked about in the first half, two out of three improvement points in the margin from the AIP.
Second quarter in isolation.
Okay, second quarter in isolation. Maybe it's a reiteration, but what gives you the confidence to see positive impact from the Strategic Sales Initiatives and the profit pools, given possibly the big impact of weather? If you could just isolate those, what's weather related, what is actual progress on your side? Maybe a few tangible examples to understand that better.
Well, I would say you got some tangible examples what Frida was talking about here. Of course, weather has been favorable this year, but at the same token, the underlying improvements related to the profit pools no doubt have paid off this year and have contributed to our gross profit margin.
Combining that one with saying that what you were touching on earlier on, Kai, on pockets of growth. The weather is not bad everywhere, every day. It's also about us being more flexible and saying, "Right, we might have a weather impact here, but we don't have it here, so let's focus there instead." We are much more agile today in catching the growth as well, and I think that is contributing.
Bear in mind, Alan can talk more about it, but U.S., as you know, had a late spring. In essence, the world was not fantastic from a weather perspective all across.
Just a question on complexity, because that seemed to be quite a big theme within your presentation with regards to component supply, so to speak, just general complexity within the organization. You also mentioned on the other side that there is, let's say, competition is starting to increase a little bit more on the mass market side. How does this reduction in complexity fit in with the potential increase in competition on the mass market side? Are you worried at all that your competitive positioning might be reducing at some point?
I guess I could try to answer it from one perspective. We actually believe that less complexity will make us more competitive. More complexity is not the answer to competitiveness, especially not in the mass. It's about being relevant and decide where you're going to be very specific what you're going to be, make sure you're as lean as possible so you can execute well on it.
On the component side? There, obviously, the reduction in complexity on the component side makes it a lot easier for your competitors to also potentially copy or even come up with similar type of things.
Yeah. When you look at what is defining a product, you will have a bunch of parts that are just there, and there will be few parts that really defines it and makes it different from others. I think the key is to make sure that whatever needs to be different is really different and very attractive in the marketplace. What doesn't have to be different, to really make sure it's all common, so we can leverage scale and make sure we have as little complexity as possible.
That works in the Asian markets as well?
Yeah. I don't see a conflict there. It's just that we might be mindful that we might not be able to have the same product in the Western world as in Asia. Again, we're going to strive whatever we can to make sure that what can be common has to be common. I think our legacy is that we haven't been disciplined enough, so we just have too much things that are different that doesn't have to be different.
Hi, Rasmus Engberg with Handelsbanken. I wanted to ask about the parts of the complexity reduction that you think will come sort of beyond 2016 in terms of standardization and modularization. Are those very large projects and are they very significant? I seem to recall Electrolux having charged SEK a couple of billions to get those projects going.
To be honest, I think it's too early to speculate. We just basically say that there are two areas more where we can get more complexity out, but it's too early to say what we think the potential is. We just know that there's something there, and we need to figure it out. The focus right now is to get the range management piece under control, so we get the results in the AIP.
I just like to add and emphasize what Henric says. It takes a long time. If we're going to redesign the system to be even more modular, where we are not differentiating in the aspects, but where we have conditions for commonality, that is something that really is rather time-wise in the range of 2018 to 2020, 2018 onwards, just to set the mindset right here and the expectations. That's why it's not part of this program at this point. It's the right thing to do, and companies like Scania has proven that very successfully.
Hi, Anders Trapp, SEB. I also actually have a question on the complexity reduction. A lot of companies have and have had targets on complexity reduction. I don't have the statistics, but I would guess the majority never reaches what they aim for, and I'm sure you're aware of that as well. I wonder how you have been thinking about this, how to avoid the pitfalls that obviously makes that a lot of companies actually fail in their complexity reduction. What are those pitfalls to start with according to you and how are you going to avoid them?
I guess I'm popular today. I think that we shouldn't overdramatize what we have done so far. The range management is less complex than the standardization journey and for sure the modularization journey. I think up to this point, it has not been that difficult, and there are not that many pitfalls. It's basically just figuring out where do we just have overlap in our offering today, and that is a much more straightforward and clean exercise if you would like. I'm not saying it's easy, but it's nothing compared to a true modularization journey. That's also why I'm mindful not to be too specific about the modularization journey going forward, because we simply need to spend more time to figure it out and build a plan around it.
Since most of our time right now is really on the AIP, it's too early to discuss it really. The only thing we know for sure is we need to be mindful, and we need to learn from others. It's too early to really speak about. What we're doing so far is pretty straightforward.
I guess one of the pitfalls typically is that basically sales don't accept fewer variants. How have you handled that, and yeah.
Actually, first of all, I'm all for complexity reduction, and we have really been driving it. In some areas, we have actually from sales, put pressure back on Henric and his organization and said we can reduce more. If you want focus, you can't have a sales rep going out with a number of brands, number of product segments, and think that he or she will be successful. They actually welcome this, and they welcome the focus. I think we're kind of a symbiosis here for once.
Yeah, we are surprisingly aligned.
That's good. I have a different question also.
Let me just comment. I think one of the pitfalls is if you don't have this sense of this is our common objective, this is what we're going to do, we are prepared to sacrifice things, I think it is very difficult to make those step changes that you refer to. I think that's why many companies fail, because then you get back into a different kind of modus operandi where sales do actually is more opportunistic in their approach, and then the tension rises.
Can I add here? Again, I think don't mistake profit before growth. That is the mantra that we have in the group, and that resides until 2016.
Have you made any changes to the remuneration to sales reps to facilitate this change, profit before growth?
If I answer yes, there's a lot more of that component in the system today. There's a big shift supporting it, you need to as well.
Okay. Very good. About the initiative to cooperate or collaborate more with key suppliers, et cetera. I noticed one of the targets were the quality 500 PPM. Where are you now, basically? Where are you coming from, where are you now towards the 500 PPM?
To be honest, we were somehow above the 500. That's why we wouldn't have taken that target. The 500 were a quite ambitious target, assuming where we were coming from, you also have to look at the structure. A couple of years ago, we promoted Chinese production factories, more Chinese suppliers, we had to face some quality issues with our suppliers, that brought our number up. This year we are below 1,000 year-to-date, we are getting there, we are quite convinced maybe even by next year we can already bridge the gap to the 500. Very good progress.
Martin, maybe we should also say that, when you're benchmarking and look at other industries like automotive, et cetera, this looks very different obviously, we don't have the same tier 1 supplier base in our industry, which is one of the challenges we have to deal with, that the supplier base simply looks very different in our industry.
Okay. One final, sorry. About the volatility you mentioned, for different quarters, for the different product categories, the 28%, for instance, on watering in Q3, I never understood, was that 28% from peak to trough, or was it 28% deviation from the quarter, the average?
From an average.
Okay, great. Thanks.
Bear in mind, watering in a Q3 is quite small. I mean, it's big swings.
Please.
Okay. Johan Eliason. Okay. We don't need to stay here long, and you will have the chance for many more Q&As. I think we are doing fine time-wise. If you are okay, we would like to press on for about half an hour with the product innovations, and then we will depart for the product experience and the lunch. Is that okay? Or hands up if somebody feels like we need a bio break right now, or can we press on? We press on. Thank you very much. With that, we move to Henric, who will talk about product innovations.
Thanks. Okay. I guess I got the fun slot just before the break and lunch, et cetera. Now we come to the really exciting stuff, at least everything that I'm about, which is products. In one of Kai's slides, he started from this perspective that we have an extremely strong starting point as a group. We have leading product positions, we have leading market positions. From a product and innovation perspective, we really play from a position of strength. The question is, how do you get there? What are the means to get there? Excuse me. Of course, innovation is one key aspect of having product leadership. Innovation, to me, is really about being different The customer segment, the brand, the product segment, and sometimes even what channel you sell through.
The reason why the channel matters is that with an assisted sales in retail, it's much easier to convey what the product is all about or what the feature is. Whereas in the retail environment, it's more unassisted sales, where the consumer needs to connect the dots himself and understand what the product is all about and make his purchase. Typically, if we are simplify this very much, we can say in the pro, prosumer dealer world, very much the Husqvarna brand world, it's very much about true product and service innovation, typically step changes. Sometimes really innovative concepts like robotic mowers. Very often it's invisible things. Just the next step in performance on a professional chainsaw, that requires a lot of innovation. You can't really see it. You can only experience it. That's one piece, so to speak.
The other piece is more than in the consumer world, in the retail environment, where it's more about what we call the little I or product excitement. It's about making changes, being different, and innovate around things that the consumer can see and connect the dots himself. He can immediately relate it into a benefit that he will get out of the product. It basically tells us that we need to have a very different approach to innovation depending on who we are innovating for. Going through a few of the innovations that we have launched during this year, I'm starting here in the pro-battery world. We have an amazing range of pro-battery products. Really, really amazing. Some of the professionals, they wanted even more runtime. The innovation here was really to develop a really good backpack battery. You get up to 10-hour runtime.
To do that in an ergonomic way and something that you actually want to carry on your back, that was really a lot of the innovation here. Another innovation, we have actually got some awards here in the last couple of weeks for this, where we now start to introduce it, is the Husqvarna Fleet Services. We basically put a sensor on the product, handheld or wheeled products, we put a tag on the operator. Then we basically connect the two, we collect a lot of data. Then we can actually provide the fleet owner with not just data or information, but also advice. Everything from his fleet utilization. We can also give him pointers that you're using too big of machines in relation to the tasks you have.
You can get pointers on the operator, that operator X, he's actually not using it right. You should give him training to do this and this and this, he will get more productivity out of the equipment. From a health perspective, the fleet owner can see that he's not exposing his employees to too much vibration. Vibration is one thing, is what the vibration in the product is, but the other thing is actually the time you're exposed. There are some requirements on that. This system actually helps you to keep track of that as an employer. Of course, it ties into service. You get pointers. Now it's time to do preventive service, preventive maintenance to make sure that you don't have unexpected downtime. Pretty significant and a new way of going after something within our industry.
Shifting more into the consumer world and us as homeowners, so to speak, this is an innovation that we call a Smart Switch. This is really addressing a consumer need. It's surprising how many people that actually have difficulties in starting a tractor because you forgot that the blades were engaged, or you forgot the parking brake. There are a whole bunch of things you need to do. The other thing that's kind of interesting is most people that at least are younger than myself, they don't know what a choke is. They have never owned a car with a choke, right? We are so much into this industry, so we kind of expect choke. What this one does is really you take out the ignition switch, this one drops in. That's why it's true innovation within the box.
This one replaces where the ignition switch would go. Then when you try to start it, you will actually see here, oh, you have forgot the parking brake, or you have forgot you have the blades in. Then you correct it, now you can start it. The other thing is that you don't see any choke lever here. We have collaborated with the engine manufacturer, we with this system then can get rid of the choke. Another thing, staying with actually the same tractor and about addressing consumer needs, how many here has ever tried to replace the blades on the ride-on mower? Anyone? I guess that's my point. Because nobody hardly does it because it's so difficult. You basically need to lay down on the ground.
You have one wrench underneath, one on top, then you try to take it off. That's difficult enough. Then when you're going to put it back on, you have a blade that tries to fall down, and then you're going to have the wrench underneath while you're lying on the ground, right? This is a solution here that you can do this without tools. With this system, you actually latch it. It's a magnet up here. You just put the blade up. What happens now is that you actually get much more happy consumers, not because he managed to change his blade, but the quality of cut is all of a sudden good again, and the mower collects the way you want it to. Because when you wear your blades out, you lose a lot of performance.
The other cool thing in this is this, that, of course, we have a unique attachment. Only the Husqvarna Group's blades would fit. Which together with that the customer actually replaces the blades, that he replaces with ours is a good business idea. Another innovation, still in the consumer world, is on the hover mowers. This is really a hero product for the Flymo brand. In the U.K., this is very much a role model. You use a hover mower. A hover mower is basically that you have an impeller underneath, so it actually floats or hovers on an air cushion. The problem with the air cushion is if I have a flower bed, like here up on the stage, and I come close and I want to cut over the edge, the air will leak out and it will fall down.
What we did here was that we innovated in a sense. We have different chambers underneath, so I can go out over the edge and still float on another cushion, so to speak. Big innovation, slightly inside the box again. Difficult to talk about innovation and not touch robotics. We pioneered this. We launched it in the market in 1995. We're investing heavily, of course, to stay ahead. When I say that we are already on our third generation, third generation for us is not small. That's basically a clean sheet of paper, whole new design, everything is new. You base it upon all the knowledge you have gained, and you realize that you need to make a leap to take it to the next performance level.
We have 20 years of experience and three major leaps from scratch into the next platform where everybody else is entering this market with a first. Maybe even more important, oops, maybe even more important, and I should say that you actually will get to see a new version, a new model out here around launch that we right now is actually launching to our dealers that will be sold in 2015. Most importantly, we're investing more than ever into technology development to really make sure that we are staying in the lead in this segment. This is a very innovation-rich segment where you really can do some cool stuff that really delivers on consumer needs. We need to make sure we explore all of them. We have showed this one a couple of times before.
We really have a strong record of innovation. Kai took the 300-year perspective before with some really big things. If you just look at the last few years, you can see that we have a continuous pipeline of real innovation. You can also see on this slide, it's a lot of petrol products. It's so easy that we all think about some of the new stuff, battery, robotics, et cetera. We have a lot of innovation into our petrol products. Petrol products are incredibly important to us, and they will be so for a long time, and some of them forever. The key for us is, of course, to continue to invest and innovate in those segments as we build our position, and sometimes, like in robotics, we rather build the market in the new areas. Speaking a bit about innovation and some of the key enablers.
Obviously, the main challenge with innovation is uncertainty. I guess especially in this room, and one of the things we don't like is uncertainty. We don't like them in R&D either, but it comes with the territory because we're trying to predict the future. I think that's something we all have in common. What really happens is that we need to take decisions here today that when they hit the market, sometimes maybe five years later or 10 years later, that the consumer will actually pick them at that point in time. When the competitors have launched all their products, demographics might have changed, the consumer preferences might have changed, new technology is available, new patterns have been popping up, et cetera. This time aspect is, of course, the main challenge for us.
I think this is also one of the things that makes the Husqvarna Group great. That we have proven, not over the last three years, but over 300 years, that we're really good at making those bets because it is a little bit a bet, but you don't do it because of just gut feel. You do it based upon primarily consumer insight and very systematic technology development. Consumer insight is really to truly understand what the consumer needs. Typically, he can't articulate it. He can't tell you. Let's take another example. I know there was a big market survey on laptops once before the laptop existed. Would you like this concept? The answer was no. I only use my computer when I'm sitting at my desk.
It's not to understand what the customer says, it's to understand what the needs are and what the needs are in the future. That is very much around consumer insight. We need to understand everything there is to understand. What are the things you need to do? What is the difference between a good job, a bad job? Apply all the different trends to this and use that knowledge to develop our products. Systematic, here I call it primary development or the technology development, to really then understand that these are the applications we're in, these are the consumers we have, these are the insights we have, these are the trends we have. What technology will come or be available or commercially available at what point? We can use this to deliver things to the consumer.
This is something that we're good at within the Husqvarna Group, and this is something we take a lot of pride in. When you see a lot of cool, good products coming out, it's not a happening. There's a lot of thought and a lot of discipline behind it. We talked about it before, which is differentiated approach depending on customer segments, brands, product segments, et cetera, and also the channels. I won't touch that one again. The other one is design. We often call it industrial design, but it's really more about intuitive design and user interface and things like that. Also to show the customer what makes the product unique, because that is really a vehicle where you can try to convey what the product is all about and what makes it stand apart.
You can enhance that with how you actually make the product look. I won't go through all this, so I won't bore you with all this. This is just a small subset or examples just to give you a flavor of there are a bunch of trends that we need to take into consideration, and these are some more vanilla trends that we need to look at. Nobody's surprised we have an aging population. There's some demographic changes, things happening in channels and product segments. We have the emerging markets, there are a bunch of new technologies, et cetera. It's just to get a little bit of flavor, and I rather spend the time on talking to a couple of them. One is then technology-driven, which is battery products. There are really two trends going on at the same time.
One is to go from corded products to cordless products. That trend is fairly quick. It's all about when price versus performance on batteries are all right, then the consumer drop the cord, so to speak. The other shift is from petrol to battery. In the end of the day, there are a lot of positives around battery-powered products in our industry. They are easy to use, it's low noise, there's less environmental impact, et cetera. It doesn't mean that everything is better with battery versus gas. That's why I'm saying that some of our petrol products, they will probably be around forever, because for certain applications, certain customers, that is the preferred. The whole bunch of customers that will really appreciate these benefits, and then that trend will be there.
The trend from petrol to battery is much slower than the one from corded to cordless, and it's actually slower than what we anticipated as well. No doubt, there is a trend, and we need to make sure that the Husqvarna Group is ready and that we proactively are investing heavily into the technology here, and that we build our market positions inside of this. Of course, we are the absolute clear, undisputed market leader when it comes to robotics. That is the fastest-growing segment inside of this. That's, of course, an important piece for us. Just to mention a last thing around battery products, if you exclude robotics, but the others. Here, to a much greater extent than for other products we sell, the customer is more loyal.
What I mean by that is the customer really invest into a battery system rather than into a chainsaw or a trimmer, because you don't want to end up as a consumer or a professional user with five different charging systems, five different batteries, et cetera. It's really important to have a system approach and a system way of thinking. It's actually the range and the system that is very important when it comes to battery, even more than on the petrol side. Another trend that was on the other slide is emerging markets. This is a big opportunity for us. We are, of course, already present and we sell a lot, but we know we can do more, and we know that these markets are going to grow faster than the average. We need to have more local activities from a technical perspective.
We need to adapt products further, we need to have unique products to a great extent. The immediate focus, of course, for us is around handheld, but as time goes by, we will also expand it into more wheel products. It's clear that the requirements are very different, and we need to make sure that we can deliver on those requirements and innovate also in this area. Shifting gears a little bit, talking about saw chain and our big investment. We're investing, as you know, heavily into both R&D and into manufacturing of saw chain. As it says up here, we're really going after state-of-the-art manufacturing technology, and we do it with a very strong environmental focus. We are planning to start to see things in the market here in the second half of 2015.
The full effect will come in 2016, so to speak. The rationale for this investment was very much around the aftermarket, to make sure that we get our fair share of the aftermarket. At the same time, as a chainsaw manufacturer, we also want to have the opportunity to optimize the entire system. How do we make sure the chainsaw and the chain and the guide bar works in harmony to deliver the ideal performance and the experience for the customer? In parallel with this, we're also upgrading some of the guide bars that we make in our Norwegian factory. Wrapping up, so we have time to go out and actually look and feel and try some of the products. Just a few messages. We have a strong foundation. We have product leadership positions.
We have short-term allocated more resources into AIP cost and complexity, but we have been very disciplined in how to prioritize to make sure that we also keep the innovation pipeline filled. As you can see, there was a lot in 2014. There are many things to come in the next coming years. The fourth box really say that, we really have sense of urgency in some of these new areas to really establish the group position, particularly then in the battery area. To really make sure that we stay in the lead when it comes to robotics. Okay, thank you.
Okay. That was Henric's innovation part. Are there any immediate questions you'd like to raise, being in the room? Yes, please.
Sorry, maybe it was really time for that now, one short question on batteries. Björn Enarson, Danske Bank. Isn't it that there is a risk that you still have a very high exposure to petrol, you're mentioning petrol could be there for quite a long period or even forever for certain applications? I guess you're talking about the professional handheld mainly then, also you're selling a lot of the same equipment to consumers that are willing to spend a lot of money on those kind of equipment. I guess there will be a quite dramatic change there towards the battery pack.
Is there a risk that you are seen as the true leader or one of the leaders when it comes to petrol among consumers and also among dealers, and that it will be really difficult for you to get that same position among battery?
I don't think so. I think in the end of the day, we are a clear factor or an authority when it comes to all the applications. In the end, the customer is buying a chainsaw, who is buying a trimmer or hedge trimmer, and we are clear authority when it comes to the application. We own the application field. The battery piece is really more a power source. If you do the parallel to the wheel products, we do not make any engines, but we are still the leaders within that segment in the industry because it's ultimately about the application. Of course, we need to make sure that we really leverage our application knowledge and the position we have there.
We need to make sure that we offset some of the, what you say, disadvantage we might have versus a few of the players that might step into this when it comes to scale or know-how when it comes to the particular battery. The battery is only a power source, and in the end of the day, it's about making a product.
In this spring season, there have been some big U.S. retailers that have really been highlighting their battery offering for the lawn and garden equipment, and I haven't heard that before. Looking at their web pages, I can't see your equipment there. You have your products there on the petrol side. Is there a risk that you are now lagging a little bit or a little bit behind, or what would you say?
There's no way to dodge that one in that sense that we have been slow to start when it comes to the consumer segment in the U.S., and that's something that we need to fix. Generally speaking, if you look at the total thing and globally, we are absolutely engaged, and we are absolutely in the forefront. The exception is really there, and that's what we need to address.
On the battery system side, I guess there are other competitors that is also involved within the home improvement part where they also can leverage on their battery system. Are you able to have a similar battery system as they do?
No.
Will they be different through the home improvement part?
They will be different in that sense that you have very different requirements outdoors versus indoors.
Yeah.
Obviously, much. It's just plug and play between outdoor and indoor, just because of the environment.
Thanks.
Please.
Thank you. It's Karolina Tingström, Carnegie. I just had a question regarding your earlier presentation, where you said that you'd temporarily reallocate the R&D resources to the cost reductions. Obviously, now you're trying to show that you still have a lot of product innovation, but I'm just wondering if anywhere it might actually suffer from the fact that you're reallocating that to the AIP mode.
The resources goes from something to something. That means that we have stopped doing something that we did in the past. I still think that that is not a big issue, because I think we had such a high rate of innovation versus competition, so we actually had to draw from. What I'm mindful of is that the AIP timeframe can only be so long so I can keep the pipeline together. With the plan we have, as long as we stay on the plan, this doesn't become an issue. This will be totally invisible. If we would run it for another year at the same rate, now we will start to see an impact. It's a timing thing.
Please.
I'm also hungry, but I have a question anyway. Again, basically on the battery exposure and your undisputed leadership in the robotic mowers. I guess the growth rate is fastest in the sort of price point way below where you are, or is it not?
No, there's no such a link. The market is growing fast, and there's nothing saying that the low price points are growing faster than the higher price points.
Yeah, I guess you know the data, I don't. You're saying that you actually have the same growth rate or higher even on your price points than on the sort of low, new entrants type of price points?
Yeah, I'm saying the opposite, but I guess the same thing. That the low price points are not growing faster than the rest.
You don't have a need or feel a need to be able to launch products in the lower price points in the robotic mower segment?
I don't see an immediate need. However, like with all technology, when it comes, you have a certain customer group, the early adopters, et cetera, and then it's typically higher priced. At some point, you reach some kind of tipping point, and also where the technology becomes cheaper because of how big the business has become. Obviously you will see that new price points will arise. I think it's too early to speculate on that right now.
Finally, whatever happened to the solar-powered robotic mowers?
It's a great concept, and obviously I love it. It's just that the consumer had enough challenges to get his mind around that I can have a mower that actually takes care of my yard, go back and recharge itself, and then when you add the other thing is, okay, will the sun really be out? Will it be enough? It became really a niche thing, even though it worked extremely well. The consumers were simply not there.
We are still in good shape, but I'd like to remain in good shape in terms of the time plan, I suggest we make a break here. Obviously, Henric will be part of the product experience session that we are entering into, you have all the chances to continue asking questions. What will happen is there are two buses downstairs. You will take the elevator or the stair down, there are two buses. I'd like to leave you with one more piece of information. On your badge, there is a number. That number indicates the group belonging you will have when you go through the various product stations, when we get over to the field where we will have that experience. Please be aware of that. We expect to be back here by 2:30 P.M. A little bit prior to 2:30 P.M.
We will be out now for two and a half hours. Welcome back, everybody. I hope you experienced some excitement outdoors with the product demonstration. My American colleague here, Alan Shaw, that you will meet later on this afternoon, he suggested we should have some ordering opportunities for you there. I think it was a good idea. We are moving on in the program. We have left the AIP, the Accelerated Improvement Program. We have left the innovation part, we are starting to make the bridge over to what is beyond AIP. This is where we spent the morning. We talked about profitability first. Profitability requiring focus. You heard quite some few examples of how we actually have focused, how we have reallocated resources, and a bit also about how we run that program. What is beyond Accelerated Improvement Program?
Why do we talk about 2020? We talk about 2020 because that is the timeframe we have set out for the strategy process that we have been running through the course of this winter. We kicked off about November-ish, we pretty much wrapped up the major bits and pieces by April, beginning of May, that led us into the reorganization, the announcement of the reorganization June 12th. Just to give you a feel for what we will talk about now, I will give a bit of an introduction, which is then going to be followed by the divisional presentations. There will be a distinction between them in the respect that, of course, the Construction Division has been operating on an autonomous way for quite some few years, the other three are just opening the doors as I alluded to this morning.
There has been a lot of questions which we have thrown up in there, where I would say one of the most fundamental question is how do we really make it a competitive edge, the breadth of what we do? How do we create focus while still achieving scale? These are some of the key questions that we have pondered around, spent energy around, and answered, and you will hear us talk about that during the course of the next time to come. The theme is very clearly, it is expansion and profitable growth that we're talking about. Given that we have the profitability, we talk about the 10% as an average for the group, you will find out, and I guess you have already looked through your material and seen it, the starting points are quite different indeed.
For three of the four divisions, it's going to be a lot more about growth, and for Consumer Brands, continued journey with profitable growth. Profitability, sorry, I should say. Okay. I made a comment this morning about market leadership, and in some respects we are a true market leader. In the sense of that we typically play as number 1 in respect of market share number 2, in some cases number 3, but we are at the top. The aspiration we have set out is market leadership, but it's not sufficient to be number 1 and 2, and the innovation leader if you don't accompany it with profitable growth. We need to get the financials to work in our favor while doing this. In this strategy process, we have taken the stance very much in the customer segmentation.
We have done a very strict, disciplined job to distill the customer segmentation, and as you see here, there are 4 major groups. You have the pros, you have the mass consumer segments, you have the gardeners, the passionate gardeners, and you have the professional construction and the stone users. This is fundamental as you will see in the next few pages to come. Really the aspiration is a true market leadership, full value potential that we want to capture as we discussed this morning, going forward beyond AIP. AIP, you remember the activities we finalized in 2015, but the full year impact is going to be in 2016. What we're doing here is really looking for a way to how do we proactively make sure that we have sufficient speed when we leave 2015 and get into 2016.
The new organization that is going to be fully effective January 1st, is then not really going to contribute necessarily to the result improvements of that year. For sure it will help us go into 2016 with full speed, because 2015 is still full focus on AIP. Whatever we do with organization, the priority for 2015 is AIP. By doing this, we safeguard that we will have a good momentum and speed leaving AIP. That's how you should interpret what I'm talking about here. Is that clear? Now. Okay, AIP, the 10% for the group EBIT margin, and then this profitable growth journey then beyond that in the timeframe 2016 to 2020. What's the direction for that timeframe? How are we setting out to deal with it? Well, we have done quite some analysis. I pointed at these end customer segments.
We will soon look at an example of that. We have looked at, of course, the market fundamentals as such. We have looked at the channel developments that we foresee. We have looked at the technology and the innovation on the external arena, but we have also looked at internal aspects, such as obviously needless to say, the SWOT analysis, the strengths, the weaknesses, the opportunities, et cetera. We have, of course, as I've mentioned, looked into the breadth versus focus question, and we have engaged about 100 of the top leaders in the group while doing this. Also with the purpose of secure that we have a quicker execution once we have agreed upon what we want to do. It's not only an exercise with three or four or 10 people here in the group management.
It's an exercise that has involved in some few occasions up to 100 people in the group. It's well anchored. It's not a product of one person, but much, much bigger audience and group than that. Let's look at them one by one. The first one is the end customer segmentation, and we have very much taken the approach that-- and this is obvious. If you take the approach, what do these segments require? It's obvious that they require quite different things, but not only in respect of the product, but of course also in terms of the services and the aftermarket, and other aspects. They expect completely different things from us. We have profiled to a fairly high degree of detail, the different relevant professional segments, and even more important for us to do it on the consumer side.
It's more than a handful on the consumer side that we have distilled as profiles with different needs and requirements. Of course, our ability to drive customer insight-based developments, Henric talked about it before lunch, and respond to this requirement is, of course, key for our competitiveness in this period of time. As an example, let us now look at one of their customer segments here. The passionate gardener. It's a short little
I feel that my outdoor space is a reflection of my personality. I really enjoy gardening activities, and friends tell me I'm an engaged doer. I want my tools to help me to show my skills, be creative, and get unique results. My tools should not need too much maintenance, and I like to have some of the work automated, so I can focus on the fun parts of gardening. I am a passionate gardener.
That would be an example of a high-level profiling of a customer segment. We thought it was less controversial, and pretty obvious in many senses, we didn't mind sharing it. Of course, parts of this information is proprietary, which is competitive information, which we're not necessarily keen on sharing externally, but trust us, we have done the exercise and went through it. Moving over to the market. How does the market fundamentals look like? We say that the forest and garden market that we see as addressable with our current offering and within a short period of time, that would be equivalent to about SEK 150 billion on a global basis. To that comes the construction market, which we have said here, about SEK 20 billion. Anders will probably say it's SEK 21, because it was about SEK 20 a year ago.
Give and take, we are talking about SEK 170 billion here within our addressable markets with the product ranges we possess today or in short future, imminent future. Additional to that, adjacent, there are quite significant markets, in some various respects. I don't want to go into any larger detail of that, but of course, if you think about areas like commercial lawn and garden, professional watering, et cetera. There are other examples in construction. You will find that there are substantial additional markets to be added should we go for that. Geographically, how does it look like? You will see it's fairly even balanced between the EMEA space and the North American space and whereas the rest of the world, pretty much is 20%, give and take. That's the geographic split. We see that the Western economies still dominate the scenery.
I don't think anybody's overly surprised by hearing that. You heard me talk about the market growth around two to three percentage point growth average. Then again, with the addition we made this morning with pockets of growth, which are a lot higher, and you saw some examples out at the demonstration. Robotics is a great example of that. If you would twist it around and cut the sausage in a different way, you would look at the categories, or you might call them the segments. You will conclude that the wheeled segment is the largest, followed by the handheld. That gives you a feel for the size without getting too specific about the segment sizes as such. It gives you a little bit of a framing of how we view the market. These are 2013 numbers, by the way.
All numbers you will see are 2013, also when we come later into the divisional presentations. I also mentioned we looked into the channels, and our conclusion, to jump straight to it, is that there are fundamental differences between the retail and the dealer channels. We foresee that those two channels, they will continue to coexist with their specific characteristics. Those are, of course, the dealer view of the best-in-class type of products. We talked about the partner-like relationships, high degree of training and support expectation, just like on the service side, and quality requirements. Retail Products being defined by the price points, and Ella can tell you a whole lot more about what they expect. Fundamentally, we see these two channels remaining as the main vehicle for the route to the market. The channels to the market is inevitably an important piece of any strategy.
The thing that will change, not very surprising either, I guess, for you, is that online will impact both these channels. We say the channels will remain, but they will both be impacted by online and commerce aspects. Customers expect multi-channel approach. They don't want to be driven to any particular behavior. They want to interact with us according to their preference, may that be pre-purchase or during a purchase or a post-purchase. It is for us to respond to that. Our approach that we have taken to this strategically is that we want to help our channel partners to become successful. We are looking upon our role at this point in time as being supportive to these people and enable them to be strong, may that be online appearance, may that be also commerce.
We are, of course, active with our own online, as you realize. We are not talking about with any conscious efforts at this point in time, to any commerce entry, but rather support our channel partners doing this. Okay. Technology, you heard Henric's speech. I think that was very good, by the way, and the whole combination here of how to use the customer insight combined with the technology developments we have in primary and a systematic structured work. Also being clear about how we differentiate versus brands and channels, recognizing the value of design. I'll leave it very short, obviously, since you had the chance to hear from the horse's mouth, so to say. If you turn now from the external factors and go internal and look at how are we doing then versus the market, which are our strengths that we can build on.
I think some of these you heard this morning, they're worth being repeated. Market share-wise, we are up there amongst the top three. It varies quite a lot between regions, segments, sub-segments, overall, this is where we end up. We have a very strong position. We talked about the channel position this morning. You heard the number of more than 25,000 dealers. You heard about the amount of years they have worked with us, I was visiting one of them in Southern European space. They have been running with this operation since 1960s. He used to come up to Sweden with his father when they had the annual dealer conference, imagine the loyalty of a person like that. Just smell it. You can imagine what that means. That's an extremely strong bonding that you build with people like that over that period of time.
Yes, we do have the brand strengths. You saw quite some few examples during the product presentations. There are many other brands, as mentioned, being regional important brands, Flymo in U.K., Poulan Pro, that you will hear more about. Weed Eater, that you will hear more about. Klippo is another good example, Jonsered, et cetera. There's a whole array here of important brands that do not play a global strong role, still supports us in various ways. Entrepreneurial spirit, I think you have sensed throughout the day. R&D and supply chain capabilities, yes, we are globally active, and we have these capabilities installed in the major regions in the world, which is not that many of our competitors that can boast about. We have the heritage of the 300+ years.
These are some of the fundamental strengths that we should be able to leverage from going forward. With all these strengths, why haven't we succeeded even better financially? I think this slide is an attempt to describe the forces that pulls in our organization in various directions. Really, the diversity of needs in terms of customer requirements between typically pro consumers, the different requirements from the channels, the requirements from the brands, which all need innovation to some extent. They need to be fed with innovation. Of course, a broad product segment presence. At the same time as we are saying scale, how do we bring scale? I think this puts the finger in an area where it has been difficult for Husqvarna to really get this together.
How do we combine all these various forces and the breadth we do possess with the focus and the scale such that it pays off financially? This is a crucial kind of crossroad that we're looking at here. I'll bring in a short video here to-
Our market is fundamentally attractive, and we have a strong starting position. Our margins, however, vary between regions, product segments, premium and non-premium business. Finding the right business mix, along with a value versus cost focus, will therefore be critical for our overall profitability. The relevance of breadth has a lot to do with consumer trust. There are front-end synergies for consumers, as well as our retail and dealer partners in having a strong brand and service offering across product segments. However, for professional end customers, the value is limited. Back end, we believe there are further synergies to capture across the group. The Accelerated Improvement Program is set to deliver a large part, but there is an additional potential if internal processes and commonality can be raised to a best practice level. Operational excellence is an integral part of the 2020 strategy.
From high-end professionals to low-end consumers, the Husqvarna Group has always addressed a broad range of customers. We believe, however, that we have not paid enough attention to the differences that are essential for success. Our breadth is a fundamental strength, but to leverage on it and compete successfully, we need much more focus.
That's a bit the conclusion. How do we then establish the focus given this broad play that we represent as a company, while not losing the scale? That's really the trick here. Our response to that has been to say we need a higher degree of business model differentiation. The starting point is back to the customer-centric perspective. To really take the stance into the various customer segments and their requirements and their needs and how we can serve those. We have concluded that the brand represents the best base for describing the different business model because they respond to different requirements. We have different offerings through them and also related services. This is how we believe we can make this combination successful going forward.
You will also see, if you look at it, that you will find a competitive environment that is quite different in these various segments and business models. You will also find, which is inevitably a part of any strategy, the channel to the market being different between these different business models. Whereas we think Gardena through the passionate gardener and customer segment is very much a multichannel play, and you will hear Sascha Menges talk more about that later. We, of course, see the Consumer Brands with the mass consumer segments being a lot more retail-centric. Retail-centric doesn't mean it's only retail. It means exactly what it says. It's centric. It's centered around the retail space, but it's not exclusively retail space. On the opposite side, of course, the Husqvarna Division being dealer-centric, but not exclusive dealer.
At this vision here that we're talking about, we foresee a high degree of multichannel. Now, I talked about us supporting our channel partners, but the consumers are driving this whole market, of course, and the direction is more and more multichannel. This is really the fundament of the strategic thinking as to the question of how do we combine the breadth with the focus? What about the scale? What happened with the scale? The scale then we see that there is still a need for the group to capture scale and to coordinate strategy, brand portfolio, technology, and product. The question is then, of course, how do we maximize the impact of our brand portfolio in the market? Rather than being concerned with overlap, how do we really maximize the impact in the market of all these brands in our portfolio?
How do we make sure that they are aligned versus these customer segments to an optimal way? The more we optimize it, the less the friction will become. The more it's uncoordinated, the more products we will have, the more friction we will have. We are not in a perfect starting point, but we are not in a bad shape either. We can improve for sure. By using these insights about the profiles of the customer segments and remembering mass consumer segments, we're not talking about one segment. We're talking about several segments, and really targeting these in the right way, we think this is the way to do it. The brand architecture and how we really define our offerings along these lines is key in our conclusion.
There will always be unique things in offerings, but there will also be things that could be common in the offering, which is not constituting any differentiating part of a product. That's also an example of where we could capture scale. The strategic priorities going forward are relating to these six ones. Number one, continued operational excellence. Operational excellence is not only a theme for AIP until end of 2015. It will be with us for the whole period until 2020. There is so much to do. You heard about the material cost reductions, you heard about complexity reductions, but there are yet more steps to take. You heard about Henric talking about modularity standardization, and with that comes, of course, commonality questions. A lot more to do. Also process-wise, we have a lot of things to enhance.
We foresee that we will expand the profit pools. You have seen us talking about four of them this morning in Frida's speech, but there are more to be defined and developed as we move ahead. The differentiated business model being a fundamental way to respond to the breadth versus focus question. Products and services where we have been, I think, quite successful with the product innovation, but not necessarily in the width in services. We have started doing cool things as it was formulated, but we have a lot more to do in this area, in the services area, particularly for professionals. Multi-channel is an inevitable piece here of us going forward, and you will see the emerging markets being particularly relevant for a couple of the divisions, and you will listen to the presentations within shorter.
This is what we think will support the journey when we move into the expansion and the profitable growth phase after 2015. That aligns the business models as such, but how do we really get the energy out of this whole thing? How do we make the people be excited about it? Our conclusion to that is we want to align the organization with the business model, and the strategy, and with the global profit and loss responsibility. By doing that, it is our belief that we will get a lot more focus, we will get a lot more speed, we will get a lot more ownership and energy being released. Simply empowerment.
That's what we expect to be the result of the alignment of the business model with the resources, the global profit and loss responsibility, and by that, getting the accountability in place as well. All those things we expect to be a result out of that alignment. The role model for us is a little bit sitting at the corner here, and he will be up next, Anders Ströby in Construction. Construction is a perfect example of this. They've done it. We don't need to look at others. We can look at others. We might choose to look at companies like Atlas Copco or others, but we don't need to go outside of the group to have the inspiration. We have the inspiration in the group. Anders has exactly this characteristic. He has this alignment between the business model, the strategy, organization, and accountability.
He has exactly all those characteristics in his organization, interestingly. I don't think anybody in the group doubts that they actually have all those positives. They do. It's great to see. I can't wait to see this being an integral part of the rest of the forest and garden side as well. This is another very important element. Are there any drawbacks? Always. Of course, one obvious one is this could create some redundancy short to mid-term. If we want to drive down SG&A cost quick, this is not the way to do it. With complexity reduction, we are creating an environment that will make our lives easier. Either we use that for being able to handle a bigger volume, or we have a potential in a later phase. Short-term, this is not about taking out SG&A cost.
This is about aligning the business model, solving the question with the breadth versus focus, aligning it with the resources, the organization, to empower them to get the maximum out of what we got. Sooner or later, we will be into the other question of efficiency, but it's not for now. Remember, we don't need this thing for the 10% EBIT margin. We don't do this for the 10%. We do it for the next step, proactive. Okay. Is it all with the divisions? No, I should have stayed here and pointed at it. Remember, we still want to do these things. What is it that we want to do then? Typically now, just to give you a flavor, some examples of it. Technology office, of course, we want to discuss about commonality and platform management. How do we do that in a clever way?
Of course, in group operations, we want to look into the lead by sourcing networks. The Excited program is not going to die because we terminate AIP. MartinAus termann will continue to lead that. In the next phase, nothing will change from that perspective. It would be absolutely stupid, sorry to say, plain language, to terminate that by end of 2015. Fantastic vehicle. Let's continue with it. Brand and marketing has an enormously important task, of course, to make sure that the brand architecture sits, and as we refine our insights of these segments, that we also reflect that in the brand architecture as such. This is a continuous work rather than a one-time fix. We have got 80%-90% right, but there is still things to optimize. Pricing.
The actual responsibility for the pricing sits with the division, obviously, since they have the P&L responsibility, but the framework and the strategic bits and pieces, we can still agree upon how we want to do. Business development, group strategy process. These are some of the examples of the synergies we want to maintain. The organization was announced 12th of June, you probably have seen it. These are going to be the external reporting units, the divisions, and the other ones are, let's say, functions to capture group synergies. I don't dwell more to this at this point in time. How does it look like then? The Husqvarna division represents some 45% of the group sales, equivalent to about SEK 14 billion. EBIT margin, double digit.
These are, again, 13 numbers, and they're very rough, because we haven't, as I mentioned, any bottom-up-based accounting for the brand dimension. We're building it right now, and that is one of the reasons why we talk about the divisions being fully effective by January 1st, because we haven't got the ability to really report sharply yet. We are confident enough to talk about it on this level. Double-digit Gardena, 13% of group sales, equivalent to about SEK 4 billion. Another double-digit business. Construction, you know, SEK 3 billion, about 9%, 13%. Anders would rather talk about rolling 12 months or something. Then we have, of course then, the Consumer Brands Division with about SEK 10 billion, equivalent to 32%, but EBIT slightly negative. You see that we have different starting points, obviously. Hence, it is natural to say we will have different journeys moving ahead.
Profitability might be the theme here. Profitable growth might be the theme for the others once we have finalized AIP. What about the timeline? We are in the midst of the preparations, and we will have, as I mentioned, the new organization fully effective from January 1st. We will, with the quarter four announcements, February 6th, restate 2014 according to the new structure. We report in the old structure, but we will restate 2014 according new structure. Quarter one, April, will be then reported in the new structure, and from then onwards, obviously, that's the way it will look. This also answers, I think, some of the questions why we aren't talking about targets for the new divisions. We haven't got the basis to talk about that today.
I hope that we will be able to do it if you're talking about second quarter next year. Let's see. It's a lot more reasonable to expect, at least. With that, I'll leave it over to the divisions to present their journeys, and make the bridge over to how they describe it. Again, it's Construction first before the break, then we take a short break, and then after the break, we will have the three Forest & Garden divisions. Remembering there's going to be quite a bit of difference between them, because one is up running since quite some few years and has gone through the journey, and the others are just forming their divisions at this very point in time. Anders, please.
Thank you.
Are there any immediate questions, or can we take Anders' presentation before the Q&A? Is that okay? Okay, take it together with Anders.
Thank you, Kai, for the nice words for construction. That's true. We have, since recession, which was really severe for us, gone through some radical restructuring, complexity reduction, et cetera. I will mention about that. We are since then now in a clear, profitable growth momentum. We are there in that aspect ahead. I have to say, the market have still not recovered from the recession, and I will also talk more about that. That's clearly positive as we see the market are recovering, and we take advantage of that. Not all of you were here last time, I like to explain what is our construction business. Some of it was seen today in the outdoor session, if we talk construction, we talk a very wide range of products. It's a wide business.
We are there, of course, in a more defined, we are within what we call small general products. To define our business, we are in sawing, drilling, and grinding machines, where we focus on machines that all consume diamond tools. That's a very strong strategy of ours, machines that consume diamond tools, because we are world leader in both machinery and also in the manufacturing and sales of the consumables, the diamond tools. That's our strength. Secondly, of course, these diamond tools, we today, since the acquisition of the Hebei Jikai company in China, we today provide all diamond tools that is necessary, as consumable in the construction business.
Not only to products that we sell and manufacture ourself, we also sell diamond tools to the power tool industry, private label to some of the key larger manufacturer, and we sell diamonds too, to competitive companies, to the mining, et cetera, because that's a core technology for us. Apart from that, we have the light remote control demolition systems. Where do these products fit in? Both in the sawing and drilling. Many of those machines, like wire saws and wall saws, are used for demolition. There is a strong relation to the remote control, mainly indoor use demolition robots. Same customers, the contractor, the sawing and drilling contractors, are also using those demolition machines. Strong combination, even though those products are not consuming diamond tools.
All those three product areas or groups are called within us construction, and we are selling and marketing these products in one single brand, Husqvarna. Apart from that, we have then a different market, different customer, different distribution, the stone diamond tool. This is a different business. It's more industrial sales. We are selling the consumables. The machines for those consumers are mainly made by large Italian manufacturer, make large computerized machines, and we sell the consumables to these products. We are mainly into circular blades. We into gang saw blades for cutting the soft stone material, and we into the wire. We are the world leading manufacturers in wire for quarries, and multi-wire for cutting the granite blocks into slabs. All of that business is mainly in the brand Diamant Boart, which is a authority brand within the stone business.
Two brands and two significantly different businesses, but a lot of synergies between the construction diamond tools and the stone diamond tool when it comes to product development and manufacturing. Yes, we have had a journey, and I collaborate a little bit about this, but I'd like to mention we've gone through a significant restructuring journey in the last couple of years, some of it strategically important, some of it on a survival issue through the recession. Most important was the consolidation of our brand. Our business is built on a number of acquisitions, and through the acquisitions, of course, we get brands. We cleaned out many of those brands early on, but we stayed with three brands. It's very clear if you want to build a market leader position in the business, you cannot divide your business in more than one brand.
It was very obvious when we separate out our business from Electrolux, spun it off into a separate company, Husqvarna AB, that Husqvarna would be the brand for our construction business, a professional brand with a strong heritage. That was a very important step to create the market leader position of business. Significant structure since 2009, we had significant business in the Southern Europe. We closed a number of factories, four factories, and we also realigned the organization during this period. Complexity reduction. Actually, Henric was working with us in this time. We cleaned our platforms, non-profit products, and we realigned what product areas where we should strategically become the market leader. Acquisition fully integrated. Our business is built of acquisition.
About 11 acquisition have built our business by providing new product technology, patented product technology, but also strengthen the management in our organization, and build sales company, strong sales foundation in a number of markets. The last integration was when we acquired the remaining 20% in 2012 of our Hebei Chinese diamond tool, which is now 100% owned and in full control and integrated by us. China is a very important manufacturing base for us. We have two very important factories in China, one for equipment, and we don't talk about low cost, we talk about lower cost. All this manufacturing is strictly based on providing quality product for the global market. We have one factory for the equipment, and we have the Hebei factory for the diamond tool to be able to compete with the Asian manufacturers.
Back in 2003, when we made the acquisition of Diamant Boart, one diamond costed SEK 1.20 per carat. Today, a diamond costs SEK 0.25 a carat. That change took place in about five years, during the mid of 2000. That shifted the competitiveness to cost of manufacture. It was essential for us in 2006 to build up a manufacturing platform in China to be able to stay as a market leader in the diamond tool business. That is the background of the Hebei Jikai acquisition. Quality products coming out, and if we take product development of equipment, about 40% of what we develop in Sweden, we produce or manufacture of equipment in factory in China. We develop for manufacturing in China. This, in total, have since the recession clearly strengthened our competitive position.
We have, in our business, a typical number of local and small manufacturers and a handful of global competitors, it is very clear that through this period, we have far improved our competitive advantage as we now go forward. Brand, I mentioned before, brand is key. You can have good products, good service, good sales, how you build value in a business is how to build a brand. That's why going to one single brand was key, specifically as we saw that Hilti became a stronger competitor in our business, and there was no way that we would match and build equal value if we did not consolidate our business to one single brand, Husqvarna, a strong brand. We did that in 2007 with very strong support, changing all products, all marketing material into one single brand, Husqvarna.
We continued to build on that brand by product innovation, the Diagrip pre-aligned diamond to improve our diamond tools. We introduced in 2009 the remote control demolition robots, automatic drilling, et cetera. We use product to drive our brand presence. Because we have to remember, 2006, the brand Husqvarna was totally unknown in our business. In 2011, we made an extensive research, by third party, of where are we now with the brand, with 3,000 end consumers in the 10 of our key markets, we came out as top of mind of all our customers, clearly top of mind compared to the competitor brands. In five years, we built the Husqvarna brand to the top of mind in our industry.
Since that, we continue to build on the brand value with innovative products, also innovative service, which is key for our business. Looking at the market, we can say construction, our business is clearly global, we can see that it's a clear difference between the construction business and the stone market. Clearly differences. We say the market is roughly SEK 20 billion that we address, we can see the construction market, which is about one-third, one-third, one-third when we talk about North America, Europe, and the rest of the world, in spite, of course, a population that is much, much higher in the rest of the world. The reason for this is that we are in a very sophisticated product area in the construction market, that's why North America and Europe is still very important markets for our business.
Of course, it was also due to that the recession had a clear, strong negative impact, and that's also why the recovery of the recession is important for future growth. Stone business have changed dramatically. If I go back 10, 15 years, Europe was more than 50% of the stone processing market. That has changed drastically. Today, the rest of the world, many emerging markets are the main markets. Quality blocks of stone from Europe is today shipped to China, processed into tiles and slabs, and shipped back to the consumers in the Western world market, all due to the cost of manufacturing or processing the stone. So it has changed radically, as well as the playing ground in selling and marketing. Europe is still very important, Italy, et cetera, for the quality, which also is good for the price level.
North America have remained an important market, but is minor in this aspect. If we're looking at our market development as such, Europe construction still contracting. If we look at the total construction activity by June, it was down again 2% versus the year before. Very frustrating for us, of course, but I can say we have a growth in Europe. The positive is a recovery in North America. Market not recovering as fast as McGraw Hill, who make the statistics projected, but still a steady recovery since 2010, and with a projection to recover faster if we see the next two years ahead of us. But good recovery also this year, and a steady growth in the emerging markets. About 5% per year in total if we look at the emerging market. Of course, driven by infrastructure change and quite substantial construction activities in these markets.
We're looking at our business, because we are, in our business, not so dependent or not so focused on the new construction. Our products are mainly used in repair, rebuilding, and renovation. That's very important. We have sophisticated product system that mainly are used in repair, renovation in the market, and that's why North American, Europe markets, the mature markets, are key markets for us. But this is changing. That means that there's a huge potential in the emerging market as we go forward. China, for example. Look at all those buildings, highways, infrastructure. Sooner or later, they need to be repaired. Rebar starts rusting, and the only way to open those roads and repair rebars is to use our product technology. So, that is an opportunity.
Then labor cost. Labor cost driving requirement for productivity improvements, and that also supports our product and our product technology. Competition, I said it earlier, we have just a few large international competitors that we compete with, but none of them have the product offering that we do. Some of them are just in diamond tools, some of them are just in wall saw drilling, some of them is only in power cutters. So we are the only global provider of a full range of products.
In addition to that, there is a clear fragmented market of a number of local, smaller competitors, with having a trend to struggle a lot after the recession, and some of them are not surviving when, for example, requirements come on Tier 4 emission regulation of flat saw, et cetera. That is an opportunity for us with the product development and innovation that we are driving. Looking at our sales, we had last year SEK 3 billion sales spread fairly evenly between North America and EMEA, 40%, where, of course, with the recovery North America have give an overweight to U.S. for the moment, where Europe had an overweight before. Rest of the world is, of course, very important for us for future growth, and within rest of the world, we talk Latin America and Asia, the region Asia.
In Asia, of course, in that region, we have two mature markets, Japan and Australia, which is very important for us. Of course, with the strong focus on growth in China and Southeast Asia, as well as Brazil today, key markets for our growth. Profitability-wise, we had an EBIT margin of 9% last year, but I like to talk about our last 12 month by June, which is 10.5%, and that's the trend that we are walking the profitable growth, organic profitable growth, which is our focus. When we're looking at these regional, we have just about the same margin in all these regions. We don't have any difference. We could have different product mix, but in general, we have the same profitable margin in all these regions, North America, EMEA, and rest of the world. No difference on margins between the regions.
With the focus going forward, we have the foundation that is necessary to provide the profitable growth. We have a product technology leadership, and it's not just about to provide innovation, it's to provide the right product innovation, and here we have the strong Husqvarna heritage. Ergonomics, we tend to talk ergonomics, lightweight, and high power, easy to use, easy to set up, because a lot what we focus is saving time, making the job more productive, creating value for our professional customers. We do not have any consumers in our business. All our customers are professional users, and they earn money when they are using our products. Also, we have a rather distinct difference from the rest of the group. Very few of our users own the products.
They are hired to operate our product, which means it's a little bit different selling process compared to Forest and Garden in that aspect. We maintain a very high level of R&D because when we introduce new product, we don't see a blip of growth like consumer products have a new product. We are into changing the game as we go forward. With the product you saw today, the PRIME products, going to be a real game changer, but it's not going to be a growth next year, it's going to be a growth over a long period of time of changing the habit among our users. Another strong foundation we have is our global sales organizations. It take decades to build the sales organization that we have and build up expertise.
We have strong sales organizations in every market where there is an economy that provides sales of our products. We also have strong relationships with the major channels. The largest rental companies are key customers for us in every market. Loxam, Kiloutou in France, Speedy, HSS, Ashtead Plant in U.K., United Rentals, Sunbelt and Hertz in U.S., et cetera. They are key customers with very close relationship. The contractors, the direct sales, which is a clearly different business, where we communicate and service these customers on a direct basis. Different sales force, different expertise needed to convince them to buy our technology. Also for us to build service centers because we are building our own service centers in most markets to service those contractors on a direct basis, service that we charge for and make money on. Another strong foundation today is our manufacturing footprint.
It is key for us to have, as I mentioned, our lower cost manufacturing in China to have good margin and be competitive in all those product range that we play in. It also key for us to have, for diamond tools, for example, manufacturing capability within the regions where we have strong market share to provide the professional products in a short parallel time. We have the largest diamond tool manufacturing in North America and Columbia, and they can, in 24 hours, provide 95% of the orders they get. They provide in 24 hours. That is our real strength in North America in the diamond tool business, making us the leader. We have the lower cost factory, and we have the manufacturing close to the market to provide the service that is required.
Going forward to provide the growth, the profitable growth, we focus on continue to grow the emerging market as these markets require our higher technology, our type of products in the renovation, repair, and rebuilding that is coming strong also in these markets. Key right now is also to expand our sales force and service in the mature market as these markets recover and take market shares. Capture growth in the stone multiwire, a market that we have developed. Granite stone used to be cut with abrasives until five, six years ago. Today, all granite is cut by multiwire, where we are the market leader in that business. That is very important for our stone business because granite cutting diamond tools consume within one month. Cutting marble, it takes eight months to consume a diamond tool. The granite cutting is a very important growth business for us.
Also for construction, of course, focus on operational excellence. Purchasing, we work very close with Martin's organization to capitalize on the group's strength. Also the HOS, our Husqvarna Operation System, by improving our manufacturing excellence. Also focus on operational excellence when it comes to service and delivery to our customers, because that's key in our business, to provide products at the right time. Because if we can't deliver them tomorrow when a customer is starting a new job, our competitor will, because he need the product tomorrow, not a week from now. That's part of operational excellence to provide that service. As I said before, maintain high R&D investment to build and to use that to grow organic growth or market. Here is just an example of product in innovations. We are unique in that aspect.
No other company in our business can provide product launches and product innovations like we do. PRIME, you saw here on the launch time, is one example. It is just being launched, and it is going to be a clear game changer, replace the hydraulic products in the market, lightweight electric product, high efficiency, very easy to use and operate, plug in and go. On diamond tool, we continue now with the Diagrip2, even refined pre-aligned diamond of the diamond to control the diamond position in the segment to provide better performance. We expanded last year the demolition product range by adding two new products, also new applications to focus on the industrial market, not just the construction, also the industrial market that is interesting for the remote control products.
In 2014, we continued to expand with new products in the PRIME range, very important is our new generation of diesel flat saw. We are the world market leader in flat saw, there were new regulations that came into place, tough emission regulations, Tier 4, particle filter, common rail, diesel engines. We then replaced our product range with these new products here in 2014, and we are the only manufacturer who's been able to introduce these products in the flat to meet these regulations for the moment. There we are leading the Leader in this market as well. Floor grinding, the fastest-growing construction business is the floor grinding, the product that consume more diamond tools than any other product we have.
We just launched a new floor grinding range of small floor grinders, replacing what we had, and adding another planetary floor grinder, which will provide interesting growth, profitable growth for us going forward. This is just an example how we lead the technology and the innovations by introducing new products to the market, and take leadership. With that clear construction focus is profitable growth, coming from a strong global foundation, as I mentioned, using our market leadership in product and brand as we have, and what we do now, we are investing in sales organization, building expertise, and continue invest in product development. That is our organic growth, profitable growth strategy. Thank you.
Thank you. Please stay. Thank you, Anders. Before we break out, let's take some time for Q&A.
It's Christer Magnergård from DNB Markets. First a question on construction. You're market leader, but you still have only 15% of the markets. Do you see acquisition possibilities to further consolidate the market, or is it only organic growth that you are targeting?
If we talk the diamond tool and machinery market, I foresee today it's mainly organic growth that is focused on. There could be something more on a geographical basis, but there's not so many attractive companies available today.
Okay. A question to Kai. The new organization structure, with the three new profit pools or business areas,
Divisions.
Yeah. Will the new divisional setup lead to extra cost here in 2015 or 2016, or will it just be business as usual?
I don't foresee really any one-off costs of any major magnitude in terms of SG&A, one-offs. We have a potential impairment to go through when we see how the details come out, with the new divisions. I can't really speculate, it wouldn't be meaningful to speculate how that will materialize. That would be my comment. Do you want to add something, Ulf, to that?
No. I think we come back to what we have said here. The 10% EBIT margin to be reached 2016 is still very valid. That is what we are focusing on in 2015 and 2016.
If I understood right, you talk about flattish SG&A in the new structure, or did I understand that wrong?
I think the point was short term. This is not about optimizing SG&A. If we would have looked for taking yet another cut, remembering that you have taken a cut in the recent years that represents some SEK 220 million of cost reduction, 2012 and 2013. If we would have liked to do another cut of that magnitude, we shouldn't have done this change. It's not a vehicle to drive short-term SG&A cost reduction. It's not. In that context, it's somewhat flattish. Over time, there is, of course, opportunities. It's not a short to midterm question.
Thanks.
Okay.
I had a question for
Maybe continue in this corner, then we make a next. Sorry. Please.
Yes, I wanted to ask, this is Rasmus Engberg with Handelsbanken. I wanted to ask Anders about the construction business. Are there any meaningful indicators that we could look for in terms of what to expect in growth rates there?
You want to know the %, or?
No, I was just wondering what we should look at. Is it like EUROCONSTRUCT or is it just there?
If we look at North America, it is McGraw Hill, and IHS is providing information handling service in U.K. They provide a very good statistics on the construction markets for the whole of the world. I really recommend to take a look at IHS. They have very good statistics.
The second question is-
May I just jump in right there, because I think there is one piece we could add, Anders, to that, and that is the fact that that shows some kind of average growth. The fact is, this division is gaining market share, which is quite substantial. So I wouldn't just look with two eyes, I would use one eye to look at that statistics and-
That's correct.
Of course. Can you remind us roughly, your gross margins are clearly higher than the rest of the group. That's correct, right?
Yes.
Are they around 50% or so?
That's your guess.
They are higher, yes
I think it's up. Working. This is maybe just a short one, and maybe I missed your communication here. When you presented the new organization this summer, you talked about that Husqvarna, that division, had about 52% of sales, and now it's 45%. You still say that it's roughly calculated. What will we end up with here? When will we know the sizes of the divisions?
That's a good catch, good observation. There is principally one customer that has been moved into the Consumer Brands that was initially, revenue-wise, counted in the Husqvarna division. It's a big retailer, and it's a mass consumer segment that we target. With that logic and based on that logic, we moved it over to the Consumer Brands, and that made the change, in fact.
It's kind of a one-off event.
Yes.
You get a little bit worried maybe. Well, if you're a shareholder, I guess, I'm not.
No.
If you move parts to the Consumer pie because that's not profitable.
Well, I think the point here is very clear. The logic is the end customer segmentation and the channel being a vital part of the strategic business model, so to say. With those two pieces being very clearly in the Consumer Brands, we are talking about very few SKUs, and a very particular part of the range. We thought this was the most appropriate. Let me also say then, and take the opportunity to say, this is how we account it, this is how we run it operationally. Strategically, there's always going to be a handshake with the Husqvarna Division because of the fact that the brand belongs to the Husqvarna Division. This is how we go about it. You will not need to worry about any further changes in that magnitude, because there will not appear.
Okay. Can I take one more to Anders?
Of course.
If my notes are right, they're not always, but a couple of years ago, A lot of things have happened since then, of course, but you seemed quite optimistic that Construction would reach, what you call historical margin levels, which is, I guess, above where you are today.
Yes.
Well, it hasn't happened yet.
I mean-
For those historical levels, I guess 14%, 15% or how's your view on that?
Yeah, that is our ambition, to get to the same level we had in 2007. I have to say that it's really clear we are a fixed cost organization, so we are of course, in that leverage dependent on the size of the sales. We also have a difference since 2007. We invest quite more today in product development in comparison to 2007.
Yes, of course. You said that 2010, and I was just wondering, what's your timeframe here?
I think the timeframe here is within the next two years.
To reach 14% or 15%?
At least close to the level. We were not up to four, but close to the level we were in 2007, yes. That's ambitions.
Okay.
May I just-
Maybe Kai wants to change that.
Not at all. I have no reason to change anything. I think the only thing we can discuss, and which we continuously discuss is, of course, how do we trade off growth opportunities, investment in market development versus optimizing margin. That might influence it. I think that I can only support the margin aspiration.
Super.
I think it's key to grow profitable business instead of just reaching, like Kai said, reaching a percentage. When you reach a certain level, how much can you grow with that percentage? That's key. That's how you create profit. In the end, it's Swedish krona, it's not percentage.
A question here.
Yeah. Hi, this is Johan Eliason at . Question for you, Anders, on Construction. If I remember, on a group level, aftermarket is 10% or so of the turnover. I guess for you in the Construction segment, the diamond tools are more important. Can you give us an indication how much is the aftermarket, the consumer parts of your turnover?
That's again, a sensitive question. It's significant, of course, more. I would say our largest product category within the Construction is diamond tools.
As percentage of turnover?
Yes.
There was somebody here.
Yes, thank you. Björn Danske. Question on Construction, just to understand your niche market a little bit. I am looking at the construction market and seeing your numbers or your numbers on different regions like South America. It really stands out. It could not just be market shares, must be that niche is for some reasons growing quite much more than general market.
If we take Latin America, we have to remember Brazil with the soccer world championship, the Olympics coming up. In spite of the economy there, it is driving construction right now well. We also have the multi-wire I talked about. Brazil is the largest granite manufacturing country in the world and exporting a lot of granite slabs to the United States, where we see a clear change where kitchen had
Had laminated tops in the past, and now everybody would like to have granite, which is really driving that business in Brazil. The stone business is also a driving force for our Latin American business.
Okay. Then a question on your reorganization that you have done, and compare that to the Group. Is the Group or the other Group, is that more complex? Construction is built from a couple of acquisitions and more recent acquisitions, and Group is pretty old. Is there some issues that you are seeing internally with this new organization?
You're right, Björn, that Forest & Garden setup is much more complex, but still, I think it's relevant to talk about Construction as a role model for what we can do in Forest & Garden, given that we simplify our world in terms of the brands, the customer segments we're offering, the channel focus, et cetera. It will help us make our lives easier. In that sense, it's a very relevant comp. Furthermore, all the good things we have seen in Construction with the alignment of the organization, and the responsibilities, the global P&L, et cetera, has materialized, and there is no reason to hesitate that it wouldn't be an excellent role model for that case. Relevant comp.
Thank you.
No more questions. If not, it's a perfect timing. We're in great shape. We were supposed to end quarter to 4:00 P.M., let's take about 15 to 20 minutes break, and then we take the three Forest & Garden divisions. Thank you. Now we're in for the last session, and you will listen to the divisions of Forest & Garden presenting their views as to their point of departure, some of their challenges, and their strategic priorities going ahead. As I pointed out before, this is a bit different, of course, than Anders, who's been exercising his organization for quite some time. These guys are about to establish their organization and their direction. It is a glimpse into how they look at it. We'll start with Husqvarna. Pavel Hajman, please.
Thank you, Kai.
Maybe one word while Pavel walks up here on stage. We will do the three presentations in a row, then we take the Q&A jointly.
Good afternoon, ladies and gentlemen.
Good afternoon.
Pleasure to meet you here today. I'm about to present the Husqvarna Brand Division, adding profitable growth to the group by growing the professional and prosumer business within the Husqvarna brand. I am fairly new to the company. I've been here since June, three months, coming previously from ASSA ABLOY for a stint in China. Previously where I was heading the Chinese lock division, multi-brand, multi-channel business with the R&D, manufacturing, sales throughout various organizations in China. Previous to that, I worked for Seco Tools as Asia Pacific sales and operations director, heading that part. Previous to that, for several years, I've also worked in the CE, heading the sales operation there. Also in between, working with mergers and acquisitions for the Seco Group. I have my background in logistics, working also in international logistics development. Moving ahead into the Husqvarna Division business model.
Within the new strategy with differentiated business models and with the new organization, this will allow Husqvarna Division to focus on the core brand, the Husqvarna, supported by also the regional and tactical brands. It gives us an opportunity to focus fully on the professional and the prosumer, the pro-grade consumer customers in a good way. One example of this is to have completely dedicated front-end sales organization working dedicatedly with these customers. It also gives us an opportunity to work further and develop the dealer-centric, multi-channel business approach that we have into more effective cooperation, more effective product and services. We are facing several competitors being strong in their respective segments. The commonality between them is that they all have very strong brands, and they are dedicated into this industry since many years back.
A large part of the assets of the Husqvarna Group in terms of manufacturing units as well as R&D are actually situated within the Husqvarna Division, we also have a responsibility to maintain the synergies that we have today and also to drive the synergy development for the future. We move into our point of departure into the new structure, into the new organizational setup, is within the framework of a very strong heritage brand with product and technological leadership since many years, which you have also heard on previously here by Henric. We have a global market coverage with our own organization. We are well-established in over 40 countries, and in addition to that, we have distribution covering several more parts of the world as well for us.
We have a unique and extensive dealer partnership, well over 25,000 dealers that are acting as our brand ambassadors, that are daily supporting our customers, giving value add in terms of advice, in terms of product support, in terms of services also. We have a very broad competitive assortment. We have also an innovative history where we have been developing a lot of new products which have changed the business in terms of all-wheel drive that you saw today, in terms of the robotics that you also saw today. Our heritage in the group comes from the chainsaw mainly, the professional handheld products. Throughout the years, the Husqvarna has redesigned the chainsaw into becoming a much more performance product, into much more ergonomics, into much more efficiency, and also reducing the emissions. We are also in the forefront of the petrol-to-battery shift.
The robotics market, which has been created by us over the years, is one example. The other you also saw today, the professional battery handheld products, which are now coming also into the market very much. As I mentioned, our focus is to target the professional and the prosumer customers. We define the professional customers into four segments, but simplified, you could say that this is the forestry industry and this is the commercial lawn and garden operators, larger and smaller. These are the professionals. The prosumer market contains of the pro-grade experts, which are private consumers that aspire towards the professional products and that want performance and quality and therefore also buy Husqvarna products.
We will act as the dealer channel specialist within the group, acting as a business development partner to all our dealers and continue to drive the business development with them in terms of product development, in terms of service development, also in terms of shop profiling, also in terms of the online presence, which is coming very much into our business. We are the innovative leader for the forest and garden within the group. We are the product application specialist, and we also have a responsibility for a feature flow down to the Consumer Brands Division. We leverage the scale of the group for cost competitive or cost-efficient product and value differentiation through our large size. The hero products that drive the brand in past time, today as well, is mainly the handheld assortment, which you can see on the top left two pictures. It's the professional chainsaws.
It's the professional brush cutters. On the wheel side, it is the front rider, and it's also the zero-turn riders that you have seen. Future belongs to the battery, where we are already promoting the new chainsaw, the new electric chainsaw to become a hero product. Already it has existed for some time and got several prizes, and I think the Automower speaks for itself. The Husqvarna brand is for professionals. We are enabling performance in nature. We are enabling professionals to use their skills for doing the work in a cost-efficient and professional way. The core of our positioning is built up around design, around performance, and around application knowledge. Pairing this with a segmentation, we can take this further into defining various attributes on how we go out to the customer in the best possible way to fulfill their needs and their requirements.
Equally important, I should say, as the professionals are important as a customer group of themselves, they are also very important as a, how would you say, being a role model for aspiring pro-grade experts. A lot of people who have the purchase power, who have the skills, who have the interest into forest and garden, will, of course, look on what professionals are using, and they will buy those kind of products. Our addressable market is global. We have estimated the market to be approximately around SEK 70 billion. The split is rather even between EMEA and North America, just below 40%, while the rest of the world is 20% plus. The composition of the markets of the different regions is somewhat slightly different.
If you look into the handheld and wheel split within EMEA, it's rather even, while in the America, you have predominantly the wheeled products making up the bigger part of the potential. Rest of the world, mainly the potential is in the handheld segment in those kinds of products. Market growth is characterized by the 2%, 3% growth overall that was mentioned earlier by Kai, mainly related to the handheld products and to the wheel products. While we see a quicker growth opportunity within the battery products, within the Automower products, which is up to 10% and even up to 15%-20%. As a geographical region, the fastest growth in volume will be in the APAC region, while not that much in value. When we look on the market development, the mega trends that are impacting the market development, urbanization is, of course, one.
We see an inflow into the larger cities. The cities are growing. At the same time, there is a larger demand and need for green space. This provides opportunities for us in relation to the commercial lawn and garden area. We also see the aging population putting up requests and needs for additional functionality, for change functionality of the products, lightweight, light start, easiness to use, which also provides opportunities for us. Overall, there is an increase on premium products for services and for service providing. The characteristics of the market is basically, let's say, centered around our dealers. It is a very fragmented and traditional dealer structure that we have. A lot of small dealers, family-owned dealers, with a long history. We don't really see any consolidation within the market yet.
However, we start to see some polarization where some dealers who are more business-minded, more business-oriented, pick up new trends, pick up not only to sell products, but also to provide service, also to go online in a more, let's say, in a larger way than other dealers. Here we feel a purpose. We have a need to really support all the dealers in terms of business development so that we also can use the whole network that we actually have today.
We see the impact of online channel coming into our business very much, or I should say, to a certain extent, and we are working closely with the dealers to develop an online platform and online content which we can use, but also which we can share with the dealers, and also in the future to move over to the next step to enable e-commerce for the dealers as well. Competition, as I mentioned, relatively stable in terms of the petrol part, whereas we see new entrants coming in from the battery power tool segments, not only in robotics, but also in terms of handheld tools. Of course, our advantage towards this is our multi-year application knowledge, our technological innovation that we have, and also our dealer network that we have today. We have a stable financial situation, I should say a very good financial situation.
Sales of the division is SEK 14 billion 2013. Half of that is coming from the EMEA region, where the biggest markets is Sweden, Germany, France, and Russia. 30% coming from North America, and remaining 20% from the rest of the world, mainly splitted between Brazil, Japan, and Australia. We have profitable growth in all regions with a double-digit EBIT, and the over average EBIT coming from EMEA, while rest of the world on an average and slightly less on the North American part. 20% market share, roughly. Slightly over average in EMEA, while a little bit below the average in both North America and rest of the world. We have five competitive strengths that we can leverage on further going ahead into our growth. The first is the product and technology leadership.
We have launched several new products, several new features, innovation within the market, and we continue to do that through an ongoing investments into R&D. We keep the image, and we want to build further on that image. We have strong market share positions in all the segments, double-digit positions, even though they vary in between the product groups. And the breadth and the width of our assortment is a competitive advantage when being able to offer dealers a complete package of products, a larger opportunity of sales than what we see with others. I mentioned the dealer network previously, very large, very loyal, working with us for many years. Together with them, coming closer with them and closer to the customer, we can have a better insight in what the customers really need, the different customer groups really need, and together develop service concepts.
This could be into spares, into various kinds of services and accessories. We also have trusted brands. Husqvarna is the global brand, the core brand for the division, which we are supporting with regional and tactical brands, Zenoah being the regional brand in Japan and parts of Asia, while Jonsered is a tactical brand enabling us to cover the market and cover a larger dealer network than what we could without that brand, mainly Scandinavia and parts of Europe. Last but not least, we have a 325-year heritage in innovation, in product development, and that gives us as a division large confidence into that we can go ahead, grow the business even further than where we are today. Our strategic priorities, well, of course, in the short term, the one year going ahead, our clear priority is on supporting the AIP.
Large part of the assets within Husqvarna Group is within the Husqvarna Brand division. We have a responsibility on that. As Frida explained earlier today, and also as Henric, the organization have embraced the AIP program with a very strong focus on the profit pool sales growth, as well with a strong focus on complexity reduction, as well as on cost out within the sourcing and also within the manufacturing. Going ahead midterm, we would like to grow our position by the professional and the prosumers, increase our market share there, stronger focus on the commercial lawn and garden operators, working close with the dealers to continue the innovation and developing new services. Fleet Management was one of those that you have seen today, which is a service that we can add. We are going on and developing the online presence, the online content, and further into the e-commerce.
We are present today already in the emerging markets. We see clearly that we can develop our dealer network there overall. We also need to adapt our product assortment more to the regional needs in terms of agriculture, which is one predominant segment in all of the emerging markets. We also need to adapt our entry-level products to the purchase power of the country. Furthermore, we have the opportunity also to strengthen our distribution network, physical distribution network, closer proximity to the customers, shorter delivery lead times. We will pursue the operational excellence and leverage the group scale, working, of course, with manufacturing footprint optimization, but also moving from the complexity reduction in terms of SKU reduction, more into the commonality aspect, developing common platforms, common structures. Summarizing Husqvarna Division, we have all the assets which are necessary for growing the business.
We have a heritage brand with a strong market recognition, strong brand recognition, strong market presence. We will add that presence, urban dealers and emerging markets dealer development as such. We have a leading global market position, an innovation culture, and we are determined to lead the petrol-to-battery shift, whether it comes sooner or later, but we will be there in front of that. By focusing very strongly on the professional and the prosumers, adapting our organization, understanding through customer insight what the customers really need and want, and by fine-tuning our assortment and services, we will be able to add profitable growth to the group. Thank you.
Thank you, Pavel.
When we go ahead. Okay.
Pass it straight to me. Thank you, sir.
Please.
Good afternoon.
Good afternoon.
Thank you. Spend the next 15 minutes or so talking about the Consumer Brands Division, talking about the foundation it has for success, some of the priorities that are going to be required to achieve that success. Before I get started, introduce myself. I've only been with the group just a little over a year, previously running the Americas division. Before I joined the group, I spent the last 25-plus years working or leading brand-driven, retail-centric, mass-oriented durable goods businesses. This is a very familiar space to me. This space for the group, you've seen this chart a little bit before. The differences for the Consumer Brands Division is we have a collection of brands, not one predominant brand. We have strong regional and local brands like Poulan Pro, like McCulloch. Historically very strong brands like Weed Eater and Flymo, and a strong partnership in some OEM brands.
We are focused exclusively on mass. That's what we're about. We compete with people that are focused exclusively on mass and have been doing so for a long time. They're well-capitalized. They're focused. This is what they do. We're also characterized by being retail-centric, not retail exclusive, but retail-centric. With that as a background, where do we start? I have to take a step back here and admit we start in a difficult position. The recent history and focus of the group, particularly on premium products, premium services, has not necessarily led or aligned well with what's required for mass success, particularly around cost and efficient services. The background is further complicated a little bit by the fact that regionally, we've done different things. In North America, over the past decade, we launched Husqvarna at premium retail.
We did it partly to gain brand awareness and help build a dealer channel, and partly to redistribute our portfolio and get a broader coverage with more customers. In Europe, we took a different approach. We took McCulloch. In a good, better, best retail, we tried to position McCulloch in the best position. Put a lot of effort, great products, great launch, a lot of energy behind that. The other thing we did was we sidelined some brands. We sidelined some historically powerful brands like Flymo, that created categories. Like Weed Eater, that North America is synonymous with the product category. Other things like Partner that have more equity than we've recently used. With that as a background, though, we're still in great shape. We're in great shape because we've got a solid foundation. What is that foundation? We've got those brands.
We've got a portfolio of well-recognized brands. There's a lot of equity. There's a lot of consumer recognition. They have high recall, high unaided awareness. Because of the strength of the group, we've got a broad product line. We've got a deep product line. We've got a broader and deeper product line than most of our competition across wheeled and handheld. We've got longstanding retail relationships with almost everyone. We have been an important partner to many of the biggest retail players for quite a while. Most importantly, we've got access to innovation, access to scale, and access to breadth that our competitors don't have. World-class innovation that you've seen today is available to us with the appropriate metering. What's our role? Clearly, we're targeting mass. There's a big middle market, big mass. That's us. We're going to act as a fast follower.
Not as a traditional fast follower that copies competition. We're going to pull innovation technology out of the group, out of the Husqvarna Division, with a regularity, with a rhythm, so that we can create the expectation that our brands will constantly be exciting and relevant. We're going to be the retail experts. Certainly, everybody's going to sell retail. Managing big accounts will be a specific skill of the Division. Scale is an important part of our role. We're going to contribute a lot of scale. Kai mentioned before breadth, focus, and balancing scale. Lastly, we're going to defend the Husqvarna Division, and particularly from some of the street fights that occur at retail. Protect the premium and pro positions, and take on some of that challenging short-term work. Our market looks like this. It's approximately SEK 60 billion, the addressable market that we compete in.
It's dominated by Western economies or developed Western economies, 90% of it in North America and EMEA currently, with North America being twice the size of EMEA. There are Western economies, particularly in the rest of the world, that are attractive as well. It's characterized because this is a mass market, it's characterized with a very high correlation to GDP. Also, particularly in North America, it's highly correlated with housing. Housing starts and lawn and garden purchases. Affected somewhat differently by urbanization. Multifamily housing, smaller gardens in mass tends to impact the product mix or the purchase decision. Also, in North America, it's impacted by the rising popularity and growth of commercial service options and people getting it done other places. Characteristics are familiar to everybody. This is a highly competitive, highly concentrated mass retail environment with very strong and sophisticated retailers driving the business.
We all know who they are. These strong retailers are in a position to demand the impossible. They want unique products, but they want well-known brands. They need the well-known brands for the draw, but they want the unique products and then unique configurations so that they don't have to directly compete. National brand that's all theirs. A tough combination. It too, though, this segment, is being influenced by online, particularly as consumers start to have more power in the shopping experience, in the delivery experience, in the researching experience. It's starting to change the game a little bit. Competitively, the same strong petrol competitors that have been there a long time, well-capitalized and committed to this business. However, on the battery electric side, we've got new competitors coming from different places, starting up from Asia, also well-capitalized, also hungry. The barriers to entry are a little smaller.
Finally, everyone in this space chases private label business in addition to their branded business. Everyone, including us. We will continue to pursue private label and OEM business in the future in an appropriate balance, in an appropriate way that benefits scale and makes sense. If this is the market, what do we look like? You've seen before, we're about SEK 10 billion. From a geographical distribution, three quarters North America, 20% EMEA, 5% rest of the world. We're a little overweight in North America relative to the average, which means we're underweight and have potential or more potential in EMEA and rest of world. We also humbly stand here saying we are in an EBIT position that's slightly negative. We know it. We got a difficult starting spot. Much of it was purposeful and chosen and we know why it happened.
This is the point that we're going to dig ourselves out of. We're going to dig ourselves out by focusing on our strengths. A portfolio of brands that our competitors would love to have. We're going to build that portfolio of brands through product. Through product breadth and product innovation that we already have access to, both wheeled and handheld, battery, electric. We've got a broad product line. We're going to rely on our longstanding relationships. We're a big, important player to the major retailers. Yes, they are incredibly powerful and it's incredibly concentrated. We've got relationships. We've got partnerships. We get our phone calls returned too. Most importantly, the thing that's going to set ourselves apart, and you saw it from Henric, you saw it from Paveł, is the access to the innovation, the technology that our direct competitors don't have.
We are going to step up our efforts to pull that innovation, pull that technology down with an appropriate pace to make the mass business more profitable. To do this, we've got to focus on five things. We know it's a turnaround. First is cost. You heard all morning about AIP. The P in AIP stands for program. It's not a program for us. It's a way of life. We're going to take AIP to another level and beyond in terms of cost reduction, in terms of SKU consolidation, in terms of commonality, in terms of brand rationalization. We've got supply chain efficiencies to go after as we hone our supply chain specifically for the requirements of retail. We have retailers that buy direct container loads. We can ship them directly from the factory.
Retailers, large retailers, have different service requirements, and they are not necessarily the same or more expensive than other channels. We also have go-to-market focus in what is required to service retailers. If you are going after the better position in a good, better, best, the better has a certain level of service requirements that we need to tune ourselves to. Maybe what is required at best is a little too much. We are going to focus and reshape our product line for retail relevant products. What I mean by that is retail is about price points. It's simply reverse engineered from a price point back. What price point's going to be on the shelf, what margin is required by the retailer, what's the margin you expect to gain by yourself, and what's the best combination of features and innovation and value you can put together for that reverse engineered price point?
Services are the same thing. Every one of our customers will take services for free. Few want to pay for any of them. It's finding that balance and the right brands. Once again, those brands do include private label. We've got to re-energize our legacy brands. We talked about Flymo, we've talked about Weed Eater. There's untapped strength there because of the unaided awareness that they already carry. We may have to fill some portfolio gaps in battery and electric handheld that aren't current group strengths in that price segments. We talked about being underweight a little bit in Europe and rest of world. We're going to target mass opportunities globally. We're going to go after them all with a focus on mass. Finally, and probably most importantly, but also most challengingly, is we're going to put in a new attitude.
The attitude is going to be simple, because the mass business has to be simple. It's going to be lean, and that is in product cost, in SG&A, in go-to-market, in service programs, in management structure, in fewer, bigger leaders, the whole bit. Then nimble, because it's a fast-changing environment. Mass retail is not characterized by hundreds of years of stable partnerships. Mass retailers thrive on keeping their supply base transactional, and we've got to be fast. In summary, we've got the strengths to leverage a turnaround. Yes, it is a turnaround, but we've got the strengths. We've got the brands, we've got the products, we've got the breadth. Most importantly, in differentiating ourselves from other people, we've got access to innovation. You've seen it today. We've got access to technology, and we've got access to scale.
By doing so, we're going to refocus this division around mass, embrace mass, and embrace the mass consumer focus that is simple, lean, and nimble. I'll take questions after.
Thank you.
Thank you.
Good afternoon. I'm happy and excited to stand here and present you now as the last of the divisions, but for sure not least of the divisions, the Gardena Division, and what we are up to. I'm Sascha Menges, excited to be leading this division going forward with a great team. Quick introduction to myself. I joined actually 10 years ago, the group. Actually, I joined the Gardena business at the time, and then I joined the Husqvarna Group with the acquisition in 2007. What is Gardena about? It's an extremely strong premium, we call it power brand, in the markets we are in, specifically in Europe. I'll come back to it. Got a strong heritage of product innovation, system, character, design, quality. Part of that you've seen earlier at the product demonstrations.
We have not exploited the full leverage of that brand over the last years, in all areas. That is what the new division is about, creating even more focus, even more energy, even more drive to expand, building on the group's strengths and the group's scale, but with a focus on our market. That picture has been up many times today. Let me finish off here with the Gardena Division. As said before, we are focusing on the passionate gardeners with the brand, with the business model. Characterized, as we've seen earlier, by a high involvement into the category, into the gardening. Characterized by a lot of passion in the product and in the results and in the process. A very attractive segment. Obviously not the only part of the market, but the key part for Gardena.
We are also focusing on a multi-channel business, which of course builds on the strength of retail DIY, which we are extremely strong in today. We also already today, Frida explained that earlier, are moving into the dealer channel in various countries. We are also using other and working through other outlets in the retail, whether it is supermarkets and other pieces where our consumers try to find our products. Lastly, of course, online and helping our trade partners to be successful in online is a key area for us and fits very well to also our target segment. What is our starting position? I mentioned it earlier. Power brand in the gardening space. Great recognition in a lot of countries, and in all markets we are in, really.
Great awareness, great reputation, also great trust in the brand to also cover ranges beyond perhaps what we are doing today in the gardening space, a very credible brand. With a system heritage, and innovation heritage. We have created markets with a lot of our products. The system character to our products is part of the DNA of the brand, whether it is watering systems, tool systems, et cetera. Of course, also the installed base, and I will come back to that later, a huge asset for us. The group structure has allowed us, as a Gardena brand, to really drive in some categories the growth quite successfully. If we take some of the electrics developments, our PowerMax lawnmower has been on the hit list of DIY many years, as number one amongst the top ones.
Robotics, you have seen it earlier, is a great example where we are using the scale for the Gardena brand, targeting specifically a segment with a product, specifically equipped also to the needs of our consumer base. That growth potential was not exploited in a similar fashion in some of our core segments and some of our markets outside the core regions, and that is what we are addressing, as I just mentioned, with the new organization. Driving with focus and scale, focused on our consumers, as I specified them, to a must-have position or further leveraging the must-have position. This is what we want to achieve. Let me talk a little bit about our starting point. Talked about the strength of the brand. We have an extremely broad distribution, specifically in DIY retail.
There is practically no large DIY customer that is not ranging Gardena, as it is a household name in many markets. We are known and strong in leading product ranges, and I will cover some of those ranges in a second, but also services supporting the purchase process of our consumers, whether it is pre-purchase with planning support, customer support, hotlines, and similar things, but also, of course, after purchase in terms of spare parts supply for many, many years, guarantees for our products of up to 25 years, if we take the cutting ranges. Extremely good services also for our retail partners in terms of added value services to support them.
The system character I've mentioned before, which is key for us, also as a platform to drive further growth, because of course, the likelihood of continuing to buy Gardena is much bigger if you already have part of your garden installed with Gardena. That's where the system idea is, of course, a very attractive position as well. Gardena has also historically been and is consumer-driven in its approach to go to market, in its innovation approach. We have a couple of examples here that you saw earlier today. We take the hose box, focusing really also on the needs of an aging consumer base, making the work in the garden easier and taking some of the hassle of typical hose storage away.
We take the freeze protection, really understanding what is a nuisance to the customer, where does the problem sit, and driving this to the next level. Design is a key element of us. We are one of the few branded goods suppliers who actually have protection on their color schemes, whether it's for us orange or gray or the turquoise. It's icon colors that consumers reference to our brand, and we enjoy to have a protection on these as well. Also design-wise, we've set the standard in the markets for quite some time. Some of our products even made it to the Museum of Modern Art in New York, and it's part of the DNA of the brand and something we need, of course, to drive continuously. Where are we in? We saw a lot earlier, so I'll make this very short.
A large part of our business is the watering business. That's a core market, whether it's mobile watering, anything that you can attach or detach, and is above the ground, for watering, sprinklers, nozzles, hoses, couplings, et cetera. It's the underground systems. Above the ground, that's system, underground, we've got systems as well. The micro drip you saw earlier, pop-up sprinklers, automatic irrigation, the automatic garden pumps we include in there. Then we've got the tool side. Non-power tools, a lot of cutting, pruning, loppers, secateurs, rakes, shovels, everything that you use for garden work, non-powered. Also in a system, a combi system, some of you may know. Then the electric world, which is everything for cutting, pruning, mowing, up to the robotic mower. Here, of course, the battery system, again, is a key area for us. Our market.
We look at it of a SEK 20 billion market addressable to where we stand today as Gardena. Across the world, different to what you've seen earlier. Largely focused on Europe, with 2/3 of the market on EMEA. Given also part of the heritage, or the garden heritage that we need to exist in the markets. Gardena is strong in markets where gardening is perceived as something attractive, a passion, something you enjoy doing in your spare time, and you're also ready to invest money into the products that you actually do work with, which is not the same across the world. In many geographies, garden work is not seen as something attractive and you try to delegate this to somebody. This is not where we are strong. Gardena is strong for where gardening is a passion.
That comes a lot with the European gardening culture and where that's been exported to. We see the rest of the world, as well as the U.S. or the North American market, as a lower potential. The market development is driven by some very similar trends as been explained by my colleagues earlier. Urbanization is a key one, including the smaller garden development. That means that garden and terrace and living room grow closer together, but it also means that there's smaller gardens with smaller needs, smaller products, and different mix for sure. Climate development is for us a key area, including water scarcity.
We see some regions where there's more and more intensive periods of hot weather, which of course is an asset or an opportunity, I should say, for the watering business, but also the involvement of our consumer base with water as a scarce resource is, of course, a market development we're taking into account. A continuously aging population means even more time in the garden of a part of the market that also enjoys sufficient funds to spend, but with very different needs in the products. Something that is very relevant to us. Markets characterized in the short term a lot by the weather profile, and Ulf explained some of that on the seasonality and the weather impact that is driving our business.
If you take the product range we saw earlier, the watering business needs the dry weather, but you can hardly sell a cutting tool because nothing grows and vice versa, and that's of course affecting phase, mix, and profitability quite a bit. The online channel, as we've heard earlier, is driving. It's a fast-growing channel and is changing the dynamics in the market, and looking at the European retail space, of course, an ongoing DIY consolidation, which is changing the market dynamics. Competition-wise, there's no competitor who offers the breadth of range as we do today, which gives us a huge asset and also reinforces our ambition to really lead in the gardening space. There is however, obviously, new competition entering to some extent, one or the other in watering. More so seen for sure right now in the electric market.
If you look at battery, similar situation as we discussed earlier in the other divisions. Of course, private label has an important role in these consumer markets as well. How do we fit into this market? We have a revenue, as shown earlier, of roughly SEK 4 billion as a Gardena division with a double-digit EBIT margin today, and it's following what I said earlier, largely concentrated on Europe. We have a little bit left and right, or I should probably say east and west. The dominance is in Europe also given the DNA of the brand and the market needs. How do we want to grow this business if expansion is the target? It's of course, building on our strengths and our competitive advantages, some of which I've mentioned.
We have enjoyed a very strong brand and something we will continue to drive and develop, but it's something that we enjoy already today, and that linked with extremely good distribution gives us a lot of access to the right markets as well as channels to further grow. The foundation on consumer insight is extremely vital for this brand. We are solving problems with an assortment of above 1,000 articles under the Gardena range, sorry, in the garden. A lot of them are part of a system addressing specific consumer problems or needs, and have the role to really make gardening work easier, more joyful, and the results better. Using that foundation of insight will be key not only in driving innovation continuously, which we'll do and are doing, but also obviously in how we go to market and the marketing approach.
The system innovation capability is a strength. We've created systems, we've created markets with some of our products, and something we will continue to do. Lastly, leading with design, the quality, and the services. Even more focusing on the needs of the passionate gardeners at the points where they actually look for advice, look for service, and look for the product. 2020 strategy is around expansion. Short term, no difference to what we've said earlier, is on the AIP, the Accelerated Improvement Program. Specifically growing some of the profit pools within the Gardena range, and using our leadership position
Followed by geographical expansion of core segments. We are, and that builds on this theme. We are so strong in some of our areas, take watering as a specific one that for sure we will drive this further in markets which are not core markets of Gardena today. Enhance and drive the multi-channel leadership, finding more places and developing more places for our consumers to actually access our brands, access information on the brand, but also access our brands and helping our partners to develop that. Full range penetration in the core regions. Even in the markets where we are strong, getting broader coverage across the categories we are in, filling the right spots.
Lastly, which will be key in driving this, further building the organization, driving Gardena with the full responsibility as explained earlier, to drive based on the brand, based on the consumer needs, the Gardena business in the markets where we are strong today and beyond. Summing it up, strong brand, household gardening brand, a strong heritage based on the system heritage, and the design, and our path forward will be driving expansion geographically and penetrating the range beyond current positions. That's where we are, I believe we take now questions on all divisions. I'd like my colleagues back up on stage.
Yes. That's completely correct. Please. We have the first question here, the first hand up.
Hi, Anders from SEB. It's getting late and I'm getting tired, I guess, and my head isn't working as it should be. I just came to think about how is it going to work sales-wise when you have the new structure in place? I'm thinking basically really big customers, big retailers, for instance. They, I guess, see you as a group, Husqvarna Group, with a lot of different brands, which they want to have some brands and some not maybe. Will you have different sales organizations for each, one for the mass market, one for the Husqvarna, one for Gardena? Then you will have the same customer in some cases at least. How do you really will go about that situation?
If I kick off. Fundamentally, we address different end customer segments. The intention is that we will have different sales forces, but where we see obvious overlaps, we will look for key account solutions and shared type of front-end interfaces. To start with, there are quite sufficient amounts of those impact. I think over time we will probably distill that into more unique sales forces because part of the model and the efficiency of the model and the empowerment of the model is with that cradle-to-grave type of approach. I think that is what you should expect, but we will be sensible about it. We will not be fundamentalistic about it. I think that's a fair comment. Anything you'd like to add?
No.
Thank you.
Hand up here.
Thank you. It's Daniel Lavine with Nordea Investment Management. I had a few questions here, starting on the consumer side, consumer business. It sounds like the way forward here, you aim to invest in R&D, more consumer insight, innovation. It sounds like a bit meeting the challenges from Asian low-end suppliers with more of a premium strategy. Does that mean trying to raise price points in the more the consumer side of the business?
Raise price points. Specifically, at most mass major retailers, price points are determined by them, and it's a matter of matching the product to the price points. Through innovation, through cost efficiency, and finding a way to keep that specific price point both competitive and exciting will be a challenge. It's a little different nuance than raising price points.
Okay. Then following on consumer brands. Negative EBIT margin here. How does it look like overall between products? Is it a few product groups, a few brands that are very much loss-making, or is it a problem across the channel?
The portfolio is mixed. It's not one single customer, but we certainly have customers and products that we're going to look at more challengingly than others. There are a few hero products that are pulling things up and hero segments that are pulling it up. It's relatively broad-based, and it's not a magic fix. It's not a magic just focusing on this or focusing on that, but it's fundamental structural cost improvement and how we go to market and how we put our product ranges together. It'll take a little bit of time.
Okay, thank you. Just one question following on to that. When it comes to North America, the target here to reach a 5% EBIT margin by 2016. What does this mean really for the Consumer Brands? What kind of margin would you need to reach within that division to accomplish that?
I can speak for the Americas, because that's the previous role, and the target was exactly as you stated, 5% by 2016, and we're well on track to meet that target by 2016. Going forward, some of that revenue cost profitability is going to be distributed at other places. A good portion of it stays within the Consumer Division. While I'm not in a position today to comment specifically on targets for the group to meet 10%, we have to do our part, and we have to have some significant improvement to get that overall result.
Okay. Thank you. Just final question on Gardena also. We saw today a lot of new products, hand tools, et cetera. Not sure how much of total sales that's now is making. In general, I got the impression that the really high-margin product is on the watering side. Would growing other products mean that we should see the margin coming down a bit, or do you think you can still keep the same kind of margin levels?
Can I only repeat what we said earlier for the group? This is about profitable growth, and this counts for the Gardena division as well, and be sure we'll be growing in the areas where we make money, or we make sure we make money.
Okay, perfect. Thank you.
Other question? Okay.
Hi there, Martin Annel with ABG Sundal Collier. My first question is on the group operating margin target of 10%. You seem quite confident that you're going to get there. What would you identify as the main risks to this target and also the risk to this aim of profitable growth expansion beyond 2016? Just secondly, also, can you comment and give some flavor on the average industry margins for the respective divisions? Thanks.
Risks, plenty of them. As always, I would say, of course, you heard a lot about the season and the weather and these type of things that can always make life complicated for us. I think the biggest risk would be that we lose the determination and the focus that we have on the margin improvement as such, and to quickly start to take off into different worlds of profitable growth without delivering on this program. I would be inclined to say still, it should be in our hands. Reasonably, it should be in our hands to do. I also like to remind all of you what you heard from this morning. We are talking about 1,000 initiatives in value engineering. We are talking about the interaction with 150 EXCITE suppliers.
We are talking about numerous salespeople being out there trying to achieve the expansion in the profit pools, et cetera. Loads of activities going on, we just need to be mindful about the challenge we have about 2015, so we do not rush too far ahead too quick. We are on the right track in this brand divisional setup, we just need to execute it one step after the other. If we lose track of that, I would say that is potentially a risk. Feel free to add risks if you would like to. There are many, of course, that can occur. For the 2015 season into 2016, it should be in our hands to the major content and extent. Again, the scope of the activities is giving some kind of respect here.
In industry profitability, I do not think we normally comment on that, if I would be rough, we put it in the range six to eight percentage points. I think that is not completely wrong. That's now an aggregated Husqvarna Forest & Garden type of figure we are talking about, which has huge difference, of course, if you are a specialized handheld producer in the premium segment or whether you are predominantly a wheeled actor, et cetera. There are huge differences, and those averages, it is a bit like one foot in the warm water and one in the cold bucket, and then it becomes a Swedish lagom. I am not sure really whether that is always that useful for the practical interpretation purposes. Okay. I think it was. Please, let's go for them. Björn, you seem to be quickest, why do not you start?
I am quick.
Yeah. Question for the consumer side. You're talking a lot about redesigning products, and you have been talking about that for quite a long period. How many products do you have that are designed for a certain price point now, and how much of that work is in front of you?
I'd call it more reconfiguration than complete redesign. Certainly, we've got some portfolio gaps to fill in certain segments, but it's more cost-focused reconfiguration. It didn't just start. It had been started and had been much more sensitive, particularly in North America for a couple of years. Our recent Americas 5% that we kicked off at the beginning of the year started a good portion of that. We probably refresh a significant portion of our product portfolio every year because our customers typically drag us through annual line reviews, and you get an annual opportunity. Often you win an annual, and it lasts for three years, but there's still an opportunity every year to redo it. If on average, a retail price point lasts three years or a retail award lasts three years, then that's probably about the same percentage that we've started through, about a third.
Okay. This, I guess, is then more of a big impact in 2016 rather than 2015, and even more in the period beyond that, until you are fully happy about the structure of the products?
We've kind of got paced equal progression. If you look at what we said for the Americas, which was 5% by 2016, that was rather linear, and we're going to adopt the same approach. We're going to take it one bite at a time in consistent steps.
Looking about regional differences when it comes to profitability?
There are.
Are they bigger than between different product categories?
No. The span of regional differences and product, it's all within a contained band.
Okay. You have the products and the brands as you presented here. When you're thinking about mass retail, you're most often thinking about bigger companies, bigger competitors. Do you really have the muscle stability to be a strong player long-term within the consumer business?
Oh, absolutely. Do we have the stability? Do we have the muscle? Do we have the strengths? Absolutely. We are a significant, one of the largest players of what we're trying to do. Few people can actually match the scale and the innovation, and the relationships that we can. It takes focus. It takes a re-engineered go-to-market approach. We absolutely have that ability.
For Gardena, what kind of leverage do you get from being part of the Husqvarna Group? What's the benefit?
Clearly, quite some. They are on both sides of the group, if you front-end and back-end. We heard part of that earlier when we talked about sales forces, where there's shared customers, for sure there's a benefit of doing this in certain customers together rather than individually, and that is a benefit. Even bigger is clearly in the back end, whether it's shared services, whether it's using sales company infrastructure, in markets where Gardena would be too small or too small still. Most importantly, it's similar things as we mentioned earlier around innovation, using the scale of some of our platforms, specifically when you talk about the electric field, where there's a huge benefit to be part of this group. Absolutely.
Last question, when you're talking about expansion, I guess it's mainly filling up gap within the EMEA region still.
I would say the details here need to be worked out, but there's sufficient growth to be captured within the Europe scale, at least as a priority number one.
Thank you.
Thank you.
Yeah. Hi. Johan Eliason at Kepler Cheuvreux . Just a clarification. I understood you said that the seven percentage point of sales you moved from Husqvarna Division to Consumer Brand was one big mass retailer that was allowed to use the Husqvarna brand. Does that imply that Consumer Brand actually also entail revenues generated from the Husqvarna brand, or how should I understand it?
The end of the question was, does the Consumer Brand entail revenues from the Husqvarna brand?
Yeah.
As we'll report, we've got an instance that the Consumer Brand Division will be operationally responsible for selling some Husqvarna brand products. The Husqvarna Brand Division will be strategically and directionally in control of what happens there. Since the Consumer Brand Division is going to be the retail channel expert and manage the large major relationships, operationally, it made more sense to line up with us. We retain operational control, but not strategic control of those branded goods.
Okay, thanks.
If it comes back to the end customer segmentation logic, mass consumers, retail-centric fits over here with that type of range and those type of products and specifications. That wouldn't have been the case with Pro. On the other hand, Pro wouldn't have been targeted in that channel in that way. I think there's a logic here to how we have explained what we are going about that phase. I think there was another question there.
Yes, Christer from DNB Markets. We have talked about the long-term strategy a lot. I would just like to hear what has happened in a bit more short-term as well. If we can hear what you have seen this far in the third quarter, what you're doing about the Russian problems and how that affects you, and also about potential listings pricing for 2014, '15, I mean, if you are done with those.
Now it becomes a bit difficult to talk about it because I think we are getting reasonably close to the quarter three report. I think we are within the month. I would refrain from giving comments as to those specifics, but more generically, as to Russia, we saw a small decline up until the summer in that market, and we've seen an increase in deterioration after the summer in terms of sales. I think that's a general type of development related to that market specifically. I'll refrain from more generic comments as to the Q3 development. Please.
Question, Dan.
Yes. Rasmus with Handelsbanken. I was wondering, when you have set up the divisions and perhaps allocated capital to them, would you be willing to set a return target rather than a margin target for them?
I think it's a very good observation, particularly related to the consumer brands with presumably lower EBIT margins, the return type of target seems like a reasonable combination to go with. I wouldn't hold that for unlikely. I think that's a probable development, yeah.
On the Accelerated Improvement Program, we have almost exclusively talked about the gross margin. Is that where we should be seeing the improvement? Getting to 10% EBIT, it should be driven by the gross margin, right?
If you really make it rough, 30%, 20%, 10% is probably not unlikely. 30% gross margin, 20% SG&A, 10% EBIT type of framing is not a bad orientation. As Ulf pointed out this morning, what we have seen throughout the first half is that the gross margin has improved. We have reason to foresee that pattern will be repeated in 2015 and 2016. The major chunk is going to come from that part, correct.
Finally, on the complexity reduction, do you have any thoughts on what type of working capital you should be tying up? You have had a good run now in the last 12 months, but you're still, on my numbers, way above 2010 even. Do you have any sort of metrics on how much working capital this company should tie up?
Leave that for Ulf too.
Rasmus, you won't get a figure, I think tying back to your original questions, let us revisit that. When we're looking at each of the divisions and the return on capital employed, I think important to stress, they are already today measured on return on capital employed. Whether we will disclose this externally according to Calle, we will come back to. This is a very vital part of how we assess the divisions today and how we will assess them tomorrow as well.
Thank you.
This is Johan here at the [inaudible]. I listened to Paveł's presentation on Husqvarna. You highlighted, or at least picked up a couple of areas of improvement and probably investments going forward. You talked about improved distribution and improving product assortment. Is it fair to assume that you will drive these improvement projects and use unlocked synergies from the improvement program in improving and investing in the business and keeping margins where they are, and we will see the main improvement from the other divisions, not from Husqvarna, i.e., first the consumer and then Gardena, or is that totally incorrect?
I think Husqvarna will make their own improvements, so to say. I think they will also support improvement potential in other divisions, they will also enhance their own profitability going ahead. I'm not sure whether that was really the core of your question though, Johan.
No, it was pretty much, I was more on the topic of not to try to fix what is not broken. It's a fairly impressive performance by Husqvarna, and consumer products is a no-brainer to see the improvement potential. If you put the Gardena and the Husqvarna division head-to-head, is it similar improvement potential between those two in your mind?
Absolute EBIT is, of course, with the magnitude and the size of the Husqvarna division, a lot larger. EPS-wise, that will look different, the potential, I haven't really looked at it that detail, Johan, sorry to say, we just need to continue and do the deep dives into this and reinforce our opinions about various things. As I pointed out, we are still in early days as to the divisions, you need to bear with us for that. Again, remembering that they are fully effective January 1st, a big piece of the reason for that January 1st statement is that the accounting isn't really installed and established to bring the bottom-up reporting as we need to get the firmness here. We will get a lot wiser here until beginning of next year. A bit vague answer to your question. Sorry for that.
Okay. I think this will be the last question because we want to stick to the program. Please.
Thank you. Eric Berg from J.P. Morgan. Just a quick question on your online channel strategy. Could you give us some color what your thinking is about the online sales?
I don't know if I was unclear. For us, really online is predominantly about supporting our channel partners in their efforts and endeavors to do the e-commerce, so to say. Whereas, of course, for us, it's hugely important to be efficient in the online channel, may that be for pre-purchase touchpoints or for post-purchase touchpoints. We're talking about increasing our capability overall in this area, but not at this stage necessarily targeting the direct commerce side of it, but rather work with our channel partners. There are pockets of commerce, like for spare parts in Gardena, et cetera, but they are kind of rather isolated pockets at this point in time. Okay. Thank you, colleagues. Before you race, thank you very much for participating throughout the day.
We recognize the effort you have put into coming here, and we hope we have shared with you some of the key aspects you feel you need to know about Husqvarna, what we are up to, the AIP program, the reorganization and the reasons behind the reorganization, the business model differentiation, the aim with it, with the empowerment of the organizations, the aspirations with the Market Leadership 2020, of course, a good starting point for that work. Also what you could call embryos for growth strategies going ahead. I would say that is at the core, then a final reminder, 2015 deserves a lot of attention, a lot of work, a lot of activities. I still like to be a bit cautious about it. We need to do the homework and stepwise move into the growth model here.
For the moment being, I'd like to invite you for a drink. We will have that at the museum, which is very close to the old forgery where everything started. It's just a five minute with the bus now, again, close to where we were. We will have the drink there. We will walk over to the forgery for a reasonably swift dinner, knowing that most of you would like to get on the buses not too late. Thanks for your attention, and the buses are going to be downstairs. Again, thanks.