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Edited Transcript of HUSQ B.ST earnings conference call or presentation 5-Feb-19 9:00am GMT

Q4 2018 Husqvarna AB Earnings Call

Stockholm Feb 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Husqvarna AB earnings conference call or presentation Tuesday, February 5, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Glen Instone

Husqvarna AB (publ) - Senior VP of Finance, IR & Communication and CFO

* Johan Andersson

* Kai Wärn

Husqvarna AB (publ) - CEO, President & Director

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Conference Call Participants

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* Christer Magnergård

DNB Markets, Research Division - Head of Equities Research of Sweden and Senior Equity Analyst of Capital Goods & Automotive

* Johan Eliason

Kepler Cheuvreux, Research Division - Analyst

* Kenneth Toll Johansson

Carnegie Investment Bank AB, Research Division - Financial Analyst

* Olof Cederholm

ABG Sundal Collier Holding ASA, Research Division - Analyst

* Rasmus Engberg

Handelsbanken Capital Markets AB, Research Division - Research Analyst

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Presentation

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Johan Andersson, [1]

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Welcome to the Husqvarna Group's presentations for Full Year Results 2018. My name is Johan Andersson, responsible for communication and investor relations, and I will be the moderator here today.

Today here at Stockholm, we have our CEO, Kai Wärn; and our CFO, Glen Instone, that will present the results, and afterwards, we will have a Q&A session, both here live in Stockholm and also over the telephone conference.

So with that, I'll leave the word over to Kai.

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [2]

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Also, from my side, good morning, welcome, and thanks for coming in, in this weather. We'll talk about quarter 4, which I would say -- summarize a bit, along expectation. What you will know or should know is that quarter 4 is very much a preparatory quarter for this season of '19, seasonally small, less significant. That, I think, the important things about '18 I want to recapitulate so we're perfectly clear. And then, of course, spend energy looking into also '19 and where we are a bit more upbeat about the developments.

But starting then, summarizing the situation. Yes, there is a temporary disappointment in the financials of 2018, and particularly quarter 3 was disappointing. I would still describe quarter 4 very much in line with our expectations. But we have taken some strategic important decisions. We have dissolved the Consumer Brands Division, which has been a bit of a distraction, a problem child. And how it is eventually, you end up spending an overproportionate share of your time on fixing problems rather than dealing with the most important things, which is the value creation. So that's important.

I would describe that we have the main restructuring actually behind us in respect to this, and we have also taken quite some hardship with reducing resources, may that be centrally, may that be on a divisional level as such that we are in shape for a somewhat lower business volume as a consequence of this.

There are still some shuttering of plans to be done in front of us. But all of that, all the decisions, all the planning, all the communication actually to everybody who's going to be involved is behind us. If we look at, for example, McRae being the huge site affected of this.

I also can be very clear about that restructuring measures that we have taken are going to be EBIT accretive as of now pretty much as with the start of '19 simply because it very much relates to the headcount reductions that are executed during second half of '18.

So now for '19, the top priority is to get back to the improvement of the result trajectory, which we deviated from, as you will be aware of, during '19. So building on the strength, I think that's the most important takeaway strategically from '18. We'll talk a bit about disappointments, and I think the group financials exemplifies that.

Talking about quarter 4 currency adjusted, flat. All in all, minus SEK 282 million, and we had knock-on effects from the season, quarter 3 that we talked extensively about to the Q3 report. Yes, we have continued impact from raw materials' tariffs. And I would also be clear about logistics. Freight cost is one item, which is -- has been high. I don't think it will leave us necessarily at this point. Either we will need to calculate for that for '19, but I think we have taken care of that in our preparations.

But I also want to emphasize, that goes for quarter 4 as well as for the full year, we have maintained the strategic initiatives and the cost reductions related to those throughout the year. So I mean, there is a question. Should we have been harsher to reduce them more forcefully? Actually, we decided not to because we want to keep the momentum that we have on the top line side. So we did that. So I think that's a sign of strength and confidence on our side that we did that.

So for the full year, 2% currency-adjusted sales. 7.9% EBIT margin, miles away from where we want to be, as you know, and '17 has a comp 9.6%. On the other hand, 9.6% is the best year since this company was listed.

Yes. I think it is worth noting on the disappointment side, given the high raw material tariffs and logistics, we did not manage -- and the difficulty with the season, we did not manage to get the efficiency program to balance this strategic initiative cost, which we have so successful being -- or doing during the preceding 4 years. So that is the disappointment, I think, on the group management point of view. But that's something, of course, we are working very hard with to restore for '19. Dividend is suggested by the board to the Annual General Meeting to remain unchanged.

So that's the group overview. If you look at the top line -- and remember, this is the profitable growth division. So it's not consumer, it's not including the items affecting comparability of the acquisitions of Construction. So that's 4% average for the group -- for those 3 divisions, sorry, where, of course, Gardena then is doing a lot better. On the flip side, on the top season for Husqvarna, the long and dry summer, of course, was a great thing for Gardena, obviously.

Husqvarna then, stepwise, lowering down to plus 1% for the rolling 12 month here and Construction, 3.4 for organic. So -- but 12, I think, including the acquisitions. So -- but I think the 4% is still a healthy number. We normally talk about the ambition being to gain 1 to 2 percentage points to the market, and you will maybe recall that we have the growth target being 3% to 5% based on the logic GDP, 2% to 3% and then plus 1% to 2%, and that leaves us with 3% to 5%. So we are in the middle of that span. That's still coming down from what we have seen. So that's -- it is what it is. I think given the season that unfolded in '18, I think we are pleased with it. In general terms, it's not fantastic, but it's okay.

So if we look at the curve that we used to be so proud of, we have to accept that temporary dip, but we will do our utmost now to prove that, that is actually a temporary dip, nothing else, the 7.9%, and move back.

So if we'll then jump into the divisional summaries. I mentioned a knock-on effect, particularly for Husqvarna Division. That shouldn't come as a big surprise. We have minus 2% in the quarter for them. We have a negative EBIT. Again, the same reasons pretty much as for group shines through. What I could say in addition to that is that the mix was a bit negative as well. So that played into it, the regional side. So lower in Europe, which is pretty much also the knock-on effect consequence from Q3.

What is important is that we have an operative leadership structure in place. I'm talking about the new combined entity of the Consumer Brands and Husqvarna and Consumer Brands less, of course, exited business. But I think this is important. So when I talk about the restructuring being behind ourself, that is one item. So we -- the chain of command, so to say, is installed since last summer. So the whole preparation for the '19 season has been done in the new setup structure. And there's some good evidence of that, that we see as we move into '19.

So all restructuring, planning and decisions are behind us. And as I mentioned, some of the executional parts are still ahead of us. But I think that's less of energy and time consumption that's in front of us than what was behind us.

Gardena, seasonally small but almost completely insignificant, less than 10% of the sales in the quarter. So I think bear that in mind that if you see that combined with, of course, that strategic initiative cost that we have taken. So you have a relatively high cost structure for a too low sales, but that's the nature of the Gardena business. So don't look too much into the quarter, I would say, actually, but rather look at the full year, the plus 14% currency adjusted of the sales and the 11.6% EBIT margin versus the 12.5%.

So, yes, we had -- we don't have the full leverage as we would like. And to some extent that there are also logistics burdens, because the season unfolded in a very intense way. So we had to accept some extra costs that will execute in the midst of the season there. But that is solid execution on this strategy, talking about geographic expansion, maybe even more so, the channel expansion in those geographies and as well as product launches. So quite pleased with that, actually. So it's a very nice year, and you will recall that the 3 preceding years have also been quite strong. So it's developing in a very interesting way, actually.

Consumer Brands. Q4, yes, improvements versus the preceding year. Of course, a bit of savings on the minus 6% currency adjusted sales. We made a smaller loss, somewhat small, I should say. I don't want to overemphasize that. But for the full year, that's minus SEK 300 million, which is not great. And of course, this is obvious. There's a lot of raw material tariffs and logistics, lower sales. So on the year, it's 9%, which is, I think, what many of you, I guess, would have expected from the year in total. So lower sales, lower manufacturing volumes, which is, of course, a burden as well. I will not spend much more time on it at this stage. I don't think that's really a focus for us.

Construction. Q4, good development in Europe, a little bit disappointing in North America, actually. I'll come back to that. So the EBIT is impacted by a negative mix, to some extent, a product but also geography because North America is an overproportional profitability for us at these exchange rates that we see today. So that's good, normally good. We have, of course, also absorbed some costs for continuing the integration of the Atlas Copco entity. And we have continued with the strategic initiatives also in the Construction side.

So if you look at the full year, you had 12% sales increase, currency adjusted, and 12.4% margin, which we think is okay-ish, and in the quarter was plus 8%, where the organic was flat. EBIT margin, a bit burdened then by the comments I made about the mix, the raw materials and some other integration costs. So that's Construction.

If I then move a bit to make some comments on the product side. We have quite some important launches ahead of us, one of them being a new generation of professional chainsaws, the 550 and which is actually very promising in terms of cutting capacity, significantly higher than what's out there in the market of any type of brand. So let's look very shortly at a video describing that launch event.

(presentation)

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [3]

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Quite important product actually. And you will probably be aware that it -- I mean, the battery source are great if you are in an urban environment. If you are an arborist in an urban environment, you can still use that too. But if you're out in the woods, you're still left, so to say, to deal with petrol and, hence, we developed this new generation. And you might also recall, we had a launch of a 70cc product last year. And combined with the chains and for that sake, also improved bars, that's a lot of enhancement overall product system that we believe will play into our hands in a nice way coming -- or going ahead.

So do another one? Another important launch is the world's first 4-wheel drive, a robotic lawnmower, and I think we have a short video on that as well that's coming.

(presentation)

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [4]

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So that was really short. I thought it was a bit longer, but anyway, you get an idea. So it's not only these deep slobs that this is going to be good for. It's also better at managing uneven surfaces. It's a very nice development, and I think it's fairly unique. We don't think anybody has anything resembling this product. We foresee great interest on this, of course, not the least in countries such as Southern Germany, Switzerland, Austria, which are quite interesting also from a purchasing power point of view then, but also new geographies like North America, I would speculate, in addition to Scandinavia. Maybe not that many in Holland or Belgium, but that's it.

So that's an important launch, and there are many others here. I also want to also draw your attention to that we have made some adjustments to the current portfolio of products -- product range, allowing then a higher cut of the grass, because in North America, they normally don't cut it that much as we do in Europe. So that is what we call the high-cut version. So we have adjusted them to better suit the North American market.

I think, coming back to one of the points I made, the reorganization, combining now that remainder of the Consumer Brands with the old Husqvarna Division, has allowed us to do something which is quite interesting, and that is to sell, through retail, solutions, including installation. So we have combined, so to say, the strength of the dealer network, the servicing dealers with the retail point of sales, which is an attractive piece.

So that's a vital component of the go-to-market strategy for this year. But of course, the dealer base is a core element. But this will, for sure, make the retail space a lot more attractive in this situation. We'll come back and report the progress of that as the season unfolds.

Maybe 2 more comments just to give you a feel. We were present at the Consumer Electronics Show in Las Vegas early this year with the Gardena smart garden system. And it's quite interesting to see the recognition we get now from the big boys and girls working at Apple and Amazon and Google. So you see these people really recognizing the Gardena smart system as the outdoor system with the most extensive hardware components and really then covering them, of course, cutting, watering, lighting, pumps, et cetera.

So we have now a full integration with Apple HomeKit. And quite many, actually, of the passionate gardeners do operate from that platform. So that's a full integration with the Gardena smart app. And then there are some IFTTT integrations with, for example, Alexa or Google. So now you can talk also to your smart system as one thing.

So I think this is becoming quite an interesting, strategic position where Gardena is building this domain leadership in the gardening. So it's actually quite a strategic move from the historic strength of the hose couplings moving into the garden domain leadership, which we have spent now 3 years actively to build up. But actually, I could even say 5 if you include from the very start of the acquisition of Koubachi that brought us their competence with the plant care.

And that plant care database is, of course, one piece, an element of this gardening domain leadership. Garden planning is another piece, which is interesting. So a lot of end customer interaction touchpoints, which is then an important piece when you start to deal with big channels like the e-tailers as well here.

On the Construction side, we have a high-performance power cutter, lightweight, battery based. So that's an interesting development. And then, of course, the dry-cutting system, which is then a lot cleaner for everybody and the working environment and the people involved in that. So that's another, let's say, optimization done based also on the acquisition of Pullman Ermator as one component.

So those are just some few examples of product developments ongoing. Now before I lead to Glen, I'd like to just to make some comments then about '19. And these points, I think, some of you will have picked up from the Q3 because it's pretty much very similar.

So if we look into '19, we talked about quite a high ambition. I mean, the group financial targets is 10%. Of course, we have the ambition to get that this year. The point of departure looking at '18's result, with the 7.9%, is a disappointment, as I mentioned. So it makes the challenge a bit bigger. Let's be clear about that. We also have quite some tough headwinds in further tariffs, particularly tariffs year-on-year, but there is also some raw material. Glen will give you some idea of that in more specific detail.

So that's against us, but what we're saying now is that we are pricing to compensate for those. So that's no question at this stage. That's all behind us, so to say. We are also, of course, spending a lot of energy to restore a positive balance between the efficiency programs and the strategic initiatives and the cost of those. So that's going to be plus.

And then you have my statement as to the restructuring, and full saving is SEK 250 million for 2020, and Glen will make some comments on that, but we feel very confident. And that's what we expect and need to happen. And then on the top item here about the growth, yes, we are leaving '18 with a plus 4% growth, currency adjusted.

And mind you, the pieces that we maintain from the Consumer Division, we don't make any different growth targets for those. So they are also being folded under the same type of growth ambition because we say they are strategically justified. So we don't complicate anything going forward.

We could have complicated with the piece we're going to take out for 2020, but that's SEK 1 billion to SEK 1.5 billion. So we don't want to make that a big thing at this stage. But that's there. But beyond that little piece, all the remainder is supposed to grow.

And we don't give any forecasts, as you are aware. But I think, still, the plus 4% is a proxy for what could be expected at this stage, remembering that our visibility into how the season eventually is going to unfold is very limited. You know that. But if you want some type of direction, I think that's not a bad one.

So that's what we're working with. That's the top priority. And what we have said is whether we get all the way to the 10% or not is still fully to be seen. What we've firmly determined is to make this the best year compared to the previous years, meaning the 9.6% at least, we like to beat. So just zooming in to something here over range, and then we'll see where this season will leave us.

So I think with that comment, I am glad to lead over to Glen Instone, who's the new CFO after Jan Ytterberg. And, Glen, why don't you start a little bit with some words about yourself?

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Glen Instone, Husqvarna AB (publ) - Senior VP of Finance, IR & Communication and CFO [5]

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Okay. Thanks, Kai. Good morning. I am relatively new to this stage, but I'm not so new to the company, some 17 years in the group in various capacities. So look forward to meeting those who I haven't met so far on my travels.

So I will talk a little bit more detail on the numbers that Kai mentioned. Q4, of course, is our seasonally small quarter and is very much the preparation quarter, as Kai says. FX adjusted was flat. And then adjusting for acquisitions, it was minus 1%.

Moving down into the gross margin, you'll see a decline from 26.8% to 26%. If we quantify that, of course, we have the headwinds of the raw materials, tariffs starting to take effect certainly in the fourth quarter. I'll come back to that for the full year and also the guidance for this year. And also, we had the continued investment on the strategic initiatives, notably in R&D. So that's really what's causing the margin decline at the gross margin level.

Moving down into the SG&A. Quite a sizable increase, 27.9% up to 30.4%. It's around about SEK 200 million. And in big terms, you can say that 1/3 of that is FX, 1/3 is strategic investments and people and brand and marketing, and the other 1/3 would be partially volume component, but actually, the headwind that Kai mentioned earlier on logistics in particular. So I will group the volume and logistics piece together that is a headwind to us.

That sums up, as Kai said, is minus SEK 282 million, which was pretty much in line with our expectations actually as we went through the quarter, so no surprises there. Of course, we made a very large booking in Q4 in relation to the restructuring, SEK 822 million on the back of SEK 349 million in Q3. So we have SEK 1,171 million on a full year basis booked for the restructuring. We guided at SEK 1.2 billion. That is still the guidance. A little bit will move across into 2019.

So I will now jump to the full year, where the cost guidance below operating profit are more appropriate to talk about. Starting at the top line again. We had a full year of plus 2% currency-adjusted sales. Backing out the acquisitions, that is plus 1%.

Moving down into the gross margin. We did decline from 29.1% to 28.2%. Again, we have raw materials, tariffs and the continued strategic investments in R&D. If I quantify the magnitude of that raw material headwind flavored with a little bit of tariffs coming in to Q4, I would say there's around about SEK 300 million of raw material burden that hurt us into 2018, hitting that gross margin. But as I said, we continued investing in the R&D side, which also burdens the gross margin.

Moving into SG&A, a sizable increase, 19.5% up to 20.3%, where, in SEK terms, some SEK 640 million increase. Again, I will group it into the 3 levels or the 3 groups: 1/3 would be FX into that, given the weak Swedish krona; then we would have the continued strategic investments, roughly 1/3 as well of the SEK 600 million; and then the headwinds from logistics and also, of course, the cost increase from the volume element of growing by 2%.

So all said, the operating margin, 7.9% versus 9.6% prior year, so a disappointment, as Kai has described. We then booked full year effect, as already mentioned, SEK 1,171 million for the restructuring. A little bit more to come in 2019, less than SEK 50 million. I will guide there.

Finance net, pretty much in line with prior year. And then income tax, we came in at 22% full year versus 19% in the prior year. We guided to 23%, so I would call it within the range. Why was it higher than prior year? We actually had a deduction that we took in the prior year in Q4 of SEK 175 million that we called out last year.

Sewing all that up, then we have earnings per share of only SEK 2.12 versus a prior year of SEK 4.62.

Moving over to the cash side. We have a direct operating cash flow moving from SEK 2.9 billion down to SEK 1.3 billion, so another disappointment. If we look at the constituents within that, then, of course, we have a lower operating result, adding back depreciation of about SEK 0.4 billion. We have a higher operating working capital of roughly SEK 1 billion. And we have a higher CapEx of about SEK 300 million. Full year CapEx came in at SEK 2.2 billion, and that was in line with the guidance we previously issued.

Jumping into 2019, I would guide CapEx at a very similar rate, SEK 2.2 billion, maybe slightly higher, up to possibly SEK 2.4 billion, and that is going to be the range on the CapEx side.

One of our financial measures, of course, is to have operating working capital below 25% of net sales, and we landed to 25.9%. So we're not quite there yet. And unfortunately, it started to trend in the wrong direction. If we look at this, it's really the result of increased inventory. We increased our inventory significantly, which I'll come onto -- on the next slide when talking the balance sheet.

So inventory is where we've slipped. Partially, it is prebuilt. We were preparing for Brexit, so preparing our more robotic lawnmowers. And also, as Kai said, when the season hit for watering in 2018, it was a huge spike. So we actually have also prepared more of the Gardena watering products ahead of season '19.

We have made some good developments on both the receivables side and the payables side. So I would say 2 of the 3 operating working capital measures are working pretty well, but we have to get much more focused in execution and improving our inventory.

So how does it look for the total balance sheet? It inflated, no doubt about it. Of course, there's a large FX effect coming into this, given the weak Swedish krona. As you see on the inventory side, inflated by some SEK 1.5 billion, not a proud number. Within that, roughly SEK 450 million would be FX, and the remaining SEK 1.1 billion would be operating inefficiency for the reasons we said. Very late start to the season, very big spike, and then it more or less shut down very quickly, so we must get much more agility into our supply chain.

On the net debt side, we also increased the net debt from some SEK 7.2 billion to SEK 9.9 billion. If I look at the constituents within that, again, FX, which is the FX impact of the equity hedges, some SEK 0.7 billion; the working capital buildup, as I've described, give or take SEK 1 billion; higher tax cash-out. We did have a brought-forward tax loss that we utilized in 2017 that we didn't get the benefit of on the cash side in '18, so a higher tax out of roughly SEK 0.5 billion; and then, as mentioned, higher CapEx; and also, of course, we had the acquisition of Atlas Copco during the year.

So putting that together, and how does then the net debt to EBITDA ratio work on the rolling basis now, we're now at SEK 1.8 billion, so starting to trend up in the SEK 1.6 billion level that we left 2017 at. Again, as we get the operations back into where we expect them to be, then we should see this also starting to come back down.

So a little bit more, I would say, forward-looking in terms of the restructuring and how does it actually look towards the new divisions. I'm just really going to reiterate some of the messages we give at the end of Q2 again in Q3 and here again in Q4. We will exit roughly SEK 1.5 billion to SEK 2 billion of sales in 2019, Consumer Branded sales, low margin. And then we will exit a further SEK 1 billion to SEK 1.5 billion in season 2020.

As Kai said, all decisions relating to restructuring are behind us, and the benefits should start to come through now and be EBIT accretive for 2019. We have charged roughly SEK 1.17 billion to the P&L in 2018, and we will charge less than SEK 50 million of the remaining restructuring that has still got to feed through in H1, actually.

From a cash perspective, it's been relatively low in relation to the restructuring, only SEK 30 million. We guided on SEK 400 million of cash effect. We stick to that guidance and the rest of the SEK 400 million, i.e., the SEK 370 million, will come through in 2019.

Annual savings from restructuring, expected to be SEK 250 million. We remain on that level, with a very large proportion coming through in season '19. Full year effect coming, of course, in 2020.

So the next slide, I believe, is something very new for all of you, and it's basically how the divisions then look. How did we divide up the Consumer Brand business and put it into the Husqvarna Division and the Gardena Division.

So let's start with Husqvarna, which then takes on the remaining Consumer Brand North America business. On the left-hand side is 2018, the right-hand side, 2017. You will see what we then add in from a Husqvarna -- from a Consumer Brands Division North American perspective. We add in some SEK 7.4 billion of sales with a loss, excluding items affecting comparability of roughly SEK 170 million. That's a minus 2% EBIT business.

Put together, the new Husqvarna Division then becomes SEK 27 billion, just north of that, generating some SEK 2.1 billion of operating income and a 7.8% margin. And that, as you will see, is a significant decline from actually the comparable in 2017, which, of course, we've had the headwinds from raw materials and logistics and tariffs, as we've described previously.

Looking at then Gardena Division, new, taking on the Consumer Brand Europe element, much smaller, some SEK 1.3 billion, however, with a higher loss. Actually, a 10% operating loss you will see in there that it takes on. What I would say is like the Husqvarna Division in 2018, the business in Europe, of course, for Consumer Brands was equally affected in Northern Europe, long, dry summer was really, of course, detrimental to the Consumer Brand Europe business. So we take on a bigger loss in that respect into the Gardena division. Putting the 2 together, SEK 8.1 billion or 8% division, it becomes.

You can say, from a weighting perspective, what's going to be exited. It's -- roughly 85% of the business is North America, 15% Europe. If I'm going to guide on that SEK 1.5 billion to SEK 2 billion of exited business, it'd be slightly more weighted towards Europe. But you can take those proportions as well, 85-15, maybe more like 80-20 as a proportion level for the exited business.

At that, I will hand back to Kai to summarize, and then we'll take some questions. Thanks, Kai.

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [6]

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Thank you, Glen. So just putting it back on the screen, the key items to succeed with now in '19 to achieve what we want to, start with organic growth. And you will realize that Gardena has a much tougher comp in '18 than Husqvarna will have. So that, of course, says something on what you should expect for '19, and construction then pressing on.

Prices, well prepared for compensating that increase, well prepared to restore the balance between the strategic initiative, cost additions versus the efficiency program and, I would say, well prepared also to make sure that we materialize that -- the restructuring measures are EBIT accretive from start of this year. So I think, from that perspective, we have reason to be more optimistic after this '18 season.

Now just before we get to the question, I just want to take some other type of data point here and -- to share with you. And that is actually sustainability and sustainovate, which is the terminology we use when we talk about integrating sustainability into our way of being. We have set a target of reducing the intensity of CO2 to -- with minus 10% until 2020. That was done based on the reference of '15, if I'm remembering correctly.

Actually, we are at minus 24%. So we're way ahead. And of course, there are some good reasons. But by and large, it is a more decisive move from petrol-based, lower added-value platforms, walk-behinds, tractors, the Consumer Brand situation. You will recall that we also left one of the larger retailers, et cetera, for more of the battery-based products, the robot-based products, more of software-adding value or -- yes, so I think that's a great result, which shows that we take this seriously, and I want to be very clear about that.

Just to give you another data point. If you look at the energy and the share that comes from renewable energy sources, we are almost at 60%. I think we're at 58% now. That was 0% in 2015. So we are taking some big steps to really put this on the agenda. I don't talk maybe as much as I should, given all the good things we're doing. But I just want to draw your attention to that this is an important piece of Husqvarna going forward. And some of you will recall that we committed very clearly to the scientific-based targets and the green path some few years back.

So we are on the right side because those targets were approved by the scientific-based organization related to UN as what we need to do and take our fair share, so to say, for the global warming to be less than 1.5 to 2 degrees versus preindustrial levels. So I think that's an important statement. And we see market leadership, when we talk about that. Of course, it's technology innovation. But it's also increasing this aspect that's becoming important.

So last slide, before Johan runs the show with Q&A here, is just to inform you that we will have a Capital Market Day. Actually, we intended to have it already last autumn, but we felt the important thing was to get the Consumer Brands restructuring done. So we said, "Let's stay with that." And then we take the Capital Market Day when we can be more forward-looking and have your mental focus also on the forward-looking pieces.

So it's 17th of September. Some interesting product innovations, talking about the next financial period and strategy, which is going to be quite exciting. And there's a lot of work progressing on that as we speak. And so -- and we had thought it would be good, actually, to go task one. It's a bit of more effort for you in respect to transportation, but I think it will be rewarding at the end.

So with that, Johan, please.

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Questions and Answers

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Johan Andersson, [1]

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Thank you very much, Kai and Glen. And we will start the Q&A session with questions here in the floor in Stockholm. (Operator Instructions) So let us start with Kenneth.

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Kenneth Toll Johansson, Carnegie Investment Bank AB, Research Division - Financial Analyst [2]

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So Kenneth Toll at Carnegie. A question on the knock-on effects. You said there were knock-on effects from the weak season in Q4 and the last season. But now when you look ahead into the sell-in season for 2019, for the first quarter, you still see that dealers and retailers have excess inventories compared to a normal year that you sell in, in Q1 will also be affected of last year's dry weather, so to speak?

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [3]

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That's a very valid question. I should actually have answered in this piece, preempted it, but let me deal with it. Now we have knock-on effects with a bit of higher versus average inventories going into Q4 and during the course of Q4 for Husqvarna, whereas we had a bit opposite with Gardena. I would say there is no knock-on effect from Husqvarna in this season. I think you can see that's a depletion of the excess inventories during in Q4. So I think we're working a bit fairly, fairly -- but there are some smaller geography variations, as always, in that, but by and large, that's the view for Husqvarna. And for Gardena, it's still, of course, a little bit less than average, which means that fill-in reasonably should be higher. On the other hand, there were some fairly large e-channel fill-up early on last year quarter. So -- but it's going to be -- reasonably going to be on the positive side, on that side as well.

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Johan Eliason, Kepler Cheuvreux, Research Division - Analyst [4]

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Johan Eliason, Kepler Cheuvreux. It's interesting that you put the remaining consumer businesses into this new division, and they also get the same 3% to 5% growth target. That's how I understood it. Can you say something about the growth profile of the businesses you're keeping from the Consumer Brands? Has that part been able to show historically these growth rates? Or is this a step-up now for them?

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [5]

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I think what we -- for example, now looking at North America, which is the big piece, that's now -- we have eliminated certain brands. And we are then focusing on Husqvarna-branded bits and pieces, which means we can also put a bit higher pressure on those items going ahead. And there are also channel expansion opportunities which might have been underserved in those structure. And channel synergies, like the one I described with the robot, where we combined actually the retail and dealer structures to create more customer value solution orientation, that enables us overall to actually have the same targets for those bits and pieces. So it's a bit smarter setup to synergistically deal with it. And that's why we feel comfortable to actually state that those bits and pieces staying, they can be folded under the same growth targets.

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Johan Eliason, Kepler Cheuvreux, Research Division - Analyst [6]

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And then that goes for the longer-term 3 to 5, not only for...

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [7]

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Correct. There's no reason to make an exception beyond the one I mentioned, which is the business still to be exited. But that's not, in the greater scheme of things huge, the SEK 1 billion to SEK 1.5 billion in 2020.

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Johan Eliason, Kepler Cheuvreux, Research Division - Analyst [8]

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And then just an update on Robotics and battery, handheld. What's the difficulty for them as well, I guess, last year, but share of turnover and growth rates, roughly?

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [9]

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Growth rates of Robotics then, I normally talk about this as a combined electric type of growth number. Then the statement has been well above 20% in the last few years. That was not necessarily true. For the '18 season in particular, the Robotics suffered from that. It's still growth positive but not really impressive. On the other hand, we don't think we really have lost share either. So I think we have, by and large, kept our shares but a fairly small number compared to what we're used to. On the other hand, battery continued to be well above. So on that side, it's moved on in a good way. You also asked for absolute levels. And if you look at the share of revenues, I think we talked about 10% in '16. And if you apply then that more than 20%, still, you can say, by and large, with 14%, 15%, the rough numbers here.

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Johan Andersson, [10]

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Okay. I think we had a question here in the back. Christer?

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Christer Magnergård, DNB Markets, Research Division - Head of Equities Research of Sweden and Senior Equity Analyst of Capital Goods & Automotive [11]

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Christer Magnergård from DNB. A couple of questions. First one on your -- the business that you're exiting. In Q3, you said that you're targeting about SEK 2 billion in sales that you're exiting in -- on Consumer Brands and then SEK 1 billion to SEK 2 billion for 2020. Now you lowered that target a bit. Why is that?

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [12]

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I think it's just the consequence of a better visibility into the details. It's -- I wouldn't overdramatize this piece. It's somewhat lower, but it's not miles away. It's nothing fundamental that has changed. It's rather the visibility that has become a lot better.

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Christer Magnergård, DNB Markets, Research Division - Head of Equities Research of Sweden and Senior Equity Analyst of Capital Goods & Automotive [13]

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Okay. The second one is actually on the competitor. iRobot launched their first robot last week after a few years of development. This has a new technology compared to all other robots in the market. Can you comment a bit on that technology or that kind of technology compared to the technology you use?

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [14]

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It's true. I'm not sure it's true that they actually launched something. I think they presented something, which was a prototype, to be more precise. And I don't think they were very specific about when it will be sold. That was my understanding. I might be wrong. So I don't want to be quoted, but that's my understanding. As to the technology piece, they have their legacy, of course, with the indoors and with the vacuum cleaners. And I think they've been hugely successful, particularly in North America with that stuff. So I don't think we should be surprised that they tried to make a technology synergy and move outdoor. I think it's still to be seen what -- how well they will have that being reliable over time. But let me also say very clearly, they are, for sure, not the only one working with that technology. The benefit of that technology can be argued, whether it's more suited for the residential garden or other types of focuses. So I wouldn't overstate the importance of that in true terms for the residential garden, but it might be a marketing argument, a perceived argument. I think the reality of it is there are very few more reliable and cost-effective solutions than the boundary wire for the residential setting. Then there might be a tech image where you would like to avoid that and rather work with beacons and putting beacons in the soil in a couple of locations, battery-powered, which seem to be the way they have chosen. And that's an opportunity, I think, to do as well. So I wouldn't say that's, by any standards, strange or absurd pricing to us. I think we have, of course, worked with -- and assessed similar systems with -- since quite some time. So I think I'll leave it there.

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Christer Magnergård, DNB Markets, Research Division - Head of Equities Research of Sweden and Senior Equity Analyst of Capital Goods & Automotive [15]

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And last one, sorry, is, the -- are the company's investors were -- have been doing a lot of spinoffs. You have Atlas Copco and you have Electrolux. I've asked this question for like 10 years now. What are you thinking about construction products?

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [16]

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Yes, I've had that question before. I would say there are some obvious things, of course, brand that you can deal with, I guess, backend suppliers, production, et cetera, that you can probably deal with. I would say, the way I see it, Construction probably has more synergies within the group now than ever before if we look at the petrol for battery shift, if we look at the digitization and what we're doing. So both those areas, actually, there are huge synergies. And I think you saw -- I didn't comment upon that, but maybe I should have -- yes, scroll back a bit and show you again the construction battery-based power cutter. That battery system is the same ecosystem that we have on the forest and garden side. So we utilize the same ecosystem here. So there are many developments, which can be true synergies since they are not -- and I particularly would like to point at those 2 areas. So maybe it is the right question but the wrong time, so to say. There might be a future in which that kind of tapers off, and then that pressure might resurface with higher intensity. I don't see it being relevant right now.

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Johan Andersson, [17]

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We had another question here at the front. Rasmus?

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Rasmus Engberg, Handelsbanken Capital Markets AB, Research Division - Research Analyst [18]

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Rasmus Engberg with Handelsbanken. I had a couple of questions. Firstly, can you explain, when you sort of made this exit from certain segments in the U.S., you went to preproduce for several -- for the season. So your inventories will be completely strange. Is that correct or how does that work?

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [19]

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Glen, yes, you might want to jump in here, please.

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Glen Instone, Husqvarna AB (publ) - Senior VP of Finance, IR & Communication and CFO [20]

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Obviously, the main segment there is petrol walk-behind products, and we're going to still be producing through Q2. So the season's largely behind us then. It's really a March, April, May season, so it's largely behind us. So I don't see that will be a big effect on the balance sheet.

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Rasmus Engberg, Handelsbanken Capital Markets AB, Research Division - Research Analyst [21]

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I thought you said that you would close during Q1 in the last presentation.

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Glen Instone, Husqvarna AB (publ) - Senior VP of Finance, IR & Communication and CFO [22]

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It will be finalized during Q2. That will be -- doors locked.

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Rasmus Engberg, Handelsbanken Capital Markets AB, Research Division - Research Analyst [23]

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Then we won't have to worry about that so much. And the second thing is, can you sort of outline your presence in the U.S. in terms of robo mowers or Automower in particular? If you were to sort of compare '19 to '18, where are you, so to speak, in that process?

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [24]

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'19 versus '18, or '18 versus '17? So if you look at the ambition of this year, it's probably a factor of 10 versus '18. So I think we start now to really expect more significant changes of our sales profile in the market. Maybe the '18 to '17 was a factor of 3 years, something. But it's -- but the numbers are also small in that. So I think '19 is the first season that really might become the more significant of a breakthrough. And we see that even though it is more of as an early adopter market at this stage, we still see a lot of interest on the category from various directions. So -- but I'd rather come back and talk about that when we have more facts than plans. The plans are quite extensive, I tell you, Rasmus, that reality is better.

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Rasmus Engberg, Handelsbanken Capital Markets AB, Research Division - Research Analyst [25]

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Can I just ask a final question? You're going to launch some new robo mowers as well.

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [26]

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I'm not going to use the terminology the robo mower because there is a competitor that calls it that. Automower, yes, please.

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Rasmus Engberg, Handelsbanken Capital Markets AB, Research Division - Research Analyst [27]

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What's in that, the new one that you're going to release and show off in Barcelona?

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [28]

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Well, I think there's a lot happening, of course, on the software side and how we apply and start to use the connect apps in a more structured way. I mean, there are -- if you look at the total number of connected products, it's, give and take, a couple hundred thousand for sure. And how do we deal with the data that we are gathering through that and how do we start applying more machine learning/AI into that space? I think that's an aspect of the whole thing. And then from the launch side, it's going to be very much around the 4-wheel base from the hardware platform. But I think you should see the whole system. And a little bit the way I talked also about Gardena, how Gardena has managed to become the outdoor gardening domain leader in the eyes of the big tech companies. I now think it's actually quite interesting, that recognition that we are starting to receive from the outside. Huge interest to work with us from the outside, which is, I think, very positive for the future.

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Johan Andersson, [29]

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Okay. I think we had a question in the back. Olof?

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Olof Cederholm, ABG Sundal Collier Holding ASA, Research Division - Analyst [30]

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It's Olaf with ABG. 2 questions. First on product mix. 2019 was not a good Automower year.

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [31]

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'18.

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Olof Cederholm, ABG Sundal Collier Holding ASA, Research Division - Analyst [32]

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'18, yes. Going into '19, are you expecting that growth will again exceed 20% going into '19 over '18? And also, how do you think about the product mix in Gardena? Will that be a contributor or a negative year-over-year? That's the first, I guess, those 2 questions.

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [33]

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Yes. The first question there about growth rates of Robotics in '19 versus '18, yes, very clearly, we expect that to be about 20% again, yes. As to the mix for Gardena, I'm not fully sure how I should interpret it. But I'll interpret it as we had a high share of watering versus other pieces, is that correct? And watering is a profitable category. There's no discussion about it. So there is an element of lower, we'll say, profitability improvements with Gardena. I think they have a tough reference. I think we communicated that before. So with the '18 year, I think if they stay above -- give and take on that level, I think they -- that's a realistic situation, sales profitability. I'm sure they would like to make something better than that, but I think that's a realistic point, given all that -- the lined-up stars during the '18 season for them.

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Olof Cederholm, ABG Sundal Collier Holding ASA, Research Division - Analyst [34]

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Yes, okay. And then lastly, on the cost savings, the SEK 250 million, are you including underlying profitability improvement in the remaining part of that business in that? Or is this simply cost out? Because the remaining parts, I hope, will be more profitable than the stuff you left -- leave.

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Glen Instone, Husqvarna AB (publ) - Senior VP of Finance, IR & Communication and CFO [35]

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The SEK 250 million we talk about on the exited business, the restructuring, that's purely cost out.

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Olof Cederholm, ABG Sundal Collier Holding ASA, Research Division - Analyst [36]

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Okay. So then there's an element of underlying improvement in profitability just by keeping the better parts?

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Glen Instone, Husqvarna AB (publ) - Senior VP of Finance, IR & Communication and CFO [37]

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You could say we exit the worst part of the business, yes.

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Olof Cederholm, ABG Sundal Collier Holding ASA, Research Division - Analyst [38]

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Will that be profitable, the remaining part, in 2020?

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Glen Instone, Husqvarna AB (publ) - Senior VP of Finance, IR & Communication and CFO [39]

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That has got to be the end. Got to be the end. I will leave it at that.

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [40]

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You said 2020, I think, it has to be.

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Johan Andersson, [41]

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Good. I think we had another question here.

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Unidentified Analyst, [42]

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Yes. You're pretty explicit over -- optimistic at least on EBIT margin development in 2019. And is this due to better visibility within certain of the elements of the EBITDA bridge? Is it more cost related or demand related for you now?

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [43]

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I think we're just -- we were taking a lot of beating in '18, we were standing on the wrong foot with the whole price versus tariff, raw materials and the season unfolding, and we still kept investing, so to say. So that situation is what we're really dealing with now. And when we do the pluses or minuses of that, we should, given a reasonable average season, be ending up somewhere around the region of the best previous year or something better. But that something better is where it starts to become more unclear. If the ambition is there, no hesitation. Whether the reality supports it, still to be seen. But we are optimistic. But because of these reasons and of course, the other reasons mentioned, the strength of the product offering and, of course, the support from the previous strategic initiative investments done.

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Unidentified Analyst, [44]

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And on -- as you also continue to drive investments, to drive growth for Gardena, as you highlighted now, could you give some color on what you are -- what kind of activities that relates to in Gardena ahead of '19?

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [45]

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Yes. I think we are pressing on -- in that fairly broad sense. I think we have a pretty much up-to-date battery-based system or actually 2, 18-volt and 40-volt. You have an updated watering system. You have hand tools being very much up-to-date. And then you have, of course, robotics mowers and lower-priced model in the market as well as the whole smart system configuration. So I think it's a very strong offering, by and large. I don't think we really have any...

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Unidentified Analyst, [46]

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Broadening or offering?

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [47]

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Broadening, I should say. And if you take the terminology of breadth and level of being updated, it's actually both those dimensions, so it looks very strong. There are always things to continue working on. City gardening, we are making new plans, but, yes...

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Unidentified Analyst, [48]

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And also on this U.K. market that can -- that we saw some evidence of a good '18 from extremely low base on -- in terms of Robotics.

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [49]

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You take Gardena -- are we talking Gardena now or generally?

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Unidentified Analyst, [50]

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Generally.

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [51]

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Okay. Generally, I wouldn't overstate '18 in U.K. on the robotics side. Gardena, if there is one little disappointment on the Gardena side, that's probably U.K. But that very much related to the entry point being a partner of ours on the retail side from another continent on the other side of the world getting into U.K. but then withdrawing. So we have to change our strategy on go-to-market a bit. So there was a temporary setback in the U.K. in the revenue growth versus what we expected. So you can say that's still to be materialized, but the trajectory of that is going to be a bit more time-consuming, but we're very clear about how to do it. So we will get there on the Gardena side, but it will take some more time.

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Johan Andersson, [52]

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Okay, thank you very much. Let us see if we have any questions. We have very -- we're a little bit short on time. But let's see if we have any questions on -- over the phone, and let's take 1 or 2 of them. Do we have any questions over the telephone conference?

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Operator [53]

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(Operator Instructions)

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Johan Andersson, [54]

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No. We don't have any questions?

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Operator [55]

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There are no further questions at this time. Please continue.

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Johan Andersson, [56]

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Okay, very good. So I think with that, we'll thank you very much for coming here and also for the ones that's listening over the web. And then we have the next report in April, so see you then. Thank you very much for today.

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Kai Wärn, Husqvarna AB (publ) - CEO, President & Director [57]

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Thank you.

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Glen Instone, Husqvarna AB (publ) - Senior VP of Finance, IR & Communication and CFO [58]

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Thank you.