Husqvarna AB (publ)

Hello, everyone, and welcome to the presentation of Husqvarna Group's report for the first quarter 2023. My name is Johan Andersson, responsible for investor relations at Husqvarna Group, and I will be the moderator here today. With me here in Stockholm to present the report, we have our acting CEO, Pavel Heyman, and CFO, Terry Burke. After the presentation by Pavel and Terry, we will open up for a Q&A session, and you're welcome to ask your questions over the phone conference or enter them through the web interface. So with that, again, welcome to today's session, and I hand over to you, Pavel.

Thank you, Johan, and welcome everybody from my side as well. And I'm happy to say that we are today reporting a solid start to the year and a record result for a first quarter. Sales were up with 9%, with an organic growth of 2% for the group, and this driven by our key strategic categories, such as robotic mowers and battery-powered products. And this enables our channel partners to have our full offering for the gardening season now. Overall, we delivered a record EBIT result in absolute terms for a first quarter. It is also great to see that we have improved our cash flow and started to lower our inventories, and net debt has also been reduced since year end in absolute value. We have made progress on our strategic ambitions and we are on track with the group's ongoing transformation to lead our industry to low-carbon solutions. We are stepping up our initiatives and investments in our key areas, robotics, battery, watering and professional solutions. And the program that we launched in October last year to accelerate the execution in progressing accordingly to plan, both from a strategic perspective, but also realized savings, that Terry will come back to shortly. And we're also delivering towards our SustainAvate 2025 targets, which I will come back to later in this presentation. however we still operate in an uncertain macroeconomic environment we have a sharp focus on costs we continue to improve our cash flow and maintain the flexibility in our operations and this to enable us to adapt to any potential changes in the economic environment and the customer demand and with that let us take a closer look at the quarter for the group Net sales grew by 9% and the organic growth was 2%, and the key drivers were robotics, battery products and also wheel products in front of the season start and the grass cutting. Growth for robotic mowers were strong for both the residential and the professional segment, and this was supported by solid demand and restocking by our servicing dealers ahead of the gardening season. In addition, the supply chain has improved, and we have reduced our order backlog overall. Gardena Division experienced continued cautiousness among our retail partners in the quarter, leading to a minus 20% organic sales growth. We should also remember that Gardena had a record quarter one last year, so the comparable is challenging. The Husqvarna construction division achieved a flat organic growth, but with positive development in North America and also with good growth for the concrete surface and floor segments. With good cost control, the division delivered a solid margin uplift. Moving on to the operating income, we delivered an EBIT result of 2 billion, 410 million, which is the best ever for a first quarter. Terry will discuss this in further detail, but the key drivers were our success with net sales growth, including price increases, as well as a cautiousness with costs. And the operating margin came in at 14%, which is the same as last year. We have managed to improve cash flow driven by better operational surplus and improved cash flow from working capital changes. We have high intention to continue to improve our cash flow in the year and activities are in place to continue to reduce inventory levels further into the season. Robotics and battery achieved strong performance and drove the share up to 17% for the last 12 months, driven to a large extent of solid demand and also improved supply chain. We are now back to the same level as a year ago, and we are up from the full year 22, which was on 15% level. Most importantly, we have a strong robotics portfolio and many new battery products for the season. When we zoom out and take a longer perspective, we are executing on our strategy and long-term transformation to build a stronger Husqvarna Group. This is through growing in segments with higher profitability and also high future growth prospects. And with the good results in the first quarter, we have increased the absolute EBIT level and also managed an uptick in the rolling 12 months margin to 9.1%. Our ambition is clearly to continue this journey in the coming years. And with this summary, I leave over to Terry to go through the numbers in more detail.

Thank you, Pavel. If we move over to the Husqvarna Forest and Garden Division first, an improved supply situation was supporting our strong Q1 for the Forest and Garden Division. In fact, from an absolute EBIT value of 1.7, I would say it was a record Q1 for the Forest and Garden Division. Organic sales growth of 14% and an operating income of 15.9%. We have good, strong growth for robotic mowers in both segments of professional and residential. We have also good performance of battery products and wheeled products, and we have an improved margin. And the improved operating margin is really driven by price increases, favourable mix and volume. There is a negative currency effect in the quarter of some minus 40 million SEC. If we move over to the Gardena division, a different story and a different picture to the forest and garden division. This is a continued challenging environment for Gardena where retailers continue to be very cautious and managing their inventory levels. There is an organic growth negative 20% and an operating margin of some 13.5%. As I said, the retailers continue to be very cautious, which is a carryover from 2022 into the start of the 23 season. The lower volumes have impacted our operating income. However, they have been partly offset by positive price effect and good cost controls. There was a small positive currency effect of 30 million in the operating income. Moving over to the construction division, I would say a very solid Q1 for construction as well and very good performance. And I believe also a record Q1 for EBIT in absolute value for construction division as well. Organic sales were flat and an operating margin of 13.3%. We had good growth in North America, and when we look at it from a product segment perspective, we had strong performance for concrete service and the floor segment. Operating result improves to 13.3%, and that is driven by price increases and cost efficiency. We also have a positive currency effect in the quarter of some 50 million. moving over to the ebit bridge and as pavel mentioned in the opening slide quarter one from an absolute ebit perspective was a record q1 at 2.4 billion 14 margin um we've improved our ebit by some 10 percent And that's really driven by a number of factors. And if I just walk through the bridge from the left to the right, we can see a large portion of the profitability improvement is driven through by price. We've actually got a strong price for quarter one, which is heavily impacted by a positive carryover of price from 2022 into quarter one 23. um price increases in 2022 were not all implemented from january 1 therefore there is a positive carryover during q1 that positive carryover will not impact for the rest of the year but but there was a positive impact for the q1 Once we adjust for price, we actually had a negative volume effect in the quarter and mix was more or less plus or minus flat in the quarter. Cost savings of some 80 million. And we are on track with our cost savings programme. Raw material and logistics, a negative 115 million. However, again, there's a small element of carryover from last year in this. And I would expect a more stabilised flat development for raw material and logistics for the rest of the year. We continue to invest in our acceleration programme on our strategy. So 75 million invested during the quarter, and we will continue to invest during the rest of the year as well. And a small positive overall currency effect of some 40 million, bringing us to this 2.4 billion EBIT. Moving over to the balance sheet. we continue our solid financial position um and i think we can be relatively pleased with our performance on the balance sheet and working capital during uh quarter one inventories i think is probably the one to highlight here uh whilst we look at it from a comparable year over year you see a 3.5 billion increase that is broken down into three elements we have a currency effect of 1.2 billion we have a cost of materials effect of some 1.1 billion and then uh additional inventory of roughly 1.2 billion So that's the components making up the 3.5 billion increase in inventories. However, what I would like to highlight is actually if we look at the December 22 or the quarter four closing of 22, we have actually reduced our inventories by roughly 700 million. and we continue to focus and drive inventory reduction that is a high focus area and a priority for us and that that reduced inventory is playing a positive effect on the cash flow which i will come to a little bit later Trade receivables is up, but that's really a consequence of higher sales during Q1. So that's really the drive behind it. And we expect that to come through and reduce as the season plays out. Borrow ends relatively flat compared to the year end. However, our net debt position has reduced by some 500 million, which is a good sign. And of course, we will continue to work and drive reducing our net debt, which is now at 17.2 billion versus 17.7 at the end of the year. Yes, moving on, I think from there, That takes us nicely to the cash flow situation, where you can see we have a significantly improved cash flow situation compared to Q1 last year. We have a small negative of some 239 million of direct operating cash flow at the end of Q1. We continue to work hard and drive our working capital and particularly our inventory levels down. The positive impact of cash flow is really driven by a higher EBITDA and this improved inventory of 700 million, which I talked about previously. And we really expect to see that move into a positive cash flow situation during quarter two. I think quarter one puts us in a good position to drive that positive cash flow going forward. Net debt EBITDA, I mentioned it a little bit earlier in the sense that our net debt is reducing from 17.7 billion at the end of the year to 17.2 billion. We will continue to drive our working capital and cash flow. And as we drive that improved situation with positive cash flow, then, of course, we aim to reduce some of our net debt and see further improvement.