Husqvarna AB (publ)

Hello everyone and welcome to the presentation of Husqvarna Group's report for the second quarter of 2023. My name is Johan Andersson and I'm responsible for investor relations here at Husqvarna Group and I will be the moderator here today. Here in Stockholm we have our CEO Pavel Heyman and our CFO Terry Burke. Pavel and Terry will present the report first, and then afterwards, we will open up for a Q&A session. I would like to remind you that you can ask your questions over the phone and also enter your question in the web interface, and then I will read it here in Stockholm. So with that, thank you very much, and I will leave the word over to you, Pavel.

Thank you, Johan, and welcome, everyone. A warm welcome from my side also here for our Q2 result that I would like to describe as a strong performance in the quarter as the season actually has unfolded. We have seen strong growth for our robotic mowers and battery-powered products. This continued throughout the quarter one and into quarter two. And I'm also very glad to say that we have seen watering also return to growth in the end of the quarter, which is, of course, very good. From a profitability perspective, we have increased our EBIT across all three divisions and, of course, then also across the group with 11%. And we have improved, of course, also our operating margin. We have managed to improve our cash flow also in the quarter, ending up on a 4.4 billion in the quarter now. This is mainly then driven by the operating income, but also improvements in inventories and trade receivables as well. We do continue to deliver on our strategy and we are transforming the group, fully following the petrol to electric transformation. This has provided good value for the group as well as for our shareholders. but also it gives us a way to drive our sustainability improvements, where we have improved and overstretched our target of CO2 reduction in this quarter. As we said, also in parallel with focusing on the strategic value growth areas that we have, we are also transforming our legacy business and we have done a certain consolidation of our operations in North America, which we will be talking a little bit more on also there. As we have said earlier, and as all of you are aware, during the first half year, as well as then in the second quarter, there is a continued macroeconomic uncertainty. We see that there is a bit more of cautiousness in the market, despite the fact that there is an underlying demand. And with that, we continue to focus on managing our costs, on improving our cash flow and also having an operational flexibility that will enable our readiness should the demand turn either up or down going forward. With that said, let's take a look a little bit more on the details of the quarter. As mentioned, our growth led us to sales of close to 70 billion. This is a sales growth of 7%. Organic, it's just slightly above the zero. The key drivers, as I mentioned, was the strong growth for robotic mowers. Here we see equal strong growth more for consumer mowers as well as actually for the professional mowers, and also battery-powered products, given our ability also to deliver on these product groups. which is good. We have also seen that we have been taking market share through independent research for robotic mowers during this quarter and of course we're very glad to see that our products are appreciated by the market. The demand for the watering products that grew gradually during the quarter, and it ended on a strong note, so we had a positive growth on watering here in the end of the quarter. and in total also the Gardena division really managed to deliver a slightly lower, so to say, slightly improved organic decline compared with both quarter one as well as compared with quarter two in the last year. We ended up on a minus two organic decline. But it was a significant improvement in the EBIT up to a very high margin that we will present later on also. So in total, also for construction, they had a positive sales development in the North America part, and especially also for concrete surfaces and floor segment and also parts of the sewing and drilling equipment. And also paired then with a good cost control, the division managed also to do a significant margin uplift in the same way as also Gardena have done that. So in total we delivered a higher EBIT just above 2.3 billion SEK organically and the margin ended up at 13.6 compared with the 13.1 margin. We will come into details around that, but the main drivers, of course, for the margin uplift was the price increases, the carryover from last year. We had also a favourable mix and we also saw lowering of the raw material and logistics costs as such. However, given the impact of the price increase, we do have lower volumes in most of our product assortment. The currency effect from the weaker crown was very small, minus 30 million actually on the result in the quarter as such. Cash flow improved, as I mentioned earlier, 4.4 billion in the quarter. Main improvements in the cash flow came, of course, from the operating result. But we also managed to decrease our inventory and also to collect our accounts receivable in a better way. And we actually also managed to reduce our net debt compared with the year end. We have, of course, continued focus on our direct operating cash flow, mainly through inventory reductions that will continue here throughout the second half of the year. Overall, electrification is progressing well, and that can be seen in our numbers and in our growth. Today, after the quarter two, robotics and battery is 20% of the total sales. And what I would like just to say here also is the fact that this includes also the second half of last year, which was to a certain degree a little bit above the normal sales of robotic in the second half, which normally is rather low. But as we had an improved delivery ability in the second half, that impacts this number for the quarter as such. More importantly around the electrification is that we have a good product portfolio. We are continuously launching new innovations and interesting products to the market. And I will say a couple of words on that a little bit later also. So looking on this slide, I think it is important to take a perspective that is long-term. This slide actually characterizes that we have been executing on a winning strategy, focusing on the value creation areas, which is robotics, which is battery, which is watering, and also our professional solutions. And over time, we see that that pays off in an improved profitability for the company. With the good results in the second quarter, we see that we raised the absolute operating profit level to be the second highest over a rolling 12-month period here, over a longer period. And we also have a rolling 12-month margin increase here from 9% full year 2022 to 9.4%. And of course, our ambition is to continue the growth improvement of the operating result and the margin towards our financial targets. Having said that, I leave it over now to you, Terry, to show us some more details.

Thank you, Pavel. Hello, everybody. Let me start with just repeating one of the bullet points that Pavel mentioned on the first slide. All three divisions improved their operating income and margin during Q2. I think that's something we can be quite satisfied about. It's really good to see how all three divisions have performed. If we start with the forest and garden division, organic sales in Q2 was some 3% and an operating margin of 13%. That's an improvement on 12.6% last year. have got strong growth in robotic and battery power products and that's great to see that that continuation from q1 has also carried over into q2 as well we've had some quite significant product launches during q2 in the first half of the year which we believe has been very successful if we talk about our nira is the boundary wire free residential robotic Max is our battery range in the US and North America, and Aspire is our battery range including robotic in Europe. All successful product launches. We have improved our margin and that's really driven by price mix, lower raw material costs and lower logistics costs. There was also a small positive currency effect of some 30 million in Q2. First half year, we have organic sales growth of 9% and an operating margin of 14.5%, which is an improvement versus the 13.7 from first half last year. Moving over to Gardena. A good recovery in Gardena is how I would describe Q2, particularly from a watering category perspective. Sales overall declined 2% organically. However, there was a significant operating margin improvement to 17% from 16.3% last year. As I said, watering returned to growth in the quarter which was really encouraging to see and of course helped by the favourable weather conditions during the latter part of Q2. Very good performance in orbit irrigation as well and actually something to call out that orbit was margin accretive to the Gardena division during Q2. The higher margin was also driven by price, lower costs, and lower cost in raw materials and logistics. There was a significant currency negative effect of some 115 million in the quarter. First half year, We are a sales decline organically of negative 11% and an operating margin of 15.4% versus 15.7% last year. But as I said earlier, good to see that Q2 is more of a recovery and getting back on track after a very challenging Q1 in the Gardena division. Construction. I would describe construction as another solid quarter building on a solid quarter one in the construction division. Organic sales declined by 5%. However, operating margin improved and that went to 14.1% versus 13.9% Q2 2022. There was good growth in North America, which helped the result, and also strong performance in concrete surface and floor segment. Price increases and cost efficiency supported the favorable margin development. There was also a positive currency effect of some 60 million in the quarter. Putting that into the first half year perspective, organic sales declined 3%. However, operating margin improved, and we are now at 13.7% first half year for construction. If I just move over to the Q2 EBIT bridge and just to visualize how we see the performance in Q2 and how we've improved our margin from 13.1% to 13.6%. Starting from left to right, there has been a continued positive price carryover from 2022 into 2023. We got the majority of the positive price increase during Q1, but there was also some positive price increase in Q2. If you adjust for price, volume is actually down, so that has a negative effect on the result. And in the quarter, there was some favorable mix really driven by the robotic. Cost savings, good to see. We are on track with our cost savings, cost operational efficiencies programme, and we delivered some 100 million cost efficiency in Q2. That's really good because that is critical to help fund the transformational initiatives. And as you see towards the right-hand side, a 90 million investment in our transformational initiatives and driving our strategy. In the middle, you see a favourable raw materials and logistics. But let me be clear here. This is really heavily driven by logistics rather than raw materials. It was really the positive logistics effect that accounted for the number here rather than the materials. Small negative currency of negative 30 million gets us to just above 2.3 billion for the quarter. First half year. Again, if we start from the left to the right, we move from a 13.5% margin to a 13.8% margin. We've improved our EBIT by some 11% in the first half year. I alluded to it a little bit earlier, price has played a part here in driving our profitability, and that is really a big part of it is the carryover from 2022 into 2023. Again, if you were just for price, volume is a negative in the first half year, but we have some positive 330 million in total. Cost savings, first half year, 175. And again, just to repeat, it's very important that we drive our cost saving programmes because that is really used to fund our transformational initiatives, which again, you can see is some 165 million of investment. So a good balance there between cost savings and transformational initiative investments. From the first half year perspective, raw materials and logistics is now a small positive of 110 million. Currency is more or less flat now for the first half year, and that gets us to the just above 4.7 billion first half in EBIT. Balance sheet. Let me start, and I think I say this quite often when I have these presentations, we have a solid financial position. We have a very solid balance sheet and we are in a good shape overall with the balance sheet. We have reduced our net debt since the year end by some two billion, which is great to see. And that, of course, is driven by our cash flow improvements, which I'll come on to a little bit later. Inventory, we have also reduced our inventory. If you were just for currency translation, we've reduced our inventory by more than 2 billion as well since the beginning of the year, which is really good to see. The other thing maybe perhaps to call out here is trade receivables, slightly higher, but that is really driven by the higher sales and also a timing that we had a strong second half of Q2, particularly within the Gardena division. Net debt EBITDA has reached 2.0. I think this, because we measure this on a roll in 12, then of course this will take some time to start to level out and hopefully start to come back down again. We have reduced our net debt recently and also we are improving our EBITDA. So with that in mind, we would expect to see this leveling out and then starting to reduce in the quarters ahead. Finally, this was one of the most important financial targets that I had set personally for the group during 2023, is we needed to get back into a much more positive cash flow situation. And it's great to see that at the end of Q2, we are at some 4.2 billion of positive direct operating cash flow. we will continue to drive and focus our cash flow situation we will continue to drive inventory down and manage our working capital in a good way and we plan for a further improved cash flow to the rest of the year with that pavel i pass it back to you thank you terry so

Looking back at the quarter, we also have some highlights, of course, we want to mention regarding products. We stand strong on the market with a market-leading brand or market-leading brands, and we also stand strong as an innovator and a premium supplier of various solutions. We have launched a new improved Gardena micro drip system during the period here. This is of course very important given the fact that we see droughts coming and that we see that this also leads in some cases to watering limitations. and in some cases we also see actually that there are subsidies given for water efficient products being sold out in the market. So this is something that has been appreciated by our customers and will of course help to also conserve water despite the fact that you would like to water your plants so that they can continue to grow. We have also launched another product that is strengthening our transition from petrol to battery. This is a new professional chainsaw, mainly for arborists and for tree professionals. This is the first electric chainsaw that actually has a clutch also. And the functionality of the clutch is to give a stronger power when you release the clutch. you actually consolidate the power and then you release it when you release the clutch. So this is a good addition to our already large professional assortment of electric products and especially of chainsaws. With the integration of blast track that we have been doing in the last period of time into the construction division and the refinement and integration of the product assortment, we are now a complete partner in surface preparations. We have the most complete assortment for this kind of applications on the market and we really cover the whole application area from compacting all the way to polishing the floor also. And then last but not least, you have heard Terry mention the Husqvarna Nera, which is our first consumer boundary wire free robotics that was launched in this year. And we see a very large acceptance and demand for this product. We have been in the market with boundary wire products since earlier among our full professional assortment. So this is a very reliable and tested solution. and also in addition into our Automower Connect remote application, we have added the so-called rewilding mode, which enables the owners and the users to simply block a certain area in their garden from mowing in order to enhance the biodiversity within the garden, which we think also is a very good feature that gives selectability for the customers on how they want to manage their garden and how they want to grow and develop their garden. So we stand strong on the product side, clearly. We have since earlier informed about our focus on the four value creation areas. We have the ambition to continue investing more into robotics, battery power products and professional solutions, and also the watering products. uh we mentioned that we would like from 2025 to uh to add another 400 million on a yearly so to say investment into this for various kinds of development maybe r d go to market etc and of course at the same time we also announced that we will be shifting and and acting on the shift from petrol to battery We will continue then to adapt our legacy organization and legacy footprint that we have and make that more efficient as such, of course. Overall, that should also give us a savings of approximately 800 million from 2025 and onwards. This so-called acceleration programme is progressing very well as planned throughout all three divisions in the various kinds of activities. We have been already since in earlier quarters optimising our manufacturing footprint. That has mainly been in our Japanese plant where there has been a large shift into other plants. We have also earlier said that we are exiting approximately 2 billion SEK of low margin petrol power consumer business. This is primarily wheel business. And due to that, we are also then further consolidating and adapting our operations in North America that is related to this exiting of the 2 billion SEK business. This means that we are right-sizing the Orangeburg factory, which is our wheeled factory in the United States, and taking that down to the appropriate volume that will be now going forward. And we're also completely closing down the production facility in Nashville, Arkansas, which still is our handheld production for the North American market. The majority of the production in Nashville will be moved into Sao Carlos in Brazil, where we have an operational unit since earlier. We have been doing some operational investments in Sao Carlos. We will continue to do that, and that is not only to accommodate for the volume coming from Nashville, but that is also actually for supporting and enhancing our focus within light agriculture, which is a part of the professional solutions ambition that we have. Overall, in North America, there is approximately some 900 positions that are impacted by these changes in Orangeburg and in Nashville. Sustainability is a very important part for us, a strategic ambition for the long term, and we have been doing good progress in our development in the Sustainavate 2025 target setting, which we have had. We are focusing on three targets to reduce the carbon footprint, to enhance circular innovation and also to enable customers and employees to actually make a sustainable choice. All three targets have developed well in the quarter. We have reached a CO2 reduction of 38% compared with our base year of 2015. We are very proud of that. At the time when we were setting the target for 2025 of minus 35, we have felt that that is very ambitious and we still think it is ambitious. But the drive and the transition into electrification has, of course, improved the result of this. However, we should be aware that we still have two more years to go and there is a certain volatility also in the market and in the demand. Of course, our ambition is to meet the minus 35 or even supersede it also in two years from now. As to Circular, we have launched another five new innovations into this area of sustainability. may this be around refurbished PCBs that will be for sales for robotics, may it be for energy-efficient systematic mowing, may it be related to post-consumer reusable plastics and areas like that. And we have a further pipeline of another 15 innovations, so we feel that we are well on track to reach our target of 50 in 2025. As to people and the empowerment, we have improved there with some 400,000 estimated persons that we have enabled and empowered to make a sustainable choice. And of course, this is very much driven by our increased assortment, which becomes more sustainable, but also by the fact that we are reaching out with information and education to everybody around our products and what this means. So we feel very content and also proud about supporting society in improving the sustainability aspects of how we go forward. So to summarize, we are reporting a very good performance in quarter two, where all the divisions have improved their EBIT results, both from an absolute number as well as the margins. We do deliver a stronger cash flow than earlier. We have a good pace in our strategic execution of the four focus areas, but also our acceleration program in transitioning our organization and footprints. And finally, as stated also, the macroeconomic uncertainty continues. We stand strong on the market. There is an underlying demand in general for our products from all three divisions. But at the same time, we do see some signs of uncertainty also in the second half of the year. And we actually also have a couple of comparables in the second half of the year that are important to be aware of, which we can develop a little bit more during the question and answer session, of course. So having said that, thank you. And back to you, Johan.

Thank you very much, Pavel and Terry. So we have now come to the point to start the Q&A session. And let's start with the questions over the phone. So please operate there if you can start the Q&A session over the phone.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and 1 at this time. The first question comes from the line of Johan Eliasson with Captain Chauvre. Please go ahead.

Hi, this is Johan Eliasson. Starting off with the forestry and garden development there. Obviously, weak volumes impacted your margins in the quarter with some underabsorption. Now you're closing down another 2 billion of sales for petrol-powered ride-on mowers mainly. What sort of impact on absorption will that have in the second half of this year? And then on that topic, just philosophically a little bit, It's obviously a petrol-powered product that you are closing down and then leaving the revenue opportunity. But then the part of the re-thing is obviously we want to go to an electric world. But I haven't read much about your ride-on mover business with the battery power, so electrical power. So is that not something you're focusing on at all? Is the robotic solution your preferred sort of electric lawn mower product rather because your gross margins will always be better on the robotic product than sort of an electric ride-on mover? Or how's your thinking regarding this strategy? Thank you.

So, may I start answering your second question and then regarding the underabsorption? I will leave it over to you, Terry, a little bit. But we are indeed also focusing, of course, on developing electrified ride-on products. This has been going on for a couple of years. We are, let's say, a little phased behind the development of the electric handheld products. as a comparison. But already in this year, actually in previous year and in this year and in the coming years, we are releasing electrified ride-ons. We are also actually releasing autonomous mowers. as well, so we are not putting all our efforts only into the robotics as that is a low energy way of cutting grass and we need also to have different alternatives for different applications where larger power is needed. And therefore, we are also focusing the development on electrified ride-ons of larger sizes. Since earlier, we also have a hybrid rider for professional use since a couple of years back. So indeed, we are also focusing on this.

Thank you, Pavel. Yes, if I can say a couple of words around factory absorption. First of all, in the first half year, we have had a negative factory absorption. And I think that has come through in some of the numbers because, of course, we have been driving inventory reductions during the first half of the year. And I also want to be clear, we will continue to drive inventory reductions in the second half of the year, which would also have a negative effect on cost absorption. It's the right thing to do because we want to drive the right working capital and improve our cash flow. Specifically, to exit in the two billion, We will right-size Orangeburg. So what we are doing is we will adjust Orangeburg to the new volume productions that will be required going forward. So we don't see that volume absorption impact because we will deal with that through the right sizing of Orangeburg. So I think that's important to take as well. And of course, one thing to be mindful of with the closure of Nashville, that is really driving operational efficiencies as we exit Nashville and we move our production to Sao Carlos and we look to drive operational efficiencies there.

Okay. And just on the two billion sales you're leaving, when do you think you will catch up with the sort of electrified products?

to compensate for those two billion well we have an ambition of course to increase both our robotics over the period as you remember we have said that until 2026 we want to come up to a level of approximately 12 billion in the robotics and we also of course want to increase our share of electrified motorized products. That is up to two thirds compared to when we started, when we had roughly one third. Here now, after the quarter two, we are approximately at a level of 40%. So we are moving in the right direction. And of course, our ambition is to, over time, transition into electric products. And it will be, of course, to a much substantial higher degree than only the two billion that we are exiting right now.

Okay, and there's finally a question on inventory levels among your customers. Could you sort of talk about it in North America, Europe, forestry and garden, garden and construction, et cetera?

Terry, would you like to say a word on that? um i would describe it as quite mixed actually um i think in some areas we have relatively normalized inventory levels particularly around around europe i would actually say in north america the market itself north america is soft and i think with that There is perhaps some higher inventory levels that would sit in the trade because of the soft market in North America. And I think it's mixed also within the divisions. Watering and Gardena, of course, having a strong sellout at the moment. We went through the pain of retailer inventory corrections, let's call it, during 2022. And I think we've now come out of that. We're at a more normalized level. And then you see that when the season really starts for Gardena and watering, and that really comes through into the sales numbers and development. So it's a little bit of a mixed situation depending on where you are.

And maybe to add on what you're saying, Terry, is also that, of course, we will have a better insight into this when we are through quarter three and when we see how the remaining months of the season has developed and how the sellout has been to be able also to judge how we operate the business into quarter four and into 2024.

Okay, excellent. Many thanks.

The next question comes from the line of Björn Ennarsson with Danske Bank. Please go ahead.

Yes, thank you. A question on the demand situation for construction. I mean, we are most likely... I mean, you reported quite soft volume numbers there, but it's very solid margin development. How much of cost efficiency is there and for how long can you deal with it through protecting margins through own actions? Could you likely see stable margins also in a likely weaker situation coming up?

I think if we first comment a little bit on the demand situation, As you know, the macroeconomical effects of the high interest rates are already now to a certain degree and will eventually, going forward, also impact the construction industry. There is no doubt about it. We mainly have our sales within the, may I call it, infrastructure segment, the commercial segment, and not within private housing, which is firstly affected. During the quarter, we have seen a differentiated demand throughout our regions. The US is standing strong still, whereas Europe and predominantly the northern part of Europe has been weaker. Also France has been a bit weaker. Right now we still see a good pipeline in the US going forward. There is of course a lead time around these larger infrastructure projects that is much longer than for individual housing. But so far for the year, we do forecast, let's say, some kind of a flat demand going forward if we have some regions that have a little bit better demand and other regions that have a slightly lower demand. And construction is very much oriented around their cost management. I think that they are doing a good job there. Of course, if eventually the market would soften very much, it will have an impact on the margin, but not as we see right now going forward into the second half of the year. I don't know, Terry, if you would like to add something.

No, I think you summarized it well, Pavel. Yeah, absolutely. I mean, let's not forget there is a good operating margin development. But yes, I take the point, organic sales is slightly down, yeah.

Then on the exit of the 2 billion, I mean, you will see cost decreasing 800 million, and then you will invest some 400 million, so a net saving of 400 million and that will be visible during the first half next year or how should we look upon that backwater and then secondly the mix impact on forest and garden if you can elaborate on that one

So just quoting the numbers, yes, we did talk about some 800 million of operational cost efficiencies, and then we would reinvest roughly half of that, some 400 million back into accelerating our strategy. But those numbers take a full year effect by 2025. So it's not quite there in 2024. There will be savings in 2024. Absolutely. We expect to be full year effect of some 500 towards that 800 million full year effect in 2024. And of course, investing will follow that as well. So we stick to our programme. We are on track with our programme. We are in a good way to deliver the full-year effect, 800 million by 2025. I hope that answers the question. On the low margin, Yes, we will exit low-margin wheeled product, and of course, that will support an EBIT margin improvement as, of course, exiting that business supports a margin accretive overall then.

Perfect. Thank you.

Thank you very much, Bjorn. Let's take one or two questions from the web interface. I think one here is for Pavel. It seems that you're gaining and winning on pro robotics in US. Can you elaborate a little bit on that? We are seeing quite some wins when you look at LinkedIn and other marketing material. Is it going in a good direction in your view?

Absolutely. Overall, in the pro segment, we are going in the right direction. There is a very large interest for our whole robotics assortment, which is not just the Seora that we very often talk about, but we also have three other 500 series products that also are very interesting for any kind of professional user. We are changing an industry that is of course used to cut loans mainly by wheeled products and this takes time but we see a continuous growth, we see a continuous interest. In the US we are present at the close to 30 of the top 100 golf courses with our solution. which I think shows the interest from the market, but also shows our dedication towards this. Of course, the good thing is also that when they are working on a golf course and displayed, also the people who are playing golf find an interest in that and potentially will buy that to their homes. So we see a double effect there. And also this gives us an opportunity also to have a discussion with golf courses or other kinds of sports sports centers, also around our battery products, of course, to have a complete, also sustainable solution for their usage. So we are pressing on. The potential is large. We are developing well, but of course, this will take time to change a whole industry from manual mowing into robotics mowing.

Good follow up there. Do you have any update on the big European win that you discussed in the q1 call? I think it was a large win here in Sweden, with multiple robots, anything on on on that one? And also, are you seeing robots seems to be very positive or seeing any soft softness anywhere on robots or in oil? Is it is it going in certain in a good demand and good direction?

We have had a good growth also in this quarter, which also signals that the sell-out has been good, and we have seen that. As I mentioned, we have taken market share in Europe on consumer robotics, which we have clearly seen. And overall, we see that the demand is still there for these products. The interest for switching over to robotic mowers is there. So we don't see any downturn right now at this point of time.

Good. Thank you. Another question, a little bit maybe special here. It's coming from Waverton. You get very good product reviews, especially on your battery-powered products, the robotic mowers and so forth. But in some niches, I don't see that, especially for snowblowers. There we are seeing many reviews that are not that good. What's your strategy and what's your view on your snowblower business?

That is of course a product that we have not yet fully addressed from an electrification and battery perspective. It's quite a difficult application to electrify with batteries, given the fact that there's a very high power needed for being able to throw the snow and in parallel you're doing this outdoor with minus temperatures that also drains the battery faster. It is on our radar, it is on our product roadmap, but it will still take some time before we come with such a product.

Another question just appeared here from Union in Germany. Can you please elaborate on the cooperation with Bosch on the battery side? Where do you use the batteries from that collaboration already? And what does it mean in terms of cost savings?

So the Power for All Alliance, which is the ecosystem that we created together with Bosch a couple of years ago, initially for the Gardena brand and their electrified products based then on the Bosch 18-volt battery, And that has also was very well received in the market. Of course, there's a sustainability aspect and also a cost saving for our end users, for our consumers to buy that kind of product with a variable battery or a variable use of the battery. We have expanded that cooperation now also through introducing the Aspire battery range for the Husqvarna Forest and Garden Division. And we are of course looking further in how we can potentially expand our cooperation within the electrification area there, of course.

Thank you very much. We don't have any further questions here over the web interface. Operator, do we have any further questions on the telephone conference?

As a reminder, if you wish to register for a question, please press star and one. The next question comes from Adela Dashian with Jefferies. Please go ahead.

Good morning. I have a follow-up question on the underlying demand, and especially when it relates to the more consumer-driven segments like Gardena. If we look at what some of the larger market participants in the segment say, we're looking at pretty tough and tough demand when it comes to home improvement initiatives and so on with some of the largest players even saying that they expect the general industry to be in the decline this year. That does not resonate when looking at your comments about seeing growth in Gardena towards the latter half of the quarter. So if you could please just go into a bit of a detail and then what what you are seeing in your end markets and how that's different from what other larger retailers and distributors are experiencing?

Well, I think first of all, it's important to say also that there's a difference. We have seen a difference in the demand pattern already earlier between the European retailers and the American retailers where we are present predominantly with Orbit. And already during 2022, the European retailers were much more cautious in ordering, in building stock. As Terry explained earlier, they were actually reducing their stocks, their inventories over quite a long period, I would say six to nine months. They returned to growth during the first half of this year, but not to a full demand growth. But as the season unfolded in Europe, we can see that the demand is there and the requests for further restocking and due to sell-through, the demand has been higher. When it comes to the US market, we did not really see that destocking among the American retailers during 2022. And we have seen, of course, still, though, a rather stronger demand during quarter two for the Orbit products. However, we are aware of the weaker demand. general, let's say, business situation within our segment, home improvement or retail, that is being seen now, I would say here, also in parallel with our growth for Orbit, but we start to see that now in the US. We do see that the sell-through is weakening. And we also see that the market for petrol, forest and garden products is weakening also here during the second half. So that is, of course, a risk that we acknowledge and that we are monitoring and that we are adapting to as it develops.

If you were to summarize your outlook now and also given the current trading in the first few weeks of Q3, Is it a stable development or declining development or an improvement from here on out? Because there's a lot of mixed signals, so it would be good to just know what your outlook is for the second half of this year.

As you know, we don't really provide forecasts for future periods in our business. What we can say is that the season is still on. There's still another two, three months of the season and i think after that we will have a much clearer picture of how it has continued to be and also whether the demand was stronger or lower whether they will remain inventory in the trade that potentially then could impact us and that we have then to adapt to

If I may add to that, Pavel, I think the reality is it is a mixed situation at the moment. So if you're reading it as mixed, that's because that's our message to a certain degree, it is mixed. Because when we see watering, watering has been strong towards the end of Q2. And of course, weather conditions have been favourable towards the Gardena division. And of course, when you're having... very high temperatures across North America and Europe, that is driving the business. So there has been a positive effect for the Gardiner division. On the flip side, when we talk about the Forest and Garden division, there is a softening, particularly in North America market, around the forest and garden products. And then I would say Europe is a little bit more normalized. Construction, we talked about a little bit before. Construction is weak in Europe. And however, it seems to be holding up in North America a little bit stronger. So it is a mixed picture.

Thank you very much for that clarification. That's all from me.

Thank you very much. We have another question here from Steven at The Methodologist. Could you comment a bit on the Orbit profit margin improvement, the drivers behind it, and do you see that that's sustainable, maybe for your turn?

Yeah, I think certainly Pavel and I are very pleased to see the orbit development in Q2. And there's really a couple of factors around that. During 2022, we were a little bit late in implementing significant price increases. And those price increases were to offset the cost pressures. And we suffered a little bit as a consequence of that. during 2022 however that positive price has not that price effect has now had a positive effect as we carry that over into 2023 and at the same time we've been very cost cautious and also raw material and logistics costs have started to come down so really And also there's some favorable mix. So there's a combination of a few different things that have really developed the orbit margin. And it's great to see that it's actually margin accretive.

Good, thanks. Another question here maybe for you, Pavel. If you take a golf club, then you, of course, to cover the whole area for the golf club, you need multiple robots. Do you see customers are there already today or are many customers trying buying one or two and trying how it's working and then increasing from that point? Where do you think the customers are in the buying cycle?

yeah i would say that the majority are trying this out one two three holes certain area test practice greens practice fairways etc but we also see that we have larger installations of course but i mean it is in its infancy there's no doubt about it it takes time to change the industry we do have very good products reliable products that work in those circumstances because it is quite complex a golf course not only from a curvature of the ground, but also from the reception of the signals from the satellites, et cetera.

Good. We have got a few questions here from Kristin Magnegård from D&B. Maybe to you, Terry, can you talk a little bit about the mix and margin development in the forest and garden division in Q2? From what he understands, battery products were growing and had a negative mix effect. Is it all battery products? Can you elaborate a little bit on that? When do you see generally that the battery products will be accretive? Is there something else that affects the margin in the forest and garden division in Q2 that we should think about?

Sure. Yes, the robotic sales is margin accretive and, of course, helping the margins. Battery, as talked about there and referred to, at this moment in time, because we don't have the scale with battery just yet, and the cost of the battery itself is quite expensive still, is not margin accretive. So as we grow battery in that sense, it is a challenge and we need to scale that up. Other things to be mindful of, we have really driven down inventory during the first half of year. And as a consequence of driving inventory down, of course, it means factory volumes are down and therefore absorption. So there is a cost absorption negative element to the Q2 result as well. In addition to that, we continue to invest in our transformational initiatives. That also comes into the numbers and how we drive and invest as we accelerate our strategy. There's a few different variables coming into that as well.

Great, thanks. Another question on the Gardena topic and here to the US. It's coming from Johan Eliasson at Kepler Chevreux. Your ambition was to introduce the Gardena brand in the US. Have you started to take any steps on that this year?

Yes, we have. Of course, we have started now also to integrate the operation of Orbit together with the Gardena operation in US as well as in Canada. We are launching products stepwise into the US market, and we are also developing new products that will be more suited for the American market, such as, for example, the robotic mowers that takes care of the different grass types that exists in the US to a much higher degree than what they do in Europe. So, indeed, we remain with our ambition to use Orbit as a, so to say, launch pad for the Gardena establishment in the American market.

Good follow up there. I don't know if you answered it, but will we see any Gordena products in the US next year? Do you think? Yes. Good clarification. Another question around price, maybe then to Terry, will you see then the price increases now to the effects from the price increases now to level off? And is it too early to talk around price for 2024?

First of all, yes, it is too early to talk about price for 2024. However, I think it's fairly obvious to many that the way the macroeconomic situation is, I wouldn't expect significant price increases for next year. But let's wait and see as we gear up and plan for the year ahead. With regards to the price positive effect that we have had so far this year, yes, a very large part of that has been the carryover effect from 2022 into 2023. And in 2023 itself, the price increases were very modest. So it's more of a carryover, which now flattens off in the second half of the year because it's really starting to come through now. So, yeah.

Good. Maybe then a final one coming from Krister Magnegård as well. Second half is, of course, a smaller half than first half, but nevertheless, you had a pretty strong growth rates in robotics in the second half. Can you say how high they were and how much should we take that into account when looking at the second half?

I'll take this one. What I would say is, of course, Q3 and Q4 last year, we were in a supply recovery situation, and we did sell more robotics during the second half of last year than what would be considered normal. We don't go into specifics of what those numbers would be, but what I would say is, of course, this year we will not have a repeat of the same level of robotics in the second half of this year compared to last year. because of this recovery situation last year.

Good. Thank you very much.

Maybe I can just comment further on what Terry just said, that this also, I think, concludes all the three areas which I mentioned in my initial speech, that we have some comparables which are important to understand into the second half year. One of them being the robotics recovery that we had in the second half of last year. The second one is the fact that as we are exiting the 2 billion SEC of low profitable wheel products for 2024, it also means that there will not be pre-builds in the end of this year as we have done in last year. And then the third, so to say, comparable is, of course, the weaker US market that we see in the forest and garden segment also. So I just want to be clear on that. Good. Thank you very much.

And we see that the clock has been over 11 now. And I think with that, we conclude this call for where we presented the results for the second quarter 2023. And we very much look forward to, if not before, meet you again on the 20th of October when we report the Q3 report. So with that, thank you very much here from Stockholm. And we wish you all a very nice summer. Thank you. Thank you.