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