Husqvarna AB (publ)

Hello, everyone, and welcome to the presentation of Husqvarna Group's report for the third quarter of 2023. My name is Johan Andersson, responsible for investor relations, and will be the moderator here today. With me here in Stockholm, I have our CEO, Pavel Heimann, and our CFO, Terry Burke. Pavel and Terry will present the report, and then afterwards, we will open up for a Q&A session. And I would like to remind you that you can both ask your questions over the telephone conference and also enter your questions in the web interface. So again, warm welcome. And with that, I'll hand over to Pavel.

Thank you, Johan. And good morning and a warm welcome also from my side. And before we go into the Before we go into the details of the third quarter, I'd like to share overall comments on the performance. And we have discussed around challenging macroeconomic situation during some time, mainly in relation to the Gardena performance. And this quarter, we also knew that we had tough comparisons, both from the high robotics volumes last year, but we also had announced exits of petrol products impacting us now in the second half. But clearly, we have now seen additional effects with more challenging market conditions and reduced consumer demand. And this has further impacted our volumes in the third quarter for the two forest and garden segments and predominantly for the Husqvarna forest and garden division. Now we are executing on our cost savings, driving efficiency in our organizations in science time. And despite the lower volumes now in quarter three, we do manage to improve the operating result in our construction division. And also the result was flat in the Gardena division. And our focus on cash flow continue to generate results. And in quarter three, we improved our cash flow by 1.5 billion compared to last year. Now, we expect the challenging macroeconomic environment will continue, and accordingly, we have reduced our manufacturing to a lower level than normal for the remainder of the year. And also, as we are announcing today, we are expanding our cost savings further, and Terry will come back with more details on that. We need to remind ourselves that the third quarter is a small quarter for us as the garden season comes to its end. And if we zoom out and we analyze the year-to-date number, the nine-month period, we have improved both the operating income, reaching an EBIT over 5 billion SEK, as well as the operating margin for the group that has improved to 11.5. And we have delivered a cash flow of over 6 billion SEK, which is the second best for a number of years now. Also, our focus on strategic value creation areas are showing results. We are proud that we continue to expand in the robotics, in the battery powered products and also in smart watering and professional products. And I will say a few words later also on this. It is also encouraging that we have reduced further our climate footprint significantly when it comes to the CO2 reduction. And I will also talk about the milestones around our climate targets also in this presentation. so with that let's also take a closer look then on the quarter for the group the overall net sales was 10.5 billion sec and our organic sales decreased by 15 on the positive side we had sales of battery-powered products that was continuously strong in this quarter and throughout the year And we're also taking market share in this area. Another key segment to highlight is our smart watering micro drip products significantly that really showed a good growth in the quarter. And this for us is a clear indication of the increasing interest in sustainable water. Sales of petrol powered wheel products decreased sharply. This is the major driver for the sales decrease in the quarter. And this was due to significantly lower demand and the fact also that we, as previously communicated, are proactively exiting parts of this segment. Our construction division shows overall resilience, as I mentioned when talking about the previous page. We achieved the sales growth in North America and emerging markets, but we see a decline in Europe, predominantly in the Scandinavian countries. And group operating income amounted to SEK 415 million or 450 million SEK in the quarter. Terry will of course discuss this in detail, but the decrease is mainly related to the lower volumes, but also then partly offset by low single digit price increase effect and various kinds of cost savings that are progressing to plan in our programs. direct operating cash flow i already mentioned improved by 1.5 billion sec in the quarter up to 1.8 and this is mainly driven then by the reduction in inventories but also trade receivables Now, robotics and battery now as a share of our group sales increased to 21% for the last 12 months, and sales of robotic mowers were lower in the quarter due to the comparison numbers versus last year sales. And this was because we had, let's say, a changed seasonal buying pattern of the robotics in 22, where a majority came in the second half versus normally coming in the first half. However, I think it is important to understand and know that the sales in the third quarter was above the average for the same quarter in the past years. So even though there is a volume decline, it is still on a good level. And also we have had growth in the US or we have growth in the US for robotics, not only in this quarter, but throughout the whole year. And also when we now see that official market share numbers are available, we can see that we have clearly gained market share in robotics and battery products compared with last year. Let us zoom out and look at our performance from a bit of a longer perspective. We are executing on our strategy and our long-term transformation to build a stronger Husqvarna Group. We are growing in our targeted segments where we see higher profitability and the future growth prospects. And with the good results in the first half, where we normally have the majority of the gardening season, we have increased the absolute rolling 12 months EBIT to over 5 billion on a rolling 12-month period. And a small uptick also in the margin, 9.3% versus the full year last year on 9%. And our ambition is, of course, to clearly continue this long-term journey in our strategy execution. So having made this overview, I leave it over then to you, Terry, for the detailed numbers.

Thank you, Paavo. Hello, everybody. So if we dig a little bit deeper into the divisions, first of all, let's take the forest and garden division. And clearly, this is a challenging quarter for the forest and garden division, where we see in the organic sales decline of some 21% and an operating margin of some 4.8% versus 7.2% last year. Just to put into context the net sales reduction, as you can see on the right hand side for the quarter, we are at 6.1 versus 7.7, 7.8 last year. That reduction, there's a number of factors why that has reduced some 1.6 billion. But if we try to break it down just a little bit, I would describe 50% of the reduction being market driven, weaker consumer demand, and 50% being the fact that we have exited some of our low margin consumer wield, which we've communicated. And secondly, the adjustment for the robotics because quarter three 2022 was a backlog catch-up quarter. So when we adjust for that and we adjust for the exits, that's roughly half of the reason for the sales decline. As we've just talked about previously, Pavel's mentioned it previously, it's great to see that battery products has continued to grow and we've seen a significant improvement in our electrification journey and that has continued for the forest and garden division here as well in the quarter. We talked about the decline in wheeled products, both as a result of weaker demand and also as a result of the exits. Some 300 million, approximately 300 million sec of exits in wheeled impacting Q3. We also talked about the lower robotics. Last quarter three 2022 was artificially high because of the backlog catch up. And I would say this year is a more normalized quarter three in our robotic sales, but still higher than past year's average. Operating margin obviously is impacted by the significant volume reduction, and we have managed to offset some of that with price increases and favorable raw material and logistics. I think what is important on this slide is we actually step back a little bit from the quarter and we look at the year to date. And I think the year to date shows a much more positive perspective because we did have a strong first half of the year. And then, of course, considering Q3, when you look at it from a year to date perspective, we have a flat sales, organic sales. But despite that flat sales, we have an improved operating income and our operating income has increased to 12.2 percent versus 11.7 last year moving over to gardena um Gardena has had continued challenging conditions. The first half of the year was quite challenging for Gardena, and that continued with Q3 as well. Organic sales declined by some 8% in Q3, and there is a negative operating margin of some minus 1.8, which is more or less flat with previous year quarter three. Worth pointing out, Orbit had a lower sales in Q3. Despite that lower sales, they have improved their operating income. Their operating income has improved for the quarter, but it's also worth pointing out that their operating income has also improved for the year to date as well. I think with Gardena, Gardena have had quite a challenging environment during 2022 and 2023. And I think one thing that comes across pretty clearly with Gardena is they have really driven some very effective cost efficiencies and they've been able to execute on price increases, which have helped support the operating income both for the quarter and the year to date. Actually, from the quarter perspective, if you adjust for the currency, it is an improved operating income for Gardena in the quarter. Stepping out from a year-to-date perspective, organic sales has declined some 11% now and operating margin at 12% versus 12.3% last year. Construction. I would say quarter three for construction is a continued, robust, positive development that has followed on from a strong first half of the year. Yes, organic sales has had a slight decline of some minus 1%. However, what you can see is a quite significant improvement in the operating income, moving from a 9% to a 10.9%. So really good to see how the operating income is improving. And that's really driven by positive price development and cost savings. When we look at the sales, North America in emerging markets has continued to be strong during Q3. However, Europe for construction has been weaker during Q3. Looking at the year-to-date nine-month development, organic sales are some negative 2%. However, a one percentage point improvement in operating margin, and you can see 12.8% versus 11.8% last year. So again, another solid performance and result from construction. Looking at the quarter three EBIT bridge, really I would describe this, it's really around the volume reductions that we've had during the quarter. We talk about some minus 15% in organic sales. That also includes a small positive price increase. So once you adjust for that as well, we've got significant volume reduction in Q3. And that is really what you see in the red bar, this minus 585 in the quarter. That's really a volume-driven story of why that has impacted our EBIT. On a positive note, our cost savings program continues to deliver. We announced last year, this time last year, that we had some ambitions to deliver an 800 million cost saving program with full effect 2025. I would say we're on track with that and we delivered 90 million of cost savings in the quarter. In the quarter, we also seen positive raw material and logistics, some 300 million improvement there that was really driven by logistics. There was a small positive in raw materials as well, but it's really just logistics driven that is improving that result. Transformational initiatives, we have our strategy, we continue to invest in our strategy, and there are some 55 million of investments going in to support us with our value creation levers and continue to invest in our strategy and our direction. There was a positive currency effect of some 60 million, which takes us to 415 million and a 3.9% margin in Q3. We look at the year-to-date EBIT bridge. The price volume bar is much smaller when you look at it from a year-to-date perspective. We do have a negative volume impact year-to-date. We've had quite robust price increases coming through, particularly in the first half of the year. Q3 was much weaker in prices, and that's really more of a time and effect of how the price increases were implemented during 2022. So we have a negative volume development, and that is really the main explanation why we have a negative 260 on price and volume. As I said earlier, we continue with our cost savings. We are at 270 million now in the first nine months. So really good to see. And we are clearly on track to deliver our cost savings program. Raw material and logistics, really heavily driven by logistics, as I mentioned previously. We have started to see an improved situation with raw materials now. We didn't see that earlier in the year, but we are starting to see a positive development in raw materials coming through now, which is good. Transformational initiative, some 220 million as we continue to invest, as I stated earlier. And now from a year-to-date perspective, a positive 70 million really driven by the weak Swedish crown. So year-to-date, we are at 11.5% margin, 5.138 billion, if you want to call it so. Moving from the result and really more thinking about the future and looking ahead. Obviously, we have seen a weaker demand during Q3. And now we will launch an additional cost savings program. And this is really to position the group for longer term value creation. So this, just to be clear, this is an additional cost saving program in addition to the one we talked about previously. We talk about some 400 million additional cost savings, and this will unfortunately impact approximately 300 positions. Maybe one thing to point out here on this as well is, previously, when we've communicated the cost reduction programme, we've then said half of it would be reinvested back through transformational initiatives. For this programme, it is purely a cost-out programme, so it's 400 million of cost-out. We, of course, continue with our transformational initiative investments, but that's part of the previous programme. This is purely a cost-out. So that 400 million in addition to the 800 we have previously communicated means we have a 1.2 million cost out program with full year effect 2025. Maybe also worth pointing out the 400 million cost savings that we aim to achieve, the majority of those will come in 2024. Moving on to the balance sheet. We continue with a very solid balance sheet and a very solid financial position. I think what we are really pleased to see is how our inventory has developed and reduced during the course of the year. Actually, if you were just for currency, our inventory has reduced by some 2.8 billion since the beginning of the year. And that is something we've been really focused on and we will continue to focus on and we will continue to drive inventory levels down. We've had a positive cash flow, which I'll come on to a little bit later. But that positive cash flow has also enabled us to reduce our net debt position by some 2.5 billion. And if you actually look at our borrowings, we have reduced our borrowings by 3.3 billion. So a really positive cash flow situation, which we're very pleased about. And that is helping also with our net debt position and borrowings. Lower payables is driven because of consequences of driving our inventory levels down. I've already talked a little bit around net debt. Net debt, we have reduced by 2.5 billion since the start of the year. This is a roll in 12 metric. So we are at 2.1 now. And we will continue to drive our cash flow. And that, of course, hopefully has an impact on our net debt position. Moving to cash flow, this is something we are extremely pleased about. In uncertain times, in difficult times, it's very important that we have positive cash flow. And here what you can see clearly is there's been a lot of focus through the year to drive our inventory down and also to drive a positive cash flow. We are now at above 6 billion positive cash flow. During the fourth quarter, we will continue to focus and drive inventory levels down, and that should also help us and support us with our cash flow to the rest of the year. With that, Pavel, I pass it back over to you.