Husqvarna AB (publ)

Hello, everyone, and welcome to the presentation of Husqvarna Group's report for the fourth quarter and full year 2023. My name is Johan Andersson and heading up the investor relations department here in Husqvarna Group. And here in Stockholm today, we will present the report by our CEO, Pavel Heyman, and our CFO, Terry Burke. After the presentation of the report, we will open up for a Q&A session, and you can ask your questions through the web interface or over the phone conference here in Stockholm. So with that, I would like to hand over to Pavel to start today's presentation. Please, Pavel.

Thank you, Johan. And welcome, everyone, of course, also from my side. And before we go into the quarter, I'm very glad that we can conclude that we're closing the year where we actually continue to deliver on our strategy in a very challenging market environment. And we have improved our operating margin for the group and also in all three divisions. And cash flow is up just above seven billion improvement for the year. And we have advanced in our key areas for value creation and really reinforced our position in segments such as robotics, battery products and smart watering. But let's turn into the quarter then and some of the comments there. During quarter four, we experienced that the challenging market condition continued just as they were in quarter three. Our customers are generally more cautious and awaiting the start of the gardening season. And this affected, of course, our volumes. But on the other hand, we have a number of segments that actually deliver growth, such as Husqvarna Professional Robotics, our watering business in Europe and also our professional battery powered products. And to mitigate this more challenging situation, we have since earlier implemented efficiency measures and cost savings, which are now really delivering good results. We clearly see that in both Gardena and Husqvarna construction divisions, which both then achieved an improved operating income as well as an operating margin for the quarter. Another aspect to point out for the quarter is our continuous focus on cash flow that continue to generate good results. Our working capital levels are now coming down year on year, and we have a positive cash flow of around 500 million in the fourth quarter. Also, it's encouraging, of course, to see that we execute on our Sustainovate program and deliver in the terms of CO2 reduction as well as a reduced climate footprint. I will come back to these milestones further in the presentation. So with that, let's take a look a little bit more on the numbers for the quarter. Organic sales decreased by 15%, as reported was minus 17. And the key driver to this development is an overall weaker market situation. And when we analyze the entire decline in detail, we can see that around 40% of this is due to a tough comparison from high robotics sales in quarter four last year, but also our exits of the low margin petrol business in North America. And then the remaining part then is then, of course, linked to the overall weaker market. As I stated earlier, we still see, though, that we managed to grow our sales of professional robotics, pro battery and also watering in Europe in this quarter. In the Husqvarna construction division, we had good sales progress in emerging markets, but a weaker performance in Europe, as we also had in quarter three, and now also to a certain limited degree in North America. Overall, construction delivers a very strong result for the quarter, as well as a record EBIT for the year and historically also as a division. Group operating income amounted to negative 168 million, excluding items affecting comparability in the quarter. Terry will of course go into further detail on this, but the decrease is mainly related to lower volumes, which were then partly offset by our cost savings of some 110 million in the quarter, but also we had lower logistics cost. And we should also note that we actually had a negative currency impact in the quarter of around 105 million. Now, direct operating cash flow improved to 500 million driven by improved cash flow then from inventories and trade receivables, which were both continued to be reduced. Robotics and battery as a share of group sales is actually now 20% for the year, and sales of residential robotic mowers were lower during the quarter compared to the same quarter last year, and this is mainly due to the improved supply situation and the backlog deliveries that we did in the second half of last year. However, importantly to note is that robotics sales in this quarter was above the average for the same quarter in previous years, and actually also higher than in 2021 so when analyzing the season we have clearly gained market share and market position in robotics compared with last year and we have managed a full year growth we are well positioned with great product news for 24 season both in robotics and battery solutions but also other products and we will look at some of these product news later in the presentation Let us zoom out and take a longer perspective look on our profitability development and trajectory. I'm really very proud that we have achieved an improved margin this year up to 9.3%. From an absolute level, we're also achieving the second best EBIT for a year. And as you can see over the last 10 year period, and this is driven by good execution in the company, as well as these cost savings programs that we have clarified earlier. We continue to execute on our strategy and our long-term transformation, really with the ambition to build a stronger Husqvarna Group. And we really continue to focus on the value growing in segments which have higher profitability and higher future growth potential. With that, I leave it over to you, Terry, then to discuss a little bit more of the divisions in detail.

Thank you, Pavel. And hello, everybody from my side. Let's start with our largest division and do a little bit of a deep dive in each of the divisions as we go here. The Husqvarna Forest and Garden division that had an organic net sales decline of some 21% in the quarter. From a sales perspective, we did have strong growth in professional robotics and we had strong growth in pro battery products, which is really good to see how those have developed. We have seen a weak demand, particularly around the wheeled products. Of course, we have some exits in the quarter as well. Some exits of around 180 million, but even adjusting for that, there was a weak wheeled demand. Pavel touched upon it a little bit earlier with regards to robotics and we should not forget quarter four 2022 was a high comparable given the catch-up on the back order situation of robotics and therefore the residential part of our robotics is lower significantly lower this time but higher than previous years so it's more that quarter 422 was exceptionally high In the quarter, we see a relatively flat operating margin just below zero, a negative 7 million second in the quarter, which is lower than last year, but again, on the back of a strong Q4 last year from the robotics. We have performed well with our cost saving program, and that is starting to come through in a good way. But of course, with the lower volumes, it has impacted our operating income. If we zoom out and we look at the full year impact, the full year result, we see a 4% sales decline for the full year organic. And what we're pleased to see is we see an improved operating income, both in absolute value above 3.2 billion and also an operating margin improvement to 10.2% versus 10% last year. Moving on to the Gardena division, we see an organic sales decline of 4% in the quarter. What is good to point out here is in Europe, the sales of Gardena Europe was positive, was strong. However, this was offset by negative sales development in orbit in the US. However, also worth pointing out, although Orbit had lower sales, actually from a profitability perspective, it was an improved operating income and the quality of earnings improved, which was actually margin accretive to the division in quarter four. We did have some positive effects from cost savings and also low logistics costs. And when we look at our operating income for the quarter, we see an improved operating margin, 19.9% versus 21.4% last year, and also an improved operating income of minus 264 compared to a minus 314. And that is also despite a significant currency headwind of some minus 145 in the quarter. Zooming out again for the Gardena division, looking at it from a full year perspective, organic sales declined 10% in the year. However, operating margin increased. We moved to 8.8% compared to 8.6 last year and a relatively flat absolute EBIT at 1.136. Construction. I think construction quarter four has really continued where the previous three quarters were with a strong performance, a strong financial performance. There has been a slight downturn in sales. And here we talk about an organic sales decline of 6%. Sales were strong in emerging markets. However, we did see a decline in sales in Europe and North America. You can see we have a positive margin improvement here and that was really driven by a positive mix, good cost control and lower logistics. So all in all, you can see our result in the quarter was 9.1% versus 6.1% comparable. During the quarter, we also made a small acquisition of Total Diamond products in the UK. This will help our diamond tool distribution within the UK. Zooming out, looking at the full year, Construction division actually achieved more than 1 billion of EBIT. And that is something we are very pleased with. And it's great to see the positive development there. They operate an income now at 11.9% compared to 10.4% previous. Moving on to the quarter for EBIT Bridge. Let's keep the perspective. This is a small quarter. It's the smallest quarter of all quarters in the year. Have that in mind, please. What we see here is, of course, given our negative 15% organic sales, that has an impact on the volume. You see this with the red bar, minus 270 million in volume mix and other. Our cost program is performing well. We're very pleased with how our cost savings program is performing, and we delivered 110 million SEK of savings during the quarter. We also had a positive effect particularly around logistics. We haven't necessarily seen it so much in raw materials, but at least logistics is continuing with a positive cost development, and that contributes to some 165 million. We continue to invest in our transformational initiatives, some 55 million in the quarter, and we focus on our strategic value creation levers. We pointed out before around Gardena having a negative currency effect for the quarter, and this really came through overall for the group of some negative 105 million currency in the quarter. So putting all of that together, a negative margin of 1.9, negative 168 million SEC. Zooming out, looking at the full year. You can see again that the red bar is really driven by the volume decline. We did deliver good price in the year. So very solid price coming through during the year. However, the volume reduction was quite significant. And of course, that has played an impact onto the EBIT. As I stated a minute ago, cost savings is delivering to plan. We're very pleased with that. And the full year effect is some 380 million cost savings during the year. Logistics has really contributed positively during the course of the year with some positive 580 million. And as I said previously, strategic investments, we continue with our strategic investments, we believe in our strategic investments and some 275 invested during the year. We had quite a significant currency headwind in quarter four, but when we look at it from a full year effect, it's actually quite a minimal and some minus 35 for the full year. So all in all, we're very pleased. We delivered a stronger EBIT in absolute value for 970 and we also delivered an improved EBIT margin of 9.3% versus 9% previous. Balance sheet. We have made, I would say, good progress on our balance sheet. And of course, first, let me just reiterate, we do have a solid financial position and a healthy balance sheet. We've made good progress in our working capital. And as you can see here, our inventories have reduced, our trade receivables have reduced, partly because of lower sales, but also because of good receivables collection. And you can see our borrowings have also reduced on the back of positive cash flow during the year. So all in all, I think quite satisfied with our balance sheet. There is more to do on inventory and I'll come on to that in a minute. Moving on to net debt EBITDA, we are now at a rolling 12 of 2.1. As I just said a second earlier, we continue to focus to drive our net debt down. And as we continue to deliver positive cash flow, the net debt will reduce. Our EBITDA also improved during the year. We had an improvement compared to last year. So we see this now starting to level off at the 2.1%. Record high cash flow, which is very encouraging for Pavel and I to see. We've been very focused on cash flow during this year. It's very important to us and we delivered a record cash share of 6.5 billion. We will continue to focus on our cash flow in 2024. We will continue to drive inventory levels down and we also have the ambition another strong cash flow year for us in 2024. But we're very pleased with how this ended the year. So wrapping up 2023, we do suggest the board will make a dividend proposal of three Swedish crown for 2023 financial year, which is flat and comparable with 2022. And this is really on the back of our strong cash flow performance. We continue to strengthen our positions in the value creating areas we want to be. and we will continue on our strategy execution. Pavel, with that, I pass it back to you. Thank you.