Husqvarna AB (publ)

Hello, everyone, and welcome to the presentation of Husqvarna Group's financial report for the second quarter of 2024. My name is Johan Andersson, responsible for investor relations, and will be the moderator here today. Here in Stockholm, we have our CEO, Pavel Heiman, and our CFO, Terry Burke, that will present the report. And afterwards, we will conclude with a Q&A session. And you can ask your questions over the telephone conference or you can send in your questions via the web interface. So warm welcome. And with that, I leave over to you, Pavel.

Thank you, Johan. And of course, also a warm welcome from my side. And let me begin by highlighting the key points of the quarter. So the quarter started off well from a selling perspective, following the gradual improvement that we saw in the first quarter. However, the weak macroeconomic climate with cautious consumer spending and also cautiousness among our channel partners gradually affected our business negatively. And in addition, we have experienced heavy rainfall and cold weather in Central Europe and North America, and this significantly impacted Gardena's watering business. The sales drop was significant towards the end of the quarter, especially in June. And in our construction division, we experienced weak market conditions in North America, which affected sales negatively also. Altogether, these factors had a large negative impact on our financial result for the quarter. On the other hand, we are very pleased with the development of our professional robotic lawn mower business, where we achieved a strong growth in the quarter. And this was driven by Siora, but also by the entire professional robotics range that we have. Additionally, we delivered growth and strengthened our positions in the focus areas of battery-driven products for consumers and also in parts and accessories. Importantly, we also delivered a stable gross margin in the quarter. This was driven by delivery of our cost savings and benefits from our planned exits of low profitable wheeled petrol products. We also achieved a good cash flow in the quarter, and this was primarily driven by our relentless focus on reducing inventory levels that we've been now pursuing for two years time. And given the market dynamics, we now accelerate the ongoing execution within our existing cost savings program. And our commitment to the strategy remains, and we continue to invest in prioritized growth areas. This is robotics, battery, pro solutions and watering. So let's take a closer look on the numbers for the quarter then. In total, organic sales declined by 6% with the decrease coming towards the end of the quarter. So again, the sell-in went well and initially all three divisions reported growth. However, the end customer demand and also the sentiment from our channel partners were weaker than what we were expecting towards the end of the quarter. We achieved growth in several of the group's important product segments, such as the robotic mowers for the professional market, battery-powered consumer products, parts and accessories, demolition robots and also diamond tools. And as said, for the Gardena division, the rainy and wet weather conditions in Central Europe and North America impacted the watering business with a significant decline during the end of the quarter. Petrol-powered products, particularly the wheeled products, declined during the quarter, but at a less extent than earlier, and we also saw growth in this product segment in Europe. The planned exits of our low-margin wheeled products were 426 million in the quarter, and it impacted the sales with a negative 2%. In construction, we had a stable sales development in Europe, which is an improvement compared to our first quarter, as well as compared with 2023. And we achieved growth in the emerging markets, but sales declined in our important North American market. Our gross margin has been stable in the quarter, and this mainly due to positive effects from our planned product exits and also the efficiency enhancements that we are pursuing. So for the quarter group operating income amounted to 1.9 billion SEG compared with 2.3 in the same quarter in the previous year. This is also adjusted for items affecting comparability. And the main drivers for the lower operating income are lower volumes, lower capacity utilization and negative mix effect. The negative mix effect comes both from product mix, but also geographical mix. And this was partly offset by our cost savings, where we realized 215 million in the quarter and where we have now realized 400 million year to date compared with last year. Our direct operating cash flow was 3.9 billion. Importantly, we continue to decrease our inventory levels and we're now down 3.2 billion or 18% compared to last year. And as previously communicated, we have stopped using trade receivables financing. And the effect on cash flow is lower in this quarter than the last quarter. And adjusted for this, our cash flow is down 250 million in the quarter. But for the first half, the cash flow improved 350 million, if we adjust for this effect of the trade receivables financing. And we expect a positive contribution, of course, from the accounts receivable going forward into quarter three and quarter four. Robotics and battery as a share of group sales is 20% on a 12 month rolling basis. What I also like to mention is that we have actually increased the amount of electrified motorized products, which now has increased to 44% of our total motorized range. We grew strongly in professional robotics and also in the consumer battery-powered products. The sales of robotic mowers for the residential market were lower during the quarter compared to the same quarter last year, however still on a positive trend compared to the first quarter. And we clearly see a shift to boundary wire free mowers. A shift that we have pioneered with our initial entry into the professional segment. And we are at the forefront of. And currently we have five NERA models with boundary wire free technology. And those actually accounted for one third of our residential robotic mower sales this quarter. We have a solid product pipeline and we will continue to introduce further models in the market. For instance, next season we will launch three new grade Gardena models with boundary wire free technology and also two new boundary wire free entry level models under the Husqvarna brand. In addition, also our flagship four-wheel drive model will be boundary wire free for the next season, which will be a great support for the professional segment also. So with these words, let me pass on to Terry to tell us about some of the specifics in the division. Please, Terry.

Thank you, Pavel. Moving on to the Husqvarna Forest and Garden Division. Organic sales for the quarter was some negative 6%. However, it is worth pointing out that we had an improved operating margin, and we improved the operating margin to 13.2% compared to a 13% comparable last year. We did manage to grow in some very key strategic areas. There was good growth in professional robotics, in consumer battery-powered products, and in parts and accessories. Those are key important areas for us. As Pavel mentioned a little bit earlier, we did see sequentially improved residential robotic sales. It was negative in the quarter, but it was an improved situation compared to the Q1. And I think it's also worth reminding the first half of last year was a relatively high comparable as we caught up on supply disturbances. So have that in mind, please. We did have lower sales in petrol powered products, particularly in the wheeled in North America. What we've seen in the decline in the North America was particularly around the high ticket price items. There was a decline, which we see coming through here. When we look at it from a half year perspective, organic sales are down 12% and we have an operating margin of 13.8% compared to 14.5% last year. Probably also worth to note, we have a positive currency effect for the quarter of around some 60 million here and then for the half year around some 250 million. Moving on to Gardena. A difficult quarter for Gardena and as Pavel mentioned earlier, actually the sales started very positively for Gardena in April and then it declined as the season started and the unfavorable weather conditions really kicked in. So we have an organic sales decline of some 9%, negative 9% and an operating margin of 15.2% compared to 17% last year. The data and statistics that we have would clearly show it has been a wet and cold start to the season. Q2 has been negatively affected both in, I would say, mainland Europe as well as North America with a delayed start to the spring in North America. So those have clearly impacted our sales development for Gardena. If you actually take out the watering part of the sales within the guardian division, the other segments are relatively stable from a sales performance perspective. It's really the watering category that has had the negative effect during the quarter. We do have good sales in our battery handheld products in Gardena, but of course, the operating margin has declined as a result of the negative volume and mix. Of course, watering being a margin accretive part of our business, then it has had a negative effect there. They have been partly offset by our cost savings program. I'll come on to that a little bit later. So organically, minus 4% year to date and a margin, a flattish margin of around 15.2 compared to 15.4 for the first half of last year. Moving on to construction. A continued challenging year for construction, I would describe it as. And in the quarter, we had an organic sales decline of some 3% and an operating margin of 9.7%. There has been good growth in emerging markets. Europe, I would say, is relatively stable from a sales performance perspective. However, there has been a significant decline in the North American market. And that, whilst impacting sales, also has a negative impact in our operating margins. So please be aware of that and note that. there are pockets of the business that have performed well demolition robots continue to perform well and grow and diamond tools has also had a positive sales development in the quarter but with this negative sales mix with the negative sales sorry the volume and then we've also as we've actively managed our inventory levels down there has been a under utilization within our manufacturing sites, that has had a negative impact on our operating income. First half year, organic sales minus 5% and an operating margin of 9.9%. Moving on to the EBIT bridge. The profitability has been impacted by the negative 6% sales decline. And of course, there has been a margin reduction, moving from a 13.6% margin to a 12.4% margin. If I just work from the left to the right, the big impact in our business has been around price, where we have roughly 1% negative price development in the quarter. We've been doing some campaigns due to the weaker consumer demand and also the weather conditions, so there has been some campaigns to stimulate sales. At the same time, we've had the volume reduction and the underutilization as we've driven our inventory levels down. Also a mix in some of our important margin accretive products has been negative and that has also impacted in the profitability. Very positive to see our cost savings programme continuing to deliver. And in the quarter, we delivered 215 million of savings. We are tracking very well in this area, and it's good to see that coming through and supporting our margins. Raw materials and logistics, a small negative. We did have a positive development in logistics. However, that was outweighed by a negative development in the raw materials. So overall, a small negative. Just shy of 100 million of transformational initiatives, we continue to invest in our strategic areas. And it's very important that we continue to invest in our value creation levers. And here you can see a continuation of that. 80 million currency effect, driving us to the 12.4% margin for the quarter. It's a very similar story for the first half year, impacted by a 9% organic sales decline. I referred to earlier around our price, and for the first half year, a negative 1% price is basically how that's shaping up. So that's impacting, again, we've been doing campaigns and trying to stimulate sales in a difficult environment. The volume has obviously had an impact and then the mix, unfavorable mix, both from a geographical perspective and also from some product segments. Cost savings year to date, 400 million. We delivered just shy of 400 million in 2023 as well. so that means now we are coming up to 800 million savings we have achieved in our cost our cost reduction program our overall target was 1.2 billion and of that we've now reached just just below 800 million so we feel very good around the cost savings and we will continue to accelerate that in the difficult circumstances we have Slight negative with the raw materials and logistics, I mentioned it earlier. Transformational initiatives, as I say, we continue to invest in our value creation levers. And then we have a currency upside of some 280 million in the first half of the year. And I would expect a continued positive currency, but at a much smaller rate. But I think there will be a small positive currency for the rest of the year. So that takes our margin to 12.7% for the first half year compared to 13.8% last year. Balance sheet. We have a solid financial position, and it's important that we continue to remind everybody we have a solid financial position. That's important. The key areas to point out here, first of all, trade receivables. This is the final quarter where we have a comparable, where last year at Q2, we did trade receivable financing. That will now stop as we go into Q3 and onwards. as a comparable. So we have to be mindful and adjust for that trade receivables. Inventory, we have done very good work in driving our inventory levels down. If you adjust for currency, we have reduced our inventory level by 3 billion reduction since the start of the year in currency adjusted. I think it's important to get that across. We go further down on the balance sheet. You can see an improved borrowing situation here as well. We've lowered our borrowings by some 1.3 billion since the start of the year as well, which is good to see as we continue on our positive cash flow. Trade payables is down, but that's really driven by our reduced inventory ambitions and really lower manufacturing volumes. Net debt EBITDA, of course, from a rolling 12 perspective, our EBITDA has decreased and that has had an impact on the ratio here that we have. Net debt overall is relatively flat as it stands. But again, have in mind, we've got the trade receivable financing last year that we don't have this year. We will continue to drive our net debt down and we would expect this ratio to start to improve in the quarters ahead. I think it's also worth pointing out just visually as well, you can see the chart here. I think it's very important that you can see since December 2022, we have made significant improvements in reducing our inventory levels. That, of course, has had a very positive effect on our cash flow. We continue to stay focused on reducing our inventory. All divisions have contributed to the inventory level reductions. And as I said, that has really supported the positive cash flow in 2023 and 2024. With cash flow, there is a strong performance. And I think it is important to remind and point out that if you were just for the trade receivable financing, year to date, we have a 350 million cash flow improvement compared to last year. and we should not forget last year was a strong cash flow year around six and a half billion and we feel in a good position with a high focus and priority on continued positive cash flow for the second half of the year with that pavel i pass back to you