Husqvarna AB (publ)

Hello, everyone, and welcome to the presentation of Husqvarna Group's report for the third quarter of 2024. 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 Heymann, and our CFO, Terry Burke. pavel and terry will present the report and afterwards we will open up for a q a session and as always you can ask your questions over the telephone conference or you can send them in via the web interface so with that i open this presentation and leave the word over to you pavel thank you juwan

So, welcome everyone, also from my side as well, to today's call. And I'm very pleased that we are presenting a quarter with good growth in the strategically important areas of robotics and battery. Also, we deliver a very strong cash flow and reduced net debt. And this is despite the challenging market and cautious consumer spending that is still very much impacting us as a group. And to navigate the challenging market conditions, we have accelerated the previously communicated cost-saving programs with good results. And today, we have also announced further mitigating activities to reduce fixed costs and enhance efficiency. This, Terry will present in detail later. However, importantly, in addition to this, we are also committed to identifying and implementing additional efficiency measures to further enhance our operational structure and effectiveness. The mitigating actions are important to turn the profitability development of our company. However, our primary focus remains on our long-term execution of the strategy, investing in the growth areas and ensuring sustainable value creation. A result of our long-term focus is the growth that we deliver in key strategic categories. And in addition, we have an extensive upcoming launch program for season 2025, particularly in the robotics. All in all, a solid foundation that will position us strongly for the future. So with that, let us also dive into the financial details for the quarter. As I started with, we are growing in robotic mowers in the quarter, both for the professional users, but also the residential market. And in addition, we are also growing in battery powered products and also in the aftermarket parts and accessories. In total, organic sales declined by 4%. The overall market situation is challenging with restrained consumer spending. Particularly, we experienced a weak North American market, which primarily have impacted Husqvarna Forest and Garden and also our construction division. For the quarter, group operating income amounted to 53 million compared with 415 in the previous period of the last year. The main drivers for this lower operating income are lower volumes, thus also lower capacity utilization, but also increased promotional activities towards the end of the gardening season. This was partly offset by our cost savings, where we realized 190 million now in the quarter, and we have already realized then 590 million Swedish crowns year to date compared with last year. Our direct operating cash flow was 4 billion and is at 6.3 billion SEK year to date to be compared with 6 billion for the same period in the previous year. Importantly, we continue to decrease our inventory levels, now down some 3.7 billion or around 22% from the start of the year. And all in all, our net debt is also reduced by 2.8 billion since the last quarter. Robotics and battery, which has a good growth as a share of group sales, is 20% on a 12-month rolling basis. And we grew strongly in professional robotics with double-digit growth. Our professional robotics are being rolled out in many golf courses, sports field and other private and public environments in the world. Generally, we see clearly a shift to boundary wire free robotic mowers in the market, a shift that we actually pioneered and are at the forefront of. Currently, we have five NERA models with boundary wire free technology, and those grew strongly now in the quarter. and as i mentioned we have a very solid product pipeline which relates to robotics but also other products and we will of course continue to introduce further new products into the market i will come back to the robotics launches later in the presentation but for now let me please pass back to terry to go through some specifics for the divisions so over to you terry thank you pavel

Starting with the Husqvarna Forest and Garden Division, organic sales declined 1% in the quarter, and we have a lower operating margin, which is now at 2.5%. There was good growth in some categories. In our professional robotics, we had strong double digit growth, and we also had growth in residential robotics. Consumer battery products and parts and accessories also grew. There was negative sales development in petrol powered products, specifically in Weald and in North America. The operating income was impacted by the lower volumes, the capacity under utilisation and some higher promotional activities during Q3. Year to date, we now have organic sales decline of 9% and an operating margin of 10.9% compared to the 12.2% last year. When we look at the Gardena division, And this was a continued difficult quarter for Gardena, following on from a difficult Q2 in Gardena. There was an organic sales decline of some 8% and a further reduced operating margin at a negative 7.6%. There was good growth in battery products and hand tools. However, the watering part of the Gardena business, which is the majority of the business for the division, was unfavourable. And that really was heavily impacted during the earlier part of the quarter. July was a significant negative development and it gradually improved during the course of the quarter. That also linked with our weather conditions, which improved in mainland Europe earlier. particularly around August and September. The operating income was negatively impacted through the volume and the mix and underutilization, which was partly offset by some of the cost saving program we have. Year to date, organic sales has declined 5% and an operating margin of some 11% compared to 12% last year. Moving on to construction. Organic sales decline also at a negative 8% in the quarter and an operating margin at 8.2% compared to 10.9% last year. A positive sign was sales growth in Europe. However, the weak market and the weak demand in North America has continued, and that has been quite considerably weaker over the last few quarters. And of course, from the division perspective, it's had a negative impact on how sales have developed. From a product category perspective, there's been good performance in power cutters, demolition, robots, and in parts and accessories. The operating income at a lower level has been impacted through to through the lower volumes, the capacity under utilization and also price, which has been partly offset by cost savings. Year to date, negative 6% organic and an operating margin of 9.4 compared to 12.8 last year. Moving on to the operating income EBIT bridge. As you can see, we have reached a 53 million Swedish crowns EBIT in the quarter, 0.5% margin compared to 4.15 last year and a 3.9% margin. And the real impact in the quarter has been driven by the price. We've been doing campaigns to motivate sales, the volume reduction. the underutilization in our factories. We continue to lower our inventory levels and also the mix effect. So all of those combined have had a negative impact of some 520 million in the quarter. Our cost savings programs that we have previously announced continue on track and are performing well, and that has positively contributed some 190 million in the quarter. Raw materials and logistics, there was a small positive in the quarter. That was really driven by logistics. Raw materials was pretty flat. Transformational initiatives, a small 20 million continued investment. However, we have slowed that down a little bit in certain areas, given the economic climate and the weaker demand we have seen this year. currency a small currency negative impact of 30 million in the quarter as well resulting in the 0.5 margin as we talked about from a year-to-date perspective um We are now at 9.8% margin compared to 11.5% margin this time last year. It's a very similar story and the bridge is actually very similar to what we talk about in the Q3. And really the big negative impact in the year-to-date numbers comes through negative price, again, partly through the campaigns we've been doing during Q3, negative volume, and we continue to run our inventory levels down. negative mix um and and also um the under under absorption and under utilization which we've we've talked about as well cost savings program 590 million in the year to date so we feel good about that we are executing on our existing cost saving program Overall, a negative small raw material and logistics, negative 65 for the year to date. And with our transformational initiatives, we have invested 135 million in the year to date. Positive currency effect year to date of some 250, taking us to the 9.8% margin. So when we zoom out, we can conclude we are in a challenging environment and our profitability has not developed as we have expected. We need to take additional steps to lower our fixed costs and build a sustainable cost structure. We have accelerated our existing cost reduction programs, and today we announced an additional cost saving program, which I'll come on to in a minute. We need to right size the costs of this business so that we can secure our investment in value creation levers for growth. And with that growth in value creation levers, which are mainly margin accretive, then of course we would expect to improve our profitability. So the additional cost saving program that we talk about today, let me be clear, this is fixed cost savings we are really focusing on. And we aim to improve our fixed cost structure by some 500 million, meaning we reduce 500 million of fixed costs. Unfortunately, that will impact approximately 400 positions. We would expect the majority of the 500 million savings to take effect during 2025. This 500 million savings, in addition to the existing cost reduction programme, amounts to £1.7 billion. And just to put that into context, because the previous cost reduction programmes have now been going on for a year or two, we have delivered so far just shy of one billion of the original cost saving programme that had a 1.2 billion target. And now we add 500 to that 1.2 to make a total of 1.7 of cost savings. There will be non-recurring one-time costs of some 600 million, which we will report in the Q4 result. And also, to be clear, we will continue to identify and implement additional cost measures in addition to the 500 that we talk about here. We have a very solid balance sheet. We continue with a very solid balance sheet and we've had good results in lowering our inventory levels and also in our trade receivables being lower with good cash collection. So there's a couple of good things there which, of course, have a positive impact on our cash flow. We have lowered our borrowings by some £2.8 billion since the beginning of the year as well. Of course, lowering the borrowings on the back of positive cash flow is important to us. Net debt to EBITDA. sits at 2.4 um as you can see on the right hand side we have performed well in cash flow and we have been able to reduce our net debt by some 2.4 billion year over year and we feel good about that however despite being able to lower our net debt our ebitda has of course reduced compared to previous year on the inventory reduction I would say it's been a very good performance on lower-hour inventory levels during the year. And if we look at it from a year-over-year perspective, some 3.6 billion reduction. If you adjust for currency, it's a 3 billion sec reduction. If we look at it since the start of the year, It's a 3.7 billion reduction, but currency adjusted, it's 3.9 billion currency, currency adjusted 3.9 billion inventory reduction. So we feel very satisfied with how our inventory development is going. But of course, that has the negative effect of the underutilization in the factories as well. Finally, cash flow. A record direct operating cash flow. We feel satisfied with how our cash flow has performed. And that is really driven by the good inventory reduction and also the trade receivables positive cash collection. So with that, Pavel, I'll pass over to you.