Husqvarna AB (publ)

Hello, everyone, and welcome to the presentation of Husqvarna Group's report for the fourth quarter and fiscal year 2024. My name is Johan Andersson, I'm responsible for investor relations and will be the moderator here today. With me here in Stockholm, I have our CEO, Pavel Hajman, and our CFO, Terry Burke. Pavel and Terry will start with a presentation and afterwards we will open up for a Q&A session. And you can ask your questions over the telephone conference or you can enter them in the web interface and I will read them out loud here in Stockholm. So with that, I thank you very much for joining and give the word over to you, Pavel.

Thank you Johan and good morning also from my side, warm welcome and let's start with an overview of quarter four as well as the full year. So we ended the year in line with our market guidance that we issued before Christmas and notably we also delivered a very solid cash flow for the smallest fourth quarter. Good to see is that we grew in seasonal products such as petrol and battery handheld products, but we also actually grew both in wheeled and parts and accessories. Generally, as we have communicated earlier, market conditions this year have been challenging and that also continued in Q4 with cautiousness among our dealers and retailers. And we continue our transformation and improvements in North America and have just announced today a long-term partnership and divestiture of our largest manufacturing site. And Terry will provide some more financial details on this later. And if we zoom out and we focus on the full year, it was a difficult full year, us with a challenging operational environment, as I said earlier, but we have been focusing our execution on our strategy and adapting the organization to really drive efficiency as well as our continued transformation. And as a result, we are today leaner, more focused company, and importantly, we have a lower cost base. We have also delivered strong growth in professional robotic mowers, a segment that achieved a good double digit growth for the year, as well as strong growth in our battery powered products. And to mitigate the market situation, we have taken proactive measures and advanced our ambitious cost saving programs and successfully delivered on those savings targets. And despite this, our result and margin is down for the year, mainly due to lower volumes, lower capacity utilization in our factories, as well as an unfavorable product mix. On the positive side, though, we generated close to seven billion in cash flow, where inventory reductions were the key to that success. And from that, we also clearly lowered our net depth. And I'm also very pleased to say that we deliver on our Sustainovate targets continuously. So with that, let us dive into the financial details for the quarter. Starting with net sales, that declined by 3% organically. It was mainly related to the continued challenging market with cautious behavior from dealers and retailers. And product categories that are down in quarter four are watering, robotics, and construction products. We did deliver growth in seasonal handheld products for both petrol and battery powered, as I said earlier. Wheeled products also, parts and accessories, they grew as well. And as a backdrop and a reminder, this is the smallest quarter for us as we are now transitioning into the 2025 season. With lower volumes and capacity utilization, as well as increased promotional activities, the group operating income amounted to close below 700 million negative in EBIT. A decrease that was also partly offset by good results from our cost savings program and also positive FX contribution. Direct operating cash flow improved due to better cash flow from changes in trade payables, but mainly also the inventories, as I mentioned. And for the year, we have reduced inventories with 3.3 billion Swedish crowns when you FX adjust that. We end the year also with a good reduction in net debt compared to last year. As for robotics and battery, the share of group sales is 20% on a 12-month rolling basis. And importantly, we continue our growth trajectory in boundary wire-free residential robotics, where our Husqvarna Nera product line has a strong position. And we have announced an extensive launch program this upcoming season, both for Gardena as well as Husqvarna brands of a complete new assortment of robotics. I will come back to that later, but let me then pass over now to Terry for some comments on the divisions. Please, Terry.

Thank you, Pavel. Moving on to the Husqvarna Forest and Garden Division. Flat organic sales in quarter four with an operating margin of some minus 5.2%. There was growth in handheld, wheeled, battery products and parts and accessories, which was good to see. However, we did have a negative operating income development that was impacted by the lower capacity utilization, some promotional campaigns during the quarter and unfavorable mix, which was partly offset by some cost savings. For the full year 2024, we had an organic sales decline of some 8% and an operating margin of 7.8%. Moving on to Gardena division, organic sales in the quarter was some 8% down and an operating margin negative 30.7%. Of course, quarter four is a very much out of season quarter for Gardena. we did have growth in hand tools segment however our watering business decreased and that's really a carryover from uh quarter two where uh the unfavorable weather conditions had an impact on the on the sales and the performance and higher inventory levels in the trade uh Cautious retailers, as I said there a little bit earlier, there is higher inventory levels for watering within the trade, and that's a reflection of the quarter and the cautiousness of the retail partners. The margin was also impacted through this negative volume and negative mix, but also partly offset by cost savings. Full year for 2024, organic sales declined by some 5% and an operating margin of 6.7%. Construction division. Organic sales declined 9% in the quarter four with an operating margin of 5%. The trend of sales has really continued throughout the year where we have seen a small positive sales growth in Europe. However, that has been more than offset by a strong weak demand in North America and that's really continued during quarter four. We've had good sales performance in power cutters, demolition robots and parts and accessories. However, that wasn't enough to offset the lower impact of volumes, capacity underutilization, etc. We did offset partly with cost savings. Full year, organic sales declined some 7% and an operating margin of 8.4%. The quarter four EBIT bridge, first of all, maybe just to point out, we did come in within the market guidance that we announced during December. Moving from left to right, quarter four 23, we were at a margin of 1.9% negative. With the lower sales, we've also had impact in unfavorable mix, underutilization as we've continued to drive inventory levels down, etc. And promotional campaigns, there's a negative 705 million impacting us. Our cost savings program is performing, is delivering, and in the quarter, it was 145 million. We had a small negative headwind in raw materials and logistics of some 75 million, and we had quite limited restricted transformational initiatives with only some 10 million in quarter four. We did have a currency upside of 125, really driven by the weakened Swedish crown, and that landed us with an 8.2% margin in quarter four. The full year EBIT bridge is pretty much a mirror image of the quarter four bridge in the sense that we move from a 9.3% margin and then we have a big negative given our price development, which has been negative in the year, our volume impact with our sales being down and also unfavorable mix and underutilization. So all of those factors have impacted us by some 2.6 billion during the course of the full year 2024. As I said, cost savings program is on track and 735 million of savings have come through during 2024. Slight headwind of raw materials and logistics of some negative 145. And within the year, we did continue to invest in our transformational initiatives of some 150 million. Currency upside for the full year also due to the weakening crown of some 375, leaving us with a margin of 6.6% for the full year. I have touched upon it within the EBIT bridges, but maybe just to frame it and summarize, our cost saving programs are delivering. We have already realized 1.1 billion of savings. And this is really linked to our 2022 and 2023 programmes that we have previously announced. Those two programmes had a targeted savings of 1.2. And as I said, we have already now realised 1.1. And as you can see, 2023 was 380 million of savings and 2024 some 735. So we have another 100 million of savings carryover coming into 2025. During Q3 of 2024, we also announced a further cost reduction programme addressing fixed costs of some 500 million fixed cost saving. And that was really with regards to more than 400 positions being taken out of the organisation. We are on track with that. We have executed well so far in the programme and the majority of that 500 million saving will come during 2025. We announced yesterday evening that we are entering into a strategic partnership with Flex. Flex being a global leader in manufacturing and supply chain solutions. What this means is we have divested our manufacturing facility in Orangeburg to Flex. This really enhances us to be more competitive in the North American market within the forest and garden division. It's a long-term supply agreement to continue to supply local wheeled manufacturing and assembly of handheld products. So please let me be clear here. This is not about exiting any business. This is about switching and manufacturing and a long-term commitment and supply agreement with Flex. Approximately 900 employees will be offered employment with Flex and hopefully transferred over. And then from a financial perspective, this will overall improve our profitability, deliver cost savings and capital efficiency. Maybe let me start with the capital efficiency and the sale of the assets. In our balance sheet, and we'll come on to that a little bit later, but we have some 1.4 billion of assets held for sale to Flex. And that will happen during 2025. The majority of the cash flow will come in 2025 of the sale of that 1.4 billion of assets. Breaking those assets down, 500 million of, let's call it fixed assets, plant and machinery and equipment, and then some 900 million of inventory. The plant and equipment will be sold immediately, and then the inventory, the 900 million, will be sold over the course of 2025 as it is being consumed. Total savings of 350 million by the end of the five-year agreement. Full year effect 2030 of 350 million of savings. And we did book a one-time cost in quarter four of some 250 million. This really allows us to focus on our strategy execution much more on the front end and really drill down and improve our customer focus for the forest and garden division. So we're really pleased with this transaction. Moving on to the balance sheet, what you can see here is the first thing maybe to call out is these assets held for sale. And you can see this 1.4 billion I was just referring to with regards to the sale of Orangeburg to Flex. So we call them out specifically. And those are the assets that will be sold to Flex during 2025 and the majority of the cash flow coming in 2025. Maybe worth pointing out here on the inventory, we have 13.8 billion you see here. It's actually 14.7, but 900 million of the inventory is held for assets for sale, but inventory at the end of the year. So we make an inventory reduction of some 3.3 billion. currency adjusted for the full year 2024. And we're very pleased and satisfied with how our inventory development has performed. We have lower borrowings, some 2 billion lower borrowings you can see there, which again is also good to see how we continue to drive down our net debt. And as I've already talked about, the assets for sale to Flexor are reclassified for the purpose of the balance sheet. net debt is now at 2.5 ratio this is in line with our financial policy we continue to focus on lowering our net debt and we have had good cash flow and that has helped us to continue to lower our net debt and the sale of the orangeburg facility uh will free up 1.4 billion of cash and again that will further support us as we continue to focus on lowering our net debt inventory again i've touched upon it in the balance sheet a little bit earlier in total at the end of december we had 14.7 billion of which 900 million was the orangeberg inventory uh called out specifically separate and the assets held for sale so again in total 3.3 billion inventory reduction again very pleased with that a record year for cash flow It's very positive to see that despite the challenging market and conditions, we have been able to deliver 6.9 billion of positive cash flow. We should also have in mind that 2023 was a strong year for cash flow at 6.5 billion. So when you combine the last two years, we have generated more than 13 billion of positive cash flow, which has been important to us. The board proposed a dividend of one Swedish crown for 2024. This is a payout of 43% of our reported earnings per share. And if you adjust for items affecting comparability, it's a 32% payout. Our dividend policy is around above 40%. So our payout of 43 is in line with our dividend policy. And with this, we take a balanced view of the current market conditions, of our current financial position, and also our continued commitment to reduce a net debt. With that, Pavel, I can pass back to you.