24 February, 2010
Magnus Yngen, President and CEO:
·
"Market conditions in the quarter were weaker than in the previous year. Retailers were cautious about building up inventories for the coming season. Group sales declined in all product areas, and operating income was negatively affected by lower sales and production volumes. On the positive side, savings from implemented cost-cutting measures were realized according to plan. Operating income for the quarter amounted to SEK -175m (-171), exclusive of restructuring costs. Our consistent efforts over the course of the year to reduce working capital have paid off. Cash flow was very strong both for the quarter and the full year, despite lower income."
o Net sales for the full year amounted to SEK 34,074m (32,342). Adjusted for changes in exchange rates and acquisitions, net sales declined by 8%. Operating income declined to SEK 1,560m (2,361), including restructuring costs of SEK 452m (316). Income for the year was SEK 903m (1,288), or SEK 1.64 (2.81) per share.
o Net sales for the fourth quarter declined by 8% to SEK 4,732m (5,126), or by 6% adjusted for changes in exchange rates and acquisitions.
o Operating income for the fourth quarter declined to SEK -515m (-472), including previously announced restructuring costs of SEK 340m (301). Income was negatively affected by lower sales and production volumes.
o Excluding restructuring costs, operating income for the quarter was SEK -175m (-171).
o Professional Products reported higher income and margin in the quarter for all product areas, despite lower sales and production.
o Operating cash flow for the fourth quarter rose to SEK 801m (116), and for the full year to SEK 3,737m (2,013).
o The Board proposes a dividend of SEK 1 (0) for 2009.
NET SALES AND INCOME FOURTH QUARTER
Net sales
Net sales for the fourth quarter of 2009 declined by 8% to SEK 4,732m (5,126).
Adjusted for changes in exchange rates and acquisitions, net sales declined by 6%. Lower sales were reported for both Consumer Products and Professional Products, with the largest decline for Professional Products.
Operating income
Operating income for the quarter amounted to SEK -515 (-472). Operating income includes restructuring costs of SEK 340m (301), of which SEK 164m refers to non-cash items. For details on the restructuring costs, see below.
The decline in operating income was due mainly to lower sales, and lower production volumes in order to reduce inventory, which means lower absorption of fixed costs. Savings from previously implemented cost-cutting measures had a positive effect.
Excluding restructuring costs, operating income amounted to SEK -175m (-171), corresponding to a margin of -3.7% (-3.3).
The decline in operating income refers mainly to Consumer Products outside North America. Professional Products reported higher income in all product areas.
Changes in exchange rates, including both translation and transaction effects net of hedging, had a total positive effect on operating income of SEK 46m (91). Hedging contracts had a negative effect of SEK -61m (33).
Costs for restructuring
As communicated in the report for the third quarter in October 2009, the Group intends to implement a number of structural changes in 2009-2011. The measures are aimed at eliminating overlapping and duplication within production and administration, and involve consolidation of production in Sweden and the US, and of the sales organization in Europe and Asia/Pacific.
The total cost for these measures amounts to SEK 399m, of which SEK 59m was charged against operating income in the third quarter and SEK 340m in the fourth quarter. Approximately SEK 175m of the SEK 399m refers to non-cash items.
Annual savings from the above mentioned activities are expected to amount to approximately SEK 400m, and will be generated gradually from the second half of 2010 with full effect as of the first quarter of 2012.
Capital expenditure related to the restructuring is expected to amount to approximately SEK 400m, of which a new plant in Poland will account for approximately SEK 250m.
Financial net
Net financial items amounted to SEK -33 (-140). Net financial items were positively affected by the SEK 3 billion rights issue earlier in the year and by lower interest rates on borrowings.
The average interest rate on borrowings at the end of the quarter was 3.2% (4.3).
Income after financial items
Income after financial items amounted to SEK -548m (-612) corresponding to a margin of -11.6% (-11.9).
Taxes
Tax was positive in the amount of SEK 96m (194), as a result of the negative income after financial items, previously announced changes in Group structure and utilization of tax-loss carry forwards.
Earnings per share
Income for the period was SEK -452m (-418), corresponding to SEK -0.79 (-0.93) per share after dilution.
NET SALES AND INCOME FULL YEAR 2009
Net sales
Net sales in 2009 increased by 5% to SEK 34,074 (32,342), but declined by 8% after adjustment for changes in exchange rates and acquisitions.
The decline in sales refers mainly to Professional Products. Sales for Consumer Products increased in SEK, but decreased after adjustment for changes in exchange rates and acquisitions
Operating income
Operating income declined by 34% to SEK 1,560m (2,361), corresponding to a margin of 4.6% (7.3). Operating income includes restructuring costs of SEK 452m (316) (See section on Costs for restructuring on previous page). Operating margin was 5.9% (8.3), excluding restructuring costs.
Apart from costs for restructuring, the decline in operating income is due mainly to lower sales and production volumes, as well as a less favorable mix in terms of products and geographical markets. In terms of business areas, the decline refers to Consumer Products outside North America, and to Construction products within Professional Products.
Changes in exchange rates, including both translation and transaction effects and net of hedging contracts, had a total positive effect on operating income of SEK 30m (184). Hedging contracts had an adverse effect of SEK -109m (-89).
Financial net
Net financial items amounted to SEK -466m (-594). The improvement is due mainly to lower interest rates, as well as lower net debt as a result of both the rights issue and the improvement in cash flow during the year.
As of year-end the average interest rate for total borrowings was 3.2% (4.3). During the year, the average fixed interest-term of the loans was extended to 24 months (5) by entering into interest rate swaps.
Income after financial items
Income after financial items declined by 38% to SEK 1,094m (1,767), corresponding to a margin of 3.2% (5.5).
Taxes
Taxes amounted to SEK -191m (-479), corresponding to 17.5% (27.1) of income after financial items. The lower tax rate is an effect of previously announced changes in Group structure, a one-time tax repayment in the amount of approximately SEK 40m in the second quarter, and utilization of tax-loss carry forwards.
Earnings per share
Income for the period declined by 30% to SEK 903m (1,288), which corresponds to SEK 1.64 (2.81) per share after dilution. Earnings per share for 2008 have been adjusted to reflect the rights issue in 2009.
OUTLOOK FOR THE FIRST QUARTER 2010
Inventories in the trade for the coming garden season are estimated to be lower than in the previous year. As a result of the uncertain market conditions, retailers are expected to continue to be cautious about building up inventories.
The Group’s listings with major retailers for the 2010 season are lower in North America, primarily in terms of low-margin products, and slightly improved in Europe in comparison with 2009.
Shipments in the first quarter are expected to be lower than in the first quarter of 2009. A long winter could cause a late start of the season and delay pre-seasonal shipments from the first to the second quarter.
OPERATING CASH FLOW
Operating cash flow for the fourth quarter increased to SEK 801m (116), mainly as a result of lower trade receivables and lower pre-seasonal inventory build-up.
Operating cash flow for the full year increased to SEK 3,737m (2,013). Cash flow from operations, excluding changes in operating assets and liabilities, was largely unchanged, as the decline in income was almost entirely offset by lower taxes paid.
Cash flow from operating assets and liabilities showed a strong increase, mainly as a result of measures implemented to reduce inventories and trade receivable.
FINANCIAL POSITION
Group equity as of 31 December 2009, excluding minority interests, rose to SEK 12,082m (8,772), corresponding to SEK 22.0 (19.3) per share. The increase is mainly due to the rights issue, which increased equity by SEK 2,988m net of transaction costs.
As a result of the increase in Group equity and the decline in income for the year, return on equity for the full year fell to 7.5% from 15.8 percent. Return on capital employed decreased to 6.6% (10.7).
Net debt at year-end decreased to SEK 6,349m (13,552). Liquid funds were largely unchanged at SEK 2,745m (2,735), while interest-bearing debt decreased to SEK 9,094m (16,287). The reduction in net debt is mainly a result of the rights issue that was completed in April and the improvement in cash flow during the year.
The main currencies used for debt financing are euro, US dollar and Japanese yen. Net debt in the fourth quarter increased by SEK 200m compared with the same quarter in 2008 due to a slightly weaker Swedish krona. In comparison with 31 December 2008, the Swedish krona has strengthened resulting in a decrease of net debt of SEK 660m.
The net debt/equity ratio improved to 0.52 (1.54) and the equity/assets ratio to 40.1% (25.7). The improvement in both ratios resulted mainly from the rights issue and a reduction of working capital.
Husqvarna finances its operations on the basis of shareholders’ equity, cash flow and various types of loans. On 31 December 2009, long-term loans amounted to SEK 7,631m and short-term loans to SEK 661m. Long-term loans consist of SEK 1,617m in medium-term notes as well as bank loans of SEK 5,942m. In 2010, medium-term notes totaling SEK 450m will mature.
The bank loans mature in 2011 and onward. In addition to the above funding, Husqvarna has revolving credit facilities totaling SEK 10,000m, all of which is unutilized. The major parts of these facilities mature in 2013.
PERFORMANCE BY BUSINESS AREA
Consumer Products
Fourth quarter
Sales for Consumer Product declined from the previous year. Retailers were cautious about building up inventories ahead of the coming season, in both Europe and North America. The Group’s production in the quarter was lower than in 2008, which resulted in lower absorption of costs.
Sales for the North American operation were unchanged in local currencies. Sales of wheeled products showed an upturn, mainly as a result of increased market shares. Sales of chainsaws and other handheld products declined in comparison with 2008 when demand was positively affected by storms.
Sales outside North America showed a decline, referring to both the dealer and mass-market channels in particularly Russia and France.
Both operating income and margin for this business area were lower than in the previous year. The decline refers mainly to the operation outside North America. Income in the quarter was charged with restructuring costs in the amount of SEK 200m (74).
Full-year
Industry shipments for the full year declined considerably in both Europe and North America.
Group sales increased in SEK, but declined after adjustment for changes in exchange rates and acquisitions. Sales in North America rose slightly in local currency. The increase refers mainly to wheeled products such as lawn mowers and garden tractors. Sales of chainsaws and other handheld products declined in comparison with 2008, when demand was positively affected by storms. The Group increased its market share in several product categories, partly as a result of new listings.
Sales outside North America increased slightly in SEK, but declined after adjustment for changes in exchange rates and acquisitions. The decline refers in particular to chainsaws and other handheld products in the dealer channel, and in Russia and Eastern Europe.
Sales of Gardena-branded products rose slightly, resulting mainly from expansion of the product range with new lawnmowers and chainsaws.
Operating income and margin for this business area declined sharply. The decline refers to the operation outside North America, and resulted mainly from a less favorable mix in terms of products and geographical markets, as well as lower volumes. A stronger dollar also had an adverse effect on income for the operation outside North America, as a large portion of products are produced in the US. Income and margin for the North American operation improved.
Professional Products
Fourth quarter
Sales for Professional Products were lower than in the previous year, as a result of weak demand. All product areas reported declines.
Operating income and margin for this business area improved, despite lower sales and production volumes. The improvement was due mainly to savings from implemented cost-cutting measures and positive effects from the weaker Swedish krona. Income in the quarter was charged with restructuring costs in the amount of SEK 140m (226).
Full-year
Sales for Professional Products also declined on a full-year basis. Lower sales were reported for all product areas, with the largest downturn for Construction. Sales for Forestry showed a substantial decline in volume in important markets such as Russia, the US and Eastern Europe.
Operating income for this business area declined considerably, but margin remained at a high level. The decline in income refers mainly to lower sales and production volumes, while savings from implemented cost-cutting measures and the weaker Swedish krona made positive contributions. The largest downturn in income was reported for Construction, as a result of the dramatic drop in demand, and income for this product area was negative. Operating margin for Forestry improved, mainly as a result of rationalization of chainsaw production and a large share of new products.
PARENT COMPANY
Net sales in 2009 for the Parent Company, Husqvarna AB, amounted to SEK 8,694m (10,011), of which SEK 6,553m (7,569) referred to sales to Group Companies and SEK 2,141m (2,442) to external customers. Income after financial items amounted to SEK 2,933m (6,312). Income for the period was SEK 2,698m (6,083).
Investments in tangible and intangible assets during amounted to SEK 290m (596). Cash and cash equivalents amounted to SEK 1,262m (682). Undistributed earnings in the Parent Company at the end of the period amounted to SEK 16,753m (12,042).
NEW ORGANIZATION
A new organization was announced in July 2009 and was fully implemented as of 1 January 2010.
Instead of the previous six product-based business sectors, the new organization comprises five business units - Supply Chain, Products and Marketing, Sales in Europe and Asia/Pacific, Sales in North America and Latin America, and Construction Products.
NEW REPORTING STRUCTURE
Implementation of the new organization also involves a change in the Group’s external financial reporting as of the first quarter of 2010. Instead of the previous business areas Consumer Products and Professional Products, the external reporting will comprise:
Forestry and Garden Products, Europe and Asia/Pacific
Forestry and Garden Products, North America and Latin America
Construction Products
Forestry and Garden Products comprise four product categories – wheeled products, handheld products and watering, as well as accessories and tools. Construction products comprise two product categories: equipment and diamond tools for the construction industry, and diamond tools for the stone industry. Restated financial figures according to the new structure for the years 2007-2009 can be found on page 18 in this report.
CHANGES IN GROUP MANAGEMENT
Thomas Andersson has joined Husqvarna in February 2010 as head of the Supply-chain organization. His most recent position was Senior Vice President and Head of Volvo Powertrain Sweden, AB Volvo’s business unit for development and manufacturing of engines and transmissions.
Boel Sundvall will join Husqvarna as of March 2010 as head of Group staff Communications and Investor Relations. Her most recent position was as a partner at the consultancy firm WG & Partners. She succeeds Åsa Stenqvist, who will retire.
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