FIRST QUARTER DEVELOPMENT
Net sales
Net sales for the first quarter declined by 19% to SEK 9,082m (11,152). Adjusted for currency exchange-rate effects, sales declined by 9%. Prices were unchanged. Americas accounted for 7 percentage points of the adjusted decline, Europe & Asia Pacific for 2 percentage points and Construction was flat. Dealer sales increased.
The first quarter predominantly consists of sell-in to the trade for the coming gardening season. The long
Operating income
Operating income for the first quarter decreased by 1% compared to the corresponding quarter 2009 and
Operating income includes a charge of SEK 50m for settlement of an engine-capacity lawsuit in the US.
The first quarter of 2009 included restructuring charges of SEK 35m related to personnel cut-backs.
The decline in operating income was mainly due to lower sales. Savings from previously implemented
Changes in exchange rates, including both translation and transaction effects net of hedging, had a total
Operating income and operating margin for Europe & Asia/Pacific and Construction increased, but
Financial net
Net financial items amounted to SEK -88m (-196). The improvement is primarily due to lower interest rates and lower net debt. The average interest rate on borrowings at the end of the quarter was 2.9% (3.9).
Income after financial items
Income after financial items increased by 17% to SEK 690m (590) corresponding to a margin of 7.6% (5.3).
Taxes
Taxes amounted to SEK -155m (-126), corresponding to a tax rate of 22% (21) of income after financial
Earnings per share
Income for the period increased by 15% to SEK 535m (464), corresponding to SEK 0.92 (0.98) per share
OUTLOOK FOR THE SECOND QUARTER 2010
Inventories in the trade of the Group’s products at the end of the first quarter were estimated to be slightly lower than a year ago, as result of continued uncertain market conditions as well as a later start to the season due to the late spring.
The sell out in the trade is expected to improve slightly compared to the preceding season, both in Europe and in North America. Despite this, retailers are expected to remain cautious about re-stocking inventories due to the remaining economic uncertainty.
In light of the late start to the season and the expectation of a better sell-out, it is estimated that Husqvarna’s sales in the second quarter will be in line with the second quarter of 2009 despite reduced listings in North America.
OPERATING CASH FLOW
Operating cash flow for the first quarter amounted to SEK -2,433m (714). Cash flow in the first quarter 2009 was positively affected by the sale of trade receivables totaling approximately SEK 2,000m. No trade receivables were sold during the first quarter 2010.
Inventory build-up during the first quarter was higher compared to the first quarter of 2009. Inventory at the end of March 2010 was still well below the level at the end of March 2009. Cash flow from change in trade payables during the quarter was lower due to later ramp up of production compared to the first quarter of 2009.
Due to the seasonality of the Group’s operations, operating cash flow is normally negative in the first
PERFORMANCE BY BUSINESS AREA
A new organization was implemented as of 1 January 2010. According to IFRS 8 Operating segments, the external reporting should reflect the internal reporting structure and Husqvarna has therefore adapted its external financial reporting.
As of 1 January 2010, external reporting comprises three business areas:
- Europe & Asia/Pacific, comprising forestry and garden products sold in Europe, Asia and the Pacific region
- Americas, comprising forestry and garden products sold in North America and Latin America
- Construction, comprising products for the global construction and stone industries.
Europe & Asia Pacific
Sales for Europe & Asia/Pacific declined 11% compared with the first quarter of 2009. Adjusted for currency exchange rate effects, sales declined 5%. Prices were unchanged. Dealer sales were down less
The late spring delayed the start of the season in all major markets, and customers were cautious about
Operating income and operating margin improved compared with the first quarter of 2009. Operating income for the first quarter of 2009 includes a restructuring charge of SEK 34m. Lower sales had a negative effect on operating income which was compensated by lower selling and administration costs.
Americas
Sales for Americas declined 26% compared to the first quarter of 2009. Adjusted for currency exchange
Sell-in was weak due to the late spring and retailers remained cautious about building up inventories.
Reduced listings with a major retailer in North America also had a negative effect on sales, especially for
Operating income for the first quarter of 2010 includes a charge of SEK 50m for settlement of an engine capacity lawsuit. Operating income was negatively affected by lower sales and increased marketing costs
Construction
Sales for Construction declined 8% compared to the first quarter of 2009. Sales were unchanged adjusted for currency exchange rate effects.
The long winter had negative impact on construction activity in several markets, thus reducing demand for
Operating income and margin improved, mainly due to a better mix and lower selling and administration
PARENT COMPANY
Net sales in the first quarter 2010 for the Parent Company, Husqvarna AB, amounted to SEK 3,036m (3,039), of which SEK 2,460m (2,482) referred to sales to Group Companies and SEK 576m (557) to external customers. Income after financial items amounted to SEK 766m (-258). The increase in income after financial items is mainly related to changes in market value of net investment hedges of SEK 509m (-417).
These hedges are made in the Parent Company to limit the effects on the Group's consolidated equity resulting from translation differences. In the Group's financial statements these effects are included in Other comprehensive income. Income for the period was SEK 572m (-188).
Investments in tangible and intangible assets amounted to SEK 69m (52). Cash and cash equivalents amounted to SEK 30m (27). Undistributed earnings in the Parent Company at the end of the period amounted to SEK 17,272m (14,411).
RESTRUCTURING
As communicated in October 2009, the Group is implementing a number of structural changes in 2009- 2011. These measures are aimed at eliminating overlapping and increase efficiency within production and
The total cost for these measures amounts to SEK 399m. Approximately SEK 175m of the SEK 399m refers to non-cash items. Annual savings from these activities are expected to amount to approximately SEK 400m, and will be realized gradually from the second half of 2010 with full effect from 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.
In September 2008, an initiative to reduce fixed costs through personnel cut-backs was announced. The total costs for the cut-backs were SEK 369m and the annual savings are SEK 450m as of the third quarter 2009.
No restructuring charges were booked in Q1 2010.
LEGAL MATTERS
Belgian gas explosion judgement
In a judgment on 22 February 2010, the criminal court of Tournai in Belgium dismissed all claims against
The ruling has been appealed by the public prosecutor, as well as by other parties, to the Court of Appeal.
The appellate proceedings are expected to commence in the second half of 2010.
Settlement of engine-capacity lawsuit
On 1 March 2010, Husqvarna and a number of other parties reached a settlement in a lawsuit in a Federal District Court in Illinois, USA, regarding alleged inaccurate specification of engine capacity in lawn mowers. The lawsuit, which has been pending since 2004, will thus be withdrawn.
The other parties are manufacturers or sellers of lawn mowers or engines for lawn mowers. The settlement includes more than 65 similar or parallel lawsuits in all 50 states in the US. Husqvarna’s net settlement cost amounts to approximately SEK 50m (USD 7m) and was charged against operating income in the first quarter of 2010.
Husqvarna agreed to the settlement in order to avoid a prolonged and expensive legal process in which the results were uncertain. The Group continues to deny that there is any justification for the claims against the company. The settlement is subject to court approval in the US.
EVENTS AFTER 31 MARCH 2010
Decision to close production site in Greece
A decision has been taken to close the Group’s production site for construction products in Greece.
Together with logistical rationalization of Construction’s operations in Belgium, the initiatives are estimated to cost SEK 50m and will be charged to operating income in the second quarter.
Annual savings from the initiatives are estimated at SEK 20m with full effect as of 2012.
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