Stockholm February 23, 2011
Magnus Yngen, President and CEO:
”Demand recovered during the year and we strengthened our market positions for outdoor products in Europe and for Construction. After several years of decline, demand recovered also in the US. Despite the recovery, sales and profitability in the region were weak as we had significantly lower listings. For the Group, full-year operating income and margin were significantly above last year’s levels. Innovative new products and a strong focus on our dealer network were important contributors to the positive development.
Due to the seasonality of our operations, the fourth quarter accounts for a small share of annual sales and
operating income and is mainly devoted to start-up of production for the next season. Although market
conditions are improving, retailers were still cautious to build inventory in the fourth quarter.
In the fourth quarter, Europe & Asia/Pacific and Construction continued its positive development. For the
Group, adjusted net sales increased five percent and operating income also improved.
We expect higher shipments to the trade in the first quarter of 2011, compared with the first quarter of
2010, due to improved listings and a continued focus on dealer sales. We also expect a continued recovery of end-user demand for forest, park and garden products as well as for construction products. Due to the strong SEK, we expect negative currency effects in 2011.”
Fourth Quarter
• Net sales increased to SEK 4,794m (4,732) and operating income improved to SEK -63m (-515).
• Operating margin improved to -1.3% (-10.9).
• Growth for Europe & Asia/Pacific and Construction offset lower sales for Americas.
• Operating income and operating margin improved for all business areas.
Full-Year
- Strengthened market shares for park and garden products in Europe & Asia/Pacific and for construction products in North America.
- Strong growth for dealer channel sales.
- Net sales and operating income for Europe & Asia/Pacific and Construction increased, but decreased for Americas.
- Operating income increased by 57% to SEK 2,445m (1,560).
- Income for the period increased significantly to SEK 1,749m (903), or SEK 3.03 (1.64) per share.
- The Board proposes a dividend of SEK 1.50 (1.00) per share.
- Adjusted dividend policy: The dividend shall normally exceed 40% of income for the year(previous policy: 25–50%).
FOURTH QUARTER
Net Sales
Net sales for the fourth quarter increased by 1% to SEK 4,794m (4,732). Adjusted for exchange-rate effects, sales increased by 5% or by SEK 213m. Sales prices were relatively stable. Europe & Asia/Pacific accounted for an adjusted sales increase of SEK 236m, Americas for an adjusted sales decrease of SEK -53m and Construction for an adjusted sales increase of SEK 30m. Efforts to grow sales in the dealer channel continued to be successful.
Operating Income
Fourth quarter operating income amounted to SEK -63m (-515). Currency changes had a positive effect of
approximately SEK 20m. The comparable figure for 2009 includes items affecting comparability amounting to
SEK -340m. Thus, adjusted operating income increased by SEK 92m.
The increase in adjusted operating income was mainly a result of higher volumes and favorable channel and
regional mix, which was slightly offset by higher selling and administrative costs. The operating margin,
excluding items affecting comparability improved to -1.3% (-3.7).
Operating income and operating margin for all business areas improved. Excluding items affecting
comparability, operating income and operating margin for Europe & Asia/Pacific and Construction improved,
but decreased for Americas.
Changes in exchange rates, including both translation and transaction effects net of hedging, had a total
positive effect on Group operating income of SEK 20m (46). Hedging contracts had a negative effect of
SEK -8m (-61).
FULL YEAR
Net Sales
Net sales declined by 5% to SEK 32,240m (34,074). Adjusted for exchange rate effects, sales increased 0.4% or by SEK 142m. Sales prices were relatively stable. Europe & Asia/Pacific accounted for an adjusted sales increase of SEK 894m, Americas for an adjusted sales decrease of SEK -913m and Construction for an adjusted sales increase of SEK 161m. Efforts to grow sales in the dealer channel were successful and dealer sales grew double digit in all markets.
Operating Income
Operating income increased by 57% and amounted to SEK 2,445m (1,560). Currency changes had a positive effect of approximately SEK 150m and the net positive effect from items affecting comparability was SEK 245m. Adjusted operating income thus increased by SEK 490m.
The increase in adjusted operating income was mainly a result of favorable channel and regional mix, higher
volumes and lower material costs, which was partly offset by higher costs for distribution and IT.
The operating margin, excluding items affecting comparability, increased to 8.2% (5.9). Operating income
includes restructuring charges of SEK -207m for the closure of production facilities in North America and
Greece and costs related to a legal case in North America. 2009 included items affecting comparability totaling SEK -452m related mainly to restructuring charges.
Operating income and operating margin for Europe & Asia/Pacific and Construction increased, but decreased for Americas.
Changes in exchange rates, including both translation and transaction effects net of hedging, had a total
positive effect on operating income with SEK 150m (30). Hedging contracts had a positive effect of
SEK 80m (–109).
NET FINANCIAL ITEMS
Net financial items for the fourth quarter amounted to SEK -136m (-33) and for the full year to
SEK -394m (-466). The full-year improvement is primarily due to lower net debt and lower interest rates during the first half of the year. The average interest rate on borrowings at the end of the year was 4.8% (3.2). The increase is due to a change in the currency mix of the net debt.
INCOME AFTER FINANCIAL ITEMS
Income after financial items for the fourth quarter improved to SEK -199m (-548) corresponding to a margin of -4.2% (-11.6). For the full year income after financial items increased by 87% to SEK 2,051m (1,094),
corresponding to a margin of 6.4% (3.2).
TAXES
Taxes amounted to SEK -302m (-191), corresponding to a tax rate of 15% (18) of income after financial items. The tax rate is positively affected by utilization of tax-losses carried forward.
EARNINGS PER SHARE
Income for the fourth quarter improved to SEK -124m (-452), corresponding to SEK -0.21 (-0.79) per share after dilution. For the full year, income increased by 94% and amounted to SEK 1,749m (903), corresponding to SEK 3.03 per share (1.64).
OUTLOOK FOR THE FIRST QUARTER 2011
The Group’s shipments to the trade in the first quarter of 2011 are expected to be higher compared to the first quarter of 2010.
Inventories of the Group’s garden products at retailers and dealers at the end of the year are estimated to
have been on the same low level as one year ago. The Group’s listings with retailers for the 2011 season have
been improved, both in North America and in Europe, in comparison to 2010. End-user demand is also
expected to continue to recover. In 2010, the long winter delayed the start of the season and pre-seasonal
shipments were partly pushed from the first to the second quarter.
OPERATING CASH FLOW
Operating cash flow for the full year amounted to SEK 962m (3,737). Inventories and trade receivables
increased. The higher inventory resulted in a negative cash flow amounting to SEK -645m (1,678) and the
higher trade receivables resulted in a negative cash flow of SEK -331m (694). The inventory increase is mainly a result of a temporary build-up of inventory to facilitate the ongoing restructuring of the manufacturing
footprint. The increase in trade receivables is mainly explained by higher sales during the end of 2010
compared to end of 2009.
PERFORMANCE BY BUSINESS AREA
As of January 1, 2010, the external reporting comprises three business areas:
• Europe & Asia/Pacific (forest, park and garden products in Europe and the Asia/Pacific region)
• Americas (forest, park and garden products in North America and Latin America)
• Construction (global sales of products for the construction and stone industries).
The majority of the Group’s sales are park and garden products, which show a distinct seasonality in terms of
sales and income. The first half of the year normally accounts for around two thirds of annual sales, with the
second quarter usually being the strongest. The fourth quarter is normally the smallest quarter in terms of both
sales and income.
Forestry products show stronger demand and somewhat higher sales during the second half
of the year, while equipment for the construction industry normally shows a more even distribution of sales
throughout the year.
Sales for Europe & Asia/Pacific in the fourth quarter increased 5%. Adjusted for exchange-rate effects sales
increased 10%. For the full year, sales were unchanged. Adjusted for exchange-rate effects, sales for the full
year increased 6%. Sales prices were relatively stable during the year.
Sales to the dealer channel developed strongly throughout the year. Most countries, except for UK and France, had higher sales than in the preceding year. Several new products, including Husqvarna branded lawn mowers, riders and an expanded Automower® range, contributed to the increase. Sales of Gardena branded watering products were also strong. Total market demand in the Europe and Asia/Pacific region is estimated to have increased compared to the preceding year. It is also estimated that the Group strengthened the market shares in several product categories, including lawn mowers and riders, during the year.
Operating income and operating margin improved in the fourth quarter. The higher operating income was
mainly a result of higher sales and improved mix. The fourth quarter 2009 includes items affecting
comparability amounting to SEK –188m. There were no items affecting comparability in the fourth quarter
2010. Adjusted operating income for the fourth quarter 2009 amounted to SEK -82m.
For the full year, operating income and operating margin increased substantially. The increase was mainly a
result of higher volumes and improved mix. The mix improved as a result of better product and channel mix, as dealer sales grew more than retail sales.
Operating income for 2009 includes items affecting comparability amounting to SEK -300m. There were no
items affecting comparability in 2010. Operating income, excluding items affecting comparability, increased to
SEK 2,383m (1,710) and the corresponding operating margin increased to 14.3% (10.3).
AMERICAS
Sales for Americas in the fourth quarter decreased 5%. Adjusted for exchange-rate effects the decrease was
3%. For the full year, sales decreased 13%. Adjusted for exchange-rate effects, sales for the full year decreased by 7%. Sales prices were relatively stable during the year.
Total market demand in North America increased after four years of decline. Industry shipments increased for most product categories but chainsaws. Reduced listings with a major retailer in North America for the 2010 season had a negative effect on sales throughout the year. Efforts to grow sales in the dealer channel and with other retail accounts were successful, but could not fully compensate the reduced listings. Sales in the dealer channel increased double digit, however from a low level.
Operating income in the fourth quarter improved to SEK -39m (-105). Operating income in the fourth quarter 2009 included items affecting comparability related to restructuring charges of SEK -98m. There were no items affecting comparability in the fourth quarter 2010. Adjusted operating income for the fourth quarter 2009 amounted to SEK -15m. Excluding items affecting comparability, operating income was negatively affected by lower volumes, mix and higher costs for distribution.
For the full-year, operating income was negatively affected by lower volumes which to some extent were offset by improved mix. Costs for distribution and IT increased as well as costs for merchandising and marketing in association with efforts to grow sales to dealers.
Operating income for 2010 includes items affecting comparability amounting to SEK -160m (-98) of which SEK - 110m is related to the closure of the plant in Beatrice and SEK -50m to the settlement of an engine-capacity
lawsuit.
CONSTRUCTION
Sales for Construction in the fourth quarter increased 1%. Adjusted for exchange-rate effects sales increased
5%. In the full year, sales increased 2%. Adjusted for exchange-rate effects, sales in the full year increased 6%, of which sales in the US accounted for the majority of the increase. Sales prices were relatively stable.
Total market demand for construction products improved in both North America and Europe during the year.
Sales to all sales channels – rental companies, dealers and contractors – increased. A number of new products were successfully launched and the Group’s market shares are estimated to have increased.
Operating income and margin in the fourth quarter improved, mainly as a result of higher volumes, improved
mix and lower items affecting comparability. Operating income for the fourth quarter 2009 includes items
affecting comparability amounting to SEK -54m. There were no items affecting comparability in the fourth
quarter 2010. Adjusted operating income for the fourth quarter 2009 amounted to SEK -13m.
For the full year, operating income increased to SEK 82m (-123) and the operating margin improved to 3.1% (-4.7), mainly as a result of higher volumes as well as sales of new products with higher margins.
Operating income for the full year was charged with restructuring costs amounting to SEK -47m (-54).
Operating income for the full year, excluding items affecting comparability, increased to SEK 129m (–69) and
the corresponding operating margin increased to 4.8% (–2.6).
RESTRUCTURING
In 2010, the Group announced further restructuring to increase efficiency by consolidating the manufacturing
footprint. The production facility in Beatrice, Nebraska, was closed and the production was transferred to the
plant in Orangeburg, South Carolina. The production facility for construction products in Athens, Greece was
also closed. Annual savings from the initiatives will amount to SEK 60m and will be realized gradually with full
effect from the first quarter of 2012. Operating income was charged with SEK 157m, of which the closure of the Beatrice plant accounted for SEK 110m.
In October 2009, the Group announced the implementation of a number of structural changes during 2009–
2011. These measures are aimed at eliminating overlaps and increase efficiency within production and
administration which involves consolidation of production in Sweden and the US, and of the sales organization in Europe & Asia/Pacific. The total cost of these measures amounts to SEK 399m and annual savings are expected to approximately SEK 400m, and will be realized gradually from the second half of 2010 with full effect from the beginning of 2012. Capital expenditure related to the restructuring is expected 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.
