Hans Linnarson, President and CEO:
“2011 was a challenging year for Husqvarna. We experienced operational difficulties in one of our largest production facilities, which had a substantial negative impact on the Group’s operating income. Despite the issues, I am pleased that our sales, adjusted for changes in exchange rates, increased and we maintained our position as global leader. Market shares in key areas remained stable and in some areas they even increased, such as for professional riders, robotic lawn mowers and construction equipment.
In Europe & Asia/Pacific, the operating margin remained on a high level, almost 14 percent. The positive development for Construction continued, as sales, operating income and margin increased. In Americas, our North American operations remained challenging. Net sales recovered in the second half of the year, but operating income did not recover at the same pace. We are working to improve the margin in our US operations through sustainable measures to improve mix and efficiency.
Due to normal seasonality, the fourth quarter is the smallest of the year for the Group. Sales gradually improved and for the full quarter, sales increased for all business areas while the operating profit was negatively impacted by several non-recurring items.
The outlook regarding consumer demand is difficult to assess. As we have communicated earlier, our listings with major retail customers are unchanged compared with 2011, but with a slightly improved mix. I view this accomplishment as a confirmation of our strategy to consistently invest in innovative quality products under strong brands. The ramp-up of production ahead of the garden season has been positive and we are now delivering a high level of service and delivery reliability – our top priorities for 2012.”
Fourth quarter
- Net sales for the Group increased by 4% to SEK 4,994m (4,794). Adjusted for exchange rate effects, net sales increased by 5%.
- Operating income amounted to SEK -236m (-63). Changes in exchange rates had a negative effect of SEK -47m and costs directly related to production disturbances amounted to SEK -30m.
- Operating income also includes other non-recurring items with a total net negative effect of SEK -55m.
- Hans Linnarson was appointed President and CEO.
Full-year
- Net sales for the Group, adjusted for exchange rate effects, increased by 2%.
- Strengthened market position for Construction and maintained for forest and garden products.
- Operating income amounted to SEK 1,551m (2,445). Changes in exchange rates had a negative effect of SEK -382m and costs directly related to production disturbances amounted to SEK -398m.
- The Board proposes a dividend of SEK 1.50 (1.50) per share for 2011
FOURTH QUARTER
Net Sales
Net sales for the fourth quarter increased to SEK 4,994m (4,794). Adjusted for exchange rate effects, sales increased for the Group by 5%, for Europe & Asia/Pacific by 2%, for Americas by 9% and for Construction by 11%.
Operating Income
Operating income for the fourth quarter amounted to SEK -236m (-63). Changes in exchange rates, including both translation and transaction effects net of hedging, had a total negative year-on-year effect on Group operating income of SEK -47m (20). Operating income was also negatively impacted by SEK -85m referring to costs directly related to production disturbances amounting to SEK -30m and other non-recurring items with a total net negative effect of SEK -55m.
Other non-recurring items refer to staff reduction costs of SEK -44m, provisions for non-recoverable VAT receivables of SEK -33m in Brazil, environmental remediation costs of SEK -31m, as well as a positive effect of SEK 53m from the closure of a defined benefit pension scheme. The environmental remediation costs relate to a former US production site, no longer owned by Husqvarna, but where there is a contractual duty to remediate the site. The staff reduction costs refer mainly to business areas Americas and Construction, where personnel cut-backs are estimated to generate annual savings of SEK 50m as of 2012.
Operating income was positively affected by higher sales and selling prices, which were offset mainly by negative absorption of fixed costs, a less favorable mix and higher costs for marketing and transportation, as well as the reasons stated above.
Adjusted operating income and operating margin for Europe & Asia/Pacific and Construction increased, while they decreased for Americas.
FULL-YEAR
Net Sales
Net sales for the full-year declined by -6% to SEK 30,357m (32,240). Adjusted for exchange rate effects, sales increased for the Group by 2%, for Europe & Asia/Pacific by 3% and for Construction by 12%. For Americas adjusted sales decreased by -2%.
Operating Income
Operating income for the full-year decreased by -37% and amounted to SEK 1,551m (2,445). Items affecting comparability amounted to SEK -64m (-207). Changes in exchange rates, including both translation and transaction effects net of hedging, had a total negative year-on-year effect on operating income of SEK -382m (150). Hedging contracts had a negative effect of SEK -118m (88). Adjusted for exchange rate effects and items affecting comparability, operating income thus decreased by -29% or by SEK -655m.
Operating income also includes other non-recurring items with a total net negative effect of SEK -474m; costs directly related to the production disturbances in North America amounting to SEK -398m, staff reduction costs of SEK -44m, provisions for non-recoverable VAT receivables of SEK -33m and environmental remediation costs of SEK -31m, costs related to terminating the former CEO’s contract of SEK -21m, as well as a positive effect from the closure of a pension scheme of SEK 53m.
Adjusted operating income was positively affected by higher sales prices and higher sales, which were offset by the non-recurring items stated above, higher input costs and higher costs due to increased marketing and product development activities. In addition, IT and transportation costs also rose. The Group operating margin decreased to 5.1% (7.6).
Adjusted operating income was unchanged for Europe & Asia/Pacific, increased for Construction while it was lower for Americas.
OUTLOOK FOR THE FIRST QUARTER OF 2012
The Group’s listings with retailers for the season 2012 are estimated to be unchanged compared to the previous year, and inventories of the Group’s products at retailers and dealers at the end of 2011 are estimated to have been somewhat higher than a normal level.
OPERATING CASH FLOW
Operating cash flow for the full-year amounted to SEK -472m (962). The lower operating cash flow is mainly due to the Group’s lower income after financial items as well as higher inventory at the end of the year. The higher inventory resulted in a negative cash flow amounting to SEK -1,045m (-645) and was mainly due to greater utilization of pre-season production at the end of the year and build-up of temporary inventory to
facilitate ongoing changes in the manufacturing footprint.
PERFORMANCE BY BUSINESS AREA
Europe & Asia/Pacific
Net sales for Europe & Asia/Pacific in the fourth quarter increased by 1%. Adjusted for exchange rate effects, sales increased by 2%. For the full-year, sales decreased by -2%, but adjusted for exchange rate effects sales increased by 3%. Sales prices increased and volumes were slightly negatively affected by the production disturbances in North America, as some of the production in the plant is sold in the Europe and Asia/Pacific region.
Total market demand during the year in Europe & Asia/Pacific is estimated to have increased compared with the preceding year. Overall for forest and garden products, it is estimated that the Group’s market share was unchanged.
Husqvarna’s sales increased in the most important markets such as Germany, France, Sweden, and the UK, while sales were weaker in the southern part of Europe. The development for the Asia/Pacific region, including Australia, was in line with the previous year. In terms of sales by product category, ride-on and walk-behind products increased, watering products were flat while handheld products were slightly down compared with the preceding year. Sales growth was particularly high for professional riders, robotic lawn mowers and snow products, segments where market shares also are estimated to have increased. Sales to the dealer channel developed positively.
Operating income amounted to SEK 2,277m (2,383) and the operating margin remained at a high level, 13.9% (14.3). Changes in exchange rates had a negative year-on-year effect on operating income of SEK -100m. Adjusted for changes in exchange rates operating income was unchanged. Higher selling prices and increased sales volume impacted adjusted operating income positively, while mainly mix and higher costs for branding, marketing and product development had an adverse impact. Operating income includes costs related to the production disturbances in North America amounting to SEK -50m and a positive effect from the closure of a pension scheme of SEK 53m.
Operating income for the fourth quarter increased, mainly as a result of higher selling prices and higher sales, as well as a net positive effect of SEK 53m from the closure of a pension scheme. Changes in exchange rates had a negative year-on-year effect on operating income by approximately SEK -21m in the fourth quarter and costs directly related to the production disturbances in North America amounted to SEK -5m.
Americas
Net sales for Americas in the fourth quarter increased by 6%. Adjusted for exchange rate effects, sales increased by 9%. For the full year, sales decreased by -14%, or by -2% when adjusted for exchange rate effects. Sales prices were relatively stable. Sales growth was strong towards the end of the year.
Total market demand over the full-year in North America decreased. Industry shipments were lower for most product categories except for chainsaws and commercial ride-on lawn mowers. Husqvarna’s overall market shares for shipments of forest and garden products in North America are estimated to be in line with the previous year, with a small gain in walk-behind mowers and a slight loss of share in consumer garden tractors and commercial ride-on lawn mowers.
Husqvarna’s sales decreased in the US and Canada. Latin America, driven by Brazil, had double digit sales growth, however from a low level. Sales of ride-on products such as consumer garden tractors and commercial ride-on lawn mowers were negatively affected by production disturbances. Efforts to grow sales in the dealer channel continued, but were adversely impacted by the production issues. Sales of handheld products such as chainsaws increased, partially as a result of favorable weather conditions. Sales in Canada were lower due to lower sales of snow products in the retail channel.
Operating income for 2011 amounted to SEK -654m (152) and the corresponding operating margin was -5.8% (1.2). Changes in exchange rates had a negative year-on-year effect on operating income of SEK -230m. Operating income was also negatively impacted by SEK -431m referring to costs directly related to production disturbances amounting to SEK -348m and other non-recurring items with a total net negative effect of SEK -83m. The non-recurring items refer to provisions for non-recoverable VAT receivables of SEK -33m and environmental remediation costs of SEK -31m as well as costs for staff reductions amounting to SEK -19m. The environmental remediation costs relate to a former US production site, no longer owned by Husqvarna, but where there is a contractual duty to remediate the site.
Operating income for the fourth quarter was negatively affected by costs directly related to production disturbances amounting to SEK -25m, changes in exchange rates amounting to SEK -14 and other nonrecurring items with a total net negative effect of SEK -83m. The non-recurring items refer to costs for staff reductions amounting to SEK -19m, provisions for non-recoverable VAT receivables of SEK -33m and environmental remediation costs of SEK -31m. In addition, costs for IT and transportation also had an adverse effect.
Construction
Net sales for Construction in the fourth quarter increased by 11%. Adjusted for exchange rate effects, sales also increased by 11%. For the full-year, sales increased by 5% and by 12% if adjusted for exchange rate effects. Sales prices increased slightly.
Total construction market activity during 2011 decreased in North America, was unchanged in Europe and increased in the rest of the world. Total market demand for construction products increased despite the lower construction activity, as there was need for replacement of construction equipment following a period of low investment levels.
Many new products with innovative features have been successfully launched, resulting in double digit sales growth and higher market shares for 2011, especially in the US. New product launches during the year include electric power cutters, wire saws and drilling systems. The US represented the largest share of the sales growth in 2011, followed by Brazil, France and the United Kingdom. Sales in southern Europe dropped compared to the previous year.
Operating income for the full year increased to SEK 130m (82) and the operating margin improved to 4.7 percent (3.1), mainly as a result of higher sales volumes. Changes in exchange rates had a negative effect on operating income of SEK –52m. Operating income 2011 was charged with items affecting comparability referring to restructuring costs amounting to SEK -64m (-47).
Adjusted operating income for the fourth quarter increased, mainly as a result of higher sales. Operating income was charged with non-recurring items referring to costs for staff reductions amounting to SEK -14m. Changes in exchange rates had a negative year-on-year effect on operating income by approximately SEK -13m in the fourth quarter 2011.
PARENT COMPANY
Net sales in 2011 for the Parent Company, Husqvarna AB, amounted to SEK 11,121m (10,304), of which SEK 8,486m (7,768) referred to sales to Group Companies and SEK 2,635m (2,536) to external customers. Income after financial items amounted to SEK 446m (1,582). Income for the period was SEK 737m (1,379). Investments in tangible and intangible assets amounted to SEK 336m (339). Cash and cash equivalents amounted to SEK 28m (642) at the end of the year. Undistributed earnings in the Parent Company amounted to SEK 17,449m (17,511).
RESTRUCTURING UPDATE
During 2009 – 2012, the Group is implementing a number of structural changes, aiming at eliminating overlaps and increasing efficiency within production and administration. The changes involved mainly consolidation of production in Sweden and the US, and of the sales organization in Europe & Asia/Pacific.
As production capacity and flexibility to guarantee customers a high delivery performance will be prioritized in 2012, the pace and priority of ongoing restructuring projects is being reviewed. As a consequence, remaining savings from manufacturing footprint restructuring will be delayed to beyond 2012.
The extensive efforts to eliminate the supply chain disturbances in the Orangeburg production facility in North America have progressed successfully. To ensure a successful delivery of committed volumes in 2012, the ramp-up of preseason production started earlier than in the previous year.
ORGANIZATIONAL CHANGES
On December 2, the Board of Directors’ appointed Hans Linnarson President and CEO of Husqvarna, following the termination of the former CEOs contract on August 28. Hans Linnarson, who was appointed acting CEO and President on June 9, will also continue as Head of Europe & Asia/Pacific until a successor has been appointed.
Effective January 1, 2012, Henric Andersson was appointed Head of Product Management & Development. Most recently Henric Andersson held the position as VP Construction Equipment within the Construction business area. Furthermore as of February 7, 2012, Sascha Menges has been appointed Head of Manufacturing & Logistics, a position in which he has been acting since November 1, 2011.
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