2011 was a challenging year for Husqvarna Group. 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. In some areas, such as robotic lawn mowers and riders, market positions have strengthened. The same applies to several areas in the Construction business area, where years of consistent initiatives focusing on innovation and new product launches have generated higher sales, improved margins and increased market shares.
The performance of the Group’s three business areas was mixed. The market in Europe was strong with good demand through the first half of the year, while the second half was weaker, at the same time as weather conditions were less favorable than in 2010. Sales for the twelve-months period were somewhat higher than the previous year, which was in line with the market trend. The operating margin for Europe & Asia/Pacific remained high at almost 14 percent, despite increased investments in branding, marketing and product development. The Group’s best performance was in robotic lawn mowers and riders, where market shares also increased.
In Americas, demand weakened once again. Since 2005, when demand was at its highest, it has declined every year except 2010; the total decline since 2005 is around 25 percent. Net sales were lower and operating profit was far from acceptable, which can be attributed in part to the disruptions in production. Our goal is to improve the operating margin in this business area, primarily by increasing the percentage of sales to dealers while improving the product mix and efficiency in the part of the business aimed at retailers. It will probably take some time before we reach a satisfactory level of profitability, but we have set our course to achieve this goal.
The Group’s smallest business area, Construction, has performed best, with improved sales, operating margin and market share, which is the result of a long-term consistent focus on product innovation and internal efficiency measures.
Strategy remains firm
As the newly appointed President and CEO of Husqvarna Group, I would like to emphasize that the Group’s strategy remains unchanged. Our top priority for 2011 was to continue the change program we have initiated, which was aimed at consolidating the Group within brands, manufacturing, sales, logistics and product development. This work is continuing in 2012 but the measures must be prioritized to ensure maximum delivery reliability for our customers. We will also slow the pace of change moving forward, which will delay the savings effects associated with these initiatives until after 2012.
One consequence of the more cautious pace of change is that it will take longer to ramp up the new production plant in Poland compared with our initial plan. Moving production of ride-on lawn mowers to Poland will take up to two years to complete, instead of one year. Our experience of the new production plant has been excellent.
The production disturbances in the Group’s largest plant in North America were partially a result of relocating production from a small plant into a larger factory. The purpose of the relocation was to reduce the fixed costs in production of ride-on lawn mowers, which is vital in the highly competitive North American market. Plant capacity has been gradually restored following extensive efforts. Since the selling season for garden products is short, delivery reliability and punctuality are particularly crucial. As an extra measure in 2012, we therefore focused to a greater extent than usual on preseason production already late in 2011.
Innovation is a key factor for success
Innovation has always been a factor for success at Husqvarna Group. To further strengthen our global leadership position, we are continuing to invest in innovation, by having the right products for the market at the right time.
There was plenty of product news in 2011. We launched a new platform for professional chainsaws, one of the strongest segments in the Group, which was received very well by the market. In 2012 we will add several new saws to the platform. In robotic lawn mowers we launched a model specially designed for small gardens and in 2012 we will launch another model that is specially adapted to the broad consumer segment. For professional lawn care, several new ride-on lawn mowers were launched and the Group now has a competitive product offering in this segment. In Construction, many new products became bestsellers, including new power cutters, drilling systems and a demolition robot.
Global launch of McCulloch
One of the Group’s most extensive launches began in 2011. A brand new line of products with daring, innovative design is being developed under the McCulloch brand. The products, which are being sold in retail outlets, are in the higher price segment for this sales channel. Initially the launch will mainly be in Russia, Germany, the Nordic region and the U.S, but in the long term the new product range will be sold globally. Chainsaws, lawn mowers and trimmers are among the products that will be available in 2012.
Battery products under the Husqvarna brand.
Battery-powered products, which do not produce any emissions, currently represent a small but rapidly growing part of the garden product market. Battery performance to date has been adequate only for simple consumer products, but the product portfolio has been keeping pace with improving battery performance and growing customer demand for quiet and environmentally friendly products. In 2012 the Group’s line of battery-powered consumer products under the Gardena brand will expand with semi-professional products under the Husqvarna brand.
Efficient procurement process more important
In several of Husqvarna Group’s major product categories, production largely comprises assembly of relatively finished components. The Group makes almost all of its products close to our customers in the major markets in North America and Europe. Less than 30 percent of component purchases are made from low-cost countries such as China.
Since purchasing of components is the Group’s largest cost item, there is great potential for improved efficiency by increasing the share of purchases from suppliers in low-cost countries. Equally important is ensuring efficiency along the entire global sourcing supply chain, not only in terms of quality and delivery reliability, but also issues concerning environment, human rights and corruption. To increase the focus on this area, the global purchasing organization was structured as a separate staff that reports directly to the CEO.
Outlook for 2012
Husqvarna Group’s consumer-oriented business is obviously affected by the global slowdown in consumer demand. In southern Europe, several major national financing issues remain unresolved and problems threaten to cause secondary effects in the rest of Europe, resulting in lower consumer demand. Uncertainty is high and we are trying to maintain a high level of preparedness to respond quickly to changes in demand.
Finally, I would like to thank all the Group’s employees for their outstanding efforts during a challenging year. Our listings in our major markets in Europe and North America for the 2012 season are unchanged compared with 2011, but with a better mix. I view this accomplishment as a confirmation of our strategy to consistently invest in innovative quality products under strong brands. A high level of service and delivery reliability are Husqvarna Group’s top priorities for 2012.
Hans Linnarson
President and CEO
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