Husqvarna Year-End Report 2012

Stockholm February 13, 2013

Hans Linnarson, President and CEO:

“Market conditions in Europe weakened significantly in the fourth quarter. Due to the macroeconomic uncertainty, trade partners were cautious about building inventory for the coming season. Sales of seasonal products such as snow throwers and chainsaws declined mainly as a result of the weak consumer demand. Sales were also negatively impacted by delays in some recently launched handheld products. Operating income was negatively affected by the lower sales volume, as well as product and sales channel mix.

For Americas, sales of forest and garden products were slightly lower in the quarter, which mainly was a result of soft demand for snow throwers. Although the operating loss for Americas decreased during the year, the work with measures to further improve the result continues.

Construction continued to benefit from a positive development in North America. Operating income for the business area continued to improve, although sales in the quarter declined due to falling demand in markets outside of North America.

The Group enters the new season well prepared, as retail listings with our main trade partners are on satisfactory levels.

Today the Group announced a SEK 1bn investment in core technologies. The investment in manufacturing of chainsaw chain and cylinders will further strengthen our leading position in chainsaws. By expanding into saw chain, we are also creating an opportunity to grow in the replacement part market, as chains represent the biggest aftermarket category.

The near-term demand outlook for North America is positive, while the European markets are expected to remain challenging as the macroeconomic uncertainty remains. The cost structure improvement initiative which was announced in November is progressing according to plan and will support earnings in 2013.”

Fourth quarter

·         Net sales amounted to SEK 4,476m (4,994). Adjusted for exchange rate effects, net sales declined -8%.

·         Operating income amounted to SEK -618m (-236). Excluding items affecting comparability, referring to already announced costs for staff reductions, operating income amounted to SEK -362m (-236).

·         Operating cash flow amounted to SEK -451m (-144).

·         Earnings per share amounted to SEK -0.87 (-0.39).

Full-year

·         Net sales amounted to SEK 30,834m (30,357). Adjusted for exchange rate effects, net sales were unchanged.

·         Operating income increased to SEK 1,615m (1,551). Excluding items affecting comparability, operating income increased to 1,871m (1,615).

·         Operating cash flow improved to SEK 1,144m (-472).

·         Earnings per share increased to SEK 1.78 (1.73).

·         The Board proposes a dividend of SEK 1.50 (1.50) per share for 2012.

FOURTH QUARTER

Net sales

Net sales for the fourth quarter decreased by -10% to SEK 4,476m (4,994). Adjusted for exchange rate effects, net sales for the Group declined by -8%, for Europe & Asia/Pacific by -12%, for Americas by -3% and for Construction by -2%.

Operating income

Operating income for the fourth quarter amounted to SEK -618m (-236) and the corresponding operating margin amounted to -13.8% (-4.7). Excluding items affecting comparability, which refer to already announced costs for staff reductions, operating income amounted to SEK -362m (-236). Construction’s operating income, excluding items affecting comparability, increased, and the operating loss for Americas decreased. Staff reduction measures and the associated cost is shown on page 6.

Operating income, excluding items affecting comparability, was negatively affected mainly by the lower sales volume as well as product and sales channel mix.

Changes in exchange rates had a total positive effect on operating income of approximately SEK 11m, compared with the fourth quarter 2011, of which transaction effects amounted to SEK -10m (-29), translation effects amounted to SEK 0m (-12) and change in value of currency hedging contracts amounted to SEK -5m (15).

In the fourth quarter 2011, operating income was negatively impacted by in total SEK -85m, referring to costs directly related to production disturbances amounting to SEK -30m and other non-recurring items with a combined net negative effect of SEK -55m.

FULL-YEAR

Net sales

Net sales for 2012 increased by 2% to SEK 30,834m (30,357). Adjusted for exchange rate effects, sales for the Group were unchanged, Americas increased by 7%, Construction increased by 4%, while Europe & Asia/Pacific adjusted sales decreased by -6%.

Operating income

Operating income for 2012 amounted to SEK 1,615m (1,551). Excluding items affecting comparability, which refer to costs for staff reductions, operating income amounted to SEK 1,871m (1,615).

Changes in exchange rates had a total positive effect on operating income of approximately SEK 46m, compared with 2011, of which transaction effects amounted to SEK -205m (8), translation effects amounted to SEK 0m (-11) and change in value of currency hedging contracts amounted to SEK 129m (-119).

Operating income, adjusted for changes in exchange rates and items affecting comparability, was positively affected by higher selling prices, lower material and production costs, while mainly mix effects had a negative impact.

In 2011, operating income was negatively impacted by SEK -398m directly related to production disturbances in North America and other non-recurring items with a total net negative effect of SEK -76m.

The Group operating margin amounted to 5.2% (5.1). Excluding items affecting comparability, Group operating margin amounted to 6.1% (5.3).

Operating income, adjusted for items affecting comparability and changes in exchange rates, increased for Construction, declined for Europe & Asia/Pacific, while the operating loss for Americas was lower than in the previous year.

FINANCIAL ITEMS NET

Net financial items amounted to SEK -446m (-404) for the full year. The higher financial cost is explained mainly by higher borrowings and negative impact from revaluation of the interest rate component in foreign exchange agreements. The average interest rate on borrowings at the end of the year was 4.2% (4.7).

INCOME AFTER FINANCIAL ITEMS

Income after financial items for the fourth quarter decreased to SEK -757m (-363) corresponding to a margin of -16.9% (-7.3). For the full-year, income after financial items amounted to SEK 1,169 (1,147) corresponding to a margin of 3.8% (3.8).

TAXES

Taxes for the full year amounted to SEK -146m (-150), corresponding to a tax rate of 12% (13) of income after

financial items.

The lowering of the company tax rate in Sweden from 26.3% to 22.0% had no material impact on the Group’s income tax in 2012.

EARNINGS PER SHARE

Income for the year amounted to SEK 1,023m (997), corresponding to SEK 1.78 (1.73) per share.

OPERATING CASH FLOW

Operating cash flow for the full year amounted to SEK 1,144m (-472). The improved operating cash flow was mainly related to a reduction of working capital and lower investments. Operating Cash-flow for the fourth quarter was impacted by higher pre-season production.

Due to the seasonality of the Group’s operations, operating cash flow is normally negative in the first quarter followed by positive cash flow in the second and third quarters, while the operating cash-flow in the fourth quarter is dependent on the level of pre-season production.

FINANCIAL POSITION

Group equity as of December 31, 2012, excluding non-controlling interests, amounted to SEK 11,564m (12,332), corresponding to SEK 20.2 (21.5) per share. Group equity was negatively affected by exchange differences on translating foreign operations to SEK amounting to SEK -784m.

Net debt at year-end amounted to SEK 6,793m (6,921) of which liquid funds amounted to SEK 1,573m (1,340) and interest bearing debt amounted to SEK 8,366m (8,261). The major currencies used for debt financing are SEK and USD. For the full-year, net debt decreased by SEK -75m as a result of changes in exchange rates.

The net debt/equity ratio amounted to 0.59 (0.56) and the equity/assets ratio to 41% (43).

On December 31, 2012, long-term loans including financial leases amounted to SEK 6,611m (6,941) and short-term loans including financial leases to SEK 1,470m (968). Long-term loans consist of SEK 4,075m (3,135) in issued bonds, and bank loans and financial leases of SEK 2,536m (3,556). Long term bonds and long term bank loans mature in 2014 and onwards. In November 2012, the Group issued bonds totaling SEK 1.5bn with five year maturity. The Group also has an unutilized SEK 6 bn syndicated revolving credit facility, with maturity in 2016.

PERFORMANCE BY BUSINESS AREA

Europe & Asia/Pacific

 Net sales for Europe & Asia/Pacific in the fourth quarter decreased by -15%. Adjusted for exchange rate effects, net sales decreased by -12%. For the full-year, sales decreased by -6%. Adjusted for exchange rate effects, the decline was also -6%.

Consumer demand and confidence remained weak as the macroeconomic uncertainty continued in the fourth quarter. The decline in sales was mainly related to handheld products and snow-throwers in Europe, and a broad downturn in Australia. Sales were also negatively impacted by delays in some recently launched products.

Market demand was weak also for the full-year, as a result of a combination of unfavorable weather and macroeconomic uncertainty. Trade inventory levels were conservatively managed and the Group’s sales declined in Europe as well as in the Asia/Pacific region. The decline in full-year sales is estimated to be in line with the drop in the total market. In terms of product categories, robotic lawn mowers had the best development while watering and handheld products, such as chainsaws, had the weakest development.

Operating income for the full year amounted to SEK 1,709m (2,277) and the operating margin amounted to 11.1% (13.9). Operating income in the fourth quarter was charged with items affecting comparability amounting to SEK -187m, referring to costs related to staff reductions. Changes in exchange rates had a negative year-on-year effect of SEK -5m on operating income in the fourth quarter and a positive impact of SEK 67m for the full year.

For the full-year, operating income excluding items affecting comparability and changes in exchange rates declined, mainly as a result of the lower sales volume and negative product mix, referring mainly to lower sales of watering products and chainsaws. For the fourth quarter, the lower operating income was mainly related to the lowers sales, and negative product and channel mix.

Operating income for 2011 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.

Of the 2011 impact, the fourth quarter 2011 was affected by costs directly related to production disturbances

amounting to SEK -5m and the positive effect from the closure of a pension scheme of SEK 53m.

Americas

Net sales for Americas in the fourth quarter decreased by -6%. Adjusted for exchange rate effects, net sales decreased by -3%. For the full-year, sales increased by 12%. Adjusted for exchange rate effects, the increase was 7%.

The decline in sales in the fourth quarter was mainly related to snow throwers.

Total market demand in North America over the full-year increased. The garden season started with an early spring, which positively impacted demand for lawn and garden products. The positive development in the first half of the year was partially offset by a sharp downturn in the third quarter, following serious drought weather conditions in large areas of the U.S.

The Group’s market shares for forest and garden products in North America are estimated to have increased for consumer garden tractors and commercial ride-on mowers. Full-year sales increased in the U.S. and in Canada, while sales in Latin America were slightly lower. In terms of product categories, consumer garden tractors and ride-on mowers for commercial use had the best development. The number of dealers selling Husqvarna Group products increased and the total dealer channel sales also grew.

Operating income for 2012 amounted to SEK -169m (-654) and the corresponding operating margin was -1.3% (-5.8). Operating income was charged with items affecting comparability amounting to SEK -36m, referring to a staff reduction program. Changes in exchange rates had a positive year-on-year effect of SEK 19m on operating income in the fourth quarter and a negative impact of SEK -11m for the full year.

Operating income for 2011 was 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.

Of the full-year 2011 impact, the fourth quarter 2011 was affected by costs directly related to production disturbances amounting to SEK -25m other nonrecurring items with a total net negative effect of SEK -83m.

CONSTRUCTION

Net sales for Construction in the fourth quarter decreased by -5%. Adjusted for exchange rate effects, the decrease was -2%. For the full-year, sales increased by 5%. Adjusted for exchange rate effects, the increase was 4%.

Total construction market activity during 2012 increased in North America while other markets had a negative development. The demand in the U.S. was also positively affected by a replacement need of construction equipment following a period of low investment levels.

Many new products with innovative features, such as electric power cutters, wire saws and drilling systems, have been successfully launched in recent years, resulting in sales growth and increased market shares, especially in the U.S.

For the full year as well as for the fourth quarter, sales increased in North America, while most other markets had declines in line with the drop in over-all market demand.

Operating income for 2012 increased to SEK 233m (130) and the operating margin improved to 7.9% (4.7).

Excluding items affecting comparability, operating income increased to SEK 258m (194) mainly due to the higher sales volume.

Operating income 2012 was charged with items affecting comparability referring to costs for staff reductions amounting to SEK -25m, while income in 2011 was charged with costs referring to the closure of a production facility in Spain amounting to SEK -64m. Changes in exchange rates had a positive year-on-year effect of SEK 3m on operating income in the fourth quarter and a negative impact of SEK -9m for the full year.

PARENT COMPANY

Net sales in 2012 for the Parent Company, Husqvarna AB, amounted to SEK 10,564m (11,121), of which SEK 8,172m (8,486) referred to sales to Group companies and SEK 2,392m (2,635) to external customers.

Income after financial items amounted to SEK 564m (1,414). Income for the period was SEK 908m (737).

Investments in tangible and intangible assets amounted to SEK 1,517m (336). Cash and cash equivalents amounted to SEK 91m (28) at the end of the year. Undistributed earnings in the Parent Company amounted to SEK 17,384m (17,449).

ORGANIZATIONAL CHANGES

Effective January 1, 2013, the business unit ‘Sales and Service Europe & Asia/Pacific’ was divided into two new business units - ‘EMEA’ (Europe, Middle East, Africa), and ‘Asia/Pacific’. The change will not imply any changes in the external financial reporting.

Effective January 1, 2013, the business unit ‘Sales and Service Europe & Asia/Pacific’ was divided into two new business units - ‘EMEA’ (Europe, Middle East, Africa), and ‘Asia/Pacific’. The change will currently not imply any changes in the external financial reporting.

The split of 'Sales and Service Europe & Asia/Pacific' is ongoing and no financial information is available to assess if these units will exceed any of the quantitative thresholds according to IFRS8. If the units will exceed any of these thresholds, the Group will report these as external business areas.

In conjunction, Frida Norrbom Sams, who most recently headed the Nordic and Baltic regions within Sales and Service Europe & Asia/Pacific, was appointed Executive Vice President and Head of EMEA and member of Group Management.

Furthermore, Nicolas Lanus was appointed Executive Vice President and Head of business unit Asia/Pacific and new member of Group Management.

As of January 23, 2013, Michael Jones, Head of business unit Americas, left the Group. Earl Bennett, Vice President and General Counsel for business unit Americas, was appointed acting Head of Americas and member of Group Management until a replacement has been recruited.

STAFF REDUCTION MEASURES

In November 2012, Husqvarna Group announced measures to improve the Group’s cost structure. The measures include layoffs of in total approximately 600 employees in several countries, whereof almost half in Sweden. The measures aim to improve efficiency, reduce the fixed cost base and further increase flexibility.

The cut-backs will be implemented during the first six months of 2013. Cost savings will be achieved gradually and full annual effect of around SEK 220m will be reached during 2014. For 2013 cost savings are estimated at around SEK 160m. Total costs for implementing the measures are SEK -256m, which were charged to the operating income for the fourth quarter of 2012. SEK -187m was charged to Europe & Asia/Pacific, SEK -36m to Americas, SEK -25m to Construction and SEK -8m are Group Common Costs.