Husqvarna Group Launches New Brand Driven Organization

June 13 -- Husqvarna Group will establish a new organization for its forest and garden operations which follows the brand dimension with a global profit and loss responsibility. The Construction division will continue in its current form. The new organization will gradually be implemented and fully effective as of January 1, 2015. Implementation costs and redundancies will be limited.

"The brand dimension of the new organization allows differentiating the three business models, each with their own distinct end customer target groups, strategy and offering - and aligning them with the associated operational resources and required leadership structure. Priorities will be simplified and responsibilities will be clear, thus achieving accountability and faster decision making. Important synergies will still be secured e.g. in sourcing, logistics and technology." says Kai Wärn, President and CEO of Husqvarna Group.

The forest and garden operations will be organized in three global brand divisions representing three different business models;

  · Husqvarna (including Zenoah), which are dealer channel centric brands that enjoy strong recognition across many different forest and garden product segments, primarily for professionals and demanding consumers. Net sales for the division in 2013 represented approximately 52% of Group net sales. The division will be headed by Pavel Hajman, who joined the Group on June 1.

  · Gardena, which is a retail centric brand with strong "must have" recognition in the consumer watering segment. Net sales for the division in 2013 represented approximately 13% of Group net sales. The division will be headed by Sascha Menges, currently Head of Manufacturing and Logistics.

  · Consumer Brands. This division includes all other Group brands, such as PoulanPro, McCulloch and Flymo. Net sales for the division in 2013 represented approximately 25% of Group net sales. The division will be headed by Alan Shaw, currently Head of Americas.

The divisions will have global profit & loss, cash flow and balance sheet responsibility. Most operational activities will primarily be organized within the divisions. To secure synergies and strategic alignment across the Group a Group Operations division will be established. Group Operations will be headed by Valentin Dahlhaus, currently VP Demand and Supply Chain Management. To further secure synergies and strategic alignment, global staff functions such as Business Development and Technology Office will also be established.

The Construction division, which represents around 10% of Group net sales, will not be impacted by the organizational changes in the forest and garden operations. Construction will continue under the leadership of Anders Ströby.

External business area reporting

In the Group's external financial reporting, the segment reporting will comprise four divisions; the three forest and garden divisions Husqvarna, Gardena and Consumer Brands, and the Construction division, as of January 1, 2015.

The new organization results in new cash generating units, which potentially creates a need for impairment of intangible assets. Any consequences will be communicated when known.

Group Management composition

Following the introduction of the new organization, Group Management will comprise:

Kai Wärn, President and CEO;

Ulf Liljedahl, CFO, Head of Group Staff Finance, IT and Investor Relations;

Pavel Hajman, President of Husqvarna Division (joined the Group June 1 as previously communicated);

Sascha Menges, President of Gardena Division (previously Head of Manufacturing & Logistics);

Alan Shaw, President of Consumer Brands Division (previously Head of Americas);

Anders Ströby, President of Construction Division;

Per Ericson, Head of Group Staff People & Organization and Communication;

Olle Wallén, Head of Group Staff Legal Affairs;

Pär Åström, Head of Business Development (previously not included in Group Management);

Valentin Dahlhaus, Head of Group Operations (previously VP Demand and Supply Chain Management and previously not included in Group Management);

Henric Andersson, Head of Technology Office (previously Head of Product Management & Development);

Frida Norrbom Sams, Head of Strategic Sales Initiatives (previously Head of EMEA);

Sofia Axelsson, Head of Group Branding and Marketing (previously not included in Group Management);

Francesco Franzé, Head of Program Office Accelerated Improvement Program (previously not included in Group Management).

Husqvarna Interim Report January-September 2013

Kai Wärn, President and CEO:

“The good sales momentum from the end of the second quarter held up well over the third quarter. Demand

in both Europe and North America was supported by favorable weather conditions and a delayed garden

season. Group sales for Europe and Asia/Pacific increased 8%, Americas 20% and Construction 6%, adjusted for changes in exchange rates.

Group operating income for the third quarter was largely on the same level as prior year. A positive development for Europe and Asia/Pacific was offset by a decline for Americas, as the majority of the strong sales growth in North America referred to low margin consumer products in the retail channel. In addition, operating income was impacted by inefficiencies in the supply chain, caused by inability to benefit from scale.

Cash flow for the quarter had a strong development, driven by continued working capital initiatives related to right sized inventory levels.

Although we see positive signs in our work towards our strategic goals, there is a need to further accelerate and broaden the scope for ongoing programs to reduce product cost and business complexity. From a topline perspective, we will focus resources on our core premium brands Husqvarna and Gardena and product leadership areas like professional handheld, robotic mowers and watering. Additionally, we will review how to further differentiate the dealer and retail business models which we see as a key measure to drive margin recovery, especially in the U.S.”

Third quarter

·         Net sales amounted to SEK 6,349m (5,841). Adjusted for exchange rate effects, net sales increased 12%.

·         Operating income amounted to SEK 206m (197).

·         Continued strong operating cash flow amounting to SEK 2,001m (1,503).

·         Net debt/equity ratio improved to 0.57 (0.68).

·         Earnings per share decreased to SEK 0.16 (0.19).

THIRD QUARTER

Net Sales

Net sales for the third quarter increased by 9% to SEK 6,349m (5,841). Adjusted for exchange rate effects, net sales for the Group increased 12%, by 8% for Europe and Asia/Pacific, by 20% for Americas and by 6% for Construction.

Operating Income

Operating income for the third quarter amounted to SEK 206m (197) and the corresponding operating margin amounted to 3.2% (3.4). Operating income increased for Europe and Asia/Pacific, while it decreased for Americas and Construction.

Operating income was positively impacted by the higher sales volume and savings from staff reductions, while unfavorable business area mix combined with inefficiencies in the U.S. supply chain, caused by inability to benefit from scale, impacted adversely.

Changes in exchange rates had a total negative impact on operating income of SEK -27m compared to the third quarter 2012.

JANUARY – SEPTEMBER

Net Sales

Net sales for January – September decreased by -3% to SEK 25,600m (26,358). Adjusted for exchange rate effects, net sales for the Group increased by 1%, for Americas by 2% and for Construction by 4%, while net sales for Europe and Asia/Pacific were unchanged.

Operating income

Operating income for January – September amounted to SEK 1,916m (2,279) and the corresponding operating margin amounted to 7.5% (8.6). Operating income increased for Americas and Construction, while it decreased for Europe and Asia/Pacific.

Operating income, excluding negative impact from changes in exchange rates, was positively impacted by lower material costs, higher sales volume and savings from staff reductions, while mainly lower factory utilization levels due to inventory reductions had negative impact.

Changes in exchange rates had a total negative impact on operating income of SEK -319m compared to

January - September 2012.

FINANCIAL ITEMS NET

Net financial items for the third quarter amounted to SEK -111m (-93). The higher financial cost is explained mainly by exchange differences. The average interest rate on borrowings at September 30, 2013, was 4.4% (4.0). For January – September, net financial items amounted to SEK -303m (-348).

INCOME AFTER FINANCIAL ITEMS

Income after financial items for the third quarter decreased to SEK 95m (104) corresponding to a margin of 1.5% (1.8). Income after financial items for January - September decreased to SEK 1,613m (1,931) corresponding to a margin of 6.3% (7.3).

TAXES

Taxes for January - September amounted to SEK -393m (-406), corresponding to a tax rate of 24% (21) of income after financial items.

EARNINGS PER SHARE

Income for the third quarter amounted to SEK 92m (106), corresponding to SEK 0.16 (0.19) per share. Income for January - September amounted to SEK 1,220m (1,525), corresponding to SEK 2.12 (2.65) per share.

OPERATING CASH FLOW

Operating cash flow for the third quarter amounted to SEK 2,001 (1,503). The positive development was mainly driven by inventory reductions.

Operating cash flow for January – September amounted to SEK 2,130m (1,595).

FINANCIAL POSITION

Group equity as of September 30, 2013, excluding non-controlling interests, amounted to SEK 11,361m (11,425), corresponding to SEK 19.84 (19.95) per share.

Net debt decreased to SEK 6,511m (7,811) as of September 30, 2013, of which liquid funds amounted to SEK 1,588m (1,285) and interest bearing debt amounted to SEK 6,834m (7,640), excluding pensions. The major currencies used for debt financing are SEK and USD. Net debt decreased by SEK -300m as a result of changes in exchange rates.

The net debt/equity ratio improved to 0.57 (0.68) and the equity/assets ratio to 44% (42).

In addition to the amendment of IAS 19 “Employee benefits” which is shown on pages 13 and 14, Husqvarna Group has reclassified the net defined pension liability to interest-bearing financial liability and included the liabilities in the calculation of net debt.

On September 30, 2013, long-term loans including financial leases amounted to SEK 6,496m (5,089) and short-term loans including financial leases to SEK 185m (2,306). Long-term loans consist of SEK 4,927m (2,571) in issued bonds, and bank loans and financial leases of SEK 1,569m (2,518). The bonds and bank loans mature in 2014 and onwards. The Group also has an unutilized SEK 6 bn syndicated revolving credit facility, with maturity in 2016.

PERFORMANCE BY BUSINESS AREA

Europe and Asia/Pacific

Net sales for Europe and Asia/Pacific increased by 5% in the third quarter 2013. Adjusted for exchange rate effects, net sales increased by 8%.

Demand for lawn and garden products in the third quarter was positively impacted by a prolonged selling season in Europe due to favorable weather conditions as well as a consequence of the late start to the season earlier in the year.

Following the slow start to the year in Europe, activity picked up in May and Group sales were strong over the third quarter. Sales in Asia/Pacific also had a good development, especially in Australia. In terms of product categories, watering products and hand tools had the best development in the third quarter, while electric products such as robotic lawn mowers had the best development for the first nine months of the year.

Operating income for the third quarter increased to SEK 289m (238) and the operating margin increased to 8.9% (7.7).

Operating income for the first nine months amounted to SEK 1,650m (2,102) and the operating margin amounted to 13.1% (16.1).

The improved operating income in the third quarter was mainly related to higher sales volume and favorable product mix, which was partly offset by lower utilization levels in factories as a result of inventory reductions.

For January - September operating income was positively impacted by lower material costs, while mainly changes in exchange rates and under-absorption in factories affected negatively.

Changes in exchange rates had a negative year-on-year effect of SEK -12m on operating income for the third quarter and SEK -311m for January - September.

America’s

Net sales for Americas increased by 16% in the third quarter 2013. Adjusted for exchange rate effects, net sales increased by 20%.

In the third quarter, demand was substantially higher as weather conditions were favorable compared with the serious drought conditions that hampered demand in the third quarter prior year. Demand was also positively impacted by an improving U.S. economy.

Group sales were substantially higher in North America as well as in Latin America in the third quarter. For the first nine months, the higher sales were mainly attributable to North America. Sales in the dealer channel rose for the nine month period while the retail channel accounted for the majority of the growth in the third quarter.

Operating income for the third quarter decreased to SEK -126m (-97) and the corresponding margin decreased to -5.4% (-4.9), mainly as a result of unfavorable channel and product mix as low margin consumer products in the retail channel represented a large share of sales. In addition, operating income was negatively affected by inefficiencies in the supply chain caused by inability to benefit from scale. For January - September, the effects of price, channel management and lower material costs contributed to the positive development.

Changes in exchange rates had a negative year-on-year effect of SEK -3m on operating income for the third quarter and a positive impact of SEK 17m for January - September.

Construction

Net sales for Construction increased by 3% in the third quarter 2013. Adjusted for exchange rate effects, the increase in sales was 6%.

The positive demand trend in North America continued in the third quarter, although somewhat slower than earlier in the year. In Europe demand for construction products recovered for the second consecutive quarter and in the rest of the world, markets also showed continued positive demand growth.

The Group’s sales growth in the third quarter as well as for January - September was primarily attributable to U.S. and Brazil. Sales in Europe were also higher for both periods.

Operating income for the third quarter amounted to SEK 86m (89) and the operating margin amounted to 10.9% (11.7).

Operating income in the third quarter was positively impacted by the higher sales volume, which was offset mainly by lower factory utilization levels and changes in exchange rates. For January – September, operating income benefitted from higher sales and favorable mix.

Changes in exchange rates had a negative year-on-year effect of SEK -10m on operating income for the third

quarter and SEK -21m for January - September.

MANAGEMENT CHANGE IN ASIA/PACIFIC

Nicolas Lanus, Group Management Member and Head of Asia/Pacific, has decided to leave Husqvarna Group.

He will hold his current position until December 31, 2013, when he leaves the company for an external position.

PARENT COMPANY

Net sales for January – September 2013 for the Parent Company, Husqvarna AB, amounted to SEK 8,603m (8,955), of which SEK 6,664 (6,962) referred to sales to Group companies and SEK 1,939m (1,993) to external customers.

Income after financial items amounted to SEK 1,570m (1,761). Income for the period was SEK 1,311m (1,390).

Investments in tangible and intangible assets amounted to SEK 355m (235). Cash and cash equivalents amounted to SEK 171m (34) at the end of the quarter. Undistributed earnings in the Parent Company amounted to SEK 17,466m (17,915).

CONVERSION OF SHARES

According to the company's articles of association, owners of A-shares have the right to have such shares converted to B-shares. Conversion reduces the total number of votes in the company.

In July 2013, 128,051 A-shares were converted to B-shares at the request of shareholders. In October 2013, another 847,885 A-shares were converted to B-shares at the request of shareholders. The total number of votes thereafter amounts to 171,568,859.

The total number of registered shares in the company at September 30, 2013 amounted to 576,343,778 shares of which 127,441,753 were A-shares and 448,902,025 were B-shares.

Husqvarna 2011 Annual Report - Excerpts

HUSQVARNA 2011 ANNUAL REPORT – Strategy And Financial Goals, Brand Strategy, Global Distribution Network, Broad Product Offering, North America Market - EXCERPTS

The Group’s strategy involves improving internal efficiency throughout the entire supply chain, in order to create a framework for increasing investment in product development and brands that will further strengthen the Group’s position.  The strategy is based on the Group’s primary strengths: strong brands, efficient global distribution network, a broad product offering and a flexible supply chain.

The Group’s Primary Strengths                                   Goals

1)  Strong Brands                               1)  Increase sales of premium brands.

2)  Efficient global distribution network.    2)  Increase dealer channel sales.

                                                                    Reduce selling and administrative costs.

                                                                    More efficient customer service.

3)  Broad product offering                 3)  Sales growth.

                                                              Higher market shares.

                                                              Reduced time-to-market.

4)  Flexible supply chain                   4)  High flexibility.

                                                             Lower production costs.

                                                             Increased LCC sourcing.

                                                             High delivery accuracy.

                                                             Reduced inventory level.

STRONG BRANDS

Fewer, stronger, more global

Husqvarna, Gardena, McCulloch and Diamant Boart are the Group’s global brands. The Group also has regional and tactical brands. Having a portfolio of brands is essential for maintaining a leading position in a range of price and product categories, appealing to different end-users and throughout sales channels and regions.

Husqvarna represents technological leadership

Husqvarna has long been a strong global premium brand for professional users and consumers who demand high performance.  The brand stands for technological leadership,  professional performance and high quality. In 2011, it accounted for approximately 48 percent of Group net sales.

Gardena is the leader in watering

Gardena is the leading premium brand in Europe for watering products and garden tools for consumers. The brand´s offering also includes battery-powered products. In 2011, the Gardena brand accounted for approximately 12 percent of Group sales.

McCulloch launched globally

The launch of a new product range under the McCulloch brand began in 2011 and in 2012 it will be available in the retail chains. The range includes forest and garden products for consumers in the higher price and performance segments and is initially being launched mainly in Russia, Germany, the Nordic region and the U.S. The range will gradually be expanded and launched globally in the long term.

Diamant Boart global brand for the stone industry

Strong and consistent focus on product development and quality has given Diamant Boart recognition as the leading global brand in the stone industry. The product offering includes a complete range of diamond tools for processing natural stone.

The number of brands will be reduced

In order to increase efficiency and to reduce costs, the Group will decrease the number of product brands. The Group will increase its share of sales to the premium segment, where profitability is higher. Brand investments and product innovations will thus focus mainly on the Group’s global brands.

Tactical brands increase flexibility

The Group’s tactical brands hold strong positions in regional or local markets, or in specific product categories. The tactical brands create scope for flexibility and can, for example, be expanded into new geographic markets or product categories if required. The Group’s regional brands also hold strong positions in their local markets, but there are no plans to expand them into new markets.

Initiatives to strengthen operations

• Prioritize Husqvarna, Gardena, McCulloch and Diamant Boart in terms of brand investments and innovation
• Launch McCulloch as a global premium brand for consumers.
• Reduce the number of regional and tactical brands. During the year Yazoo|Kees was discontinued and the Partner brand is gradually being replaced by McCulloch. 
• Strengthen the position of the Husqvarna brand as a professional brand with dealers.

 

EFFICIENT GLOBAL DISTRIBUTION NETWORK

Increased sales through dealer channel

The Group’s forest, park and garden products are primarily sold through two distribution channels – retailers and dealers. The retail chains focus on consumer products in the mid- and low-price segments as well as spare parts and accessories. Dealers, which include thousands of small, local, independent specialty stores, sell a more advanced range of products, spare parts and accessories to professional users and consumers with a high demand on performance. Most dealers also offer servicing.

The Group holds strong positions in both channels selling to about 25,000 dealers and to most large retail chains. Products under the Husqvarna brand are primarily sold through dealers and, to a lesser extent, by retail chains in the U.S.

Sales to the dealer channel accounted for 47 percent of Group sales, sales to the retail channel 47 percent and sales to other channels (rental companies, sawing, drilling and demolition contractors, and stone quarry customers) accounted for the remaining 6 percent of Group sales.

Products for the construction industry are mainly sold to rental companies and specialized dealers, as well as directly to contractors.

Husqvarna Group’s comprehensive distribution network has been developed over many years, providing a substantial competitive advantage.

There is good potential for growth in both distribution channels, on the condition that the Group can offer appropriate product ranges and efficient service to the respective channels.

Increased sales to dealers is a top priority, especially in North America and Latin America, where Husqvarna Group’s position in the dealer channel is not as strong as it is in Europe. In addition to offering a wide range of competitive products, availability of spare parts, product training, service programs and timely delivery are all important factors in recruiting new dealers. Brand-building measures aimed at dealers, such as customized shelf systems to display Husqvarna Group products, are also important.

Initiatives to strengthen operations

·         Improved service through enhanced product training and service programs etc.

·         Broader offering and increased availability of spare parts.

·         Brand building at points-of-sale.

BROAD PRODUCT OFFERING

Attractive and innovative products that meet customer needs.

  
The Group has a broad and competitive product offering. Its position is particularly strong in handheld products, such as chainsaws, clearing saws and trimmers, as well as in riders and garden tractors. The Group is the European market leader for watering products and garden tools under the Gardena brand.  It also has a strong product offering in cutting equipment and diamond tools for the construction and stone industries.

The Group’s goal is to be the leader in its core areas. However, maintaining a strong partnership with customers involves providing a complete product range, which includes also offering competitive products outside of the core areas.

Focus on core areas

There is a good potential for growth within the existing product offering. The Group aims to maintain a high rate of product renewal, which is decisive for achieving growth and improved margins. Achieving growth also requires having the right product offering for each distribution channel.

Products are becoming increasingly more global or regional, thus creating opportunities for reducing the number of product platforms and local variants. In the long term, this strategy will also lead to lower development costs per sold unit, together with synergies in production and purchasing.

In an effort to streamline product development, the Group is focusing its development resources on a limited number of R&D centers in key locations, including Sweden, Germany, the U.K, the U.S, China and Japan.

Customer-driven research and development

The Group has a common global process for product development. An effective product development process, including consumer insights and a high level of innovation, is essential to the Group’s growth and profitability. The objective is to generate a continuous flow of attractive and competitive new products. Significant synergies and rationalization gains are being achieved in product development via this process.

Initiatives to strengthen operations

·         Focus on core areas.

·         High pace of customer-driven product development.

·         Development resources gathered in a few R&D centers.

FOCUS – Battery Powered Products

Battery-powered products are gaining popularity. The rising demand is being driven by customers’ growing preference for convenient, quiet and eco-friendly products.  The Group is continuously adding new products to its already wide range of battery-powered products. In 2012 semiprofessional battery-powered chainsaws, trimmers, hedge trimmers and a ride-on mower will be launched under the Husqvarna brand. The product offering with the battery powered robotic lawn mower will be expanded with a model for smaller lawns under the Gardena brand.

 
COMPETITORS:  FOREST, PARK, GARDEN

 

AMERICAS – Retained market positions

Market demand in North America fell during the year due to a weak macroeconomic trend.   The Group’s sales declined, but overall, market shares remained stable.

The market for forest, park and garden products in the Americas is estimated at approximately SEK 75 billion. The U.S accounts for around 84 percent of the market, Canada 9 percent and Latin America 7 percent. Brazil is the largest market in Latin America.  Sales to dealers are estimated at around 35 percent of the value of the total market in North and Latin America, with the remaining 65 percent sold to retail chains. The four largest retail chains (Sears, WalMart, Home Depot and Lowe’s) account for around 70 percent of the Group’s total market sales to retail chains in North America.

Strong market positions

The Group holds strong market positions for chainsaws, garden tractors, lawn mowers and trimmers. The combined market shares amount to around 20 percent. Historically, sales of consumer products to the retail chains have been Husqvarna Group’s strength in North America, and market shares are thus higher in this market. The ambition is to increase market share in the dealer channel.

Lower demand

Demand in most product categories within forest and garden products declined in the U.S during 2011. The exception was chainsaws, which benefited from favorable weather conditions. Overall demand has declined every year since 2005 with the exception of 2010. The market’s total decline compared with the peak year, 2005, is considered to be around 25 percent. Demand continued to improve in Latin America.

Husqvarna Group’s sales in America declined in 2011, primarily due to lower demand. Production disruptions in the Group’s largest  production plant in the region also had a negative impact on sales. These disruptions caused delivery capacity to decline and also had a negative impact on costs. Delivery capacity gradually improved as corrective measures were implemented and in the fourth quarter pre-season production for 2012 began.

Measures to increase sales to dealers continued. The number of dealers selling Husqvarna Group products rose, but sales were adversely impacted by lower demand and by the production disruptions.

Sales growth continued to be good in Latin America, but the increase was based on small volumes and the contribution to the business area’s total sales is thus limited.

New products

Most product launches during the year targeted professional users or consumers with high demands for performance, products generally sold by dealers. Commercial lever-operated ride-on mowers (zeroturn mowers), as well as several new models of chainsaws, trimmers, hedge trimmers, pole saws and snow throwers were introduced under the Husqvarna brand.

Increased presence in the dealer channel

The ambition is to increase the share of sales to the dealer channel since it usually has higher margins than sales to the retail chains. The Group already has a comprehensive offering of products for the dealer channel.  Several measures have been taken to increase sales, including branding and product-oriented campaigns, a strong selection of spare parts and accessories, and continued improvements in product training and service programs. Many new dealers were recruited during the year. Customized interiors are also being designed for selected dealers to attractively display Husqvarna Group products in the store.

The Group’s margin in the Americas is lower than in Europe. Compared with Europe, sales of consumer products to the retail chains constitute a larger share of sales. Sales to retail chains have a lower margin than sales to dealers.

FOCUS – Ride-on lawn mowers

The Group made many new additions to its already wide range of garden tractors during 2011.

New launches in 2012 include an upgraded range of premium garden tractors for home and landowners. The tractors feature a 107 cm cutting deck, side ejection or integrated collection, and are suitable for gardens up to 4,000 square meters.

The new U-cut solution gives an extra tight turning radius, meaning more efficient mowing. Many different attachments for both summer and winter use are available.

Several new zero-turn mowers for homeowners and professionals were also launched in 2011.  The line will be expanded with additional models for commercial use in 2012. The mowers feature high-performance cutting decks for increased productivity, vibration-insulated operator platform and easy-access service points.

THE ENTIRE 110 PAGE 2011 HUSQVARNA ANNUAL REPORT IS AVAILABLE HERE:

http://corporate.husqvarna.com/files/press/husqvarna/201203072182-1.pdf