Earnings Transcript for HSQVY - Q4 Fiscal Year 2023

Johan Andersson: Hello, everyone, and welcome to the presentation of Husqvarna Group’s report for the Fourth Quarter and Full Year 2023. My name is Johan Andersson. I am heading up the Investor Relations department here in Husqvarna Group. And here in Stockholm today, we will present the report by our CEO, Pavel Hajman; and our CFO, Terry Burke. After the presentation of the report, we will open up for a Q&A session. [Operator Instructions] So with that, I would like to hand over to Pavel to start today’s presentation. Please, Pavel?

Pavel Hajman: Thank you, Johan and welcome everyone, of course, also from my side. And before we go into the quarter, I am very glad that we can conclude that we are closing the year where we actually continue to deliver on our strategy in a very challenging market environment. And we have improved our operating margin for the group and also in all three divisions and cash flow is up just above SEK7 billion improvement for the year. And we have advanced in our key areas for value creation and really reinforced our position in segments such as robotics, battery products and smart watering. But let’s turn into the quarter then and some of the comments there. During quarter 4, we experienced that the challenging market conditions continued just as they were in quarter 3. Our customers are generally more cautious and awaiting the start of the gardening season and this affected of course our volumes. But on the other hand, we have a number of segments that actually delivered growth such as Husqvarna Professional Robotics, our watering business in Europe and also our professional battery powered products. And to mitigate this more challenging situation, we have since earlier implemented efficiency measures and cost savings, which are now really delivering good results. We clearly see that in both Gardena and Husqvarna Construction divisions, which both then achieved an improved operating income as well as an operating margin for the quarter. Another aspect to point out for the quarter is our continuous focus on cash flow that continued to generate good results. Our working capital levels are now coming down year-on-year and we have a positive cash flow of around SEK500 million in the fourth quarter. Also, it’s encouraging, of course, to see that we execute on our Sustainovate program and deliver in the terms of CO2 reduction as well as a reduced climate footprint. I will come back to these milestones further in the presentation. So, with that, let’s take a look a little bit more on the numbers for the quarter. Organic sales decreased by 15% as reported, was minus 17%. And the key driver to this development is an overall weaker market situation. And when we analyze the entire decline in detail, we can see that around 40% of this is due to a tough comparison from high robotics sales in quarter 4 last year, but also our exits of the low-margin petrol business in North America. And then the remaining part then is then, of course, linked to the overall weaker market. As I stated earlier, we still see though that we managed to grow our sales of professional robotics, pro-battery and also watering in Europe in this quarter. In the Husqvarna Construction division, we had good sales progress in emerging markets, but a weaker performance in Europe as we also had in quarter 3 and now also to a certain limited degree in North America. Overall, construction delivers a very strong result for the quarter as well as a record EBIT for the year and historically also as a division. Group operating income amounted to negative SEK168 million, excluding items affecting comparability in the quarter. Terry will, of course, go into further detail on this, but the decrease is mainly related to lower volumes, which were then partly offset by our cost savings of some SEK110 million in the quarter, but also we had lower logistics cost. And we should also note that we actually had a negative currency impact in the quarter of around SEK105 million. Now, direct operating cash flow improved to SEK500 million, driven by improved cash flow then from inventories and trade receivables, which were both continue to be reduced. Robotics and battery, as a share of group sales, is actually now 20% for the year and sales of residential robotic mowers were lower during the quarter compared to the same quarter last year and this is mainly due to the – mainly due to the improved supply situation and the backlog deliveries that we did in the second of last year. However, importantly to note is that robotic sales in this quarter was above the average for the same quarter in previous years and actually also higher than in 2021. So when analyzing the season, we have clearly gained market share and market position in robotics compared with last year and we have managed a full year growth. We are well positioned with great product news for ‘24 season, both in robotics and battery solutions, but also other products and we will look at some of this product news later in the presentation. Let us zoom out and take a longer perspective look on our profitability development and trajectory. I am really very proud that we have achieved an impressive – sorry, an improved margin this year up to 9.3%. And from an absolute level, we are also achieving the second best EBIT for a year. And as you can see over the last 10-year period and this is driven by good execution in the company as well as these cost savings programs that we have clarified earlier. We continue to execute on our strategy and our long-term transformation really with the ambition to build a stronger Husqvarna Group and we really continue to focus on the value growing segments, which have higher profitability and higher future growth potential. With that, I leave it over to you, Terry then to discuss a little bit more of the divisions in detail.

Terry Burke: Thank you, Pavel and hello everybody from my side. Let’s start with our largest division and do a little bit of a deep dive in each of the divisions as we go here. The Husqvarna Forest & Garden division that had an organic net sales decline of some 21% in the quarter. From a sales perspective, we did have strong growth in Professional Robotics and we had strong growth in Pro battery products, which is really good to say how those have developed. We have seen a weak demand, particularly around the wheel products. Of course, we have some exits in the quarter as well, some exits of around SEK180 million. But even adjusting for that, there was a weak wheeled demand. Pavel touched upon it a little bit earlier with regards to robotics and we should not forget quarter 4 2022 was a high comparable given the catch-up on the back order situation of robotics. And therefore, the residential part of our robotics is lower – significantly lower this time, but higher than previous years. So, it’s more that quarter 4 ‘22 was exceptionally high. In the quarter, we see a relatively flat operating margin just below 0, a negative SEK7 million in the quarter which is lower than last year, but again, on the back of a strong Q4 last year from the robotics. We have performed well with our cost saving program and that is starting to come through in a good way. But of course, with the lower volumes, it has impacted our operating income. If we zoom out and we look at the full year impact, the full year results, we see a 4% sales decline for the full year, organic. And what we are pleased to see is we see an improved operating income, both in absolute value above SEK3.2 billion and also an operating margin improvement to 10.2% versus 10% last year. Moving on to the Gardena division, we see an organic sales decline of 4% in the quarter. What is good to point out here is in Europe, the sales of Gardena Europe was positive, was strong. However, this was offset by negative sales development in Orbit in the U.S. However, also worth pointing out, although Orbit had lower sales, actually, from a profitability perspective, it was an improved operating income and the quality of earnings improved, which was actually margin accretive to the division in quarter 4. We did have some positive effects from cost savings and also logistics costs. And when we look at our operating income for the quarter, we see an improved operating margin, 19.9% versus 21.4% last year and also an improved operating income of minus SEK264 million compared to a minus SEK314 million and that is also despite a significant currency headwind of some minus SEK145 million in the quarter. Zooming out again for the Gardena division, looking at it from a full year perspective, organic sales declined 10% in the year. However, operating margin increased. We moved to 8.8% compared to 8.6% last year and a relatively flat absolute EBIT at SEK1,136 million. Construction. I think Construction quarter 4 has really continued where the previous three quarters were with a strong performance, a strong financial performance. There has been a slight downturn in sales. And here, we talk about an organic sales decline of 6%. Sales were strong in emerging markets. However, we did see a decline in sales in Europe and North America. Given – you can see we have a positive margin improvement here and that was really driven by a positive mix, good cost control and lower logistics. So all in all, you can see our result in the quarter was 9.1% versus 6.1% comparable. During the quarter, we also made a small acquisition of total diamond products in the UK. This will help our diamond tool distribution within the U.K. Zooming out, looking at the full year. Construction division actually achieved more than SEK1 billion of EBIT. And that is something we are very pleased with and it’s great to see the positive development there. The operating income now at 11.9% compared to 10.4% previous. Moving on to the quarter for EBIT bridge. Let’s keep the perspective. This is a small quarter. It’s the smallest quarter of all quarters in the year. So have that in mind, please. What we see here is, of course, given our negative 15% organic sales, that has an impact on the volume, and you see this with the red bar minus SEK270 million in volume mix and other. Our cost program is performing well. We’re very pleased with how our cost savings program is performing, and we delivered SEK110 million of savings during the quarter. We also had a positive effect with particularly around logistics. We haven’t necessarily seen it so much in raw materials, but at least logistics is continuing with a positive cost development and that contributes to some SEK165 million. We continue to invest in our transformational initiatives, some SEK55 million in the quarter, and we focus on our strategic value creation levers. We pointed out before around Gardena having a negative currency effect for the quarter, and this really came through for the – overall for the group of some negative SEK105 million currency in the quarter. So putting all that together, a negative margin of 1.9%, negative SEK168 million. Zooming out, looking at the full year. You can see, again, the red bar is really driven by the volume decline. We did deliver good price in the year so a very solid price coming through during the year. However, the volume reduction was quite significant. And of course, that has played an impact on to the EBIT. As I stated a minute ago, cost savings is delivering to plan. We’re very pleased with that. And the full year effect is some SEK380 million cost savings during the year. Logistics has really contributed positively during the course of the year with some positive SEK580 million. And as I said previously, strategic investments, we continue with our strategic investments. We believe in our strategic investments and some SEK275 million invested during the year. We had quite a significant currency headwind in quarter four. But when we look at it from a full year effect, it’s actually quite minimal and some minus SEK35 million for the full year. So all-in-all, we’re very pleased. We delivered a stronger EBIT in absolute value SEK4970 million, and we also delivered an improved EBIT margin of 9.3% versus 9% previous. Balance sheet. We have made, I would say, good progress on our balance sheet. And of course, first, let me just reiterate, we do have a solid financial position and a healthy balance sheet. We’ve made good progress in our working capital. And as you can see here, our inventories have reduced, our trade receivables have reduced partly because of lower sales, but also because of good inventory collection – sorry good receivables collection. And you can see our borrowings have also reduced on the back of positive cash flow during the year. So all-in-all, I think quite satisfied with our balance sheet. There is more to do on inventory, and I’ll come on to that in a minute. Moving on to net debt EBITDA. We are now at a rolling 12 of 2.1. As I just said a second earlier, we continue to focus to drive our net debt down. And as we continue to deliver positive cash flow, the net debt will reduce. Our EBITDA also improved during the year, we had an improvement compared to last year. So we see this now starting to level off at the 2.1. Record high cash flow which is very encouraging for Pavel and I to say we’ve been very focused on cash flow during this year. It’s very important to us, and we delivered a record cash year of SEK6.5 billion. We will continue to focus on our cash flow in 2024. We will continue to drive inventory levels down, and we also have the ambition another strong cash flow year for us in 2024. But we’re very pleased with how this ended the year. So wrapping up 2023, we don’t suggest the Board will make a dividend proposal of SEK3 for 2023 financial year, which is flat and comparable with 2022. And this is really on the back of our strong cash flow performance. We continue to strengthen our positions in the value creating areas we want to be, and we will continue on our strategy execution. Pavel, with that, I pass it back to you.

Pavel Hajman: Thank you. Yes. As we have said before, then we do persist in investing into our strategy execution, and we’re really concentrating on segments that has a future high-growth potential. This is robotic mowers. This is the battery products, it’s watering and it’s the professional solutions. And the majority of our, so to say, additional SEK275 million in transformation initiatives that Terry described goes into this area is mainly in the form of product development and go-to-market activities. Also, as we announced some time ago that we are doing a larger, so to say, transformation initiative, which we launched then in 2022. Our ambition is to save SEK800 million and to reinvest another SEK400 million in these areas in addition to the transformational investments that we’re doing today. And these segments are really instrumental for us in enabling us to, over time, now improve our margins and advance towards achieving our financial targets, both relating to growth as well as profitability. And please let me emphasize that we really continue to invest now despite uncertain market conditions. We see this as an opportunity now to even further strengthen our positions and continue to really win in our key categories. This is probably my favorite slide in this presentation. We really have a wide range now of highly innovative products from all 3 divisions that really are supporting our strategic priorities and also supporting our position on the market as well as our opportunity now in 2024. When we look on the watering assortment for this upcoming season now Gardena has extended its very popular hose box range with 2 new models, and actually one of them is adding a convenience with a battery-driven roll-up mechanism. And this is yet another application for the power for all alliance battery ecosystem, which actually keeps growing steadily. Orbit is launching a new controller that combines smart watering technology and an easy-to-use app. This controller offers a solution mainly for the commercial, but also for larger residential application as it actually connects some 16 different outlets. Robotics, we are now adding 2 new additions to the Automower NERA robotic mowers, and this is an expansion of our boundary wire free assortment. And these two are targeting the suburban consumers now with lawns up to 1,000 square meter. So the new smaller Automower NERA also actually comes with a unique edge-cutting functionality, which reduce the separate trimming needs that you otherwise might have. Also, among our professional robotics, the newest addition is to the family here, is a wire-free Husqvarna Automower 520, also that for smaller commercial lawn areas. And this one also can cut patterns in a systematic way. Battery Solutions, we’re expanding our battery offering to construction professionals also with several new products. We have done so earlier and continue. Among them recently, we’re now launching the battery-powered compactor named Husqvarna LFI-60Y. It’s a hardscaping machine designed to compact both granular soils, but also asphalt in an efficient way. And this spring, we’re actually also launching our first electric garden tractor. We are extending the growing battery ride-on range where we already have front mowing riders since earlier that are on the new lithium-ion platform. And this now tractors will be our entry model into the ride-on electric assortment and will actually launch both with collecting and side discharging options. Looking into the Professional Solutions, we have widened our range of remote control demolition robots with the launch of DXR 95. It’s a small compact model with very high power, making it suitable for new customer groups as well as to allowing to meet very specific demands within the construction industry. And finally, we have also, together with our partner, Skylotec develop the power ascender. It’s a revolutionary battery-powered lift for tree professionals based on Husqvarna’s 36-volt battery platform. So to sum up, Husqvarna Group has an exceptionally innovative product portfolio for ‘24. We are ready to meet high quality demands of our customers and we have the ambition to continue to leading the electrification journey in our industry. To illustrate the transformation journey that we are going through and actually the good trajectory that we are in, we have actually reached now robotic mower sales of just above SEK8 billion for the year with a very good growth in residential over the year and also professional and actually also in the United States, which is a recently new establishment. We have increased the share of electrified solutions to 42%, of course, on the trajectory towards two-thirds and we have reached 4.5 million connected devices, again, driven mainly by robotics but also by smart watering. So strong execution on the strategy during challenging market conditions, and you can all see the positive trends that also is really supported by the macro – how should I say, by the global trends that we see in the world also are supporting this development. Moving over then to sustainability and our Sustainovate program, as you know, this is a key part of our long-term business strategy. We are making good progress towards achieving our Sustainovate 2025 agenda, which includes the three key targets, both on carbon, circular and people. And on carbon, to date, we have reduced our absolute CO2 emission along the value chain by minus 44% and we’re pleased to see our CO2 reductions continue even though we have already exceeded the 2025 target of minus 35%. The improvement of 4 percentage points in this year or in this quarter coming compared – sorry, in this year coming compared to the previous quarter is really primarily linked to the product mix, which is driven by electrification, of course. On circular, within the quarter, we have added five new circular innovations. We are now at 27 so a little bit more than halfway in achieving our target of 50. And on the people side, we’re executing also on the target to empower customers and employees to make more sustainable choices. We further increased our assortment of sustainable choice products, and we have, so to say, increased up to 1.9 million now in sustainable choices sold and of course, accelerating this now to empower 5 million people by 2025, which is our target. So to summarize, in ‘23, we executed on the strategy despite the challenging market conditions that I would say, accelerated a bit in the second half. We delivered on our operational ambitions and also our sustainability targets. We managed to improve our operating margin for the group to 9.3%, and all three divisions also improved their margins, and we delivered a very strong cash flow of SEK6.5 billion in the year. Cost saving program is delivering. We continue to focus on a strong cash flow for 2024. Whilst we continue to experience a challenging market situation where our customers are really cautious now awaiting the gardening season, we believe that we are well positioned, so to say, into this with a lower cost platform with some very new good products coming in. And we are also, of course, happy for the relatively good result for quarter four, and the Board is then proposing the unchanged dividend for ‘23. So thank you, everyone, and I hand over to Johan now to start the Q&A session.

Johan Andersson: Thank you very much Pavel and Terry. So let us start the Q&A session. [Operator Instructions] Please, operator, do we have any questions from the telephone conference?

Operator: [Operator Instructions] Our first question comes from Fredrik Ivarsson from ABG. Please go ahead.

Fredrik Ivarsson: Thank you. Good morning, guys. I have a few questions. First, on the inventory levels, which were more or less flat versus Q3 and usually, you ramp up the inventory quite significantly in Q4 by between SEK1.5 billion and SEK2 billion or so. So is it to any extent due to cautious signs from the end consumers? Or is it basically just a result of the current cash focus and exiting product categories, I suppose?

Terry Burke: So I would summarize it in two ways, actually. I would say, first of all, it is mostly driven around our continued focus to drive inventory down. So that has been the primary reason why. The second part is also the exited wheeled that we have. And we’ve done a transition – part of that transition was during the second half of 2023. And then we’ve got to the first half of 2024. So less prebuild on the exited wheeled. So there are two reasons.

Fredrik Ivarsson: Yes, that makes sense. Thanks, Terry. And then a question, and I have to ask about the number of CEORA units sold in the year. I guess it was a couple of thousand last year – sorry, in ‘22.

Pavel Hajman: We don’t provide exact numbers on this one, but we’ve had a significant double-digit growth on the CEORAs. And overall, we’ve had a very good growth on the professional robotics segment as such, where, of course, the CEORA is the main door opener, but where we also are selling a number of other 500 series products as well.

Fredrik Ivarsson: Yes. Fair enough. Thanks. And then on external tailwinds for ‘24, mainly raw mats, but also FX. If you could give any guidance on that?

Terry Burke: What I would say around that is really from a currency perspective, we expect as it stands today, of course, it can move. But as it stands today, we expect to see a positive currency effect of some SEK200 million. On the raw materials and logistics, pretty flat. We are not seeing at this moment an improved situation with raw material and logistics. And of course, we have to be mindful of the situation with the Red Sea and the impact that, that could have on us whilst we believe that impact is relatively limited in quarter one, of course, if that extends beyond quarter one, then of course, that would have a – we would believe a negative impact with higher costs as a consequence of that.

Fredrik Ivarsson: Perfect. Thank you for that. And then on non-recurring costs, which were a bit higher than I expected at least, and I think also higher than you guided for. Can you talk about this and maybe give some guidance for ‘24 as well if we should expect any more nonrecurring this year?

Terry Burke: So if we talk about the quarter, there was some SEK800 million of non-recurring costs. And I round up and down here, but roughly SEK100 million was linked to Russia, where we have clearly, previously stated, we have discontinued all operations in Russia. However, we had to make a final write-off of some assets that we had in Russia. So that was around SEK100 million. And then the other SEK700 million, that was linked to our cost savings program, which we announced in Q3 and also the strategic transformation program that we announced in Q3 2022. Going into next year, SEK100 million to SEK200 million is how we would expect to see non-recurring costs relating to that – to the program, the cost saving program.

Fredrik Ivarsson: SEK100 million to SEK200 million. Okay, great, thanks. And then last one before I jump back into the line. Just a clarification, did you say that 40% of the organic decline was due to the robotics on the consumer side?

Pavel Hajman: No, it was 40% of the – as reported decline.

Fredrik Ivarsson: Okay, makes sense. Thanks. That’s all.

Operator: Our next question comes from Gustav Hageus from SEB. Please go ahead.

Gustav Hageus: Thanks, operator. And thanks for taking my questions. Could you just start by reminding us, obviously, Q4 was impacted by big order completion towards the backlog of robotics in Q2 – Q4 2022, but could you remind us if any of that effect spilled also into Q1 2023? Or is that going to be a clean quarter in terms of comparison from that aspect?

Pavel Hajman: I would say that it’s going to be a much cleaner quarter, but there is still some effect. As you know, we had this, let’s say, changed seasonality switch instead of having all the sales in the first half year of ‘22, it came in the back end of 2022. And then there was still some, let’s say, high ordering also during quarter one in 2023. So I would say that there is a certain impact from that still. But not to the extent with that comparison that we’ve had in quarter two and quarter – sorry, in quarter three and quarter four in 2022.

Gustav Hageus: Great. And on channel inventories, as I understand that you alert that you have – there is a slight elevation there on the channel inventories in the Husqvarna Forest & Garden division. Could you try to address that a bit in – how many weeks or to what extent is there more inventory out there than perhaps you would like to see? And how is that likely to impact purchasing ahead of the season, you think?

Pavel Hajman: Well, it is, as we’ve said, impacting that we see that the dealers are a little bit more cautious now. We’ve seen, so to say, preorders coming through but not exactly on the level as in earlier years. Exactly how to translate that, I think I’d rather abstain from that. But of course, this would be hoped to be flushed through this partly higher inventory. If we can have an early start of the season, this could be flushed through quite fast. Then I’d like to add also that on the Gardena side, the inventory levels are pretty much on a new normal level. They have decreased that during a longer period, but now we see also starting to reorder which we flagged here as Gardena in Europe is having a sales growth in the fourth quarter on watering as an example.

Gustav Hageus: And finally for me, you had a comment here that robotics in the U.S. is doing fairly well. Could you sort of give us a ballpark of the share of sales from robotics in the States now? And how much, so what’s the growth momentum?

Pavel Hajman: Robotics is – the robotics in the U.S. is around 10% of our total robotic sales. And the growth rate is a little bit higher, so to say, than the average.

Gustav Hageus: Okay, great. Thanks. Those were all my questions.

Johan Andersson: Thank you very much. And let’s take a question here from the web interface. It’s regarding construction. You have written that you see a decline now in Q4 in North America and in Europe. Do you think that’s sustainable? Or is it more short-term? Is the question? Then the other one – the other part of it is, on the other hand, you saw a pretty good development in some emerging markets. Can you elaborate a little bit on that and give an example of which markets are growing there?

Pavel Hajman: Well, let’s start out with the European situation. The European situation is pretty much similar as it has been throughout 2023. We have seen that the market has been softer more in the northern part of Europe, whereas the southern part of Europe actually had a less softening. As for the U.S., there has been some, let’s say, earlier stopping of construction work in December. And we see that it’s now coming back here in January. We have said earlier that as we are mainly into the Infrastructure segment, that is something that we believe will continue relatively okay, especially in the U.S., whereas I think the European part will still have some time to recover and recuperate. As to the emerging markets, this is really splitted across the – all the emerging markets where we are operating, which stretches all the way from Latin America over to Southeast Asia and also in India and in China.

Johan Andersson: Okay. Thank you very much. Please, operator, do we have any further questions in the telephone conference.

Operator: Our next question comes from Johan Eliason from Kepler Cheuvreux. Please go ahead.

Johan Eliason: Yes. Hi, this is Johan. Thank you for taking my questions. I was thinking a little bit about what’s going on in the U.S. You mentioned robotics. So it’s 10% of the overall robotics now in the U.S. Is that primarily the professional side? Or is it sort of the same mix between consumer and professional as in Europe?

Pavel Hajman: It is a rather even mix on this. I mean we see that Professional is really now getting a breakthrough. We’ve been there with consumer products for a longer time than with the professional products. And we see that the professionals are really taking off but then also from a lower level than what the consumer products are in the U.S. But overall, these are, of course, as we mentioned, lower levels in total compared with the total robotic sales.

Johan Eliason: Excellent. And then staying in the U.S. and Orbit, it seems like Orbit is seeing falling top line and now for another quarter and maybe more, I can’t remember exactly. But that maybe not a surprising thing. But you are talking about that the margin is adding to group. Is that because there is a mix change happening in Orbit or are there some cost savings specifically targeting them that coming through? Or how is the Orbit business as such sort of developing?

Terry Burke: I think it’s a little bit as you described there. First of all, there is some good cost-saving activities that are contributing to the positive result. But also there has been a focus on the quality of earnings and meaning with that also a focus on mix. So an improved mix and good cost savings is why the Orbit result, which is now getting very close to the division average profitability. So that’s really good to see for Orbit.

Johan Eliason: Excellent. And are we supposed to expect any significant drive for Gardena in the U.S. this season?

Pavel Hajman: Gardena is developing well in the U.S. As I mentioned earlier, we have a number of new listings at one of the major retailers in the U.S. for the season 2024. So we have good hopes for that.

Johan Eliason: Excellent. And then finally, just on cost savings. There is a lot of moving parts here in ‘24, you have the program where you walked away from some ride-on mowers, etcetera, and then the new cost cutting. Can you sort of give us a bridge in terms of what you expect of EBIT impact from all these initiatives sort of on the cost front of 2024 or ‘23 or so?

Terry Burke: A couple of things that I would point out there. So if we talk about, first of all, the wheeled exits, we’ve referred to around SEK2 billion being the exited wheeled from a specific distribution channel. We’ve taken very roughly SEK500 million of that in the second half of this year. So there is another SEK1.5 billion of exits still to come really in the first half of 2024. When we talk about our cost efficiency program and our strategic transformation program, when you combine those two, we have been talking around SEK1.2 billion savings with a full year effect 2025. Now we delivered just shy of SEK400 million in 2023. And as you can imagine, moving into 2024, it’s somewhere in the middle between the SEK1.2 billion and the SEK400 million is what we would expect to deliver in 2024.

Johan Eliason: And is this net now versus the increases the investments you’re talking about in innovation?

Terry Burke: We will continue to invest. And what we’ve previously communicated when we had the strategic transformation program which we announced in Q3 ‘22, we said we would deliver SEK800 million of savings and half of that would be reinvested back into the strategic transformations. So roughly, you can take half of that SEK800 million going back in full year effect ‘25, the SEK400 million that we talked about in Q3 this year, that is only cost savings. That is only cost savings. Did that clarifies your question?

Johan Andersson: Did we lose you Johan or are you still there? Okay. That’s – thank you very much, Johan, we will follow-up afterwards as well. Let’s take the next question. Please, operator.

Operator: The next question comes from Adela Dashian from Jefferies. Please go ahead.

Adela Dashian: Hello and thank you for taking my questions. I have one – first one on the price increases and a positive contribution from that. How should we look into that for this year? And maybe also just a general sentiment, how acceptant are your customers of potential additional price increases? And maybe if we can also get this more on a segment-by-segment basis would be great. Thanks.

Pavel Hajman: Maybe I can reply on that, Terry. Price increases for this year will be very moderate, I would say, low-single digit number. We have already, so to say, factored that in as well as our customers when we have done the preparation for the season. We do not see at this moment any, let’s say, needs to do anything, I mean we are a premium supplier. We do provide a strong brand to our partners, and it’s a sought after brand and products from our customers. And at this point of time, we continue as planned, and we see how the market is developing.

Adela Dashian: Okay. Thanks. And then also on the market and maybe if we could get an update on the competitive landscape and how you are seeing your peers progressing versus yourselves in the current environment, and if there has been any changes would be great also. Thanks.

Pavel Hajman: We don’t comment specifically on competitors overall, but of course, your community is following the development of our competitors and those that are reporting on a regular basis. And I believe that it’s fair to say that you can see a similar development amongst our competitors across the 2023 season and also the cautiousness that you see in various kinds of statements regarding 2024.

Adela Dashian: Alright. And then maybe finally on your capital allocation strategy and the big push to drive down leverage, do you see any potential to do acquisitions in this kind of an environment, or how – what’s your feeling there?

Pavel Hajman: Well, our view on acquisitions is something that we work with constantly evaluating potential targets and understanding how we can expand our business and how that would fit in. It’s not done because of, let’s say, a specific seasonal downturn. We need to make sure that this fits in our long-term strategy. And so I would say that it’s not because of the current market situation and that there has been softer results within the industry or anything like that. But of course, opportunities are there and should we be able to materialize on an opportunity in this period of time then potentially that could be at the lower price/cost.

Adela Dashian: I guess my question was more related to the robustness of your pipeline? And if you feel like there has been any changes to that versus maybe a year ago?

Pavel Hajman: It’s good. We – as I have said, continuously work on that. We have also shown that through constructions, so to say, growth building on various acquisitions. We have the capability and that we are, so to say, we have the possibility and the capability of doing that. Now recently, we added a small acquisition, Diamond Tool in the UK that Terry mentioned, even though small, it’s very important because with this, we actually enhance our ability to quickly deliver various kinds of diamond services and re-tipping towards customers in the UK. We had a similar acquisition in Germany some time ago. So, we are building that network. So, overall, we work actively on this, and we have a pipeline, but again, it’s not changed because of the current, let’s say, market situation.

Adela Dashian: Okay. Thank you.

Johan Andersson: Great. We have another question here coming from the web interface. And I think it’s to you, Pavel, can you give your brief view on the – if there are any changes in the professional robotics market from a competitive standpoint, and also the residential markets. And now when you are entering into electric tractors and riders, do you see yourself as a first mover here, or how do you view that emerging market?

Pavel Hajman: Yes. Well, let me start maybe with the last part there with the wheel products and the electrification of the wheel products. Very clearly, in that segment, I dare to say that there is not anybody who has really taken a position yet. That segment is also, I would say, probably 3 years to 5 years away from really being fully accepted and requested by customers, mainly due to the price as being one example. But we think it’s very important that we develop products within this segment. We think it’s very important that we start to show our dealers and our end customers what we are capable of doing and create an interest with our customers. And of course, our ambition is to have a very strong position in this segment as a complement to robotics, even though we see more and more transition from walk-behinds and wheel products, ride-on products into robotics. The world is very seldomly black or white, it’s always a combination, and we want to make sure that we can offer a complete fleet of products towards our customers. When it comes to the robotics question about competition, we have said that earlier, competition has increased. There is no doubt about that. We see more and more coming in. But we also see that our solutions stand very strong. We have 30 years of experience by now of robotic products. We are launching the boundary wire free solution since a couple of years, which are hardly – so to say, strongly tested in a professional environment and now moving that over to the consumer segment. And we know that we provide very, very reliable products that the customers are appreciating. And as you heard me say today, we are launching constantly new products and robotics development is one of our largest investment areas in the group, of course. So, we continue with that and we feel that we stand strong, but we are not resting. We are aware of competition and we need to move forward in that.

Johan Andersson: Great. Another question that just came in, can you provide some more color on the retailer and dealer sentiment in the U.S.? What are the signals you are getting from the U.S. market?

Pavel Hajman: When we talk about the dealer situation also in the U.S. just as in Europe, we see some inventory above – a little bit more than normal. But overall, a rather good sentiment, I would say that dealers in the U.S. but also in Europe are seeing potentially a decline on some of the consumer sales, but they also see very good opportunities to compensate that and to increase on the professional side, given the assortment that we have and given also the electrification transition that exists. The retail channel, but I think U.S. overall has been holding up better than the U.S. and then the European channel for a period of time from a general consumer spending perspective, but we see some cautiousness among the retail channel right now, which then mainly is applicable to a high degree, of course, for our Gardena/Orbit business in the U.S., I would say.

Johan Andersson: Thank you very much. Operator, do we have any further questions from the telephone conference?

Operator: Our next question comes from Karri Rinta from SHB. Please go ahead.

Karri Rinta: Yes. Thanks. Karri from Handelsbanken. Firstly, about the wheeled petrol-driven product, it seems that category is declining faster than expected. So, could there be – and we have seen a nice recovery for your electrified products, could there be upside to your target of reaching two-third by 2026. So, i.e., are we reaching some sort of tipping point where there would be sort of this transformation starts to accelerate? That’s my first question.

Pavel Hajman: Specifically related to wheel, should I understand it like that? Karri, could you say it again, please?

Karri Rinta: Yes. Specifically, about wheel and then more broadly about all petrol-driven products.

Pavel Hajman: Well, it is like this. Our electrification target of two-thirds of the motorized products has been initially set with a view that the ride-on products will come later than what handheld products are. So, I mean the transformation there is in full swing, whereas as I have said, the transformation to the wheel products into electrification, I would say is 3 years to 5 years ahead of us.

Karri Rinta: Okay. So, it’s still an ongoing process. And then regarding our cost savings, I can see that your average headcount went down by 800 employees in 2023. But what have you done to your manufacturing footprint in 2023? And what are the next steps going forward on that front?

Pavel Hajman: Well, we have of course, subsequently with lower volumes, we have across the whole board of manufacturing units in the company adapted ourselves to lower volumes and also taken so to say, consideration to the inventory reductions that we have been doing and that we plan to do. So, overall, we are running on much lower levels than I would say normally and also as one of the participants in the call alluded to, also here in quarter four, which normally is a buildup quarter, and we have been more easy on that than what we have normally been. We have, since earlier downsized and basically terminated our manufacturing in Japan and move that to a low-cost country. We are progressing in our plans to close down the handheld unit in the U.S. during this year, as we have earlier signaled that has been in the plans and is being worked on and also then making the necessary adaptations in another factory in the U.S. where we have the wheel products and which then are affected of the exit of the wheel products that we are ongoing with.

Karri Rinta: Okay. Great. And then finally, the battery alliance with Bosch, you did launch a Forest – Husqvarna branded line of handheld products in 2023. So, similarly to the last question, what are the next steps with the battery alliance? Are you expanding to larger batteries, or are you still for the time being sticking to the 18-volt?

Pavel Hajman: Well, we are sticking to the 18-volt because the Bosch battery – main battery platform is on the 18-volt which they are using for their power hand tools. So, potentially there could be an interest to tap into our 36-volt platform that we have for our Forest & Garden tools. But otherwise, we are working more on expanding the assortment within the Power for All Alliance battery platform, and that goes both for Gardena as well as for the Husqvarna brand, the Forest & Garden brand.

Karri Rinta: Alright. Thank you. that was very helpful.

Johan Andersson: Thank you very much Karri. Do we have any final questions from the telephone conference, please, operator.

Operator: Our next question comes from Gustav Hageus from SEB. Please go ahead.

Gustav Hageus: Thanks so much for taking my follow-up. I was just a bit curious on the product innovation news you brought today about the new boundary wire free automower for small or mid-sized gardens 310 – 410 NERA. I am just curious about sort of your pricing strategy. If I understand the list price correctly, you are launching the bigger one here with GPS functionality at SEK40,000 almost. Your main competitor, I guess has taken a different technology tree route with a vision-based alternative, and they seem to be 40% to 60% cheaper. How do you think about sort of your price positioning in the market? And now you are also exploring sort of take – in addition to these GPS functions, take also a vision based route to compete with that competitor, be interested to hear your thoughts here.

Pavel Hajman: No, it’s a correct observation. As such, the competitors, which are moving into the boundary wireless space are – base that on a may I call it a simpler vision solution, while our NERA/EPOS solution is based on RTK GPS solution, which is much more precise, which is much more, so to say, reliable. And due to that, we are still – still we are on a price point, which is much higher compared with competition, which also is mainly selling in the retail channel, while this is the, so to say, focus on the dealer channel from our side. Eventually, for Gardena products, we will also develop a vision solution that will be applicable then on lower price points.

Gustav Hageus: And are you planning to bring that to the market next year? Is that something we can look forward to already ‘24, you think?

Pavel Hajman: 2025.

Gustav Hageus: Yes. Okay. And then a follow-up on product innovation, CEORA, you didn’t talk a whole lot about it this quarter, lots of other things to talk about, obviously. But some time ago, you presented sort of add-on to the CEORA, the new cutting deck, but I didn’t see any news of sort of additional features this year. So, quite interesting if you could elaborate a bit on if you are still how you see the CEORA platform? Is that still sort of your main platform for developing big area surface mowing? And do you expect more functionality to be brought to the CEORA platform near-term like ball collecting or striping or waste collection or wheeled controller?

Pavel Hajman: No, all these good ideas that you are talking about are, of course, still on the table. Certain ones we work on, others not, I would like not to really elaborate on that right now. What is our ambition is also to make sure that we have an assortment of products that really covers in a flexible way, the full need of the customer, meaning for small areas, there is a need for robots, which now the 520 EPOS is taking care of, then we have the CEORA which is for the really big areas. And then we have the 550, which take a little bit, let’s say, midsize, but we are also looking to really close the gap between midsize and the very big size on – of the CEORA as well. So, we are really trying to eventually over time here come back with the product assortment that covers the full need and provide the flexibility to the customer to really fit the right machine for the right application and the right size of area.

Gustav Hageus: Okay. Thanks.

Johan Andersson: Thank you very much. We have a couple of minutes left. Operator, do we have a final question from the telephone conference?

Operator: Our last question comes from Björn Enarson from Danske Bank. Please go ahead.

Björn Enarson: Yes. Thank you. Looking at your performance 2023, I mean as you present, you have a very good development of robotic mowers and electrified solutions, but still sales are down organically. So, are you worried that decrease among legacy products, if we can call them that, looking long-term is a threat to growth overall, or do you believe that you are looking ahead that you will benefit more from the robotic journey and the electrification journey then you lose out on the legacy product? Thank you.

Pavel Hajman: Well, first of all, I think it’s important to acknowledge what you are saying. There is a transition going on in the world right now not only in our business but also in our businesses. And it will, of course, go a little bit up and down depending on a lot of factors. But over long-term, in our industry, we are moving more and more towards electrified products. Seeing that, we will still see, of course, the need for petrol products over a sufficient time going forward as the battery, so to say, power solution have not really been made available. If you look on professional chain source, for example, 50 CC, 60 CC, 70 CC, we are starting to find solutions for the 50 CC, but still higher than that is still based on petrol. And also the requirements, though for remaining with petrol products will be much higher from a sustainability perspective. Our ambition is to play in both fields, continue to develop good products and continue, of course, to take advantage of the electrification transformation and momentum that is happening and make sure that we maintain with our, let’s say, market-leading positions also in a number of years forward when the landscape will have changed even more than what it is today.

Björn Enarson: And your growth target, I mean is there a risk that, that target is not fully reflecting the ongoing transition given that you are exiting channels or before also categories, etcetera?

Pavel Hajman: No, I would say that the growth target is supporting by the transition and our ambition and our development within these four value creation areas that we are focusing on robotics, battery products, watering and also the professional solutions.

Björn Enarson: And one last thing on your capacity alignment, a little bit more long-term and given the ongoing transition, are there major adjustments you need to do, or is that something that you can deal with as an ongoing concern, I mean less aggressive measures?

Pavel Hajman: It is clearly so that we will need to do continuous transformation, which will be affecting manufacturing footprint parts of our organization also. Exact speed of how to do that is something that we take step by step as we develop. So, I think I would like to leave it by saying like that.

Björn Enarson: Thank you. Alright.

Johan Andersson: Okay. Thank you very much. The clock is a bit over 11, and we close the telephone conference today. Just to remind you that we are presenting here in Stockholm at Carnegie next week, both the 6th and the 7th February, we have meetings with them. And you can also listen to us in March when we are presenting at the Jefferies Conference. And then we will also join a number of other conferences here in Stockholm in March. So, if you have any follow-up questions or any other comments, just reach out to the Investor Relations team. And with that, I would like to thank everyone for listening in and participating in today’s call and have a really nice day. Thank you.