AGM 2014

Apr 11, 2014

Thank you, Chair. Ladies and gentlemen, esteemed shareholders once again. I intend to give you an account of our perspectives for 2013, but perhaps even more interestingly take a look into the future so that you get a feeling of what we intend to do as we move along. Let me begin briefly by giving you a review of 2013 in summary. It was a very special year in terms of the weather. We often talk about the weather. And perhaps it's a bit unfortunate that the seasons are so different from one another, especially last year. We had a late spring in Europe and North America, but we also had the advantage of a good end to the season. So we had an extended season, which was a bonus for us. And in total, we had an increase by 2 percentage points to a net turnover of €30,000,000,000 approximately. Something that was very positive for us was that we had a black zero for the United States. We had a positive operating margin. It wasn't anything in particular, but it was certainly different from the very deep chasm that we had in 2011, which improved in 2012 and which had now recovered to be positive if only a little for 2013. The operating result for the group was €1,600,000,000 to be compared with €1,900,000,000 if you remove irrelevant posts. And we had some very strong headwind in the form of currency effects of €350,000,000 So, there was underlying improvement, but it was counteracted by this fact. If we are going to give ourselves some credit for one thing or at least one thing and that we worked very well with our employed capital. We reduced our inventory by SEK 8 20,000,000 kronor in comparable currencies and the whole employed capital by €1,000,000,000 And this is not unessential, because it releases capital and our net debt ratio was improved from 0.75 to 0.58, which must be seen as a positive aspect and it also means that the Board of Directors can propose an unchanged dividend of €1.50 In October, I introduced the accelerated improvement program. We started working with that internally in September. And from October, we also launched it externally. And I will come back to this later. These are some of the comments I can make about the group in general. Let me touch upon the different business areas. Europe and Asia Pacific, The net sales was SEK 15,000,000,000 which is 1% higher than 2012. I mentioned the strong end of the season. And I think it's worth noting, if we are going to bring up some positive aspects that we had very good sales in the situation to professional in the situation it was to professional users, it was actually a few percentage points higher than the average. And this group is strategically important for the Husqvarna Group for professional and semi professional products. So it was a result of €1,500,000,000 to be compared with €1,900,000,000 percent. And the exchange rates effects that were negative for us came from Europe. This should while production pace was somewhat reduced, so we had some under absorption or under coverage of fixed costs And that amounted to approximately €100,000,000 So these two components explained our loss, if you wonder how that happened. We confirmed our leading role in robotic products. We introduced our 3rd generation of robotic lawnmowers. Many of them many competitors are on the market with robotic lawnmowers today. However, most of them with their 1st generation and we have launched our 3rd generation. This is an amazing success for Husqvarna, because we launched this invention the first time. And it's actually 20 years ago next year that we introduced the 1st solar powered robotic lawnmower. And I hope I can come back to that at next year's AGM. So North America. We had net sales of €12,400,000,000 3 percentage points higher than 2012. The same pattern as I described before with the late spring, but a good seasonal extension. We had some problems with making full use of the sales increase during the extended season, which occasions some improvement activities that I will come back to. I would particularly like to mention the very good development within professional among professional users in North America. We managed to improve our position by 11%. And the North American market, unlike the European market, is dominated by retailers. So we there we have about 1 third of or 1 third of our sales go to professional users as against 2 thirds in Europe. But nevertheless, it's important to acquire market shares in that segment and we still have a long journey to complete in North America. We had a very good introduction of our first and it was a launch in good Husqvarna Spirit our first 4 wheel drive lawnmower by Husqvarna. And it was received very positively by the market. And we managed to put a good price on it. We carried out a large number of measures to improve our results. And the first one, which may sound banal, but the most important thing was we decided that profitability was the most important aspect and not sales. It mustn't be underestimated. And we should also talk about the cost reductions, but there were also a number of other efficiency raising measures in on the retail side. We've also worked with what we call sales and productivity planning I. E. How do you change how do you transfer a change in the prognosis on the customer side back to the manufacturers that we can respond to it in an efficient manner. So that's put us taken us a great leap forward. For construction, there was a good year with an increase in net sales by 6%. It was we had profitable growth globally. It was geographically very well distributed between North America and Europe, but also in Brazil where we have multi wire and stone cutting activities. So that was very positive. During 2013, construction also invested in sales capacity to improve our market penetration in a good way. Construction also launched a very good generation of products called Prime based on high frequency technology, which provides extraordinary performance in terms of effect per kilo, I. E. You get a very light product. It's a modular system and we expect major successes when we look to 2014 2015 for construction. We've also had successes with the so called demolishing robot during the year and taking market shares there as well. So let me continue with our financial targets. The financial target of the 3 that we haven't been very operating margin target. So this is our main priority in the operational management to improve that this year. And the accelerated improvement program is intended to lead to a 10% improvement in the operating margin for 2016. So these are our priorities in the short and medium term. So let me say a few words about the accelerated improvement program. It consists of 5 points. And the first one is an expression on focusing on our 2 core brands Husqvarna and Gardena, but it's also focusing on leading product areas, areas where we are leaders today, but where we also see profitability. It's handheld products, it's the robotic lawnmowers and irrigation products. In addition to that, we've also added what we called spares and accessories, because these are also highly profitable and we feel that we have great opportunities to further increase our shares in these areas. So in total, this is our basis for our profitability and that's what we want to focus on And we've done that very clearly. When I visit the sales managers in different countries, I can see that they have really taken this to heart. The first part is differentiation of business models. It's very different being successful when you direct yourself to professionals. It's a matter of specifications, high performance premium brands and services for professionals. So this is quite different from going to a major retailer who tells you in principle that we want a chainsaw that costs $29 1 for $149 1 possibly for $199 That is a completely different situation. And then you have to work with economy of scale and be extremely cost efficient. In our accelerated improvement program, we emphasize the importance of differentiating between these two business models in the future. And you may have noted that we have we reorganized our business in February in North America where we launched 2 profit centers for the 2 business areas professionals and retailers. And we did so because we are convinced that this will help us accelerate improved profitability in the future. This will there will be several differentiating steps during the year. This was the an organizational example and there are other examples as well that you may see during 2014. North America is crucial to our business. And we've decided on the target that by 2016, we will have an operating margin of 5%, so that the group as a whole can manage 10%. And that means that mathematically speaking, the rest of the world will be slightly above 10%. On the whole, this program was launched in October, as I said, in connection with our 3rd quarterly report. Nothing has happened since the Q3 that would make me look at the plan in another way. We believe as much in it today as we did then. And we have been running this program at full speed since last autumn and we will continue running it during 2014 2015 to be able to reap the full benefit in 2016. We need both seasons ahead of us to get the full effect in 20 16. I also mentioned operational excellence and I lack a good Swedish word. But what this is about is reducing the cost of material. We buy components for approximately €12,000,000,000 plus raw materials in addition to that. And we have decided on the target that we are going to reduce that purchasing amount by 10 percentage points. This is doable in cooperation between development and purchases. It's not a matter of purchases, but it's a combination of reducing costs in existing products. That's the solution to the problem. We also talk about complexity reduction. And what do we mean by that? Well, we are a fantastic entrepreneurial culture. We are good at innovation and we've been that for a long time. But at the same time, this could lead to us being better at times at launching products than to phasing out products. So we want to take a very close look at our product ranges. And we have decided that we are going to reduce the number of products by 30% towards to the end of 2015. This is a slow process. It means that it won't be in our catalog for 2016. It will still be in our inventory, although it will not be in our product catalog and it will simplify our lives. We also talk about sales and activity planning as a component in operational excellence, because we find ourselves in a very challenging situation. It's perhaps difficult to understand how stuck we are the seasonal pattern, but you may have noticed that any profit we make, we make it during the 1st and second quarter and then we break even during the 3rd and fourth quarter. So it's really a matter of being good and on the mark when it comes to sales and planning. The last point doesn't really help us all that much in order to solve the 10% profit margin to 2016, but it's very important for our future and that is to grow in emerging markets in First and Lawn. So these are the 5 points in our program, but it's really the first four that will solve our profitability problem. And I particularly like to emphasize points 14 which will carry the burden in 2014 2015. Let me now proceed with something slightly different, a different aspect of our business, but equally important and that is sustainability. We had the pleasure at the beginning of this year to be the award winners of one as one of the world's 100 most sustainable companies. That was very inspiring and very encouraging. It's 100 companies globally. They don't advertise all their criteria for their choice. So I can't tell you exactly why we received this award. But let me try and explain to you what we've done. So you may be able to draw your own conclusions. During 2013 and I think this was announced at the AGM last year, we decided to affiliate ourselves with the U. N. Global Compact, which includes working environment, environment, corruption and the social environment. So we take this area very seriously. If you look at the way we work in the field of sustainability, we do this in many different ways. If we look at the period 2010 to 2013, it's been highly focused on the use of products and at reducing the emissions from the products. Why do we focus on that? Well, because emissions from the use of product is about 10 times as large as the emissions from our factories and from the transport to and from factories. When I talk about emissions, I'm talking about hydrocarbons and nitrous oxides. So this has been a rather natural start for us. And we managed to do this through good use of technology, the Airhead technology in our 2 stroke engines. But we also have more recent examples when the 3rd generation of robotic lawnmowers actually are considerably more energy efficient than the previous generation of robotic lawnmowers about 70% better. If I'm not mistaken and I'm looking at our development engineer here. For the future, it's still more and more important that we work in a more structured way with our own production plants and we will do that. It's a pleasure for me to mention in this context that the investments that I was talking about will be a so called closed loop. At the millage plant, there will be no emissions to the air or water from that plant when we have finished that program. We also work actively with our suppliers because this has to go through the whole chain. We've also carried out 15 audits at our suppliers in China during last year when we look at these environmental aspects. Health and Safety is another very important area and important item on our agenda. And if I'm allowed to mention a few positive examples, I would like to emphasize our plant in Nashville that hasn't had an incident in 11 years. Our plant in Kamago in Japan, which hasn't had accidents or incidents over the past 5 years, but we keep looking at that aspect in all our production plants. We can I can talk a lot more about this, but I think there is a limit to what I'm expected to do? And let me then continue with product design. I guess that everyone here knows that to have user friendly design, that is actually something that makes a difference. It makes a difference for consumers, for users. And there is an association called Red Dot, and they have presented awards for product design innovation. And if I've understood things correctly, they've been doing that for some 60 years. And if you're in this type of field, you know that it's important to look at the number of criteria like innovation, functionality, environment, industrial design, etcetera. And we were presented 6 different awards in 2 categories. One was best of the best and the other one product design. And this is especially interesting because we got an award for our battery powered products. And that's also success worth mentioning. Needless to say, we have many new products. And let me say that services become more and more important step by step. But needless to say, our products that is the heart of what we do in the product cycle. And we invested last year 2.2% in product development. And there are many dimensions in our business that related to product development. These are a few examples worth mentioning from 2013. We have a small compact chain saw. We have a trimmer, 25 cc, lightweight for professionals. It's very much in demand, and not the least in the United States and Asia. We also have a battery driver hedge trimmer for professional users. We also have a backpack battery so that you can bring also for riders with smart switch, for example, and blades that can quickly be exchanged. And I also mentioned earlier the prime products for construction. And here, we have not even mentioned 3rd generation of And the investment in the chainsaw plant, well, that's very positive for the town of Husqvarna, not to the least that that decision was made. And why Husqvarna? Well, because it's close to research innovation of the product chainsaw and also the production of chainsaws. So, that is to ensure a rapid good start. We also have the infrastructure and the skills and competencies in our group in Husqvarna. And that was the reason as to why. But why doing it at all? Well, because if we make the best chainsaw in the world, we also want the best chain for that. So we have been purchasing chains. We still do so today, and there's nothing wrong with those chains. But we want to take everything one step further, so that we do become the best. And that is the ambition. And of course, we can make the entire product system more efficient if we do have both components. We also think that this is a good idea business wise. Today, we have some 10% of the world market and the aftermarket for this product. And we have a market share of chain source that is much higher, which means that someone else is selling chains for our sauce. And to give you an idea as to the timing, we believe that we will launch this. It will be launched in 2015, and we hope that we'll see a positive operating income as of 2016, very, very positive. Let me just mention as well about this investment that this is in addition to the 3 0.2% that we usually spend on research and development. So, the total will be higher than that number. Then to focus, to summarize, our focus, while we step up our improvement program, we want selective growth, we want improved efficiency and enhanced differentiation between the business models. But well, the world is never just black and white. We can't do just one thing and forget everything else. We've also said that in parallel to this work, we have to focus not just on profitability, but we also want a strategy for 2020. And here, we want to bring in a number of factors. We need to look at what happens in the world around us and combine that with our convictions and our feeling as to how to be the winner. I cannot tell you anything about the outcomes of that strategy work today. This will become clearer this spring and perhaps you will get information this year, but no later than at the next ATM, you will be given the opportunity to learn a lot more. And these are the 2 most important pieces of the puzzle looking ahead what you can expect. Well, to conclude, 325 years of innovation, That is an amazing history, industrial history. Not many companies can say that they have something like it. And this is something we want to safeguard and bring with us into the future. These 325 years, well, needless to say, a lot has happened. The world has changed. There have been many reorientations. And you need to have that ability to renew yourself as well. It is important that we can look ahead, and we have amazing strengths. I've highlighted some of them our strong brands, our leading market positions, and we also have very strong product positions, a strong distribution and not the least we have skilled and competent coworkers. So, to talk about the 2020 strategy, well, some of you might think that that's not much to talk about with this history, but that is the horizon that we are looking at at present. We have this in our horizon and I hope that you now have a feeling of what we're planning. Thank you. Thank you, Kai. And then the floor is open. We have Janok Karlsson from Aksys Bargain, who has said that he would like to be the first one out. And of course, we'll let him, please. And then everyone anyone with a question or a comment is welcome.