Earnings call: Husqvarna reports mixed Q1 results amid market shifts

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Earnings call: Husqvarna reports mixed Q1 results amid market shifts
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Husqvarna Group (HUSQ-B.ST) has reported a challenging first quarter in 2024, with organic sales declining by 11% due to a volatile macroeconomic environment. Despite this, the company saw growth in certain segments, including robotic mowers and battery-powered products. Operating income reached SEK 1.9 billion, supported by a cost savings program and a reduction in inventory levels by SEK 800 million since the end of the previous year. The company remains committed to its long-term strategy, focusing on high-growth segments and sustainability efforts.

Key Takeaways

  • Organic sales decreased by 11%, but there was growth in robotic mowers, battery-powered products, and parts and accessories.
  • Operating income for Q1 stood at SEK 1.9 billion.
  • Robotics and battery products made up 20% of group sales.
  • Inventory levels were reduced by SEK 800 million since year-end.
  • The company is focused on long-term strategy and margin improvement.
  • Executives anticipate a return to normal comparables in Q3 and Q4.
  • Investments continue in high-growth segments such as robotic mowers, battery products, watering solutions, and professional tools.
  • Expansion in the US market includes leasing products and contracts with golf courses.
  • ETwater acquisition aims to enhance the commercial offering in the US.
  • Sustainability efforts include reductions in CO2 emissions and circular innovations.

Company Outlook

  • A negative comparable is expected in Q2 due to strong sales in the previous year.
  • Confidence in returning to normal comparables in Q3 and Q4.
  • Continued investments in high-growth potential segments.
  • Expansion of services offering is underway.
  • Focus on executing the transformation program and delivering existing commitments.

Bearish Highlights

  • Lower sales in Europe and North America for the Husqvarna Construction division.
  • The construction market in Europe remains slow, especially in Northern Europe.
  • Lower sales in North America due to a decline in the rental channel.
  • Fewer invoicing days in Q1 impacted margins.

Bullish Highlights

  • Good progress in emerging markets for Husqvarna Construction.
  • Dealer channel in North America showed slight growth.
  • Positive signs in the construction market in South Europe.
  • High interest rates in the US are expected to be a temporary setback.
  • Positive currency effects in Q1 and anticipated for the full year.

Misses

  • Despite growth in certain segments, overall organic sales saw a significant decrease.
  • The construction market slowdown in Europe and North America impacted sales.

Q&A Highlights

  • The company expects to complete its exit program in the US by Q2.
  • The focus remains on executing the transformation program.
  • High market penetration in golf courses for professional robotic mowing.
  • Battery products are not currently margin accretive, but expected to improve.
  • Gardena's sales in Europe were strong, with slight growth in North America when adjusted for non-branded products.

Additional Insights

  • The company values innovation over competing on price for entry-level products.
  • Husqvarna aims to offer competitive products at a premium price point.
  • Strong focus on reducing working capital and inventory to bolster cash flow.
  • Electrified products account for 43% of motorized sales.
  • Transition from petrol to battery-powered products is ongoing, with a focus on cost efficiency.

Husqvarna Group's first-quarter performance reflects the complex dynamics of the current global market, with a mix of challenges and strategic growth areas. The company's dedication to high-growth segments and sustainability, along with its strategic acquisitions and service expansions, position it to navigate the uncertain economic landscape and evolving consumer preferences in the coming quarters.

Full transcript - None (HUSQF) Q1 2024:

Johan Andersson: Hello, everyone, and welcome to Husqvarna Group's Report for the First Quarter of 2024. My name is Johan Andersson, responsible for Investor Relations and will be the moderator today. With me here in Stockholm is our CEO, Pavel Hajman; and our CFO, Terry Burke. Pavel and Terry will present the report, and afterwards, we will start a Q&A session. And you are welcome to ask your questions over the telephone conference or you can also use the web interface to put your questions in there, and we will read them out here in Stockholm. So, with that, thank you once again for joining, and I will hand over now to Pavel.

Pavel Hajman: Thank you, Johan, and welcome, everybody, to this session. So let me begin by highlighting the quarter, the takeaways here for the quarter. And we delivered a first quarter overall in line with our expectations. And this, despite the uncertain macroeconomic context that we still operate in. As the first quarter progressed, which is a selling quarter for us, sales gradually improved, initially cautious among our trade partners, but to a more favorable trend as the gardening season now begins. And I'm very pleased that the Gardena division delivered growth and improved margin. We also continued to execute and deliver on our cost savings and efficiency program with good results. And our product offering is strong, with many new products launched, which makes us well positioned as the season now commence. It is also encouraging that we continue to execute on our Sustainovate program and deliver in terms of CO2 reduction, and that will reduce climate footprint. And I will come back, of course, to these milestones further in the presentation. So with that, let's take a closer look at the numbers for the quarter. Organic sales decreased by 11%. We should remember that we're comparing to a record quarter one last year. Net sales grew in segments such as robotic mowers for the professional market, battery powered products and also parts and accessories. And we also achieved growth in the Gardena division, with watering, hand tools and electric products being the drivers. Sales of petrol-powered wheel products continued on a low level during the quarter. Planned exits were close to SEK700 million or impacted by 4%, corresponding to approximately half of the decline in the wheel petrol products. And in our Husqvarna Construction division, we had good progress in emerging markets, but lower sales in Europe and North America. We should also note that we had an Easter effect in quarter one with less invoicing days, representing around minus 2%. This is not included in the organic growth number. Group operating income amounted to SEK1.9 billion in the quarter, and Terry will discuss this in further detail. But some of the important points related to the result is that we improved our gross margin. This was driven by exits, by lower logistics cost and currency. On the negative side, we have an overall lower volume with lower factory utilization. And this was partly offset by our cost savings. And here, we realized some SEK185 million in the quarter. Our direct operating cash flow was minus SEK1.6 billion. Importantly, we continued to decrease our inventory levels, down SEK800 million when currency adjusted since the year-end. And the main driver for the lower cash flow is higher trade receivables due to planned reduction of trade receivables financing. Robotics and battery as a share of group sales is now 20% in quarter one. This is up from 17% last year, same period. We grew strongly in pro robotics and battery powered products. And sales of the robotic mowers for the residential market were lower though during the quarter compared to the same quarter last year, which was positively impacted by the improved supply situation and also the backlog deliveries. However, sales of robotics this quarter is equal or above quarter one in '22 and '21. As the season now begins, we really have a solid lineup of great products in this segment with several new boundary wire free robotics launch both for the Consumer segment as well as for the Professional segment. Let us zoom out and take a longer perspective on our profitability. We are executing on our strategy and our long-term transformation to really build a stronger Husqvarna Group. We continue to focus on value, growing in the segments with higher profitability and higher future growth potential. And as mentioned, the lower volumes this quarter and the factory under-absorption, as well as high results in quarter one last year, is driving down the margin when we analyze it based on the rolling 12-month period. Our ambition is clearly to maintain our long-term journey by executing our strategy and improving our margins. The fact that Gardena delivered growth and increased the margin in quarter one is a good proof to this ambition. So with this summary, I leave it over to you now, Terry, to go through some of the numbers more in detail.

Terry Burke: Thank you, Pavel. Starting with the Husqvarna Forest & Garden division, I would describe this quarter as in line with expectation, following a record quarter one 2023. Also be mindful, we came into this quarter with high inventory in the trade for the Forest & Garden division. Organic sales declined some 17%, and we delivered an operating margin of 14.4%. There was good continued growth in Professional robotics. We're very pleased that this growth continues in the Professional robotics. And in addition to that, battery-powered products continue to grow as well. Sales did sequentially improve throughout the quarter, and that included the robotic -- residential robotic volumes increased and improved during the quarter as well. There was lower sales in petrol powered products, and that included the wheeled petrol exits. And the operating margin was impacted by the lower volumes, the factory underutilization. However, that was partly offset by cost savings. Also worth to note, there was some SEK190 million positive currency effect for the Forest & Garden division during quarter one. When we look at it from a rolling 12 perspective, organic sales declined 13% and we have operating margin of 9.3%. Moving on to Gardena. Gardena had a strong quarter one. And after a couple of challenging years, I think we can describe with Gardena, it's nice to see a positive turnaround and improved result for the Gardena division. Organic sales grew some 2%. However, the operating income improved by some 15 percentage points, up to 15.3%. We had strong sales in water and electric products and hand tools within Europe. North America was slightly negative from a sales perspective. However, all regions delivered an improved operating income and margin. There was also positive effects from our cost efficiency program and lower sales logistics. We also, during the quarter, we acquired ETwater in North America, which is expanding our commercial irrigation in North America. Last 12 months, organic sales has declined by 2%. However, we have an improved operating margin, up to 9.4%. So a very good quarter for Gardena, and we're very pleased to see that development. Construction, I think we can say construction had a challenging quarter one with an organic sales decline of 8% and an operating margin of 10.1%. There was good growth in emerging markets. However, there was a decline in Europe and North America. Maybe we should also point out here the impact on the less working days, if you want to call it that, in quarter one. And that, of course, has an impact to the organic sales for the Construction division. Solid performance in the newly launched demolition robots and battery power cutters, and the operation margin was impacted by the lower volumes, the factory underutilization, which was partly offset by cost savings as well. Rolling 12, we have a net sales -- organic sales decline of some 5% and an operating margin which has improved during the rolling 12 to 11.1%. So if we move to the quarter one EBIT bridge and just see how that has developed, moving from a 14% operating margin to 13.1%. Of course, you can see clearly in the bridge, this was really heavily impacted by the organic sales decline. And that volume reduction, in addition to us continuing to drive our inventory levels down, and we managed to reduce our inventory levels some SEK800 million in the quarter, currency adjusted. So that factory underutilization, the volume reduction with the organic sales has really impacted here. And you can see this in the SEK825 million negative. On price, I would say, describe prices flat, so nothing really positive or negative there. It's relatively flat. We're very pleased with our cost savings program, how that is delivering, and we've continued to deliver another SEK185 million in quarter one. Raw materials and logistics, quite different dynamics between the two. We have had a positive logistics cost development. However, that has been offset by a raw materials cost increase. So we more or less come to a breakeven between the two. Transformational initiatives, quite a small number for Q1. I think the way to look at it is we've been a little bit cautious over the second half of last year and coming into quarter one given the uncertainty in the market. So only a SEK20 million transformation initiative investment in addition to -- this is incremental in addition to our normal investments. We did have a SEK200 million currency positive effect, and that got us to the 13.1% margin. Moving on to the balance sheet. I think we've already covered some of the main points here. Maybe one thing to point out is the trade receivable financing. We took a decision around July, August last year to stop doing trade receivable financing. Now that has had an impact on our cash flow, which I'll come on to in a second, and of course, a higher trade receivables, as it looks here. So that was an intentional decision to exit the higher finance charges that were coming through, we made a decision to stop doing that. If we look at inventory, we have an SEK800 million reduction, currency adjusted, for the quarter. So we are quite pleased about the inventory reduction. Still more to do, but at least it is trending in a positive direction. And actually, if you look at a true year-over-year currency adjusted, it's a SEK2 billion reduction from this time last year. So again, we feel pleased about that, but more to do. We have lower trade payables, and that is really driven as we continue to reduce our inventory levels. Net debt to EBITDA has slightly increased during the quarter, driven by a lower rolling 12 EBITDA and a slightly higher net debt to 2.2. Operating cash flow. And this, I think, is where it's important to highlight the trade receivable financing. So if we were to adjust for the trade receivable financing during Q1, if we wanted to have a true comparable than last year would have been some negative SEK2 billion. So I think it's important to stress that. We will have this negative comparable during quarter two as well. However, once we go to quarter three and quarter four year-end, then that is -- that comparable has disappeared, and then it's a normal true comparable. We remain on track for another strong year of positive cash flow development. I think that's important to get that message across. With that, Pavel, I'll pass it back to you.

Pavel Hajman: Thank you, Terry. So as said before, we persist really in investing in our strategy execution. We concentrate on segments with high future growth potential and customer value. This is robotic mowers, battery, watering and professional solutions. And as stated earlier, we see growth in these segments in full or partial in this first quarter. And most of our transformational investments that Terry just recently mentioned are going into these areas in the form of R&D, go-to-market, aftersales and in manufacturing. And these segments are really instrumental in enabling us over time to improve margins and advance towards achieving our financial targets. And let me be clear, we really continue to invest despite uncertain market conditions. We see this as an opportunity to strengthen our position and continue to win in key categories. An important contribution to this is our transformation program that we announced in 2022, and that is progressing as planned. So mentioning a few highlights from our divisions, services by Husqvarna. This is our offering, which includes leasing of products instead of owning the product. This service offering is now available in nine European markets and just got its first contract in the U.S., where one prestigious golf course now has Husqvarna CEORA and other automowers operating on the fairways. I would like to add there, just for the sake of clarity that we're actually active on around 30 of the top 50 golf courses in the U.S. So with services by Husqvarna, there are several benefits for the customer, for our dealer and also for the environment. And in a longer perspective, we believe that this will contribute also to a less seasonal revenue stream. As communicated in March, Gardena has acquired ETwater. And with this addition to Orbit's organization, we can now expand the commercial offering on the U.S. market. Orbit is #1 within residential watering. And with ETwater, we will be able to better attract new customers as municipalities, commercial facilities, campuses and large residential communities. Husqvarna Automower NERA. We mentioned in quarter four that we have launched two new Husqvarna Automower NERA models for the upcoming season, making boundary wire free lawn mowing available now for a broader audience. We can also see that the NERA is very well received in Central Europe and that the new EdgeCut feature has taken robotic lawn mowing to a new level. As for Construction, our battery-driven power cutters show positive sales development during quarter one. These power cutters can be used for a wide range of applications, all from the heavy-duty jobs to hardscaping, rescue, also rail cutting. And we're really proud to deliver solutions that support customers on their journey towards a reduced fossil fuel dependency. As you know, sustainability is really a key part of our long-term business strategy, and we're making good progress towards achieving our Sustainovate 2025 agenda, which really encompasses three key targets related to carbon, circular and people. As for carbon, to date, we have reduced our absolute CO2 emissions along the value chain by 51%. This means that we have managed to halve our total absolute CO2 footprint in just a bit over seven years and exceeded the 2025 target of minus 35% with margin, an improvement of 7 percentage points compared to the previous quarter is primarily linked to the product mix driven by the electrification and the lower sales of petrol products. Circular, within the quarter, we added three new circular innovations. We're now at 30, and we are on track to achieve our targets of 50. And those three circular innovations that we added really relate to Fly More refurbishing program in the U.K. It's also a developed dust extractor filter cleaning technology for the Construction division. And the EPOS boundary-ire free automated mowing, that is actually reducing the need for plastics and copper in the cables. As to people, we further increased sales of our assortment of sustainable choices. This is our product and solution offerings that have a significantly and proven lower impact on the use of natural resources and the environment. And with an additional 300,000 products sold in quarter one, we are now at 2.7 million sustainable choices sold. And we continue this journey to empower 5 million people by 2025, which is our target. So to summarize this quarter, we delivered a first quarter overall in line with our expectations, and this despite an uncertain macroeconomic context that we still operate in. We went from a cautious start among our trade partners to a more favorable development as the gardening season now begins. Gardena division delivered good growth, improved margin. Our robotics professional products are increasing, and our product offering is very strong with many new products, which really makes us well positioned for the season together also with the ambition of our channel partners. And with that, let us start the Q&A session, and I will hand over back to you, Johan.

A - Johan Andersson: Thank you very much, Pavel and Terry. So let us start with a couple of questions here that we have received over the web interface. I think one is for you, Pavel, it comes from Lombard Odier, and it's around the inventory levels in the trade and at the dealer. So can you comment on the current inventory levels at our dealers and in the retail segment?

Pavel Hajman: Yes. I would say that we judge that the inventory in trade right now is on a normalized level. And the normal level, though, for the retail channel is on, let's say, lower level than what it was earlier due to the destocking that has been going on for more than a year. And they are now more into ordering just in time, so to say, as the end-user sales starts to begin. The dealer channel is at a normal level as well. Of course, there is some differences between some product groups and between some countries. But overall, there are in a normal and well-prepared situation, I would say.

Johan Andersson: Okay. Thank you very much. We have another question from Terry, it's around the trade receivables financing. And you said that you stopped doing that in the autumn 2023. Can you comment on anything? What was the balance on trade receivables at year-end? And what is your current balance at the moment? Have you done any trade receivable, both -- or is it basically zero?

Terry Burke: You mean trade receivables that we are financing?

Johan Andersson: Yes, exactly.

Terry Burke: No, we have no -- or very, very small trade receivables in the finance now, so it's basically zero. So we've stopped doing that now. And as I said earlier, once we get to quarter three, we will have a true like-for-like comparable, in that sense. So be mindful, quarter two, we'll still look a little bit off from a comparable perspective. Quarter three, quarter four will be normal, no trade financing.

Johan Andersson: Okay. Great. So let's see the operator. Do we have any questions over the telephone conference?

Operator: Yes, sir, we do. [Operator Instructions] The first question is from the line of Ivarsson, Fredrik. Please go ahead.

Fredrik Ivarsson: Thank you so much. Good morning, gents. A few questions from my side. If we can start with what you said regarding the positive trend you saw throughout the quarter. Was this mainly a sign of, I guess, less pessimism among the retailers? Or is it also a reflection of stronger end consumer demand, if you've seen anything of that? And also, if you can say anything about the market conditions through the start of Q2?

Pavel Hajman: All right. As you know, we are just starting the season. It is important to say that the quarter one has been a selling quarter where our retail partners and channel partners in the dealer network have all shown rather, let's say, rather good, let's say, optimism for the quarter, but still being a bit careful. They manage their inventories in a better way than what they have been doing. The sequential improvement is quite natural. But as we have been in a lower sales development versus last year, it's, of course, important to see that, that negative part is being reduced. And we can see that the sequential growth has actually come both for Gardena division, which ended higher than the 2% in the end of March, so to say, if we look on March only, and the same goes for Forest & Garden, especially I'd like to call out the robotics, which is important for us also. At this point, I would say that in Europe, we see that sell-out has started. We see a good interest for our new robotic mowers as an example. Our battery products as well, continues. But it's really too early to be specific, and so to say, define the impact from the end-user sales at this point of time because it is again very early.

Fredrik Ivarsson: Yes. I appreciate it. And second question on the changes you did in the U.S. management team a while ago. You mentioned need for strategic change, I suppose. Can you tell us more about this? What's going to be different going forward? And then what sort of went wrong historically or during the last couple of years?

Pavel Hajman: Well, we have been changing our operation in the U.S. for some period now. You all know about the transition program that we started end of 2022. That is, to a high degree, impacting the American organization with changed focus of R&D with the consolidation of the production and also a closure of one production unit. And we have increased the focus on robotic mowers and battery products. Overall, we have done organizational changes. And the change of Managing Director in the U.S. is just one more step in order for us to future-proof the Company. Andreas Rangert is in place with 25 years of solid Husqvarna experience, and will take this organization further along the new direction of the North American operation for Forest & Garden.

Fredrik Ivarsson: Okay. So no real big changes in contrast to what we've seen already?

Pavel Hajman: No, there is no drama around this, if I may use that word.

Fredrik Ivarsson: Okay. Okay. And last question from my side. On Construction, can you tell us what kind of changes in mix you saw versus Q4 and how that impacted the margin? Because it was a little bit weaker than at least I expected.

Pavel Hajman: Yes. Well, what we see in the Construction is that the slow market in Europe overall is remaining. We don't really see yet any uptick in the building activity in Northern Europe. We do see some light when it comes to the South Europe in quarter one. We also continue to grow in the emerging markets. The biggest change in the quarter is really North America, where we have a lower sales. And that is attributable to one specific sales channel, that is the rental channel, where we are comparing to a very high quarter last year due to large backlog deliveries that we did at that point. I would like to underline that the main sales channel for us in the U.S. is actually the dealer channel, which is roughly 2/3 of our sales there. And there, we've had a slight growth in the quarter. We know that the markets that -- let's say, the association, the market association statistics for building is really pointing on continued good construction market in the U.S., especially related to infrastructure, where we are active. So the decline right now is really something that we believe is temporary. But at the same time, it's a little bit too early to draw any really firm conclusions on the situation in U.S. We still -- we should remember that there's still also a high interest rate situation in the U.S., which, of course, to a certain degree, also impacts decisions about new building starts, et cetera.

Terry Burke: And maybe just to point out and remind less invoicing days in quarter one, which, of course, has had an impact as well.

Johan Andersson: Do we have a next question?

Operator: The next question comes from the line of Hageus, Gustav from SEB.

Gustav Hageus: This is Gustav Hageus with SEB. Could we start with sort of an update on your exits in U.S.? How far along are you -- would expect will be the phasing now for the remaining quarters in the year and how you feel about the assortment you have now in your portfolio post those exits? That would be helpful.

Terry Burke: Just to frame the exits, we communicated -- originally we talked about some SEK2 billion of exits. That number might have come down slightly because that baseline was in 2022. Now in '23, we've already seen a decline in wheeled. Coming into '24 now, we are already above SEK1.1 billion of exits. In the quarter, there was some SEK674 million of exits, if I remember correctly. And it will be something, maybe slightly less, but something similar, maybe a little bit less in quarter two. And then really, once we come to the end of quarter two, then that exit program will have finished because we started that exit program in quarter three last year. So more to come in quarter two, and then that, more or less, will draw to an end.

Gustav Hageus: And how do you feel about your product portfolio into H2 after those exits? Are there also other categories which we could expect you to address at some point?

Terry Burke: At the moment, as it stands at this moment, we focus on the exits that we have in place. That's execute on our transformation program we have. What we do in the future, I mean, we can speculate, but we don't really intend to comment on that. Let's deliver what we have already communicated and committed to.

Gustav Hageus: Okay. And so on professional robotic mowing then, you had a comment here, 1/3 of the 50 top golf courses in the U.S. now, use Husqvarna mower. Could you be a little bit more granular in terms of CEORA and actual cutting on fairways and so forth? What do you foresee? How are the discussions going? And also, do you see now the incumbents changing their assortment meaningfully and sort of trying to convert those into robotics? Or are you still breaking fresh grounds here? Or yes, the competitive landscape would be interesting to get some...

Pavel Hajman: Sure. I just mentioned that there because I just didn't want it to be any misunderstanding that, that is the first, so to say, establishment in pro robotics and golf in the U.S. because it's not. We're working now quite focused on this for a period of time and are seeing very good results, no doubt about it. We also see good results in other markets. Sweden, for example, we are roughly at 20% of all of the Swedish golf courses today with our pro robotics, may it be CEORA, but may it be any of the other four, five models that we also have, which actually enables a complete assortment for the various kinds of, so to say, applications and design of the courses. And this is, as we have said earlier, very appreciated by professional -- by professional people that actually take care of may it be golf courses or may it be sports field. They see the introduction of robotics as a complement to their own workforce as an opportunity to perform better, to be able to take care of other chores and overall provide a much better environment, may it be on the golf course or may it be on a sports field. We do not really comment on the, so to say, individual sales of CEORA, but that is, of course, continuing very well. But we're also growing on the other pro robotics assortment products that we have. And we have recently introduced one more EPOS-based product, the Automower 520, which is for a bit smaller areas, which has been missing to fill up the whole assortment from small to large areas. And that has been received very well also as we see it. The sales cycle, as we mentioned, is a bit longer for professional products, of course, than for consumer products. There's often a period of trial before you go into sales, and you very seldomly would automate the lawn care for entire golf course at the same time. But it's moving absolutely in the right direction.

Gustav Hageus: And could you give us a sense of where Sweden was a year ago? You said 20% of golf courses now have Husqvarna. Where was it roughly a year ago?

Pavel Hajman: Well, we were -- basically, we started with this two, three years ago. So this is what we have achieved in a period of, let's say, two to three years.

Gustav Hageus: And what are the main pushbacks outside of Sweden in terms of golf and other -- for you not to expand even faster?

Pavel Hajman: I would say that there is, of course, a matter of proving, convincing and proving any future customers about the performance of our robotics. I know that this sounds maybe a bit strange when you come from Sweden and when you see robots more or less in every garden, but the concept as such is still not very well known in some markets to a high degree. And especially in the professional sector, we know that the wheel machines are well established over, so to say, decades of years and we need to really prove and showcase that this is working in a good way.

Gustav Hageus: Okay. I appreciate that.

Johan Andersson: I think we have a couple of more questions here through the web interface. One for you, Pavel, a follow-up on your comments around the inventory and trade. Now if you, for instance, in Gardena then see that it's -- they have a bit shorter cycles or short -- or have a bit lower inventory these days, are you also ready to produce closer to customer demand?

Pavel Hajman: Yes, we are. We have been, so to say, considering that, taking that into account. At the moment, as you know, we're also well stocked, of course, on products. But I think in the future, we will be moving more towards -- even more, so to say, just in time, and we will need to adapt to that even more also.

Johan Andersson: Good. Another one for Terry, you had a currency benefit of SEK200 million now in the first quarter. How should we see the currency for the rest of the year? What's your expectation there, given the current position of the Swedish krona?

Terry Burke: Yes, we had around SEK200 million positive effect from currency during Q1. For the full year, we would expect that to be somewhere around SEK300 million to SEK400 million. So another SEK100 million to SEK200 million positive effect to come for the rest of the year.

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

Operator: Yes, sir. So, the next question is from the line of Enarson, Bjorn from Danske Bank.

Björn Enarson: I have a question on the ongoing EV transition. I mean that impacts, of course, the lawn mower segments and handheld, et cetera. What are the long-term margin drivers there, do you say? I mean obviously, right now, there are quite some positive mix effects especially on the lawn mower side, but isn't it so that generally EV products have lower profitability, if you look at other industry, et cetera? And maybe if you have some comments on that and also perhaps on the handheld side, where I guess that profitability right now, perhaps it's not better than the old products?

Terry Burke: Pavel showed a slide earlier that talked about our value creation levers. And these are -- at least three of the four are for sure margin accretive, and that's where we want to continue to drive the business. And that is in robotics, in watering and professional solutions. All of those categories are margin accretive to us. If you look at battery on our electrification journey, particularly around the handheld and the wheeled excluding robotic, that is not margin accretive at this moment. But as we drive scale, as we drive cost out of those products, we expect that to get to the group average and then hopefully, margin accretive later on. But our focus and attention is really driving those value creation areas.

Björn Enarson: And on robotics, I mean, a little bit more long term. Of course, there will be more of them, more competition, et cetera, et cetera. And I guess you're thinking about kind of the commoditization within this segment as well, is focus then to drive margins and profitability to add on new features and also to remain in the very high-end segment? Or don't you see that there might be a pressure on profitability within that segment, looking at...

Pavel Hajman: Yes. Well, it is so that we have managed to remain market leader over many years despite, so to say, stepwise entrance of different competitors. What we see right now on the competition side is actually that the more serious competitors actually position themselves upwards in price when they are launching new products, which, of course, we appreciate. We work hard to make sure that we offer really competitive products, reliable products at the technology forefront. Our products are reliable, and we have, so to say, a premium position, and we price ourselves at that level for the moment. I do not really foresee any urgent need of adjusting that price positioning but you should also know that we do cover the entry-level price points, both with Gardena as well as with Husqvarna. And there, actually, we see that we are well positioned, and it's more of, so to say, a technology and a marketing game than a price game because it has really, so to say, it has leveled out at a certain price level for the entry-level products, I would say. So for us, this is a matter of continuing to innovate and continue to ensure that we deliver some added value to the customers with our products, may it be the product itself, may it be a true connectivity and the digital features, additional features that we provide there. And we feel that we are very competitive at the moment.

Björn Enarson: Very interesting. And one last question, if I may. I would also assume that the aftermarket part plays a quite big role, especially on the professional side, although early in its launches. But the aftermarket must be a driver for profitability within that segment, I guess?

Pavel Hajman: It is. Definitely, in general, the P&A area has an over-average profitability. And of course, we are ensuring that we have a professional dealer network setup also that can actually service and support our professional robotics. So we have so to say, program ongoing with our dealers, which we call the Pro partner program, where those dealers are, so to say, more trained and more capable of supporting these professional robotics in terms of servicing them during the lifetime because, of course, they are -- they have a much higher wear and tear compared with a consumer robots.

Björn Enarson: Perfect.

Johan Andersson: Thank you very much, Bjorn. Another question from the web interface to you, Pavel. We saw that the growth for Gardena in Europe was pretty good during the quarter. But can you elaborate a bit more on what you see for Orbit in North America for your Gardena products that you're, so to say, expanding into North America and also the Orbit margin development?

Pavel Hajman: Well, let us say -- start out with talking a little bit about the sales. We are a couple of percentage points down on sales, as reported for both Orbit and the Gardena business in North America. But if you adjust that and take out some of the product assortment, which is not branded Gardena or Orbit and which we are actively, so to say, consolidating, terminating, then we actually have a growth on both of these brands in North America for the first quarter. Orbit has been working very much in improving their profitability. They've done an excellent job already in last year in '23 and also here in the first quarter. We now see that excluding the acquisition amortization, they are actually accretive to the Gardena division profitability. And they continue, they have, so to say, established a new cost base for the Company and are also launching new products and will now pursue, of course, growth also in the market. I don't know, Terry, if you want to add something on that side.

Terry Burke: I think you summarized it well. I mean, a very good margin development. And yes, nothing more real to add to that.

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

Operator: Yes. So, we do have. So we have our next question from the line of Dashian, Adela from Jefferies.

Adela Dashian: Yes. Good morning. One question, continuing on the topic of the professional robotic mowers. Is there a life cycle difference in these products versus the ones that are for residential use that we should be aware of?

Pavel Hajman: When you talk about life cycle, you mean the duration or the usage of the product?

Adela Dashian: Precisely.

Pavel Hajman: Yes. Well, of course, these products are designed and built to be more sturdy and for longer, so to say, usage. But then again, just as the one of the last questions was here, the recent question about the serviceability of these products, we do have good serviceability on all of these products. So I would say that they can be refurbished, reused over quite a long period of time.

Adela Dashian: Longer than the other product segments or...

Pavel Hajman: It all depends on what kind of garden you have. It also depends on what geography you are in, depending on whether you're going to use the product, six months, nine months or only three months. So it's a bit varying. But overall, our products have a long lifetime. I mean, it's not unusual to see our robotics working more than 10 years plus.

Adela Dashian: Got it. Okay. And then I also noted -- maybe a question for Terry. I know there's an uptick in the leverage here in the quarter. Do you feel comfortable at these levels? Or is there a high likelihood now that we will see lower levels towards the remainder of the year as cash flow generation gets even stronger and inventories continues to get reduced there?

Terry Burke: I think you highlighted that there, towards the end of the -- the question, our cash flow, we remain very focused on our cash flow. We remain very focused on driving our working capital down. We delivered a record cash flow last year, and we expect to have something similar this year. And of course, that will allow us to lower our net debt, continue to drive our working capital down, inventory down. So it's a timing issue from my perspective.

Johan Andersson: Okay. Thank you very much. Let's take another question here. We have one elaborating a little bit more on the robotics. You talked about that the residential robotics is down, professional is up. Are we talking about single digit or double digit on these ups and downs? And also, can you remember us, what's best for the mix here in terms of profitability?

Pavel Hajman: Terry, would you like to?

Terry Burke: What I would say is for the robotics development in Q1, it was in line with expectations. Pro robotics, double-digit growth. And residential robotics, double-digit decline. But again, that was in line with expectations. And a high comparable from the residential robotics of last year, where we caught up on the supply disturbances. And yes, there was a correction to that. With regards to the profitability between the two, they are both margin accretive, well performing financially -- robotics, it's -- yes, equal, I would say, between the two.

Pavel Hajman: And maybe to add to what you're saying also, Terry, you were pointing on the average decline of robotics over the quarter. But if we look into the end of the quarter and look individually on that month, we see a single-digit decline of the consumer robotics, which I think is important to point out here.

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

Operator: Yes, sir, we do. Our next question is from the line of Eliason, Johan from Kepler Cheuvreux.

Johan Eliason: This is Johan at Kepler Cheuvreux, sorry if I repeat some of the questions, I dropped out of the call for some period. On robotics, while we were on this subject, you said the full year sales last year ended at, I think, SEK8.1 billion. Are we still on a rolling 12-month basis above SEK8 billion in sales?

Terry Burke: No, we are not. Given the decline in residential robotics during quarter one, we are below the SEK8 billion now. But that was in line with expectations. We had an artificially high quarter one, 2023 due to the supply disturbances backlog catch-up. So we have dropped below the SEK8 billion, but again, in line with expectations.

Johan Eliason: Okay. And then you mentioned that your underlying cash flow for Q1 last year would have been a negative SEK2 billion if you hadn't used the financing. And that's obviously implying that's an improvement of SEK1 billion underlying in the quarter this year. Now how much did you use of financing in Q2 last year, just to get the numbers right ahead of next quarter?

Terry Burke: Yes, it was similar kind of numbers. So something similar to Q1, probably slightly more, but around those kind of numbers.

Johan Eliason: Okay. Good. And then looking at the U.S. business. You mentioned that the Orbit brand and the Gardena brands are growing, and then you are exiting some other brands. Is the Gardena brand in the U.S. growing from some building up of inventories within new retail partner over there already? Or is that an impact to come in the coming quarters?

Pavel Hajman: Our establishment with the Gardena brand in U.S. is with one of the very large retail partners that is there. And we started to already, so to say, sell in that product assortment already end of last year. So we continue now in quarter one, of course, to sell in as well. And of course, there is a degree of sell-out also in the U.S. with the geography and the climate that we have there. The season has already started there.

Johan Eliason: Good. And then thinking about your brand strategy in the U.S., I think you've previously sort of -- many years ago and out, okay, we will also allow the Husqvarna brand to be used with the -- with Lowe's (NYSE: LOW ) for example, but otherwise, we will keep it to the -- dealer channel, rather? How's the brand strategy in the U.S. working now? With the several brands you have, that now also Gardena brands over there.

Pavel Hajman: Well, it is so that when it comes to the Husqvarna brand for Forest & Garden, that is predominantly being sold in the dealer channel. The retail channel there is a very small part. Also with the deliberate exits that we have been talking about in this call, our presence in the retail channel with the Husqvarna brand is even smaller than what it was earlier. As for Orbit and Gardena, they are predominantly -- Orbit, they are predominantly in the big box retailers, but they are also with specialized dealers and other, so to say, sales channels that are carrying water and irrigation products. And the Gardena establishment is starting slowly with some specialized irrigation partners, but mainly with the one of the larger retail partners. I should also mention -- maybe I should mention Construction to give you the whole picture also. The Construction division is operating under the Husqvarna brand as well in U.S., just as we do globally. And they are operating with that brand in specialized dealer channels in the rental, but also with the contractors directly.

Johan Eliason: Okay. And then you have introduced this Husqvarna Aspire platform on the [indiscernible] platform. Is that still primarily aimed for the dealer channel? Or how do you -- how do you position those products?

Pavel Hajman: We market this in Europe, not predominantly, but only, we are not having the Power for All Alliance in the U.S. And this is being sold also online, and we are doing some actually testing in this year with a selected retail partner, with a selected market in Europe also to see how this assortment will be received.

Johan Eliason: Okay. Good. And then just a final question. So you announced the acquisition of Total Diamond. Has the deal closed? Or when is it supposed to close?

Pavel Hajman: Yes. You are thinking about the smaller acquisition that we did in the U.K. That deal is fully closed since earlier, and we are integrating that business into the construction operation in U.K., and it's going very well.

Johan Eliason: But you don't report any additional sales from it in the quarter, in the note?

Pavel Hajman: No, it is such a small acquisition that it is not really material in the scope of the big things.

Terry Burke: Not within a quarter, yes, that's small.

Johan Andersson: I think we wrote -- last reported, it's around £1 million on a yearly sales basis. So it's relatively marginal.

Johan Eliason: Good. Thank you. That's all.

Johan Andersson: Thank you very much. Operator, do we have another question?

Operator: Yes sir, we have our last question from the line of Rinta, Karri from SHB.

Karri Rinta: Yes, thanks. Karri, Handelsbanken. Just one question, to save some time. This ongoing transformation from petrol to electrified, can you remind us of how much of your current sales comes from petrol-powered products?

Pavel Hajman: So today when we looked on our motorized sales, approximately 43% of our motorized sales is actually coming from electrified, so 60% is still -- 2/3 is still petrol-based, of the motorized products.

Karri Rinta: Yes, I know that. But how much is motorized and not motorized? So what I'm looking at is how much is petrol of overall sales.

Terry Burke: If you turn it another way, we have robotic and battery, they account for 20% of our total sales.

Pavel Hajman: But then you have, of course, some Gardena -- you still have some Gardena hand tools in there, et cetera, but it gives you the big picture.

Karri Rinta: Yes, but it doesn't give me the number -- okay. Fair enough. And then the -- this ongoing transition. So is there a -- I mean, now you're actively pushing towards electrification and away from petrol powered. But is there a certain natural point where this relationship will settle? Is it 2/3 electrified, 1/3 of petrol-powered? So we think at that point, the petrol-powered has reached a sort of long-term steady state? Or will it continue even beyond that point?

Pavel Hajman: No. Overall, the transition will still continue further years. When you look at it more detail, you can say that for handheld products, which earlier then had a petrol engine of below 50 CC, the switch is very much already there. The majority of those products sold is actually being battery products. As for the higher CC engines in product, higher CC equipped products in the handheld segment, there is no real corresponding battery offering yet. But over time, that will come, of course. The transition from petrol to battery in relation to wheel products or I should say, ride on products is still really in its infancy. We are well positioned. We have a number of tractors and riders that are battery -- battery powered by now, and we have started to market and launch them. Next year, we will present a zero turn in the U.S. also. So we are, of course, taking a position in this segment as well. But the transition, the level of transitioning is far behind handheld products as such. And I would say that the same goes for the Construction segment, where we also have a very good battery assortment, both for 36-volt as well as for 94-volt for high -- high, heavy-duty jobs. But again, the transition there is still on a low level in terms of maturity.

Karri Rinta: And then finally, do we need to get to the 2/3 electrified before the handheld battery is margin accretive? Or can it happen earlier? And then secondly, once we are there, your remaining petrol-powered portfolio, will it have at least the same margins that you have today? Or have you lost so much volume that it will have lower margins than what you have today in your petrol powered products?

Pavel Hajman: What is important for us is, of course, to stay relevant and competitive, so to say, both in terms of battery products as well as petrol products, as long as the customers are demanding these kind of products and as long as there is no performance replacement existing in the market. So we are not actively replacing or pushing out high-margin petrol products, we are offering in parallel battery products with good performance in different price segments. And in parallel with that, we have to work with, of course, with the -- to work to ensure that we have a good cost on those products and, of course, drive the scale so that we can get up to improved profitability, just as Terry was explaining earlier.

Karri Rinta: All right. Thank you very much.

Johan Andersson: Okay. Thank you very much, Karri. The clock turned 11, and we know that there are many reports out there. So we will end the conference call for our Q1 report now. We have a number of questions that we didn't have time to answer over the web interface that we -- and the Investor Relations team will get back to you with. And I think with that, we thank you very much for listening in. We have our second quarter report on the 18th of July. So if not before, then we will talk to you then. So many thanks for listening in.

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