👀 Ones to watch: The MOST undervalued shares to buy right nowSee Undervalued Shares

Earnings call: Husqvarna reports mixed Q2 2024 results amid tough climate

Published 22/07/2024, 16:50
© Reuters.
HSQVY
-

Husqvarna Group (HUSQ-B.ST) has reported a challenging second quarter for 2024, with a 6% decline in organic sales influenced by weak macroeconomic conditions, cautious consumer behavior, and adverse weather in Central Europe and North America.

Despite these headwinds, the company has seen robust growth in its professional robotic lawn mower segment and has maintained stable gross margins. Operating income for the quarter fell to SEK 1.9 billion from SEK 2.3 billion in the previous year. The company's cost savings program contributed SEK 215 million in savings for the quarter, while year-to-date savings reached SEK 400 million.

Husqvarna's financial position remains solid, with reduced debt and improved cash flow, as it continues to focus on strategic areas including robotics, battery-powered products, and watering solutions.

Key Takeaways

  • Organic sales declined by 6% due to weak macroeconomic conditions and weather.
  • Operating income decreased to SEK 1.9 billion from SEK 2.3 billion year-over-year.
  • The professional robotic lawn mower business experienced strong growth.
  • The cost savings program delivered SEK 215 million in savings for the quarter.
  • The company is on track to achieve its cost reduction target.
  • Husqvarna maintains a solid financial position with reduced borrowings.
  • The focus remains on strategic areas such as robotics and battery-powered products.

Company Outlook

  • Husqvarna aims to empower 5 million people by 2025 through sustainable choices.
  • The company is confident in its market position and growth potential despite current challenges.
  • Inventory reduction efforts are ongoing, with a continued focus on cash flow and working capital management.
  • Husqvarna is preparing to launch boundary-free robotic mowers next year to regain market share.

Bearish Highlights

  • Adverse weather conditions impacted the watering segment, particularly in Mainland Europe.
  • Organic sales in the Forest & Garden division declined by 6%.
  • The Gardena division experienced a 9% decline in organic sales.
  • The Construction division saw organic sales decline by 3%.

Bullish Highlights

  • The company experienced growth in the professional robotic lawn mower segment.
  • Stable gross margins were maintained despite the challenging quarter.
  • Husqvarna's cost savings program is effectively contributing to its financial stability.
  • The partnership with Liverpool Football Club is expected to raise awareness of the company's products.

Misses

  • There was a 1% negative price development in the quarter.
  • The mix of margin-accretive products negatively impacted profitability.
  • Raw materials and logistics had a small negative impact on the business.

Q&A highlights

  • The company discussed the impact of shifting to wire-free boundary technology on robotic mowers.
  • Husqvarna does not expect a negative impact on margins from the technology shift.
  • The ambition to double the business in robotics to SEK 12 billion was reiterated.
  • The company confirmed that there were no significant shifts in market share within the Gardena watering segment.
  • Details of the revenue structure for the partnership with Liverpool Football Club were not disclosed.
  • Expansion in the professional turf care market is proceeding according to plan, with a focus on cost and sustainability benefits.

Husqvarna Group's earnings call for Q2 2024 highlighted the resilience of its professional robotic lawn mower business amid broader market challenges. Despite a decrease in organic sales and operating income, the company's strategic focus and cost savings initiatives have provided a stable financial base. Husqvarna continues to innovate and invest in key areas, aiming to strengthen its market position and achieve its ambitious growth and sustainability targets.

Full transcript - None (HUSQF) Q2 2024:

Johan Andersson: Hello, everyone, and welcome to the presentation of Husqvarna Group's Financial Report for the Second Quarter of 2024. My name is Johan Andersson, responsible for Investor Relations and will be the moderator here today. Here in Stockholm, we have our CEO, Pavel Hajman, and our CFO, Terry Burke, that will present the report. And afterwards, we will conclude with a Q&A session. [Operator Instructions]. So, a warm welcome. And with that, I leave over to you, Pavel.

Pavel Hajman: Thank you, Johan. And of course, also a warm welcome from my side. And let me begin by highlighting the key points of the quarter. So the quarter started off well from a sell-in perspective following the gradual improvement that we saw in the first quarter. However, the weak macroeconomic climate with cautious consumer spending and also cautiousness among our channel partners gradually affected our business negatively. And in addition, we have experienced heavy rainfall and cold weather in Central Europe and North America and this significantly impacted Gardena’s watering business. The sales drop was significant towards the end of the quarter, especially in June. And in our construction division, we experienced weak market conditions in North America, which affected sales negatively also. Altogether, these factors had a large negative impact on our financial result for the quarter. On the other hand, we are very pleased with the development of our professional robotic lawn mower business, where we achieved a strong growth in the quarter. And this was driven by CEORA, but also by the entire professional robotics range that we have. And additionally, we delivered growth and strengthened our positions in the focus areas of battery-driven products for consumers and also in parts and accessories. Importantly, we also delivered stable gross margin in the quarter, and this was driven by delivery of our cost savings and benefits from our planned exits of low profitable wheel petrol products. We also achieved a good cash flow in the quarter, and this was primarily driven by our relentless focus on reducing inventory levels that we've been now pursuing for two years' time. And given the market dynamics, we now accelerate the ongoing execution within our existing cost savings program. And our commitment to the strategy remains, and we continue to invest in prioritized growth areas. This is robotics, battery, pro solutions and watering. So let's take a closer look on the numbers for the quarter then. In total, organic sales declined by 6%, with the decrease coming towards the end of the quarter. So again, the sell-in went well and initially all three divisions reported growth. However, the end customer demand and also the sentiment from our channel partners were weaker than what we were expecting towards the end of the quarter. We achieved growth in several of the Group's important product segments, such as the robotic mowers for the professional market, battery powered consumer products, parts and accessories, demolition robots and also diamond tools. And as said, for the Gardena division, the rainy and wet weather conditions in Central Europe and North America impacted the watering business, with a significant decline during the end of the quarter. Petrol powered products, particularly the wheel products, declined during the quarter, but at a lesser extent than earlier, and we also saw growth in this product segment in Europe. The planned exits of our low-margin wheel products were SEK426 million in the quarter and it impacted the sales with a negative 2%. In construction, we had a stable sales development in Europe, which is an improvement compared to our first quarter as well as compared with 2023 and we achieved growth in the emerging markets, but sales declined in our important North American market. Our gross margin has been stable in the quarter, and this is mainly due to positive effects from our planned product exits and also the efficiency enhancements that we are pursuing. So, for the quarter, Group operating income amounted to SEK1.9 billion compared with SEK2.3 billion in the same quarter in the previous year. This is also adjusted for items affecting comparability. And the main drivers for the lower operating income are lower volumes, lower capacity utilization and negative mix effect. The negative mix effect comes both from product mix, but also geographical mix. And this was partly offset by our cost savings, where we realized SEK215 million in the quarter and where we have now realized SEK400 million year-to-date compared with last year. Our direct operating cash flow was SEK3.9 billion. Importantly, we continue to decrease our inventory levels, and we're now down SEK3.2 billion or 18% compared to last year. And as previously communicated, we have stopped using trade receivables financing and the effect on cash flow is lower in this quarter than the last quarter. And adjusted for this, our cash flow is down SEK250 million in the quarter. But for the first half, the cash flow improved SEK350 million if we adjust for this effect of the trade receivables financing. And we expect a positive contribution, of course, from the accounts receivable going forward into quarter three and quarter four. Robotics and battery as a share of Group sales is 20% on a 12-month rolling basis. What I also like to mention is that we have actually increased the amount of electrified motorized products, which now has increased to 44% of our total motorized range. And we grew strongly in professional robotics and also in the consumer battery-powered products. The sales of robotic mowers for the residential market were lower though, during the quarter compared to the same quarter last year. However, still on a positive trend compared to the first quarter. And we clearly see a shift to boundary wire-free mowers, a shift that we have pioneered with our initial entry into the professional segment and we are at the forefront of. And currently, we have five NERA models with boundary wire-free technology and those actually accounted for one-third of our residential robotic mower sales this quarter. We have a solid product pipeline, and we will continue to introduce further models in the market. For instance, next season, we will launch three new great Gardena models with boundary wire-free technology and also two new boundary wire-free entry-level models under the Husqvarna brand. In addition, also our flagship four-wheel drive model will be boundary wire-free for the next season, which will be a great support for the Professional segment also. So, with these words, let me pass on to Terry to tell us about some of the specifics in the division. Please, Terry.

Terry Burke: Thank you, Pavel. Moving on to the Husqvarna Forest & Garden division. Organic sales for the quarter was some negative 6%. However, it is worth pointing out that the -- we had an improved operating margin, and we improved the operating margin to 13.2% compared to a 13% comparable last year. We did manage to grow in some very key strategic areas. There was good growth in professional robotics, in consumer battery-powered products and in parts and accessories. Those are key important areas for us. As Pavel mentioned a little bit earlier, we did see sequentially improved residential robotic sales. It was negative in the quarter, but it was an improved situation compared to the Q1. And I think it's also worth reminding the first half of last year was a relatively high comparable as we caught up on supply disturbances. So have that in mind, please. We did have lower sales in petrol-powered products, particularly in the wheeled in North America. What we've seen in the decline in the North America was particularly around the high ticket price items, there was a decline, which we see coming through here. When we look at it from a half year perspective, organic sales are down 12%, and we have an operating margin of 13.8% compared to 14.5% last year. Probably also worth to note, we have a positive currency effect for the quarter of around some SEK60 million here and then for the half year, around some SEK250 million. Moving on to Gardena. A difficult quarter for Gardena. And as Pavel mentioned earlier, actually, the sales started very positively for Gardena in April, and then it declined as the season started and the unfavorable weather conditions really kicked in. So we have an organic sales decline of some 9% -- negative 9% and an operating margin of 15.2% compared to 17% last year. The data and statistics that we have would clearly show it has been a wet and cold start to the season, Q2 has been negatively affected both in, I would say, Mainland Europe as well as North America with a delayed start to the spring in North America. So those have clearly impacted our sales development for Gardena. If you actually take out the watering part of the sales within the Gardena division, the other segments are relatively stable from a sales performance perspective. It's really the watering category that's had the negative effect during the quarter. We do have good sales in our battery handheld products in Gardena. But of course, the operating margin has declined as a result of the negative volume and mix, of course, watering being a margin accretive part of our business, then it has had a negative effect there. They have been partly offset by our cost savings program. I'll come on to that a little bit later. So organically, minus 4% year-to-date and a margin -- a flattish margin of around 15.2% compared to 15.4% for the first half of last year. Moving on to Construction. A continued challenging year for Construction, I would describe it as. And in the quarter, we had organic sales decline of some 3% and an operating margin of 9.7%. There has been good growth in emerging markets. Europe, I would say, is relatively stable from a sales performance perspective. However, there has been a significant decline in the North American market. And that, whilst the impact on sales, also has a negative impact on our operating margins, so please be aware of that and note that. There are pockets of the business that have performed well. Demolition robots continue to perform well and grow, and Diamond Tools has also had a positive sales development in the quarter. But with this negative sales mix, with the negative sales -- sorry, the volume and then we have also, as we've actively managed our inventory levels down there has been underutilization within our manufacturing sites, that has had a negative impact on our operating income. First half year, organic sales minus 5% and an operating margin of 9.9%. Moving on to the EBIT bridge. The EBIT -- the profitability has been impacted by the negative 6% sales decline. And of course, there has been a margin reduction moving from a 13.6% margin to a 12.4% margin. If I just work from the left to the right, the big impact in our business has been around price, where we have roughly 1% negative price development in the quarter. We have been doing some campaigns due to the weaker consumer demand and also the weather conditions. So there has been some campaigns to stimulate sales. At the same time, we've had the volume reduction and the underutilization as we've driven our inventory levels down. Also, mix in some of our important margin-accretive products has been negative, and that has also impacted in the profitability. Very positive to see our cost savings program continuing to deliver. And in the quarter, we delivered SEK215 million of savings. We are tracking very well in this area. And it's good to see that coming through and supporting our margins. Raw materials and logistics are small negative. We did have a positive development in logistics. However, that was outweighed by a negative development in the raw materials. So overall, a small negative. Just shy of SEK100 million of transformational initiatives, we continue to invest in our strategic areas. And it's very important that we continue to invest in our value creation levers. And here, you can see a continuation of that. SEK80 million currency effect driving us to the 12.4% margin for the quarter. It's a very similar story for the half year -- the first half year impacted by a 9% organic sales decline. I referred to earlier around our price and for the first half year, a negative 1% price is basically how that's shaping up. So that's impacting again, we've been doing campaigns and trying to stimulate sales in a difficult environment. The volume has obviously had an impact and then the mix -- unfavorable mix, both from a geographical perspective and also from some product segments. Cost savings year-to-date, SEK400 million. We delivered just shy of SEK400 million towards -- in 2023 as well. So that means now we are coming up to SEK800 million savings we have achieved in our cost reduction program. Our overall target was SEK1.2 billion. And of that, we've now reached just below SEK800 million. So we feel very good around the cost savings, and we will continue to accelerate that in the difficult circumstances we have. Slight negative with the raw materials and logistics I mentioned it earlier, transformational initiatives. As I said, we continue to invest in our value creation levers. And then we have a currency upside of some SEK280 million in the first half of the year. And I would expect a continued positive currency, but at a much smaller rate. But I think there will be a small positive currency for the rest of the year. So that takes our margin to 12.7% for the first half year compared to 13.8% last year. Balance sheet. We have a solid financial position. And it's important that we continue to remind everybody we have a solid financial position. That's important. The key areas to point out here, first of all, trade receivables, this is the final quarter where we have a comparable where last year, in Q2, we did trade receivable financing. That will now stop as we go into Q3 and onwards as a comparable. So we have to be mindful and adjust for that trade receivables. Inventory, we have done very good work in driving our inventory levels down. If you adjust for currency, we have reduced our inventory level by SEK3 million -- SEK3 billion, sorry, SEK3 billion reduction since the start of the year in inventory currency adjusted. I think it's important to get that across. We go further down on the balance sheet, you can see an improved borrowing situation here as well. We've lowered our borrowings by some SEK1.3 billion since the start of the year as well, which is good to see as we continue on our positive cash flow. Trade payables is down, but that's really driven by our reduced inventory ambitions and really lower manufacturing volumes. Net debt to EBITDA. Of course, from a rolling 12 perspective, our EBITDA has decreased and that has had an impact on the ratio here that we have. Net debt overall is relatively flat as it stands. But again, have in mind we've got the trade receivable finance and last year that we don't have this year. We will continue to drive our net debt down, and we would expect this ratio to start to improve in the quarters ahead. I think it's also worth pointing out just visually as well, you can see the chart here. I think it's very important that you can see since December 2022, we have made significant improvements in reducing our inventory levels. That, of course, has had a very positive effect on our cash flow. We continue to stay focused on reducing our inventory. All divisions have contributed to the inventory level reductions. And as I said, that has really supported the positive cash flow in 2023 and 2024. With cash flow, there is a strong performance, and I think it is important to remind and point out that if you adjust for the trade receivable financing, year-to-date, we have a SEK350 million cash flow improvement compared to last year. And we should not forget last year was a strong cash flow year, around SEK6.5 billion, and we feel in a good position with a high focus and priority on continued positive cash flow for the second half of the year. With that, Pavel, I'll pass back to you.

Pavel Hajman: Thank you, Terry. And just to underline from my side that despite the current decline in EBIT that Terry had just explained, we do have a very solid market and innovation position. We also have a solid financial position and we have improved our cash flow. And we are actively working with our operational efficiency in a time of transition. And if we zoom out and take a longer perspective, we continue to work towards achieving our financial targets. And the key is to, even in times with uncertain market conditions, to invest in our strategy to grow in our four value creation areas. This is robotics, battery, pro solution and watering. And these areas are aligned with the market trends and where we see the growth and the marginal potential going forward. And we also see results of our investments to date. In Professional Robotics, we launched Husqvarna Automower 520 EPOS this season, which is very well received for smaller areas complementing the already other five products that we have. And in the Consumer Robotics segment, the Husqvarna NERA range is also well received, including the two new models for this season at mid-price points. And in battery handheld, we launched a new series of garden cleaning and care tools, which are powered by our 18-volt Power for All Alliance battery. And for Construction, we expanded the successful remote demolition robot range, and we also launched an electric compactor in the more heavy-duty area of our work. So again, let me be clear, we continue to invest despite uncertain market conditions. This is actually an opportunity now for us to strengthen our position and to win in key categories. Further highlights then from the group in quarter two, a couple of areas that I'd like to convey. In a recent ranking, which was published by the United Nations, Sweden actually came out as the second most innovative country in the world. And in Sweden, Husqvarna Group is actually ranked as number five in terms of registered patents in competition with several much larger corporations. And seeing this recent statistics really proves that Husqvarna Group is doing the hard work in the background to really future-proofing our business. We have also been listed as one of the most sustainable companies in the world by Financial Times and Time. And since 2015, Husqvarna Group has reduced its carbon emission with 56% and which I actually believe is an extraordinary achievement. As for the Husqvarna Forest & Garden, some of you will recognize that we are now a global official partner to Liverpool Football Club, one of the most supported sports teams in the world. And this global sponsorship is placing Husqvarna on the classic Anfield stadium with more than 400 million people following Liverpool's games worldwide every year. And since 2021, Liverpool has actually been using our robotic mowers. And with this partnership, we really drive to aim further awareness around Husqvarna at -- as being the preferred robotic lawn mower brand for both homeowners as well as for green space professionals. With the beginning of 2024 gardening season, Gardena launched an additional four official web stores for direct-to-consumer sales for the important national markets in Germany, in Austria, Poland and the Czech Republic. Gardena now have web stores in eight markets in which direct purchase from us as a manufacturer is possible. And this extends the already strong international presence in the e-commerce channel that we have, especially with online pure players like Amazon (NASDAQ:AMZN), but also the digital channels of the do-it-yourself retail partners that we have also established with since earlier. And by building a stronger digital presence, we are not only expanding our reach, but we're also deepening our connection with consumers across Europe. For Construction, our DXR 95, the smaller model of the Husqvarna remote demolition robot, which is now the fifth in the range, was launched earlier this year. And this has contributed to sales growth for the whole DXR range. And the new DXR 95 have, of course, been very well received by the market. So, to sum up, Husqvarna Group is investing in future with strong innovations and an innovative way to drive sales. And I feel confident that we, as a group, despite the temporary headwinds that we have, are well positioned in a competitive landscape. We are progressing well towards our Sustainovate 2025 targets. As you know, sustainability is a key part of our long-term business strategy, and we're making good progress towards achieving these 2025 targets and agenda, which encompasses three key targets relating to carbon, circular and people. As for carbon, in quarter one, we announced that we had reached a significant milestone and had halved our total CO2 footprint in just over seven years. Summarizing quarter two, we have to-date reduced our absolute CO2 emissions along the value chain with 56%, meaning that we continue our decarbonization journey. And we have exceeded the 2025 target of minus 35% with large margins and the improvement of the 5 percent points in this quarter compared to the previous quarter is primarily linked to the product mix driven by electrification. As for circular, within the quarter, we added one new circular innovation, and we are now at 31, and we are on track to achieving our target of 50. The latest inclusion here was the Flymo and Gardena robotic mower house now, which is produced with significantly less material utilization than previously. Our people target, where we aim to empower people to make sustainable choices. And we have further increased our sales of our assortment of these sustainable choices, that is product and sustainable offerings that we have a significant and proven lower impact on and the use of natural resources of the environment. And after quarter two, we are now at 3.3 million sustainable choices sold and we continue, of course, the journey now to empower 5 million people by the end of 2025. So, to conclude, this was indeed a challenging quarter for us, although it started off well, cautious consumer spending and weather conditions gradually impacted our performance negatively throughout the quarter. At the same time, we kept a stable cash flow, driven by lower inventory. We made progress in focus areas, including the very important professional robotics business. And our execution of our cost and efficiency programs are successful. We managed to have a stable gross margin due to this, and we will now be able to further accelerate and strengthen the profitability and competitiveness. And we continue to execute on our strategy. A strong customer offering and continued investments in the focus and growth areas provide a solid foundation also for value creation going forward. With this, thank you for listening, and we will now welcome questions, and I hand over to you, Johan, for that.

Johan Andersson: Thank you very much, Pavel. And as I said in the beginning, you can ask your questions over the telephone conference or paste them in the web interface and we can read them here in Stockholm. So please, operator, do we have any questions from the telephone conference at this point of time?

Operator: [Operator Instructions] We have the first question from Gustav Hageus, SEB. Please go ahead.

Gustav Hageus: Thanks operator. Good morning guys. Thanks for taking my questions. If I may start with your comment on the negative price in the quarter, which was a driver then to the EBIT decline, what do you see in terms of promotional activity or rebates going into Q3? And linked to that, we can have an update now on the channel inventories you see in the market given that the sales were a bit lower, I guess, than you had planned for. That would be helpful.

Pavel Hajman: Okay. I can take a part of that, and you can complement, Terry, of course. We have a negative price effect of 1% in the quarter. And this is pretty much equal throughout the three divisions. There's a combination, of course, of selected promotion where we see sales opportunities, but it is also partly due to the fact that we are reducing our inventory, not only by producing less, but also by doing some active promotion of some, let's say, overstock products as well in the quarter. And we will continue with this throughout the coming period as well. We have a plan for that, of course. And to reply on your second question there regarding how the inventory and trade looks like, I would say that if you summarize, it's more to be characterized by a normal and in some cases, a little bit higher stock than normal. Then, of course, this varies between our three divisions and also between the regions of the division. Terry, anything that you'd like to add to that?

Terry Burke: No, I think the only thing I would add, I think you were clear, we will continue to do campaigns. We will continue to stimulate sales in the second half of the year, but we do not foresee a dramatic change in the price development. I think it's important to be clear there. We have a negative 1%. We expect it to be around about that by the end of the year. So more of the same in that sense.

Gustav Hageus: Thanks. That's helpful. And in terms of the inventory reductions, could you please elaborate a bit if that has an impact on margins as well in terms of underabsorption effects and so forth in the quarter? And what do you expect in H2 in that regard as well?

Terry Burke: Yes. And I think it's important to reiterate. Actually, our gross margins have remained fairly stable in the first half of the year. And I think that's good, and that's important to get that message across. And that's for a number of reasons. Our cost savings program is, of course, supporting our margins. We've had some currency positive impact and the exit of the wheeled business in North America that we talked about is also supporting those gross margins. So we feel good about the gross margins. Again, we will continue to drive the inventory down where possible. Do we expect that to have a significant impact on the margins? No. Yes, there's underutilization. Clearly, that is impacted, but we've managed to offset that with the cost savings and other activities. So yes, potentially further underutilization, but we hope to offset that.

Gustav Hageus: Okay. Thanks. That's clear. And if I may turn to Robotics then, as you mentioned, NERA was one-third of robotic sales in residential in Q2. I guess that means that you must have lost quite a lot of market share within Gardena -- the Gardena robotic mowers, which are boundary wired still. Could you please confirm if that is the correct assumption then maybe looking into next year when you do launch boundary free versions in the Gardena brand, then what do you think is the potential in terms of catch-up for Gardena in that sense, if you look into 2025?

Pavel Hajman: Well, yes, we see a shift -- we see a channel shift towards the retail segment where a number of new competitors have entered with boundary wireless models. It is so that we are still the leader overall in robotic mowing. We are actually also the leader of boundary wireless products, given the fact that we have one-third of our sales into the new boundary wireless models. We are not having that product for Gardena, and that means a market share loss, as you point out, but given that we have had a strong focus on our professional segment in Robotics, where we already four years ago, launched the boundary wireless technology, and which we then two years ago, switched over to our more higher price point and premium models for the consumer segment, we have a proven solution, which we are now transferring over into the entry level and lower price points for Gardena, but also for Husqvarna and both to be launched for next year. And we believe that this will be a strong offering. We know it will be very reliable products, and we believe that we will be able to, so to say, attract customers with these products also for next year.

Gustav Hageus: And just a quick follow-up there. With the shift ongoing, will that impact your sales distribution, given that maybe you have a stronger position in dealers versus retailers and perhaps with boundary-free, the sales channel mix will shift more into favor of traditional retailers. Is that something that you see out there and something that one can think about any other way?

Pavel Hajman: I think that it is quite easy to make a quick conclusion and say that if you are having boundary wireless robotics, you don't need any assistance for installation. You don't necessarily need any assistance for ensuring that you're choosing the right model, you don't need any assistance for service. But all of these three matters actually remain in various ways, still despite the fact that technology is changing. We see that and we see that, for example, in the professional segment, where there is always a dialogue between the users and our dealers and supporting staff to really make this whole solution work in a very good way. So there can be a bit of a less need for very small and very, let's say, easy un-complex gardens. But when you come to more larger garden, complex gardens, I do think that the dealers will continue to play a role as well.

Gustav Hageus: And a final one for me. You have previously been adding a few data points on the development for professional mowing with the number of CEORAs or share of golf courses that are currently using one of your robots and so forth. There wasn't a lot of those data points that I can see in this report. Could you please elaborate a bit on the development for CEORA? It seems like you have a good momentum, especially in golf in Europe. But any update on that would be helpful, I think.

Pavel Hajman: I believe that what we can say here is that we are growing well with a two-digit number in the overall professional segment, both in Europe as well as in US. In both cases, this is driven very much by the golf -- let's say, golf courses and the golf segment, particularly. But we also see -- and the CEORAs are, of course, taking a larger part of our total professional assortment. But overall, the balance is still there, and it's actually enhancing the whole assortment because as we have explained earlier, when you come to golf courses, it's not only about CEORAs, it's equally much about a number of the 500 series professional mowers as well. But overall, we are pursuing this. We have good growth. We have large interest from different so to say, professional groundskeepers, may it be in sports field, may it be in golf or may it be from another kinds of applications.

Gustav Hageus: Thanks. Those are all my questions.

Operator: The next question from Bjorn Enarson, Danske Bank. Please go ahead.

Bjorn Enarson: Yeah, thank you. I would like to get back to the inventory situation and underutilization. You talked about that the underutilization were offset by savings in Q2 and some other items like FX. So is it fair to say that the underutilization impacted EBIT by SEK250 million or slightly more?

Terry Burke: I wouldn't go into that level of detail as to what the impact has been. I don't think the underutilization has been as high as that, no. But there has been an underutilization impact in the quarter, yes, but not as high as the number you talk about.

Bjorn Enarson: But is it material?

Terry Burke: Yes, it's material. Yes, it's material, absolutely. But it's not at the level you quoted, SEK250 million, no. It's not at that level, but it is material.

Bjorn Enarson: And between the different divisions, I mean, you mentioned within Forest & Garden and Construction, but in terms of Gardena, is the impact relatively equal between the divisions or how is the split?

Terry Burke: The underutilization has had more of an impact in Forest & Garden and Construction in the quarter. So I think that's the way to look at. Less so for Gardena, but what I would stress is, all three divisions have contributed to lowering their inventory levels, but the underutilization was more in the Forest & Garden and Construction.

Bjorn Enarson: And looking ahead in that sense, I mean, then, of course, you have the seasonality, but adjusted for that, do you still expect to see that -- the same pattern near term?

Terry Burke: Our priority at the moment is cash flow and managing our working capital. So if we continue to drive our inventory levels down and there is an element of underutilization, then yes, that can be. But the priority is really driven around cash flow, working capital management. So there will be a further expectation of underutilization, but it is getting less and less because, of course, our inventory levels are coming down in a very good way. And as I said, we've already reduced currency adjusted. We've already reduced by SEK3 billion this year. So I think there's a level enough of this underutilization to a certain degree as well.

Bjorn Enarson: And if it's possible to get some more color on the weather impact, especially then for Gardena, what kind of impact that had on EBIT, would you say?

Terry Burke: So first of all, watering within the Gardena division is margin accretive and watering is margin accretive to the group. So it's -- we need to be very clear on that. So a significant downturn in the watering segment has, of course, negatively impacted the division's result and the group's result. And as I said a bit earlier, Mainland Europe, looking at the data, this has been the wettest last 12 months since records began back in 1890 or something. And it's clearly had a negative impact. And when we look at the sales trend for watering, it started very positive in the quarter in April, then it declined in May, and then it got significantly worse in June. And that, of course, is linked to the unfavorable weather conditions.

Bjorn Enarson: And do you dare to have some view on Q3 at this stage and help us a little bit on the direction?

Terry Burke: I think obviously, we can't speculate on the weather. We'll wait and see how the weather plays out. But with inventory levels in the trade being relatively average to above average, of course, the retailers will want to deal with their inventory levels at the same time as we go through Q3. So we have to have that in mind as well as we see this going through.

Bjorn Enarson: Okay. Thank you.

Operator: The next question from Johan Eliason, KeplerChevreux. Please go ahead.

Johan Eliason: Hi, this is Johan Eliason at KeplerChevreux. Thanks for taking my question. I was wondering if you could go back to this technology shift within the consumer robotics from wired boundary to this wire-free boundary. What would you say it as to the average selling price of the robotic going from the traditional with the wire underground to this wire-free technologies that you have been introducing now for a couple of years, but obviously, your competitors are coming with right now?

Pavel Hajman: Well, how I can describe this is, I think, first of all, it is very important to be aware of the fact that we have the boundary wireless products. We have a proven solution since many years back starting with the professional moving over to the, so to say, premium consumer models and then we have worked on a more cost-efficient solution now for the mid-price point, and we are then further developing this now into entry-level product offerings for next year. When you look on some of the competitors that have come in with their boundary wire-free solutions, you actually see that they initially price them above the boundary wire solutions. So it is a technology that initially is not fully, so to say, cost efficient and of course, also from a performance perspective, some parts remain there, especially if you use vision more and more for the basic navigation. Whereas if you continue with GPS, RTK, still boundary wireless, but that technology, you have a much better precision and that is the technology that we have chosen to go that path and then complement that with vision also.

Johan Eliason: Would you say that you're indicating that the competitors are introducing this. It is, on average, a higher price point for the boundary free than the existing wired solution?

Pavel Hajman: Yes. And then you have to, of course, also pay attention to the fact that we have always had low price competition throughout our 30 years of existence in the robotics. We are a premium brand, we do have premium products, and we believe in the fact that we do provide added value throughout our products also.

Johan Eliason: And with this price points on the entry level by wire-free solutions, how would you compare the margin profile versus the traditional with the wire in the ground for you or for your competitors?

Pavel Hajman: We remain with a good margin on these products on our side. As to competitors, I can, of course, not comment on that.

Johan Eliason: So you wouldn't say it's detrimental to the margin that it goes from boundary with wire to boundary with a wire-free solution?

Pavel Hajman: This does not have a negative impact on us today, the technology shift within our own solution.

Johan Eliason: Okay. And…

Terry Burke: Maybe I can also say a couple of words. I mean, first of all, we want to focus on driving cost out of our robotics as well to support margin to make sure we are able to maintain margins. Of course, as we get down into the entry level, more crowded space, the margins are less favorable than as we go to the mid, large and professional spaces in the robotic area as well. But we still maintain a healthy margin in that entry-level crowded space.

Johan Eliason: Yes, that I understand, but I'm just comparing the traditional solution with the new entry level sort of wire-free solutions. Would you say there's a significant margin difference here for your next season when you have the products in the entry-level price point?

Pavel Hajman: No, I think -- no. And I think I replied to that before Terry, so to say, complemented with these comments that the technology shift as such does not imply the change of components and the change of technology within the robotic, does not imply that we are losing margin because of that. But then again, as Terry says, we are always working proactively year-over-year to find efficient ways to make our build material more cost efficient, of course, but that is an ongoing work in a constant way.

Johan Eliason: But from a consumer point of view, if I buy wired solution today and also ask someone to install it for me, it's one price tag. How would this price tag compare with wire-free solution, which I could potentially install by myself will be the total sum the consumer will spend, will it be less? Or will it be the same but the buckets are different?

Pavel Hajman: This varies a bit because different dealers and general partners are using different, let's say, business model or pricing model on how they charge for potential installation. In some cases, you buy the robot by the dealer, they will, so to say, do the installation free of charge for you. In some cases, they will add a certain sum. In some cases, if you buy your robot online and ask for an installation through the dealer where you didn't buy the product, the dealer chooses to actually charge a slightly higher amount as he, so to say, did not gain on the sale of the product. So this is differing very much within dealers today. This is not something that we are, should I say, managing or recommending.

Johan Eliason: Okay. Thank you very much.

Operator: The next question from Ebba Bjorklid, DNB. Please go ahead.

Ebba Bjorklid: Good morning and thank you for taking my questions. Two questions from me, please. The first one is how did the market growth for residential and professional robotic lawn mowers developed in Q2?

Pavel Hajman: So there is a growth in the market. We are basically, should I say, driving and growing the market in terms of professional, whereas the consumer market is also growing and has been growing for a whole number of years. And now we have a lot of competition in there. As we said, we are slightly down on robotics in this quarter for various reasons. But the market overall is growing. And when we look on our position and our, so to say, innovation ability and our drive going forward we will grow our business over time. We have an ambition, as you know, to double our business up to SEK12 billion in robotics in a number of years here. And we are quite convinced that we are going to reach that. Exactly how the market shares will look over time is not easy to say at this point of time given the increased competition.

Ebba Bjorklid: Thank you for that answer. And my last question is what was the balance of factoring trade receivables at the end of Q2 last year versus end of Q2 this year?

Terry Burke: Okay. So last year, at the end of Q2, we had approximately SEK2.6 billion of trade receivable finance. And this year, we have almost zero.

Ebba Bjorklid: Great. Thank you so much. That was all of my questions.

Johan Andersson: Thank you very much. Let's take a question here, I think, partly that has been answered, but it's coming from [indiscernible]. It's early days, but are you seeing -- how do you see July and in the start of Q3, if the weather turns, can it be slightly more positive since June was very weak?

Pavel Hajman: As you know, we don't give forward-looking statements. We are also early days into quarter three. I'd like to describe it in the way that we have two, so to say, areas here. One is that the macroeconomic and the consumer sentiment short term, we believe will remain on the same level as it is today. And then when we look on the weather, well, of course, if the weather is improved, and if it holds throughout the quarter three, that would substantially lead to -- or that would logically lead to some kind of opportunity for growing our sales. Now we don't know if the weather will turn out to be good across the quarter. But for example, the beginning of this month has been positive now in larger parts of Europe, which is, of course, good. But I think I'll leave it to there. It's really too early to say something about that.

Johan Andersson: Great, thank you. Operator, do we have any further questions from the telephone conference?

Operator: We have a question from Adela Dashian, Jefferies. Please go ahead.

Adela Dashian: Yes, hello. One quick question from me. I understand that you're obviously growing your market position and shares when it comes to the robotic products and battery products. But could you maybe comment on the market position currently in Gardena with the watering products? And if you're seeing new entrants at lower price points gaining more share in the current environment and if that's going to shake things around for the remainder of the year and potentially also for the next season in 2025, especially since you're entering the US retail space with this brand, too. And yeah, are that putting pressure on you to, I guess, some point there, defend your position and grow it?

Pavel Hajman: So on the Gardena watering we do not see any significant shifts in market share. We see this really as a weather impact. And the data we have available to us on the sellout through the retailers is also matching and reflecting our sales performance, if you want to call it that, where clearly the retailers have had a downturn, a decline in their sellout of watering products like we have. So no...

Adela Dashian: So should we -- yeah.

Pavel Hajman: So no significant shift in market share. It's purely a shift in the market due to the weather conditions.

Terry Burke: And maybe I can just add that the competitive situation is stable within the Gardena watering segment. It is not to be assumed that it is likewise like, for example, in the Robotics segment.

Adela Dashian: Yes. I was just going to ask, should we -- are you seeing any type of competition heating up or end users shifting over to lower price point products as a result of the underlying economic conditions?

Pavel Hajman: No. On the first question about competition, we do not see that, that is happening. On the second point where customers are trading down, I think we have a part of that throughout all of our divisions and all of our businesses where people are being more careful and cautious about which product do they want to buy or which product do they really need and which product can they really afford in this time. So there is an element of that thinking throughout all three divisions due to the macroeconomic situation.

Adela Dashian: Yes, makes sense. Can I maybe also ask one on the recently announced partnership for robotic mowers in the professional segment with Liverpool. Is this the type of, I guess, strategic model that you have going forward? Should we expect similar type of partnerships to be announced? Or was this a one-off?

Pavel Hajman: No, I don't want to speculate here on what we are going to do going forward, but we think that the awareness is something that we want to drive more. And we think that Liverpool Football Club is a partner. They have been using our robotics also. So it's not just, so to say, marketing partnership, but it is a true, should I call it, application and usage partnerships. And I think that is important. It's built up on a mutual respect for -- from Liverpool towards us and our products and the way we work with sustainability and the thinking of Liverpool Football Club around these areas is matching us very well, and that's why we think that is more than just a commercial partnership. It is a true mindset partnership, which fits us very well. Whether we should go forward with this is something to see. We are also doing certain activities around golf courses, of course, to raise awareness. And we have also in Sweden for many years, for example, been sponsoring one of the highest league hockey clubs, of course, also to get that kind of, so to say, awareness and visibility.

Adela Dashian: What does the revenue structure look like in this kind of a partnership versus when you sell without sponsorships?

Terry Burke: I don't think -- we would not disclose details along those lines. I think that's obviously -- it's a commercial decision. We wouldn't disclose that.

Adela Dashian: But can we assume that it's different?

Terry Burke: It depends on what context. I'm not -- how exactly do you mean in your question, I mean, we have a strategic partnership, a sponsorship, there's an agreement there to raise the awareness with their 400 million people viewing their football games, et cetera. I mean that's a commercial decision. What happens with regards to the normal sales activity is normal business, I would say.

Adela Dashian: Yes, obviously. No, I understand. I understand that it's difficult to comment specifically. Thank you.

Johan Andersson: Thank you very much. We got another question here in the web interface. The professional turf care market is large, as you have described, you're starting to get into that. Is your strategy and expansion plans working as you thought in the beginning? Or are you reaching the tipping point soon? What's your view on that from a pro robotics perspective?

Pavel Hajman: Well, I think that we have honestly only scraped on the surface. I think that is a first comment here. We are developing according to our plans. We have seen certain areas that has gone better than what we thought. We have been besides, so to say, the product development focus, we have also established professional organizations that actively dedicatedly work with the counterparts in the professional segments. That has gone well. We have built up that in a rather short time of two years. We will, of course, still continue to make sure that we have a good coverage. This is both with internal people as well as with our selected dealers, which becomes pro partners and where their, both knowledge as well as their, so to say, activity on the field, is on a higher level than what we have with the regular dealer channel. So I would say that we have just started. It's going very well, and we are pushing ahead full speed on this because we see that the interest and of the benefits from the application from the cost perspective as well as from the sustainability perspective is all very well appreciated.

Johan Andersson: Great. Thank you, Pavel. Operator, do we have a final question over the telephone conference?

Operator: At the moment, there are no more questions from the phone.

Johan Andersson: Okay. Then I think we thank you very much for listening in and participating today. And we're looking forward to the Q3 report that we will publish in late October then. So thank you very much for today.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.