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Annual Report 2009 HusqvarnaGlobal leader in outdoor products The Husqvarna Group is the world’s largest producer of outdoor power products including chainsaws, trimmers, blowers, lawn mowers and garden tractors. It is the European leader in consumer irrigation equipment under the Gardena brand. The Group is also one of the world leaders in cutting equipment and diamond tools for the construc- tion and stone industries. The product offering includes products for both consumers and professional users. The Group’s products are sold in more than 100 countries world wide. Net sales in 2009 amounted to SEK 34 billion, and the average number of employees was approximately 15,000. Leading global market positions No. 1 Chainsaws No. 1 Other handheld petrol-powered products, e.g. clearing saws and trimmers No. 1 Lawn mowers No. 1–2 Garden tractors No. 1–2 Cutting equipment and diamond tools for the construction and stone industries Major production facilities No. 1 Consumer products for irrigation Subsidiaries or distributors 1in Europe Net sales Operating income Net sales by Production value by Husqvarna and margin* geographical area geographical area SEKm SEKm % 50,000 5,000 15 10 8 40,000 4,000 12 30,000 3,000 9 45 31 61 20,000 2,000 6 45 10,000 1,000 3 0 0 0 05 06 07 08 09 05 06 07 08 09 Europe, % Europe, % Operating income, SEKm North America, % North America, % Operating margin, % Rest of the World, % Rest of the World, % * Excluding restructuring costs Consumer Products Professional Products • Wheeled products such as lawn mowers, Automower,® • Premium forestry products such as chainsaws and garden tractors, riders and snow throwers. clearing saws, accessories including chains and blades, protective clothing and tools. • Handheld products such as chainsaws, trimmers, hedge trimmers and leaf blowers. • High-end products for lawn and garden such as riders and walk-behind lawn mowers, zero-turn mowers, • Products for irrigation and ponds, as well as specialty turf-care equipment, trimmers, hedge trim- garden tools. mers and leaf blowers. • Products for the construction industry, such as floor and wall saws, drill motors, machines for surface preparation and demolition, power cutters and diamond tools. 34% 66% Consumer Products’ share Professional Products‘ share of Group sales of Group sales Brands Brands Read more about Consumer Products on page 17. Read more about Professional Products on page 23. ContentsAnnual Report 2009 Highlights of the year 1 Report by the Board of Directors 31 History 2 Risk Management 40 Report by the President 4 Group 44 Strategy 6 Income statement 44 Strong brands 8 Balance sheet 45 Efficient global distribution network 9 Cash flow statement 46 Broad product offering 10 Statement of shareholders´ equity 47 Flexible supply chain 11 Parent Company 48 Financial goals 12 Income statement 48 Global processes 14 Balance sheet 49 New organization 15 Cash flow statement 50 Consumer Products 17 Change in equity 51 Professional Products 23 Notes 52 The Husqvarna share 28 Proposed Distribution of Earnings 89 Auditors´ Report 90 Definitions 91 Five-year review 92 Quarterly data 94 New reporting structure 96 “Introducing the new organization Corporate Governance Report 98 was one of the most important steps Board of Directors and Auditors 110 towards improving internal efficiency Group Management 113 and building an efficient global company.” Sustainable development 114 ”Magnus Yngen, President and CEO Annual General Meeting 2010 124 The new organization is the outcome of a strategic review performed in 2009. For more information, see pages 5 and 15. 50 In 2009, Husqvarna celebrated 50 years of chainsaw production. years In connection with the jubilee, the Group launched a special edition of the Husqvarna 450e chainsaw. During the course of its 320-year history Husqvarna has produced many innovative products. For more information, see pages 2–3. Husqvarna Annual Report 2009 1 Highlights of the year • Substantially lower demand in all product areas. • A rights issue of approximately SEK 3 billion was imple- mented in order to strengthen the Group’s balance sheet. • Net sales declined by 8%, adjusted for changes in exchange rates and acquisitions. Consumer Products declined by 3% • The net debt/equity ratio at year-end improved to and Professional Products by 17%. 0.52 (1,54). • Operating income declined by 34% to SEK 1,560m (2,361). • The Group strengthened its market shares in North America for lawn mowers, garden tractors and leaf blowers. • Operating income includes a charge of SEK 452m (316) for restructuring. • A new organization was announced in July for implementa- tion as of 1 January 2010. • Apart from the restructuring charge, the decline in operat- ing income referes to lower volumes and a less favorable mix • The Board proposes a dividend for 2009 of SEK 1.00 (0) in terms of products and geographical markets. per share. • Operating cash flow improved to SEK 3,737m (2,013), as a result of measures taken to reduce working capital. Key figures 2009 2008 2007 2006 20051 Net sales, SEKm 34,074 32,342 33,284 29,402 28,768 Gross margin, % 25.4 29.0 29.4 27.0 26.6 EBITDA, SEKm 3,060 3,524 4,645 3,957 3,754 Operating income, SEKm 1,560 2,361 3,564 3,121 2,927 Operating income, excl. restructuring costs, SEKm 2,012 2,677 3,564 3,121 2,927 Operating margin, % 4.6 7.3 10.7 10.6 10.2 Operating margin, excl. restructuring costs, % 5.9 8.3 10.7 10.6 10.2 Income for the period, SEKm 903 1,288 2,036 1,862 1,641 Earnings per share, SEK2 1.64 2.81 4.46 4.08 3.59 Dividend per share, SEK2 1.00 0.00 1,50 1.16 — Return on capital employed, % 6.6 10.7 17.6 23.8 24.1 Return on equity, % 7.5 15.8 28.6 32.5 40.1 Operating cash flow, SEKm 3,737 2,013 1,843 535 949 Average number of employees 15,030 15,720 16,093 11,412 11,681 1) Pro forma. 2) Figures for 2005–2008 have been adjusted to reflect the rights issue in 2009. Figures for 2006 have been adjusted for the bonus issue in 2007. The dividend for 2009 as proposed by the board. Restated figures for new organization Sales by business area, Operating income by Sales by business area, Operating income by 2009 business area, 2009* 2009 business area, 2009* SEKm SEKm SEKm SEKm SEKm 1,600SEKm 1,600 1,600 1,600 1,600 1,600 1,600 1,200 1,200 1,200 1,200 66 1,200 1,200 800 49 43 800 800 800 80034 800 400 400 400 8 400 400 400 0 0 –2000 0 Consumer0 Products –200Forestry0 and garden, –200 –200 –200Professional Products –200ForestryEurope and GardenAsia/Pacific Products, Europe and Asia/Pacific Consumer Products Forestry and Garden Products, Europe and Asia/Pacific Consumer Products ForestryForestry and and Garden garden, Products, EuropeForestry and Asia/Pacific and Garden Products, Europe and Asia/Pacific Professional Products ForestryNorth and and Latin Garden America Products, North America and Latin America Professional Products Forestry and Garden Products, North America and Latin America ForestryConstruction and Garden Products, NorthForestry America and and Garden Latin AmericaProducts, North America and Latin America * Excluding restructuring costs Construction Products Construction Products * ExcludingConstruction restructuring Products costs Construction Products 2 Husqvarna Annual Report 2009 320 years of innovation The history of Husqvarna stretches back more than 320 years. This long period is characterized by innovation and responsive- ness to market needs. Husqvarna’s reputation for producing high quality products with reliable performance has paved the way for sustained growth and enabled expansion in several areas. The Husqvarna logotype 1882–1885. 1689 – Weapons foundry The foaming waterfall in Huskvarna, Sweden, turns out to be a hidden source of power. The first Husqvarna plant is 1918 – Lawn mowers established here as a weapons factory 1874 – Kitchen equipment Husqvarna acquires Norraham- harnessing that energy. Muskets and rifles The first grey iron foundry is estab- mars Bruk. In addition to a high- are made here, and production of weap- lished and besides sewing machines capacity foundry, this gives ons remains a central component of the Husqvarna produces kitchen equip- Husqvarna a new product range company’s operations for more than ment in cast iron. Among other – lawn mowers. They become 300 years. The last Husqvarna rifle is things, 12 million meat grinders are very popular, leading to the cur- produced in 1989. exported world wide. rent focus on outdoor products. 1872 – Sewing machines 1896 – Bicycles New machinery for production of a new The bicycle becomes a popular product around the rifle for the Swedish Army is installed in close of the 19th century. It develops rapidly, and the mid-19th century. The equipment is Husqvarna registers a large number of patents. The also well-suited to production of sew- company continues to produce bicycles until 1962. ing machines, which are produced for The first Husqvarna logotype. more than 100 years until the operation is divested in 1997. 1903 – Motorcycles The dawn of a new era, as expertise in engines becomes a major asset for Husqvarna. It begins with production of motor-cycles, which gives Husqvarna a world-wide reputation. The motorcycle operation is sold in 1987. History Husqvarna Annual Report 2009 3 Over the centuries, Husqvarna has produced a wide range of products that includes bicycles, rifles and kitchen equipment. 2006 – Spin off and stock exchange listing Husqvarna is spun off from Electrolux and the shares are listed on NASDAQ OMX Stockholm. 2007 – Acquisition of Gardena and Zenoah Husqvarna acquires Gardena of Germany, the Euro- pean leader in irrigation and garden tools.