Annual Report 2020 CHAPTER 01 / 08 Shaping great experiences Husqvarna Group makes a great difference to people who shape green spaces and urban environments through our leadership in sustainable, user-centered solutions. With a passion for innovation, we create performance, pride and improved results for customers around the world. The formal Annual Report, For full information about including the Directors’ Report and Husqvarna Group’s sustainability the financial statements for the initiatives, please read our Group and the Parent Company, sustainability report: Sustainovate is provided on pages 45–115. Progress Report 2020. www.husqvarnagroup.com. CONTENTS INTRODUCTION BOARD OF DIRECTORS’ REPORT OTHER INFORMATION 02 Husqvarna Group in brief 45 Board of Directors’ Report 119 Definitions 04 CEO statement 56 Risk management 120 Five-year review 61 Corporate Governance Report 121 Quarterly data MARKET AND TRENDS 67 Internal control over financial 122 The Share 08 Global trends reporting 124 2021 Annual General Meeting 10 Market overview 68 Board of Directors and auditors 125 Contact STRATEGY 70 Group Management 14 Strategy FINANCIAL STATEMENTS 18 Targets 72 Financial statements – Group 20 Business model 76 Notes – Group SUSTAINOVATE 103 Financial statements 24 Sustainovate 2025 – Parent Company 26 2020 milestones 107 Notes – Parent Company 30 Sustainovate 2020 115 Declaration by the Board of Directors and the President & CEO DIVISIONS 116 Auditor’s report 34 Overview 36 Product innovation and digital solutions 38 Husqvarna Division 40 Gardena Division 42 Construction Divison 1 / Annual Report 2020 / Husqvarna Group Husqvarna Group 2020 in brief Husqvarna Group is a leading global producer of outdoor power products for forest, park and garden care, watering products and cutting and surface preparation equipment for the construction business. Our strong technical expertise and passion for innovation and quality create performance, pride and improved results for customers. Important events in 2020 Introduction — Introduction • The Group delivered a record operating income for the year, sales growth of 6* percent and an operating margin of 10.7* percent. All financial targets were achieved. • Henric Andersson was appointed new Husqvarnain brief Group President & CEO of Husqvarna Group. • Sustainability was further integrated into operations through the launch of the next phase of Sustainovate. • Strong growth in digital applications, such as Gardena Smart System, Automower® Connect and Husqvarna Fleet Services. In total, more than 1 million users are managed on digital services platforms. • The Gardena Division was one of the co-founders of the battery alliance – POWER FOR ALL ALLIANCE – a common battery eco system for consumers. Effects of Covid-19 The spread of the coronavirus has affected the entire society. Husqvarna Group’s effective and rapid response to reduce the spread of the virus helped to protect employees and the continuity of operations. After initial lockdowns and tem- porary forced closures of channel partners in the spring, countries reopened during summer and demand grew significantly for gardening and watering solutions, supported by the stay-at- home trend. Given the Group’s flexible structure and ability to handle rapidly shifting demand, the Group was quick to respond to the changes and strengthened its market positions. Given the constant change in the pandemic situation, the Group is continuing to carefully monitor and evaluate the situation and is prepared to act swiftly and decisively if necessary. * Excluding exited Consumer Brands business, currency effects and excluding items affecting comparability. 2 / Annual Report 2020 / Husqvarna Group The divisions Husqvarna Group consists of three strong divisions with market-leading brands that focus on premium products and services. Husqvarna Gardena Construction — Introduction A leader in forest and garden A leader in watering products, A leader in light construction products for professionals and con- garden hand tools and smart solutions for professionals. sumers. The undisputed market garden systems for passionate leader in robotic lawn mowers. gardeners. Husqvarnain brief Group Share of Share of Share of 63% Group net sales 22% Group net sales 14% Group net sales The divisions’ share of Group net sales adds up to less than 100 percent due to other Group items. Sales distribution Global presence in attractive markets with steady underlying growth. 55% 32% 13% Europe North America Rest of the world Share of Group net sales Share of Group net sales Share of Group net sales All financial targets achieved in 2020( targets vs. performance, 2019 in brackets) Market +2 ppts >10 ≤25 Growth Operating margin, % Capital efficiency, % TARGETS +6 (+1) 10.7 (9.3) 24.4 (27.3) Net sales growth (adjusted for Operating margin Operating working exits of Consumer Brands business (excluding items affecting capital / net sales, % and changes in exchange rates), % comparability), % PERFORMANCE 3 / Annual Report 2020 / Husqvarna Group A successful year, delivering value in a challenging environment 2020 was a successful year for us where we advanced our market leadership positions, reached our financial targets and took another step on our transformation journey to build an even stronger Group. The year was marked by the Covid-19 pandemic with challenges for society and people all around the world. The health and safety of our employees has been our top priority while ensuring business continuity. We have emerged stronger and we are accelerating our strategy to further strengthen our market positions and Introduction — Introduction technology leadership. For more than 330 years we have embraced change Increased sales and strengthened and captured new growth opportunities. The year market positions CEO statement 2020 will be remembered as the year of the Covid-19 Group net sales grew by 6 percent during 2020, which pandemic, providing challenges but also many oppor- was above our long-term target of growing faster than tunities. For us, we have executed on our strategy the market. I am particularly satisfied with the successes and strengthened our market leadership positions, we had in important core areas, such as robotic and providing a strong base for the coming years despite battery-powered products and watering solutions, as a challenging environment. The health and safety of well as in segments and products for professional users. our employees and partners is always our highest We have further strengthened our positions through priority. We took immediate action to adapt the successful product launches that demonstrate our organization to additional health and safety standards, innovative power and ability to generate value for our which allowed us to keep production running safely. customers. One example that combines our focus on As an organization, we were agile and quick to meet leading technologies and systems for professional the increased customer demand, resulting in a record users is the announcement of CEORA, a revolutionary year where we achieved all our financial targets: autonomous robotic lawn mower for commercial turf growth, profitability and capital efficiency. care management. With CEORA, we aim to transform landscaping into an automated, cost-efficient and . sustainable solution. During the year, the global pandemic and a prolonged gardening season entailed a reallocation of Group sales between the quarters, primarily due to a weaker-than-normal first half-year and a stronger- than-normal second half. Two of our divisions, Husqvarna and especially Gardena, benefited from the stay-at-home trend in the midst of the pandemic and the prolonged gardening season. In many cases, customers became more interested, or discovered a completely new interest, in gardening. As a result, we clearly see a larger customer base of passionate gardeners that we look forward to serving. We are continuing our strategic effort to lead technology development in our industry and to develop digital services. We reached an important milestone during the year, with more than one million connected users on our digital services platforms through Automower® Connect, Husqvarna Fleet Services and Gardena Smart Garden. Our strategic investments in connected technology and data analysis allow us to strengthen customers’ experience, productivity and relationship with us. They also provide us with a valuable base to further accelerate innovation in our service offering and new business models. 4 / Annual Report 2020 / Husqvarna Group Operating margin target achieved during the year Profitability improvement In 2020, we achieved our profitability target with an operating margin of 10.7 percent excluding items affecting comparability. We have in recent years SEKm % worked purposefully to create a stronger Group and 5,000 12 improve profitability, for example by increasing our position in segments with high growth potential, such 4,000 10 as robotics and battery solutions. This was further enhanced by the Group’s strong net sales growth in 3,000 8 2020. In parallel, we have successfully completed the exit program of the Consumer Brands business 2,000 6 meaning net sales representing some SEK 4.5bn of unprofitable business have been exited. The cost 1,000 4 avoidance activities to manage the situation during the Covid-19 pandemic had a reinforcing effect, 0 2 though it is important to point out that it was the 2014 2015 2016 2017 2018 2019 2020 — Introduction positive underlying operational