Annual Report 2018 Shaping great experiences Shaping great experiences We make 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. Contents Turning technology INTRODUCTION into opportunity 3 Husqvarna 2018 4 Foundation for profitable growth 6 CEO statement Husqvarna Group is a leading global producer MARKET AND TRENDS of outdoor power products for forest, park and 10 Trends garden care, watering products, and power tools 11 Market overview for construction. With a passion for innovation, STRATEGY 16 Business model we create performance, pride and improved 18 Targets 20 Market leadership 2020 results for customers. THE DIVISIONS 26 Husqvarna Division 28 Gardena Division 30 Construction Divison SUSTAINOVATE Key data 34 Progress BOARD OF DIRECTORS’ REPORT 41 Board of Directors’ Report 50 Risk management 55 Corporate Governance Report 41,085 61 Internal control over financial reporting Net sales, SEKm (39,394) 62 Board of Directors and auditors 64 Group Management FINANCIAL STATEMENTS 66 Financial statements – Group 70 Notes – Group 3,241 99 Financial statements – Parent Company 103 Notes – Parent Company Operating income excluding items affecting comparability, SEKm (3,790) 111 Declaration by the Board of Directors and the President and CEO 112 Auditor’s report OTHER INFORMATION 115 Allocation of the Consumer 7. 9 Brands Division Operating margin excluding items affecting comparability, % (9.6) 117 Definitions and alternative performance measures 118 Five-year review 119 Quarterly data 120 The share 122 Heritage 13,206 124 Annual General Meeting 2019 125 Contact Average number of employees (13,252) The formal Annual Report, including the Directors’ Report and the Financial State- –21 ments for the Group and for the Parent CO2 emission intensity reduction, % (–24) Company are on pages 41–111. To learn more about Husqvarna Group’s sustainability initiatives, see the Sustainovate Progress Report 2018. The Group overview on pages 1–37 is based on the new organization as of January 1, 2019 where the Consumer Brands Division has been dissolved and integrated into the Husqvarna and Gardena divisions. HUSQVARNA GROUP · 2 ANNUAL REPORT 2018 Husqvarna 2018 Our divisions and brands Husqvarna Group has three empowered divisions that focus on premium products and solutions under strong brands. Husqvarna Gardena Construction A leader in forest and garden A leader in watering products, A leader in light construction products. The undisputed market garden hand tools and smart products for professionals. leader in robotic lawn mowers. garden systems. 66% 20% 14 % Share of Group net sales Share of Group net sales Share of Group net sales Celebrating 330 years Important events in 2018 Husqvarna Group is one of the oldest companies in • Entered professional segment for robotic the world and will celebrate 330 years of innovation in lawn mowers. 2019. Over time, the once-local Swedish company has • Launched a new generation of the iconic developed into a global group with world-leading Husqvarna professional chainsaw with improved market positions. Innovating and adapting to cus- cutting performance and lower emissions. tomer needs has always been a common thread and the company is investing more than ever in exploring • Broadened the product range in the Construction new business opportunities. Products and solutions Division by acquiring Atlas Copco’s Light that reduce environmental impact and improve per- Compaction & Concrete Equipment business. formance among customers will continue to be our • Decision to restructure and dissolve the drivers for long-term growth and success. Consumer Brands Division as of January 1, 2019. Our markets Global presence in attractive markets with steady underlying growth. SHARE OF GROUP NET SALES 37% 51% 12% North America Europe Rest of the world ANNUAL REPORT 2018 HUSQVARNA GROUP · 3 INTRODUCTION MARKETS STRATEGY THE DIVISIONS SUSTAINOVATE BOARD REPORT FINANCIAL STATEMENTS OTHER INFO Foundation for profitable growth Husqvarna Group is dedicated to profitable growth and the road ahead is paved for continued successful development. By further exploiting its inherent strengths, the Group is committed to advancing its leading position. A global leader Husqvarna Group has market-leading positions in many important product segments. It is the global leader in robotic lawn mowers, number two in professional chainsaws and number one in Europe in consumer watering systems. Strong brands The Group’s premium Husqvarna and Gardena brands are essential for maintaining market-leading positions and generating attractive margins. HUSQVARNA GROUP · 4 ANNUAL REPORT 2018 INTRODUCTION MARKETS STRATEGY THE DIVISIONS SUSTAINOVATE BOARD REPORT FINANCIAL STATEMENTS OTHER INFO Foundation FOR profitable growth People with a passion for innovation Supply chain for the future The Group’s success is based on people with a passion for innovation The Group’s flexible and sustainable global supply chain is imperative and the user experience. Extensive resources and advanced expertise for meeting customers’ expectations of short lead times and growing in user- focused product development are crucial for maintaining tech- omnichannel demands in an industry with strong seasonality, such as nological and innovative product leadership. the lawn and garden markets. Driven by sustainability 330 years of innovation With a focus on long-term value creation, embracing sustainability is Husqvarna Group has been doing business since 1689 and is constantly critical for market leadership. Anchored in the passion for innovation adapting its operations to ever-evolving markets. Curiosity and a­­ and connecting people with nature, Sustainovate is Husqvarna Group’s passion for innovation have led to a long line of successful products way of integrating sustainability into its business. and solutions in many different areas. ANNUAL REPORT 2018 HUSQVARNA GROUP · 5 INTRODUCTION MARKETS STRATEGY THE DIVISIONS SUSTAINOVATE BOARD REPORT FINANCIAL STATEMENTS OTHER INFO CEO Statement Important strategic transformation in a challenging year The dissolvement of the Consumer Brands Division was an important strategic step. It creates conditions for us to focus all resources on our strengths in premium offerings under the core brands Husqvarna and Gardena. Operationally during the year, we remained firmly committed to our overall ambition to deliver long-term profitable growth. We continued to invest, strengthening our resources in high growth segments such as robotic lawn mowers and battery-powered products. However, financially, 2018 saw a temporary setback from the recent years’ improvement trajectory. I sincerely believe that the new and less complex right-size manufacturing capacity, as well as indirect organization, built on our strengths and with less prod- and central resources to better reflect the leaner and uct overlap, fewer brands and larger divisional auto- simplified Group structure with more autonomous nomy, will release energy that instead can be used to divisions. These measures are expected to have a create higher value in other more attractive areas. We positive impact on the Group’s financial performance can fully focus on profitable growth opportunities in already in 2019 and will be finalized in 2020. Husqvarna, Gardena and Construction. Strong, focused and empowered divisions are the right way Robotic lawn mowing is the future forward to deliver long-term profitable growth. We are the undisputed market leader in the fast- growing segment for robotic lawn mowers. Demand Financial results in the European consumer market has grown rapidly in Group net sales increased 2 percent to SEK 41,085m recent years and still remains a substantial growth adjusted for changes in exchange rates, and operat- opportunity as the market is far from saturated. Other ing income excluding items affecting com parability markets like the U.S., which is the largest lawn and decreased to SEK 3,241m (3,790). The lawn and gar- garden market in the world, are still untapped. den season in 2018 was challenging and uneven. The We are continuing to invest to offer the market- effects of the late spring followed by a long, warm leading range of robotic mowers for consumers, while and very dry summer in Central and Northern Europe at the same time we are also starting to enter the pro- were substantial, particularly for the Husqvarna fessional market. Here, requirements for technology Division that suffered from lower demand for lawn and reliability are even higher which suits us well. mowing products and services. On the other hand, Husqvarna Automower® 535 AWD, which was the dry weather was favorable for Gardena’s watering launched recently, is a revolutionary four-wheel drive products, resulting in higher sales and earnings, robotic lawn mower for the professional market. It however not enough to offset the impact on the delivers superior cutting results even on the most » Husqvarna Auto- Husqvarna Division. demanding and complex lawns with steep slopes mower® 535 AWD During the last four years, we have successfully and uneven surfaces. For full automation and con- balanced cost increases related to investments in nectivity, the mower can also be integrated into our which was launched strategic growth initiatives with strong deliveries from Fleet Services solution for professional