During the Third Quarter of 2024 Earnings Call, Husqvarna Group (HUSQ-B.ST) CEO Pavel Hajman reported mixed results with growth in robotics and battery-powered products, despite a broader market downturn and cautious consumer spending, particularly in North America. While organic sales decreased by 4%, the company highlighted a strong cash flow, significant inventory reduction, and a solid financial position with reduced net debt. Husqvarna also announced plans for new cost-saving measures and strategic investments in growth areas such as robotics and AI.
Key Takeaways
- Organic sales declined by 4%, with operating income falling to SEK53 million from SEK415 million year-over-year.
- Cost savings of SEK190 million were realized in the quarter, totaling SEK590 million year-to-date.
- Cash flow remained robust at SEK4 billion, with inventory levels reduced by SEK3.7 billion and net debt decreased by SEK2.8 billion.
- Robotics and battery segments now represent 20% of Group sales, with professional robotics experiencing double-digit growth.
- The company plans to launch 13 new boundary wire-free robotic models and has reduced CO2 emissions by 56%, surpassing its 2025 target.
- A new cost-saving initiative aims to reduce fixed costs by SEK500 million, affecting around 400 positions.
Company Outlook
- Husqvarna is launching 13 boundary wire-free robotic models for the upcoming garden season.
- The company is cautious about the challenging market environment but remains committed to innovation and growth in strategic areas.
Bearish Highlights
- The U.S. market experienced a significant drop in sales of wheeled petrol-powered products.
- Sales of margin accretive products, including watering and professional segments, declined during the quarter.
Bullish Highlights
- Professional robotics sales reached SEK1 billion, with strong demand in sports and golf sectors.
- The company's relationship with Home Depot (NYSE:HD) for Gardena products is progressing positively.
Misses
- Non-recurring items included a SEK150 million gain offset by an inventory write-off impacting gross margins.
- The transition from petrol mowers to robotics is still in the early stages, especially in the U.S.
Q&A Highlights
- CEO Pavel Hajman and Terry Burke provided insights on financial ratios, sales performance, and the impact of cost-saving measures.
- The net debt to EBITDA ratio stands at 2.4, with a focus on strong cash flow and further debt reduction.
- A SEK600 million one-off cost is expected in Q4, primarily related to cash outflows from position reductions.
Husqvarna Group's earnings call revealed a company navigating a complex market landscape with strategic initiatives and a focus on innovation. Despite the current challenges, the company is positioning itself for future growth, particularly in the robotics segment, while also maintaining a strong financial discipline. The next earnings report is scheduled for February 5, 2025, where the company will provide further updates on its performance and outlook.
Full transcript - None (HUSQF) Q3 2024:
Johan Andersson: Hello everyone, and welcome to the Presentation of Husqvarna Group's Report for the Third Quarter of 2024. My name is Johan Andersson, responsible for Investor Relations and will be the moderator here today. With me here in Stockholm, I have our CEO, Pavel Hajman; and our CFO, Terry Burke. Pavel and Terry will present the report and afterwards we will open up for Q&A session. And as always, you can ask your questions over the telephone conference or you can send them in via the web interface. So with that, I open this presentation and leave the word over to you, Pavel.
Pavel Hajman: Thank you, Johan. So welcome everyone also from my side as well to today's call. And I'm very pleased that we are presenting a quarter with good growth in the strategically important areas of robotics and battery. Also, we deliver a very strong cash flow and reduced net debt. And this is despite the challenging market and cautious consumer spending that is still very much impacting us as a group. And to navigate the challenging market conditions, we have accelerated the previously communicated cost saving programs with good results. And today, we have also announced further mitigating activities to reduce fixed costs and enhance efficiency. This Terry will present in detail later. However, importantly, in addition to this, we are also committed to identifying and implementing additional efficiency measures to further enhance our operational structure and effectiveness. The mitigating actions are important to turn the profitability development to our company. However, our primary focus remains on our long-term execution of the strategy, investing in the growth areas, and ensuring sustainable value creation. A result of our long-term focus is the growth that we deliver in key strategic categories. And in addition, we have an extensive upcoming launch program for season 2025, particularly in the robotics. All in all, a solid foundation that will position us strongly for the future. So with that, let us also dive into the financial details for the quarter. As I started with, we are growing in robotic mowers in the quarter, both for the professional users, but also the residential market. And in addition, we are also growing in battery-powered products and also in the aftermarket parts and accessories. In total, organic sales declined by 4%. The overall market situation is challenging with restrained consumer spending. Particularly, we experienced a weak North American market, which primarily have impacted Husqvarna Forest & Garden, and also our construction division. For the quarter, Group operating income amounted to SEK53 million compared with SEK415 million in the previous period of the last year. The main drivers for this lower operating income are lower volumes, thus also lower capacity utilization, but also increased promotional activities towards the end of the gardening season. This was partly offset by our cost savings, where we realized SEK190 million now in the quarter and we have already realized then SEK590 million year-to-date compared with last year. Our direct operating cash flow was SEK4 billion and is at SEK6.3 billion year-to-date to be compared with SEK6 billion for the same period in the previous year. Importantly, we continue to decrease our inventory levels now down some SEK3.7 billion, or around 22% from the start of the year. And all in all, our net debt is also reduced by SEK2.8 billion since the last quarter. Robotics and battery, which has a good growth as a share of Group sales is 20% on a 12-month rolling basis. And we grew strongly in professional robotics with double-digit growth. Our professional robotics are being rolled out in many golf courses, sports field, and other private and public environments in the world. Generally, we see clearly a shift to boundary wire free robotic mowers in the market, a shift that we actually pioneered and are at the forefront of. Currently, we have five NERA models with boundary wire free technology and those grew strongly now in the quarter. And as I mentioned, we have a very solid product pipeline, which relates to robotics, but also other products, and we will of course continue to introduce further new products into the market. I will come back to the robotics launches later in the presentation, but for now, let me please pass back to Terry to go through some specifics for the divisions. So over to you, Terry.
Terry Burke: Thank you, Pavel. Starting with the Husqvarna Forest & Garden division, organic sales declined 1% in the quarter and we have a lower operating margin, which is now at 2.5%. There was good growth in some categories. In our professional robotics, we had strong double-digit growth and we also had growth in residential robotics. Consumer battery products and parts and accessories also grew. There was negative sales development in petrol-powered products, specifically in wheeled and in North America. The operating income was impacted by the lower volumes, the capacity underutilization, and some higher promotional activities during Q3. Year-to-date, we now have organic sales decline of 9% and an operating margin of 10.9% compared to the 12.2% last year. When we look at the Gardena division, and this was a continued difficult quarter for Gardena following on from a difficult Q2 in Gardena. There was a sales -- organic sales decline of some 8% and a further reduced operating margin at a negative 7.6%. There was good growth in battery products and hand tools. However, the watering part of the Gardena business, which is the majority of the business for the division was unfavorable and that really was heavily impacted during the earlier part of the quarter. July was a significant negative development and it gradually improved during the course of the quarter. That also linked with our weather conditions, which improved in mainland Europe, particularly around August and September. The operating income was negatively impacted through the volume and the mix and underutilization, which was partly offset by some of the cost saving program we have. Year-to-date, organic sales has declined 5%, and an operating margin of some 11% compared to 12% last year. Moving on to construction, organic sales declined also at negative 8% in the quarter and an operating margin at 8.2% compared to 10.9% last year. Positive sign was sales growth in Europe. However, the weak market and the weak demand in North America has continued and that has been quite considerably weaker over the last few quarters, and of course, from the division perspective has had a negative impact on how sales has developed. From a product category perspective, there has been good performance in power cutters, demolition robots and in parts and accessories. The operating income at a lower level has been impacted through the lower volumes, the capacity underutilization, and also price which has been partly offset by cost savings. Year-to-date negative 6% organic and an operating margin of 9.4% compared to 12.8% last year. Moving on to the operating income EBIT bridge. As you can see, we have reached SEK53 million EBIT in the quarter, 0.5% margin compared to SEK415 million last year, and a 3.9% margin. And the real impact in the quarter has been driven by the price. We've been doing campaigns to motivate sales, the volume reduction, the underutilization in our factories. We continue to lower our inventory levels and also the mix effect. So all of those combined have had a negative impact of some SEK520 million in the quarter. Our cost savings programs that we have previously announced continue on track and are performing well, and that has positively contributed some SEK190 million in the quarter. Raw materials and logistics, there was a small positive in the quarter. That was really driven by logistics. Raw materials was pretty flat. Transformational initiatives, a small SEK20 million continued investment. However, we have slowed that down a little bit in certain areas given the economic climate and the weaker demand we have seen this year. Currency, a small currency negative impact of SEK30 million in the quarter as well, resulting in the 0.5% margin as we talked about. From a year-to-date perspective, we are now at 9.8% margin compared to 11.5% margin this time last year. It's a very similar story, and the bridge is actually very similar to what we talk about in the Q3. And really the big negative impact in the year-to-date numbers comes through negative price, again, partly through the campaigns we've been doing during Q3, negative volume and we continue to run our inventory levels down. Negative mix and also the under absorption and underutilization, which we've talked about as well. Cost savings program, SEK590 million in the year-to-date. So we feel good about that. We are executing on our existing cost saving program. Overall a negative small raw material and logistics, negative SEK65 million for the year-to-date. And with our transformation initiatives, we have invested SEK135 million in the year-to-date. Positive currency effect year-to-date of some SEK250 million, taking us to the 9.8% margin. So when we zoom out, we can conclude we are in a challenging environment and our profitability has not developed as we have expected. We need to take additional steps to lower our fixed costs and build a sustainable cost structure. We have accelerated our existing cost reduction programs and today we announced an additional cost saving program, which I'll come on to in a minute. We need to right-size the costs of this business so that we can secure our investment in value creation levers for growth. And with that growth in value creation levers, which are mainly margin accretive, then of course we would expect to improve our profitability. So the additional cost saving program that we talk about today, let me be clear, this is fixed cost savings we are really focusing on, and we aim to improve our fixed cost structure by some SEK500 million, meaning we reduce SEK500 million of fixed costs. Unfortunately, that will impact approximately 400 positions. We would expect the majority of the SEK500 million savings to take effect during 2025. This SEK500 million saving, in addition to the existing cost reduction program, amounts to SEK1.7 billion. And just to put that into context, because the previous cost reduction programs have now been going on for a year or two, we have delivered so far just shy of SEK1 billion of the original cost saving program that had a SEK1.2 billion target. And now we add SEK500 million to that SEK1.2 billion to make a total of SEK1.7 billion of cost savings. There will be non-recurring one-time costs of some SEK600 million, which we will report in the Q4 result. And also to be clear, we will continue to identify and implement additional cost measures in addition to the SEK500 million that we talk about here. We have a very solid balance sheet. We continue with a very solid balance sheet and we've had good results in lowering our inventory levels and also in our trade receivables being lower with good cash collection. So there is a couple of good things there which of course have a positive impact on our cash flow. We have lowered our borrowings by some SEK2.8 billion since the beginning of the year as well. Of course, lowering the borrowings on the back of positive cash flow is important to us. Net debt to EBITDA sits at 2.4. As you can see on the right-hand side, we have performed well in cash flow and we have been able to reduce our net debt by some SEK2.4 billion year-over-year and we feel good about that. However, despite being able to lower our net debt, our EBITDA has, of course, reduced compared to previous year. On the inventory reduction, I would say, it's been a very good performance on lowering our inventory levels during the year. And if we look at it from a year-over-year perspective, some SEK3.6 billion reduction. If you adjust for currency, it's a SEK3 billion reduction. If we look at it since the start of the year, it's a SEK3.7 billion reduction. But currency adjusted, it's SEK3.9 billion -- currency adjusted, SEK3.9 billion inventory reduction. So we feel very satisfied with how our inventory development has gone, but of course, that has the negative effect of the underutilization in the factories as well. Finally, cash flow, a record direct operating cash flow. We feel satisfied with how our cash flow has performed. And that is really driven by the good inventory reduction and also the trade receivables, positive cash collection. So with that, Pavel, I'll pass over to you.
Pavel Hajman: Thank you, Terry. And we have already talked about our commitment to really right-size the costs and continue investing in our growth areas and what in those areas that actually matters the most to our customers and us. And prioritizing our strategic initiatives is about investing in these value creation for all our stakeholders. And it will help us to navigate our industry challenges that we have while we actually are advancing our transformational agenda. And importantly, we are increasing our strategic investments this year and we will continue to invest more in the future. Terry, you referred to the transformational investments. For natural reasons, we've had to limit them somehow, but still, they are net positive into our transformational agenda, which is very important. The areas that we focus on, robotics, battery, pro, and watering, they are aligned with market trends also, and where we see the growth and the margin potential for us for the future. We're also investing in other behind the scene, so to say, activities. We are leveraging services also very much. And also we are developing our own AI capabilities to be implemented into various, so to say, activities and applications in the company. And both are a foundation for future profitability and efficiency also. An important indicator of our long-term focus and how we really execute on our strategy is the growth that we deliver in robotics, and especially, in our pro robotics business, driven by strong demand in sports and golf, and which we have managed to build up into really SEK1 billion business over a number of years also. Looking at the garden season ahead, we have an impressive 13 boundary wire free robotic models which will be launched. They are all tailored for both the professional and for the residential customers. And they are also tailored geographically as we have a number of models for the American market to take into account the more difficult grasses that exist there. This is really a very, very strong and solid foundation that will position us strongly now for the season 2025. Also, as you know, sustainability is a key part of our long-term business strategy and we are making good progress towards achieving our Sustainovate 2025 agenda. And there we have three key targets on carbon, circular, and people. As for carbon, in quarter one, we announced that we had reached a significant milestone and halved our total absolute CO2 footprint in just a bit over seven years. Summarizing quarter three, we have to date now reduced our absolute CO2 emissions along the value chain by 56%, meaning that we maintain our decarbonization journey. We have exceeded the 2025 target of minus 35 with large margin already earlier. The progress in CO2 reduction between quarter two and quarter three, that remains flat. As for circular, within the quarter we have added two new circular innovations. We are now at 33 and on track to achieve our target of 50. And the two added innovations that we have relates to a Husqvarna Battery Case, which is done in modular design and with 50% recycled plastics. And the second innovation is a program which is being managed by Orbit to take back and recycle water timers. As for the people target, we further increased the sales of our assortment of sustainable choices, that is, products and solutions that are offerings that have a significantly and proven lower impact on the use of natural resources and the environment. And after quarter three, we are now at 3.6 million Sustainable Choices sold. And we of course, continue then the journey to empower 5 million people by 2025. So, to summarize, we are growing in robotics and battery this quarter and we're also delivering a very strong cash flow. However, this past quarter has presented challenges, just as we have seen in the earlier quarters. And our result reflect a difficult operational environment with a challenging market situation and cautious consumer spending. Short term, and in response, we are implementing cost reductions now to strengthen our foundation, protect profitability, and also build a more sustainable cost structure. But importantly, in addition to this, we are also committed now to identify and implement additional efficiency measures to further enhance our operational structure. And at the same time, I think it is equally important -- it's important to say and equally important for us to really continue to invest in growth areas to drive the long-term value. Balancing these priorities, it reinforces our fundamental strength and positions us really to capitalize on emerging opportunities and long-term also deliver value for our stakeholders. We are fundamentally a strong company, we're committed to our customers, we're driving innovation, and next year we have a solid launch program, particularly in the boundary wire free robotic mowers, but also with products throughout all three divisions. So with that, I thank you for today and I welcome your questions, and thus I leave it over to you Johan.
Johan Andersson: Thank you very much, Pavel. And with that, let us start the Q&A session and as a reminder, you can ask questions over the telephone conference and you can also use the web interface at the website. So let us see if we have any questions from the telephone conference at this moment in time. Please, operator.
Operator: [Operator Instructions] We have a question coming from the lineup Adela Dashian, Jefferies. Please go ahead.
Adela Dashian: Thank you. Good morning. If we can please start on maybe getting an update on what the inventory levels with the distributors and retailers look like after the high season and what the -- I'm sure you haven't already started to engage in pre-season discussions with them given the very challenging environment, but can you maybe give us an update on current trading post Q3? That would be great. Thanks.
Pavel Hajman: Yes. As I have said earlier, of course, the inventory levels are different depending on the division and depending on the geography. If we start with Forest & Garden and the outlook there or not the outlook but the situation in inventory at this point of time, it is a mix between being normal or possibly a little bit on the lower side depending on the product and this we see being valid for both geographies, Europe as well as U.S. When it comes to Gardena, we would say that the inventory situation in the trade is rather normal for the time of the year where we are with some possible higher inventory for watering products due to the, so to say, wet summer that has been earlier in the year. In the U.S., the inventory decrease in the retail have been rather good, meaning that they are a little bit on the lower side there compared with last year on the same situation. When it comes to construction, we know that the segment has been declining in Europe for a longer time. And there the situation is on a quite normal level relating to the level of business that is being done, which is lower, of course, than what it was earlier. And then when you look on the American side, there the inventory reductions are continuing. So I would say that they are a little bit on the higher side in relation to where the business is heading right now. So overall, that is how we see the inventory and trade. As for our own outlook into the next year, you were referring to different conversations with our channel partners. I would say that they are continuing to have a cautious approach to the business. I think that we all realize and see that the improvements in the macro economy through interest rate reductions and through lowering of the inflation is there. But to immediately translate that into increased sales for our products is not that anybody is doing. We are cautious. We don't know how the consumers will react. But what we know is that we do have a very strong position and a very strong lineup for next year. And as you have heard Terry also saying, we are preparing ourselves, cost wise as well, in order to be efficient and to be able to invest for the future. So that's a little bit of how we see the situation going forward.
Adela Dashian: That's very good color. Thanks. And then specifically on the lineup that you have, the new product launches for 2025, how should we perceive them in terms of the overall mix? I'm assuming that they are priced at higher levels than your core technologies, or how do you view that?
Pavel Hajman: Yes, well the -- when we look on the robotics lineup for next year, where I mentioned that we have 30 new boundary wire free products coming to the market, a number of them are for the professional segment. They are, so to say, replacing old model and also covering a gap up to the larger robots. But overall, the margin on those products is on the high side. When it comes to the residential robotics that we are introducing now, they are more towards the entry-level, and subsequently, the margin on those products is slightly below the mid-point -- mid-price point and the high-price point products that we already have in the assortment. But overall, we believe that there will be a good mix of this in next year, and we should say also that we have seen in the third quarter a very good growth of our boundary wireless consumer products already continuing from the second quarter also.
Adela Dashian: Thank you for that. And then lastly on the cost savings program, would it be able for us to get some more details on, if there's any specific division that will take the majority of this or maybe a region?
Terry Burke: I would say really the 400 positions would take effect across all divisions and also central functions as well, group functions. So it's across the board. It's also in all geographies. What I would say is we are trying to be more focused on, let's call it, the back end of the business, on the more administration, there is an element of R&D reduction, consolidation. There are certain areas at the back end that we want to try and drive more efficiencies and synergies. We try to stay less. We will not take away many positions from the front end driving the sales of the business. That's not where we want to take the positions away from. It's more in the back end of the business. And if I may say, more white collar driven if that's the right term.
Adela Dashian: Yes, that also makes sense. Thank you so much, Terry. That's all for me.
Johan Andersson: Okay. Let's continue with a couple of questions here from the web interface. One is for you Pavel. Did you say that you have reached around SEK1 billion in pro robotic sales? And then of follow-up on that one, do you believe you're keeping your market share there on the pro robotic sales or all the cost programs that you have, are you losing a little bit on go-to-market capabilities on that?
Pavel Hajman: Yes. Yes, the number I mentioned was on a, let's call it, a rolling 12-month basis or a yearly basis. We have earlier said that around 10% of our robotic sales is attributable to the professional side and that is remaining, so to say, that statement. We are definitely continuing to take market share to stay at the top of the market share ladder in this year as well. We see growth in the whole assortment of robotic products. We are today present in around some 2,600 various kinds of sports field throughout Europe. When you look on golf courses, I believe it is around 250 golf courses that we are around in Europe and we have a rather good penetration already in Sweden, as an example, where we have 30% penetration to the golf courses in larger markets like Germany and France. We are on some 10% to 15% penetration. So we continue to drive sales in this area and we continue also to reinforce our dealer network of so called pro partners, which are dedicated to the sales of professional products, which are trained and educated to be able to provide a good service to the customers and also to maintain installations that are being established. So we are not holding back on that part at all.
Johan Andersson: Good. Thank you. And then a quick one for you, Terry. On the non-recurring items, we find a plus, give or take, SEK150 million and a negative SEK150 million. Can you elaborate a little bit on where those are? And also when we look at, so to say, the income statement, including the non-recurring items, one shows up on the other line. And where do we find the, so to say, the corresponding negative part there? Please, Terry.
Terry Burke: Yes. Okay. Trying to keep that high level. So first of all is we have a positive effect from a sale of a building, of an asset that we had as part of the restructuring. And that is recorded -- that positive is recorded as other income. On the negative side, there was additional inventory write-off as part of the restructuring. And that sits within the cost of goods sold, having a negative effect on the Q3 margin, but the negative effect in the Q3 margin -- gross margin, and then there is the neutral effect because there is the positive income from the sale of the building.
Johan Andersson: Great. Many things -- many thanks. A quick one for you, Pavel, before we go back to the telephone conference. Aftermarket parts and accessories and services on robotics, how do you view that business? You tend to grow quite a lot on the product side now in Q3, but how is the aftermarket parts and accessories services business shaping up in your view?
Pavel Hajman: Well, it's also going well, but of course, in the professional side, we haven't really seen the full potential of that part of the business because still our products are fairly new and do not necessarily need the replacement or the maintenance that will come after a number of years of usage. I mean, these are sturdy built products that normally will last a number of years. We say that our consumer products, at least, are lasting 10 years. The exact lifetime of our pro products is still a little bit hard to judge due to the fact that we are quite new in the market. But we are, of course, putting in place structural processes and programs to be able to support the pro-business there as well, which I expect them to increase over time as the product gets older and needs replacement.
Johan Andersson: Okay, great. So please, operator, do we have any further questions on the telephone conference?
Operator: Yes, we do. We have a question from Fredrik Ivarsson, ABG. Please go ahead.
Fredrik Ivarsson: Thank you. Good morning, gentlemen. I've got two questions related to robotics. Firstly on the consumer ones, if you could comment on the margin development in this business? I appreciate it's developing quite good on top line, but obviously, there is some campaigning going on in the market. So curious to hear if you could comment on that first.
Terry Burke: Yes, clearly, during quarter three, we did campaigns and we did campaign around robotic. Worth pointing out, the competitors were also very aggressive with price campaigns. And of course, we wanted to be part of that and make sure we were competitive. So the margins, particularly as you get into the more smaller, into the more retail smaller gardens, it gets more competitive and the margins are less. As you go further up into the bigger garden space, then the margins are better.
Fredrik Ivarsson: So on a year-to-date basis, can you give us a good, like, ballpark figure on how much the margin is down year-on-year? Are we talking 3 percentage points, 4 percentage points? Is that a good guess?
Terry Burke: I don't think we would disclose too much of that information, but yes, it is a negative margin development compared to previous year. Yes.
Fredrik Ivarsson: Yes, fair. And then second one, on the pro robotics, you mentioned 30% penetration on the Swedish golf courses. That's, I guess, around or close to 150 golf courses. Are all those paying customers or how many are on trial, so to speak?
Pavel Hajman: The majority of this is customers that already are buying or have bought the products.
Fredrik Ivarsson: Okay, good. Thanks. That's all from my side.
Operator: Our next question comes from the line of Bjorn Enarson, Danske Bank. Please go ahead.
Bjorn Enarson: Thank you. I have a question on petrol-powered lawn and garden products. If you can give some indication what share of sales that is in relation to Group or in relation to Gardena and Forest & Garden combined? That's the first question.
Pavel Hajman: We normally don't split this up in that way. Of course, petrol products are still a substantial part of predominantly Forest & Garden, the Forest & Garden division -- Husqvarna Forest & Garden division's product assortment. But clearly also the wheel part has been reduced given the exits that we have been doing in the last two years also.
Bjorn Enarson: Is it possible to get what -- how big the robotics, the battery-powered products, professional solutions, and the watering products, what kind of share of the company that is currently year-to-date?
Terry Burke: Well, we do disclose that battery and robotics is 20% of the total Group sales. So we are quite transparent there. You can see that's 20%. And of course, the majority of that is driven by the robotic. The watering side of it, of course, you can look at the Gardena division and more than 50% of the Gardena division is through watering. We don't really disclose much more than that, but I think you can…
Pavel Hajman: You can do your own calculation.
Terry Burke: [Multiple Speakers] work things out pretty well on that basis.
Pavel Hajman: Of course, we have other products as well that gives you an indication.
Bjorn Enarson: Then a follow-up on the 30% penetration question in Sweden. Yes, you previously -- I mean, you've mentioned these numbers for -- previously you talked about 20% and a handful of golf courses that have gone all in you think, and most of them still in a trial phase or using them, not as frequent? How many have turned in to go all in robotics now? I guess, it's more than a handful right now. I guess that number is growing. But can I have some kind of number there?
Pavel Hajman: It's few. I don't know the exact number here and now to be able to tell you, as there's quite a lot number of these installations, as you say. But I do know that it is few courses that have completely gone over to robotics, but it is growing. The overall acceptance for robotic mowers in the golf segment is clearly, so to say, year-by-year growing and being more and more accepted. And now we are also launching a number of professional products that actually will be very much suitable for golf also. It's the mid-size models that are below CEORA that will cover certain areas, but it's also the all-wheel drive that we are now making, boundary wireless, which will be perfect, of course, for golf courses, given the, so to say, given the geography of golf courses with hills and so on and slopes, et cetera.
Bjorn Enarson: Perfect. Thank you.
Operator: Our next question from the telephone comes from the line of Ebba Bjorklid, DNB. Please go ahead.
Ebba Bjorklid: Good morning, and thank you for taking my question. For the 13 new boundary wire free models launching next year, what pricing position do you expect them to have versus peers? And do they have any material additional functionalities versus existing products in the market that you can mention? Thank you.
Pavel Hajman: So the new launches that we are doing for next year mainly then into the entry-level segment for both Forest & Garden and Gardena are competitively priced. They are priced in the range of, as an example of EUR1,500 for the smaller robots, and the slightly larger one they go up to EUR2,000 and then up to EUR2,500. It's more or less in line with what we see competition there. But of course, we are taking a certain premium. That premium is attributable to our strong brand position, but it is also attributable to actually your last question. We are delivering superior products that have a stable, so to say, boundary wireless navigation system and reliability which has really proven over a number of years. For us, it is crucial that when we launch our products they need to perform perfectly well. Customers should feel that they are buying a very good product and getting a very good experience and not having to go back, complain, or be dissatisfied. And that is really a part of our, so to say, part of our culture and part of our ambition that we have.
Terry Burke: Maybe just to build on that as well to talk about, we have 13 models, of which four will be in the professional segment, three will be Gardena in the more entry-level, and then the Husqvarna brand that will cover more the entry-level up to the larger gardens in residential. So just to put into context how that 13 launches is broken out.
Pavel Hajman: And three specific models for the U.S. also with larger wheel sizes so that we can manage the variant kind of rough and high grass that exists in many places in the U.S.
Ebba Bjorklid: Great. Thank you very much for that answer. I have one more question and that is relating to wheeled petrol-powered products. How much did that contribute to the negative organic sales growth? Maybe you can indicate that both at a company level, but also for the Forest & Garden division specifically also? Thank you.
Terry Burke: So the wheeled decline in the quarter was single-digit. So just to try and put it into perspective of how that's impacted the quarter, it was a single-digit decline in the quarter. It is a double-digit decline year-to-date and single-digit in the quarter. And that was really heavily driven by the U.S. decline in wheeled, which was bigger, bigger decline, if you want to call it that.
Ebba Bjorklid: Great. Thank you very much. That's all for me.
Johan Andersson: Excellent. Thank you, Ebba. And we have got a number of questions regarding inventory levels, and let's try to bundle them together here a little bit. So you have been relatively successful in driving down your inventory levels. How much more do you think you can do or are you happy with the current levels? Maybe it's for the CFO.
Terry Burke: So, first of all, yes, we are, of course very pleased with how the inventory has come down this year. We've had a clear focus and intention to drive our inventory levels down and above a SEK3 billion reduction is very good progress. We still have an ambition to do more. Our capital efficiency is still not where we want it to be. Our operating working capital is still too high. So we will further reduce inventory next year. However, it will not be anywhere near the SEK3 billion that we have managed to drive down this year.
Johan Andersson: Great. Let's take another one there. The wheeled exit seems to have been gone a little bit quicker than you first anticipated. Is that correct or are you according to plan? And have you taken any actions here to wrap up or improve the process of clearing that part that you would like to get out of?
Terry Burke: So what I would say from the wheeled exit, that basically came to an end at the end of Q2. So there was no wheeled exit during Q3. That program is now -- that exit part of the plan is now closed, and there was no impact in Q3, and there will be no impact going forward either.
Johan Andersson: Great. Thank you very much. Operator, do we have any further questions from the telephone conference?
Operator: Yes, we do. We have a question coming from the line of Erik Cederberg, Handelsbanken. Please go ahead.
Erik Cederberg: Yes. Hi. So thank you for taking my question. So you touched upon this a little bit already regarding the campaigning on robotics. But has that been solely on the low price segment or more across the board, including the high-end products for professional use as well?
Pavel Hajman: No, it has not been on any professional products to the professional segment. This has been on consumer products with boundary wire only in order to ensure that we, so to say, ensure that we can sell those through also. So we've been also supporting, of course, the dealer network to get them out and sell them through partly as well.
Erik Cederberg: Okay. So the growth that you mentioned for the robotics is not only due to campaigns to stimulate the consumer?
Pavel Hajman: No, no. It's definitely not. We see a very strong double-digit growth in the professional. And for Forest & Garden, we do see a growth in robotics also, let's say, in general.
Erik Cederberg: All right, perfect. Thank you very much.
Johan Andersson: We have another question here on boundary wire free robotics, and you're launching 13 new models next year. We know that there are other players also launching new models in this space. It seems to be a very interesting area here. What's your perspective on the robotic mowers generally and what you see here on the maybe a little bit longer term, if we lift the perspective, why do you see that this is so interesting business?
Pavel Hajman: Well, first of all, this is an area that has had a very strong growth in the last couple of years, and it is an area that will continue to grow. Still the transition from traditional petrol mowing, whether that is walk behinds or ride-ons is still in its infancy. The transition, I mean, here is still in its infancy. We should also be aware of that. The world's largest lawn market, the U.S., is really at its start as well. So, of course, the general outlook for this market is positive with a good growth for many, many years to come. There is no discussion about that. As to the profitability, that has been good. How that will play out as more and more competitors enter the market is, of course, likely to believe that there will still be good profitability, but potentially that profitability could reduce a little bit over time due to the number of entrants and due to the commoditization of the product as such.
Johan Andersson: Thank you very much. Operator, do we have any more in the telephone queue?
Operator: We have one question from Johan Eliason, Kepler Cheuvreux. Please go ahead.
Johan Eliason: Yes, good morning. Just coming back to robotics, if I understand you correctly, the pricing has been on the wire-based consumer robotics, so presumably mainly in Gardena on the robotics side. Is that correct?
Pavel Hajman: When you say pricing, you mean promotion.
Terry Burke: Campaign, yes.
Pavel Hajman: I believe you mean promotion. You said pricing. Am I correctly understanding
Johan Eliason: On the…
Pavel Hajman: Yes, that has mainly been on Forest & Garden actually, but also to a certain degree with Gardena.
Johan Eliason: Okay. And talking about Gardena, you mentioned that you're launching with a new retailer this year, Home Depot, I believe it was. Can you say anything, how that has developed in the first season?
Pavel Hajman: Yes, it's been a positive development. The assortment has been very small. So this is not of any significant or material impact on our, so to say, sales or profitability. But more importantly is that we have established a relationship with Home Depot. They have a positive view on the brand and our products, and we will, of course, continue to build on that.
Johan Eliason: Okay, excellent. Thank you.
Johan Andersson: Thank you very much. We have another question here from the web interface. You're now launching, so to say, a mid-sized platform for the professional market next year. What will be next? Do you -- will you add any -- provide any further add-ons to your CEORA models or how should we view, so to say, the next steps or you're able to comment anything around that?
Pavel Hajman: No, given the competition out there, we are not able to comment on that.
Johan Andersson: Okay, good. Another one for Terry then. If you look at the Husqvarna Forest & Garden division, can you comment a little bit on, so to say, total sales for petrol-powered products, so to say, was the total sales for petrol product down now in Q3? And then for robotics and batteries separately, if you compare those two buckets, let's say, in the Husqvarna Forest & Garden division, what do you see there for trends?
Terry Burke: Yes, the trends is yes, petrol product in the Husqvarna division has declined absolutely, and that has been a decline in both wheeled and handheld. As we mentioned earlier, there has been positive sales in the quarter for the robotic and the battery in the Husqvarna division. So clearly you're seeing the battery and robotics grow and there was a decline in the petrol, particularly wheeled but also handheld.
Johan Andersson: Good. Thank you very much. We have another question here from the web interface. Your, so to say, net debt to EBITDA is at 2.4 times and you have a strong cash flow now. But how do you see, so to say, the metrics and your credit scoring on those metrics? Should we be concerned about any other downgrading or do you see that you have a strong balance sheet and a good cash flow going forward? Do you have any perspective on that one?
Terry Burke: I think our outlook is, of course, we've now had two years of very good direct operating cash flow and we feel pleased around the two years. So that is good. Cash flow will continue to be a focus area next year. We will -- as I said earlier, we will continue to drive positive cash flow, continue to manage our inventory levels down. And with a positive cash flow, we will, of course, continue to lower our net debt. So I think that's our ambition and that's where we -- that's where we aim to be. Of course, we would like to improve our EBITDA to support the ratio as well. 2.4 is where we are at and we would expect that to be quite stable in the near future.
Johan Andersson: Okay. Thank you very much. Operator, do we have any more in the telephone conference queue?
Operator: There are no more questions at this time.
Johan Andersson: Okay. Thank you very much. I think we have a couple here. One very specific detail here. Maybe you know this Pavel, let's see. In construction, you're selling drill motors or drills, do you know how that sales is going?
Pavel Hajman: No, I'm not into that level of detailed sales. No, I cannot say that.
Johan Andersson: That's great. Let us dive into that detail and come back to you a little bit later today. No problem about that. And then maybe one for you, Terry. You showed in your bridge there that you have a pretty large price, volume mix and other components. If you're not willing to be very specific on details, but can you just please elaborate a little bit again, what are the most important things here in that big red bucket?
Terry Burke: Yes, absolutely. So first of all, on price, we can be a little bit, maybe transparent in the price side of things. So it was around 2% negative price development in the quarter, quarter three, specifically, and year-to-date prices had just above 1% net negative impact. So I think we can be quite transparent there. We've also had a negative mix impact because some of our more margin accretive product categories have had a sales decline during this year. And of course that has had quite an impact to the business, to the profitability. And of course, we've lowered our inventory by some SEK3 billion currency adjusted year-over-year, and with a lower volume as well, our organic sales being a negative 7%. Then of course that has had a significant impact on underutilization of our fixed cost structure, factories, et cetera. So those are the main themes around the big red bar if you want to call it that, in the EBIT bridge.
Johan Andersson: Excellent. Thank you very much. We have one final question here on the -- actually two. One -- another one coming. Let's start with the first one. On the SEK600 million is in one-offs you're taking now in Q4, how should we view that? Is the majority of that cash costs, i.e. will be cash out? Or do you have any, so to say, write-offs in those SEK600 million as well?
Terry Burke: Yes. The majority of the SEK600 million will be cash related because it's really with regards to the position reductions. So the majority, not all, but the majority will be cash related.
Johan Andersson: Yes. And then maybe the final one from Alexander Siljestrom at Pareto, and he's wondering about do you have any, so to say, margin accretive products that were underperforming or had low sales in this quarter? Think about watering.
Terry Burke: I think the way I would look at it is when we talk about our four value creation levers, they in general are margin accretive. And of course, we want to drive the sales and the growth of those four value creation levers. Robotic, we had growth in the quarter. So that of course was supported. However, on the professional side, we had a decline in sales. And on the watering side, we had a decline in sales as well. Battery is not so margin accretive at this moment in time, but of course, we hope to get battery to margin accretive at a later date with scale, et cetera. So that at least gives a little bit of a flavor as to how we have margin accretive products.
Johan Andersson: Okay. Thank you very much. And I think from that we don't have any further questions in -- from the web interface nor the telephone conference. So let us end there today, and we very much look forward to talk to you when we have reported the Q4 report. So that will be on the 5th of February 2025. So thank you very much for listening in today and have a really great day.
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