Hello, and welcome to the Husqvarna Group conference call. Throughout the call, all participants will be in listen-only mode, and afterwards, there will be question and answer. Today, I'm pleased to present Johan Andersson. Please go ahead with your meeting. Hello, everyone, and welcome to the presentation of our acquisition of Orbit Irrigation. My name is Johan Andersson, responsible for investor relations at Husqvarna Group, and I will be the moderator here today. Joining us today, we have Henric Andersson, our President and CEO, Pär Åström, President for the Gardena Division, and Glen Instone, our CFO. Henric, Pär, and Glen will do a presentation, and afterwards, we will open up for a questions and answer session over the telephone conference. With that, I hand over to you, Henric. Thanks, Johan, and also warm welcome from my side. Today we have some really exciting news to share. I mean, we're about to acquire Orbit, the market leader of residential watering in North America. With that, we are creating a global market leader that really can transform the industry towards smarter and more sustainable watering. As you all know, and as we discussed at the most recent quarterly call, we are building a stronger Husqvarna Group. We have for several years purposely been disproportionately investing in and focusing on the truly attractive segments, and we have been dialing back in some others, and we have even exited some segments. Of course, what is guiding us inside of all this is our strategy that is depicted here on the slide. We also have a very specific focus on some of the key product areas where we see a lot of value creation potential in the future in terms of robotics products, professional products, but also watering products. Another way of looking at how to build a stronger Husqvarna Group is that we would see a strong benefit with a larger Gardena and a larger construction division. Construction because it's less seasonal, there's a large share of consumables, it's a strictly professional business. Gardena because it is really complementing the larger lawnmowing business of Husqvarna with other applications and, in particular, one interesting aspect is watering since that creates a built-in weather hedge. As weather might become more harsh going forward, the risk for droughts is higher, which would affect the mowing business. Watering is increasing in demand at the same time. It simply just makes sense to build on the fantastic track record we have in the Gardena Division here over quite a few years. Given our strong financial position, we can also accelerate or sometimes de-risk our organic growth strategy by M&A. Orbit is, of course, here a great example. It naturally plays straight into the winning core part of the strategy. Watering is an integral part of that winning core, and with this acquisition, we expand that business significantly. It also supports Gardena strategic focus area in terms of geographical expansion. It also supports the strategy from a sustainability perspective, since both Gardena and Orbit are leaders in smart watering and more efficient watering solutions. It supports the strategy from a smart perspective and from a robotics perspective, which we can talk about a little bit later here. With an acquisition of Orbit, just like I said here in the beginning, we will form a global residential watering leader that truly is poised for growth. The growth opportunity is actually for both Orbit and for Gardena. For Orbit, it is to a large degree about leveraging Gardena's innovation capability and Gardena's broad product portfolio. Whereas for Gardena, it's about leveraging Orbit as a platform for establishing Gardena as a premium brand also in the North American market. As you can hear, we are quite excited about this opportunity. Now Pär will take us through some of the details of this. Thank you, Henric, and good morning, everyone. First of all, I'd like to say that I'm, of course, very excited about this opportunity, and I really look forward to welcoming the Orbit team to Gardena Division and to the Husqvarna Group. We will start by looking a bit at who are Orbit Irrigation, and they are a North American market leader in residential watering and the market leader in North American smart watering. They had last 12 months net sales of $320 million. They've been able to show a strong growth trajectory, and the last 30 years they've got a growth rate of 9% CAGR. The EBIT margin is slightly below the Husqvarna Group average, and I think the next one we are very excited about being the North American smart watering leader. They have 1.4 million connected devices, which is of course a great contribution to the number we have already under the Gardena smart system. The organization has 300 employees, and the reason why they are not more is because they run a very asset-light operation setup. They are headquartered in Salt Lake City, Utah, in the U.S., and they have their R&D in-house, but they work with a network of manufacturing partners to produce most of their products. They have one manufacturing plant in the U.S. They also have a fully built-out nationwide distribution network for logistics, which is exciting. I think their asset-light operation setup will also be very exciting to get learning from to the Gardena Division. If we look at their watering positions and their sales split, they have a well-balanced split when it comes to watering. In the U.S., there is really quite a difference between underground and overground in the market. Actually, the Orbit brand has strong presence in both those segments. Roughly 40% of their sales comes from system watering underground, mainly plus micro drip. 45% of the sales comes from hose and overground applications for watering. They also have a smaller emerging business around gardening tools and gardening accessories. What we also really like with Orbit is that they have a omni-channel strength. Their smart system under the B-hyve brand has made it possible for them to expand into all the relevant watering and also gardening channels in the U.S. landscape. This means that they actually reach very far in the distribution platform. If we look a little bit more at the U.S. watering market, where Orbit is a market leader in residential watering in North America, and they also have strong brand and digital positions, both overground and underground. I think it's important to note that the U.S. watering market is a bit different to our European view. First of all, there's quite a large commercial irrigation market, and then there's also a large residential part, and this is the part which Orbit has been focused on. Within the residential part, you have this split between the overground and underground solutions. Looking at where they are placed, we see, of course, a very strong position in smart watering with 1.4 million connected devices. Here they operate with a B-hyve brand, and they have a number one position in a fast-growing market, which is driven by trends such as, of course, the smart home trend, but also the climate change, which is creating the need to water to keep a green garden. Of course, also that water is a scarce resource, which we need to be careful with. Smart systems allow us to save water and water plants efficiently. Looking at the more traditional watering segment of overground and underground applications, they are the number one in hose-end applications, and they are one of the top three brands within the system side of the residential watering business. Also, the fundamentals around this part of the U.S. market is good and similarly to the smart side, driven by trends such as changing weather conditions, drier, hotter climate, water being a scarce resource. We see also in the U.S., similarly to in Europe, a strong trend when it comes to passion for gardening, actually spending time in a garden, growing things, and taking care of nature. They also, like we said, have an emerging position in the tools and garden tools and garden accessories. Here they have a fairly small position, and we of course are quite excited about this in Gardena, given our innovative strength and high-quality products within this area. If we look at the opportunity we see, it is really a twofold opportunity. Orbit, they have we believe a very attractive standalone position in an attractive market. We also see that Orbit can accelerate Gardena's geo-expansion strategy and provide a platform for a real push to build the Gardena brand in the U.S., where we today have a very small position. The strong standalone opportunity comes first and foremost from three leadership positions within residential watering, within smart, and also having the two leading brands within these two fields. Also from their broad omni-channel distribution strength, reaching all the relevant watering and gardening channels in North America. Having spent some time with them, the last months, I can also say that they are a very passionate and experienced and dedicated team, which we look forward to collaborate with. In terms of accelerating Gardena's geo-expansion, I mean, this is, of course, the real opportunity we see. Here beyond creating a global number one position in residential or garden watering, and also within smart watering, we see an opportunity to leverage and complement each other. Where their go-to-market experience in the North American market, where their operations infrastructure, and where their smart technology can help Gardena, and where Gardena with our branding knowledge or our innovation, product and application innovation, and broader product portfolio within the watering and gardening space can help Orbit. We think it's a good platform for our geo-expansion. Looking a bit more at what is it then we intend to do, to expand Gardena into the U.S. market. Well, if we go back to our core purpose, that is really to reach passionate gardeners around the world and realize their gardening dreams. That's, of course, what we want to do also in North America. We think there is a good opportunity to long-term be successful and position Gardena as a premium gardening brand, leveraging the technology positions we have developed the last years. This means that we in Gardena intend to participate in the build-up of the North American robotics market. We intend to contribute with our innovative watering technologies, and also we intend to start to position Gardena as a complementary offering when it comes to system tools. This way, we hope to continue to contribute to sustainable gardening and the existence of green environments. I hand over to you, Glen. Thank you, Pär. Just some details on the transaction now. The acquisition price of this on an enterprise value basis is some $480 million. That will be on a cash and debt-free basis. We are acquiring this from Platinum Equity. It is a portfolio company within Platinum Equity today, and we expect to close this deal before the end of the calendar year, i.e., before December 31 this year. However, of course, usual note that it is subject to the customary regulatory approvals. When it comes to the impact on the key metrics of the group, we will fund this deal using existing cash, and if need be undrawn credit facilities. We're in a strong position to fund this deal, this transaction. From a net debt EBITDA perspective, we closed Q3 with a net debt EBITDA ratio of 0.6x. On a pro forma basis, this will therefore increase to 1.1x. Still well within the credit rating that we work within. When it comes to the impact on the P&L, of course, the deal is accretive from an earnings per share perspective. As Pär mentioned, the sales of this in the last twelve months has been some $320 million. That represents roughly a 6% sales increase for the group with an operating margin, which is slightly below the Husqvarna Group average. It will be slightly diluted to the group margin, both to the divisional margin and the group margin. We expect that this entity will be fully consolidated into division, as Pär has alluded to. I think from a transaction perspective, that pretty much covers it. At that, Henric, I will pass back to you. Thank you, Glen. As you can hear, we are quite excited about this opportunity, and it's also quite logical, I think, that we build on the success that we have in the Gardena Division and that we have proven for quite a few years here. This is a natural step in how we execute on our growth strategy. It's also a natural step in how we are building a stronger Husqvarna Group. It's a very interesting opportunity here now that is presenting itself in terms of forming a global leader within the residential watering to really drive this transformation towards smarter and more sustainable watering. The business case is to a large degree around driving growth both for Orbit and the Gardena brands. Ultimately, as I said here just recently, we really believe in this opportunity. First of all, we believe that the watering business will continue to grow depending on how the climate is developing. At the same time, water is a scarce resource, and that's why we have this huge opportunity driving the transformation in the whole industry towards smarter and more sustainable watering. That's pretty much it, I believe. Johan, I mean, back to you, and hopefully we also have some questions. Great. Excellent. I can absolutely see that we have some questions in the queue. Many thanks for that presentation. Please, operator, let us start the question and answer session. Yes, I will do. Ladies and gentlemen, if you do wish to ask a question, please press zero and one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero, two to confirm. There will be a brief pause while your questions are being registered. The first question is from Christer Magnergård, DNB Bank. Christer, your line is now open. Yes. Good morning. Christer Magnergård from DNB. To start with, can you talk about the watering market in the U.S. a bit, so we get some kind of more historical context, given that the last 12 months have been exceptionally strong for other outdoor products in the U.S.? Are we at a peak now, and what can we expect in terms of market growth, so from here? Yeah. It's correct that the market in the U.S. has been strong also these last years. I think it's both attributable to climate and weather and also, of course, to the stay home effect during the COVID time period. What we believe, seeing the same in Gardena, is that people that start to enjoy the outdoors and start to garden, they actually continue to do it. We actually believe that it fuels the trend of passion gardening and the interest to take care of your home outdoors. We do not think it's a peak, but of course it is a weather-sensitive sector. In terms of the Gardena expansion in the U.S., can you talk about your strategy a bit more here on when you will actually expand into the U.S. with the Gardena brand? Is it happening already next year, or is it more a 2023 effect we should expect? Also, I would expect that there will be some step up in terms of strategic initiatives costs for this next years. Yes. I mean, we're quite close now to the new season starting, so of course the first priority is to start that really well in the Orbit business and also in our current Gardena business. Of course we will take some immediate steps to not lose the momentum and take some clear steps in 2022. The Gardena journey in the U.S. needs to be seen as a long-term journey, which we are committed to, and where Orbit will provide us a great platform and infrastructure to walk that path. Okay. Finally, a question to Glen, more of a modeling purpose. Given the seasonality in Gardena's business, can you talk about the seasonality for own revenues and EBITs for Orbit? If there will be any step up amortization and if there are any costs related to the acquisition? Yeah. There will be some amortization, sorry, Christer, associated with this. Absolutely right, which we will have as part of a normal margin over the coming three years. From a seasonality perspective, I guess it's gonna follow pretty much the Gardena seasonality, if you take that as a proxy. From a margin perspective, then I think it's fair to say that it is dilutive to the division and to the group. In terms of Gardena, I mean, Q1, Q2 is exceptionally strong, and Q4 is deep in the red. Is that a similar profile for Orbit as well? I think we have to come back on the quarterly phasing of that, Christer. Okay. Finally, the costs, if there are any costs related to the acquisition in Q4 or Q1? There'll be costs already taken into Q4 actually related to this, particularly transaction legal costs. We'll call them out in the Q4 report, Christer. Excellent. Thank you very much. The next question is from Gustav Hagéus, SEB. Your line is now open. Thanks. Congrats on a similarly exciting opportunity here. I appreciate the sales CAGR figure you gave here for the 30 years. Could you talk a little bit about the organic growth since say 2019 pre-pandemic, how that has developed? Yeah. Looking at a five-year CAGR, you will end up on a similar level. Of course, they've had a very strong growth during the pandemic. Okay. Organically sort of 9%. Yeah. Yeah. It's a similar level. Okay. On a five-year period. Okay. You stay here. There's sort of an omni approach. Can you talk a little bit about the channel mix, and also if there's a geographical mix or if they are truly nationwide? Yeah. Less than 5% of their business is outside North America, so they are really a North American player if you start in that corner. On the channel mix side, they have, of course, big box retail. I think what's important to mention there is that they managed to serve all the major accounts, which we think is good, so there's a multi-channel aspect of that. Of course, there's a multitude of retailers in the U.S., regional retailers and others which they serve. Online, they have a good starting point, and it's of course a fast growing piece of a consumer business. We look favorable at that platform. They have access via the B-hyve, via their smart watering, into also channels which may be residential watering players have a harder time to access, like commercial irrigation distributors, et cetera. We look favorable at the distribution landscape. Also a fairly good presence with garden centers which is interesting from a Gardena point of view, given that that's usually where we find the more passionate gardeners in our industry. Mm-hmm. Is there a D2C component in the e-commerce, or is that fully on other platforms? Yeah, it's a smaller piece of it. Okay. In terms of I recognize that you talk a lot about expanding Gardena into the U.S., which seems logical, but there is no scope here to do the reverse, to bring some of Orbit's product into Europe or either under own brand or rebrand them and maybe talk a little bit about the patents or innovation portfolio that you acquire here. Well, there is a B-hyve opportunity for international expansion as we see it. When it comes to the Orbit brand, we believe that it's a strongly recognized brand in the U.S. and North America, and that's where it should be focused long term. It has some business outside, but it's not a big piece, like I said. What we found in Gardena, having some other brands from the Gardena brand is that it can be very supportive to Gardena's expansion journey to have a strong brand on the side in the market. I mean, this is the case with, for instance, Flymo in the U.K. and also with the Neta brand in Australia. It gives critical mass and credibility to a long-term journey which we are committed to. Okay. Finally, on the margin side, which is lower than the group and Gardena is higher than the group, a material difference then to Gardena. Could we talk a little bit about what the main elements are to that margin bridge between the two, if it's product mix or if there's sort of higher SG&A or what is the main difference between the two? Yeah, I think maybe before going there, I think what's important here is of course that we do this for growth. We believe that we can really grow the Orbit business, and we believe that we can grow the Gardena business as a consequence. That way we will of course have more Gardena business in the U.S., the margin will mix up. We also see that the positions where Orbit have their strength are good positions or better positions. We believe there's a mixed journey ahead of us when it comes to Orbit. Okay. I think it's fair to say from an SG&A perspective, it's on a similar level to Gardena's core business, and then the gross margins are slightly lower. Okay. Just to put the two positions in context. Yeah. No, I appreciate that. Thanks for taking my questions, and congratulations again. The next question is from Johan Eliason. Your line's now open. Yeah. Hi, this is Johan at Kepler Cheuvreux. Thank you for taking my questions, and then congratulations on an interesting acquisition. Now, I remember when Gardena was acquired back in 2007, it was already at that point in time sort of discussed bringing that business into the U.S. market, but nothing has happened. I think the sort of comment was later on that the U.S. watering market is a completely different technology and it's just cheap stuff with very low margins. Now obviously see that Orbit does have a significantly lower margin than Gardena. Are there any synergies you think that you can generate, or is it just sort of growing the top line and hopefully getting the Gardena brand into the U.S. with a higher margin mix? Has the U.S. watering market changed in any way that could allow you to have better margins in the future over there? Yeah, that was a little bit what I also tried to say on the last question, is that we see some new dynamics in the watering market with smart technology and water-saving technologies in general, both on hose end products and also on like micro dripper is a good example when it comes to system installations. We believe that being an innovative provider of water-saving solutions, we and Orbit have a good opportunity to mix up our margin positions in segments which are fundamentally faster-growing than the traditional watering segments. I think it's important to remember also that Gardena is a quite different business today, compared to 15 years ago, with a very different technology position in terms of garden technology, whether that is balcony watering, automation or robotic lawn mowing. I think it's not only right to look at it as a watering play. Gardena is a gardening play. To make this comparison, can you sort of indicate how big a proportion of the Orbit turnover is sort of related to this smart watering business? You talk about 1.4 million connected devices, but what was the sales over the last 12 months or so? Well, at this stage, I think we do not want to say that. Okay. Just on the margin, you say slightly below gross margin. Is that the most recent 12.6%, or is it sort of the historic 8%-9% you are comparing with? We're comparing to the latest 12-month data. It would be dilutive, as we said, to the Gardena Division and also dilutive to the group. Of course, less so to the group, given that Gardena is above the group average. Yeah. Okay. Excellent. Many thanks. Maybe just one comment there on the various watering market, etc. I think one of the key strengths here is that we're acquiring the market leader in North America, meaning what the market is today, and it provides us an opportunity to position Gardena above that with a more premium differentiated watering solution. I think we should look at them as complementing one another rather than one or the other. I think there's an opportunity here really to build something, and this is a way in with the premium Gardena offering. Mm-hmm. That's good. The next question is from Adela Dashian, Handelsbanken. Your line is now open. Yeah, thanks. I think that was me. Hi, it's Adela from Handelsbanken. Firstly, on the deal itself, can you just confirm that there is no earn-out in the deal? Then secondly, how has the management been incentivized, and what's your plan on retaining them? You wanna take that, Pär? Yeah. Okay. The enterprise values are stated in the press release. There's no earn-out on that. I've had very good interactions with the management team. They are committed and excited about this opportunity, and we're excited about teaming up with them. I think that part feels actually very good from my side. All right. Thanks. This plan of launching Gardena as a premium in the U.S., can you discuss a bit about the other players in the market? Which players would Gardena then meet in this premium segment of the market? Yeah, I would argue there is no player with as a similar position to Gardena in the U.S. market. I think important here to note is that we have a strong position with Gardena in Canada. I think that also shows that it is possible to take a strong position with Gardena in the North American watering landscape. I think the other players underground, of course, we're talking about Rain Bird, Hunter. I think overground competitors would be, for example, Gilmour and Melnor, to mention some examples for you. All right. Thank you. You mentioned Rain Bird and Hunter and the more sort of commercial-focused players. Yeah. I mean, of course, this, maybe this opportunity presented itself and was too good to pass up. The, I mean, how do you see the commercial segment, maybe a bit more longer term? Is that still too commoditized or too low end for you to be attractive, or could that be something for the longer term? How large is that market compared to residential? I mean, they are both big markets, as you can imagine and, but they're also quite different, and the residential market is, of course, where Gardena has its strength and its focus and that's why this acquisition is an extremely good fit to create that global market leadership position. Also to really have the market leader in the North American market, and with a solution that is today the preferred one, and allowing Gardena to position itself as truly premium and to grow that segment in a controlled way over time. The professional space is a different market and with different dynamics and different opportunities. It's nothing that we are actively pursuing at this point in time. We see it as something quite different and something that Gardena is not engaged in today. All right. Thank you very much. The next question is from Carl-Oscar Berglund, Berenberg. Your line is now open. Hi, Carl-Oscar Berglund from Berenberg here. Just in terms of the market strategy, there's been a lot of talk, obviously, about the expansion for robotic lawn mowers, and you've been saying that it's been progressing slower than previously anticipated in various quarters. Is there a strategic push to rebrand and sell robotic lawn mowers under the Orbit brand going forward? Or will there solely be a geographical expansion of the Gardena market into the U.S. through the various same channels as you're doing with Orbit? I think that one way of looking at it is that I think the primary push from the group is with the Husqvarna brand. That's where we see the biggest opportunity. At the same time, we have proven in Europe that this is also a very important and attractive segment for Gardena. I would say that this would be more of a Husqvarna and Gardena play in North America. We believe, actually, it's a good benefit to provide an option for the consumer, especially when you're establishing a market. It gives this perception of the segment is more established, and it's becoming more mainstream where you have options out there. It's kind of difficult to drive it with only the Husqvarna brand. It will not be the focus for the Orbit brand. Okay. In terms of sort of channel partners in the U.S., obviously, Lowe's has been quite important for the Husqvarna brand. Is there now a scope to go for some of the other larger retailers, or is there any cross synergies in terms of sales channels here? I think with the acquisition of Orbit, we of course get access to a lot of different channels that makes a lot of sense for our consumer offering. The focus for us is really to drive that for the Gardena business to really see that opportunity. When it comes to the Husqvarna strategy, we are primarily focusing on driving a dealer-centric business, go more online from an omni-channel perspective. I think you should look more at this as an exception that the Husqvarna brand is selling in one of the big retailers in the U.S., if you look at it from a global perspective. Okay. Thank you very much. That's all for me. The last question is from Henrik Christiansson. Your line is now open. Yes, good morning. Two questions, please. I'm a little bit surprised about the relatively low margin here, given the strong market position. You also have the pandemic boost, and there's also a decent amount of tech content here. Could you give some more detail? Is there a big difference in margin in the various segments, overground, underground, smart garden? And also, what was the profitability pre-pandemic? As there's been a significant uptick in margin during this time. That's the first question. I mean, maybe before you give potentially some more detail here, Pär. I mean, I think one way of looking at it as well is that Gardena has created a very unique premium position. With such a position, and also with a very strong mix, you get a very good profitability. In the U.S. market, that premium position does not yet exist. That's one way of looking at why there is a big difference between the two. Of course, part of our play going forward is that given that we have Orbit that was selling the products that the market today prefer at the price levels where the market is used to, we can build this premium position with Gardena over time. It's a long play, so to speak. That's one way of looking at it. Of course, there is a mix element to Orbit as well. I don't know if you want to share any additional details, but I think that at least gives a little bit of a context to the whole conversation. Yeah, no- Any more detail on the mix flow? I agree, and I think what we see is to give some more detail is that the faster-growing segments, the ones that go towards the more sustainable solutions, come with better margins. They are fastest-growing, and Orbit has strong positions in them, and that we believe is a good thing. Great. The other question, maybe this is completely irrelevant, but just browsing through the webpage of Orbit, it seems like they are selling other brands as well. You have Stanley FatMax hoses and nozzles, you have Aero-Flex hoses, et cetera. Are those own products, or is there an opportunity to plug in Gardena tools and hoses there to lift profitability quite quickly? Yeah. Like also they have more brands they sell, and I think it's an opportunity for any company to build out a good brand portfolio. This, of course, is something we have to look at together in the future. Are they their own branded products, Aero-Flex, Stanley, Blum? Stanley is, of course, on a brand license. They're not their own brands. Perfect. Thanks. Okay. Operator, do we have any? No, no further questions. Okay. So if we don't have any further questions, and if you have any questions after the call or later today, please reach out to the team. I think with that, we then conclude this session, and of course, are very much looking forward to meet you at the Capital Markets Day then 1st of December. Thanks very much for today, and see you soon again.