ANNUAL REPORT 2008

HUSQVARNA ANNUAL REPORT 2008

HUS QVARNA AN NUAL

REP ORT 2008

ANNUAL REPORT 2008

HUS QVAR

NA AN

NUA

L REP

ORT 200 8

Head office Husqvarna AB (publ) ^• Mailing address: Box 30224, SE-104 25 Stockholm Visiting address: Lindhagensgatan 126 ^• Telephone: +46 36 14 65 00 ^• www.husqvarna.com Registered office Husqvarna AB (publ) Jönköping ^• Mailing address: SE-561 82 Huskvarna Visiting address: Drottninggatan 2 ^• Telephone: +46 36 14 65 00 ^• Telefax: +46 36 14 68 10

CONTENTS 2008

Highlights of the year 1

Report by the President 2

Strategy 4

Strong brands 6

Powerful global distribution network 7

Broad product offering 8

Efficient supply chain 12

Financial goals 13

Business areas 14–25

Consumer Products 14

Professional Products 20

Report by the Board of Directors 26–37

Risk management 34

Financial Statements 38–45

Group

Income statement 38

Balance sheet 39

Cash flow statement 40

Statement of shareholders´ equity 41

Parent Company

Income statement 42

Balance sheet 43

Cash flow statement 44

Change in equity 45

Definitions 46

Notes 46–83

Proposed Distribution of Earnings 84

Auditor’s Report 85

Five-year review 86

Quarterly data 88

Corporate Governance Report 2008 90 Board of Directors and Auditors 100

Group Management 102

Sustainable development 104

The Husqvarna share 110

Annual General Meeting 2009 112

History 113

Contacts Åsa Stenqvist

Head of Group Staff Communications and Investor Relations

ir@husqvarna.se, +46 8 738 64 94 Tobias Norrby

Investor Relations Manager

tobias.norrby@husqvarna.se, +46 8 738 83 35 Press Hotline

press@husqvarna.se, +46 8 738 70 80 Financial information 2009

23 April Annual General Meeting 8 May Interim report January–March 17 July Interim report January–June 23 October Interim report January–September The Annual Report is distributed to all new shareholders for the year and to those who have explicitly requested one. The Annual Report and other financial reports are also available at www.husqvarna.com/ir. Printed copies can be ordered from the web site.

HUSQVARNA ANNUAL REPORT 2008

HUS QVARNA AN NUAL

REP ORT 2008

ANNUAL REPORT 2008

HUS QVAR

NA AN

NUA

L REP

ORT 200 8

Head office Husqvarna AB (publ) ^• Mailing address: Box 30224, SE-104 25 Stockholm Visiting address: Lindhagensgatan 126 ^• Telephone: +46 36 14 65 00 ^• www.husqvarna.com Registered office Husqvarna AB (publ) Jönköping ^• Mailing address: SE-561 82 Huskvarna Visiting address: Drottninggatan 2 ^• Telephone: +46 36 14 65 00 ^• Telefax: +46 36 14 68 10

CONTENTS 2008

Highlights of the year 1

Report by the President 2

Strategy 4

Strong brands 6

Powerful global distribution network 7

Broad product offering 8

Efficient supply chain 12

Financial goals 13

Business areas 14–25

Consumer Products 14

Professional Products 20

Report by the Board of Directors 26–37

Risk management 34

Financial Statements 38–45

Group

Income statement 38

Balance sheet 39

Cash flow statement 40

Statement of shareholders´ equity 41

Parent Company

Income statement 42

Balance sheet 43

Cash flow statement 44

Change in equity 45

Definitions 46

Notes 46–83

Proposed Distribution of Earnings 84

Auditor’s Report 85

Five-year review 86

Quarterly data 88

Corporate Governance Report 2008 90 Board of Directors and Auditors 100

Group Management 102

Sustainable development 104

The Husqvarna share 110

Annual General Meeting 2009 112

History 113

Contacts Åsa Stenqvist

Head of Group Staff Communications and Investor Relations

ir@husqvarna.se, +46 8 738 64 94 Tobias Norrby

Investor Relations Manager

tobias.norrby@husqvarna.se, +46 8 738 83 35 Press Hotline

press@husqvarna.se, +46 8 738 70 80 Financial information 2009

23 April Annual General Meeting 8 May Interim report January–March 17 July Interim report January–June 23 October Interim report January–September The Annual Report is distributed to all new shareholders for the year and to those who have explicitly requested one. The Annual Report and other financial reports are also available at www.husqvarna.com/ir. Printed copies can be ordered from the web site.

HUSQVARNA IN BRIEF

HUSQVARNA iS THE wORLd’S L ARgEST mANUfAcTURER Of L AwN mOwERS ANd cHAiNSAwS AS wELL AS HANdHELd, PETROL-POwEREd gARdEN PROd - UcTS SUcH AS TRimmERS ANd bLOwERS. THE gROUP iS AL SO THE gLObAL LE AdER iN cUT TiNg EQUiPmENT ANd diAmONd TOOL S fOR THE cONSTRUc- TiON ANd STONE iNdUSTRiES.

THE PROdUcT R ANgE iNcLUdES PROdUcTS fOR bOTH cONSUmERS ANd PROfESSiONAL USERS. THE gROUP ’S PROdUcTS ARE SOLd iN mORE THAN 10 0 cOUNTRiES wORLd widE.

NET SALES iN 20 08 AmOUNTEd TO SEK 32.3 biLLiON ANd THE AVER AgE NUmbER Of EmPLOyEES wAS APPROximATELy 15,70 0.

Floor saws, wall and wire saws, tile and masonry saws, drill motors, machines for surface prepar- ation, power cutters and diamond tools, diamond tools for the stone industry.

Riders and walk-behind lawn mowers, zero-turn mowers, specialty turf-care equipment, trimmers, hedge trimmers and leaf blowers.

Premium chainsaws, clearing saws and accessories such as chains, blades, protective clothing and tools.

PROFESSIONAL PRODUCTS

PRODUCT OFFERING

Lawn mowers, garden tractors, trimmers, chain- saws, leaf blowers, hedge trimmers and snow throwers.

Lawn mowers, garden tractors, trimmers, chain- saws, leaf blowers, hedge trimmers and snow throwers. Products for irrigation and ponds as well as garden tools.

CONSUMER PRODUCTS

restofthe worldnorthamericaforestryconstructionlawnand

* The graphs show share of total Group sales.

12%*

32%*

17%*

10%*

29%*

1689

The modern logotype reflects the past, but also signals that Husqvarna still aims for the future.

1689 1872 1896 1903 1959 1978 2006 2007

HISTORy

300 yEARS

OF INNOVATION

1995 1986

Through the acquisition of gardena the product range was extended to include equipment and garden tools.

Husqvarna once again becomes an independent stock listed company.

Launch of Automower^® the world’s first solar powered robotic lawn mower.

Production start for the first riding lawn mower developed in-house.

Electrolux acquires Husqvarna, start of the expansion within outdoor products.

Husqvarna starts production of chainsaws and engine-driven lawn mowers.

Product range is extended to include motor bikes, which were manufactured until 1987.

Production of bicycles starts, continues until 1962.

Husqvarna starts production of sewing machines and kitchen equipment in cast-iron.

Husqvarna is founded as a weapons foundry for the Swedish armed forces.

HUSQVARNA IN BRIEF

9 4

10 6

1 2

World leader in diamond tools and cutting equip- ment for the construction and stone industries.

One of the world’s largest manufacturer of hand- held products.

Husqvarna and Jonsered are two of the top three leading brands for professional chainsaws in the global market, with a combined market share of approximately 40%.

BRANDS MARkET POSITION

World’s largest producer of lawn mowers and chain saws, as well as handheld petrol-powered gar- den equipment such as trimmers and leaf blowers.

One of the two largest in garden tractors. Gardena is the market leader in Europe for irrigation prod- ucts and garden tools.

Net sales 2008, SEKbn North America

Europe

Rest of the world

Husqvarna’s products are sold through 25,000 dealers world wide.

Subsidiaries or distributors Production facilities Professional Products consumer Products

HUSQVARNA IN BRIEF

HUSQVARNA iS THE wORLd’S L ARgEST mANUfAcTURER Of L AwN mOwERS ANd cHAiNSAwS AS wELL AS HANdHELd, PETROL-POwEREd gARdEN PROd - UcTS SUcH AS TRimmERS ANd bLOwERS. THE gROUP iS AL SO THE gLObAL LE AdER iN cUT TiNg EQUiPmENT ANd diAmONd TOOL S fOR THE cONSTRUc- TiON ANd STONE iNdUSTRiES.

THE PROdUcT R ANgE iNcLUdES PROdUcTS fOR bOTH cONSUmERS ANd PROfESSiONAL USERS. THE gROUP ’S PROdUcTS ARE SOLd iN mORE THAN 10 0 cOUNTRiES wORLd widE.

NET SALES iN 20 08 AmOUNTEd TO SEK 32.3 biLLiON ANd THE AVER AgE NUmbER Of EmPLOyEES wAS APPROximATELy 15,70 0.

Floor saws, wall and wire saws, tile and masonry saws, drill motors, machines for surface prepar- ation, power cutters and diamond tools, diamond tools for the stone industry.

Riders and walk-behind lawn mowers, zero-turn mowers, specialty turf-care equipment, trimmers, hedge trimmers and leaf blowers.

Premium chainsaws, clearing saws and accessories such as chains, blades, protective clothing and tools.

PROFESSIONAL PRODUCTS

PRODUCT OFFERING

Lawn mowers, garden tractors, trimmers, chain- saws, leaf blowers, hedge trimmers and snow throwers.

Lawn mowers, garden tractors, trimmers, chain- saws, leaf blowers, hedge trimmers and snow throwers. Products for irrigation and ponds as well as garden tools.

CONSUMER PRODUCTS

restofthe worldnorthamericaforestryconstructionlawnand

* The graphs show share of total Group sales.

12%*

32%*

17%*

10%*

29%*

1689

The modern logotype reflects the past, but also signals that Husqvarna still aims for the future.

1689 1872 1896 1903 1959 1978 2006 2007

HISTORy

300 yEARS

OF INNOVATION

1995 1986

Through the acquisition of gardena the product range was extended to include equipment and garden tools.

Husqvarna once again becomes an independent stock listed company.

Launch of Automower^® the world’s first solar powered robotic lawn mower.

Production start for the first riding lawn mower developed in-house.

Electrolux acquires Husqvarna, start of the expansion within outdoor products.

Husqvarna starts production of chainsaws and engine-driven lawn mowers.

Product range is extended to include motor bikes, which were manufactured until 1987.

Production of bicycles starts, continues until 1962.

Husqvarna starts production of sewing machines and kitchen equipment in cast-iron.

Husqvarna is founded as a weapons foundry for the Swedish armed forces.

HUSQVARNA IN BRIEF

9 4

10 6

1 2

World leader in diamond tools and cutting equip- ment for the construction and stone industries.

One of the world’s largest manufacturer of hand- held products.

Husqvarna and Jonsered are two of the top three leading brands for professional chainsaws in the global market, with a combined market share of approximately 40%.

BRANDS MARkET POSITION

World’s largest producer of lawn mowers and chain saws, as well as handheld petrol-powered gar- den equipment such as trimmers and leaf blowers.

One of the two largest in garden tractors. Gardena is the market leader in Europe for irrigation prod- ucts and garden tools.

Net sales 2008, SEKbn North America

Europe

Rest of the world

Husqvarna’s products are sold through 25,000 dealers world wide.

Subsidiaries or distributors Production facilities Professional Products consumer Products

1

highLighTs Of ThE yEAR

• Lower demand in both North America and Europe, particularly in the second half of the year.

• Net sales declined by 3% to SEK 32,342m (33,284) and operating income by 34% to SEK 2,361m (3,564).

• The decline in operating income referred mainly to Consumer Products, and to the Construction product area within Professional Products.

• Continued high growth for Husqvarna-branded con- sumer products in the servicing dealer channel.

• Forestry continued to perform well, due mainly to good growth for premium chainsaws in North America.

• Products launched in 2008 included a new version of the robotic lawn mower, Automower^® powered by battery and solar cells, new chainsaws with improved environ- mental performance, and a demolition robot for the construction industry.

• Group’s presence and production capacity in Asia strengthened by acquisition of outdoor-products operation in Jenn Feng.

• Magnus Yngen took office as new President and CEO as of 1 October 2008.

Key data* 2008 2007 2006 2005 2004

Net sales, SEKm 32,342 33,284 29,402 28,768 27,202

Gross margin, % 29.0 29.4 27.0 26.6 26.9

Operating income, SEKm 2,361 3,564 3,121 2,927 2,983

Operating margin, % 7.3 10.7 10.6 10.2 11.0

Income for the period, SEKm 1,288 2,036 1,862 1,641 2,323

Earnings per share, SEK** 3.34 5.29 4.83 4.26 7.78

Dividend per share, SEK** 0.00 2.25 1.73 — —

Return on capital employed, % 10.7 17.6 23.8 24.1 31.1

Return on equity, % 15.8 28.6 32.5 40.1 41.9

Capital turn-over rate, times 1.5 1.8 2.4 2.6 2.9

Operating cash flow, SEKm 2,013 1,843 535 949 2,073

Average number of employees 15,720 16,093 11,412 11,681 11,657

* For defintions, see page 46. Key data for 2004 are combined financial statements, 2005 is pro forma.

** 2006 are restated for bonus issue. The Board proposes no dividend for 2008.

Net sales by business area

Consumer Products, SEK 19,849m Professional Products, SEK 12,493m

Net sales by geographical area

Rest of the World, 10%

Europe, 50%

North America, 40%

Employees by geographical area

Rest of the World, 15%

North America, 40%

Europe, 45%

Operating income by business area

Consumer Products, SEK 963m Professional Products, SEK 1,587m

1

REPORT by

ThE PREsidENT

2

“ ^“

In november we started work on further de vel­

opment of the Group ’s str ateGIc pl an. thIs Involves makInG proper use of the potentIal of our br ands, sImul ta n­

eously makInG the supply chaIn more effIcIent.

althouGh 20 09 wIll be a dIffIcult ye ar In terms of market condItIons, I am convInced that there are very Good opportun­

ItIes for husqvarna to strenGthen Its market posItIons.

”

REPORT by ThE PREsidENT

husqvarna has a history of stable growth and high profit- ability over many years. The group’s performance in 2008 was weak however, as a result of the sharp deterioration in market conditions during the year.

group sales in 2008 declined by 3%. Excluding costs for personnel cutbacks of sEK 316m, operating income declined by 25% and margin was 8.3% in comparison with 10.7% in 2007.

The decline in operating income was due mainly to lower sales volumes for consumer products, particularly in the Us, and for profes sional products for the construction industry, as well as higher material costs. in light of the weaker demand, we implemented substantial production cutbacks in order to reduce inventories, which had a con- siderably adverse effect on income, due to lower cost absorption at our plants.

Continued growth in core areas

despite difficult market conditions, there were positive trends during the year in several product areas. sales of pro- fessional chainsaws increased, particularly in the Us. Total sales and operating income for forestry products were unchanged. This was enabled mainly by launches of new products with both improved performance and lower pro- duction costs, and by rationalization of production.

Other products showing positive performance included Riders, the robotic lawn mower Automower^®, and premium husqvarna-branded products for consumers.

Decision on cost-cutting measures

With reference to the weak market conditions, we imple- mented substantial reductions in capacity in order to reduce costs within the group. This affects 960 of the com- pany’s approximately 15,700 employees. The total cost for these adjustments amounts to sEK 316m, which was charged against income for 2008. Estimated annual savings amount to approximately sEK 350m, and are expected to take full effect as of the third quarter of 2009.

Integration of acquisitions

Work on integrating acquired operations continued during the year.

The gardena sales organization is now fully integrated in the group’s organization for the mass market in Europe. The ongoing coordination of logistics will enable a reduction in the number of warehouses. The gardena product offering for 2009 has been expanded with electrically powered lawn mowers and new trimmers, developed by our joint product development resources, and based on models in the group’s product range. These products have been received very well and have expanded gardena’s presence with retailers.

in the Zenoah operation, work is continuing on develop- ing common platforms for such products as chainsaws and leaf blowers, and several new products were launched dur-

ing the year. integration of this operation has also gener- ated opportunities for increasing efficiency in product development and production.

in december the group completed the acquisition of Jenn feng in China, which has annual sales of approxi- mately sEK 800m. The company focuses on chainsaws and other outdoor products for the lower price segments, which are produced at a plant in China. in the long term there is a substantial potential for creating growth for sev- eral of our tactical brands in both Asia and in our traditional markets, on the basis of Jenn feng’s product range and its cost-efficient production.

Strategic review

in November we started work on further development of the group’s strategic plan.

Although husqvarna has a strong position, we must set priorities for both the short and the long term. This involves making proper use of the potential of our brands, simul ta n- eously making the supply chain more efficient by consoli- dating production, and utilizing opportunities in low-cost countries. We have to maintain a high rate of product development in prioritized areas. This is especially import- ant with reference to the demands for greater energy effi- ciency and reduced emissions which our petrol-powered products will have to satisfy. husqvarna aims to be the leader also in this respect. We must also continue to expand our distribution network.

Outlook for 2009

Market conditions will remain weak in 2009, with lower demand in both Europe and the Us. We will maintain a high level of flexibility and be prepared to make rapid adjust- ments if market conditions deteriorate further.

We will focus on maintaining costs and inventory at low levels and prioritizing cash flow. With regard to costs, the implemented cutbacks will generate effects during the sec- ond half of 2009. integration of acquisitions will also make a positive contribution, as we are increasing our efforts to realize potential synergies.

As retailers have been cautious in terms of inventory build-ups for the coming season, production will be ramped up later. We expect a significantly weaker start of the season in 2009 in comparison with the very strong start in 2008.

Although 2009 will be a difficult year in terms of market conditions, i am convinced that there are very good oppor- tunities for husqvarna to strengthen its market positions both this year and in the years to come.

Magnus yngen President and CEO

3

No. 1 Chainsaws

No. 1 Other handheld petrol-powered products, e.g. clearing saws and trimmers No. 1 Lawn mowers

No. 1–2 garden tractors

No. 1 Cutting equipment and diamond tools for the construction and stone industries No. 1 Consumer products for irrigation in Europe

LEAdiNg gLObAL MARKET POsiTiONs

4

5

sTRATEgy

husqvarna Is the world’s l arGest producer of outdoor power products. the Group has le adInG posItIons In the Global market for product cateGorIes whIch account for approxImately 85% of sales.

husqvarna’s market positions have been built over a long period through both organic growth and acquisitions, while good profitability has been maintained.

Strong points

husqvarna has a portfolio of strong brands, a broad global distribution network, and a competitive product offering based on advanced technical competence.

The group has a cost-efficient production system based on large volumes.

The highly flexible supply chain enables the group to manage seasonal and weather-related variations in demand.

Acquisitions reinforce market positions

subsequent to the stock-exchange listing in June 2006, husqvarna has acquired ten operations with combined sales of approximately sEK 7,000m. These acqui- sitions have strengthened the group additionally by providing strong brands and complementary products, as well as by expanding the production base and the number of suppliers in Asia.

POWERfUL gLObAL disTRibUTiON NETWORK

bROAd PROdUCT OffERiNg

EffiCiENT sUPPLy ChAiN

sales, Reason for

year Company Products sEKm* acquisition synergies**

Consumer 2007 gardena, germany irrigation systems 3,800 New, complementary sales, product

Products and garden product range, development,

equipment brand, distribution purchasing,

administration, production 2008 Jenn feng, China Chainsaws, lawn mowers 800 Production in China, Components,

generators, etc. lowspec. products, production, McCulloch brand purchasing,

M&s, distribution Professional 2006 dixon, UsA Zero-turn lawn mowers 400 Product range, Product

Products distribution development,

production 2006 Jikai, China diamond tools 160 Production in China Production,

purchasing

2007 Komatsu Zenoah, Chainsaws, 1,200 Product range, Product

Japan trimmers, leaf blowers distribution in Japan development,

product exchanges, purchasing, production, M&s

2007 soff-Cut, UsA Equipment for 240 Product range Product exchanges,

early sawing in concrete distribution

2007 Klippo, sweden Lawn mowers 150 Product range Purchasing,

production, distribution

2007 King Concepts, grinding and 30 Product range Product exchanges,

Australia polishing equipment distribution

2008 sandvik Nora, sweden diamond tools 65 Product range distribution,

administration

2008 Meco, UsA floor saws 54 Product range Product exchanges,

distribution

* Annualized as of acquisition date. ** M&s = Marketing and sales.

sTRONg bRANds

Acquisitions 2006–2008

6

The group has a portfolio of strong brands which addresses specific customer segments and corres- ponding sales channels.

Husqvarna is the major brand, accounting for more than 40% of total group sales as well as the majority of sales for Professional Products. husqvarna has been a strong global brand for many years, particu- larly for chainsaws and other handheld products.

The brand stands for technical leadership, high per- formance and quality. husqvarna-branded products are sold in the premium segment.

The range of products under the husqvarna brand has been steadily expanded, and also includes high- performance consumer products. These products are sold mainly through servicing dealers. They have shown average annual growth of approximately 10%

over the past five years and now account for a sub- stantial share of sales by Consumer Products.

investment in marketing increased by approxi- mately sEK 100m in 2008, primarily in North America, which contributed to higher sales in this market. The group will continue to invest in brand-building.

Gardena is the leading brand for irrigation and gar- den equipment in the European consumer market.

The brand has a very strong position in the premium segment, and accounts for approximately 10% of group sales. Market research has consistently shown

that awareness of the brand is very high among con- sumers. good opportunities exist for increasing sales under the gardena brand by expanding the product offering as well as the brand’s geographical presence in new markets, including Eastern Europe.

Other brands

The group has a number of brands with strong pos- itions in local or regional markets and within specific product categories. These brands are important but will not be expanded at the global level. The largest of them in terms of sales are:

Poulan and WeedEater, well-known brands for chain- saws and garden products in the North American mass market.

Partner, which has a corresponding position in Europe and is particularly strong in scandinavia.

Jonsered, a leading brand for high-performance for- estry and land maintenance products, with a similar position to husqvarna’s in certain markets.

Zenoah, with a similar position to Jonsered in the Japanese market.

Flymo, a market leader in electrical garden products for the consumer market in the United Kingdom, with a strong position in scandinavia.

s TR ATEgy

Higher sales under premium brands

sTRONg bRANds

2003 2008

44% Premium

62%

Tactical brands

Production for other companie’s brands Other premium brands* Gardena

Husqvarna

*Other premium brands include Jonsered, Zenoah, Klippo and Diamant Boart.

The share of sales under brands that are positioned in the premium segment rose from 44% of sales to 62 % in 2003–2008.

7

with strong positions at both major retailers and ser- vicing dealers. husqvarna-branded products for both professionals and consumers are sold through approxi- mately 25,000 servicing dealers world-wide. sales and support for these dealers are provided by the group’s own global sales organization, which operates com- panies in more than 40 countries.

The comprehensive distribution network has been built over a long period of time and is a significant competitive advantage. The sales organization is com- mitted to continuously improving support and service to dealers, as well as to increasing the total number of dealers and strengthening the group’s positions with existing customers.

in terms of consumer products, husqvarna has maintained strong positions for many years with the leading chains in both Europe and the Us. The group has steadily reinforced these positions through invest- ments in product renewal and greater efficiency in the supply chain.

The group’s American operation has been the main supplier of Craftsman-branded products to sears since the 1980’s. sears is the world’s largest retailer of outdoor products, with a market share of approximately 25% in the Us.

gardena has leading positions for its product cat- egories at 8 of the 10 major retailers in Europe. The acquisition of gardena gives the group a broader product offering and a greater presence among retail- ers in Europe, which creates new growth opportunities.

s TR ATEgy

POWERfUL gLObAL

disTRibUTiON NETWORK

Sales by distribution channel Distribution channels, share of sales

Major retailers

Servicing dealers

Construction contractors ¹⁾ Consumer Products

North America

83% Sears, Lowe’s,

Walmart etc. 17% —

Rest of the World 69%

B&Q, Leroy Merlin, OBI,

Bauhaus etc. 31% —

Professional

Products 4% 87% 9%

1) Refers to the Construction product area.

Major retailers, 48%

Servicing dealers, 48%

Construction contractors, 4%

A revolution in lawn care

Automower^®, the world’s first robotic lawn mower, was developed by husqvarna. Automower^® is silent and emission-free, and fea- tures low energy consumption. it mows the lawn automatically and returns to the docking station when battery power drops to a pre- defined level. Automower^® is available in several versions, tailored for lawn surfaces of up to 3,000 m².

in 2008 husqvarna launched the Automower^® solar hybrid , which is driven by both solar cells and a battery. The solar cells enable reduced energy consumption and longer battery life.

8

husqvarna has a broad, competitive product offering. The group has particularly strong positions for handheld prod- ucts such as chainsaws, clearing saws and trimmers, as well as for wheeled products such as tractors and lawn mowers.

The group’s goal is to be the leader in the most import- ant categories. in order to ensure strong partnership with customers, the group must provide a complete product offering that includes competitive products even in cat- egories where it does not aim to be the leader.

Advanced technical expertise

husqvarna has extensive resources and advanced compe- tence for product development. Expertise in engine tech- nology for two-stroke engines for handheld petrol-powered products has been decisive for achieving a leading position in the global market. The group has succeeded in combining high performance with such vital features as low weight, improved ergonomics, simplified service, reduced exhaust emissions and lower energy consumption. The group’s expertise and patents in engine technologies, particularly for handheld products, represent a substantial competitive advantage.

Faster rate of product launches

in recent years the group has been able to launch new products at a faster rate without incurring higher develop- ment costs. Coordination with acquired companies can contribute to even greater efficiency.

bROAd

PROdUCT OffERiNg

s TR ATEgy

Coordination involves establishing a group-wide process for product development that covers all phases, from iden- tification of business opportunities based on customer benefits to the launch of a new product. The process is being introduced gradually throughout the group’s oper- ations, and will also be aligned with group-wide processes for purchasing and quality assurance.

Reduced environmental impact

husqvarna is the leader in several areas in terms of prod- ucts with reduced environmental impact. The group’s new engines comply with the strictest exhaust-emission criteria in the Us and Europe and are also considered to be in com- pliance with all currently known future regulations.

husqvarna launched environmentally adapted fuels and lubricants at an early stage.

The group uses a mix of technological solutions, includ- ing catalysts, in order to reduce exhaust emissions and achieve optimal performance. Chainsaws with the new pa tented X-TORQ^® engine feature reductions of up to 60%

in exhaust emissions and up to 20% in fuel consumption.

Automower^® solar hybrid, the latest version of the group’s robotic lawn mower, is powered by batteries and solar cells and is unique in the market.

Over the next few years the group will increase invest- ments in development and marketing of products with improved environmental performance.

9

Automower^® 260 ACX for large surfaces

in 2009 husqvarna will launch the Automower^® 260 ACX, designed for lawn surfaces of up to 6,000 m², and ideal for profes- sional users as well as homeowners with large lawns. if mowing is interrupted, the mower sends a text message to the cell phone.

Chainsaws for optimal productivity

husqvarna chainsaws are built to meet strict demands for performance, ergonomics and safety. Unique technology in X-TORQ and E-TECh engines enable maximum power and torque combined with lower emissions and fuel consumption.

The new 576 XP^® AutoTune chainsaw will be launched in 2009, and repre- sents a technological and environmental breakthrough for professional chainsaws. AutoTune technology uses a computer chip to control the flow of fuel to the engine. This enables automatic optimization of chainsaw perfor- mance, which in turn reduces fuel consumption and emissions.

s TR ATEgy

X-TORQ^®

husqvarna’s new pat- ented X-TORQ technol- ogy enables reducing fuel consumption by up to 20% and emissions by up to 60%.

Improved handle design The asymmetric rear han- dle features a soft inlay for a more stable grip, which means less fatigue.

AutoTune

AutoTune technology uses a computer chip to control the flow of fuel to the engine.

This enables automatic opti- mization of performance as well as reduced emissions.

10

s TR ATEgy

bROAd PROdUCT OffERiNg

Automatic irrigation system

in 2008 gardena launched the AquaCon- tur Automatic irrigation system, which ensures perfectly uniform watering of entire lawns of up to 380 m². The irrigation unit is either mobile or a permanently installed pop-up. A range of 50 adjustable settings enables the sprinkler to match the contours of the garden.

More efficient hose-trolley from Gardena

The new gardena hose-trolley features a folding crank handle, so there’s no need to bend down in order to unwind the hose. it also features a control that enables the hose to be unwinded without tangling. broad, large-diameter wheels make it easier to pull the trolley through tall grass or on uneven terrain. A height-adjustable holder can store a nozzle, a spray gun or a spray lance.

Riders for demanding users

husqvarna Riders meet advanced criteria for both consumers and professional users. The unique rear-wheel steering gives the Riders superior maneuverability, and at full steering lock, the uncut circle is only about 20 cm in diameter. The front-mounted cutting deck enables easy mowing under bushes or close to fences and walls.

The 15V2sAWd Rider offers features such as power steering, front lighting and a comfort seat. The Combi cutting deck enables bioClip^® as well as rear discharge. All-Wheel-drive (AWd) ensures maximum traction on wet grass, clay or snow. The 15V2sAWd can be fitted with attachments for year-round use.

11

Husqvarna Panthera Leo

The Panthera Leo is a husqvarna concept product. This silent, battery-driven and envi- ronment-friendly ride-on lawn mower, could become a reality within five years.

Panthera Leo is a hybrid of a Rider and a Zero-turn mower, made of recycled plastic and aluminum.

Cutting height and width are controlled by regulators on the steering wheel. An LCd- screen displays information such as speed, cutting height, cutting width, remaining bat- tery time and service requirements, as well as warning messages, e.g. if there is a risk of colli- sion. sensors enable the Panthera Leo to sug- gest appropriate speed and cutting height, to ensure perfect mowing.

New demolition robot

The new radio-controlled dXR 310 demolition robot is the latest addition to husqvarna’s product offering for the construction industry. The robot is husqvarna’s first, designed for light demolition both indoors and outdoors as well as in sensitive environments such as process- ing plants.

The robot is controlled by a user- friendly bluetooth-assisted remote control that fits into a

shoulder strap.

Innovative diamond wire

husqvarna’s new C 1200 “Cobra wire” has been devel- oped for difficult sawing of concrete or stone, without the need for water as a lubricant. The “Cobra wire” can thus be used for demolition of nuclear power plants, which involves major environmental problems. since the wire requires no water, sawing does not generate secondary radioactive water, which is expensive to purify. “Cobra”

can also cut through large and complex metal structures, which provides new opportunities for recycling of materials.

in 2008 the “Cobra wire” received husqvarna group’s internal award as the best green innovation.

s TR ATEgy

husqvarna has a well-developed production system with high flexibility in order to handle seasonal and weather-related variations in demand. The group operates 22 large facilities and the greater share of production is located at four major specialized plants in the Us. fixed costs comprise approximately 22% of the group’s total costs.

The group’s American plants are very competitive, on the basis of cost-efficiency and proximity to cus- tomers in the Us, which is the largest market for garden products. husqvarna is a net exporter from the UsA.

The short season for garden products and the dependence on weather conditions can involve rapid fluctuations in demand. This requires locating part of production close to the major markets in order to ensure prompt deliveries and quality customer service.

Increased production and purchasing in low-cost countries

Acquisitions have given the group new plants in China and the Czech Republic, and have also pro- vided access to a network of local suppliers. in 2009 the group will open a new plant in China with pro- duction that includes chainsaws for the consumer market and an annual capacity of approximately 1 million units.

The share of production in low-cost countries will gradually increase in terms of components and prod- ucts for lower price segments. There will also be an increase in purchases of components from low-cost countries, which amounted to more than 20% in 2008.

Major plants before acquisitions Acquired plants

Acquisitions in low-cost countries Product flows

USA

• Tractors

• Lawn mowers

• Trimmers

• Chainsaws

Sweden

• Premium chainsaws

• Clearing saws

• Riders

• Power cutters

China

• Low-end chainsaws, trimmers, and lawn mowers

• Construction products

• Sourcing of low-end handheld electrical products and components

EffiCiENT sUPPLy ChAiN

Major plants and product flows

12

13

0 5

10 >10

15

%

Operating margin, % 06 05

04 07 08

Organic net sales growth Operating margin the Group has a lonG hIstory of stable Grow th and Good profItabIlIt y. the lonG ­term fInancIal Goal s that were establIshed In connectIon wIth the stock­e xchanGe lIstInG In 20 06 are unchanGed.

sales growth and operating margins have historically been in line with the group’s stated goals. husqvarna’s weaker performance in 2008 is was due primarily to the sharp, rapid downturn in demand during the year.

fiNANCiAL gOALs

Ongoing cost reductions

in light of the deterioration in market conditions, it was decided that personnel cutbacks would be implemented in order to reduce the group’s costs. These cutbacks affect 960 of the group’s approximately 15,700 employees. The cost of the cutbacks is sEK 316m, which was charged against income for 2008. Annual savings are estimated at approximately sEK 350m and will take full effect as of the third quarter of 2009.

<2,5

0 1 2 3 4 5

Net debt/EBITDA, times 06 07 08 times

Capital structure

0 10 20 30

25 50

40 50

08 07 06

%

0 1 2 3 4 5

08 07 06

Dividend pay-out ratio, % 0

10 20 30

25 50 40

50

%

Share of net income, % 06 07 08^* Dividend

–8 –4 0 4 12 16

8

%

>5

Net sales growth, organic, % 06

05

04 07 08

Long-term financial goals Net sales

•Annualorganicgrowthofapproximately5%overthe

course of a business cycle.

•Additionalgrowththroughcomplementaryacquisitions.

Profitability

•Operatingmarginofmorethan10%overthecourseofa

business cycle.

Capital structure

•Capitalstructureshouldmeetcriteriaforlong-termcredit

rating corresponding to at least bbb. This is considered to require that seasonally adjusted net debt in relation to EbiTdA should not exceed a multiple of 2.5 in the long term.

Dividend

•Inthelongtermthedividendshouldcorrespondto

25–50% of income for the period.

To be achieved by Organic growth

•Fasterrateofnewproductlaunches.

•Utilizepotentialofbrands,particularlyHusqvarna

and gardena.

•Reinforceandexpanddistributionnetwork.

Complementary acquisitions

•Synergiesine.g.distribution,brandsortechnologies.

•RapidandsuccessfulintegrationinGroupoperations.

Maintain high operating margin

•Focusongrowingmostprofitableproductcategories.

•Greatercost-efficiency,e.g.throughrelocationofproduc- tion and increased purchasing from low-cost countries.

* The Board proposes no dividend for 2008.

14

CONsUMER PROdUCTs

14

Key data* 2008 2007 2006 2005 2004

Net sales, SEKm 19,849 20,621 18,335 18,360 17,579

Share of Group sales, % 61.4 62.0 62.4 63.8 64.6

Operating income, SEKm 963 1,638 1,415 1,332 1,607

Operating margin, % 4.9 7.9 7.7 7.3 9.1

Net assets, SEKm 15,778 13,640 6,034 5,719 4,646

Capital expenditure, SEKm 686 514 524 859 587

Average number of employees 8,655 8,851 5,751 6,054 6,041

*2004 according to Electrolux reporting for the Outdoor Products segment. For definitions, see page 46.

Gardena is the european leader in irrigation systems.

15

prehensIve product offerInG, as well as le adInG posItIons In both europe and north amerIca . premIum husqvarna­

br anded products are showInG stronG Grow th.

husqvarna is the world’s largest producer of lawn mowers, trimmers, leaf blowers and chainsaws, and is one of the two largest producers of garden tractors. The group’s global market shares in the major product categories are esti- mated at 20–40%.

gardena is the European market leader in irrigation sys- tems and garden tools.

Operations in Consumer Products comprise two geo- graphical areas – North America and Rest of the World, and the latter accounts for a somewhat greater share of sales.

The market

The global market for the type of equipment produced by the group is estimated at approximately sEK 80 billion, of which North America accounts for approximately two- thirds. historically, annual growth in volume has been approximately 2–3%, Considerable variations can occur year-on-year as well as between markets, as a result of weather conditions.

demand in 2008 was lower than in the previous year in both Europe and North America. The North American mar- ket has shown continuously declining demand over the past four years particularly within wheeled products.

The market features intense competition and down- ward pressure on prices, particulary for low-end products.

historically, prices for identical products have been declin- ing by an average of approximately 1–2% annually. high cost-efficiency and continuous product development are essential for profitability. strong brands that are created by successful product development, high quality and sus- tained marketing normally enable higher profit margins.

such brands include husqvarna, flymo and gardena.

demand is driven by the general business cycle as well as trends for private consumption of household capital goods. A substantial share of demand refers to replace- ment of used equipment. however, weather conditions and the length of the growing season are also important factors.

Market trends

increasing interest in garden care has stimulated demand for garden equipment in recent years.

The long-term market trend shows a polarization to either simple or more advanced high-performance products.

Competitors

Most of husqvarna’s competitors sell products for both consumers and professional users. The most important competitors are the American companies John deere, Modern Tool and die Company (MTd) and Toro, and the European companies global garden Products (ggP) and stihl.

CONsUMER PROdUC Ts

Net sales and operating margin

05

04 06 07 08

21,000 18,000 15,000 12,000 9,000 6,000 3,000 0

14 12 10 8 6 4 2 0

SEKm %

Net sales, SEKm Operating margin, %

Distribution of net sales by quarter

40

%

20 30

10

0

Net sales, % 4 year average Q1 Q2 Q3 Q4 Share of Group net sales

Rest of the World, 32%

North America, 29%

16

Petrol-powered wheeled products such as lawn mowers,

•

garden tractors and snow throwers.

Petrol-powered handheld products such as chainsaws

•

and trimmers.

Electrically powered handheld products such as hedge

•

trimmers and leaf blowers.

Electrically powered lawn mowers.

•

Electrically powered robotic lawn mowers, Automower

• ^®.

Products for irrigation and garden ponds, as well as

•

gardening equipment such as pruning shears, rakes and shovels.

Highlights of 2008 Product offering

Lower sales, particularly in North America.

•

Substantial decline in operating income as a result of

•

lower sales, a less favorable product mix and higher costs for materials.

Operating income was also adversely affected by pro-

•

duction cutbacks, which involved lower cost absorption.

Continued good growth for Husqvarna-branded prod-

•

ucts in the servicing dealer channel.

For additional information on 2008, see page 30 in the Report by the Board of Directors.

John deere and Toro are the only competitors who are listed companies.

husqvarna competes with John deere and MTd primar- ily within lawn mowers and garden tractors. Toro is also a competitor in the Us, within lawn mowers and trimmers for the consumer market.

ggP has a leading position within lawn mowers and rid- ers in the European consumer market under brands such as stiga. The german company bosch is mainly a competitor within electrically and battery-powered products while the british company hozelock has a strong position within gar- den irrigation and garden ponds, primarily in the UK.

stihl is a competitor within several product categories, but particularly within petrol-powered handheld products such as chainsaws and trimmers in the high-end segment.

Considerable seasonal variations

Operations show considerable seasonal variations, with the majority of sales during the first half of the year (see graph on page 15).

The season for garden equipment peaks during the sec- ond quarter and is essentially over by the end of the third quarter. The season for irrigation products is normally shorter and usually ends after the second quarter. Produc- tion and inventory-buildups for the coming season normally start in the fourth quarter.

Consumer Products North America

in 2008, the North American operation accounted for somewhat less than half of sales within Consumer Products.

in North America, the greater share of sales are through mass-market channels under the Poulan and WeedEater brands, as well as to sears under its Craftsman brand.

high-end products under the husqvarna brand account for a growing share of sales.

Market position

The group has strong market positions, particularly for lawn mowers, garden tractors, trimmers and chainsaws.

Customers and distribution

Consumer products for the mass market are sold mainly through major retail chains and diy outlets. The Us market is highly consolidated, with the four largest chains – sears, Lowe’s, Wal-Mart and home depot – accounting for approximately 70% of the market.

sears has been husqvarna’s largest customer since the 1980’s. sears is the world’s largest retailer of outdoor prod- ucts, under the Craftsman brand, and has a market share of approximately 25% in the Us.

husqvarna-branded products are sold mainly through servicing dealers, i.e. smaller independent retailers who also offer technical service.

CONsUMER PROdUC Ts

17

North America Rest of the World

Major brands Husqvarna^® , Poulan^®, Husqvarna^® , Gardena^®, Flymo^®,

WeedEater^® Partner^®, McCulloch^®

Major production locations USA Germany, Czech Republic,

Great Britain

Major competitors John Deere, MTD, Bosch, GGP, Hozelock,

Stihl, Toro Stihl, TTI

Brands, production and competitors

17

CONsUMER PROdUC Ts

husqvarna’s riders are available in a range of versions for both consumers and professional users.

18

The group has strong positions with the leading retail- ers, which have been steadily reinforced through invest- ments in product renewal and greater efficiency in the sup- ply chain.

Consumer Products, Rest of the World

in 2008, Rest of the World accounted for somewhat more than half of sales of consumer products. The greater share of sales refers to Western Europe.

Operations in Rest of the World are divided into two sectors, one covering major retailers, i.e. mass-market channels, and the other focused on servicing dealers.

sales through mass-market channels are mainly under the gardena, flymo, Partner and McCulloch brands. The husqvarna brand represent premium products and are sold through servicing dealers.

Market position

The group has strong market positions within chainsaws for the consumer market under the husqvarna, Partner and McCulloch brands, as well as for garden tractors and riders under the husqvarna brand. The group is also a market leader in electrically-powered products in the UK under the flymo brand, which also has a strong position in scandi- navia. gardena is the leader in the consumer market in Europe for irrigation products, and also has leading pos- itions in garden tools, garden ponds and pumps. sales of premium products under the husqvarna brand have shown strong growth in recent years.

Customers and distribution

in comparison with North America, the European market is more fragmented in terms of distribution channels, and features a number of national and international retail chains and diy outlets such as b&Q, Leroy Merlin, Obi, bauhaus and K-Rauta.

husqvarna-branded products are sold through servicing dealers, who have a strong position within high-end products.

Production

Most of the group’s products for the consumer markets are produced at four plants in the Us. The plants are special- ized and are highly flexible in order to enable response to seasonal and weather-related variations in demand. The group is a net exporter from the Us.

Electric lawn mowers and the robotic lawn mower Automower^® are manufactured at a plant in the UK, while other handheld electrical products are sourced from Asia.

Petrol-powered lawnmowers, chainsaws and trimmers are produced at a small plant in italy. The gardena products are manufactured at three plants in germany and three in the Czech Republic.

following the acquisition of Jeng feng in december 2008 the group now operates a plant for consumer prod- ucts in China.

CONsUMER PROdUC Ts

19

a total of 11 lawn mowers in a new series will be launched by husqvarna in 2009 and 2010.

20

PROfEssiONAL PROdUCTs

Key data* 2008 2007 2006 2005 2004

Net sales, sEKm 12,493 12,663 11,067 10,408 9,623

share of group sales, % 38.6 38.0 37.6 36.2 35.4

Operating income, sEKm 1,587 2,123 1,875 1,739 1,521

Operating margin, % 12.7 16.8 16.9 16.7 15.8

Net assets, sEKm 7,875 6,790 4,714 4,626 3,905

Capital expenditure, sEKm 475 343 366 400 453

Average number of employees 7,040 7,242 5,661 5,627 5,616

*2004 according to Electrolux reporting for the Outdoor Products segment. for definitions, see page 46.

husqvarna is the world’s largest producer of chainsaws.

21

many ye ars In terms of chaInsaws and other handheld products for profes ­ sIonal users. husqvarna products are sold world ­wIde throuGh approxImately 25,0 0 0 de alers.

husqvarna and Jonsered have been two of the three lead- ing chainsaw brands in the global market for many years, with a combined market share of approximately 40% in the professional segment. The group is also the world leader in cutting equipment and diamond tools for the construction and stone industries.

The greater share of sales in this business area refers to husqvarna-branded products.

The Professional Products business area comprises three product areas - forestry, Lawn and garden, and Con- struction. forestry equipment accounted for approximately 45% of the business area’s sales in 2008, while Lawn and garden accounted for approximately 30% and Construction accounted for approximately 25%.

The market

The total market for the group’s range of professional products is estimated at approximately sEK 60 billion, half of which refers to equipment for the construction and stone industries.

demand is driven by general business conditions as well as by activities in forestry and the construction industry.

substantial variations in demand can arise for Lawn and

garden equipment from year to year and within markets, depending on weather conditions. demand for chainsaws is favorably affected by storms and fallen trees.

Market trends

for many years there has been a trend in the forest industry toward increased use of machines instead of manual felling.

This resulted in a substantial decline in the market for chainsaws until the early 1990’s. since then the market has been growing on the basis of increasing demand in markets such as Russia, Eastern Europe and Latin America. in add- ition, consumer demand for premium chainsaws has been increasing steadily.

One trend for professional gardening equipment, par- ticu larly in the UsA, has shown that corporations, munici- palities and private individuals have increasingly out- sourced landscape maintenance to companies that specialize in such services. These contractors have thus comprised a growing customer segment over several years.

stricter criteria for reduction of exhaust emissions from petrol-powered garden equipment and chainsaws were introduced in the Us in 1997 and 2002. The regulatory cri- teria from the latter year are being phased in through 2010.

similar criteria are being phased in within the European market over the period 2007–2012. Other countries, such as Japan, are also expected to introduce such criteria. The group’s new engines comply with the most stringent demands regarding exhaust emissions in the Us and Europe, and are also considered to be in compliance with currently anticipated future requirements.

PROfEssiONAL PROdUC Ts

Net sales and operating margin

05

04 06 07 08

SEKm %

15,000 12,000 9,000 6,000 3,000 0

20 16 12 8 4 0 Net sales, SEKm Operating margin, %

Distribution of net sales by quarter

30

%

20

10

0

Net sales, % 4 year average Q1 Q2 Q3 Q4 Share of Group sales

Lawn and garden, 12%

Forestry, 17%

Construction, 10%

22

Competitors

husqvarna’s most important competitors in the profes- sional market segment are the german company stihl and the American companies John deere and Toro. stihl com- petes primarily within petrol-powered handheld products such as chainsaws and trimmers, while John deere and Toro compete mainly within professional equipment for lawn and garden.

The most important competitors within equipment for the construction industry are hilti, which is based in Liech- tenstein, Tyrolit in Austria, saint gobain and Wheelabrator in france, and stihl in germany for power cutters.

John deere, Toro and saint gobain are listed companies.

Seasonal patterns

sales of lawn and garden equipment refer mainly to the first half of the year, while most chainsaws are sold during the second half. sales of equipment and diamond tools for the construction industry are spread more evenly over the year (see graph on page 21).

Forestry

in 2008, the forestry product area accounted for approxi- mately 45% of the group’s total sales of professional products.

husqvarna manufactures a wide range of premium

chainsaws for various geographical areas and climates. The product range also includes clearing saws and accessories such as chains, blades, protective clothing and tools.

These products are developed for users who demand high levels of performance, durability and ergonomics. The product range satisfies most needs for forest management and tree care.

Brands and market position

Professional forestry products are mainly sold under the husqvarna, Jonsered and Zenoah brands, with husqvarna accounting for a dominant share of sales. The husqvarna brand has had a strong global position for many years, par- ticularly for chainsaws and other handheld products. Jon- sered has a similar position, and complements husqvarna in specific markets. Zenoah has a strong market position for chainsaws in Japan as well as for other handheld products such as clearing saws, trimmers and leaf blowers. Zenoah products are also sold in the Us under the RedMax brand.

Customers and distribution

The majority of sales are to servicing dealers through the group’s own sales companies. in smaller markets, products are sold through distributors. The group is represented in over 100 countries through a total of more than 25,000 dealers.

PROfEssiONAL PROdUC Ts

Product offering Highlights of 2008

High-performance chainsaws, clearing saws and brush-

• cutters.

Riders, walk-behind lawn mowers, zero-turn mowers,

•

specialty turf-care equipment, trimmers, hedge trimmers and leaf blowers.

Accessories such as chains, blades, tools and protective

• clothing.

Floor saws, tile and masonry saws, wall and wire saws,

•

concrete saws, drill motors and stands, polishing and grinding machines, power cutters and related diamond tools, and diamond tools for the stone industry.

Lower sales and operating income, particularly for the

•

Construction product area.

Decline in sales and operating income for Lawn and

• garden.

Sales and operating income for Forestry were in line

•

with 2007.

For additional information on 2008, see page 30 in the Report by the Board of Directors.

PROfEssiONAL PROdUC Ts

Brands, production and competitors

Forestry Lawn and garden Construction

Major brands Husqvarna^®, Jonsered^®, Husqvarna^®, Jonsered^®, Husqvarna^® , Diamant Boart^® Zenoah^® Klippo^® , Dixon^®, RedMax^®

Major production locations Sweden, USA, Sweden, USA Sweden, USA,

Japan China, Belgium

Major competitors Stihl John Deere, Hilti, Saint Gobain,

Stihl, Toro Tyrolit, Wheelabrator

23

husqvarna’s riders feature unique rear­wheel steering for greater maneuverability and a minimum turning radius.

24

PROfEssiONAL PROdUC Ts

Lawn and garden

The Lawn and garden product area accounted for approxi- mately 30% of the group’s sales of professional products in 2008.

The product offering includes riders, walk-behind lawn mowers and zero-turn mowers, as well as special products for turf care. The range also includes handheld equipment such as trimmers, hedge trimmers and leaf blowers.

Products within Lawn and garden must meet demands for performance, durability and comfort. An effective organ- ization for technical support and service is also essential for success in this area, where larger riders are priced at more than sEK 100,000.

Brands and market position

The husqvarna brand accounts for the greater share of sales. The dixon, bluebird and yazoo/Kees brands are used for a limited range of products in the Us. The Klippo brand has a strong position in the scandinavian market for profes- sional walk-behind lawn mowers.

Customers and distribution

Products are distributed to servicing dealers through husqvarna’s sales companies, as well as through indepen- dent distributors.

The primary end-users are professional landscape con- tractors as well as municipalities and institutional users.

Construction

in 2008 this product area accounted for approximately 25% of the group’s total sales of professional products.

husqvarna’s product offering includes machines and dia- mond tools for the construction and stone industries.

The machines for the construction industry include power cutters, floor saws, wall and wire saws, tile and masonry saws, drill motors with drill stands, and machines for surface preparation and demolition.

diamond tools, which are consumables are cutting tools that are mounted on the machines. Customers who buy the above machines also buy the group’s diamond tools to a large extent. husqvarna’s range of diamond tools for the stone industry includes saw blades, diamond wires, drills, and tools for calibration, grinding and profiling.

Products for the construction industry are used exclu- sively by professionals, and satisfying their demands for performance, reliability and a high level of technical service is essential for success.

Brands and market position

Products for the construction industry are sold under the husqvarna brand. diamant boart is the leading brand in the global market for diamond tools used by the stone industry.

Customers and distribution

diamond tools and equipment for the construction indus- try are sold mainly through rental companies and special- ized dealers, but also directly to large contractors.

diamond tools for the stone industry are sold almost exclusively directly to companies that quarry and/or pro- cess stone.

Production

The group’s professional products are manufactured pri- marily in sweden, the Us and Japan. Chainsaws, clearing saws and riders are manufactured at the plant in huskvarna, sweden. Chainsaws are also manufactured in the Us, Japan and brazil.

Products for the construction and stone industries are manufactured mainly in sweden, the Us, China and belgium.

in addition, husqvarna operates small servicing units in a number of countries.

PROfEssiONAL PROdUC Ts

25

the new generation of husqvarna power cutters features a reduction of up to 70% in emission as well as a better fuel economy.

26

• Lower demand in both North America and Europe, particularly in the second half of the year.

• Net sales declined by 3% to sEK 32,342m (33,284), and by 6% adjusted for acquisitions and in com- parable exchange rates.

• Operating income declined by 34% to sEK 2,361m (3,564), and operating margin was 7.3% (10.7).

• income was charged with costs for personnel cut- backs in the amount of sEK 316m. Operating mar- gin was 8.3% exclusive of these costs.

• Apart from costs for personnel cutbacks, the decline in income was due primarily to lower sales, lower production levels and higher costs for materials.

REPORT by ThE

bOARd Of diRECTORs

• Operating income for Consumer Products

declined by 50%, and for Professional Products by 19%, adjusted for costs for personnel cutbacks, acquisitions and in comparable exchange rates.

• Earnings for the year amounted to sEK 1,288m (2,036), corresponding to sEK 3.34 (5.29) per share.

• Operating cash flow rose to sEK 2,013m (1,843).

• The board of directors proposes that no dividend be paid for 2008.

• in february 2009 the board of directors decided on a rights issue of approximately sEK 3 billion, subject to approval by a general Meeting of share- holders.

Key data

sEKm 2008 2007 Change, % Change adjusted for

currency and acquisitions¹⁾, %

Net sales 32,342 33,284 –3 –6

EbiTdA 3,524 4,645 –24 –26

EbiTdA margin, % 10.9 14.0 — —

Operating income 2,361 3,564 –34 –34

Operating margin, % 7.3 10.7 — —

income after financial items 1,767 2,889 –39 —

Margin, % 5.5 8.7 — —

income for the period 1,288 2,036 –37 —

Earnings per share after dilution, sEK 3.34 5.29 –37 —

Return on capital employed, % 10.7 17.6 — —

Return on equity, % 15.8 28.6 — —

Net debt/equity ratio, times 1.54 1.63 — —

Capital expenditure 1,163 857 36 —

Average number of employees 15,720 16,093 –2 —

1) Excluding costs for personnel cutbacks, acquisitions and adjusted for currency transaction and translation effects.