Husqvarna AB (publ) (HUSQB) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the presentation of Husqvarna Group's report for the fourth quarter and year-end 2021. My name is Johan Andersson, responsible for Investor Relations at Husqvarna Group, and I will be the moderator here today. Joining us on today's call will be Henric Andersson, our President and CEO; and our CFO, Glen Instone. And at the end of the presentation, we will welcome our next CFO, Terry Burke, for a quick introduction. Henric and Glen will present the report, and afterwards we will open up for questions. Let me also remind you that this session is recorded, and we will later be -- published this on our website. I would also like to announce that we have changed the names of 2 of our divisions. So now we have Husqvarna Forest & Garden Division and Husqvarna Construction Division. This is, of course, in order to clarify the brand towards our customers. So with that, I hand over to you, Henric.

Thank you, Johan, and also a warm welcome from my side, everyone. We are delivering a strong fourth quarter, ultimately concluding a record year. And it was a record year in many different aspects. I mean, financially, we grew sales by 15% and operating income by SEK 27 million, ultimately delivering an operating margin of 12.1%. At the same time, we also reinforced our leading positions in key growth areas like robotics, battery-powered products and smart watering solutions. And these areas, of course, differentiate us to us and very imperative for our ambition to accelerate the transformation of our industry. Thanks to a very good collaboration with our trade partners, our suppliers and a very dedicated Husqvarna Group team. We have managed to navigate the pandemic effects on global supply chains in a fairly good way. However, we see that these supply chain challenges, of course, will continue into 2022. We are taking precautions. We have built up more inventory going into the season, et cetera, to make sure we are as prepared as we can be. Although it's still very difficult to predict what the impact is actually going to be, but what we do know is that we will remain 100% focused on serving our customers also in 2022. Given our performance and our future opportunities, we announced new financial targets at the recent Capital Markets Day. This is to further demonstrate our commitment to sustainable value creation. Before we dive into the quarter as such, let's zoom out a little bit and look at our performance over time. And I think it's evident that we have been building a stronger Husqvarna Group consistently with a very clear purpose for many years. We are transforming our offering into more of sustainable, electrical, autonomous, smart solutions. And we have really put the emphasis, the focus, the investments behind those segments with most future promise. We have been holding back in some other areas, and we even exited some businesses that we didn't see being part of our future. Another example of this building as strong a Husqvarna Group thing is that in 2016, 65% of our revenue was under the Husqvarna and Gardena brands, whereas that is now over 90% in 2021. So all in all, a very strong performance over the years here. Then shifting to the fourth quarter. From a net sales perspective, it was a strong quarter, SEK 8.2 billion, which represented an organic growth of 17%. And this growth is strong across all divisions and all main regions and all main product segments. And this is despite that we have been constrained by some of the -- some parts of our supply chain during this time as well. From an operating income perspective, we ended up at minus SEK 180 million. Main reason really for not getting more leverage on the growth was that we continue to accelerate our investments into our strategic growth areas in the fourth quarter. There were also some other minor things like higher raw materials and logistic cost in currency, et cetera. From a direct operating cash flow perspective, we ended up at minus SEK 1.1 billion, clearly then -- lower than last year. And this was on purpose. As I said in the beginning here, we have taken on much more component inventory to prepare ourselves for the upcoming season, knowing that there always are risks in the supply chain these days. And that's, of course, also an element of now getting Orbit into the business. From a net debt to an EBITDA perspective, it has decreased to 0.6x. And given the strong financial performance, the Board will propose an increase of the dividend by 25% to SEK 3 a share. So a very important area, robotics and battery, remains actually at 18% of the group total revenue despite growing at a much faster rate in the fourth quarter, up 26% in the quarter. And we see that we have strong growth, both in the consumer and in the professional segments. And we, of course, also have a solid range with some new introductions for the season to come. With that, I hand over to you, Glen, to take us through some of the details here.

Thank you, Henric, and good morning to you all. So going into the divisions in a little bit more detail, starting with the Husqvarna Forest and Garden Division. Net sales were up in Q4 by 14%, if you look organically. Very strong growth, as Henric talks about, in robotics and also we had a growth actually in wheel products. That latter item being move effect from Q3 when we had some supply issues. And actually, we satisfied the demand in Q4, so higher growth for wheel products in the fourth quarter. All geographies were growing in the fourth quarter, so we're pleased with that. It is the seasonally smallest quarter for the division, and operating income decreased to SEK 70 million versus SEK 89 million in the prior year, representing some 1.3% of EBIT versus 2% prior year. However, I'm pleased to say that the division continued with the positive strategic investments, magnitude SEK 90 million in the quarter. So a positive cost that we're adding to the division there. The division, despite that, still managed to offset headwinds from FX, about SEK 40 million in the quarter; raw materials, some SEK 220 million; and a further increased logistics cost. The main offset there being by way of positive price increases. If we look on a year-to-date basis, the organic sales growth was 15%. So we kept a similar pace throughout the year. There was growth in all regions and particularly strong in Europe with actually a 20% growth, in emerging markets with over 30% growth. Operating income increased with 38%. The margin actually increasing by 260 basis points to 12.7%. Significant leverage from the sales growth, strong price increases, some SEK 600 million going through, and product mix, significantly offsetting the headwinds from FX, which was some SEK 180 million, strategic investments of some SEK 340 million and the raw materials was approximately SEK 450 million of headwind. So a positive net when we think about price versus RMI. So that concluded an extremely strong year for the Husqvarna Forest and Garden Division. Moving over to Gardena, again another successful quarter. We actually had an organic sales growth of some 24%. And that was also complemented with the acquisition of Orbit, that contributed with a further 24%. Very strong growth across all categories, robotics, hand tools and watering growing strongly in the fourth quarter, and the division continued to strengthen its market positions. Q4 is a loss-making quarter for Gardena. That's always been the case, and it was very much in line with the prior year with a loss of SEK 290 million. Again, very much a similar story to the Husqvarna Forest and Garden Division, managed to offset the headwinds of raw materials that was some SEK 60 million. And also, we continue to invest in strategic initiatives of SEK 30 million. So we managed to offset those headwinds by way of price increases and increased volume. There was also a minor integration cost that we took there in the fourth quarter relating to the Orbit acquisition. Year-to-date basis, 14% organic sales growth. Earnings for the division have actually increased to over SEK 1.5 billion now, representing a 14.5% EBIT margin, and that is benefiting from the solid growth, solid mix, and of course, then we have some headwinds to offset FX was approximately SEK 25 million, RMI just over SEK 200 million as a headwind and a continued burden of logistics. Just to mention that Orbit in particular, I'll come on to a slide now on Orbit. We concluded the Orbit acquisition in the fourth quarter, pretty much in line with the Capital Markets Day. We're very pleased with that. That's, as indicated at the CMD, it will have a full year dilution effect on the margin of approximately 20 to 30 basis points. We did give some more data in the Q4 report there around Orbit. It was a fairly small impact in the fourth quarter, about SEK 184 million of additional sales and a marginal loss. But the full year sales of the Orbit business were approximately SEK 3 billion, USD 324 million, contributing with some SEK 260 million of EBIT on a full year basis. Of course, that is not consolidated into our books, but to give you a good indication of the contribution that should be giving going forward. That's just less than a 9% EBIT margin, and we expect to bring that up to the group average over the coming 3 to 4 years. Worth to note as well by way of that acquisition, we will have amortization, a PPA effect of around SEK 100 million coming into the 2022 results. Moving on to the Husqvarna Construction Division, another solid, I would call it, recovery in some respects because it was the division that was most negatively impacted by the COVID situation, and we've continued to see a strong rebound. Organic sales growth in the quarter were 21%, and we had a further positivity coming from Blastrac. That was about SEK 100 million of additional sales or 7% contribution. The market has improved for the construction industry, our continued growth, and we see we're actually improving our market position in all of the main markets. Earnings increased to SEK 144 million in the fourth quarter, up from SEK 125 million, whilst the margin reduced slightly from 8.9% to 7.9%. The upside from the sales growth and increased pricing as being more than offset by the headwinds of raw materials, some SEK 20 million in RMI, further logistics burdens, and we've continued to invest in strategic initiatives. It is worth noting, as I mentioned, with Orbit, Blastrac does dilute the margin for the Construction division. We said this at the time of the acquisition some 12 months ago. And we plan to have this EBIT margin accretive for the group within 3 years, so at least up to the group average. On a year-to-date basis, organic growth now at 18%, generating an 11.7% EBIT margin. Earnings increased to SEK 840 million on a full year basis, up some SEK 200 million versus prior year and actually increasing that margin by some 90 basis points there. Moving on, I think it's always good to say what we have in the pipeline as well for the coming season, and we show you a snapshot of the product launches for the coming season here, certainly not our full assortment of product launches. Innovation is a cornerstone of this group, and we continue to increase our investments in R&D to ensure our technology leadership going forward. And the main areas, as we talked about at the Capital Markets Day, are going to be into electrification, robotics and optimization and connectivity. That is a clear platform that's going to support our growth ambitions going forward, particularly for battery power products, robotic mowers, digital connected solutions. So to maybe give a testament to the R&D team, the engineers within our organization who are bringing these amazing products to life. We select just a couple here, and I'm not going to talk about each and every one of them. Henric mentioned CEORA is really a game-changing product. It's the bottomless unit there that we're going to bring to the market. That is a game changer for green landscaping and sports facilities. It mows extremely large areas, up to 75,000 square meters within virtual boundaries. Then I think maybe to select the battery product at the top middle, that is the K1 PACE product. The power cutter that we bring to the market, a 94-volt battery system. And that actually is the same performance as the equivalent petrol-driven machine. So a truly innovative product that we bring to the marketplace. Also some smart watering systems there you see on the bottom, the Gardena EcoLine, which is basically we're making these tools with recycled plastics and metal. So it's another example of our sustainability commitment going forward. So if we can then just look at the Q4 EBIT bridge. I know this has served us pretty well, and hopefully, it gives a good transparency. We basically went from minus SEK 129 million to minus SEK 180 million. What I would say there is the minus SEK 140 million by way of strategic initiatives. So a positive cost adder, as I sometimes allude to this. Also pleased to say that we more or less, and it's very much in line with our indications, offset the raw material pressure. We have SEK 300 million of raw materials, and we offset that predominantly with pricing with SEK 280 million. Marginal negative FX in the quarter, but I think it's a fairly simplistic bridge in the quarter, how we've been talking about our expectations for Q4. So very much in line with the expectations, I would say. But maybe the full year basis is more where we should put the attention, how this has played out. An EBIT improvement actually of 27%, coming up, as I mentioned earlier, from 10.7% margin to 12.1% margin, 140 basis points. Significant market-driven improvements, volume mix internal efficiencies actually contributing with SEK 1.9 billion. As we've been indicating throughout the year, we did make significant price increases, some SEK 775 million, to ensure we were offsetting the raw material headwinds, which was some SEK 680 million full year. And I would say it was very much in line with our previous estimations that we were giving at the Q3 report. We've continued with the strategic investments just over SEK 500 million of the forward-leaning investments that we talked about very much in the Capital Markets Day. FX actually a negative effect during the year, some SEK 300 million, marginally in Q4, but SEK 300 million full year. And we'll probably come back to some guidance, but expect that it's going to be much lower now coming into the '22 season, probably about SEK 100 million of headwind on FX, and most of that will actually hit Q1 is our expectation. Cash flow, Henric mentioned, we maybe came down a little bit here during the fourth quarter, but that was very much a conscious effort. We built inventories during the fourth quarter to really be prepared for the season. So the change in inventories is the main item, just short of SEK 3 billion from a cash flow perspective. And last year, of course, we really depleted the inventories. And this year, we're building up the inventory. So you've got a sort of a double effect year-on-year. As said, we are preparing for the coming season and have built up sufficient inventories ahead of that. There was the obvious changes in accounts receivable and accounts payable to reflect the higher sales and higher inventory build, and CapEx was also higher during the fourth quarter and the full year by about SEK 500 million, and that was actually due to acquiring a previously leased facility. We remain in line with our CapEx guidance at 5% to 5.5%, repayment of 5.4% of net sales. And I think in the midterm, we should ramp this up a little bit to 5.5% to 6% of net sales, and that is as we said at the Capital Markets Day. Capital efficiency, not too much to say here. It's pretty much the same as last time. We landed on 21.8% compared to some 24.4% prior year. We expected H2 to come up a little bit, and it has in line with the increased inventory. And we need to continue to ensure that our capital efficiency runs at a lower level, and we get towards that target level of 20% as a ratio to net sales in the midterm. The balance sheet I think there's a couple of points to call out now. First, I would probably jump to inventory. Inventory has increased SEK 9.7 billion up to SEK 14 billion, quite a sizable increase. It was actually about SEK 600 million of FX in there. And then we had on the season preparation, around SEK 2.4 billion. And then, of course, we've got more inventory due to the Orbit acquisition, and that's about SEK 1.1 billion. So inventory is higher, but the notable item is the seasoned preparation component. Again, receivables increased given the high sales, payables increased given the high inventory build. In the intangible line, we actually have the impact from the Orbit acquisition of SEK 3.9 billion in intangibles. Net debt EBITDA, Henric mentioned this, we've actually increased the net debt towards the end of the year from SEK 6.5 billion to SEK 9.6 billion, about SEK 0.7 billion negative coming from cash flow from operations, a marginal negative by hedging. We actually entered into an LTI stock, which is about SEK 0.3 billion. And of course, we've paid the dividend for the year, which was roughly SEK 1.4 billion. They are the main items to call out in terms of that net debt increase, but very much in line with our expectations for the year. At that, Henric, I will pass back to you.

Thank you, Glen. We had the Capital Market Day back on December 1. And there, we talked quite a lot about a handful of so transformative trends that are affecting the society as a whole, us as individuals, but of course, also our industry and our company. And we also talked about the importance of leaning further forward in those times -- in such times. Because only by being part of shaping the future, you will also be the first ones to explore the new business opportunities that will arise when changes occur. And this is something that we have proven we're very good at, at Husqvarna Group. I mean, if you look through our 300-some year history, the company has been able to transform itself over and over again to always make sure it's fit for the future. And to guide that and support that, we have our strategy; the strategy we deployed late 2019. And we are firm believers that we are executing on the right strategy. So it's not a matter of changing strategy. It's about given our performance, it's about accelerating it, and it's about becoming even more bold in some areas. And one outcome of that was, of course, that we took on new financial targets. From a growth perspective, we are increasing to 5% organically per year. We know that 2021 was a remarkable year from a demand perspective, but we believe that going forward our industry will start to normalize again back to the to 2%, 3-some percent. And we have our ambition set above that. From an operating margin perspective, we set a target of 13%. And I remember for Capital Markets Day, we had quite a few discussions about whether that was sufficiently bold. And part of the discussion back then, which I think is important to remember is that if we look at our fantastic 2021 and try to cleanse it a little bit from the extraordinary, let's call it, COVID-19 effects, will stay-at-home trend on the demand side and some of the cost saving measures that we took, et cetera. we are more operating at around 11% as an underlying business. And then setting a target of 13% a few years out in time, also known that you need to take on more investment to really drive this transformation of the company. We believe it's a sufficiently ambitious goal to step. And then in terms of capital efficiency, this is an area that we can continue to work on. And we set the target to 20% as to net working capital of sales. We also reconfirmed our targets when it comes to our Sustainovate 2025 program in terms of carbon to reduce this by -- in absolute terms by 35% versus the baseline, and we're currently at 27%. Some of you remember that this number has been a little bit higher before. And there was a timing effect here with the Pro business were more -- that has more share of petrol than our consumer business, was more affected negatively in 2020 and then really were bouncing back in 2021. So over time, this can change a little bit, but the target is, of course, still to get to 35% at the end of 2025. In terms of circular innovations, we have now launched 2 of those. And we have a pipeline of nominees -- 9 nominees, and we have a pipeline of even further IDs that are even early in this process. So good progress towards the [ 50 ] target there. And then one important target is, of course, the people target, to empower 5 million people to make more sustainable choices. This is important for many different reasons. Just to give one example, it's even tied to our carbon target. Because what we really can do from a carbon perspective is to electrify and then we need to ensure that our customers actually are willing to also electrify at the rate that we would like to see. And it's also to affect -- influence society to ensure that the grid is improving at the rate that we need to see as well. So just a few examples here why the people target is very important, and we will start to measure that here now going forward. At the Capital Markets Day, we also introduced 3 more operational ambitions. These are not sharp targets, these are more ambitious aspirations. And the reason why we believe it's important to share them is that we are in this transformation, and by putting some numbers to it, it's much more easy to understand the order of magnitude and the pace of change here. So in terms of robotic mowers, we have the ambition to double that in a 5-year period by increasing penetration in existing markets, by expanding into new markets, and of course, to create the professional market. In terms of electrified solutions, we are 37% and with the ambition to reach 67% in 5 years. Absolutely imperative to reach our carbon target. And then we also looked at doubling the number of connected devices. And the reason why we picked connected devices is that we believe it's such a great enabler to create much more intimate customer relationships and creating a direct line of communication to our customers but it's also a way to really develop value-adding services to our customers. So that's why we picked that as one of these important ambitions that we have going forward. So if we summarize this a little bit. I mean we have concluded a strong quarter and a record year for the Husqvarna Group. Strong performance and strong operational execution in a year that truly was impacted by the pandemic. And we have not just performed financially, but we have also managed to reinforce our positions in the high-growth areas. And we have done this while fighting through or battling through numerous supply disruptions and constraints. And I'm extremely proud of how the team has handled this very difficult situation. And unfortunately, the risks and the constraints will follow with us into 2022. And we will continue to battle through these different kinds of challenges also in this year. All in all, we believe that we are well positioned for 2022. We have a great momentum. We have a lot of good interesting product introductions this year. And we are really looking forward to yet another good year for the Husqvarna Group. Before we turn to the Q&A, I would like to acknowledge that this is actually your last quarterly report, Glen, at least as a CFO. And personally, I would like to take the opportunity to thank you for an absolutely fantastic collaboration here. You have truly been an excellent CFO of the group. And I wish you, of course, all the best in your new very important role.

Thank you, Henric. I have to say it's been an honor to serve as the CFO, really enjoyed it and really enjoyed working with the capital markets. So thank you to all you guys listening as well. Of course, I'm not leaving, I'm moving on to a new challenge as President of the Husqvarna Forest and Garden Division, so hope I still get the chance to interact with you from time to time. But I'm extremely pleased to pass the button actually to Terry Burke as the new Group CFO. And we'll have some 4 weeks of handover now before Terry takes the reins on March 1. Terry, welcome.

Hello, everybody, and good morning. Let me start by saying I'm really proud and honored to take this exciting position as the group CFO. Husqvarna has done a very interesting growth journey, and personally, I find it very inspiring that I'm going to play a big part in that. Personally, I've been with the company for 12 years. I have extensive experience in various senior finance positions. The last 5 years, I've headed up finance for the Husqvarna Forest and Garden Division. I very much look forward to connecting with you all from the beginning of March and to continue our dialogue.

Very good, Terry. I'm also very pleased that we could manage to actually recruit a very strong internal candidate here to ensure a seamless transition as we are transforming as a group. So very happy to have you on board in this role, Terry. With that, Johan, over to you, and I guess we are ready for some questions.

Absolutely. So many thanks for that, Henric, Glen and Terry. And please, operator, let's kick off with the Q&A session. Thank you.

[Operator Instructions] We received the first question, it is from Fredrik Moregard, Pareto Securities.

So first of all, I was just hoping you could help us with the comments you made about Gardena. So the division has clearly a very strong growth momentum in the fourth quarter. But you say that there's been some pre-buying effect? Is it possible for you to quantify that impact in the fourth quarter?

It's actually quite small, Fredrik, but we're not concerned about that. It's very much the retailers coming from a low level of inventory and having some level of season preparation themselves. So it's a small element to the growth in the fourth quarter that we would attribute to that.

All right. Perfect. And then when it comes to the inventory position, I'm glad to see that you're building -- you're able to inventories ahead of the peak season. But maybe you can tell us a little bit about where that inventory is sitting. Is it a lot of goods in transit? Or have you been able to build a lot of component inventories in your plan?

It's actually a little bit a mix of things. We have some -- we have a little bit more in transit. We have more component inventory and we have also managed to build a little bit more finished goods inventory. So it's a little bit of all those 3.

And how happy would you say that you are with the current position? Is it according to plan? Or would you like to build even a bit more inventories here at the end of the year?

I mean, you can always do more, but I think compared to our historical performance, we have a much higher inventory position now in relation to the upcoming season. So from that perspective, we feel like we are well prepared for the season. At the same time, let's just be transparent. I mean there are ongoing small disturbances, constraints, disruptions all the time, and that's something that we need to continue to battle through just like we have done throughout the entire pandemic.

Sure. I appreciate that. Just a final question then on channel inventories. Could you care to comment what you're seeing on the channel inventories across various regions? Or are there in the regions or product categories that stand out in terms of either being close to or actually being rebalanced or being sort of low from a historical perspective as we go into the study of season here?

I mean I would say, generally speaking, that inventory in all regions and product segments are lower than normal. There might be a few small exceptions. But that was, generally speaking, it's still on a low level in the trade.

The next question is from Gustav Hagéus from SEB.

I have a question on your comments on the margin target and where you're at sort of adjusting for the pandemic, if that's even possible. If you could just repeat what you were saying regarding sort of where you thought sort of normalized margin was? And sort of adding to that, where you think -- how much you model into 2022 with the price increases and strategic investments and so forth.

Yes. I think, Gustav, we could probably go back to the CMD messaging and reiterate that. We do feel having a 15% sales growth up there with some underlying increased demand in the state home demand. And if we normalize it, when we look at some of the cost saving measures we took and we slowed down some investments around about 100 basis points on the margin that we could probably attribute to a boosted baseline. And that's what makes us the feel that the new margin targets at least have some ambitions in them, and that was the messaging at CMD. When it comes to the headwinds, to your second question, pricing and raw mats for the year. I think the way we best look at this is if we look at the second half of '21 and the reason I look at the second half, we were pretty well hedged in the first half, you remember. We had about SEK 500 million of raw material headwinds. And if we just think about our production build across the year, you can take roughly 1/3 of the business in the second half of the year and 2/3 in the first. So the quick math says there's a headwind of just over SEK 1 billion on raw mats, which is largely going to be a H1 headwind. That's how we're seeing it right now at the current rates. We've also had logistics headwinds as we were saying. And just like we did in '21, we need to utilize pricing to make sure we offset those headwinds. And we're confident of doing that. But I don't quantify that the exact price figure out we're going to have here other than saying we're confident of offsetting and committed to our setting the headwinds of raw mats and logistics.

And when you say you're going to offset it, is that -- the message is that you're going to offset it through price increases or a combination of price and mix? And if it's the latter, if you could give us a rough indication of the split between the 2, that would be helpful.

No, we'll say it's the former. We intend to offset it with price increases.

So the mix effect should be a positive one given that you're growing in areas of higher margins. Is that a fair assumption?

We would hope we continue, that's the intent of the strategic initiatives as well that we continue to grow the mix, but we will also continue with strategic investments as well. That is a good cost as, I often call it, that we'll continue with.

And sort of the drop-through then, how should one model the top line a combination of price and price and mix, what do you think is a fair assumption of the drop-through?

Yes. I'm not going to take exact percentages here, Gustav, but we expect the normalization of the volume and the demand versus where we've been. That's what we're planning. And therefore, we feel that the market will be growing with some 2 to 3 percentage points. And there's no reason to think that shouldn't be the case for the coming year. So that's where we expect. We expect, of course, we're going to get more by way of price. But I think that's the best guidance we can give a normalized volume here, and then we get some price increase.

And lastly, on CEORA. I think you mentioned on the CMD that you were hoping for a 4-digit number in terms of units sold this year. Is there any way to give us a little bit of color on the progression there and the number of units sold or active discussions and so forth?

I mean the reception so far has been extremely good and the interest is really high out there in the marketplace. And it's still too early to predict with any kind of precision how quick the actual adoption rate will be because these professional customers sometimes have a fairly long purchase process. So it's very difficult to estimate that now. I think we will know so much more when we have a year under our belt here, how quick they actually go from interest to actually buying.

And in terms of sort of orders or hard leads, is there any subsegment that you feel that you're more successful in at the moment? Does it go for parks or whatnot?

I would say that we have a pretty equal response in the different categories. It's hard to say that one stands out.

The next question is from Christer Magnergård, DNB Markets.

Firstly, just some clarity on what you actually think about the markets for '22. You talk about an increased margin by 100 basis points on the back of a booster baseline. You also talk about the market share normalized, and then at the same time, you also talk about that you see the market growing by 2% to 3% in '22, if I understand your last comment correctly, Glen. So what are you actually expecting for '22 in terms of market growth?

I think it's fair, Christer, to come back to the organic sales target, that's what we plan for. That's what we're heading towards and that's what the plan and the target should be. So that's where the best guidance we can give. As I said, when we talk about normalization, we expect that the market would be growing post-pandemic back to the pre-pandemic rates of some 2 to 3 percentage points. And assuming we're starting to come out and normalize, and that is what we expect. At the same time, some people will be probably shifting some of their purchasing to services versus products, maybe taking some more vacation and travel versus the past. So we know there could be a change in behavior. But at the same time, as we've said throughout the whole of 2020 and 2021, we feel there's a much higher interest in the lawn and garden space from -- particularly from residential customers.

Okay. Another question, second question on strategic initiatives. We have a pretty good understanding of raw mats and currency for '22. Strategic initiatives was SEK 140 million negative in Q4. Anything you can say when it comes to that for next year?

I mean, generally, how we have been guiding on that and what our plans are is about 1% of revenue plus the SEK 250 million that we funded through the program that we ran here starting last year. So that will give you some SEK 750 million or I don't know where you end up with SEK 650 million, SEK 750 million?

I think SEK 650 million, SEK 750 million would be a reasonable guidance.

And then coming about Construction for Q4. If you can give a bit more clarity on why rest more difficult to pass through costs -- the cost increase for that division and for the other divisions given the very, very strong markets?

I think one piece has been that their competitive diamond tools, the consumables part, has a lot of local and regional players and we have been a little bit more cautious in that segment. But I will say, generally speaking, that we have also in the Construction Division, bumped the prices fairly significant. And we see that they are accelerating at -- towards the end of the year here. They were a bit slower out of the gate, but I don't see that they will not succeed here in 2022 by any means.

I guess really timing differences between cost and price then?

Yes.

Okay. The final thing, Orbit is now -- has now been in the books for 2 months roughly. And I was just curious about if there are any new learnings from the acquisition, and now that you have started to work with the company.

Not in the big ones, but what is very encouraging to see is how the 2 teams -- I mean, 2 very passionate teams about watering or coming together, sharing IDs and opportunities, and together starting to identify new opportunities. So that is very encouraging. Of course, in our initial contract, it was very much about aligning on the ambitions for 2022. I mean since we took it over just before the year started. So aligning on the plans for 2022, getting the teams together to start to jointly identify the biggest opportunities going forward. Of course, very much in the areas that we were talking about at the CMD. So other than that, I wouldn't say that there's been any big learning. The good news is that there has not been any big surprises.

The next question is from Johan Eliason, Kepler Cheuvereux.

It's Johan. Just a question coming back to the strategic initiatives, you obviously pointed to price being the most important factor to offset the raw material of SEK 1 billion or so. Will price also be able to compensate for the additional strategic investments above the sort of cost savings that is all coming through?

The way we try and look at that a little bit simplistically, we would like to think that the mix and the market-driven improvements are going to come through sufficiently and then justify the strategic initiatives, Johan. That's probably the best way to look at this. So price is not there to offset the strategic investments.

Okay. Good. Then I was wondering a little bit, Gardena, you talked about this prebuying. We should still expect the Q1 to be a strong quarter, if I understand your general comment on dealer inventories, et cetera? Or is there any sort of things that we should take with us on that comment?

No, I think it's a fair assumption you make, Johan. It's -- Q1 is really that the -- particularly for Gardena, where it's retail-centric, the retailers are, of course, filling their shelves as per the listings and getting ready for the season. So we'd expect the same for Q1 this year.

And will we see any Gardena sort of through the channels of Orbit already this year? Or is it too early?

We are in those discussions right now, and we will try to see if we can get Gardena robotics, for instance, into the U.S. already in 2022. But any major shifts will have to come in 2023 and 2024. The important thing for Gardena is that we don't just take this premium offering, this premium brand, and too quickly put them into the traditional channels of Orbit because then you would likely not be able to command that premium position. So it's very important to be smart here and work a lot with online and work a lot with social media to build that premium position. And then slowly as you build the premium position, you can also open the, let's call it, the more traditional channels. So we have a long-term plan for Gardena, but we want to see -- start to see some action already this year.

Okay. Good. And then sort of a general question about this electrification. You mentioned the targets and where you are today, et cetera. I think on the wheel side, considering what you have closed down and the growth of the robotics, I guess you're sort of ahead of the overall lawn mowing market in terms of electrification. But if you look at the handheld side, obviously, you have a significantly smaller share of handheld battery products out there and the big chunk is still petrol powered. But we are obviously seeing a lot of competitors going all in battery-powered products, mainly more on the consumer side, obviously, still like electronics. Are you -- do you think you are well ahead to protect your position on sort of the handheld business in this transition to electrification there? Or is there more you need to do and accelerate the investments there?

I think we can -- first of all, we can always do more. We need to have a high ambition and we need to make sure we really drive this, and that's what you can also see in the ambition of getting to 67%. I think we have slightly different positions with battery depending on segment and geography. I would say, generally speaking, in the Pro and the premium segments, we have a pretty strong position, particularly in Europe. And we are still -- the U.S. market is still a little bit behind, I would say, European development, a maturity when it comes to battery power when it comes to the more premium positions. But then it's correct, that's what you say. In the lower end, it's more competitive and there are more players coming in. And that's why we also decided for Gardena, for instance, that we cannot build our own battery system there and get that scale that we need, and to be able to offer the customer one battery system that you can use for many different applications around your home. And that's why we started this powerful all alliance together with Pro. So there, we try to mitigate it from that position. But if you ask me, generally speaking, yes, we can do more. We can do more in robotics. We can do more in battery. We can do more in professional products overall, and we can do more in watering. And that's what the whole strategy is all about. And as you can see on the percentage and ambition, we say that there's an acceleration coming here.

But you don't feel worried about what you're seeing on the sort of consumer side of handhelds that might have an implication for your professional business in a few years when I guess the whole market turning electrical?

We don't think so. And the reason is that in the entry level in the consumer space, it's more important for the customer with a low price and to have one battery platform that you can share across different applications. Whereas if you talk about the professional space, it's all about having the right solution for the specific application. If you're an arborist, for instance, it's all about how have you tailored that whole product, including the battery, where the battery is just a power source to the right work tools for the specialists. And arborists won't care whether the battery works also for a power drill at home. So there are quite big differences between the entry level and the premium Pro level. And in the premium Pro level, it's all about the application. And of course, we process the application know-how that these new entrants do not, whereas in the consumer space, where it's more about price and 1 common battery platform, it's much more competitive, if you say.

The next question is from Karri Rinta, Handelsbanken.

Two questions from me. Firstly, about pricing. I just wanted to understand better how you work with pricing and how these -- how should we think about this upcoming price increases? Is it list price increases from January 1? Or is there some sort of lag that we should take into account? That's my first question.

If I take the first and then Glen, can probably make sense out of it at the end. It's actually fairly complex. As you can imagine, the big retailers operate in one way that's very different than the deal is very different from some of the construction channels. So for that, we have different dates that we do. But we have also been increasing more times than normal as well. So that is one thing that it's kind of accelerating as we state. There are other pieces that we have had larger back orders than what we have had historically. And they, of course, then sit with the old pricing. So when you take these 2 in combination, actually it becomes fairly complex. Maybe Glen can make it less complex than that. But that's a little bit what it looks like.

No, I think you described it well, Henric. But I think there should be a strong confidence now looking at the pricing in the fourth quarter, which is just over 4%. So we have a strong tailwind to on pricing that we initiated through the course of last year that we take into the coming year. And then, of course, we're going to be comparing to different price intervals as we go through the year versus the prior year. But also we -- as Henric says, we have pricing negotiated for list prices for the coming year and then a lot by way of promotional activity, et cetera. So it's a little complicated, but again, we remain committed to what we said.

All right. That's helpful. Then regarding Gardena, this strategic growth market that you mentioned in the presentation. Can you give us a number on what kind of growth did you see in those markets? And maybe how much of your total sales in 2021 came from these strategic growth market in Gardena?

Maybe see if you want to share some more details, Glen. But I think holistically, if you talk about Gardena, if you would ask me what I'm the most happy with, it is actually that despite that the core market actually had a pretty bad watering season, you remember all the flooding and things like that in the core markets of Gardena, that despite that, Gardena could grow to the extent it did was due to the strategic focus markets. So that is what I'm the most happy with when it comes to Gardena in 2021. It really showed that those strategic focus markets now are picking up in speed. I don't know, Glen, if we're normally sharing details here.

I think maybe to give at least some reasonable guidance, it's over 1/3 of the business now is in the focus markets. So over 1/3. And they grew with the full division, of course, with a 14% organic growth. It actually grew with over 20%. So over 20% is a figure that we'll quote in the focus on the strategic focus markets.

The next question is from Björn Enarson, Danske Bank.

Maybe I missed it, but what did -- can you conclude what you said about growth in '22, including the Orbit acquisition?

I think Björn that, it's very difficult to predict given all the uncertainties, as you can imagine. We think that sometime during 2022, we will start to -- the industry will start to normalize after COVID, so to speak. And the question is when does that start, when do we start to see that as societies are starting to really open up now. So that's very -- so it's difficult to give you a very specific number there. But we think that it will start to normalize and that eventually, it will end up at least 2%, 3%. Whether that is during this late part of this season, in the fall or going into next year, we don't really know. But what we are planning for is make sure that we at least grow with the 5%, which is our financial target. I don't know, Glen, if you want to add more color to it.

I think that clarifies it.

And when you're talking about -- and then you, of course, exclude the Orbit effect. And also when you're talking about growing 5%, I guess, you also include pricing?

Yes.

Yes, we do. That's our total net sales. But it's the 5% is the organic growth indeed.

And this is -- so basically sometime during the year, the market should normalize towards 2% to 3% and you should hope to outgrow that in line with your targets?

That's how we look at it, but it's impossible to predict when or if that happens, but that's how we plan.

There are no further questions at this time. I hand back to you.

Okay. Many thanks for that. So I think with that, we conclude this session. And of course, looking forward to continue to talk to you. And if not before, then when we report the Q1 report in April. So thank you very much for participating today.