Husqvarna AB
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Husqvarna AB
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Hello, everyone, and welcome to the presentation of Husqvarna Group's report for the first quarter of 2021. My name is Johan Andersson, responsible for Investor Relations at Husqvarna Group, and I will be the moderator here today. On the call, we have Henric Andersson, our President and CEO; and our CFO, Glen Instone. 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, publish it on our website. So with that, I hand over to Henric.
Thank you, Johan, and also a warm welcome from my side. We are pleased to present a record first quarter here today and a very strong start of the year. Before we dive into all the details here, let us first highlight a few of the main themes here. We anticipated a strong first half of the year and a slightly more challenging second half from a growth perspective given how COVID-19 reallocated volumes within quarters last year, so to speak. But we can also see that the strong momentum that we have developed over the last few years really followed with us into the season and was further supported by expanded listings and new product introductions. And we are now very well-positioned going into the volume season. Also, very happy to see, of course, that the first quarter also is a record first quarter, both in terms of a top line perspective and from a bottom line perspective. Ultimately, we're executing on our strategy, and that is paying dividends. We can see strong growth in all the key categories. So all in all, a good start of the year. There's, of course, always some uncertainty and some unpredictability given the global pandemic. But overall, we feel very well-positioned and [indiscernible] for a good start here. If you zoom out a little bit, we can also see the kind of transformation that we are on as a group. Looking at the last 8, 9 years here, you can see a gradual improvement of our performance. And we -- and that's based on inherent transformation of the company. Of course, a slightly different focus during the years. In the early years, it was mostly around product cost out, focusing on less but more powerful brands. It was about creating a divisional structure, so we could execute well, et cetera, et cetera. And over the last few years, the main focus has been on clearly driving a favorable mix, where we have down prioritized or even exited less attractive segments, and we have really increased the prioritization and the focus on the truly attractive segments. And this has inherently led to an improved mix in the company. Of course, if you look at 2020, in isolation, there's also an element of a stay-at-home effect and also temporary cost control and things like that. But as we can see, on the graph, the underlying business is shifting, is improving and -- because of the transformation we're on. If you then dig into a little bit more the details and looking at the first quarter from a sales perspective, very strong, up 24% organically. As you know, the Construction division acquired Blastrac, which will add another percent here, if we include that. So total, 25% in terms of growth. And as you know, when it comes to particularly the Gardena and the Husqvarna Divisions, the first quarter is, to a large degree, about preparation for the season. And what we can see is, of course, that through expanded listings, et cetera, that our channel partners are, to a large degree, partnering up with us in preparation for the season. But we can also see, which we also anticipated and talked about during our prior calls, that the inventory levels were lower than normal in the trade. And of course, there has been a fill up during the first quarter here. From an operating income perspective, we reached SEK 2.3 billion versus SEK 1.4 billion in prior year. This was largely driven by getting leverage on our top line growth, the improved mix, but also cost control and good price management. So we have been able to increase the profitability by 61% despite the headwinds that we are facing here with raw materials and logistics. From a direct operating cash flow perspective, we were positive SEK 143 million versus SEK 132 million negative last year. And that, of course, then further strengthens our financial position. And as one consequence of that, I mean, the AGM approved a dividend on of SEK 2.40 with 1/3 being paid in April and 2/3 in October, as usual. Then, the key metrics that we normally follow, which is how we're developing when it comes to robotics and battery. And here, we can again see that we're growing these segments faster than the group in general. We are now at 17% of group sales on rolling 12. And really reassuring is to see how now the Pro segment is stepping up, not just from a growth perspective. The growth were high, but is now starting to amount through to a bigger portion of the business. So it's now something that you actually can say also from an absolute terms perspective. So that's a little bit as an introduction and I'll now hand over to you, Glen, to put some more colors on this.
Thank you, Henric, and good morning to all. So let's dig a little deeper on to the divisional performance, if we can. Starting with the Husqvarna Division. Net sales were up 21% compared to the last year. Actually, 10% as reported, but 21% as I suggested. Very strong growth in all categories, as Henric alluded to, notably robotic and handheld products, both gas-powered and battery powered handheld products. And of course, with those product growth areas come an increase in associated accessories. Also, from a geographic perspective, all regions have shown a solid growth in the period. Pleased to say that we launched a further 2 robotic models in the quarter in the Husqvarna segment, particularly in residential. The models are called the 405x and the 415x. And they have been extremely well-received by the market. Q1 is, of course, by and large, a sell-in quarter as our dealers have the upcoming gardening season. And of course, they started from a relatively low inventory level. So we've seen an increased level of selling. Operating income increased by 58% to 17.4%. EBIT margin from 12.2%. So an impressive leverage on the sales growth as well as a very favorable product mix. The division has managed to offset headwinds from FX that is roughly SEK 55 million in the quarter and raw materials, roughly SEK 20 million as well as increased logistics costs. On a rolling 12-month basis, the division then grows -- it's grown by 12% organically from a top line perspective and some 50% in operating income terms. So notably, above our 10% operating margin. Moving over to the Gardena division. The division continues with an extremely positive growth journey that we've seen for several years now. Sales were actually up 37% in the quarter. Growth was strong in all product categories, but particularly strong for watering solutions, robotic lawnmowers and hand tools, where the division has continued to strengthen its market positions. We also had a product launch within the Gardena division in the robotics area, and that is our SILENO City minimo product. Worth noting, apart from our core markets, i.e., the DACH markets that are very strong, where Gardena plays. We're also seeing actually an over -- even stronger percentage growth in our focused markets. So the investments in those markets are certainly paying dividends now. Strong sell-in, again, pretty much like the Husqvarna Division. The retailers are preparing for the season, coming from a relatively low inventory position. So we continue to increase the inventory in the trade. The earnings for the division actually increased to 64% in the quarter to a pretty impressive 18.7%. EBIT margin. Of course, benefiting from a solid growth, improved mix and actually management to offset negative FX of some SEK 45 million and raw materials of SEK 20 million. On a rolling 12-month basis, then an impressive 26% sales growth, I would say, are more or less doubling the operating income growing with 94%. Moving over to Construction. Really pleased to see the continued recovery for the Construction division. It was the division which was negatively impacted by the COVID situation. Q1 organic sales growth was 14%, and then we had a further benefit from the Blastrac acquisition that would add a further 9% into the comp year-on-year. The market situation has improved for the construction industry in the first quarter, and we firmly believe the division is improving its market positions. All regions are showing a solid growth: North America, Europe and APAC. The margin did improve significantly on that organic sales growth by 55% to some 12.2% EBIT margin. Sales growth and improved mix, offsetting the headwinds from FX and logistics. On a rolling 12-month basis, sales were more or less flat at minus 1%. So a clear recovery from the figures we saw back in Q2 last year, where we were trending at minus 18%. And I think more importantly, the operating margin is back 11.7% from 10.8% at year-end. A new chart we thought that would be helpful to bring into the equation for the quarterly calls is the EBIT bridge to depict the various drivers that we usually talk to each quarter. An EBIT improvement of 61% coming up from 11.7% EBIT margin to 16.3%. Of course, notably market-driven improvements, which is the big bar there on the left-hand side to fixing the volume, mix and also the internal efficiency program. So generating over SEK 1 billion there. However, price continues very much in line with what we guided on previously at SEK 115 million in the quarter or roughly 0.5% on margin. Worth to note that we do actually plan on taking further price increases during the remainder of the year given the headwinds that we're seeing in raw materials and logistics that I'll talk to you in a second. We continue to expand in our strategic initiative area, and this was approximately SEK 100 million in the quarter or a negative 0.4% on the margin. Raw materials are relatively low so far this year, the impact at SEK 40 million. That's pretty much split between Husqvarna and Gardena Divisions. We do revise our full year forecast on raw materials now to be SEK 350 million to SEK 400 million. Point to note that, that is largely going to be H2 headwind for us. FX in the quarter was SEK 135 million negative. Our full year guidance is pretty much in line with the previous expectation. We say SEK 300 million to SEK 350 million negative FX. Worth noting that around 75% of that will go in H1 and 25% in H2. Moving over to the seasonality. And this is actually a copy-paste of what we showed in the Q4 report. It's more just to really reiterate the slide that we showed there last quarter showing our seasonality profile for sales and earnings. And of course, the periodization was significantly different in 2020. I want to really point that out. So Q3 is the quarter that stands out last year where we really benefited from an extended weather season, extended demand season due to COVID largely catching up from Q1 and Q2. So please have this in mind as you think about the profile for this year. Moving over to the cash generation. I'm pleased to say, we continue with positive developments, actually plus SEK 143 million this year versus minus SEK 132 million last year. It's worth pointing out actually, we actually have to have a slightly negative impact in working capital from the Blastrac acquisition so far, approximately SEK 240 million. Developed true like-for-like versus last year or closer to SEK 400 million on cash flow. Of course, the big drivers here are the improved EBITDA, SEK 850 million. Inventories, more or less in line with prior year in terms of the buildup of SEK 100 million improvement. The increased sales do drive a higher AR number of SEK 700 million negative. And then, the payables is very similar to the prior year. And CapEx is also in line with prior year. Just on CapEx, we will remain with the full year guidance that we previously gave, which was very much in line actually with the original 2020 plan, which would be around about SEK 2.4 billion for the full year. Capital efficiency. We're extremely pleased that this continues, pretty -- nice line downwards there to 22.5%. And of course, we're coming from a tough position 12 months ago, but certainly at the end of Q4 last year, we were 24.4%. At the end of Q1 2020, we were at 29.4%, significantly supported by the increased sales of course, but also improvements to the working capital, as we've mentioned in recent quarters. Q2, we'd expect to continue to show good development here. And then, of course, we have to maneuver some headwinds in H2 as we have a pretty tough comparison to the prior year, particularly sales wise.Moving on to the balance sheet. The main items to call out, inventory being some SEK 1.2 billion lower than prior year or 11%. Actually, FX is around 8% of that 11% improvement. So a 3% year-on-year comparison in true terms. It's our sixth consecutive quarter of inventory improvement versus the same quarter in the prior year. As mentioned, receivables do increase in line with the sales development and trade payables in line with the production levels going up in the quarter. Worth to note that we have paid down some additional debt since the quarter end, approximately SEK 1.5 billion, and we intend to further pay down about SEK 1.2 billion in the remainder of the quarter. And as Henric said, a dividend was approved, and we paid the first 1/3 of that dividend, which is around about SEK 450 million. And that happened during April. Before I pass back to Henric, just a snapshot on our net debt to EBITDA. We're now at 0.9. So we're extremely satisfied with this. Of course, a significant improvement in the net debt, as Henric mentioned, now reducing to SEK 5.3 billion versus SEK 11.6 billion in the prior year, mainly coming from an improvement in the cash from operations. There was a slight positive coming from the cash flow from financing, pension, discount effect, slightly negative at SEK 0.4 billion, positive currency affecting the net debt of SEK 0.6 billion. And with that, I will pass back to you, Henric.
Thank you, Glen. And let's then shift gears a little bit and also discuss the longer term a little bit. We are delivering on our strategy. We are on the transformation. We have seen this picture quite a few times, of course. But let me say -- repeat a little bit of it. I mean, ultimately, it's all about customer experience and getting closer to your customer and create more intimate relationships, while we, at the same time, are transforming the company towards more on robotics and battery, on one hand, and also where we are expanding our offering beyond traditional products into services and solutions. And then, of course, all this rests upon a winning core. And sometimes, I get the question, what is a winning core. But you can say that you have the whole Construction Division, the whole Gardena Division, you have the professional part of the Husqvarna Division that we think of here to a large degree. And then, of course, this -- and the epicenter of this is sustainability and our sustainability work. Not just because it's the right thing to do, but it's ultimately about securing market leadership over time. And the reason why we call this Sustainovate is really that we -- we're combining our passion for sustainability with our innovation capability. And that's how we are framing it and how we will focus on the thing internally. And we -- in the last report, we closed the books on a Sustainovate 2020, which was a program that we set out -- a 5-year problem set out a very, very ambitious targets. And we've really moved the company in this dimension during those 5 years. And then we kicked off Sustainovate 2025, where we set 3 very distinct and bold targets for us. It's about carbon, it's about circular, it's about people. In terms of carbon, we are committed to the Paris Agreement and a 1.5-degree maximum increase of temperature. And to contribute to that, we need to reduce our absolute CO2 emissions by 35% across our entire value chain. And that's our commitment for 2025. In terms of circular, here, we want to channel our innovation capability to creating more of a circular economy. And here, we have set the target of launching 50 circular innovations by 2025. And then the third target is about people. How can we empower customers and colleagues to make sustainable choices. And here, we have set the target that we will empower at least 5 million people to take -- to make a better choice so to speak. And going forward in these calls, we will give an update on how we are doing on these different targets, how we're progressing. And if we look at the rest of the first quarter, we have reduced the carbon by 31%. Let's remember that the baseline is 2050. And one would think that we're almost there already, but let's then keep in mind that we did exit a quite -- a sizable petrol business and that during 2020, from a mix perspective, we have more of Gardena products and electrical products than what we have had during -- let's call it, a non-COVID year. And therefore, there's still a challenges to get to the 35% absolute reduction by 2025. In terms of circular, we have already made 2 innovations. Just to mention one of them, so you get the flavor of it, it's called Grannboxen. It's a Swedish name, but it's basically a box or a small shed where a community, a neighborhood can share battery products in a very easy way. And then in terms of people here, we have not made tangible, concrete progress yet, but we are now launching big training programs for our employees. And we are reviewing how we can change our marketing to also empower customers to a large degree. So more to come here going forward. Before we sum up maybe when it comes to strategy, I can also give the update that the program that we launched in financial Q3 report, where we, on one hand, are stepping up our strategic investments by SEK 250 million a year, and we are improving our handheld value chain and realizing some savings of SEK 500 million a year. That whole program is progressing according to plan. So before then we open up for questions here, maybe going back to the main messages for this call. I think that it's safe to say that we have had a very strong start of the year, not just because of lower comps and low inventory, but also that we are continuing to win and that we have this good momentum with us and therefore, we are very well positioned for the gardening season. Of course, there's a lot of uncertainties out there, but we are really in a good position going into the season here. We have delivered a record first quarter and further strengthened our financial position. And ultimately, we are successfully executing our strategy. And we can see the dividend through the growth in the key categories and how that is improving the mix of the company. Okay. With that, I hand over to you, Johan. And let's open for Q&A.
Thank you very much, Henric for -- and Glen for the presentations. And with that, we're ready to open up the Q&A session. So please, operator, go ahead.
[Operator Instructions] Our first question comes from the line of Christer Magnergård from DNB Markets.
Well, congratulations on a strong Q1. Of course, when we look at Q1 demand, organic growth of 24%. Is it possible for you to quantify how much of that was that was driven by the massive restocking -- more than normal restocking from retailers and dealers? And also, how we should think about the normal seasonality going into the second quarter, which is normally stronger than Q1?
Sorry. Yes, Christer, I would take that one. It is -- I would say, of course, it is a largely a sell-in quarter. So a lot of the increased demand, particularly in Husqvarna and Gardena Divisions has been replenishing that lower inventory situation. And the season is more or less breaking. So it's hard to talk about sell-through at this point in time in relation to Q1. So I think a large element of that actually is bringing the retailer inventory levels or the trade partner inventory levels back up to a normalized level. And that's what we expect now going into Q2, a normalized demand situation, but the season is breaking.
I think the challenge [indiscernible] there is that most of the -- what Glen is saying, I mean here in terms of most of the sales for Gardena and Husqvarna is filling up inventories for the season. And then the question is what is bringing that back to normal level versus that we're actually taking share with our channel partners. I think that is the challenge. But our general feeling is that we are taking floor space that we have expanded our listings and so on. But it's very hard for us to give a good number on it.
And in terms of the normal seasonality, you mentioned that 2020, how that was different compared to historical years. Now 2021 seems to be different as well given the strong Q1. But it's still fair to assume that normal -- seasonally stronger second quarter than Q1.
I think it's a fair assumption. And the reason we can say that is, of course, April is our largest month of Q2, where it was relatively soft last year. So we're going to come to a fairly soft April. May, we'd expect to be normalized, and June will be a tough comp. But putting the 3 together, then we should have a relatively easy comp to prior year.
Then, on the EBIT bridge, which you provided on Page 8 in the presentation, that's right. The one question I have is that you break out strategic initiatives, but you don't break out cost savings there. So is it possible to give like a net number on cost savings versus SI?
Well, I can give a couple of numbers. I think we talked about the SEK 500 million in savings, and we have roughly SEK 30 million coming through already on from -- those H2 savings. So there's a SEK 30 million figure now in cost savings related to what we call the H2 restructuring activities or activities we mentioned there. And then, the rest of the saving activities, Chris, we are running internally. I would say it is sufficiently offsetting the strategic initiatives spend. And that is something which we committed to I think, back when we started 2019, that we want to have an internal efficiency program that, at least, pays it -- actually creates a net positive number versus our SIs, and that continues to be the case. So we do have a net positive contribution, and I'm not going to do it together.
That's good. And then, the final question is on robotics. We start to talk about the professional robotics segment now having meaningful growth, of course, from a low base. But is it possible to quantify roughly how big of robotic business that goes into the professional space now? And also, if you can comment on the U.S., you say the development in the U.S. have changed now given the COVID?
Okay. So 2 questions. Let's start with the Pro one. I mean, we are quite excited about how well it is developing. And it's clearly outgrowing from a percentage perspective, the residential robotics with a big margin. And also, of course, we know what the number is, but we are not in a position of sharing it today, Christer. But what we can say is that now, it is a number that you see. It's not just something small that is hidden. It's actually starting to become a real number in the professional space. Maybe in the future, we can be more explicit around it, but we're not there yet. But it's developing very good. And also, the good thing in that professional space is that in reality, EPOS was launched with a full industrial product here in April. So that performance is really without EPOS and without CEORA. So it's the other models that were basically, let's say, enhanced residential products rather than developed specifically for the professional segment that we see that kind of development. So we are very excited about the prospects here, about the professional segment going forward. When it comes to the U.S., it's a little bit the same story, but different. And it's, by far, the largest lawn and garden market in the world. So the potential is enormous. And for this year, we talked about this already on an earlier call, we are changing our approach a little bit because what we learned in Sweden, for instance, it took well over 10 years until this novel concept became accepted by people to such a degree that they start to snowball where you don't need to fight for every sale, so to speak. And then, we can do it a little bit quicker in Europe, and we hope again, we can do it a little bit quicker in the U.S. But to put all -- take all those learnings and we have realized that U.S. is so big. So instead of just relying on our traditional channel partners and with a nationwide approach, we think that we will be quicker by focusing on a local -- I mean, a city or a region, overload with resources and marketing, to get to the tipping point sooner so it starts to snowball. And then we can move on to the next one. And also see how we can complement our channel partners with different ways of reaching the consumer. So the work with changing that strategy is going according to plan. But again, from an absolute value perspective, the numbers are still too small to be -- for us to get excited about the U.S. in the current number, so to speak.
Our next question comes from the line of Fredrik Moregard from Pareto Securities.
First off, a follow-up question on the inventory situation. So clearly, Q1 has benefited from a sell-in for Gardena and Husqvarna Divisions. But could you just tell us something about if your customers have been able to refill inventories the way that they wanted to? Or will that continue into the beginning of the second quarter as well?
We certainly feel, Fredrik, that they are normalizing somewhat, probably -- I certainly don't think they're any higher than last year's levels, probably getting somewhere towards. So I would say either on par or slightly below last year's levels at the same point.
All right then. And when it comes to your own inventories as well as perhaps your supplier situation, obviously, we're hearing a lot of things with regards to the global supply chain on shortage of electronic components and so on. And your inventories have been coming down quite significantly. How comfortable are you with your inventory situation? And do you see any risk in the supply chain on your side?
I think the pandemic has really put a finger on the sensitivity of the global supply chains, not just for us, but for any industry and the company. And we, of course, have been challenged by disruptions in terms of component supply throughout this entire pandemic. And we still are dealing with these kinds of things, and we'll be dealing with it for many months to come, I think. At the same time, I think we have been very successful in mitigating most of this. I mean, just the first quarter sales, I mean, to actually take a 24% sales growth. It's also a testament too, that we have managed the situation pretty well from a component perspective. But every day, there is something and we are fairly quick in mitigating the situation. So I can say that there aren't any particular areas that we are more or less nervous about. It's more about the -- we have a lot of small disruptions all the time that we've -- we are, so far, been successful dealing with them and we believe we can continue to be dealing with them. And from an inventory perspective, we can say that the most important thing for us, at this point in time, is, of course, that we have shifted the inventory out to our channel partners because that's what needs to be for that first sale when the season starts. And then, a little bit later, they will put -- place replenishment orders to us. And then we need to be ready for that wave. So we feel that we're in pretty good shape here and well-positioned for Q2.
Sure. That sounds good. And on the longer term, do you have any thoughts when it comes to the supply chain on perhaps starting to look for more local suppliers or making any other sort of shift to your supply chain and your production base to decrease these sort of risks going forward? Any thoughts on that?
Yes. I think after, if you call it, a crisis like this, it's natural that you assess and you evaluate your supply chain and you see what kind of enhancements you want to make. And we are making those kinds of assessments. We already did that actually, to a large degree, before this season started. And a big reason why we could entertain 24% growth was that we are much better prepared going into the season, and we had -- we had, for instance, stocked up on quite some inventory of critical components before the season because we didn't want our COVID impact in peak season again. So we did some of those tactical things already from this season. But going forward, I think we need to look at more of -- having more than one supplier on -- of course, we have more than one on certain things, but to have maybe one further away and one more local. So you can be more resilient in these situations. I think that will be one of the things that we will be looking at.
Our next question comes from the line of Björn Enarson from Danske Bank.
Your comments on -- or guidance on raw mat, of SEK 350 million, SEK 400 million and also your comments on the FX in terms of what is -- what's in the quarter and also based on your seasonality. Do you still think it's possible to be profitable in the second half line combined?
Yes, I think, first and foremost, H2, last year, I said the seasonality was very different. So Q3 is a very tough one to follow. And raw materials wise, we expect most of the headwind to come in H2. We're actually pretty well hedged on raw materials through H1, which gives us that confidence with the second half as those hedges are not in place. Then we start to feel some of the headwinds on plastics, lumber, steel and some of the base metals. So H2 will be a tough comparison without a doubt. We're going to continue, we're going to push for additional price, continue internal efficiencies, but I think it's fair to say H2 is going to be a tough comparison versus prior year. Yes. But FX-wise, most of that FX burden will come in the first half year, we think. Some 75% of the FX burden will be with us through H1, H2 -- Q1, Q2, sorry.
And what did you say on FX?
FX, we said SEK 300 million to SEK 350 million.
Our next question comes from the line of Gustav Hagéus from SEB.
I'm interested in the comments regarding robotics in the professional side, assets related to sort of the legacy products. Could you, first of all, discuss a bit what type of clients do you see a pickup in this golf courses or the parks or whatever? And then secondly, on that topic, regarding CEORA. Can you give us an update if it's actually ready now? Or are the actual production still sort of -- do you have a finished product there that you can roll out on trial in history, you think? And if you've come any closer to sort of what type of partners you'll find there to roll out products once it's actually ready? That would be helpful.
Okay. If we start with the first question in terms of what customer segments or application spaces that we see. Actually, so far, We see a big interest across, I would say, we have an interest in all those different segments. It's more likely going to be a matter for us to decide where do we want to prioritize the most. But there seems to be an interest across all those different segments. In terms of CEORA, you can say that we will have little to no impact of CEORA during 2021. What we have done here in the professional space is that we have used a different launch method to make sure that we get the message out sooner and that we also can then test concepts, business models and ideas with key professional customers before we go for the full industrial launch. So if you take EPOS to start with, which is this version where you have virtual boundary wires, we launched that one last year, and we had a test sale of some 100 units to revalidate the concept and also then the business models around it. That will be started full blown production for -- and the sales start was during Q1, and we had sales start of it here in the beginning of April. And CEORA will follow a similar time line, meaning that we will have the big event where we really unveil the product, I think, in June 22, if I remember, during a big event where we would actually show the product for the first time. And then, we will during the fall, do the sell-in activities, and then we will hit the ground running for 2022. So I think for CEORA, we need to have realistic expectations in 2021. It's going to have very little impact this year. But it's very important for the future, but it's also showing an ambition for those professional users and it's easier to step in on the current products or the EPOS knowing that they're more in the pipeline and that we are fully committed to the segment.
Yes. No, I don't think anyone's modeling any material income from CEORA, but [indiscernible] are you producing sort of the inventory of CEORA. Is it still a conceptional stage? If you're launching it on June 22, I guess you're sort of competitive with that product earning.
I mean, we are still in those final phases, and we will build a, what we call it, a pilot batch that will be out for testing and evaluation and sell-in here during somewhere in the call. And then the production will be for next year.
Yes. And I guess, more so than sort of your regular robots since the price tags of CEORA will be like, I don't know, SEK 200,000, maybe, you're going to have sort of as a service or lease agreements to a greater extent for CEORA than your other robot. Do you know already know if that's going to have an impact on your -- how you account sales for CEORA is. Is that going to be sort of the product sales? Or are you going to have more as a service so it's going to be a longer time before you recognize in the P&L?
Yes. It will be the latter, Gustav, where we see -- we will likely have more as-a-service selling. And I think this will be a profile switch over time. We do have lease agreements and subscription-type deals with other services today. But it's hard to say how that profile is going to change. And as Henric said, it's going to be a slow ramp-up in that respect on the total group's profile. So it's hard to say how that will impact us. But for sure, we plan to have this in a -- as a service solution.
All right. And lastly, on inventory, short term, I think you've been quite explicit about it. But I'm curious about the long-term implications. There's been a little bit of a trend for retail to trying to optimize their own balance sheet by pushing sort of product companies like yourself to take sort of logistics hubs and sort of facility drop shipment and just-in-time delivery to push on -- for retailers to push down their own inventory. I'm curious if you feel that this pandemic has sort of put a change of mind in the -- retailer set of mind but perhaps returning a little bit to the old idea of actually keeping stock themselves going forward. Is that something you're hearing at all, their ambition?
I'm not sure we have heard anything explicitly about it. But what we can see is clearly, that many of our channel partners are taking on inventory sooner than normal, and it seems like they're all very eager to be in a well-positioned for the season start. So we can see how they act during this year, but whether that has changed the way they operate for the years to come, I think it's too early to tell. I tend to think, Gustav, particularly in the retailers to have a -- I'd say sometimes have a short memory. I mean, I have to remember the behavior of the prior year and the demand of the prior year. And that can often guide their buying patterns for the next year, so to speak. So I think having strong brands is important and availability is important, and those 2 really support us for the season.
Our next question comes from Karri Rinta from Handelsbanken.
Karri Rinta from Handelsbanken. I wanted to start by asking Henric to repeat that question on winning core. So what did you Henric say, was included in that? And then, what is [indiscernible]? I'll start with that.
Yes. And [indiscernible] to start with, I think it's important to say, okay, what -- we can have different strategies for different parts of our assortment. Meaning that there are certain things that are truly transformative and that is really the future that we really want to invest in and transform to. We have done the things that are very important, but there might not be in a transformative mode. And then, we have segments that are absolutely fine for us to be in and they're important to our customers, they're important for channel partners, But they are not as critical to us and our profitability. So we segment it a little bit. I mean, you can say that in the transformative area, of course, you have a lot of robotics and battery. And then this area of what is very important to our profitability and for defining who we are, is what we then define as a winning core. And then you can say that, that is in the Husqvarna Division, very much around the professional space, and it is the Gardena and the Construction Divisions. And then, you can say that if you then go into the next third bucket, so to speak, where we said these are important products but they are not the ones where we put the 100% focus or where we really want to make a difference. You have a lot of the, let's call it, the wheel petrol products. It has simplified a lot. But we try to segment it to really make sure that we place our investments and our marketing activities in the areas where we drive the right mix for the future.
Okay. No, that's very helpful. I -- my early understanding was that it was maybe a bit more professionals -- is core and some of the -- more of the consumer stuff that you now mentioned would be less important. But no, that was a very helpful clarification. Then secondly, Glen showed the net debt-to-EBITDA graph of currently at 0.9. And you recently did the Blastrac acquisition, and I guess it's safe to assume that acquisitions will play a strong -- a key role going forward as well when it comes to Construction. But has anything changed in terms of your thinking about M&A outside of the Construction segment given that we now have the financial resources and there's maybe, I don't know, if there are more opportunities, less opportunities, more attractive opportunities now after the pandemic. So how has -- how have you reassessed your M&A thinking outside the Construction segment?
I mean, first of all, I believe that M&A is a really good tool to sometimes fast track your strategy. And it's a tool that we have used a lot in Construction historically. And it's clearly something that now it's also time for us to, at least, bring into the toolbox for the other 2 divisions. As you know, the other 2 divisions comes through -- comes from being established as divisions, basically taking over the -- what was left of consumer brands, et cetera. So they have really not had the opportunity to -- and the bandwidth to add things to the toolbox. But I think now we are getting into a next phase where that tool also should be in the toolbox for Husqvarna and Gardena. So that's something that we will be looking into, but not because of M&A on its own, but because we think it could be a good opportunity to fast track the strategy that we do have. Then, from a target perspective, I think that the construction industry and the segments that we are active in is more fragmented generally speaking, than the larger forest and garden business, and forest and garden industry. So there are probably not as many targets as in the construction space, but that doesn't mean that there are no targets. So it's something that we're looking to go forward.
All right. And then finally, a follow-up on the profession opportunity in lawn care. You mentioned that you are excited about the opportunities and it's more that you have to prioritize rather than you would have to select. But if we specifically look at the EPOS product segment, and you mentioned that you are now starting really with the commercial rollout of that. So when it comes -- specifically comes to EPOS, which customer categories do you feel that you should start with. Is it the -- maybe I'll just stop there and let you take over?
Yes. It's a little bit different also market-by-market depending on where the opportunity sits and so on. But generally speaking, we see opportunity around different kinds of sports fields, we see opportunity around bigger complexes. So I mean, it could be a big museum, it could be a senior citizen home. I mean, those kinds of things where you can have this. We also see opportunity with golf. The difference with golf is that golf is very, very particular and very, very specific. So we can probably take certain tasks on the golf course that we could deliver on. Whereas when it comes to some of the other applications, we can complete all the tests. So it's a bit different from that perspective. But I would say that the opportunity is really across, and we just need to set a very clear focus market-by-market what we want to go after based upon where we think we have the biggest opportunity.
And is there any difference on whether the owner is operating themselves on the lawn care? Or if it's outsourced to someone else?
It can be different, but it doesn't have to be different. And that's why we also look into a lot of the different business models. And one is, of course, if you manage the area yourself, then normally you have your own staff that's doing this. And then there's a lot of discussion about how can you use the labor to do the value-add things, taking care of the flowerbeds, taking care of the bushes, the trees and those things instead of cutting the grass, so to speak. So then you need to have one kind of discussion. Many times, they also have service on their own and then you need to set up your business model in one way. Whereas when you work with a landscaper or a contractor, there's a tendency, first of all, that they move around more, of course. They might not want to have the equipment permanently on one location than the other. Then, of course, EPOS becomes very important. and things like that. Even CEORA because you can then use a bigger product that can make the lawn much quicker than a smaller product that might have to be installed for a long period of time. They don't, as often, have serviced themselves. So then, we need to tie that more into our dealer network and how we can support the services and so on. So it will be different, but the opportunity is still equally there. It's just that we need to craft the value proposition accordingly, I guess, that's what I'm trying to say in a roundabout way.
Our next question comes from the line of Fredrik Ivarsson from ABG.
Two quick ones for me, if I may. First one, if we can come back to the raw material prices but from another angle. I think we see quite hefty price inflation within the DIY market at the moment. So I wonder whether you maybe have been able to raise your list prices as well? That's my first question.
Yes. So of course, a lot of our pricing happens in the fall as we go into the year. So absolutely, we're in the process of reviewing pricing. In some cases, we can't make in-season price adjustments and where we can, we will. I think that's the best way to put this -- how we're seeing it. But we fully expect actually stronger price increases than we previously committed to.
Great. And then, second one, coming back to the market strategy within robotics in the U.S. You mentioned that you're focusing on specific markets. Just wonder if you would be open to share which market that might be?
Yes. It's -- of course, the grass type is very important to us. And of course, where maybe the robot is more appropriate and hence, we made actually some additional models for the U.S. market, which we call the high click models, the same for petrol-driven machines as well, by the way. But certainly, we're focusing on New York, New Jersey, the Carolinas, Alabama, Texas, Atlanta, Florida states, if I can name a few states. It's more that Eastern Seaboard to a large extent that we're focusing on initially in North America -- or we're putting additional focus on is a better way to put it.
Okay. I think we have time for a final question. We are starting to get close to 11. But I think -- operator, do we have a final question over the queue.
Yes. Our final question comes from Johan Eliason from Kepler Cheuvreux.It seems like Johan has disconnected.
Do we have another one in the queue then operator?
Yes. We have a question from Christer Magnergård from DNB Markets.
So 2 follow-up questions for me then. You mentioned that you've hedged the raw mat in Q1 -- sorry, H1 and the bulk will come in the second half. Given -- if we assume that the raw material price will remain on the current levels, will we see a similar headwind in the first half of 2022 as you do in the second half of '21?
As it stands, Christer, yes, that would be a fair assumption right now.
And the second one, in the first quarter, given the strong demand and bottlenecks in the value chain, et cetera, have you been able to prioritize products with higher margin than you would normally do?
I would say we have had a good mix period, both -- mainly because of a demand perspective. When we have -- when we are forced to prioritize, that has been mostly prioritized for us, meaning that we don't have -- we haven't had components for the time being. So I would say, generally speaking, the demand is coming through with a good mix.
Thank you very much for that, Henric and Glen, and I think we have reached now 11:00. And with that, we'll close the call today. And please do not hesitate to reach out to us in the IR team, if you have any other follow-up questions. And just noting that we have a roadshow presentation tomorrow, arranged with SEB. And then, with DNB on Monday, if you would like to have further meetings or listening to the group calls. So with that, we close the call for today, and thank you very much for listening in.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect your lines.