Husqvarna AB
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Good morning, everyone, and welcome to the presentation of Husqvarna Group's report for the third quarter of 2022. My name is Johan Andersson, responsible for Investor Relations, and I will be the moderator here today. Today, we have our CEO, Henric Andersson; and our CFO, Terry Burke, that will present the report, and then afterwards we will kick off a Q&A session. [Operator Instructions]. So with that, I thank you, everyone, for joining and leave the word over to Henric. Please, Henric.
Thank you, Johan. And also a warm welcome from my side. Summarizing the quarter a little bit. I'm very happy to say that we could deliver an organic growth of 1% in the quarter. It's a very turbulent market, a very turbulent world that we live in and then to deliver organic growth is a sign of strength. And it's very much driven by the Husqvarna division and the strong growth of robotic mowers, but also in professional chainsaws. So in 2 very important segments for us. Gardena had a difficult quarter, very much because of the retailers destocking here throughout the fall and more taking on the strategy to take on inventory closure to the season than to build it up during the fall as they normally do. Construction had clearly an okay quarter as well, minus 2%. But I would say that that's more of a timing thing from -- due to a few supply chain issues. In conjunction with the Q3 report, but has really nothing to do with the Q3 report, we are also today announcing a strategic acceleration program, where we really lean further forward making sure that we're investing more into the key value creation levers at the same time as we're accelerating the petrol to battery shift, and we are future proving our organization and overall saving cost. If we then go back to the third quarter. Net sales, SEK 12.2 billion organically, up 1%, as I said before. I mostly talked about what were the drivers behind that already. So let's go straight to the operating income, SEK 601 million compared to SEK 926 million last year. This is, by and large, driven by lower volumes through our operations. As you can imagine, organic growth, plus 1%, but we, of course, have substantial price increases. And if you net that, you can, of course, see that volumes must be down. There's, of course, some other effects as well like on currency a little bit on mix, et cetera, as well. Something that we are very happy with and very proud of, is that we also, in the third quarter, managed to offset all increases of raw materials and logistics. -- by price increases. Our direct operating cash flow ended up at just about SEK 300 million versus SEK 1.8 billion last year. Of course, not something that we are satisfied with. Of course, that is a direct function of lower EBIT and higher inventories. We have now stabilized the inventory, and we are really focusing on the inventory management and we expect to see improvements here when we're going -- during the spring next year.
The net debt-to-EBITDA increased to 1.5x versus was 0.6x last year. Robotics and Battery, 14% of group sales, so although we had a very strong development in robotics in the third quarter, we need to remember that the third quarter is a small quarter, and therefore, on a rolling 12 basis, it didn't change the percentage here, which, of course, we would like to have seen. We still have strong demand and a very high backlog. As any year, we also have very interesting launches in the robotics area and something that will really create some interest and buzz here going into 2023.
With that, I hand over to you, Terry, to put some more color on it.
Okay. Thank you, Henric. So hello, everybody. Starting with the Husqvarna Forest & Garden division, and I think a solid performance by the division during Q3. Organic growth of 9% and an operating margin of some 7.2%. As Henric already mentioned, we have seen a recovery in our robotic mowers, and we had some good growth there during the Q3. Of course, we have to keep the perspective that Q3 is a relatively small quarter in the scheme of the whole year and the season being predominantly Q1 and Q2, but we did see a good growth and recovery in the robotic. Pro hand-held and ride-on mowers also had good sales growth during the quarter.
Price increases did offset raw material and logistics pressures. However, we did have a negative currency effect in the Husqvarna division of some SEK 155 million negative, which really impacted our operating income. And of course, if you had adjusted for that, that currency effect, the result would have been quite significantly better.
If we look at it from a year-to-date perspective, organic growth, 3% negative. And of course, as we are aware, there was quite some aggressive prices in there. So once you adjust for price than volume is still significantly down year-to-date for the Forest & Garden, currently at 11.7% operating income.
If we talk about some of the successes and the launches coming from a product perspective, CEORA has been very well received during the year, and Q3 was particularly strong for CEORA. We had a very good quarter with getting CEORA product out into the market. We are well on track with our ambitions for CEORA for this year, and that really puts us in a good position for next year and the years ahead with this.
Last week, we also announced the Automower NERA, which is our first residential boundary wire-free robot. We're very excited about this. This is really game changing for us in the sense that it's virtual boundaries, GPS driven, and it also has obstacle detection. So a lot of technology coming through in our new NERA range. So that's really exciting for us, and we're really looking forward to that coming into 2023.
With that, we can move to Gardena. A bit of a different story with Gardena. And after 7 years of very successful growth and profitability improvements, this has been a difficult and challenging year for Gardena and Q3 is no different to that. Clearly, as you can see in the financial results here, it's been a challenging quarter. This is really driven by retailer destocking and we've had some 20% negative organic growth in the quarter. And that, of course, has had a significant impact on our financial result. This, of course, carrying these lower volumes has impacted the performance of the operating income. And of course, in our business, it's really turned the business into a negative for the quarter.
Price increases have been good and strong, and they continue to offset the raw materials and logistics pressure. Organic growth -- sorry, if I can actually just go back and just refer to Orbit as well because I think it's also important that we touch upon Orbit during the Q3. Orbit has contributed with 32% of sales. However, it has had a significant dilutive effect of some 4.7 percentage points on the EBIT. So actually, if you adjust for the Orbit, the Gardena -- the previous unit of Gardena was a small positive in operating income and then the Orbit has brought it to a negative for the quarter. So I think it's important to be clear there.
Year-to-date, 7% down organically and an operating margin of 12.2%. And if you also have in mind that Orbit has diluted the year-to-date operating income by some 2.6 percentage points. So have that in mind as well. In product update for 2023, there is an extension of the EcoLine, and there will be a new hose launched during 2023 and the EcoLine is all around the 65% of recycled material, a minimum 65% recycled material. So we're very excited to bring the hose now to that range, that will make a big difference. And then we bring in new micro drip range to the market as well. which really helps us and stays with our real strategy around water scarcity and really every drop of water counts and this micro drip range will support that. Construction division, I would say, has been okay in the quarter, negative 2% in organic growth and adjusted for price then, of course, volume is quite a bit significantly down in that sense once you adjust for the price. Good performance in diamond tools, but we have had some supply chain disturbances, which has impacted our sales growth in the quarter. We believe a lot of that is time and issue. And as we resolve those disturbances, some of them driven around North America, then we expect that to get back to normal and some sales growth. So that volume impact has impacted our operating income, and we land at a 9% operating income for the quarter. Price increases have offset the raw material and logistics. Looking at the year-to-date numbers, -- we have an organic growth of 3%. But again, if you're mindful of price increases, then actually, that turns into a slight negative from a volume perspective, and we have an operating margin of some 11.8%.
Construction will expand their PACE battery range, the 94-volt battery range next year, and they will launch a core drill and a [indiscernible] tractor during 2023. So again, really driving that electrification journey that we are on as a group.
The EBIT bridge, and I think we've said it a couple of times now, price increases are clearly offsetting the raw material and logistics pressures. And that's really great to see that the prices have stuck so well during the quarter but also year-to-date. We continue with our transformational investments and initiatives, some SEK 100 million, and we did have a negative currency effect of some SEK 95 million, really driven by purchases in foreign currencies around the U.S. dollar and the Chinese yuan. The big thing, as you see on the left-hand side is the volume and the mix. Whilst we did have good robotic growth in the quarter, we also had a negative mix effect and overall, a negative volume effect.
So if we talk about the volume, I mean we had 1% organic growth, but just in full price, then ultimately, we ended up with a negative volume impact. In addition to that, from a mix perspective, yes, robotics was good and it was recovering. But it's a relatively small quarter in that sense. And then we had negative mix in the fact that watering was done and we had strong sales in ride-on mowers, which is a low-margin category for us. So that's really the items behind the volume and mix of the negative SEK 375 million.
Year-to-date, the bridge actually looks very similar to what we talked about for the quarter. Price more than offsetting the raw materials and logistics pressure, which is great to see. Our transformational initiatives getting close to SEK 300 million now year-to-date in our transformational initiative investments. And we have a currency upside of just above SEK 300 million to date.
Back to the story on the volume reduction. Clearly, we have a volume reduction year-to-date. And of course, with the mix impact, we are still significantly behind from a year-to-date perspective in our robotics. And then the other categories that we talked about with water and et cetera, being down, then that's how the mix impact to the result as well. So we are currently at 11.1% operating margin and just shy of SEK 4.9 billion of EBIT.
The balance sheet. Let me start by saying we continue to have a solid financial position, and our balance sheet is in a good position, a good shape, I would say, overall. Of course, there are a couple of things to be mindful of here. And the biggest thing is, of course, our inventory levels, and we've battled through that all season. And we believe we've come to a point where we have stabilized our inventory levels during the Q3 period. But I think we should also be clear on this SEK 7.5 billion inventory increase, what's really behind that. And we've got some nonoperational issues and the some operational issues.
And if I start with the nonoperational issues. We've got SEK 1.4 billion of currency effect in inventory. So that's a big item. We've got SEK 1.4 billion of Orbit, which we did not have this time last year in inventory. And of course, as everybody we talk about is aware, we've had obviously cost increases during the course of the year. And we estimate that to be some SEK 1.5 billion of cost increases that have been built into the inventory levels and valuation. So when you put those nonoperational items together, you were more than SEK 4 billion of nonoperational items as part of that increase. The remaining SEK 3 billion to SEK 3.2 billion of operational increases, that's really still driven by this whole golden screw challenge that we've got. We still continue to work through that with high component levels, and we have some higher finished goods and some of that is in transit which, of course, we will look to manage in a good way during Q4 and Q1 next year.
What else to say about the balance sheet, I think borrowings, maybe a word or two on borrowings. And just to call out that borrowings has, of course, increased and we are up to SEK 12 billion in borrowings. Of that SEK 12 billion, we currently have just shy of SEK 4 billion in long-term debt. Only a small part of that, SEK 1.5 billion of that will mature in quarter 4 '23. And then we have just recently converted another SEK 4.2 billion of borrowings into long-term. So we've really protected our financial situation from the debt position.
With that, I think we can be pretty quick on the next couple of slides. Cash flow, I think we're pretty clear EBITDA is down and higher inventory levels. That's really what's driving the cash flow impact for the year-to-date. Capital ratio, similar sort of situation in our operating working capital has, of course, increased heavily driven by our inventory, and we are currently at 28.1%. And finally, our net debt EBITDA. And again, I think we just touched upon it a little bit here. Our EBITDA is lower this year than previous, and of course, our net debt has increased. So that's the reason for the turn, and we are now at 1.5x net debt EBITDA.
With that, I will pass you back to Henric.
Sure. Thank you, Terry. For a number of years, we have been building a stronger Husqvarna Group. And that's something you can see on this graph. And what we have done is that we have repositioned ourselves to become much more premium and pro. Back in 2016, about 65% of our revenue was under the Husqvarna and Gardena brand, and we are now just south of 90%. So quite a remarkable change in that dimension. At the same time, we are pivoting our offering to become more sustainable, to become smarter and to be more connected. And this gives us a sales composition that allows for higher growth and higher profitability, and that's really also what you can see on this graph.
Of course, there are 2 exceptions on it. And that is when we have bigger external events that we really can't overcome. In 2018, it was a lot around weather and robotics. In 2022, it has been weather for Gardena, and it's been lack of components when it comes to robotics for Gardena and Husqvarna. And when 2 of your biggest -- most important products going in the wrong direction because of external reasons, is very hard, of course, to keep your profitability up. But I think it's important to zoom out and instead look at this journey.
And now we are launching a program to accelerate our strategy. And let me first just say what it is not about. Yes, we launched this on the same day as the Q3 report but they are not related. This is not a reaction to short-term performance or anything like that. And it's not a savings program or a restructuring program. This is really about leaning further forward, securing the value creation of the group -- for the mid- and long-term.
So if we start with the value creation drivers, it's clear, looking into the future that the 4 segments that clearly have the biggest opportunity to create value is robotics, battery, professional products and also when it comes to watering. And we will now add an additional SEK 400 million in investments into these 4 areas, and we will do that by 2025. And of course, we're investing fairly high and decisively into these already. So another SEK 400 million is a pretty bold move and really a step change. And we will primarily invest into go-to-market, but also into product development.
Then, of course, there is -- the other side of it, where we will see some savings, but it's not necessarily a savings program. It is also a direct consequence of the strategy. just as the shift from petrol to batteries going on, and we see it's going faster and faster, particularly when it comes to consumer products because they have the lowest requirements, and therefore, can be offered in a battery version much sooner than you can see on some of the professional -- in professional segments.
We must increase our capacity when it comes to battery products, but we must also reduce the installed capacity of production when it comes to the consumer petrol products because otherwise, we will constantly sit with too high of fixed cost and overhead that will put pressure on us. So also this part and the biggest savings will actually come in the petrol to battery shift here and the consequences of that is a direct a consequence of the strategy that we are driving and the leadership ambition we have to really transform this industry to a more sustainable industry.
We will also proactively exit some low-margin petrol-powered consumer products, about SEK 2 billion of that simply because it's too little margin or that this will very quickly go to battery. So here is also to be in the forefront of things instead of always just react to what's going on around you.
Another component is very much around our organization in terms of how can we increase the focus on these value creation levers that really matters. How can we enhance our execution capability even more, how can we fast track key capability shifts? Because from a capability perspective, what got us here, won't get us there. And we're also after a more lean structure, lower cost closer to the customer. So this is also a direct reflection of our strategy.
So I think it's important to look at it in that framing instead of looking at this as here we go, another cost-cutting program because we missed the consensus by about SEK 65 million in Q3. So if we then look at this from a numbers perspective, when this is fully implemented in 2025, we will see cost savings primarily then through making these changes in -- as to the petrol-to-battery shift, but also to the organization and some other things, we will reach SEK 800 million in annual savings. We will reinvest half of that to the key value creation levers, and we will let the other half fall to the bottom line. So the net effect of this then is this SEK 400 million that will fall through to the bottom line.
Onetime cost about SEK 2 billion, where SEK 900 million is cash, and the majority will be charged in Q4.
I talked about the exit about SEK 2 billion. This is a very low margin, and therefore, will be margin accretive to the group already day one. Regretfully, a consequence of these actions is that we would have to reduce our workforce with about 1,000 positions.
Shifting gears a bit to Sustainovate. As you can imagine, a very important thing to us and at the center of our strategy. We have a target to reduce the absolute CO2 emissions by 35% to 2025. We are currently at minus 31%. However, let's not take credit for the full minus 31% because since it's an absolute target, it's also very volume dependent. So this year, we have a little bit of an artificial boost here because that we have lower volumes.
In terms of circular, we are going to launch 50 innovations by 2025. We have now 8 that are validated and successful in the marketplace. We approved 3 of those during Q3. We have another 3 just in the pipeline -- right behind that. And we have another 16 in the pipeline of things we are working on behind that. So we feel good about that we're going to hit that target of 50.
And then in terms of people, we have said that it's not enough that we start to do more of the right things. We also need to take an active role trying to influence people around us to also make the more sustainable choices. And so far, we have managed to do that to about 0.5 million people. So we still have quite a way to go here.
So just to summarize the 2 different agenda points that we have today. Starting with quarter. Very happy to see that we are delivering organic growth in the quarter. Very happy to see that we have solid growth in robotic mowers. Of course, a consequence of the high demand we already had, but also that we got more supply of critical components. Also very good to see that professional chainsaws are doing very well.
A little bit hard to look at Gardena after 7 years of straight success really being affected this year, first, weather-wise, with a slow start of the season and then retailers destocking, then it's very hard to drive volumes. I will say that is the high-level summary. And from a profitability perspective, yes, we came in at SEK 601 million versus SEK 926 million last year, and that's largely volume and mix related as Terry described before.
And then the second agenda point, which is really about accelerating our strategic transformation. It's about leaning forward. It's about investing. It's about taking that mid- to long-term view instead of the short-term view to secure the value creation over time from the group, but it's also to accepting some of the difficult -- or the consequences of that strategy, particularly when it comes to the petrol-to-battery shift that we also need to reduce the installed capacity. And it's also about making sure that we have the right organization and structure to focus on this and to deliver on this also in the mid- to long-term.
With that, Johan?
Thank you very much, Henric and Terry. And with that, we are about to start the Q&A session. So can I remind you that you can also send in questions over the web interface, but I assume we have a couple of questions over the telephone conference. So please, operator, start the telephone conference.
[Operator Instructions] The first question is from Christer Magnergard from DNB.
So I have many questions today, but I think I'll shoot with 3 questions, and then I'll get back in the queue. Firstly, on this program, you talked about the SEK 2 billion of products that you're facing out that they have low profitability. And I would guess that they have some gross margins at least. The SEK 800 million in savings you're expecting to generate, is that just reducing cost by SEK 800 million? Or is it also net of the lost gross profit you will make from the SEK 2 billion you would not sell anymore? If you understand my question.
Shall I take that? Yes, absolutely, Christer. So of the SEK 800 million, the majority will be true cost savings and then there will be an element of offsetting the contribution that this SEK 2 billion of consumer petrol that we exit will be offsetting some of the contribution that mix, but the majority is true cost saving.
Okay. And just how the SEK 2 billion will be phased out? If you can give some color on that, how much would we phase out per year?
The SEK 2 billion exited consumer petrol sales will be 2024. So we don't see it impacting the 2023 financials. Of course, we have to respect our customers, and it's very late in the day. So we would not impact next year, but come 2024, we expect it to be exited.
Okay. And then on working capital. You're back at pre-pandemic levels again. Are these normal levels? Or should we actually get back to the -- get to the 20% that you're targeting, [ 20% ] of sales? And if so, how much do you need to cut your inventories with in '23?
First of all, I would say, yes, the 20% remains our target. That does not change. The reality is we have not been satisfied with our inventory development this year, so there is definitely opportunity to drive that down in the years ahead. And then finally, I would say, do we expect to get to the 20% in 2023? No. It's a longer-term target. So it's going to take us some time to get there. But we will start by really focusing on inventory levels during 2023, absolutely.
I just think that there is a little bit what Terry explained before as well, which is, if you have SEK 1.4 billion of currency and you have SEK 1.5 billion in increased cost, then the question is, do we think that those levels will remain? Or do we think those levels will come down? That, of course, has a pretty big impact on the actual inventory number.
I mean it could be mean and say that the currency also helps your top line and the cost base effect -- you raised prices to offset that. I mean...
Sure. And that's all true, but it doesn't help the inventory number that you are asking about.
From an absolute value, yes.
And then on the final question is on the Construction division. You say that you had, of course, some extra costs here in Q3 for the supply chain issues. But operational leverage was quite high. And you also had a [ SEK 60 million ] tailwind from currency and excluding that, and EBIT would be -- the operational leverage would be quite dramatic. And given the cyclicality in this business, there is a chance that volumes could drop quite meaningfully next year. What are your plans to offset that? Or what are your plans to lower the operational leverage next year?
I mean part of that is actually part of this program that we discussed before to make sure that we lower the fixed, what you call the fixed cost in general. But if you also talk about the demand, what makes it more difficult than normal is that typically, construction always goes down quickly in a recession. And logically, with high interest rates and higher cost of material -- and a higher cost of people, it should have an impact. What's a little bit different this time is that, I mean, like if you take the U.S. as an example, already during COVID, they started to launch these big infrastructure programs and so on to help the economy. And normally, they come too late into the recession. But since they started with COVID, these actually now starts to come to fruition and that could also help to hold construction up a little bit, and we see this in several countries. So it's very hard to actually predict what's going to happen. The only thing we know is that we need to be prepared for demand coming down. And that's why we need to take actions on that going into next year. And then have further things up our sleeve if it goes down further than that.
Do we have next question in the telephone conference?
Yes, the next question is from Björn Enarson from Danske Bank.
I have a follow-up on the question on the new program. You're exiting SEK 2 billion of sales. Should we model it that you are taking out low-margin business, 2024? And then on top of that, we will add a net saving of SEK 400 million? Or was the SEK 400 million, including that net positive from exiting the low-margin business?
Yes. So first of all, to answer the question, Björn, on -- yes, the SEK 2 billion will be exited during 2024. And as we've said, it is low-margin business, so you should build that in. And then with regards to the SEK 800 million savings, as I said earlier, the majority is true savings but there is an element of contribution offsetting in those SEK 800 million that we call as well. So it's not a true SEK 400 million net impact to the EBIT, there is some offsetting of the contribution. But again, be also mindful it's a very low margin business.
I think what Björn asked was in addition to that, was really that it's -- it will be margin accretive to step out of this.
Absolutely.
Is that benefit part of the SEK 800 million -- I might have misunderstood you, Björn, but wasn't that your question?
That's correct.
Yes, that's margin accretive.
But it's not part of the SEK 800 million.
No, not part of the SEK 800 million, but margin accretive.
Very clear. Now even I understand it, then it must be clear. Then I have a question on Orbit. Was it something specific during the quarter? Or how should we look upon this? I mean the dilution is quite big. And I would assume that this is also 100% -- or I hope it's 100% destocking related?
I think that, unfortunately, Björn, that is not the case. So Orbit and Gardena have 2 very different challenges. Gardena has a demand challenge because of destocking in late season and those kinds of things, whereas Orbit has had decent demand throughout the year, but rather had more of a gross profit challenge. We took them over very close to the season. So they ended up being slower to implement price increases. Before we could get them on Husqvarna Group transportation contracts and so on, they were very much more -- they are much more exposed to those price increases. Same thing when it comes to electronic components for the smart watering systems, et cetera. So a lot of those kinds of things that we now try to work through and let's call it, integrate them fully into the group in a number of areas to make sure we get the full benefit from it.
Okay. I got it. So you will need to try to catch up on pricing. But I guess that's more tricky, given that the outlook for the consumer is a little bit dull, although on the balanced battery in the U.S., but still what's your view on restoring Orbit profitability?
I mean we have a high ambition and we also have a high confidence that we can do this going forward because some of these things are price related, but part of that is that we did push through, it's just that it came later and later with different accounts, so depending on when you get the effect. And I mean you have a lot of timing things, if you look at it, particularly over 9 months, but also everything is not effective at this point either, and it will be going into effect next year. But many of the other things are fully in our own control, which is how can we make sure that Orbit gets a benefit to a larger degree, being part of the Husqvarna Group, where we started with a plan of a very light touch integration and where we now see that in retrospect, that these areas that ended up being big cost items, of course, we should have tried to address them sooner.
And last question, how would you see the inventory among the Orbit retailers and Gardena retailers and Husqvarna dealers, is that something you can give some color on heading into next season?
I would say that I want to say that inventory is higher than normal. I would say that it is rather lower than normal than higher than normal. I mean the destocking in retailers right now, it started with them being higher, but it's all really rectifying for the retailers real quick. If you look at the Husqvarna dealers, there's still -- we have still record back orders. So there's still a need for the dealer to plan. You can take robotics, for instance, everything we sold in the third quarter went directly to our consumer. There's nothing sitting on the floor. So starting to prepare for next season, will have to happen in the fourth quarter when we can start to build up the robotic -- local inventory again. I don't know if you have anything you want to add.
I think if you look at the 2 different channels, I think as you say, on the retail channel with the heavy destocking, but they did come into the season with high inventory, so I think the retailers on a more normalized level. For me, the question is, of course, what does normal mean in this new uncertain times that we live in, but I would say retail on a normalized level and dealers, I would say, below normal, below average.
And the question with the retail is what position are they in when they go into Q1 and for next season. And if they continue at this rate, they might even be slightly below normal.
Exactly.
But it's just a guess on how they will continue in the fourth quarter.
Do we have another question from the telephone conference?
The next question is from Johan Eliason from Kepler Cheuvreux.
This is Johan at Kepler Cheuvreux. Just some questions on the robots actually. You mentioned, obviously, that in the quarter, you saw double-digit growth, but you have had big problems in the previous quarters. Would you say that for the season that robotic organic growth was sort of positive or flattish, where were you? And then secondly on this topic, I think you mentioned that you were losing some market shares in the earlier quarters as it seemed that some of the competitors had a better sourcing situation than you had now on the full season, what do you think about your market share developments on the robotics?
Since the first half of the year is so much bigger than the second half of the year, basically, the comments from before are still generally true because you can't make up in the third or fourth quarter what you miss in the second quarter, just because of how big they are in relative size. So I would say that we have lost market share, we are still clearly below where we were last year, I mean, significantly below from a sales perspective than we were last year after 9 months. The good news, however, in Q3 was that we could start to increase production because we got more components, and we could start to close as many customer back orders as possible so the customer can actually put the product to use during the third quarter.
And then, of course, the question on the back of that question is what do you think about the supply chain going into next year. And we talk about that we are cautiously optimistic. We see an improvement, we also see that the changes that we have made have had good effect. So that's why we see an improvement now. The big test, of course, comes when we get into those big quarters, where we need a lot of components and also what happens with demand in general of these components, how many will we be fighting with about these components. So right now, it's looking promising. However, there are so many things that can happen when we really need to ramp up for next season. That's why we remain saying that we are cautiously optimistic.
Okay. Good. Then just a question on this SEK 2 billion revenue will walk away from -- is there any specific reason why this was not part of the program you did announce in 2018?
Yes and no. On one hand, a part of this is that certain segments are getting smaller for various reasons, and there's no real prospect for them getting bigger and part of that has changed due to either market dynamics or because of petrol-to-battery. And the other thing is more -- how much can you buy it off at the same time? And we didn't really have a path at that point in time to how to do this in the right way and to be able to execute it in the right way. So I would say a mix of things.
Okay. And then just the final one, the petrol-to-battery is something we see very obviously sort of in the handheld products and then into robotics, so to say. But for your big order and tractors, ride-on mowers and that type of products, do you have battery offering coming on that front? Or what's the plan on that side?
I mean before actually answering that one, I mean, our real desire and what our strategy is that we would like to replace as much as possible of that with robotics. That is our main purpose and the key strategy here. So that's the first comment. The second comment is that we have in European -- we call them [indiscernible] riders, we have a battery offering today that's quite decent. And we are looking into different ways of doing this in a cost-effective way in North America because we can see that also in North America that certain states, I mean, take California, are moving very fast here but we also see other following that. And as they said, deadlines for automotive, it's hard for them to justify to continue with lawn mowers. So there will be a trend in the future when it comes to the wheels side. And of course, we are interested in looking at can we be a part of that transition in a good way.
I've got a couple of questions here over the web interface on robotics, actually. And one from [indiscernible] on CEORA. He is asking that we are starting to see that wage increases are coming up now. And of course, that will bring the, so say, the benefits with CEORA even higher? And what has the early feedback been from customers? What has the satisfaction levels been? And have you had any problems or issues with the product? Or how do you foresee the coming years here?
I would say, if you start for the problem side and then we go over to the positive side. I will say that we have seen very few problems given the sophistication and complexity of that product, remarkably low issues. But we have had this, what we call the hyper-care approach where even people in R&D are first lines of defense to be directly involved in service calls or whenever there is an issue, so we can -- a short circuit organization to be very quick dealing with things that have come up, those few things that will come up.
If you look at it, I mean, the positive side, I will say that it's been very, very strong reviews and the comments coming back. I mean the product really works. It really does the job, it really saves them money. But it does other things as well, and that's one of the key learnings. We realize that people buy CEORA for very different reasons. If you have senior citizen, most cities in the U.S., for instance, they just want to get rid of the noise. We had a big tech giant in the U.S. that basically said no fossil fuel on our campuses. So they bought it from an environmental perspective.
You have golf courses, some of them that basically buy it because it's light, because it rains a lot on those golf courses, and if you have heavy equipment, you destroy the golf course. So what we have learned is that the labor saving part, everybody has in common, but then there are very different triggers for different customers why they buy CEORA, which, of course, presents us with a really, really nice opportunity for the future because it's not a one-trick pony, it solves so many different things.
So we are very, very optimistic. I believe Terry said it before, Q3 was fantastic from a sales perspective. And there's nothing indicating that we won't reach our ambition for the first year with CEORA. So very positive so far.
And demand is strong for the years ahead, absolutely.
Great. And we have another question from [ Stephen Walker ] and he is asking around the new NERA platform. And as he sees it today, the starting point is around -- is a robot size around 2,500 square meters. So relatively large gardens and what customer group are you after there? And when can I get it to a smaller garden with, so would say, the GPS-based navigation?
I mean, we have prioritized to have a rock-solid system, and we are using the EPOS technology, which is the same technology we use in CEORA and that is proven to work there. So we wanted to be able to work for so many customers as possible, so many different yards configurations as possible. And therefore, we come in with a slightly bigger mower and in the premium segment because that's who we are. We will always be the best and we will always play premium, and we start there. That doesn't mean that we can't, over time, do things to get more cost-effective solutions, and we can come down in size and things like that. But that's the reason why we start where we start.
Good. Many thanks. Operator, do we have a final question from the telephone conference?
We have a question from Gustav Hageus from SEB.
Firstly, coming back to CEORA, you say that you're happy with the development and reaching your goals for the year as it looks now. Is that a 4-digit number that you think you're going to achieve this year still? Or has anything changed in that matter in terms of expectations?
You're correct.
Absolutely.
Could you guide us on sort of the capacity, not -- so disregarding demand, but capacity to produce CEORA units for next year, is that also sort of mid 4-digit number or where are we there?
I mean, at this point in time, capacity won't hold us back. The only thing that could hold us back is component supply. So I would not, at this point in time, worry about capacity. Since we are mainly an assembly operation -- of course -- production capacity. Absolutely.
So is it a [indiscernible] idea that you can maybe sell 4,000 CEORA units next year if everything works out in terms of component availability?
We shouldn't be too specific, but I don't think you're crazy. You might be a little bit bold, but for sure, not crazy Gustav, and we internally, of course, want to have a high ambition as well.
But I think one thing I would like to add is, of course, the installation is key on the CEORA products. And as Henric mentioned a bit earlier, we go into a 30-day hyper-care period once we do install a CEORA. So of course, we need to have the network and the infrastructure to make sure these installations go correct and that we are able to then provide that 30-day care period. So that kind of has a little bit of a capacity constraint. We can't just go crazy with volumes. We have to make sure we can fulfill so that the customer experience is absolutely to the best possible.
But just to add to that and for that reason, we are also planning to add quite a few direct sales and service people supporting the CEORA business going into next year.
And the follow-up, I assume CEORA will scale as volumes grow, but do you already feel in a boldened scenario for 2023, do you still feel that your margins are significantly above those of group margins already at that type of volume? Or do you need to scale further to really get that margin benefit?
We're already there. It's more if we decide that we want to spend much more in go-to-market to go faster, then that can hamper the profitability. But I wouldn't say that the product inherently, I mean it clearly has a margin that is way beyond the group average.
And finally for me, sort of related with this new NERA product, I understand you have new competitors entering the market with similar technology in next year. Do you have any sense of sort of their ability to get listings or innovation level or if they know anything about their list pricing if they price themselves into the market or do you have any intel there?
I mean we see and hear a lot. And we did that also for this 2022 season and very little materialized. So we're not quite certain where they will end up because it has been a little bit a moving target during 2022. What we have decided though is that we will be best, and we will be premium.
Okay. Thank you very much. The time has been 11 o'clock now. And with that, we will end this conference with our Q3 report. And many thanks for listening in today. And then if not before, let's meet and when we report Q4 at the 1st of February. So thank you very much.