Good morning, everyone, and welcome to Nilfisk's Earnings Conference Call, this time for the fourth quarter and full year of 2021. My name is Elisabeth Klintholm, and I'm Head of Investor Relations and Group Communication here at Nilfisk. Before we begin today's presentation, I'd like to remind you that this presentation, including remarks from management, may contain forward-looking statements that should not be relied upon as predictions of actual results. I therefore encourage you to read the content on this slide in connection with the presentation. To present Nilfisk's results for 2021 and strategy update, we have our CEO, Torsten Türling, and our CFO, Reinhard Mayer. Looking at slide four, the agenda of today's presentation is as follows.
Torsten will start us off with some high-level commentary on our 2021 financials, our operations, and on the strategy review process that was ongoing in 2021. Then Reinhard will give an overview of our financial performance, both for the fourth quarter and for the full year, followed by our outlook for 2022. Backed by our solid results for 2021 and the outlook for 2022, Torsten will then comment on the strategy review that was executed in the second half of last year and that resulted in our Business Plan 2026. Today, we are sharing the highlights from the plan. As no plan is complete without targets, we are also presenting both financial targets for 2026 and sustainability targets towards 2030.
Finally, we're looking forward to taking your questions during the Q&A session at the end of the webcast. Torsten, the scene is yours.
Thank you, very much, Elisabeth. Good morning to all of you. Thank you for joining us in this call. I have been very much looking forward to this day because we have some great news on Nilfisk to share. On the other hand, we are deeply concerned about what we thought is only a matter of history books. War is back in Europe. In those difficult times, our deep-felt sympathy goes to all people who will suffer as a consequence of this war. Getting back to the subject of the call, we will be presenting our annual results for 2021, as well as the key elements of our Business Plan 2026, presenting a strong result and a strong business plan for the future. Let's go ahead with slide five and the highlights of 2021. We finished 2021 on a high note.
Sales in Q4 landed stronger than what we had expected in our November guidance, with growth of 16.7%. This allowed us to conclude the full year revenue ahead of our November guidance with a strong organic growth rate of 20.7%. With this performance, Nilfisk has demonstrated a remarkable recovery in 2021. We achieved increased order intake across the regions and across all our business segments, leading to a revenue close to EUR 995 million in the full year, representing organic growth of 20.7%. This growth is outpacing the growth in the general market and represent actual market share gain. Most significant in the Americas region, where our growth has been 23.8%. With revenue of EUR 995 million, we also surpassed 2019 pre-COVID level of sales.
When it comes to EBITDA, we had guided in November towards an EBITDA margin between 14%-15%. We landed exactly within this guidance and achieved EBITDA margin before special items of 14.5%. With this, we achieved EBITDA before special items at a level of EUR 144.3 million, which represents an increase of 43.6% versus 2020. It also represents a level much higher than prior years. It's the best EBITDA level since the listing of the company in 2017. All of this is the result of our dedicated Nilfisk team members at every level of the organization. With the strong momentum of 2021, we are well-positioned to embark on a journey for long-term sustainable growth and value creation.
Let's move to slide six for a couple of additional highlights from the year. Throughout 2021, demand for Nilfisk products and services rebounded and improved quarter over quarter. Increased order intake growth across regions in Europe, the Americas, and APAC region, as well as across our business segments, may it be in the professional, the consumer, and the private label segment. This is not only the result of a market recovery but amplified by our successful initiatives to gain market share in the U.S. and to grow with strategic accounts as well as with our distribution partners. Order intake in 2021 surpassed sales growth as sales was constrained by global supply chain challenges. As a consequence, we ended the year 2021 with a record high order book. In 2021, we faced severe supply chain challenges. Our reaction to those challenges were twofold.
We increased production volume by ramping up internal capacity, broadening our supplier network, and expanding inventory of materials and components. At the same time, we initiated an extraordinary mid-year price increase to mitigate the margin impact. This allowed us to continue serving our customers as well as to soften the margin implications from the historic high freight rates and raw material cost increases. Moving into 2022, it remains short-term our top priority to mitigate supply chain constraints and their related margin implications. This shall ensure our ability to deliver continued growth and profitability improvement in 2022. Now we are moving to key activities and highlights when looking back at 2021. The strategic review that we conducted, we see here in summary on page seven. Despite the strong recovery in 2021, historically, Nilfisk had fallen short of its growth ambitions.
Therefore, we have spent a significant amount of time in 2021 reviewing our strategic priorities as well as their prerequisites for successful execution. As a result of this review, we have identified underutilized growth opportunities and developed a clear path on how to overcome prior execution shortcomings. We intend to focus on long-term sustainable growth. We developed a detailed, fact-based five-year business plan. This business plan translates strategic priorities into impactful implementation initiatives. The plan also caters for the necessary investments and the implementation of a powerful execution engine that shall secure reliable delivery of the business plan targets. Next to our revised financial targets, we are also substantially enhancing our sustainability commitments. Today, we can share our financial targets not only for 2022, but also for Business Plan 2026, as well as our sustainability targets for 2030.
I will come to this later in the presentation in more detail. First of all, I'd like now to pass it on to Reinhard for more details on financial performance in 2021. Reinhard.
Thank you, Torsten, and also a warm welcome from my side. Moving to slide nine, I will start the financial review with the income statement. For the fourth quarter of 2021, Nilfisk reported net sales of EUR 260.6 million, an increase of EUR 40.4 million compared to Q4 2020. This corresponds to a total reported growth of 18.3%, with the foreign exchange rates having a positive impact, excuse me, of 1.6%. Net sales grew organically with 16.7% to prior year. The growth in the quarter was a result of strong performance from all regions and segments, fueled by significant demand in the markets. The markets in Americas delivered the greatest impact, followed by Europe and APAC.
The gross margin came in at 38.8% compared to 42.4% prior year. The decline of 360 basis points was caused primarily by negative impact from increased freight rates and raw material prices, and to a lesser extent, by the regional mix with over proportional growth seen in the U.S. This was partly offset by a positive impact from higher revenue and the extraordinary price increase announced in July. The supply chain issues affecting many industries with a global setup were partially offset by increased capacity utilization in our manufacturing plants. We also saw good effect of the extraordinary price increase announced in July. As a result of our increased business activity in the quarter, personnel costs and activity-related costs, like travel, rose. Versus prior year, overhead costs grew EUR 4.5 million.
However, cost inflation remained significantly below top line growth in the quarter, and the overhead cost ratio was 32.9%, 400 basis points lower than Q4 2020. EBITDA before special items came to EUR 31.5 million, a small increase of 0.6 million from Q4 2020. EBITDA benefited from higher revenue but was negatively impacted by cross-margin pressure. Finally, the EBITDA margin before special items came to 12.1%, a decline of 170 basis points. Let's move to slide 10. Looking at the full year of 2021, net sales for the total business came to EUR 994.9 million, compared to EUR 830.9 million for 2020, corresponding to organic growth of 20.7%.
Foreign exchange rates had a negative impact of 1.2% on total reported growth, mainly driven by the US dollar. Gross margin came to 40.5% compared to 41.6% for 2020. The decline was driven by exceptionally high freight rates across several trade lanes and the increase in raw material costs. These headwinds are putting a significant cost burden on industries like Nilfisk that operate in a global setup. We were able to partially offset these headwinds by increased capacity utilization in our manufacturing plants. We also saw effects on the extraordinary price increase announced in July. Overhead costs came in at EUR 318.6 million, a smaller increase of EUR 4.8 million from 2020. Activity-related costs rose with increased business activity and were the key contributor for the increase.
As costs grew significantly less than top line, the overhead cost ratio came to 32%, a decline of 570 basis points from 2020. EBITDA before special items increased a solid EUR 43.8 million to a record level at EUR 144.3 million. The EBITDA margin before special items rose to 14.5% in 2021, 240 basis points up versus prior year. Finally, I also want to mention special items, which amounted to EUR 4.4 million for 2021 compared to EUR 10.8 million in 2020. The special items were mainly related to the leadership changes from May 2021. All in all, Nilfisk returned to profitable growth in 2021. The growth was broad-based across regions and business segments. Let's have a closer look at this, starting with Europe on slide 11.
Starting Europe off with the quarter we just finished, Q4 2021 revenue came to EUR 127.1 million against EUR 111.7 million in prior period. This corresponds to organic growth of 13.3%. We have seen a continued strong order intake across the region, with Europe South presenting the largest growth. The floor care product group saw the strongest organic growth performance. Gross margin came to 43.7%, down from 46.7% in Q4 2020, and EBITDA margin before special items stood at 26.1%, down 250 basis points from Q4 2020, primarily due to the lower gross margin. Moving on to the full year, revenue amounted to EUR 466 million, leading to organic growth of 17.8%.
Europe South saw the strongest growth due to a large order, including significant deliveries from autonomous solutions from a leading retailer. Europe North and Central also saw a healthy recovery, with markets like Denmark and Germany recovering well from the pandemic. Gross margin fell 100 basis points to 45.2%, mainly due to the previously mentioned negative impact from freight rates. The extraordinary price increase partly mitigated this. EBITDA margin increased 110 basis points to 26.9%, driven by higher sales and an improved overhead cost ratio. Now moving on to the Americas on slide 12. We are very pleased to see a continued positive and very strong development in the U.S., our biggest single market. Let's first look at Q4.
In the Americas as a whole, revenue amounted to EUR 79.8 million in Q4 2021, up from EUR 62.7 million in prior year period, leading to an organic growth of 23.9%. Growth was predominantly driven out of the U.S. However, Canada also saw a strong finish to the year. Gross margin came to 35.2%, down from 41.1% in Q4 2020, and EBITDA margin before special items stood at 15%, down 590 basis points from Q4 2020. Moving on to the full year of 2021, revenue amounted to EUR 296.3 million, up from EUR 247.6 million. This corresponds to a very satisfactory organic growth of 23.8%.
The main growth driver was the U.S., partly due to our focus on large strategic accounts. Canada delivered a robust performance as we continued to develop our dealer business. As restrictions from COVID-19 were lifted, Latin American markets saw encouraging growth. Gross margin came to 39%, 160 basis points lower than for 2020, mainly due to the negative impact from freight and raw material prices and to a lesser extent from changes to the customer mix. Increased capacity utilization and the extraordinary price increase partly mitigated these effects. The EBITDA margin before special items increased marginally to 18.9%, driven by higher sales and an improved overhead cost ratio. Now turning to slide 13, where we have the numbers for APAC. In Q4 2021, performance was positive across all markets in APAC, led by the improved performance, particularly in the Pacific region.
Q4 revenue amounted to EUR 21 million against EUR 18.2 million in prior year period. This corresponds to an organic growth of 11.9%. Gross margin came to 40.5%, slightly up from 40.1% in Q4 2020. The EBITDA margin before special items stood at 13.8%, up 610 basis points from Q4 2020. Moving on to the full year of 2021, revenue amounted to EUR 79.2 million, up from EUR 65.8 million in 2020. Organic growth was 19.7%. The Pacific region showed a strong post-pandemic recovery while exiting the strict lockdowns. In some of the Asian countries, India and Vietnam, recovery taking a bit longer as lockdowns were more prevalent.
The gross margin increased 240 basis points, mainly driven by the extraordinary price increase from July, but also from increased capacity utilization and country mix. EBITDA margin before special items grew 750 basis points due to gross margin improvement and strong cost management. Let's move on to slide 14 for our consumer and private label segments. For Q4 2021, the consumer business remained stable from prior year. However, for the full year 2021, the positive development continued, with organic growth of 12.8% taking the business to a total revenue of EUR 86 million. Overall, consumer benefited from our renewed innovative offering, including the launch of the Core series and innovative high-pressure range, and a generally increased focus on this business. The gross margin improved marginally. As with the rest of our business, the margin was negatively impacted by increased freight costs.
On the positive side, we saw tailwinds from product optimization and product launches. Our private label business delivered revenues of EUR 67.4 million for the year, corresponding to a strong organic growth development of 43.9% from 2020. Revenue was driven by high demand from our key customers, driven by increased demand from their customers due to continued interest in professional home improvements, particularly in the construction sector. Gross margin stood at 22%, down from 25.6% in prior year due to changes in customer mix. Turning now to the balance sheet and the cash flow on slide 15. During 2021, we actively managed our inventory levels to match and fulfill increased demand. As a result, inventories rose by EUR 70.8 million and we have ended the year at EUR 220.1 million.
The increase came from substantially higher business activity and investments into stocking of critical parts and components. As a result, working capital grew by EUR 44.1 million. Higher revenue, however, reduced our 12 months working capital ratio with 340 basis points compared to last year. CapEx increased EUR 0.5 million for the full year, primarily from investments into operations. In Q4 2021, CapEx spend rose more as we have increased our efforts within R&D activities as well as with investments into IT systems, leading to a year-on-year increase in CapEx of EUR 1.3 million for Q4. Free cash flow declined by EUR 50 million- EUR 58.5 million for the year due to the increase in working capital. As the numbers show, free cash flow in Q4 2021 declines almost EUR 20 million.
This movement is linked to the increase in inventory levels and higher working capital. We were able to reduce net interest-bearing debt by EUR 43.5 million during 2021 and ended the year with a debt of EUR 338.5 million. This, in combination with the strong development in EBITDA, led to a reduction in gearing to a factor of 2.3. Please return or turn to Slide 16. Summing up, performance in 2021 was strong. We witnessed a remarkable recovery, and we finish the year with a strong order book, providing demand, it remains very high. We see tangible effects from our price increase, which to some extent can offset the continuing supply chain challenges. This gives us a solid starting point for entering 2022. Let's turn to our outlook for 2022. Please turn to Slide 17.
As Torsten has already said, we are steering the company for long-term sustainable growth. This also means profitable growth, and we start now. For 2022, we expect organic revenue growth to be in the range between 4% and 7%. We expect the continued market demand, our strong order book, and our pricing actions to drive organic revenue growth. We assume a continuation of the global economic recovery and that the supply chain challenges do not worsen. In addition to ensuring growth, profitability is also key. For 2022, we expect the EBITDA margin before special items to come in between 13.5% and 15.5%. We ended 2021 with an EBITDA margin before special items of 14.5%, and with the Q4 margin at 12.1%. Q4 was more influenced by supply chain issues than the full year.
Moving into 2022, we expect our pricing actions to offset some of the supply chain pressure on the margin. In addition, we will maintain a prudent cost management principle. We will, however, also back our growth initiatives with investments. Finally, we expect exceptionally high freight and material costs to continue to affect us well into 2022. Summing up these moving parts now, we expect to continue our journey of growth, ensuring that for the next years. With that, I would like to hand over to Torsten.
Thank you, very much, Reinhard. After this clear insights into the performance driver of 2021, we would like in the next chapter here share with you how we envision the longer-term future and the key elements of our Business Plan 2026. Now, maybe one word upfront on the process. When we embarked on the strategic review last year, we were keen to understand what are the parts of the business that's driving profitability? What are the parts of the business that have growth potential? Where have we underestimated underutilized growth opportunities? And why in the past we have not better executed on our plans. To do this, we really went very, very deep in the fact base and developed a holistic model that allowed us to simulate key improvement levers and their prerequisites for implementation.
result out of this was a five-year business plan, out of which we're sharing with you the highlights here. We give you more details in the upcoming Capital Markets Day, early April. Turning to the next page, just to give you a first glimpse about what this strategic roadmap looks like. I'd like to first underline very fundamentally that the business in which we operate is a growth industry. This is a long-term growth industry of professional cleaning, driven by rising labor cost and increasing labor shortages. The recent COVID crisis has further emphasized the criticality of clean for professional and private customers. We are operating in a growth industry. We intend to position ourselves as a global market leader in this industry.
What you see in front of you here is an outline, a summary outline, of how we intend doing this. Now, just to be clear also upfront, this business plan and this revised strategy is not to come up with something revolutionary new. It's about understanding what drives value creation, make clear choices and priorities, and get things done. With this, I'll take you through the few elements. We have five business elements that I'll briefly talk you through. Then we have the fundamentally important execution engine, our ways of working that shall secure that things get delivered. We are on the journey of long-term value creation. I talked to you about the value proposition that we intend to implement. With this, on the next page, first let's zoom in on what we call optimization opportunities.
We are on a strong foundation, and you heard from Reinhard before how well we have performed in 2021. We are on a good momentum. However, we have identified in our core business in Europe, which is the largest part of our business and the most profitable part of our business, additional hidden opportunities to further increase our market coverage and improve our profitability. Part of the business plan is an optimization opportunity of our leadership position in Europe. We have a very detailed plan with identified levers that we have started to implement that will drive value creation in our European region. The second dimension of optimization opportunity is supply chain robustness. We talked a lot about supply chain challenges throughout 2021, and in fact, that market environment has stress tested our supply chain organization.
We have looked very deeply into the current setting and have identified key levers that on one, enhance robustness of our supply chain for the future. On two, add the growth capacity that we need to accommodate the growth. On three, help us to drive efficiency gains and savings. This is the optimization opportunity in supply chain robustness. When it comes to the key strategic priorities, which are priorities that build on top of the existing strong fundament. Those are underutilized growth opportunities that create significant value in the future. The first element is here, service as a business. Why is this a strategic priority? On one, it is 30% of our revenue already today. It's critically important for our customers, not only to be served in the aftermarket well, but for their decision to renew new equipment purchases.
30% of revenue as a more reactive way of looking at this business. We want to make this a real business. Real business means the percentage of revenue will increase as part of our Business Plan 2026, we see this proportion steadily increasing. In neighboring industry, we see this proportion of revenue, of service revenue above 40%, 50%. This is a long-term journey for us. The good thing here is it's not only top-line growth, it's recurring, stable, profitable revenue. Substantial opportunities that we have in there, and we have identified the detailed levers on what do we need to work on to make that opportunity happen. The second key strategic priority that we have identified, we are still underrepresented in some key large-scale markets. The largest market in this industry is in the U.S.
The U.S. represents around 40% of the professional cleaning industry total market size. We have a strong and growing presence. We have increased market share, as Reinhard had pointed out before. However, we are still far underrepresented compared to our global market share. We have strong manufacturing presence. We have a world-class R&D center in the U.S. We have everything it takes to build a stronger presence and a larger, more profitable business in the U.S. This is the first large-scale market we want to focus on. Once we can tick that as achieved or well on track, we can turn our attention to the next large-scale growth market. The third strategic priority is on sustainable products. I will talk about our sustainability commitments, and we have made a clear choice to become the sustainability leader in our industry.
This will require that any new product generation makes a step change in sustainability performance. We not only build this in our new product generations, we also upgrade our current product generation. Overall, we're driving towards more scalable, more resource-efficient growth, helping us to achieve our sustainability targets. I'm turning back to the next big dimension, which is, of course, the execution. We have deeply reflected upon our ways of working to overcome past execution shortcomings. We have launched a methodology, a system we call the Nilfisk Operating System. This is a proven, straightforward, very effective methodology for rigorous execution tracking. You deploy a strategy into clear initiatives, tracking metrics, timeline, milestones. This implementation of the Nilfisk Operating System will drive an execution culture over time. The other dimension of the ways of working is the digital enablement.
We need to have information available, fact-based for our decision-making, down to each operator's level, to take the right decisions, well informed, in real time. We're building and investing into upgraded IT systems and digital applications. The third element is we have strategic priorities. We need to reflect that the organization is designed in line with those strategic priorities. We need to empower our people for accountability and make things happen. We'll delegate more power to our people, equip them with the right tools, the new Nilfisk Operating System, the right information to make the decisions close to the customer, close to the markets. We want to instill what we call a growth mindset. It's a fundamental belief that you can develop the capabilities necessary to succeed. Those, in a few words, are execution engine of future work, ways of working.
We are building towards value creation. Our value creation outline has three dimensions. On one, obviously for the customer, we want to create long-term value for our customers by strengthening life cycle services. Our customers operate the equipment over years, and their total cost of ownership are much more impacted over the life cycle than there is in the initial purchase. We can create massive value by more fundamentally considering life cycle services, for our customers. The next is, innovation, customer-centric innovation. We can leverage our technological capabilities by creating meaningful innovations for our customers, create additional value. Finally, sustainability commitments helping us to drive value across all stakeholder base. As I mentioned before, we are not shy of the ambition to target for market leadership when it comes to sustainability.
Those are the key elements of our strategic roadmap of our Business Plan 2026. Those have been embedded into tangible targets and detailed implementation plans. With this, I would like to move on and share what we have, the targets that we have embedded into our Business Plan 2026. You heard this before from my introduction and from Reinhard's confirmation. We are on the journey for long-term sustainable growth. By the year 2026, we want to land in a revenue range of EUR 1.2 billion-EUR 1.3 billion. This number does not include acquisitions which might come on top, but which will only become relevant medium term rather not shorter term.
That might amplify further the revenue that we are going for, organic growth, into the range of EUR 1.2 billion-EUR 1.3 billion sales. When it comes to EBITDA margin, we have clearly understood that those strategic initiatives that I have outlined before have margin implications to help us in a better mix, to help us being more cost-efficient. We have leverage due to the scale and rising size. This drops through to margin improvement. We expect to achieve higher than 16% EBITDA margin before special items at the latest by 2026. We mentioned before, of course, any growth plan, any build-up requires investments.
We expect a little bit of higher CapEx investments in the first few years in the range of 3%-4%, and then a normalization of the CapEx spend in the second half of the business plan time horizon. We'll operate between 3%-4% CapEx of sales. The increasing performance, operating result, but also cash flow generation that will steadily step up over the course of the journey of Business Plan 2026 implementation, will help us to reduce the gearing of the company to a targeted range between 1.5x-2x , which will clearly make us an investment grade company with positive implications on our capability to finance and our cost of financing. With this, I'd like to turn to page 27 for our sustainability targets.
Our sustainability targets are clearly defined and committed towards Science Based Targets initiative and confirmed and approved by that organization. For Scope 1 and Scope 2, we have committed to a 35% carbon footprint reduction by 2030. We have recently added a commitment for Scope 3 emission reduction target of 48% by 2030. We have complemented our sustainability target by a diversity target and we have picked the initial matrix of percentage of women population in senior leadership targeting for 25%. With those targets, we are clearly set to make a positive impact on society and create value across all our stakeholder base. With this, I'd like to conclude. You have seen our performance in 2021. You have heard a glimpse of our way forward.
We are bullish about the opportunities for Nilfisk for long-term sustainable growth and value creation. Let's conclude our presentation, and we open up for your questions.
Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad now, and you'll enter a queue. After you are announced, please ask your question. Please hold until we have the first question. Our first question comes from the line of Claus Almer from Nordea. Please go ahead. Your line is now open.
Thank you. Yeah, a few questions from my side. The first question goes to the gross margin in Americas in Q4.
That came down quite significantly year-over-year and is also somewhat lower than we saw for the full year 2021. Is this only due to cost inflation, or are you using a more price-aggressive strategy to attract organic growth? That would be the first question.
Yeah, Claus, thank you for the question. Let me straightforward answer. This is by vast majority the implications of higher freight costs. We are serving the U.S. market not only from a U.S. manufacturing base, we are also serving the U.S. market from our Chinese manufacturing base. That was significantly impacted by higher freight costs, obviously. That is by far the most important driver of this margin decline.
Okay. You mentioned price increases. When should we expect the gross margin in Americas to be restored?
The price increases have been communicated mid of last year, the first wave. Beginning of this new year, the second wave. Of course, we continue monitoring the market and consider what more activities are needed. Our prices will be impacting our gross margins with somewhat of a delay. The costs are immediate, then we react, we increase our prices. For the U.S., we're also sitting on a substantial order book, which is an additional challenge to work through the order book and imply the price increases to the order book. As we work through the order book in 2022, you'll see the margins coming through.
It's a gradual process, not a one step up in a month or in a quarter. You will see this gradually coming through over the course of the year. We have always sized the dimension of our price increases to over a 12 months' time horizon compensate for the cost inflation impact.
Okay. My second question goes to the 2026 targets and the strategy plan, and that will be three questions, and I'll take them one by one. The first, do you. It sounds like these growth opportunities you're going to target means you're going to add market shares. Is that correctly understood?
That is understood. We expect that the market will be growing, but our growth is over and above the market growth, indeed, hence market share growth.
In all three regions or it's mainly in these key markets where you are under-penetrated?
There's two things here. I talked about Europe, where we have higher market shares and a very strong implemented profitable presence. We have opportunities to grow slightly above market and improve our profitability. There is underrepresented opportunities where we can grow much more. The three strategic priorities, the service business, the U.S. as the first example of a large-scale market and the new product scope, here we can grow over proportionally. It's not the growth, it's not everywhere the same. It's in Europe, a bit lower, a notch higher than market. In the U.S., as an example, significantly higher than the market.
Okay. You're mentioning, I think you said 45% of revenue should come from service, that's part of the plan. Does that mean you're going to build up a service organization, also in the U.S., or how are you going to really to achieve 45%, if that was the right number?
Yeah, just to clarify what I said. I benchmarked. Our current revenue proportion in service is 30%. Neighboring industries, not our industries, but neighboring industries achieve 40%-50%. Our Business Plan 2026 is trending in that direction but will not over a five-year time horizon reach 40%-50%. Just to be clear about what I said. Now, the service business, the first growth opportunity in the service business is where you have the bulk of your business. So here we looked at a few metrics, kind of the proportion of contract-related service sales or the penetration rates of our parts sales, depending on the channel, the distribution channel. All of this in Europe.
We have substantial growth opportunity for the service business in Europe using our existing service infrastructure, just changing the mindset from a reactive repair service to a forward-looking, proactive business development drive of service. The most significant part of our service revenue growth will be coming from Europe. Obviously, with our increasing level of sales, there's also opportunity to grow service business in the U.S.
Okay. Just a final question, and maybe, before asking this question, I would just say sorry about asking this question, but we have heard these plans in the past by former management teams, and they have not really been carried out 100% at least. How do you make sure that your organization and the whole value chain understand the new way of working? That would be the final question.
I mean, this is exactly right. That's why when we did the strategy review, we were spending more time on what we need to do to make things happen, rather than what is the next revolution we can find. It's not about that. It's about reviewing what have we done in the past, what was good and successful and want to keep going, what was good promising, but didn't quite achieve, how we can make it achieve, and what was not quite on the agenda high, like the service business we added. Then we laid out the ways of working. The way we do this, the way we manage, Reinhard and myself, we come from a different background. We still need to prove that it delivers.
I think 2021 gives you a first glimpse, but we have a very clear methodology, and we laid this out. The operating system that we're gonna implement, we started to implement, is a very straightforward, proven methodology. We have applied this before in other companies. Many other companies do this, and it does deliver result. It does secure execution. There's no way left and right. This is the way we work. Probably one thing I'd like to say what is the most fundamental difference. What we laid out as the those five elements of businesses, those are not projects at the site for a project team. This is how we work in the business. We take the entire organization along. This is not a separate initiative. This is how we do business.
When we have the new Nilfisk Operating System, we deploy the strategy to initiatives, to metrics, to IT activities that are relevant for each single one. Then we track not only on Reinhard Mayer and my level, at every level of the organization. The other element is, I talked about this, empowering people. This is a very dynamic market. It needs to be a very customer-focused market. If you want to drive growth, which is our ambition, you cannot at the same time drive restructuring. You do one or the other. That's our fundamental belief. We drive growth over the next five years. We don't distract the agenda with other things. We need to delegate power to the people that are on the frontline. We need to adjust the organization to make this happen.
This is what we have built into our execution system. We are confident that this can work. We have seen it starting to work in the second half of 2021. Reinhard and myself, we have done this before, and we'll do it again here.
Okay, that sounds good. Thank you so much for the replies.
Our next question comes from the line of Casper Blom from Danske Bank. Please go ahead. Your line is now open.
Thanks a lot. A couple of questions from my side also here. First of all, apologies if I touch on something that you have touched upon already. There was a little bit of a challenge getting onto the call from my side here. But I didn't hear any mention of autonomous machines and robots and so on, which has previously been sort of a matter of debate in Nilfisk. Would you be so kind as to share your views on that? That's my first question. Secondly, regarding your strategic review, I suppose that you've gone through what business areas you find relevant. I note that you still have the consumer and you still have the private label business inside of Nilfisk.
Could you sort of mention what you think about the future for those two business units, which are somewhat different from the branded professional units? Then finally, I don't know if you're able to talk about this, but there has in the past been talks about a potential large merger in the industry between Nilfisk and Tennant. What would be your thoughts on something like that? You don't have to be specific about the specific company, of course, but just sort of your thoughts about large-scale mergers. Thank you.
Thank you, Casper. I'll take the first question. I'll leave the two other questions to Reinhard to answer. Autonomous remains a key part of our product offer. We mentioned in our communication earlier in the year that we have won a very large-scale deal in Europe, so we in 2021. We moved from kind of single implementations and proof of concept to in 2021 large-scale rollout. Quite a learning, but it proved that we mastered the technology even on a larger scale rollout. We're now actively involved in more large-scale tenders in Europe as well in the U.S. That's not fundamentally different. I think what we see is that the penetration of autonomous is a longer burn.
It will not overnight be a huge proportion of our business. It's an important element in of the future. We are part of the leaders in the technology for that. We play in this technology, but it remains today a small proportion of the market. It will grow over proportionally, but probably what we see is the time horizon is much longer for the penetration of this technology. Probably that's the only difference, but it is a fundamental piece of our overall product offer.
Good. I come to your second question, strategic review, and what does that mean for consumer and our private label business? I mean, those are, let's say, good businesses and support our overall profitability. Though it is in the other side, not the center point of our investments going forward. We will, of course, work a lot with these businesses, and they will stay as a priority, but investments will focus mostly on how can we actually increase profitability in the relevant segments. Nothing to be changed, but more to be expected that we will work on the profitability of these businesses. To your point around the, let's say, rumors for large mergers. Well, we are not commenting on rumors here.
We have alluded that this strategy is built on, first of all, organic growth opportunities and that the medium term would certainly look into also M&A opportunities. Then we'll need to see.
Okay. You don't wanna say whether you sort of can understand the logic behind such a potential merger?
There is certainly, let's say, an industry logic on that. I think, since this is a speculation now for many years, the logic has not changed recently, so the logic is still intact.
Fair enough. I understand it's difficult to go into details about. Thanks a lot, guys.
Thank you. Our next question comes from the line of Mads Quistgaard from Carnegie. Please go ahead. Your line is now open.
Yes. Thank you. Good morning. I have the same problem as Casper. Sorry if I ask about something which has already been addressed. I will take my questions one by one. First, what do you see as a potential impact on Nilfisk from the current conflict between Russia and Ukraine? And is it fair to assume that your sales exposure is around 1% of group sales in Russia?
I mean, Mads, very clear answer. Exactly. We have at best an impact of 1% of revenue to Russia. We have no business actively, let's say, in Ukraine, so there is no impact there. This is more or less the potential situation which we could face that we are hit by sanctions affecting 1% of sales.
Okay. Perfect. On this Business Plan 2026, how much of the margin improvement is expected to be driven by increased sales from service and the aftermarket?
It is a proportion of the margin improvement. We'll share more details on the Capital Markets Day. There is different combinations. All elements that we put there in the middle, all five key business elements contribute to the margin improvement, and the service element does. It does from two dimensions. It does from the weight of the business, so with increasing proportion of the service business in the mix, and it does contribute by even the current business has potential to reach substantially higher margin. Both angles will contribute to that. The service element will help us to lift them, to lift the margin. We'll be more specific on the Capital Markets Day. It's one of the contributing factors.
Okay. Very clear. Then from a capital structure perspective, you're now within your target range of below 2.5x . What is sort of your view on your capital allocation? I know you already talked about M&A activities. It might be early days, but have you made any initial thoughts about dividends and about, you know, M&A across segments from mid high-end and also about across geographies?
Yeah. Maybe I answer that. Well, first of all, I think we have actually in our annual report now laid out a clear, capital allocation strategy. That first and foremost, let's say, works on the side, bringing down our net debt into a gearing level of 1.5x-2x. Once we are there, we will certainly go into, a dividend payment as a proposal, but that is down to the decision of the board in whichever way that goes. Let's say as Torsten alluded, we are of course open for M&A activities, but more on the mid-term. That we would, so to say, also use our, free cash flow, to somewhat finance, such investments.
Overall, so it's, I think, a very well-balanced capital allocation strategy, bringing down debt, making us more resilient as a company, and being a clear investment grade company as well. Having good access to capital. Working towards the shareholders, whether it's a dividend or other ways to distribute to the shareholders. Of course, the M&A side. That depends on opportunities which fit our strategy and so do our growth plans.
Okay. I have three smaller questions here, so I will take them in combination. First of all, on your organic growth guidance for the year, 4%-7%, what has sort of been baked into this growth rate in terms of volume and price increases? Is it one or two price increases? On what projects and spare parts do you have supply chain constraints today? And then finally, you no longer guide for special items. Is it fair to assume that there will be no special items this year?
Well, let's start on the growth side. Yes, we have a price increase implemented, and that's part of the organic growth besides volume growth. On the topic related to, I mean, what is our guidance towards special items? Well, we have not any, let's say, concrete restructuring plans in mind. Hence, there is no guidance on this side. On the other side, we will not rule out that there might not be in future times. As for our outlook in 2022, we don't foresee special items to arrive at the magnitude, so to say, which is above a small level. Yeah.
In terms of the products and spare parts, where you have supply chain constraints today?
We have, let's say, supply chain constraints, not more than we had seen in 2021. It is, so to say, certainly a fact that not all of our spare parts and components are deliverable in what we used to see very short lead times. There we certainly have also the same challenges as many other industries. We are not in a position that we cannot supply spare parts or goods to our customers. It comes with a certain longer lead time to confirm our orders and shipments.
I would like maybe.
All right. Maybe just one follow-up with the first part, because these 4%-7% organic growth, does it include only one price increase or does it also factor in one potential price increase in June or July, for example?
Only one price increase is planned, but we cannot rule out that there might be another one depending on what situation we face on the raw material side.
Perfect. Thank you.
Thanks, mate.
Thank you. At this stage, we have no further questions. I will hand back to the speakers for any final remarks.
Yeah, let me again thank you very much for joining this call. We were very pleased to share the 2021 results with you and the outlook for 2022, as well, a flavor of our Business Plan 2026. We intend to share much more with you on our future direction in the Capital Markets Day on the 5th of April. We'll soon invite for this. For now, thank you very much for joining us in this call, and have a good day.