Hello, everyone, welcome to the presentation of Husqvarna Group's report for the third quarter of 2020. My name is Johan Andersson, responsible for investor relations at Husqvarna, 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 will be later published on our website. With that, welcome, and I will hand over now to Henric.
Thank you, Johan. Good morning, everyone, also a warm welcome from my side. All in all, we delivered a record third quarter as we continue to win in our core categories. Net sales are up 22% in the quarter, the growth is really strong across the board here, particularly strong in robotics, battery, and in the watering categories. In the quarter, the Husqvarna and Gardena divisions benefited from an extended season created by favorable weather conditions. Of course, there was to some extent also a COVID-related stay-at-home trend that benefited us, so to speak. It's also important to note that we are taking shares in this very strong quarter. When we talk about the COVID impact or potential COVID impact, I think it's also important to look at the first three quarters of the year combined.
Our sales are up 5%, indicating that COVID, to a large degree, has meant a shift of volumes in between months and quarters this year. I'm also very proud as to how the team has managed to deliver on this strong demand and actually being able to take market share in this kind of a strong market. I can assure you that it has been a big effort. All in all, we also delivered a record high EBIT in the third quarter, SEK 997 million, which is more than twice as much as last year. We now have a margin of 10.4% in the quarter. This profitability improvement is largely driven by the leverage we get on the top-line growth, but also by improved product mix and good cost control. Another strength is our improved direct operating cash flow.
As you can see here for the first nine months or after nine months, we are at SEK 6.3 billion compared to SEK 3.8 billion last year. This is, of course, a result of the improved profitability, but also good inventory management. All in all, we have been able to strengthen our financial position and reduce our net debt by over 60%. This, of course, puts us in a very strong position. As you know, later this week, the board has proposed to an extra meeting here to reinstate the SEK 2.25 per share dividend. That's one of the benefits from this, of course. Another benefit is that we can step up in our strategic investments and accelerate our strategy, but that's something I will come back to later on here.
Finally on this slide, it's also good to see that we continue to develop well in robotics and battery, 16% of group sales. Here for the full year, we have a double-digit growth in this very important segment. If you zoom out a little bit and look at our performance on a rolling 12-month basis, we can also see that we, due to this very strong third quarter, is reaching our financial target of being above 10%, which is, of course, a milestone and something we are very, very pleased about. With that, I will hand over to Glen, that will give us some more details as to our performance here in the third quarter.
Thank you, Henric, and good morning all. If we start with the Husqvarna division, net sales in the quarter actually grew by 27%. That's adjusting for FX and a minor amount of consumer brand exits in the quarter, really driven by a strong growth in all regions, and particularly strong in the segments of robotic and battery solutions. A couple of products to call out, I would say, that have been extremely successful this year are the new robotic Automower, our Automower 305, and that's a sort of EUR 1,299 level product, and also a pro battery solution that we launched this year, our 40cc equivalent in battery. Both been extremely positive and well-received in the market.
Of course, as Henric mentioned, we've had some positive effects this year from the prolonged season, particularly favorable weather conditions that have supported the Husqvarna Division in most of the categories there, and to some extent, the stay-at-home trend, which also supported the Q3 situation. All in all, that brings up Husqvarna Division in the quarter to an operating margin of 8.9%, some SEK 543 million versus 1.6% in Q3 last year. For the first nine months on a year-to-date basis, we're actually up 3% in the Husqvarna Division. I think this really represents how things have moved between the quarters this year. It's very notable that we should look at the year-to-date position given how volumes have moved between Q1, Q2, and Q3. We would say it is a somewhat normalized nine months when you look at it in totality.
For the first nine months for the division, therefore, we have an operating margin of 11.7%, really driven from a positive growth, positive mix, and also some temporary cost avoidance measures that we took in light of COVID-19. Moving over to Gardena Division. Very nice to speak about this, and yet again, another fantastic quarter. Net sales attributes 26%. This was really driven by an outstanding performance in all of the regions and the product categories where Gardena operates. The largest product category in the division is watering. It's been an amazing season and we've really made a significant effort to grow other categories, such as hand tools, and they've been extremely successful during Q3. The results for the Gardena Division, moving up to 14.1% in the quarter operating margin from 7.4%, really driven from that strong growth, strong product mix, and geographical mix.
We've also launched many great innovations in the division this year, such as AquaBloom, which is an automatic watering system that has been very well received by the markets. During the COVID crisis, we did accelerate our online availability and e-commerce availability, and that has also really supported the growth in the division with double-digit growth numbers. We're also seeing a very good traffic to some of our applications that we have that we interact with our end users, such as myGarden. We're seeing an excellent traffic onto such apps. Of course, the Gardena Division has been supported by the stay-at-home trend. However, we are convinced that there is an increased interest in the gardening segment, and we see a continued upward trend, which is really attracting the passionate gardeners out there in our markets.
On a year-to-date basis, therefore, the Gardena Division moves up to 19.9% operating margin from 15.7%, so an extremely strong performance. Moving over to Construction Division, which of course is our most cyclical division and the most macro-affected division. Q3 has certainly seen an improvement. After a strong end to Q2, we've seen the continued improvement into Q3, so we're really pleased with that. We've been capturing share in many areas, and we've certainly strengthened our positions. North America was particularly strong, as was Asia Pacific, and we've also seen growth in parts of Europe. The weakness really coming in the Middle East in the quarter. All in all, net sales increased by 5% in the third quarter, but a particular strong focus on cost control, and therefore you see the improved operating margin coming up to 15.3% versus 14.6% in the corresponding period last year.
Also worth to note is inventory management. We continue to drive down the inventories in the Construction Division from a relatively high position. That has also supported the cash flow generation in the third quarter. Just to close off on the Construction Division, we have fully integrated our most recent acquisition, which was the power trowel segment from Wacker Neuson. These products have been rebranded now under the Husqvarna brand. That has been a huge success in the marketplace. Moving on to the total group income statement on the detailed slides of this pack. As already mentioned, net sales, extremely strong. Reported level, it was +14%. Adjusting for FX and a relatively small amount of exited business, it was +22%. Just to conclude on the exited business we see for consumer brands, we guided on SEK 2.2 billion for the full year.
We were already at SEK 2.1 billion after the first half-year, so we've had a further exit of some SEK 77 million in Q3, and roughly SEK 60 million in the Husqvarna Division and the remainder in Gardena. Gross margin, you see it moves up from 28.2% to 30.6%. FX was actually negative in the quarter, mainly coming from translation and transaction effects, partially offset by hedges, but still we had a -SEK 120 million, so roughly a 1.4% margin hit. We had a relatively small amount of strategic initiatives hitting the gross margin, roughly SEK 10 million. On the plus side, which really brings it up to that 30.6%, we've actually seen a tailwind from raw materials and tariffs, giving us approximately 0.8%.
The price management continued very strong into Q3 on a similar level as Q2, giving us a further 0.8%, and that leaves just over 2% positivity that we see coming through from efficiency savings as well as the extremely strong mix. Moving down to the SG&A. We have actually managed to reduce our SG&A in absolute terms from SEK 1,963 million to SEK 1,937 million, or moving down from 23.3% to 20.2%. Whereas we talked about the negative effect from FX into the gross margin, we actually have a positive effect from translation into SG&A, just over SEK 100 million. That represents around 1.3% of SG&A improvement. All in all, FX was a minor impact on the quarter, -15%. Further explanation to the SG&A move, we did see some further investments into the strategic initiatives, SEK 40 million in the quarter.
As said, we had SEK 10 million into the gross margin, so SEK 50 in totality. That's representing about 0.5% of gross of SG&A, that then really leaves the leverage effect that we see from our cost savings, but also from the volume growth of about 3.3% improvement in the SG&A. What I would note there before it is asked as a Q&A, we do see a higher administration expenses and a lower selling expense. Selling expense largely due to leverage effect, admin expense that we did take some additional short-term incentive provisions in the quarter. Moving down the P&L. Of course, the operating margin coming up to some 10.4% in Q3 and 13.1% on a year-to-date basis. In the quarter, finance net was much lower. That's really due to the lower net debt levels, particularly in relation to the lower interest levels, largely US dollar related.
Tax rate was a little higher in the quarter than we've been guiding on. It was actually 29% versus a much lower last year. We did have some one-off items last year. We have some smaller one-off items this year. The mid to long-term guidance remains the same at 23%-24% on the tax rate. Summing it all up, bottom line, earnings per share actually increased by 143% in Q3, moving up to SEK 1.4. Moving up to SEK 5.61 on a year-to-date basis, over 10% increase. Moving on to the cash flow, as Henric mentioned, extremely positive cash flow has continued throughout the course of the year. Now at SEK 6.3 billion from SEK 3.8 billion in the same point last year. Of course, the later season, when we had the later sales in Q2, has supported this with the cash moving into Q3.
The additional operating result supports this cash with roughly SEK 500 million. As mentioned, the inventory reduction is actually SEK 900 million on improvement year on year, so really supports this. Also seen an improvement in the payables, receivables position. The CapEx actually slightly lower than last year, SEK 1.3 billion versus SEK 1.5 billion. That is really the result of a slowing down during the first half year. We would expect we would move back to a normal situation beyond 2020. Moving on to the capital efficiency. Of course, we had a pretty sad situation at the end of Q2 when we stood 28.5%. We're now 26% of net sales. That's really the result of that improved inventory management and receivables management. 25% remains our target at the end as a financial target. We'd expect we start making further positive developments towards that during 2021.
Moving over to the balance sheet. Main items to call out, inventory were actually improved by some 21% versus prior year. There is a positive FX component within that, roughly SEK 600 million . Adjusting for that, we are still improving by some 1.5 billion SEK or 15% versus prior year. Worth calling out, this is actually our fifth consecutive quarter of positive year-on-year inventory improvement. We're pretty pleased with that. Receivables actually at the same level as last year, despite higher sales, strong inventory management and receivables management coming through. Payables a little bit higher there in the quarter due to the higher production levels at the end of Q3 versus the same period last year. What is worth to note, of course, is the cash and short-term investment position there at SEK 9.1 billion .
I think it's really worth showing that strength on the balance sheet on that line that we're seeing right now. We also, of course, have our undrawn revolving credit facility of SEK 5 billion. Okay. Then Henric also mentioned the net debt position, which we're extremely proud about. That is actually a 62% improvement. Of course, a big constituent coming from the improved cash from our operations, some SEK 6.8 billion. We have a little bit of improvement from the cash flow from the financing operations, SEK 500 million. Minor movements, actually in the total scheme of things in pensions, a little bit of positive currency effect. Then, of course, the dividend we paid in Q4 last year. Now we actually bring our net debt EBITDA ratio down to 1.4, which we should be pretty satisfied with at this point.
This leaves us in an extremely strong position going into 2021. At that, I will hand back to excuse me, hand back to Henric, who will talk about the future.
Thank you, Glen. Let's now shift gears, as you said, towards the future and focusing on the group strategy. As you know, we deployed a revised group business strategy here last year, and that is the right strategy. We are addressing the right things, and it's also fully embraced throughout the organization. Here on slide 12 to the right, you can see the main parts of that strategy. It's about accelerating in robotics and battery, complementing our products with services and solutions, securing the development of our winning core, and the focus on the customer experience.
All of this, in a way that is also sustainable over time, and supports our Sustainovate ambitions. What we have done over the last three to six months is to review this strategy as to what are truly the vital few things that are the most important to focus on, and questioning ourselves as to can we dial this up? Can we increase our ambition level? Are we sufficiently clear as to how we should execute, and so on? That is very much about what this acceleration is about that I will cover here in a bit. At the same time, we also see there is a solid long-term demand for our products and services, and we are well-positioned to lead our industry through transformational trends such as digitization, sustainability, electrification, or servitization.
There are a lot of trends affecting us, and we believe we are in a great position to lead our industry through this transformation. Talking about the areas to step up and to dial up. First of all, we say here, we are going to add another SEK 250 million in investments into the strategic areas, and that's an increase about, give or take, 50%. This will also support the transition towards a lower carbon footprint for the company as such. The main four value creation drivers, if you would like, are robotics, battery, PRO, and watering, and this is where we want to really step up these investments.
Before going through them a little bit more in detail one-on-one, maybe an overarching reflection of them is that Construction, represented here partially by PRO, and Gardena, represented by watering, are very important to the group, and we would like to see a larger Construction Division, a larger Gardena Division as a relative size of the group. That is good from a mixed perspective, it's also good from a risk diversification perspective. That's one element of this dial-up, so to speak. Let's go through them one at a time here. Starting with robotics, of course, the most important area for us, here, if we simplify it a little bit, we just need to step up our investments in the product development side, particular in the go-to-market dimension. Here we need to have two different strategies, so to speak.
One is for the developed markets, where the robotic mower is already an accepted concept, where it's about taking shares and developing those markets. That requires one set of strategies and investments. Then we have the other big piece, which is developing new markets. It's about how can we more quickly get to the tipping point of the market where the concept gets accepted and it starts to snowball on its own, so to speak? That requires a different kind of strategy and a different kind of investment. That's a little bit what this robotics effort is all about. In terms of battery, same thing here. We need to step up our ambitions and our investments. Also here, we can simplify it with talking about two different approaches.
In the, let's call it the lower-end specifications or the true homeowner specifications, it's more optimizing on convenience for the user. It's more optimizing on the total cost of a system. Here we'll have a strategy of more partnership to make sure that the consumer can get a battery system that works for more than the outdoor products that we can provide, but also for more things that they use around the house. Here, one example of this is, of course, Gardena, that together with Bosch, founded a battery alliance, the Power for All Alliance. Already for 2021, all the Gardena battery products will be on that battery platform, which is a significant step forward in this aspect.
The other part of this is in the, let's call it the higher end for the really demanding consumers and for the professional users, where it's all about best-in-class product, absolutely tailored for the application. This is clearly an in-house strategy, where we'll continue to refine and use our wealth of knowhow about applications and our users. Two very different strategies, but equally important that we need to step up here. One is, of course, to grow the Construction Division. Here there is an opportunity to take our capabilities in construction and expand it into adjacent segments. That is one opportunity that we have been pursuing here for quite a few years, and that's something we can continue with.
The other part to this PRO effort is to try to get a more balanced Husqvarna division, where today the PRO side is smaller than the consumer side, where we ideally would like to see them more similar in size. Not by becoming smaller in consumer, but becoming bigger in the PRO space. That requires one set of strategies and investments. Finally, we have watering. We have all seen the remarkable success of Gardena over the last few years, and particularly this year, and it has been very much driven by the watering category as well, even though the success has been across the Gardena segments. We need to continue to invest into this segment. One dimension that we want to explore more is how we quicker can expand Gardena's position into more geographies and more markets.
That's a little bit about the vital few to step change our investments up another 50%. It's of course, in product development and R&D, but it's equally much into go-to-market capabilities, how we invest in our brands and in our commercial activities. At the same time, just like we use our strong position here now and our strong financial position to step change our investments into the strategy and to accelerate it, we also see an opportunity to do the same to increase our competitiveness and in a few different dimensions. Let's start with the handheld side, where we see an opportunity to really become more competitive in our supply chain. It's about investing into increased automation in our facilities, investing into assemble more products close to our customers.
It's also about investing in additional capacity as we continue to win in battery products, we need to also increase the capacity there. It's also about streamlining and reducing fixed cost in some parts of our component manufacturing. That's one activity here. There's also an opportunity for us after the five larger acquisitions we made the last five years in construction, particularly in that concrete surfaces and floors area, to consolidate that footprint. Finally, there's also an opportunity for us to tune our organization a little bit, for increased speed and execution. Fundamentally, we have been on a journey for the last five years of further decentralization, empowering the divisions, the business units to really run the business, making sure we make the decisions as far out in the organization as possible, as close to the customers as possible.
We now want to take one further step in this regard. Part of this is also to become even sharper in the focus in our group functions and our staff functions, because they are, of course, super important. One activity here is that we are merging some of the activities in the group functions into a new Strategy and Innovation Function, to really drive the strategic agenda in the group and together with the divisions. One of the key rationales for this is that it's increasingly difficult for a tech company like ours to distinguish as to where does strategy end and technology begin? Because they really are intertwined, and that's why we believe that this is a good step going forward. If we bring these pieces together, I would say that given our strong financial position, we can lean further forward.
We can accelerate our strategy, and we can invest both in the strategy as such and in our own competitiveness. We want to do that in a smart way here, where we on one hand realize cost savings, SEK 500 million annually when we get the full benefit, which will be in 2023. We will reinvest SEK 250 million per year extra into the strategic initiatives to secure the future growth of the company. That will then give us a net effect of SEK 250 million per year in 2023. Of course, there will be some kind of a phase in here. I would say that from a profitability perspective, it will be a net negative in 2021, net positive in 2022, and a full benefit in 2023. Glen can give us more detail here later on.
One effect of this is a reduction of our global workforce with about 350 positions. Today, we can't be overly specific as to what countries and what sites, because we must, out of respect of our employees, ensure that we have a proper process here with our employees and their unions in this, and we're not quite there yet with all of that. However, we are given some information about Construction today and a small change in Sweden already now. Construction is a little bit further along in the process. Some other consequences of this, during this very special 2020 and from a COVID perspective, we quickly reduced our CapEx from the normal levels to, let's say, SEK 2 billion. We foresee now going forward that we will be back to the more normal level, SEK 2.2 billion, SEK 2.4 billion.
At the same time, this also comes with a one-off cost, SEK 880 million, whereof SEK 500 million is cash, SEK 380 million is mostly asset write-downs, and mainly related to production assets. The vast majority of this will be charged in the Q4, and the remaining bit in the beginning of next year. We continue here to the last and final slide, we are soon about to wrap up. Before we do that, before we open up for questions, let me summarize some of the main messages this morning. First of all, very strong demand in the third quarter, very much boosted by favorable weather and an extended lawn and garden season. There is a stay-at-home trend that, of course, is benefiting us as well, particularly the Gardena.
However, looking at the full year, that probably has a little bit smaller impact given that we are up 5% year to date. It's more a shift between quarters. We have managed, in this strong market, actually, to take market shares in all the key categories. We have reached this milestone of being above 10% margin on a rolling 12, which is a clear achievement. We have a very strong cash flow. With this cash flow, the board is proposing a reinstated dividend, and we see an opportunity to really accelerate our strategy. Dialing up the strategy for 2019 is the right strategy. Let's just increase our ambition in some of the key areas and our investment, and put the investments behind those, while at the same time making sure that we are increasing our competitiveness, primarily in the supply chain.
All in all, this will give a net saving, being a net positive as of already 2022, but the full impact in 2023. Of course, it goes without saying, it's all about execution, and that is now our focus. With that, thank you for your time. We're now happy to answer any questions you might have. I hand it over to you, Johan.
Many thanks, Henric. Once again, very sorry for the technical issue that we had. As we understand it was with the webcast. Everyone that listened in over the phone, you didn't experience the sound issues that we had in some of the slides, especially in the middle here. We will make sure that we do our best to provide a transcript after this call on the website, you can see what we said there. Gladly it was fixed, now we can start with the Q&A session. Please, operator, let's see if we have any questions over the phone.
Our first question comes from the line of Christer Magnergård of DNB Markets. Please go ahead.
Thank you. To start with, congratulations for the above 10% margin. I've been covering this company for so long, so it's almost a tear in my eyes to see it. The first question relates to the market, what you see for 2021. It's been a very strange season, of course, with the favorable weather and the stay-at-home effect. What kind of market do you expect for next year?
Hey, Christer, by the way, and thank you for your kind words. We're also, of course, very proud of the 10% here. Looking at the market for next year, of course, it's hard to predict, but I think from a COVID perspective, as I alluded to earlier, that it has been mostly a shift between quarters this year, and we're up 5%. Ultimately, I think we feel really good about 2021. We are strong. We are taking market share. We have a lot of innovation in the pipeline, and we think that the market will grow slightly next year, and our ambition is to grow faster than the market next year.
The second question is related to the new increased ambition on the strategic initiatives, the SEK 250 million extra. Is that to support your strategy of growing 1%-2% more than the market, or is it expectations of stronger growth than that, and accelerate growth even further?
The financial target is still to remain on that one to two. We just want to make sure that we also prepare to what's beyond the near term, so to speak. This is really the strategic investments.
The final question relates to the inventory situation for retailers and dealers, and also if you can comment on pricing and listings for 2021.
I'll take that. The inventory situation as we see it is actually slightly lower than prior year in both geographies and both channels, I would say. Given the prolonged season into Q3, we have seen that inventories continue to reduce in the trade. That is our expectation and our understanding in both North America and Europe. In terms of the second question on pricing and listings for next year, this is very much the time of the year where we're doing that work and making agreements with our trade partners, and they go very much to plan and very much in line with our expectations. We would expect a continued positive price development into 2021 as we've proved in 2020. That is very much our expectation, both from list prices as well as the way we do promotional activity during the course of the year.
Thank you. Our next question comes from the line of Johan Eliason of Kepler Cheuvreux. Please go ahead.
Yeah. Hi, it's Johan here at Kepler Cheuvreux. Congratulations as well from my side. The 10% margin has been elusive for many years. Good to see it. I thought it was interesting the program you announced this morning about your petrol supply chain and the investments into robotics and battery-handheld. If my numbers are right, still some half of your sales is related to petrol-powered equipment, either chainsaws or wheel products, and we do learn that the battery and the robotics is only 16%. I guess this shift will continue. Will this mean that you need to take continuous charges related to your petrol chain going forward?
It's nothing we foresee right now. What we do now is to a larger degree to repurpose what we have to be able to grow faster in the battery segment.
If you look at your CapEx profile, we understand that robotics and battery are driving more R&D investments, which you partly capitalize. For fixed investments, how does the CapEx profile look like for the robotics battery products versus the traditional petrol powered products?
Of course, we do have a higher rate of CapEx on those units, given that it's a relatively new segment to us or a growing segment to us. We haven't guided specifically on the CapEx rate per category. What I would say is, of course, that we expect to go back to a normalized CapEx rate, and that's more to the SEK 2.2 billion-SEK 2.4 billion level for next year from the artificially low CapEx rate this year. Let's guide on the higher end of that range for 2021 as we further invest in our core categories.
Good. On this, you want to grow the share of professional business in the Husqvarna division. Is it specifically to, for example, robotics that you want to roll out this in a bigger way in professional, or is it just related to the traditional business, or can you give any sort of insights what you're thinking on how to achieve the outcome?
Ultimately it's both, but robotics is a big piece of it. We still see that there's a huge opportunity in the pro segment, both when it comes to robotics and when it comes to our handheld products. It's actually both. When it comes to the robotics, we are also there then piloting new ways of go-to-market and like selling robot as a service or similar solutions. There are quite an array of efforts into this, some more traditional in terms of building out our network, acquiring customer relationships and things like that, but others ought to be more disruptive when it comes to the robotics and really transform that segment, just like we are transforming the residential or the consumer segment today. Quite an array of different activities here.
Okay, good. Just finally, nitty-gritty detail. I understand one of the U.S. presidential candidates are in favor of hiking corporate taxes, and we obviously saw a lowering a few years ago. Looking at your group tax, I couldn't really figure out the net impact there. How do you see it? You have this set up with a lot of manufacturing still in the U.S. Will a hike to U.S. tax have sort of any significant impact for you?
I wouldn't expect so, Johan. I think we're pretty well covered in that respect. Of course, we operate a transfer price model, principle model. We do have a profit sitting in the manufacturing facilities as well as the sales units, but the residual profit sits in our parent company in that respect. I wouldn't expect this would be a significant change for us if we saw a tax hike in the U.S.
Okay, excellent. Thank you very much.
Our next question comes from the line of Gustav Hagéus of SEB. Go ahead.
Thank you, operator. Good morning, guys. An additional question on the restructuring program announced this morning. Do you feel now with the restructuring of your petrol product division or business, that you are ahead of the curve in terms of your cost structure versus pursuing volume development going forward? I guess what I'm asking is, given that the direction we're heading now with robotics and battery growing at the expense of legacy products, which you tend to point out, do you forecast that those SEK 500 million gross savings will be enough to actually improve the profitability in absolute terms in 2023 for petrol products?
It's an interesting question. I think first and foremost, Gustav, this is really about optimizing our existing footprint. We do expect that we see further improvements in that. It's really about repurposing, getting closer to the end users. We are increasing the automation levels within our handheld facilities. I know some of you on the call will have seen the automation in the Husqvarna facility in recent years, and we'll continue that journey. To your point, we'll increase the automation and hopefully increase the effectiveness and hopefully the profitability as well.
Okay, great. Could you just give us an indication of what is the run rate volume development right now for this business thus far this year?
It's been very tricky. We've actually seen an increase on the handheld business this year, after some years of fairly flat development. We're still actually seeing, even if we look at isolated petrol handheld, for us, for the Husqvarna Group, we're seeing a positive increase during 2020. With our launches in recent years on the 50cc, the 70cc chainsaw and more to come, we do expect a continued improvement in the demand for our products.
Okay, great. These SEK 250 million which will be reinvested, does this mainly relate to hiring of engineers or product development personnel, or are there other pockets where you will deploy these costs? In addition to that, my guess is that it's the Husqvarna and to some extent the Construction Division where these costs will be taken out, but is it also the case that that is where you will add these incremental costs, or will they be also affecting Gardena or other places?
Where we will increase is in those four areas, robotic, battery, pro, and watering. Part of that is in product development and R&D. More engineers, more spending in those categories. Part of it is also in the go-to-market dimension, where we want to spend more money behind our brands, and we want to up our commercial activities. A lot of this is also to drive it in the market, not just to make the product, but to really drive the change and develop the market. It's a mix between those two components, I would say.
All right, great. Thanks. Finally from me, curious to hear a little bit about the development for your robotic lawn mowers for professional use. Any comments from your customers where you're having trials, if they're ready to go on a broader implementation of your products there? I guess airports are not the greatest end customers right now, I guess golf courses and others have had a better year and perhaps would be looking to invest in something like this. Thanks.
We are testing several different segments of the market and also through different business models. So far, I would say it's a remarkably strong feedback and positive feedback. In some of the areas, the challenge is more that the customer need to change their behavior, how they run their business to get the full impact. Whereas in others, it's more straightforward. At the same time, they immediately see the benefits because labor is still the biggest portion of the total cost for the professional users. In many markets, also difficult to hire and find skilled labor to do these activities. The rationale is very clear, and in some applications, we can slot straight in. In others, they need to change a little bit how they operate to get the full benefit.
There we need to take a much more active role, of course, trying to help in that process. Generally speaking, very good feedback, and we see a lot of opportunity here going forward.
Great. Thanks. Those were all my questions.
Our next question comes from the line of Björn Enarson of Danske Bank. Go ahead.
Yes. Thank you. A few questions. You are highlighting the Husqvarna division, the aftermarket, and accessories. If you can give a short comment on whether this is a positive contribution from chainsaw chains or an update there, please. Secondly, also if you can mention how the ongoing investments to drive robotics in the U.S. and the U.K. have been developing during the season. Thank you.
Maybe I start, and you can chime in, Glen. I think when it comes to the parts and accessory business, it is strong across, but it is actually particularly strong when it comes to our own saw chain. There's a strong market acceptance of those and really a pull from the market there, which we are extremely excited about. Generally strong, particularly strong in our own saw chain, so to speak. The second question in terms of robotic mowers in the new markets, particularly the U.S. and U.K. I would say that this is still progressing. We are still making headway. Unfortunately, if you say it like that, it's still from small absolute levels, so it doesn't really stand out in the bigger scheme of things.
We are on it, and it's something that will be part of this acceleration we're talking about to try to speed that up further. It's all about reaching that tipping point when a concept gets accepted and it starts to snowball, so to speak. We need to make sure we shorten the time to that tipping point, so to speak.
In the U.S., is that certain regions that you are addressing to get this move faster, or are you quite broad in your approach?
I would say that initially we have been fairly broad, I think going forward, we will probably put the additional investment or acceleration more focused to a certain area to really get to that tipping point. When you reach that tipping point, we can move to the next area, so to speak. I would say that in the base it's a broad approach, but with additional investments, we will become much more sharp and try to accelerate it quicker market by market.
Perfect. Thank you.
Our next question comes from the line of Karri Rinta of Handelsbanken. Please go ahead.
Yes, thank you very much. Starting on your cost-saving initiatives, it would be very helpful if you can give us some numbers on some specifics. You talk about increasing the automation rate, so it would be helpful to have some sort of ballpark of where you are today in terms of automation rate and what kind of improvement can we expect by 2023. This reallocation of volumes, is there any sort of geographical split here? Is this more about Europe or more about North America? Finally, how many factories do you have today, and do you expect the number to be unchanged, lower, higher in 2023? That's my first three-part question.
Thanks, Karri. Let's start with the automation question. I'm just taking note of your questions here. The automation question, I think it's difficult to answer. Our facilities are in quite different positions of the automation maturity. I know some of you have seen the automation in facilities like Huskvarna plant and also the Ulm plant. We're further along the road in some of them, also in our robotics facilities in Aycliffe and Czech Republic. These additional measures that we're taking will increase the automation in our facilities, notably further automation in the Swedish Husqvarna facility. To give an exact percentage, I think I'd probably be guessing actually at this point in time. Let's come back on how far along the automation we are. I don't think we have a good figure to give right now.
From a regional perspective, this is really a truly global footprint that we've looked at in relation to our handhelds. I think you're aware we have facilities literally from Japan, China, certainly across Europe, and then into U.S., and even down into Latin America. So we're truly global in our handheld footprint, and really want to, as Henric mentioned in his presentation, get even closer to our end users and have more agility and flexibility in our facilities to support our end users. So I would call it a truly global effort. I wouldn't say it's particularly related to region A or region B in the world. In terms of number of factories, I would say the same. This is not about reducing the number of factories we have. This is about optimizing the footprint we have.
Of course, I think it would be extremely naive for Henric or I to sit here and say we're not going to reduce factories. We'll continuously look at how we can ensure that we remain competitive. These measures we take are very much about optimizing out the facilities we have in the Group.
Fair enough. Very good. Shifting gears to the growth investments or priorities that you have. I think it's very clear when it comes to battery and robotics that it's a combination of in-house and partnering investment, but very much still organic growth. What about in watering and in the pro business, especially in the Construction? Is there room, scope, management time for M&A during this period from today until 2023?
M&A should always be part of any strategy, but it's more to boost what we do organically. I think Construction has been one good example where we really had a strategy like that, and it has developed extremely well. I don't see that we have exhausted all the opportunities in Construction. I think it's something for the Division to continue to look at. We have bitten off five fairly big ones in relation to the Division over the last five years, come very far with how we have integrated them, and I think at some point here, of course, management will start to look at further opportunities. That's always inherently uncertain, so it's very hard to be precise about it. That's clearly the ambition, to continue that winning strategy in Construction and see if we can find more opportunities.
Then finally, a small detail, the selling expenses were down 9% year-on-year. You mentioned that the leverage helped you when it comes to SG&A, the fact that they were actually down on absolute basis must be something beyond the leverage effect. You mentioned FX, I guess the question is that how much sort of short term one-off there was in terms of these low selling expenses? Yes, you have guided an increase in go-to-market activities next year. I guess the question is that how much will the selling expenses then start to grow next year? Is there something that is sustainably lower when it comes to SG&A also going forward?
Certainly during Q2, Karri, we talked a lot about some cost avoidance measures we took in light of COVID, and those cost avoidance measures, of course, sit in both the gross margin as well as the SG&A. We've continued those cost avoidance measures into Q3, given that there is still uncertainty in the world. There's probably roughly SEK 100 million of cost avoidance sitting in our Q3 results, but we'd expect we would reverse part of that into next year. That does sit, I would say, between selling expenses and the gross margin lines. You could probably say 50/50 as a rough guidance. We do have some leverage in there, and as you said, we do have a positive FX, so there's roughly in that SEK 140 million reduction, we see just over SEK 100 million in positive FX sitting in there.
You could say roughly SEK 50 million is sitting from cost avoidance. We have had a lower marketing spend than maybe we would normally be running during the third quarter as well. We would expect to reverse a large element of the cost avoidance, probably some two thirds to 75%, something like that.
Great.
FX, obviously I can't guide on particular FX, how it will impact SG&A versus gross margin next year at this point.
Good stuff. Thank you very much.
Our next question comes from the line of Carl-Oscar Bredengen of Berenberg.
Hello, Carl here. Just quick question from me. On the SEK 250 million that you expect for strategic initiatives going forward, are you expecting to capitalize this or will this be fed through the P&L?
No, that SEK 250 million of increased spend is OpEx as we see it.
Okay, thank you. That's all from me.
We have no further questions at this time. Please go ahead.
Perfect. Thank you very much. Let me also once again apologize for that we had a bit of technical issues with the ones that listen in over the web interface during the call, and I think it worked much better for those who listen in over the telephone conference. I think it was solved and at least the last part of the Q&A was working smoothly. Very much apologies for that. Just to mention we have a roadshow here in Stockholm with DNB tomorrow, there we have an open call, and also on Thursday it's more targeted U.K. investors with Nordea. There are opportunities to listen in once again on a conference call if you feel that you missed part of this today. Let me know, and we can help you with arranging that one.
Otherwise, thank you very much for dialing in and listening in over the web today, and we appreciate that very much. Let's then connect the next time, if not earlier, when we report the Q4 numbers in 2021. Thank you very much.