Earnings Call: Q4 2015

Mar 10, 2016

Let's get started. Good afternoon, ladies and gentlemen, and welcome to our 2015 financial results presentation at HUGO BOSS headquarters here in VIXX. In addition to those in the room, I would also like to extend a warm welcome to all participants following the conference over the phone or the web. We meet today in a different composition of the Managing Board. As communicated 2 weeks ago, the CEO, Claus Dietrich Glaas, has left HUGO BOSS at the end of February in mutual agreement with the Supervisory Board. At the same time, the Supervisory Board has appointed Dan Thacker, whom you will know from previous Capital Market Days, is new Managing Board member responsible for sales and retail. Together with Christoph Auharden, we look forward to tackling the immediate challenges in front of us in 2016 and to shaping the future of HUGO BOSS towards renewed success. Let us focus on the future rather than the past. Consequently, I will keep my operational and financial review of the year 2015 relatively short. Instead, I will focus on our 2016 outlook from an operational and financial as well as a strategic perspective. But before doing that, let's start with a brief summary of the last 12 months. 2015 marks the 6th consecutive year of growth for HUGO BOT. The group increased sales to more than €2,800,000,000 Operating profit rose slightly to €594,000,000 This represents new record levels on both metrics. However, trends moderated considerably over the period as a result of a challenging second half year, top and bottom line growth over the last 12 months fell short of initial expectations. A difficult market environment contributed to this. In many markets, the apparel sector did hardly benefit from overall positive consumption climate and lost share of wallet as a low interest rate environment drove the purchase of high ticket items and consumers shifted a greater share of their spendings to experiences rather than physical goods. In our key German market, the apparel market remained flat year over year with better trends during the season end period compensating for shortfalls, especially in the first half year. In the U. S, our single largest market globally, off price was the strongest growing channel, putting pressure on full price retail. In addition, the strength of the dollar had a negative impact on demand from tourism. And in China, market researchers estimate that the men's luxury apparel market In Europe, in particular, we delivered a strong performance against this mixed market backdrop, With growth of 6% on a currency adjusted basis, Europe remains the group's stronghold offer in 2015. Over the course of the last 12 months, the process related organizational and cultural transformation of our business model towards own retail yielded continued good results. As part of this process, we also asked our wholesale partners to distribute the BOSS core brand solely in shop in shop going forward. The offering in multi brand department is now entirely comprised of the HUGO, BOSS Orange and BOSS Green brand. Together with the expansion of the store network, take our new store in Regent Street in London as an example, this change has played an important role in strengthening the homogeneity and the perceived value of our brand presentation. The brand has increased its attractiveness to local consumers as well as to the growing number of non European visitors during their stay in our region. While the demand from non European tourists is expected to moderate market wide, we expect another year of solid growth in the region in 2016. In addition to the further expansion of our market position in traditional core markets, the group is also assuming more direct control over distribution in the region's smaller markets. In the Middle East, for example, we established a joint venture for our retail operations in the United Emirates, where we will strengthen our presence in Dubai and Abu Dhabi, in particular, going forward. 2015 was also a good year for our Women's Wear business under the guidance of Artistic Director, Jason Wu, Womenswear has further built on its core competencies in high quality tailoring to design sophisticated and desirable products combined with the feminine aesthetic. The line's double digit sales increase in 2015 underscores its growing recognition among modern women who look for a versatile outfit addressing the diverse need. Impressive shows during the New York Fashion Weeks have further supported the evolution of HAWS Women's Wear into a brand offering recognizable yet understated luxury. The latest collection presented in February drew on the tailoring expertise of the company and further developed the architectural idea to central to BOSS. It was reviewed very positively again by the International Fashion Press. We also developed our interactive digital approach this season with 3 different live streams offering multiple perspectives on the show in addition to 2 periscope streams. The full show, including the Backstage experience, was covered live on Instagram, where the HUGO BOSS account has now attracted more than 1,000,000 followers. Let me turn to the financials. Overall group sales increased by 9% in 2016. Adjusted for currency effects, revenues were up 3%. In the Q4, group sales increased by 10%, amounted to €750,000,000 Adjusted for currency effect, revenues were up 5% with a positive development in wholesale as well as on retail. In Europe, full year sales were 6% above the prior year level with a double digit increase in the group's own retail business, up 15% on a currency adjusted basis. The U. K. Continued to be the region's fastest expanding core market. Germany and France generated 4% 5%, respectively. In the Americas, full year revenues were 1% below prior year in local currency. Midsingledigit percentage growth in our own retail was offset by high single digit decline of wholesale sales. The key U. S. Market was down 5 percent in local currencies, while Canada as well as Central in Latin America grew at a double digit percentage. Finally, Asia Pacific recorded a 3% sales decline in currency adjusted terms in the full year. Momentum differed significantly by market, While China was down 9% currency adjusted, Oceania, especially Australia and Japan performed much stronger, generating 8% and 7%, respectively. Please note that tourism caused visible shifts between the regions over the whole of 20 15. Europe, in particular, benefited from Asian tourism. And also within Asia, growth in Japan and Australia was supported by demand from Chinese travelers to a significant extent. High distribution channel. Full year own retail revenues were 7% above last year's level ex currency effect. The retail sales increase was driven by new openings and takeovers as well as a comp store growth rate of 2%. The latter was due to a solid growth in Region Europe. The Americas in Asia, however, recorded low to mid single digit comp store sales declines each. In the 4th quarter, group like for like sales performance deteriorated to negative 1%. While the European Retail business performed in line with the 3rd quarter and grew at a mid single digit rate, comp store sales declined at a high single digit rate in the Americas and a low double digit rate in Asia. Wholesale sales decreased by 3% in currency adjusted terms in the full year. This primarily reflects takeovers of TellingSpace, previously operates for wholesale partners as well as the tough U. S. Market. Finally, the license business generated a robust 8% sales increase in 2015, driven by double digit growth in watches and eyewear. Moving below the top line. The group's gross profit margin was down 10 basis points compared to the prior year and amounted to 66% in 2015. The positive mix effect from above average growth in the higher margin owned retail business was more than offset by higher rebate mainly in the group's directly operated stores. In the Q4, the gross profit margin declined by 80 basis points. The decrease was due to our decision to step up rebates in response to the challenging market environment. We, hence, reduced inventory pressures. Operating expenses increased substantially in 20.6%. Currency translation effect compounded cost growth in euro terms. Selling and distribution expenses were up 14%. In addition to the effect from retail expansion, the increase also reflects some pressure from rising rental costs as well as higher marketing expenditures. The latter accounted for 6.8% of group sales, 50 basis points above prior year level. IRG and A expenditures were mainly related to the ongoing strengthening of retail processes, systems and competencies throughout the group, including the buildup of the infrastructure necessary to in source online fulfillment in Europe in 2016. Consequently, EBITDA for special items increased by only 1% year over year to €594,000,000 and thus slower than sales. As a result, the EBITDA margin declined by 180 basis points. Following the step up of investment, depreciation and amortization expenses increased to €142,000,000 The group EBITA reached €448,000,000 virtually unchanged compared to the prior year. As higher financial expenses more than offset the decline of special items, net income decreased by 4% to €390,000,000 This translates into earnings per share of €4.63 in 2016. Let us turn to the balance sheet, where we halted the previously negative working capital trend in 2015. Relative to sales over the past 12 months, average straight working capital amounted to 19.5% at the end of December. While this still represents an increase compared to the prior year, the ratio is off its high from earlier in the year. Focusing on the by far most important driver of working capital, inventories rose by 10% in euro terms or 3% excluding exchange rate effects at the end of effects at the end of December. This represents an unchanged growth trend compared to the end of the third quarter, reflecting our measures to clean merchandise even at the expense of gross margin declines over the course of the Q4. As a result, the inventory the Americas has clearly improved compared to 12 months ago, although stock levels in these markets are still higher than we would like. Depending on future sellout trends, we currently estimate to have inventories cleaned in the U. S. By mid-twenty 16. Investments increased by 63% compared to the prior year and amounted to €220,000,000 Accounting for around 60% of the total investment volume, the global expansion and modernization of the group's own retail business continued to be point of investment activity also in the past fiscal year. Costs for the opening of new stores, including the franchise takeover in Asia, outweighed renovation expenditures in this regard. Administration and expenditures in the amount of EUR 52,000,000 mainly related to IT investments, supporting the increasing digitalization of our business model. Finally, we spent around EUR 40,000,000 on production, logistics and distribution, with the vast majority of these investments relating to one off projects such as the ramp up of our Wenting distribution center for the online enforcing, the relocation of our New York showroom and the expansion of the production facility in Turkey. Higher CapEx more than offset operating cash flow improvement, so that free cash flow declined to €208,000,000 in the year 2015. As a consequence, net debt was above prior year level and came in at €82,000,000 Hugo Boss has a long history of returning more than 60% of consolidated net income to shareholders. We have always done so without compromising our ability to invest into the business. Due to strong free cash flow generation, net debt levels even declined despite a continuously rising payout over the past few years. In light of the strength of our balance sheet and our confidence in the long term growth and profitability prospect of the group, we propose paying a stable dividend of €3.62 for the fiscal year 2015 to the shareholders in May. This reflects a payout ratio of 78% at the higher end of the 60% to 80% corridor stipulated by our dividend policy. Today, we reconfirm the policy. In the long term, dividend payments will obviously have to follow the development of earnings. For 2016, in particular, however, we will also take improvement in the cash flow development and the group overall financial outlook into consideration when it comes to framing our dividend proposal. Ladies and gentlemen, 2016 will be a crucial year for HUGO HUGO. We are challenged by difficult market conditions and a fast changing operating environment. We need to find solutions for the short term, but we also need to build the business for tomorrow. We need to find the right balance between protecting margin and cash flows in 2016 and securing long term profitability growth. As a management team, we are convinced we can deliver on both matters. We've got strong assets to build upon: a globally recognized powerful brand, a high performance operational platform and most importantly, a passionate workforce. The company has gone through a period of success in the last couple of years based on a strategy focused on transforming a wholesale operation into a customer focused business model, expanding brand control and the group's global footprint. These elements may need some refinement but will remain cornerstones of our strategy also going forward. Nonetheless, past success should not prevent us from challenging the status quo. In light of current top line and margin pressures, we will reassess and question assumptions we might have accepted as given before. Admittedly, we haven't got all the answers today. However, you can rightfully expect an open and thorough assessment of where we stand and a comprehensive overview of the action steps we have planned for the next month. Let me tackle the 2 most pressing market challenges first, the disappointing performance of the Chinese and U. S. Markets as of late. With regard to China, let me briefly put our current situation in historical context. Q2Bos has been present in China for more than 20 years. For most of the time, several franchise partners operated for store. As a result, the brand grew to 1 of the top 5 premium luxury apparel brands. Nonetheless, we choose to take back full control over the business via the acquisition of franchise partners over the last six years. Since April 2015, we controlled 100% of distribution ourselves. This transformation process has been the right choice. However, we are still challenged by the legacy of our past. First, we are in the midst of the ongoing upgrade and optimization of our retail presence in China. Keep in mind that we inherited more than half of the 131 stores we are currently operating on the Chinese mainland from partners. In 2016, we were closed around 20 stores market wide. At an average size of just around 100 square meters, these closures predominantly relate to smaller shops with below average margins and a rather dilutive impact on brand image. In most cases, we now take advantage of the expiration of the lease contract. In addition, we will refurbish and relocate more than 10 stores. Taking also some selective new openings into consideration, our Chinese store base will hence shrink by around 15 point of sales in 20 16. In addition, we are renegotiating rental contracts in locations in the Mainland as well as in Macau and Hong Kong. The initial outcome of these negotiations has been positive as Hugo Boss represents an attractive tenant in a difficult retail environment. 2nd, we will further build brand equity around the brand's core menswear clothing in particular. In doing so, we built on what the brand stands for in the eyes of the Chinese consumer: high quality, fine craftsmanship and perfect fit. While the brand has always offered a favorable price value relationship relative to peers also in the Chinese market, we will further invest into the BOSS value proposition. Effective with the spring 2016 collection just launched, we lowered prices on the Chinese mainland by around 20%, after a first adjustment of around 10% implemented in the second half of last year. We are doing so because we acknowledge the global nature of our brand. That's why it is our first priority to ensure our presentation is consistent around the globe, in particular at times where consumers are mobile as never before and the web provides ample opportunity to compare prices. We are confident this will build further brand loyalty among existing customers in China and open up a new segment of consumers who had aspired to the brand before but have considered it to be out of reach from a pricing perspective. In order to maximize the effect from the price change, we have stepped up our digital communications and CIM activities. On WeChat and Weibo in particular, we emphasize the brand's improved value proposition to drive customers to store. In addition, we have started a new initiative to engage with Chinese travelers when they visit our key stores in Europe and other parts of Asia. This team allows these important group of customers to register on our China WeChat site, offering value asset services such as alterations to be conveniently met in the local stores back in China. We still incentivize more local buying. The initial reception of both initiatives has been encouraging, yielding a positive effect on demand and unit sales. Besides the adjustment in China, we are also aligning our price levels in overall Asia more closely. While there is no change in Japan and Australia, we are decreasing prices in other ex franchise markets such as Korea, Singapore and Taiwan, though to a lesser extent. In Hong Kong and Macau, which has been less expensive than the mainland before, the cut is comparatively small. As a result, there are now 3 price tiers in Asia with China sitting around some 50% above the French levels. From a financial perspective, we expect this adjustment to affect the group's gross profit margin by almost 100 basis points in 2016. The expected volume uplift will partially offset the effect on the operating profit level. The group's second key focus at the moment clearly is U. S, where some company specific challenges compound the current weakness of the local premium apparel market. Unchanged to the past, the brand continues to rank high with consumers on the attributes of premium, success and quality. Nonetheless, suboptimal presentation and distribution at wholesale as well as some deficits in on retail execution have created a need to reignite brand interest. In 2016, we will make important steps in this direction. With regard to the wholesale channel, we start limiting the distribution of the BOSS core brand. We will substitute its presence in multi brand spaces with HUGO and BOSS Greens, similar to what we did in Europe in 2015. In doing so, we strive to reduce the overlap in the offering between the department store channel and our own stores in order to make sure promotional activity at wholesale does not damage brand image and draws customers away from our full price offering. With the sell in of fall 2016 collection, we have initiated this change with some of our key customers, including Hudson Bay, Dillard's and Lord and Taylor. While the current state of the market doesn't make this exercise any easier and also brand awareness of HUGO and BOSS Green is lower in the U. S. Than in Europe, we are reasonably satisfied with the initial outcome. Shortly related to the category migration is our to take additional brand control. To make this very clear, this change is not about discontinuing selling the BOSS core brand at wholesale altogether. Instead, we are interested in maximizing the quality of presentation together with our partners by managing BOSS shop in shop. At Zacks, we have been doing this since mid-twenty 13. And effective end of January, we have found a similar agreement with Macy's. At Macy's, the BOSS core brand is present at 8 high quality shop in shops, which we have taken over as concession. Locations include Herald Square in New York, Union Square in San Francisco as well as Chicago, Las Vegas, Los Angeles and Miami. In addition, we now also operate Macy's online business with the BOSS core brand directly. Q1 and BOSS Green are available at the relevant clothing and sportsware department of around 25 Macy's nationwide, in some instances even presented through shop in shops. So while the immediate financial impact of this change will be limited, the quality uplift is considerably will pay off in the medium term. Finally, we will adjust our off price distribution in the U. S. In the course of 2016, we will discontinue selling the BOSS core brand to specialized off price retailers, a channel upon which we have been too dependent in the past, in particular when it came to clearing excess merchandise over the last 18 months. In addition, the growing dial control over the BOSS core brand business in key department stores will also minimize the flow of stock into secondary outlet type of concept. As a result, our own outlets will play an even more important role when it comes to clearing past season leftovers. As a result of these initiatives, we'll have to accept a short term negative impact on sales and profits. Specifically, we expect a substantial sales decline in our U. S. Wholesale business in 2016. In the medium long term, however, these measures will support brand equity and performance in full price distribution at wholesale as well as at our own stores and will bring us back on a sustainable growth. Beyond our distribution related initiatives, we focused on digital and CRM to better reach the contemporary American consumer and drive him to store. With the brand DNA built on premium quality and the notion of success, we are well positioned to do so. However, more than in the past, we need to cater to our male customers' changing lifestyle, his wish to express personality and the importance he places on seamless shopping experience. As part of the Global Man of Today program, Hugo Boss will introduce what it means to be a modern gentleman in the 21st century. We will pick the man we consider influential investors of a new urban elegance and feature them on our digital platforms and channels, celebrating our key product items. In the next few months, we will also be investing in additional digital initiatives to drive consumers to our stores and offer them a new experience. This includes extended digital storytelling around the product and increase of social media activities and the use of iBeacon technology. These initiatives go hand in hand with customer service improvements, such as the expansion of omnichannel services piloted last year when we launched online ordering in store and the option to schedule shopping appointments digitally. We will also go as far as offering free home delivery of in store purchases and room service, where our tailors will visit customers at home for a truly personal shopping experience. Without a doubt, the ability to adjust to changing customer journeys will increasingly distinguish long term successful brands from those just building on image and heritage. Digital is an important element of this. Our customers are busy living their lives and expect convenience in everything they do. As a result, we are challenged to offer seamless brand and shopping experience across all channels. Our latest customer survey on hugobus dotcom confirmed that 3 quarters of all visitors come to our website to prepare for their next physical store visit. This means that the role of hugoboss.com as the company's most important digital channel is changing dramatically. What was an online distribution channel before is now becoming the place to inspire, engage and advise customers with the ultimate goal to drive them to store. For this purpose, we will upgrade the website later in late summer, implementing a concept, focus on integrating editorial content, advisory elements and access to store. Even earlier, in less than 2 months from now, we will in source online fulfillment in Europe. While this change should be more or less invisible for the customer in the first instance, it will be an important enabler for the offering of omnichannel services later in the year. Starting in late summer, we will offer click and collect, order from store and the convenient handling of online returns in store in Germany and the U. K. With more markets to follow in the months thereafter. Brand communication is adjusting to the growing importance of online as well. As a consequence, our marketing spend will prioritize digital over print even more in 2016, with a clear focus on formats driving traffic to store. Overall, however, the group's marketing spend is forecast to remain approximately stable relative to sales compared to the prior year. Omnichannel services are an important we continue to be on the journey towards becoming truly customer centric. Making sure that everything we do serves our customers may sound like tourism, but in reality, it's a fundamental shift of business model the company has started going through over the last few years. And while we have developed into a much better retailer today compared to some years ago, there remains work to be done. For example, we are intensifying our efforts in customer relationship management, an area where we have clearly made part of little progress over the last 12 to 18 months. The ongoing rollout of the MyHUGO BOSS platform and its integration with the corresponding in store applications now provides our store personnel with immediate access to all the data customers choose to share with us, allowing more personal and targeted services. So technology clearly has an important influence on the customer experience. But in the end, retailing is people's business. It's often the personal relationship between the customer and our assistants in the store, which makes and breaks long lasting relationships. This is why every minute spent on selecting the right people to represent the brand in front of the customer is worth the effort. And this is why we are investing so intensively in retail trainings, making sure that our defined service standards are adhered to globally on a day to day basis. Customer demand will be the one and only factor guiding our merchandising decisions in 2016. Over the last 18 months, we have extensively discussed our efforts to segment our brand portfolio more distinctively, including the gradual elevation of the BOSS core brands. And at least in Europe, we have seen the benefits of the strategy in form of rising average basket size. Undoubtedly, however, an extremely promotional market environment in the U. S. And weak consumer demand have been headwinds. We will therefore take a pragmatic approach to brand elevation in 2016. On the one hand, we will expand and strengthen our offering at the high end, for example, by adding full canvas shoes also to our regular collection. This will further build brand image and tailoring credibility, contributing to the emotional value that our customers look and pay for in the upper premium brands such as ours. On the other hand, however, we need to stay true to our roots. Hugo Boss has always defined superior value and had great success in premium and affordable luxury. Going forward, we will emphasize this more strongly in our in store merchandise offering again. In 2016, retail management at HUGO BOSS is all about maximizing traffic, conversions and sales density. That is why actual in store performance will be the only guide to retail space allocation. As a result, we will rebalance the offering between luxury and premium and optimize the mix of brand lines, product groups and genders wherever we believe this will help performance. Improvement of the existing network clearly comes first, further expansion of the network second. In 2016, we will refurbish around 100 owned retail locations, which have reached the relevant age bracket of 5 to 6 years. In addition, we have kicked off a project focusing on improving performance in these stores, most dilutive to the group's retail margin in 2015. Should we come to the conclusion that profitability cannot be improved in these 10 to 20 locations in a sustainable way, we will consider closing them even if it comes at the expense of one time charges in 2016. All planned new store openings will undergo a thorough review process over the next few weeks, too. In order to make sure only those projects with the highest likelihood of margin accretion are executed. So where we had previously earmarked around 20 opening projects for 2016, this number will very likely be smaller in the end. This is also true for our franchise takeover, where we do not plan any further projects beyond the acquisition of our franchise store base in Malaysia completed in January and the establishment of a direct presence in the GUM department store in Moscow later this year. Ladies and gentlemen, 2016 will be a year of transition. Our financial outlook reflects the difficult market situation, in particular in the U. S. And China as well as our commitment to continued investments in the group's medium and long term potential. Group sales are expected to grow at a low single digit rate. Growth in Europe is projected to offset revenue declines in the Americas and Asia Pacific. Also, performance within these two regions will be heterogeneous. In the Americas, solid in Canada and Central and Latin America should be at least partially compensated for the difficulties in the U. S. Similarly, strength in Japan and Australia and also some smaller markets such as Korea showed cushion declines in China. By distribution channel, group growth will be driven by the owned retail business. Full year effects from prior year network additions as well as new store openings and takeovers in the current year are forecasted to make a mid- to high single digit growth contribution to own retail. Vice versa, in the wholesale channel, sales should decline at the mid- to high single digit rate, affected by the structural changes to the distribution in the U. S. And takeover effects. In January February, on retail comp sales were down at the mid single digit rate, with particular weakness in the U. S. Market where performance deteriorated further compared to the year end 2015 level. On the Chinese mainland, however, like for like performance improved versus the Q4. Also, it remains negative territory. We relate this to a successful marketing campaign around Chinese New Year, leaning on WeChat in particular, which in connection with the price adjustments starting to hit the sales store drove people to store and improved conversion rate. In Hong Kong and Macau, however, comp store sales development remains in double negative territory. In Europe, finally, like for like performance was slightly positive with solid growth in Southern Europe, in particular offsetting some more subdued trend in Germany. These top line pressures heighten the need to adjust cost development to underlying business plans. The events of the last 2 weeks have clearly created a sense of urgency and the willingness to challenge the status quo throughout the entire organization. As a result, we have started an internal benchmarking of the efficiency of organizational setup in the different markets, regions and headquarter functions to identify saving potential. We have embarked on the rent negotiations on retail end. We have initiated a program to improve the performance of several margin dilutive retail stores, as mentioned earlier, including the option to finally close them. However, most of these initiatives will take time to unfold their full effect, so they will impact financial results more in 20 17 than in 2016. In the current year, we will assign an even higher priority to cash flow generation than to operating margin development. As part of this approach, we will review all non committed capital investments, in particular related to retail expansion and infrastructure projects in Titan Inventory Management. The group's 2016 profit outlook assumes stable gross profit margin development compared to 2015. I mentioned earlier that the pricing adjustment should have a negative impact of up to 100 basis points in this regard. At the same time, however, a positive channel mix effect from the expanding sales share of our higher gross margin on retail business will have a positive effect. Lastly, we expect rebate management to have an overall neutral effect on gross margin as the discontinuation of lower margin off price business in the U. S. And reduced clearance needs to compare to the prior year should compensate for continued promotional pressures in many markets. Moving below the gross profit line. The measures I outlined will not be enough to fully mitigate the pressure caused by operating deleverage from weak comp store sales in development in own retail. In addition, IT and logistic cost increases related to the digitalization of our business model will amount to around €10,000,000 in 2016. Rest assured, these areas are not exempt from our operating expense review either. But we obviously factor in the importance these investments have to the group medium- and long term future. As a result of these effects, EBITDA before special items is forecasted to decline at a low double digit rate. This guidance is based on the assumption of a broadly stable comp store sales development, implying a gradual improvement of this metric compared to the 1st 2 months of trading, helped by the results of the measures I discussed earlier as well as an easing comparison base later in the year. For the moment, it also does not assume any impact from additional store closures, which might arise out of the review currently ongoing. Vice versa, it also doesn't factor in additional overhead cost savings, which we're analyzing at present. Considering the review of non committed investments, we target to lower CapEx spending visibly below €200,000,000 We are therefore confident in our ability to increase free cash flow in 2016 compared to the prior year level. Ladies and gentlemen, HUGO BOSS is at crossroads. However, we see much more opportunity than risk. In 2016 and beyond, we will refocus on what has made Hugo Boss what it is today. It is my strong belief that there's a bigger upside in strengthening the core of the branch rather than exploring unchartered territory. The year 2016, we will pull our forces to improve performance even if this means breaking with some beliefs of the past. We, as a management team sitting in front of you today, have received enormous level of support from our Supervisory Board and throughout the organization over the past few weeks. We have defined a clear action plan for the coming months, now the hugo Bosch world behind us. It is clear that the year ahead will be tough and will require decisions not welcomed by everybody. However, the company's foundation is rock solid, and this is not just true for the financials. Kielbas has demonstrated the challenges for the renewed energy and team spirit throughout the organization. I believe that paving the way for this to happen again is the biggest task at hand for the new management team. We are ready to take up this challenge. Thank you for your attention. We will be now happy to take your questions. Thank you. Yes. Thank you very much. And we'll now open the floor to your questions. In the interest of those participants following us over the phone and the Internet, I'd like to ask you to state your name and your institution before asking the I would like to start with 3 questions. First of all, on your guidance, EBITDA, low single digit decline, meaning around €60,000,000 Just as a rough idea, how much of this €60,000,000 decline in EBITDA is linked to the action plan which you announced today? So how much is linked to, so to say, one off costs from store closures, the digitalization measures you mentioned, so to get an idea what is, so to say, one off in that? And second question is regarding your time horizon. And so what is your time horizon of your action plan? Is it a 12 month exercise? Or is it an 18, 24 months exercise? When do you expect to be back on previous year's margin levels, so to say, to get a feeling here? And finally, I appreciate your Page 19 with your price architecture by region after the adjustments. So if we come back to that picture, where do you put Germany and the U. S. A. In if you said France at 100% as shown in the chart? Thank you. Let me start with your question around guidance. First and foremost, it's important that we have given you a relative wide guidance. So we guided for low double digit decline. And as you have seen from our program, we are right now not in the position to further narrow this guidance as part of our today's discussion. You're right that we do expect nonrecurring expenses, potentially, in particular, from the review of our store network, which could trigger extraordinary write downs if we have to write down assets on stores that we closed earlier. This is not included in the guidance, by the way, because the guidance is on recurring EBITDA. So it would affect, of course, net income if we expect nonrecurring expenses. It's too early to give you a specification on the nonrecurring expenses for the year 2016 because we have just started this review on our retail network. However, I would ask you to see this non cash related non expenses as part of our overall plan to protect cash flow in the year 2016. So we will keep in mind as part of our plans the target to improve cash flow generation in the year 2016. This answers also partly your second question when some of these measures will take effect. Some of the measures we have described, especially review on our project and pipeline and portfolio has already been executed. So there have been already some decisions taken where we have reduced efforts for expansion plans, as I mentioned, as part of my speech. So these decisions are already taken. Some other measures, and I would pick here the reallocation on merchandise within our stores will take more time. Some of these measures will become effective with the delivering of our fallwinter merchandise, some might even happen later in the year. So there will be over the time, access different point in times where you see the implementation of these measures that are prescribed. This also answers your question on midterm profitability outlook. It's today just too early to tell when exact. We do expect an improvement on operating margin again. We can't narrow this more specifically than we have done so far. However, on a midterm base, we expect clearly an improvement compared to the implicit guidance of 2016. Price architecture, you're right on this page, we compare the European average. France is a pretty good proxy for average price positioning in Europe. Germany is about 20% below the French price architecture, but it's closed historically even wider gaps over the last couple of years. The Americas is more slightly above the French level depending on which category you look at. In clothing, it's right now a bit more above the French level In the sportswear, it's below. So to follow-up, so even after the adjustments you currently do in Germany, Germany would still be 80% to France. Did I get it right? Okay. There was one follow-up as a clarification. You just mentioned that comp store sales in January, February on a group level are down mid single digit, is it right? So which compares to the 2% comp sales growth, which you have released this morning for 2015? That's correct. We had seen already for the full year. In the Q4 of 2015, like for like, there's trends to go into negative territory. And after 2 months, we have a mid single digit negative on the group wide level. Jurgen Kroll, please. Jurgen Kroll from Kepler Cheuvreux. First of all, let's go back to Fokker's question on the like OpEx development. If I take some of the things together you guided for 2016 like say sales growth 1.5% or so gross margin flat which I thought was a positive surprise. And then all that together, the OpEx ratio should be increased quite a bit to around 53% if we keep what you just mentioned, not the one offs, just the regular OpEx ratio as percent of sales. That's about €108,000,000 more OpEx this year than last year. How much of that do you think you can level off in the following years? How much of that is really something you need to invest this year rather than can fall away 2017? First one. Secondly, maybe some additional KPIs on the Macy's deal if you have, like how much sales are talking about? And in this respect also maybe some KPIs on the Saks deal that you put under your belt, success there? How long it took you to get it on a profitable basis? And thirdly, I appreciate you indicated that you try to balance off a little bit the situation between luxury and they call it affordable luxury. But precisely what does that mean? And as of when do you think you can implement that in your stores? Is that more BOS going back to its original roots, price wise a little bit lower? Or the amount of products that are at the affordable luxury high premium will be enlarged versus the more high end price bracket? Thanks. Okay. Let me start with your question related to OPEC. If you put it into 3 elements, retail related expenses, overhead expenses and marketing, I think we touched on all three of them. Retail related expenses will be part to be addressed by 2 ways. 1 is renegotiation commitment because this is what we can immediately address and where we have seen already first indication that we see temporary or permanent rent reduction in markets where we have a very good negotiation position and where we're paying above or slightly above market rent. This is happening. At the same time, we will review our store network in regard to stores that are highly dilutive to the group retail profitability, and we might come to the conclusion that we will discontinue some of these operations, which will improve our cost to sales ratio from these retail operations once these changes are executed. Keep in mind, it might have some nonrecurring expenses related to the closure. So this will be, as it is the single biggest cost block, the prime focus of our OpEx review in 2016. Whenever we execute these changes, we will expect then the full year effect in 2017 from the adjustment. On marketing, we are not so much focused on reducing the current spending level, but to make it just more effective. This means change in composition. We will shift more resources into digital campaigns compared to classical print advertising. And also in the digital field, we will review all measures in 2016, which are the measures which give us the biggest return in terms of driving traffic to our stores. This exercise is happening as we speak, but here we speak more about effectiveness of our spending rather than lower levels. If you look at the rest, G and A, IT and other related areas, clearly, we have to bring our cost flows more in line to the overall growth. This means in terms of hiring in these areas, in terms of projects that we initiate being affecting our balance sheet or income statement, we now take a far more rigorous review. But it's too early to tell you what will be the run rate impact in 2016 and '17, but you clearly get our commitment. We will make sure that we take whatever it takes take our OpEx development in sync again to our top line development. I would ask for your understanding that we do not comment on account by account profitability in particular. But you can be very sure that the disappointing development that we had for the 1st 2 years with SAC, which was clearly below our initial expectation, has been taken into full consideration as we frame the deal with Macy's. In terms of number of stores that we take over, in terms of the operational handling of these stores, but also when it comes to the terms of the agreement where our concession fees and others play a role. However, as we have started to operate these stores just a couple of weeks ago, it's too early to tell whether we will have a steeper ramp up curve with the 8 Macy's stores than SAC. But I'm very confident that we will be much quicker to make this accretive in a win win situation for Macy's and us then we were able to do this with us. On the price or the merchandise allocation within our stores between luxury and premium, we will not change the price range that we operate in. So if you take, for example, now the French market, entry price points will be around for shooting around €600,000 and we will offer in this range between €600,000,000 to around 1,000 if you go to tailored or made to measure, we are clearly also above that, a suit offering in our store. What will change is the volume distribution, how much are we going to offer price point, mid price points and high price points will only be decided on by in store performance of these stores. So we will not change the overall price architecture. We think that the price positioning within each market, especially in Europe, is in a very healthy range, but we need to be sure that we maximize expensive retail space by bringing the best performing units in terms of price, architecture, in terms of gender allocation, but also product categories into our stores. This will be executed, especially Bernd and his team is working with the merchandising team, tend to see with that and just a very close feedback also to our creative teams to make sure if we see the need to widen our offer on certain price points that we will execute on that. But this measure is also an example for any change that will be visible in store only over the next 12 6 to 12 months. Just maybe one follow-up on your price cuts in China. And you said that, that might have an impact of around 100 basis points. What was your assumption in terms of how much of your lost gross margin can you recover from volume increases? Well, if you got the answer, welcome to the Board. So that's I would say it's a $100,000,000 question. It's not worth that much. But of course, that's something everybody knows best afterwards because they saw it coming. That's something that we just do not know. What we do know that we incorporate our learnings from the first price adjustment from fall, what we can do differently to make this price change visible or make our end consumer aware of this price reduction. That's why we now stepped up significantly our activities on WeChat and other sales channels not to advertise lower prices, but to create awareness on a far improved value for money proposition of the brand. And just telling you, after now about 6 to 8 weeks of having this much better or more attractive offering in store, we are convinced that this investment into social media has paid off, created interest, improved traffic to store and clearly has improved conversion rate in our store. So the 100 basis points sorry to go back to that, but the 100 basis points decline from this activity, is that a kind of a worst case scenario so that you don't recover anything? Or is that based on what you have seen in the Q1? Well, on gross margin, we'll not recover anything. On gross margin, you just because the product has still the same cost, but you're still at a lower price. So the 100 basis points is not you can't compensate for that. What you can do, and here your question was exactly right, what is the volume uplift, which will cushion your impact on an operating income level. Overall, we expect this also to be negative, but partially compensated by the volume uplift. That's our current indication from the numbers we see from the market. Thank you. And Claire, you have had a question for quite a while. Yes. Hi. It's Claire Hough from RBC. Three questions, please. The first one on the U. S. Could you comment on negotiations with Nordstrom, please, given it's your largest department store wholesale partner? And are they still dedicated to the category business approach? And what your plans will be here? The second one on outlets, just wondering if you could give a breakdown of like for like by full price and the outlets. And also, will you be reducing the amount of products directly manufactured for the outlets going forward investments being made this year, are you still expecting online to become margin accretive by 2017? Or are there still more investments that you're considering making next year? Well, I'll start with the last one. We are convinced that taking the online business in house in Europe will be margin accretive because this part we know exactly that we will operate this business at much lower operating expenses than our former partner. Add to that, and I think we highlighted that the ability that the in house operation will offer us to integrate our online business to a much wider extent with our physical store network than we were able to do in the past. Outlet business globally, but especially in Europe, was our strongest growing physical format. To some degree, and we touched on that when we comment margin development and rebate in 20 15, we had to use factory outlet also to clear inventory. This is exactly what you touched on as we are now, in most markets, have a much cleaner inventory situation, also reduces the pressure in terms of rebate offering, but also production volumes allocated to factory out. There are still markets where we have to do our homework, but especially in Europe, we are running now extremely clean operation when it comes to the inventory. Nordstrom, as you rightly pointed out, is following a different in store execution compared to what you see for Macy's and Bloomingdale's. So you're hardly in the apparel category, you will hardly find any shop in shop concept. But we are convinced that with the progress we're making now with Macy's, Lord and Taylor, Dillard, tax is already with us. It will take away the reasons for Nordstrom to follow aggressive price reduction also on our BOSS core brands. So we have a strong belief that once we have reduced the number of very promotional activities in our BOSS brand with other accounts in the U. S. Market, This will allow us together with our largest partner, Nordstrom, where we have built a strong relationship to compete rather on quality and service and not on prices also in the full price offering with Nordstrom. So we are quite confident with that. We will further build on our relationship with Nordstrom. We just partnered extensively on their push into the Canadian market. But their format allows not for the same solution that we have executed with Technovation. So you won't be discontinuing the sale of core BOSS brand in Nordstrom even though they are the No, we won't. Okay, great. Thanks. Mark Jadelson, please. Yes. Thank you. Mark Jadelson at Equinet. Can I push through with some questions on China in terms of exactly what's going on there or a better idea from my point of view? The accounts refer to a step by step change. In your presentation, Mark, we spoke about the price cuts at the end of last year plus price cuts this year. Is this the step by step or is there a further step by step? And when I look at the price in hierarchy chart or the index, there's still quite a gap between Mainland and Hong Kong. And by going online there, are you confident that you can not lose sales from Mainland China to the online business in Hong Kong given the lowered pricing points there? And then finally, as a wrap up on where we stand there, you've got wage increases in double digits. You may have some rent reduced, but I actually think rents are generally going up over there, and you've got now the lower pricing hierarchy. So where do we stand in terms of the profitability of the there going forward? I mean, this year is a full year. We've got lots of changes going on. But where does it stand vis a vis the group's operating businesses elsewhere? We want to be honest with you. We don't know whether the price architecture we have now established between China and the rest of Asia in China versus Europe will be a sustainable long term solution to it. Only consumer behavior will tell us whether this is sufficient stable price architecture, which will not ask for further price alignment or not. But we take it, as you rightfully said, step by step, And we are quite happy with initial results that with the price adjustment we did know at the beginning of this year, we now for the first time have good reasons to see that Chinese consumers are willing to buy BOSS product to a larger degree at home, plus and this I think is very important with the new price entry price points, we open up the market to domestic demand where we might have out of reach before. But we take a pragmatic approach to that. If we come to the conclusion over the next 6 to 12 months that more alignment is needed, we will evaluate these steps as well. There's no dogmatic approach to that. But coming back to question earlier, we do it to maximize sales densities in our stores in China. And you're right, we have seen a significant decline in our Asian profitability. Partly this might be due to the fact that Chinese consumers have shopped abroad. But please keep in mind that we still have fared better than the overall men's wear apparel market over the last 24 months. So this is clearly a market which has seen a never unprecedented decline in overall sales volume. So it gives us some small comfort that in terms of brand recognition within the menswear, we're stepping up, but we expect on the mid- to long term to establish clearly a similar strong position in the menswear market like we were able to establish in Europe and North America. And we think with the upgrades in the retail environment, with better stores, with a more attractive price offering, smart marketing activities that we have now developed will take further market share from our men's competition also in the Chinese market. On your price difference between Hong Kong and Mainland, this doesn't really concern me much. There's a difference between VAT that's clear why Hong Kong historically was offering an incentive for Mainland Chinese to use the trip to Hong Kong to buy less extensively. Our price differences, as you can see from the chart, will not trigger a trip from Shenyang in the north all the way down to Hong Kong just to buy something at a Hugo Boss store. I think this price difference between Hong Kong and Mainland is quite sustainable. From our perspective, the declines in Hong Kong and Macau are due to different reasons, more travel and visa restriction imposed by the Chinese government to cut back on other activities. But in terms of price architecture, Hong Kong, Macau to the mainland, we feel quite comfortable. Follow that up. Is there one online shop? If so, where is it, Hong Kong or Mainland China? Only in the Mainland. Okay. Thank you. Are there any further questions? Maybe a more strategic question. Stefan Bokken at Deutsche Asset Management. On top of the, let's say, disappointing sales and EBITDA figures from last year, you also are now looking for a new CEO. Can you give us an update on, let's say, what kind of a person you are looking for? What kind of things he needs to bring with him? What kind of time frame more internally or external? So can you give us some color on that, please? Well, there are many questions we are prepared for giving detailed answers that unfortunately falls into category where we can't because the mandate to define the profile of the new CEO, announced in the press announcement. This is one of the tasks that are not on our shoulders, but of our Supervisory Board. And that's why we can't comment profile and also not on the timing of this position to be filled. Volker Bosse? Volker Bosse, Barbour and Gaff. Three follow ups. Coming back to the U. S. A. Some years ago, we had a Capital Markets Day over there, and we're very proud about your fruitful partnership with the U. S. Retailers. The shop in shops looked proper, well located in the department stores. So looking back, what went wrong? And what do you think you can make better if you take over the stores now into concessions? And then how much will be the wholesale portion of U. S. Sales going forward, referring to your Page 20, where as of today, wholesale stands for 41%, so just a rough idea here. And second, regarding your trading up in Germany, perhaps an update here. How is the trading up accepted by the German consumers? And is HUGO able to fill up the gap, which leaves in the multilabel department of your retail partners, while brand Boss Black is now in a more exclusive area being sold? And third question is, you also cut your midterm margin guidance of 25% EBITDA. What was the rationale behind What is the reason for that? I mean, midterm means whatever. Yes, I mean, there was no year mentioned. So perhaps an idea what has changed. Is it a structural change that these margins that you had expected before are not reachable anymore because market has changed so much or perhaps some details on that? Thank you. Well, on the successes of the category migration, I would ask Bernd to comment on that one coming back because I was there at the Capital Markets Day that we had a couple of years back in the West. We still can look back on some improvements that we clearly established and which are still true in the current market environment. So over this period, and we highlighted back in New York, Hugo Boss has grown from the number 3 menswear supplier to Nordstrom to the number one position. And as we discussed earlier when Claire asked about that, we continue to be the most important supplier and partner to Nordstrom when it comes to menswear. And we will do whatever it takes to defend also our position with this wholesale business. So we have no intention to discontinue, also in the U. S. Market, profitable, margin protective and equity protective business. What we have underestimated is that we will not continue with the presence that we have entertained with especially with Macy's in the way that we did in the past. This was okay in periods where our wholesale partners were not aggressive in the rebate strategy, which they were not in the period between 2011 2014. I'm simplifying a bit of fact, but it became clear in the period where the overall category was not growing as expected that we're feeling the extreme pressure upon promotional activities that we can't control. So we can't work with a business model that only works during sunny days. It has to be robust through all phases of the market. What we have learned, maybe it's the hard way over the last 18 months that we have to discontinue this business practice that our core brand that is the recipe for success in our all retail is put into jeopardy by the treatment from all the partners. Either they are able to develop the brand together with us, like we did in Europe and will refer to that or unfortunately, we have to cut back on the relationship. And this has been a multi quarter process with Macy's accumulating now in the decision to have a clean-cut on the category migration like we did in Europe and our decision to manage 8 spaces for ourselves was painful in the way that our overall business has to decline. But in retrospectives, this has been not healthy business to the brand, which would generate sustainable growth for the company. Let me just quick comment on the 25% margin target. Perhaps the 41% wholesale, which is in the U. S, which will decline to what, as a rough idea? Say it again. You're referring you're saying 41% of U. S. Sales is wholesale as of today. But by converting wholesale to concession, so to retail, so how much wholesale sales in Brazil? The only change we'll see, which will be relatively small, will be transition of this 8 point of sales at Macy's, which in 2015 still was wholesale, but didn't exist in the same format, but which will be retail in 20 16. So I would expect wholesale share to decline slightly in the U. S. In 2016. That's good. Thank you. The 25% margin target was first postponed. We know that. We promised you a 25% margin already in 2015, and it was not midterm, but we were concrete. We guided you to expect 25% margin in 2020. So it was not kind of manana, it was pretty concrete when to achieve. And we have to be honest and straight with you with the market environment we're expecting right now with the significant decline in 2016 that we have to revert. This is not the time to hold on to a midterm profitability target, which we clearly see right now as not achievable in the current market environment. This is a tough message to swallow for us especially. We know that we disappoint investors because we promised and we thought this plan is achievable, but we also have to be honest to you that we are now clearly do not see this achievement by 2020. As part of the Hartok announcement a couple of weeks ago, we also informed you about our updated assessment that this will not happen by 2020. Maybe, Wern, do you want to comment on category migration in Europe? Let's come to the category migration, especially on Germany. Just to explain once again what we have done. We realized that over the last years, the category business, which is mainly run by department stores on the ground floor with their shirting department, with their polo department, with their trouser department and on the 1st floor with their suiting department has become highly competitive and highly promotional. So what we see at the moment, for example, when we look into the bigger department stores is that the department stores in Germany start the sales period end of November, if you are lucky, beginning of December. And it was up until mid of February, end of February. We then discussed altogether what can we do to get out of this highly productive for us and highly unit driven business. We decided that the sportswear part is going to BOSS Green on the category migration and that the suiting part is going to YUGO. And what we've seen is that so far, the first two seasons where we have sellouts, it works very, very well and it also protects our BOSS brands in regards to where we put a shop in shop into the department stores to be working in a more lifestyle driven way. So at the moment, the results are very positive in both categories. Peter Steiner, Bankhaus Lampe. We have not touched the BOSS Womenswear segment so far. And think you spent an awful lot of money in 2015 into marketing in this segment. And we are still very far away from your 15% sales target in that area. And I would be curious about what are the plans for 2016? And are you cutting on spending in the BOSS Womenswear segment? What is the is there any part of the measures you plan for 2016 that is affecting this business? And what are your thoughts behind that? And the second point would be, again, on the U. S, please. You said that you want to better balance the mix between luxury and affordable premium. What does that mean for the U. S. Market? Entry price levels are also quite at an elevated level, and I think you already introduced the tailored line quite nicely in that market. What's the experience there? And what's the plan maybe to also offer more affordable premium in this market with your new strategy there? Thank you. I would like to answer first on your question regarding womenswear. Womenswear is definitely still a very important factor of our business model as well as shoes and accessories. And the growth that we saw, especially in BOSS Womens, the double digit growth, Marc mentioned, is, from our point of view, a very good signal and underlines that the strategy in women's wear is absolutely right. Nonetheless, we have seen women's wear doing better in some locations than in others. And so it's obvious that success does not came overnight. We've invested a lot in Vomipur also in marketing activities. The feedback is really positive, we have to say. But we remain committed to building a bigger and better business as we continue in this direction. But we will be more flexible than in the past to rebalance the in store offering where we believe it's helpful for the commercial performance of our stores. On the price architecture or the how do we distribute the width of our offer at entry mid and high price points in U. S? Same answer that applies globally. We do reallocate, if needed, our offer, offer more or less on price points if we see that business accretive to store productivity. So there might be an indication that we have to offer even slightly bigger or wider offering on the entry price points in the U. S. If we come to the conclusion that this will support in store performance, we are willing to execute on that. But keep in mind, and I think we spent an extensive part of the presentation, in particular in the U. S, it's not so much about the offering in store, but it's about pricing control, rebate control, which has been the biggest drag on our U. S. Performance. This is being now addressed. But if a better merchandising collection is helpful for sales densities in our stores or conversion rate, we are willing to execute on these changes as well. One other question from Claire then first. Hi. One quick follow-up, please. Claire Hoss from RBC. Could you talk a bit about the brand awareness of BOSS Orange and Hugo and perhaps what the experience has been in Europe and what the customer reaction has been to the discontinuation of both Black and department stores and how you'll also address that issue going forward in the U. S? Thanks. Well, clearly, the brand recognition also from the quantitative market research, we know that is in Europe especially high on HUGO, benefiting from a very successful fragrance business where HUGO has an over proportional share of the overall fragments business as a percentage much larger than it is in our apparel part of that. So the European consumer has a very good understanding what JUGO stands for. And as Bernd described, at most of these partners also in the category business where we have now substituted BOSS with HUGO, we have seen overwhelming success, which did not come at a full surprise to us because we knew already before that in many departments because HUGO was extremely successful, sometimes in most cases, at least being the number 2, 2 brand after BOSS in some departments already prior to the KedIG migration. KUGO, which is slim, modern style was already a very successful shooting brand, which gave us a lot of confidence that the category migration at the partner store partners in Europe will be successful. Similar BOSS Green and BOSS Orange are better understood clearly in Europe as being part of the BOSS universe with the distinct handwriting, then this is the case in the U. S. In the U. S, where we are missing a bit on the heritage on HUGO, where we do not have a fragment business to support the brand identity. We admit it will take more time. And clearly, as I mentioned in my speech, the market environment is right now pretty tough. So much tougher than in the European environment. So there clearly has some resistance from our wholesale partners to follow that. But we made it very clear, if the brand environment is not adequate to the BOSS brand, we will discontinue offering this brand in this environment, and this has been no execute. Have you ever thought about discontinuing those sub brands and just like something similar to what Burberry has decided to do and just segregating the core bus offer for the department stores versus your core retail stores? All of these three brand lines, HUGO, Boss Orange and Boss Green play an important role in our portfolio. They have a distinct offer on the occasion to where the attitude to fashion, where we have we are serving a very distinct customer that we don't want to lose and don't want to migrate in one line. So they have no intention whatsoever to stream our brand portfolio. Thanks. I think there was one remaining question from Jurgen. No question, if that's the last one. But coming back on the store based assumptions here, if I get that correct, if we say excluding those potential store closures, excluding franchise takeovers and excluding these category migration activities, does that mean that in 2016, we'll have more selling space as compared to 2015? Or will the selling space go down? If you promise not to ask me the exact increase in selling space, so that's a prerequisite for answering. It's very likely, and that's our ongoing assumption, that selling space at the end of 2016 overall will be larger. You're right that takeovers will be part of that, but we expect selling space overall to grow in 2016, average over 2016 versus 2015, just on the two factors that you mentioned, full year effect from openings that we did in 2015, which will be full year in 20 16 and the takeovers that we mentioned. There will be slowdown in takeovers. But since we bought back Malaysia beginning of this year, we took back Korea in April last year. So we still have full year effect from announced takeovers. So there will be clearly increase selling space in 2016 versus 2015. However, the speed of expansion will slow down, in which we also indicated that beyond the 20 already decided closures in China, there might be additional closures if we come to the conclusion that other stores in our network are beyond repair. Just to get it right, so including all these franchise takeovers and including the category migration, then we will have an increase in selling space. But if we take them away, then we still we'll see net selling space decline. No. It's just original just underlying. It depends on two factors. One is a review of further expansion, which I mentioned. Okay. Too early to tell that from all stores that we currently have in the pipeline, which one of these will be canceled or postponed. That is unknown yet, so we can't give you an exact answer to that. And the other factor I just described is the outcome from the current assessment of the stores that we operate. Mark, Equinet. I think most shareholders will thank you for maintaining dividend or thank the Board for maintaining dividend after the share price performance. We have been familiar with this 60% to 80% dividend policy for some time. I think it's quite cute that you show us a 10 year chart in which the dividend has been cut in the past, outlining that it can be cut in the future. There was also on that same chart, 1 split upwards was above 85%. And in your prepared speech, you spoke about looking forward to or looking with respect to the outlook as well as cash flow. So I'd just like to push you a bit further in terms of the dividend policy outside of this 60% to 80% range. Well, I think we will all or should leave this meeting with the impression that 2016 will be an extraordinary year where we'll do things differently, which have an impact probably predominantly in this year when it comes also to onetime charter, when it comes to the ultimate net income development for the year. However, we believe that all of these steps are necessary and positive to the midterm outlook in terms of profitable growth for the group. That's why we said it's not only net income development, but ultimately also the cash flow generation for the group, which should frame our dividend proposal. And we made this clear that 2 things are happening. 1 is, we see this year not as a regular year, but an extraordinary year. And we will, of course, drive to minimize the income statement impact from this difficult market environment and the changes that we are executing right now, but at the same time, we placed even higher importance on cash flow generation for the group. And we can't comment right now on more details on our dividend proposal on a fiscal year, which has hardly started, but we also wanted to make it clear that this will be a year where we not only look into income development, but also cash flow development when it comes to framing the proposal for 2016. Are there any further questions? If not, we would like to thank you, especially the ones here in the room, for coming today on a sunny day to Metzing. Thanks for your interest in our group. Also thank you for the people following us on the webcast, and we're looking forward to you seeing many of you latest after our Q1 results or when we are again on road to activities. Thank you very