Thank you for standing by, ladies and gentlemen, and welcome to the Full Year Report for 2019 Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer I must advise you the conference is being recorded today, Thursday, 30th January, 2020. I would now like to hand the conference over to your first speaker today, Karol Johan Persson, CEO. Thank you, sir.
Please go ahead.
Hello. Hi, everyone. Welcome to this telephone conference on the occasion of our full year report. With me today is Nils Vinge, Jyrki Tervonen and also our new CEO, Helena Helmersson and our new CFO, Adam Karlsson. As you know, we have today announced that Stefan Persson will leave as Chairman of the Board at the AGM in May and suggests that I succeed him as Chairman and that Helena Helmersson has been appointed CEO.
We have also announced that Jyrki Tavanel will be the CEO at Ransbury Invest and will be replaced by Adam Carlsson. I think it's a good moment for these changes since Stefan has been Chairman for 20 years, and I've been CEO for a bit more than 10 years. It's also a good point in time since we have had a positive development after some tough years, and we also have a very strong position. I believe we have built a solid foundation for the future and that we have a good plan for 2020 and onwards. I feel confident in handing over to Helena, who will, together with Adam and the rest of the team, continue to develop the company and work on the plan that we have.
Helena has a long and solid experience from her 22 years within the H and M Group, and she will soon present herself briefly. Elena is a well respected and a fine leader who embodies our values. I will be an active Chairman given approval by the AGM and look forward to working with Helena, Adam and the rest of the team. And of course, there will be a clear division of responsibilities between us, and I believe we will work very well together. Over the years, I've worked very close with Jyrki, and I'm really happy that he will take on the role as CEO of Renspery Invest.
We will now get a short presentation of Hillian and Adam before we start presentation of the full year report.
Hi, everyone. This is Helena. It's really nice to be here. I'm, of course, very excited and happy about the new role. And it's a big responsibility, obviously, but I have a fantastic team around me.
So I believe it's going to be a very exciting journey. So just a few words about my background. I've been working within the company since 1997 in different roles. I started as a controller and then became a section head working with assortments within the H and M brands. I've been living in the production world twice in Dhaka, Bangladesh, 2 years and in total, 6 years in Hong Kong, where the last role was Global Head of Production.
I've been Head of Sustainability for 5 years, and my last role, the past one and a half years, has been as COO, where I have been fortunate to lead several of our important group functions and also being part of the change plans and work that we have mostly within supply chain, logistics and production, but also in the digital space with IT and AI, and I have also been working with expansion. So again, I look forward, of course, to start in this role and to be in contact with you as we move on.
Good afternoon, all. My name is Adam Karlsson. And of course, I really share Helena's enthusiasm and great
feel of responsibility and pride
of being here today. Short about me, I've been with the H&M Group since 2,003. I've held a number of different controlling positions. The last ones have been within the global production team in Hong Kong. After that, I joined the expansion team here in Stockholm.
And then for the last 3 years, I've been responsible for controlling within the H&M brand. And as well as Helena said, really, really looking forward to have the opportunity to speak more to you in the future.
Thank you, Helena and Nadam. Helena and Nadam will come back for the Q1 presentation in April, and now we will continue with the presentation of the full year report. You will find the report on h and mgroup.com, Investor Relations. And before we start the Q and A session, I will give a summary of the Q4 and the year end of current developments. Our transformation work continues to bear fruit.
It is clear from our well received collections and increased market share that the customers appreciate the initiatives that we are taking. Increased full price sales, decreased markdowns contributed to an improvement in profit for the full year and the Q4. Operating profit grew 25% in the 4th quarter, while we maintained the high activity levels in our transformation work. Sales were good in many markets in the quarter, including in India, Poland, Mexico, Russia and Sweden, to mention a few. For the full year, sales increased by 11% in SEK and by 6% in local currencies.
Sales growth was driven both by stores and online with the strong increase in online sales of 24% in SEK and 18% in local currencies. The current year has also started well. Sales from the 1st December to the 28th January increased by 5% in local currencies. And if we look at the stock, we have an improved level and composition, and we expect a further decrease in markdowns in the Q1, and that will then be for the 6th successive quarter. The positive performance shows that we are on the right track, and I would like to thank all colleagues in the H and M Group for fantastic work during the past year.
And it's pleasing to note that we with the increase in full year profits can contribute a further SEK 86,000,000 to the H and M incentive program, the reward program for all employees of the H and M Group. In light of the ongoing transformation of the fashion retail industry, we have been making significant and necessary long term investments for a number of years to secure the H and M Group's position and long term development. We have invested a lot in the assortment for all our brands and digitalization in the supply chain, including new logistics centers and logistics systems in our tech infrastructure and in advanced analytics and AI. And we're now seeing many positive effects of these investments, providing resources and support for our continued transformation work. We continue driving change through our strategic focus areas.
And these areas are, as we have mentioned before, to create the best customer offering for all our brands, which includes investments in the assortments in our physical stores online and the integration of stores and online to make sure that we have the fast, efficient and flexible product flow, to make sure that we have the right tech infrastructure and to add more growth by expanding through stores, online and digital marketplaces. Improving the customer offering for all our brands is our highest priority and the assortment is the key. And we will continue to invest to offer the best combination of fashion, quality, price and sustainability. More full price sales, increased customer satisfaction, more returning customers show that we are moving in the right direction when it comes to our assortment development. Customer expectations are increasing all the time, not only when it comes to the assortment, but also when it comes to the shopping experience as well, both online and in physical stores.
And for the physical stores, we have been running several tests aimed at creating an inspiring and easy shopping experience for customers. We have received positive response from customers on many of these tests. And as we are upgrading and opening new stores, we are gradually introducing the solutions that have proved most successful. The online store is being constantly developed as well in everything from navigation, product presentations, size recommendations, payment options, delivery times and different delivery alternatives. And while upgrading the physical and online stores, the two channels are becoming increasingly integrated.
So rollout continues of services such as Click and Collect, online return in stores as well as digital features making it easier for customers to access our entire product range across the channels. The supply chain is a key area as well for our transformation, where focus is on speed, flexibility and efficiency to create an even better customer experience. And the work spans the entire product flow and where logistic centers and logistics systems are important parts. We have, for example, opened a new high-tech logistics centers center in Milton Keynes in UK that will replace several existing centers and serve both stores and online. And the implementation of new logistic systems is proceeding according to plan with a number of markets this year.
We are also investing a lot in our tech infrastructure, and this includes ensuring robust, scalable platforms that enable faster development of new customer apps and technologies. Many of these investments have already brought improvements for our customers and will enable further improvements going forward. Another example of how we are transforming our business is the creation of our new function business tech. Business tech will gradually replace the previously separate functions of IT, business development and advanced analytics and AI. In business tech, agile teams will work cross functionally, which will make us even more flexible, fast and more efficient in the area of digital and tech development.
The growth of the H and M Group continues. As we expand, it is important to that we ensure a relevant presence in each market. We are accelerating the optimization of the store portfolio, including renegotiations, closures and rebuilds. For 2020, we plan to open around 200 new stores and close 175, resulting in net addition of 25 stores. Most of the new stores will open in South America, Asia excluding China, in Russia, Eastern Europe, while the closures will mainly be in Europe, the U.
S. And China. The H and M Group recently signed an agreement with a new franchise partner in Central America, where the first H and M store is expected to open in Panama at the end of 2020. In parallel, our digital expansion continues. During the year, we are looking forward to opening H and M online in Australia and also to launch H and M on the e commerce platform SSG in South Korea.
The individual brands of the H and M Group are reaching more and more customers globally, and we are seeing good growth opportunities for all of them. In 2019, we also increased our ownership in the Swedish company Selpi. Selpi is a fast growing e commerce platform for secondhand, where the H and M Group is now a majority owner. The H and M Group has over many years made considerable investments in sustainability. We are convinced that our sustainability initiatives are good for the company, and we see that both our customers and employees care more and more about these matters.
We want to lead the fashion industry in a more sustainable direction with faster development of circular solutions, reduced energy use, more renewable energy. And we have very ambitious goals as well when it comes to materials aiming for 100% recycled or sustainably sourced materials by 2,030. We also strive to be a fair and equal company, and we carry out extensive work for good working conditions in the supply chain. Our sustainability work is being recognized by international organizations. The H and M Group has, for example, made it to CDP's A List, which names companies leading fossil free economy.
And according to Corporate Knights, the H&M Group is among the world's 30 most sustainable companies 2020. So we're proud of our sustainability work and the recognition it received receives, and we're also well aware that a great deal of work lies ahead for us and the industry. If we look ahead, we remain humble considering the rapid shift in the fashion industry and the challenges it brings in the form of new consumer behaviors and the fast changing competitive landscape. But I'm really optimistic about the future of the company. With our customer focus, our long term perspective, great colleagues and strong company culture, I believe we will have we have many good years ahead of us.
Thank you very much. And now we're happy to take your questions.
Thank you.
Good afternoon, guys. Thank you for taking my questions and congratulations for your new positions. I've got 2 questions, please. Firstly, relating to your performance around operating costs in the 4th quarter. That grew, but obviously substantially below the pace at which your sales expanded.
And I think a lot of us on the call were very positively surprised by that development. Can you tell us how much of that related to any kind of one offs or year end effects or the reversal of one offs from the prior year as opposed to your view that perhaps could be at a point of starting to leverage its operating costs? That's my first question.
Yes. If we look at the OpEx in the Q4, we have to look at last year as well, where the OpEx developments in the last quarter was much higher than the previous quarters during that year. So where the activity level was really high and where we had some one offs as well. So adjusting for that, I would say that the I mean, the underlying OpEx development was more 4% to 5%. So good cost control.
And yes, so that's more the fair view, so to say.
Understood. Thank you. And my second one is perhaps more of a current or forward looking question. Clearly, the coronavirus breakout in China is a fast moving situation. But can you talk at this stage as to whether you see any risks to your supply base given that it's still in a very major country for production?
Yes. I mean, we are following, of course, what happens there and sticking to the recommendations from the local authorities. We have a number of stores closed. It's affecting the selling negatively now at the end of the month. So it's very hard to say.
We don't know what will happen. We have a lot of sourcing from China, but we also have a very flexible supply chain. So today, it's having a marginal effect. We have backup plans. And yes, we'll just see what happens.
But for now, it's we have the supply chain. We have a good plan for that. That. Great. Thank you.
Thank you.
Thank you. Ladies and gentlemen, could you please limit your questions Your next question comes from the line of Richard Chamberlain of RBC Capital. Please ask your question.
Yes, thank you. So just following on from Charlie's question on OpEx, please. I wondered if you can just comment on the extent to which OpEx was reduced in the Q4 by the timing of Black Friday shipments and the product returns associated with those shipments, please?
No, that's not the main reason. The main reason is really I mean, we have a good running cost control and the main reason is the comparable from the Q4 last year, which was really high due to the activity level and the one offs as well. So that's the main reason. So underlying, we would say more 5% 4% to 5%. And looking ahead, I mean, we it's hard to say anything.
But I mean, if sales continue to develop in a good way, we believe we can have a good chance to have OpEx growth lower than sales growth.
Sure. Okay. And just to follow-up on in terms of modeling for Q1, what are your what do you think we should build in for the extra leap year day this year falling at the end of February? I think you gave you about a 2 percentage point boost to Q1 4 years ago. It looks like it's on a Saturday this time, though.
So should we expect at least that kind of positive effects on the Q1 sales development?
I think 2 is a little bit high. I would say a bit more than the 1.
Okay. Somewhere between 9 and 2, yes. Yes. Okay. Thank you very much.
Thank you.
Thank you. Your next question comes from the line of Fredrik Ivarson of ABG Sundal. Please ask your question.
Thank you. Hi, guys. One quick question
for me as well. On the gross margin and the external headwinds, in particular, I suspect mainly FX, You guide for continuous headwinds in Q1. And I'm curious if you can give some more feeling of whether we should expect Q1 or sorry, yes, Q1 headwinds to be of equal size as in Q4 or maybe lower? Some color on that, please.
For Q1, they will still be negative, but slightly less negative than in Q4.
Thanks.
Thank you. And your next question comes from the line of Adam Cochrane of Citi. Please ask your question.
Good afternoon, guys. One question that I've got relates to you talked about the logistical changes that are ongoing and Middleton Keynes as an example. Would you just be able to update us on how far you are through the logistical changes that are underway? And is there any scope for some double running costs where you're operating 2 systems at the same time that should come out as we look into 2020? Thanks.
I mean, it's long term work. I don't think it will ever stop. We have mapped up based on what we know today, we have mapped up the logistical network in the world, how many houses we should have, where they should be, the size of them, how many for stores online and the combination, so to speak. We have done a lot of changes to the logistics systems. We still have some transitions to make during the year.
So we have come far away, but still a way to go there. And then, of course, it's also connecting the warehouse in a good way for order orchestrating between the different warehouses. That's work ongoing. And then we have the stores as well that also can serve as logistical hubs in a better way than we have today. So it's connecting the stores to the total logistics system.
So it's we have done a lot. It's starting to create value for the company, but we there's more good things to come from the transformation work.
So would you put the better inventory sales ratio that you achieved at the end of Q4 largely down to changes in logistics? Or is it more to do with your buying and sell through rates?
Well, actually, it's both, but it's more the buying and the assortment planning that is great and the assortment in itself, but it's appreciated by customers. And so it's more down to that a little bit from the logistics investments. But over time, the logistics investments will help us greatly. And to answer your other question as well, yes, we have some double costs running in certain areas.
Do you
know roughly when they would fall away?
No, it depends. I guess there will be double costs in different areas for in different areas of the world. Today, we have double costs in the UK, for example, and that's a gradual move into Milton Keynes and a gradual moving out from the other ones. But then at the same time, we will open new centers where there will be double costs. So it's hard to say exactly the timing.
That's great. Well done on the promotion and the results.
Thank you very much. Thank you.
Thank you. Your next question comes from the line of Rebecca McClellan of Santander. Please ask your question. Yes. Good afternoon, everybody.
Congratulations on your results and your promotions, etcetera. Three questions for me, please. Firstly, where did your full price sales ratio stand at the end of 2019 versus the historic peak? Secondly, I think last year you mentioned that some 2 thirds of the store park was up for rent renegotiation over the coming 2 or 3 years. If that's right, where are you with your rent renegotiations?
And what sort of benefits or savings are you finding there? And then finally, do you retain your inventory objective as a percentage of sales? I think it was 12% to 13%.
My first question about it's getting better and better. I think this was the 5th quarter consecutive quarter that we have better more for price sales and less markdowns, but we don't give you the exact split. And there is still potential, of course, but it all depends on how the customer offering is received and how customers appreciate the products. When it comes to REMAX, we had around 1,000 contracts that we had a chance to renegotiate in 2019, and that will be similar we expect a similar number for 2020. And so yes, around twothree of the portfolio can be renegotiated within 3 years still.
So this is rolling, so to speak. And then the inventory target remains, and we still believe we can get there, but we refrain from giving you this exact timing.
Okay. And can you give us the magnitude of the renegotiation that you're achieving?
Maybe you should take that. We are very pleased with the outcome. And I think the team doing renegotiations and our expansion team are doing a fantastic job. I think the environment right now is very good for this. But it's not just about rents per square meter, it's also about location.
You can get even better location in a mall or whatever. We can get finance from the landlords and we can get better flexibility in the contract, which of course is very key at the moment.
Okay. Thank you. Thank you. Your next question comes from the line of Simon Irwin of Credit Suisse. Please ask your question.
Hello, everyone.
Can I
just ask about long term growth prospects? Because you repeat the ambition of 10% to 15% long term growth in today's statement. And yet online is delivering about 3 percent and space growth or sorry, store growth has come down quite fast even though you're only churning about 3% of your stores per annum, which doesn't really feel like enough. So where is that growth going to come from? Are we going to get a reacceleration of store openings at some point?
Or do you are you simply waiting until the online business is sufficiently large to drive that level of growth?
Yes. But it's there as a long term ambition. Of course, we have much lower store expansion growth rate today. So it will be super tough to reach the 10% to 15%, but it's there as a long term ambition to really as a trigger. But we'll see where we land.
We believe we will have a good year. We have ambitious goals. But yes, that's how it is. We'll see if we get back to 10 to 15.
Okay. And this thing that surprised me most today was that there were only 40 openings amongst your smaller formats, which I think is the smallest number you've done in about 4, 5 years or so. And I thought these formats were all in kind of structural growth. Is this a pause? Or again, are you kind of reassessing the growth potential for the smaller formats?
Yes. We're shifting more to digital. We see great growth opportunities for all the brands. They are in early stages of development. We are adjusting certain brands, but we see great growth opportunities.
And at the same time, for H and M as well, we believe rents are too high in many markets. So we're waiting a bit and for better deals as well. It has to make sense for us. So I believe rents will come down rather.
Yes. We have set much tougher limits when it comes to rents and flexibility, etcetera, as also Nils toes. So that's one reason.
And what's the overall sales impact of the changes you're making to space at the moment? Are they driving higher I mean, is this a net increase in space? And are you driving higher sales densities out of these newer stores?
Well, of course, the stores that we do open have very high quality in terms and generate a lot of value. And the ones we close typically are not the best ones.
Yes. Okay. Thank you very much.
Thank you. Your next question comes from the line of Anne Critchlow of Societe Generale. Please ask your question.
Good afternoon, everyone. Thanks for taking my question. It's on CapEx. I wonder if you could give us an indication please of guidance there. You have said you're going to reduce it, but just to have a range or a number.
Yes. Our capital for this current year is around SEK 8,500,000,000 in constant currency. So that's our best estimate.
Thank you. And I've got another question on China because you're downsizing the portfolio. You did it last year and also, I think, this year. What have you learned about the types of locations that are not working?
No, I think we I mean, we have many stores in China for of course, most of the stores are H and M and we work well in the 1st tier cities and even 4th tier cities. So it's a mix. It can be 4th, it can be 3rd, 2nd and 1st. And some shopping centers are not as good as we thought or some locations in general are not as good as we thought. And some patterns have moved.
There's been a lot of rapid expansion in new shopping centers. So I mean, it's changing all the time in China as in most markets, and then we have to adjust according to that.
Okay. Thank you.
Thank you.
Thank you. Your next question comes from the line of Jose Arito of Kayaks Bank. Please ask your question.
Yes. Hi, good afternoon. So first question on the gross margin, how do you see this evolving in 2020? If you can provide some reference to these. My second question on FX impacting 2019, There were positives and negatives to the EBIT margin being the U.
S. Dollar negative. So net net, what was the effect on EBIT margin due to FX? Not sure if you can clarify this. And finally, just a quick question on the store openings, if the average size of the stores that you plan to closure should be similar to the store openings, so meaning a slightly positive contribution from selling area?
Thank
you. Sorry, the first question was the gross margin for 20 20. Yes, we normally comment on the big external factors. Those were negative for purchases made to the Q4 in 2019, and the same is for the Q1 in 2020, a slightly less negative and then again, slightly less negative before purchases being made to the Q2 compared to the Q1 in 2020. Then it's very hard to say after that, but we also believe that we will see less markdowns in the Q1 by 50 to 100 basis points, and we have a good chance of having less markdowns throughout the year, of course, depending on how well the collections are received.
So that's what we can say on that. When it comes to the FX development, obviously, a super negative impact from the U. S. Dollar affecting the gross margin. And then on the other hand, we have a positive translation effect for 2019.
But margin wise, a negative effect net effect for the year. And when it I didn't I'm not sure I understood the last question correct when it comes to Yes.
Basically, if you can provide the reference if the store closures in terms the size of the store closures are broadly the same as the store openings?
I would say roughly the same. We're closing more stores in more mature markets. Many of the mature market has a higher selling per square meter than many of the more developing markets. But we don't only look at selling per square meter. We look at, obviously, at profitability in the stores as well, future potential in the stores.
So there are many things we take into consideration when we look at opening a store and closing a store. But overall, we're improving the portfolio when we optimize the portfolio. And the new stores that we open, we have a great belief in, of course. Otherwise, we wouldn't open them.
Okay. Thank you.
Thank you very much.
Thank you. Your next question comes from the line of James Grzinic of Jefferies. Please ask your question.
Yes. Good afternoon. Congratulations on all of the new positions for me as well. Just on a very quick one. Just to flesh out your commentary around the sales and the OpEx growth relationship in the coming year.
I presume you're more in control on OpEx than sales. Can you perhaps give us some context on how you think about OpEx growth in the coming year, excluding FX, relative to that 4% to 5% underlying that we've seen in Q4, please?
We don't want to give an exact level, but what we said and what we say is that we have a good cost control. We still will have a high activity level. And yes, if we see good sales development as we have had in 2019 and beginning of 2020, I think there is a good chance that sales will grow more than OpEx. That's what we can say. Thank you.
Thank you.
Thank you. And your next question comes from the line of Dana Telsey of Telsey Advisory. Please ask your question.
Good afternoon, everyone. As you think about the combination of the closures and the lease renegotiations, how do you see the impact of the closures on online sales and also the transfer rate of closed stores to either online or existing stores? Have you assessed what that means? Thank you.
Yes, of course. It's something that we take into consideration when evaluating closures, how we look at the total catchment area, neighboring stores, likelihood of picking up sales, so to say, in those stores and also the effect on what we have learned from other store closures and how that what affected us on the online sales. So we're taking omni view on when we evaluate.
And could it be possible that the online sales, given they're up around 18% this year, get a greater boost next year as a result of this?
It's not the major contributor to growth, but in I mean, it could it will have some effect, yes.
Thank you.
Thank you. And your next question comes from the line of Adam Cocray of Citi. Please ask your question.
Coming in for round 2. I thought whilst we had the chance, it was a question on sustainability and then it's obviously a key part of the strategy and keen for that to carry on going forward. In terms of the customer or consumer demand for the work that you're doing on sustainability, the conscious collection, etcetera. Can you give us any flavor for how the consumer in various markets may be appreciating the ranges that you're putting out, please?
Yes. We see a big difference between markets. I would say that the interest is maybe the highest in the Nordics and in Central Europe and in UK. And then it varies from market to market. But we do customer surveys in every market, and we see that the interest in sustainability is increasing year by year, which is nice to see.
And then with transparency work, and hopefully, we will get to a point with an industry standard where it's transparent and clear for the customer the sustainability scores connected to each product for us and all the competitors. When that is the case, I mean, that will be a central part in the purchasing decisions for customers. So not only to look at the fashion, the quality price, but also at sustainability, and that will be really good. It will put pressure on us and all other companies in the industry. And then I think it will really matter.
I mean, for it matters today, but also for the business performance and the customer interest.
And when you look at the improvement that you saw in working capital in the period, some of that relating to longer creditor days. Now there's a number of things that might go into creditor days. What was the main sort of moving part that you had within that increase in creditor days? I'm assuming it's not you paying your suppliers on longer terms.
No. We still pay the creditors the same days as in previous years. So that's not the effect.
What do you think could be the benefit to cash flow? What other factors could it be?
Yes. There are several factors, of course. I mean, increase in the result is 1. And then, of course, also that this stock in trade doesn't increase, don't increase as in previous quarters. So all in all, the free cash flow is really getting a boost from last year's SEK 8 point 1,000,000,000 to SEK 18,500,000,000 in free cash flow.
So of course, also CapEx is decreasing. It went down during 2019 compared to 2018 by from $12,800,000,000 to 10 point 3 billion something like that. So of course, that's SEK2.5 billion in cash flow. So there are several parts in the cash flow statement.
So in terms of next year, you've got lower CapEx coming through. Hopefully, you've got profit moving forward. Is there anything on that, on those working capital lines that we should think about that either may reverse out or would be another benefit? Anything to sort of call out on the on how we should think about working capital for the current financial year?
I think we still will forget some improvements from the stock in trade. We have still potential there. I also believe that if our plans is working out, we will also have a good profit development as well. And of course, CapEx, as you mentioned, will go down to approx SEK 8,500,000,000 from current year's SEK 10.3 percent. So of course, we see a good potential in increasing the cash flow during 2020 as well.
That's great. Thank you.
Thank you.
Thank you. Your next question comes from the line of Jeff Riddell. Please ask your question. Hello, Mr. Rudell.
Please ask your question.
Hello. Can you hear me now?
We can hear you.
Yes. Sorry. Good afternoon. I'm sorry about that. So this the current call this time last year, you called out DKK 560,000,000 of one off costs.
Can I just clarify that my understanding is those were in the gross margin rather than the SG and A? Is that correct?
Most of them were in the gross margin, yes.
I think slightly more than EUR
400,000,000 in gross margin and the rest on the OpEx. Great.
Thank you. And so if I look at the gross margin evolution this year, you've got a benefit in the 4th quarter rather, you had a 50 basis points improvement in markdown. You were obviously lapping that EUR 400,000,000 from last year, which I guess is probably worth another 70 or so basis points. And then obviously, the gross margin came down 20 basis points. So am I right in thinking there was well over 100 basis points of underlying investments in the customer proposition?
It was a combination of investments in the customer position, but also don't forget the headwind from the FX. Sure. But within the all
your competitors will have had that as well?
Absolutely. But I mean, it is what it is, right? And you can the most important thing is always the commercial decisions we take on each product and the mark up, and we continue to invest in the offering, as we said many, many times.
Okay. And should we, in fact, expect further investment in the offering incrementally in the coming year?
We will always invest in the offering, SG and A 1, and I always say, but it doesn't necessarily mean that the margin should be subdued because we also get efficiencies that we can give back to our customers.
Okay. Thank you.
Thank you.
And your next question comes from the line of Leanne Kahl of Retail Week. Please ask your question. Hi, there. My question is for Helena, please. What are your main priorities going
to be in your new role going forward?
Helena is not here at the moment. She was only here for
the introduction. Okay. I'll ask
you that question. What will be her main priority?
I think check with Helena, but maybe I can try to answer that.
Sorry, I thought she was going to be
on the
call the whole time.
No, but what you said earlier was I mean, we have set a plan that we believe in. We are executing well on that. That's why we see the positive development. And now it's we can improve in every area. So it's continued to adjust the plan based on everything we every change in the market and everything new, we learn and continue to do a great work with the team and split the values of the company.
That's what you said earlier, and I think that's right.
And what
was it about her that made her the right candidate and the sort of clear successor?
I think the Board has made a great decision. It was my recommendation to the Board as well. Has a great experience for many different roles in the company. She knows the company well. We have like most companies, there's a unique company culture and a very strong company culture.
And she knows that company culture very well, and she lives the values in a fantastic way. She's a respected leader, open minded, courageous and good in many ways. So I think I'm or not think I'm convinced that she will do a fantastic job together with Adam and the rest of the team. So good choice of the board.
Great. And just one last question very quickly. Just going back to you said that you had plans in place for your supply chain with the coronavirus that's happening. Can you
just go into a little bit
more detail about what those contingency plans are?
There are so many, I mean, different things that goes into that. I mean, we have a great supply chain, and we have a good supplier network. We are present in many markets. And it's not only for this for China. We have backup suppliers, backup plans, and we can move between markets.
So many different things, but
that's. That's great. Thank you.
Thanks, Steve.
Thank you. Ladies and gentlemen, we have just 10 minutes left for questions. Your next question comes from the line of Paul Rossington of HSBC. Please ask your question.
Good afternoon and well done everyone on your promotions again and the numbers today. Just a quick question on the trial stores. You've developed a number, but not many. I think they performed quite well. Are there any plans at this stage to start rolling out some of the benefits or the learnings from those child stores to the wider estate?
And if so, is there kind of any cost attached to that that you can talk about? Just give us some color on what might happen there.
Yes. We're rolling out improvements as we are getting receipts, smaller things and big that we are testing. The rebuilds will increase during the year, and we continue to test. So as soon as we get good receipts, we will roll them out. So rebuilds, based on the learnings we have so far, will increase during the year, and hopefully, we get the chance to roll out even more improvements.
Would that impact a material part of the estate in this year? Or will it be at the margin?
Sorry, what was your question, if it will?
So will the level of rebuilds will it be material in terms of the estate? Or will it be kind of more at the margin for the timing?
What is material for you? What yes, but our yes, quite a few stores, but not it's not the majority of the portfolio during 1 year now. Okay. Thank you.
Thank you. And your final question comes from the line of Simon Irwin of Credit Suisse. Please ask your question.
Hi, guys. Could we just finish up on a fascinating subject of IFRS 16? Could we could you just give us a little bit more color on some of the key line items as they go through the P and L, particularly what the lease interest charge is going to be and then give us a rough idea of the kind of rental split as to how much will still be going through the P and L and how much will not and what give us a rough idea of what the amortization charge will be as well?
Well, a lot of questions. I hope some clarifications can be found in the full year report on future accounting principles on I think it's Page 13, 14. Yes, and approximately half of the stores are included in the IFRS. We are excluding the pure turnover rent stores. And the balance sheet will, of course, be inflated.
It's a big part of the store leases will be seen as debt. And the amount is around SEK 77,000,000,000 as debt. And then as write off use of assets, it's around SEK 73,000,000,000. That's an ongoing for this year. And of course, there will also be some effects on the income statements, but we will, during the quarters to come, during 2020, show both the income statement based on the IFRS 16, but also excluding the IFRS 16 effect.
So it's hopefully a helpful tool for all readers to see the impact. And it's a moving target because we are using some breaks. Sometimes we use options. So it's the moving target with the portfolio. So it can differ from quarter to quarter.
But our best estimate based on this current year, if we take that as an for this 2020 and use the SEK 77,000,000,000 SEK 73,000,000,000 right of use of assets. We estimate that the operating profits would increase by 7% to 9% compared to the old way of looking at the income statement. And then profit before tax should have increased by 2% to 3%. But we will come back to this during Q1 and we will show it clearly in the Q1 and Q2 and Q3, etcetera, report. It's a very, very heavy administrative work and quite complicated, but half of the stores are included in the IFRS lease debt.
Thank you. It's very complicated from an office perspective, but at least that presumably means we don't need to change our models until at least. So that's one bit of good news. Good. Thank you very much.
Thank you.
Thank you. There are no further questions at this time, sir. Please continue.
Thank you. And as mentioned earlier, Helena and Adam will host this telephone conference together with Nils in conjunction with the next quarterly presentation in April. So from myself and from Jyrki, a big thanks for these telephone conferences for the telephone conferences during the years. It's been really nice, and I hope to get the chance to talk to you later on. So thank you very much.
Thank you.
Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for participating. You may now disconnect.