Ladies and gentlemen, thank you for standing by and welcome to the H&M 9 Months Report Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today on Thursday, 26th September, 2013. I would now like to hand the conference over to your speaker today, Neil Springer.
Please go ahead.
Thank you. Welcome to this telephone conference on the occasion of H and M's 9 month results 2013. I have our CFO, Jyrki Tervonen with me today and we'll be happy to answer your questions after the presentation. You'll find the presentation slides to this telephone conference on hm.com. Please look at the slide Q3 2013.
It was a strong quarter both in terms of sales and results. Our summer collections were well received and group sales increased by 12% in local currencies. In comparable units, the increase was 2%. Translated into SEK, sales including VAT amounted to 37 point $4,000,000,000 We've had strong sales development in Asia, particularly in China and Japan, but also in several European markets Germany, France, Italy, Denmark, the M's attractive offering stands strong also in the world's largest online market. Gross profit in the Q3 amounted to $18,800,000,000 corresponding to a gross margin of 58.8 percent compared to 58.2% in the Q3 of 2012.
We would like to remind you that the gross margin as always is a result of many different factors internal as well as external. Among the external factors are for example raw material prices, cost inflation, capacity, purchasing currencies and transportation costs. The market development for these factors in total was neutral for the sourcing period to the Q3 compared to the corresponding period the year before. However, what effect the external factors have on the sourcing costs and on the gross margin always depends on how well we manage these factors as well as what decisions we make in line with our strategy to always have the best customer offering in each market. As a result of the cold spring, we entered the Q3 with a somewhat higher inventory level than planned.
This led to increased markdowns affecting the gross margin negatively by 0.2 percentage points compared to the same quarter last year. Cost control remains tight. SG and A increased by 9% to approximately DKK 13,000,000,000. The increase was due to the expansion and to our continued long term investments in several areas such as IT, online and our new fashion brand and other stores. Costs in comparable stores decreased from the Q3 last year, both in relation to sales and in absolute terms.
So with good sales development and tight cost control, operating profit rose by 20% to $5,800,000,000 corresponding to an operating margin of 18%. Profit after financial items also rose by nearly DKK 1,000,000,000 to DKK 5,800,000,000 After an estimated tax rate of 24 percent, net profit was $4,400,000,000 which equals earnings per share of 2.68 crore, 22% higher than last year. And now looking at some other key figures, please turn to the slide key data. Stock in trade increased by 14% compared to the same time last year. The increase is mainly explained by the expansion.
The inventory level as of 31st August was slightly higher than planned, but the composition of the stocking trade is good. Cash flow from current operations was DKK 15,000,000,000 up from DKK 13,000,000,000 Investments in terms of CapEx amounted to DKK 5.3 billion for the 1st 9 months of the year and consisted mainly of investments in new stores, refurbishments and IT. Our strong expansion with a high number of flagship stores will be reflected in a higher CapEx figure for the full year. CapEx is likely to come in at around 8,000,000,000 dollars The financial position of the group remains strong. Liquid funds amounted to $11,000,000,000 compared to 13,600,000,000 dollars Return on equity rolling 12 months was 43.4% compared to 44.3% last year.
And now some words on H and M's expansion. Please turn to the slide expansion 2013. We'll continue our strong expansion. Earlier this year, we ramped up the expansion plan for this year from 325 new stores net to around 3 50 stores net. We opened 2 15 stores during the 9 month period and we closed 27.
And at the end of August, we had 2,964 stores globally. Since then, H and M store number 3,000 has opened in the Chinese city of Chengdu in September. China will be the market with a highest expansion rate again in 2013. Other markets with high expansion are the U. S, Russia, Germany, U.
K, Italy, Poland and France. And for the 3rd consecutive year, H and M will add 5 new markets. We've already opened in 4 of them Chile, Lithuania, Serbia and Estonia. Everywhere customer reception has been very good. And next week H and M will open in Indonesia via franchise.
Looking ahead to 2014, please turn to the next slide. Expansion south of the equator will continue next year. We're very much looking forward to the opening of H and M's first store in Australia in the first half of twenty fourteen. It will be a flagship store located in Melbourne in the old general post office building. Melbourne GPO is not only a landmark for the city, but also one of the best shopping locations in for fashion in all Australia.
The store will be one of H&M's largest around 5,000 square meters. We're also excited to have signed the contract for the 1st H and M store in South Africa. It will be a full concept flagship store in a new shopping mall in Johannesburg planned to open at the earliest in 2015. Our global expansion also includes FOC Online. We see online as an important additional sales channel that is complementing the stores for all our brands and formats.
Like we mentioned initially, the U. S. Launch has been very successful. In addition to the fast store expansion in the U. S, online will allow us to reach even more customers across the country and in that way further strengthen H and M's position in the American market.
We are continuing our work for global online rollout and plan to open more markets already in 2014. And now some words on the newer brands of the group. Please turn to the slide Kos. We expand with all our brands. Costs and Other Stories continue to develop well and both brands will accelerate expansion in 2014.
Kos already has more than 75 stores in 17 markets across Europe and Asia and online sales in 18 European markets. Having added 6 new markets last year, Kos is opening in another 5 markets in 2013. 2 of them Norway and the United Arab Emirates opened in the spring. And this autumn, cross will open in Turkey, Switzerland and Singapore. Next year, we plan to open around 35 to 40 new cross stores.
The U. S. Will be one of these markets with a contract signed for a store in SoHo in New York. We're also very happy with the customer reception of our new fashion brand and other stores. Please turn to the next slide.
Stories has been very well received since the launch during this spring during the spring this year with a total of 7 stores in cities around Europe and online in 10 European markets. We're looking at more cities and next year we plan to open around 15 to 20 new stores. Expansion continues also for the other brands of the group MONKEY, Weave Day and Qifundae as well as H&L. And now before we start the Q and A session, just a few comments to summarize. It has been a strong third quarter, both in terms of sales and profitability.
And looking at September, the start of the 4th quarter, total sales are up by 8% in local currencies until the 24th. For the full month, there is a negative calendar effect of approximately 2 percentage points. And we're up against a very strong September last year, when total sales increased by 15% in local currencies like for like was up 6%. Looking at the fashion retail market. Even though there are some positive signs, market conditions remain challenging in many countries.
But H and M has a strong market position. We have many attractive collections for the autumn winter season including for example the upcoming designer collaboration together with French designer, Isabrand Maran in November. H and M has stores in 52 countries today. We are expanding in existing markets as well as to new countries and we are broadening the product offering. All very exciting things.
Still to us the most exciting and most important thing is our constant work to always have the best customer offering. And with that, we're happy to take your questions.
Your first question Your first question comes from the line of Simon Bowler of Exane. Please ask your question.
Hi. Just a couple of quick questions. Just wanted to ask if you could offer any color around what you've done and what you may be looking to do with pricing across each of your markets and whether that's been a driver at all in the gross margin performance across the last quarter?
Yes. When it comes to pricing, we will, of course, always start with our custom offering and that will be decisive for our pricing in different markets. And as we've said many, many times before, the customer offering, we aim to have the best customer offering on each market. And coming back to your question about if that has been driving the gross margin increased pricing in Q3, that's not the case. It's more that as we have said also many times that our gross margin as we are using an income statement by function and not by nature that gives that we are including a lot of different factors into our cost of goods sold.
It's not only the pure purchase cost for the goods and transportation and customs. It includes also our production office, our buying office, our logistic, a big part of our IT, etcetera, etcetera. So they are in this quarter for instance, there are no single factor that is decisive. It's more that the aggregated effect in this quarter from all these different factors have aggregated up a positive effect compared to last year. And important also to stress that these factors they can vary from quarter to quarter.
So in Q4, it might be that they will give a negative effect year on year because it doesn't have to be a big change. It can be a negative effect last year by 10 basis points this year like 5 basis points positive then we are already year on year 15 basis points up. So I do understand that it's difficult for external parties to estimate and predict our gross margin ahead. But for competitive reasons, we want it to be like this. So we will always work with our customer offering.
And finally, that will be decisive for the gross margin what are doing with our offering.
Okay. So in terms of the it sounds like there's been several drivers in this quarter. The kind of message we shouldn't start now thinking about extrapolating forwards that kind of underlying 80 basis point gross margin improvement, that will be something that does vary over time?
Exactly. That's the case. It can vary from quarter to quarter.
Okay. Fantastic. Thank you very much.
Thank you.
Your next question comes from the line of Adam Cochrane of UBS. Please ask your question.
Good afternoon, guys. Good afternoon. The question is really on the long term investments that you've talked about over the last 2 years or so. And previously you said that they're included within gross margin and within operating expenses. Is it fair to say that in this quarter you've seen the absolute year on year amount of those long term investments stay roughly stable and there's been a slight benefit from a higher sales base in terms of the percentage impact?
When it comes to the long term investments, what we said in previous calls for this year, they will be on a higher level than last year. But of course, as a share of sales then it will be so dependent on how much and how well we are performing on the top line. But they are on a higher level than the previous year and they will be also that for Q4.
Will there be a higher level as a percentage of sales?
But that is totally dependent on how well we are performing on the top line. So that we can't predict.
What about the Q3?
I can't remember exactly how it was, but my guess, if I would guess, I think it's more or less on the same level. But we don't, as I said, with OpEx in general, for us it's not about the share of sales. I think it's more important for us at least to look on a year on year change. And we have a good cost control and our OpEx is increasing by 9% in this quarter. In local currencies, it was 10%.
So I think this is a healthy relation in this quarter. But of course, when we don't get the top line, then it will become tougher.
So should we regard these long term investments as a permanent addition to the cost base rather than a temporary increase to the cost base?
That's how do you define a but for this year and the coming year, we will continue with our long term investment because we see them as necessary. And a lot of those investments, come. And we see now we launched U. S. Online in August.
We opened up 7 stores in another store. So they will start to generate, but it will of course affect the cost level when we are investing heavily into the future and building up the strong ASM.
And hopefully we will continue to invest.
Okay. Thank you.
Your next question comes from the line of Anne Critchlow of Societe Generale. Please ask your question.
Hello all. My question is also about the gross margin I'm afraid. Looking forward to Q4, how do you think the external factors gross margin? And also I had a question about currency. Are you buying increasingly in renminbi these days?
And when you buy from the Far East, is it a whole collection of different currencies? Or are we still focusing on dollars?
When it comes to these external factors, we have been talking about these 4 or 5 main major external factors. When we are commenting on them, then we are commenting the market situation. And for Q4, we estimate that the market situation for these 5 major factors are more or less neutral. But really to stress that that doesn't mean for H and M, it's not automatically that we are facing exactly the same situation when we are purchasing our goods and services etcetera because sometimes we can have transportation agreements lasting for 1 year, 1.5. Sometimes we make shorter contracts.
And so I just want to be clear that when we are commenting on these 5 external factors then we are referring to the market situation.
Regarding currency, it's still so that for all of the purchases we do in Asia, we pay in U. S. Dollar. And in Europe, we pay in euro.
Thank you. Your next question comes from the line of Jamie Merriman of Sanford Bernstein. Please ask your question.
Hi there. Thanks very much. My question is actually about the U. S. Online launch.
I was wondering in the initial launch at least it seems as though you're not allowing in store returns. And I was just wondering what the plan is there and maybe what the logistical obstacles are for you to do that?
Well, it's definitely an ambition for us to allow returns in store. But that was one of the complications in the U. S. With the local sales tax that differ not just from state to state, but also from county to county and over time in different categories. So it's very complex.
But we will have that in time in place in due time of course.
So it's just a sales tax issue and trying to figure out how to return that in store if it's a return or exchange from e commerce that's purchased in a different state? Or I'm just trying to understand what
Just to get it right, yes, it's very complex because you have to keep the data down on every SKU exactly where it was bought to what sales tax. And in order to have that you have to have fully integrated U. S. Systems with the back end systems and we're not there yet just like many U. S.
Retailers.
Okay. Thank you.
Your next question comes from the line of Niklas Fama of SCV Equities. Please ask your question.
Thank you and good afternoon.
Good afternoon.
I just want to come back to questions that maybe I raised earlier this morning. Just to be clear, you say that the gross margin drivers like the typical 5 largest ones at least have been neutral in the marketplace, but you also say that doesn't necessarily mean that for you they've been neutral. So are you saying that even though there may be 5, 6 or actually ten bits and pieces that adds up to the year on year improvement in the gross margin that the major five components have been positive for you? Or is it 5 or 10 other margin drivers that we're really talking about to explain the improvement in gross margins year on year?
Again, like Jyrki tried to say, it is very complex a lot of moving parts. And what we are trying to give you guidance about is the market conditions. And what he said was that we could have for us it could be positive. It could even be negative. We could have invested in more sustainable material or whatever or source from one market which is more expensive, but shorter lead times etcetera.
So no, there isn't it's not these external factors that has helped us or in this case.
Okay. So this is very important. So you're saying that it's not these 5 the net effect of these major 5 drivers that have been driving your gross margin in this particular quarter year on year. It's other drivers. Is that what you're saying?
No. Just to try to be really clear. These 5 external factors when we are commenting that they are neutral, we are referring to market prices. But exactly how those will not maybe affect our gross margin, it's more correct maybe to say how they will affect our purchasing cost, cost of goods sold. It doesn't mean that it's neutral for us.
Sometimes it could be higher for us when it comes to purchasing cost of goods sold. Sometimes it's lower. But to really be clear that then the gross margin that's a different topic in a way because this is cost of goods. So then the decisive for the gross margin is purely how we decide to work with our customer offering. Sometimes it could be that we are getting much lower cost of goods sold.
But if we decide to give that or even more back to the customers then the gross margin will have a negative effect. So it's really important to have these two components when it comes to cost of goods sold and what is decisive for the gross margin. So you can't draw a conclusion that lower cost of goods will automatically mean better and a higher gross margin or vice versa. So it's totally up to us how we work with our offering.
I appreciate that. And I realize that my question was very poor. So let me rephrase it. Was the cost of goods a positive versus the cost of goods in the same quarter a year ago?
As we already said, we didn't increase any prices. So aggregated all these factors that is landing in our cost of goods this quarter the aggregated was positive. But that doesn't necessarily mean that they will be positive in Q4, because just to remind you, our cost of goods sold is much more than the pure FOB price.
Indeed. I appreciate that. While I'm on the line one final question if I may. Could you touch on the inventory levels? To what extent you think ramping up ahead of your U.
S. Online launch has had any meaningful impact on the ending inventories at the last day of August this year?
The biggest driver for the inventory increase is of course expansion and the launch of the U. S. Online is part of the expansion. So yes, of course, it's part of that, but it's not a material driver.
Thank you very much.
Thank you.
Your next question comes from the line of Fraser Ramsden of Nomura. Please ask your question.
Hi. Thanks for taking my question. Yes, just I'm going to ask the gross margin question in a different way. I don't want to know about numbers. Are you happy with the commercial success of your customer offer?
I mean you say that the summer collections were well received. And at the same time, they use and you also say there are some positive signs of recovery in some of your markets emerging. So overall, are you happy with the price quality proposition you're presenting to customers right now? Because obviously we've been through a period where you've either been investing in price, you've been investing in quality over the last few years in aggregate. More recently, you've been investing in the customer offer in terms of new formats and you've obviously indicated you're going to accelerate the rollout of some of them next year.
But for the core H and M product offer, are you happy with where it is the traction it's getting with the customer?
We are happy absolutely, but we can always be happier. I mean, we will never stop improving things and that's what will always drive us. And let me remind you that the reason for us why we invested in the customer offering wasn't that we were unhappy. We just wanted to be proactive and have an even stronger offering. And of course, yes, we are happy with the offering as it is right now, but there are things that we always can improve.
Okay. And am I right in saying when you flag an accelerated expansion of costs and Andover Stories next year To your point about the way you report gross margin, one should expect some costs related to that accelerated expansion to keep landing in gross margin in 2014?
Yes. It's part of this at least in other stores, it's still a part of these long term investments.
Okay. And online as you've indicated already. Okay. Okay. Thanks very much.
Welcome.
Your next question comes from the line of Jeff Lowery from Wedbush. Please ask your question.
Yeah. Hi. Two questions please. These are about gross margin. First is in terms of online in the U.
S. What proportion of the total product range that you have in stores are you actually selling online? And how does that compare to your big existing online markets? And secondly, in terms of your cost base, you delivered material OpEx leverage in the quarter. How long can you keep running with like for like store costs down year on year?
Okay. Starting with the online questions. Today, we have more or less all collections you can find in stores and online. Then there are some parts that you can find only in stores and some of the products you can find only online.
Any percentages to share maybe?
No. But as I said most of the collections you can find in both channels. Okay.
And when it comes to the OpEx leverage and in long term of course, with inflation yearly inflation, we need a good sales development also in comparable stores. But also we are trying to find better ways of planning the operations in the stores, fine tuning, better planning tools, etcetera. But it's always really a balance to we can't be too aggressive when it comes to, let's say, used hours in stores because if they are taking too aggressively then you start to lose turnover. It's becoming long queues at the tails in the we don't get up the new garments etcetera. But of course, the aim is for us always to be more efficient in our operation.
And one key issue is, of course, to find better and better planning tools to plan our daily operations. But in the long term, of course, good development in like for like figure is necessary.
Okay. And has your marketing cost in relation to sales changed very much this year versus last year?
No, it hasn't. It has been on a pretty it's pretty much the same pretty high level.
Thank you.
Your next question comes from the line of Rebecca McClellan of Santander. Please ask your question. Yeah. Hi. Good afternoon.
Rebecca, I'm just hi there. Firstly
Rebecca, I'll take the time please. Okay.
Yes. And CapEx, I think firstly you were guiding to $7,500,000 is that right? So we've got a slight increase in the full year CapEx guidance?
That's correct. In Q2, we guided SEK 7,500,000,000. Now it's more likely to become around SEK 8,000,000,000. And as we said in connection with the Q1 when we raised the number of stores from 3.25 to 3.50, we still have a lot of contracts not negotiated. The same situation was in the previous year.
We are opening a lot of stores in the second half year and a lot of stores during Q4. So it's in a way a moving target and a lot of negotiations are done during the summer months. And therefore, we usually come back in Q3 to give you a better estimation of the final CapEx for the year. So that's the reason that we have been finalizing a lot of contracts during the summer and also that we have a little bit higher number of flagship stores. Yes.
One really nice store to open in Rome in October on the best spot in Rome. And then also in November, I think it's a splendid location on Times Square in New York. So that's the reason for the increase in CapEx.
Okay. Great. And do you have any guidance for next year's package at this stage please?
No. Usually, we come back to that in connection with the full year report. And also then we will most probably say that it's a moving target. It's our best destination for the coming year because a lot of contracts coming into a new year they are not negotiated. So we have to update you during the year.
Okay. And then just one question on the U. S. Online. Do you have any can you give us any guidance as to what the sort of initial average transaction value looks like for the U.
S. Online business? Is it substantially higher than the store transaction value or more or less in line?
I don't think you expect an answer to this question, Roberto. It's a nice right now for competitive reasons. We prefer not to give those details. But of course, that's one of the advantages we've said many times about online sales that you get a lot of data and information that you can use in a clever way.
Okay. Thank you. All right. Thanks.
Thank you.
Your next question comes from the line of Chris Chavialas of Barclays. Please ask your question.
Hi, guys. My first question on the U. S. Online launch again. Can you give a bit more color on the operations there?
And maybe comment about whether online to your best of estimate as you see is as profitable as the stores more profitable or less profitable? I respect that it's early days, but how do you budget that for that there?
Again, we are and the customers are very happy for the launch. And as you know, we don't break down profitability per market or per concept. But we have said historically that our online operations is very successful and very profitable on par with the retail operations.
Okay. And if you allow me one more question on inventory. You made a comment in your release that inventory is a bit higher than planned. Now I do see store growth at around 13%. You do plan also for positive like for likes.
It wouldn't sound as inventory up 14% will be particularly high to me. But since you have commented about it, is there something that concerns you on in terms of the inventory level?
No, it doesn't concern us. We just wanted to be honest. And I mean, it is a snapshot at the moment of time. And of course, 1 week back and forth could mean €1,000,000,000 up and down. But the most important part, of course, is the composition and that is good very good.
Okay. Cool. Thank you very much. Welcome.
Your next question comes from the line of Simon Irwin of Credit Suisse. Please ask your question.
Hello, gentlemen. Hi, there. Could you just give us a flavor at least for the progress of the work that you're doing on IT logistics and buying? You've talked about it before. And as to whether we're halfway through the kind of programs you've outlined or just a little bit more color on those three areas?
We are I would say, in the middle of a very intensive program when it comes to IT and online. Of course, that is what will allow us to continue to expand with continued high profitability. And I think the U. S. Is one example of that and the mobile adoption that we did in early this year.
But this year, we have ramped up the investment and they will continue also next year to be on a very high level. Yes.
And what about the improvements that you've talked about say in buying and logistics? I mean are you kind of now making some real progress there?
As I said before, we're continuously constantly trying to improve things. And but there will not be any one single dramatic improvement or driver. It's more about evolution. And I mean continuously we are launching new updates, new processes, new tools, but there is nothing I can tell you that is really dramatic or really moving the needle.
Okay. And just a couple of clarifications. With the September sales, you talked about the 2% calendar impact. Can I just check that that 2% is not in the data that you've already given us for the 1st of 24th? It's in those numbers because it's the first Saturday
from last year that we missed this year and we will miss for the rest of the month as well. Okay.
So that's already in that number. Good. And the second is all things being equal, is there any reason why your tax rate would change next year? We are using a calculated tax base of 24% and we don't exactly know where the tax rate will become. It's so dependent on how the profit will be divided and the result in different countries.
But normally we have been on a safer side to calculate during the quarters on the safe side. So we said it will be most probably between 23% 24%, but we're using 24 percent during these quarters and then make the final adjustment when we have the results from all the countries. Yes. But for next year, if you have the same roughly the same geographical balance, would that tax rate probably come down a little bit more from this year's guidance? More or less on the same level.
Maybe it might be slightly down, but that more or less no dramatic change will occur during that we know. But of course there might be countries decreasing tax rates. So but I think as it looks like now, it's no dramatic change. Okay. And just one final little question.
You mentioned the number of flagships that you're opening, but equally you're opening more stores within smaller formats. Is your overall average store size increasing or decreasing at the moment?
I think it's pretty much in line with last year. But you're right. I mean if you talk about H and M per H and M they are slightly larger. But then on the other hand you have the format the smaller which are smaller. So all in all, pretty neutral maybe slightly larger.
Okay.
Thank you very much indeed.
You're welcome. You're welcome.
Your next question comes from the line of Wayne Cooperman of Cobalt Capital. Please ask your question.
Hi. How are you?
Hi, Wayne.
So when I model out the numbers and I use $8,000,000,000 of CapEx for the year, I don't think you guys are actually free cash flowing your dividend. Could you guys talk about dividend strategy as you ramp up the growth and spend more on CapEx?
As we had said in the previous conference call, when it comes to future dividend, It's a question for the Board of Directors and they will consider the dividend proposal in due course. And finally, it will be a decision for the Annual General Meeting. So that is how it is.
But I mean are you guys okay to borrow to pay the dividend? Or that's not really a bright question to ask you?
As I said, I think that's a question for the Board of Directors. And I think we still have a strong balance sheet and we are making all the necessary investments in our store expansion, online expansion, etcetera.
Okay. Well, I'd love to ask the Board of Directors if I get a chance.
Yes, of course. And I think they will most probably they will also just say that they will make a decision due course and that is after the full year after we have the full year results. So that is how it works.
All right. Thank you. Congratulations.
Thank you.
We have another question from the line of Chris Chaviaross of Barclays. Please ask your question.
Sorry for that guys. But I guess we've exhausted quite a bit the gross margin, but I had one there. In terms of the full pricing, again trying to understand where the gross margin bit came. Can you confirm that you had more full price sales this year versus the last year in the quarter?
But we have said that the mark downs were greater. So that had a negative effect on the gross margins. So that's the full price was slightly lower.
All right. So that comes I mean as a percentage of the mix it was lower right? Okay. It's as if the level of the markdowns was higher.
Yes.
The level of the markdown was higher in Q3 in the last year. Yes, that's correct.
No, fine answer for insisting. But the level of markdowns was higher that I understand that. But in terms of how many products did you have to mark down, was that lower or higher during the year overall?
The number of products just looking at the number of products that we marked down was is higher this year than last year.
Okay. Cool. Okay. Thank you very much.
And you have a further question from the line of Nicholas Frome of SCBA Equity. Please ask your question.
Thanks again. I just want to ask you as clear as I can be, if you think that there are any there are any, how should I say, structural changes to the way you do business that have actually impacted profitability and margins in this quarter? Just to give you one example, not to raise a leading question, but for example, did you perhaps change the sourcing mix in any way or something that actually means that most likely you will benefit from this or these changes also in the next quarter and maybe into the next year and in the future, if you see what I'm getting at?
I think I understand where you're heading. Let me put it this way. We are always working with improvements. In that way you can say we're always making structural improvements. But there is no material one thing that has driven the gross margin this quarter just as we said many, many times before.
Hopefully, all of these things continuously will make things improve things gradually like I said before like an evolution. But you cannot extrapolate the development in this quarter to the next quarter. It could be the other way next quarter as Jyrki said because this is volatile from quarter to quarter. But in the long term, absolutely we do improvements all the time. And finally, that doesn't necessarily mean that that will drive gross margin, because probably we will give it back to the customers in terms of an even better customer offering.
Got it. Thank you very much guys.
Welcome.
Thank you. There are no further questions at this time. Please continue.
Okay. You all very much for participating in this conference call and welcome back for the full year results on the 30th January next year.
Ladies and gentlemen, that does conclude your conference for today. Thank you for participating. You may now disconnect.