Earnings Call: Q3 2015

Oct 21, 2015

Okay. Good morning, everybody. Welcome to the quarterly announcement of Husqvarna. We're pleased to have you here. We're pleased to talk about the quarter. Of course, we think it is a positive quarter for us. But beyond the quarter as such, which is a bit seasonally smaller, as you will know, I'll try to shed some light on the margin improvement program, what you can expect with the currency dynamics we are encountering and talk a bit about the 10% margin target as well. So giving you the big picture, summarizing what we think are the most important points. I'd like to start with concluding that we have a continued trend of positive developments for the quarter. We are flat from a sales point of view, currency adjusted, but we are up 22% on the operating income. So that pretty much continues the trend of what you have seen earlier throughout this year, which supports improving the operating margin with some 0.6 percentage points. What's behind that? Well, in fact, all the 3 high margin divisions are growing the sales and that's positive. And we also see that the Consumer Brands division being in a transformation turnaround situation is able to mitigate the impact of the lower volumes and in fact reduce the seasonal loss in the quarter. We also see that tax related improvement program continues to deliver very successfully. And as I mentioned, I'll share some perspectives on that a bit later. But we are increasingly facing headwinds in terms of currency. The quarter was about EUR 60,000,000 negative currencies and we see that being emphasized going forward and coming back to that as well. And we have then identified further activities to mitigate the negative currency impact to support further margin improvement, but also to support market investments for the 3 divisions here in profitable growth mode. Okay. Looking at the numbers a bit. Currency adjusted net sales flat. We had the 22% I mentioned. You would see that that's on a year to date basis is equivalent to some €600,000,000 of result improvement and a 1 percentage point of improvement. If you try to understand the quarter on a group level, I think it's fair to say we had a favorable mix and particularly you will have noticed that the season for watering has been very favorable for us and even more so down in Continental Europe. Scandinavia was a bit wet throughout July, but then has been quite nice a bit later on. But we saw the good weather establish in fact in Continental Europe already by end of quarter 2 and carrying on. So that was a very favorable position for particularly Gardena, not necessarily for the long moving equipment of Husqvarna though, as you might imagine. There are a lot of dry garden sun in Continental European Space. We have seen further material cost reductions in the quarter supporting it, but we have had adverse impacts from the lower production rates. We have been a bit high on the inventories trying to manage that inventory level. And I would say we are approaching previous years, but we aren't fully there yet. And as you will realize and particularly for the consumer brands with a strong volume decline, that's not an easy task to deal with. But I would say we are doing a fairly good job on that side, the €60,000,000 on the currency side. Looking into the divisions, Husqvarna, yes, you could say maybe a bit of a disappointment in the quarter from a result point of view. But from a sales point of view, it's okay. It's plus 3%. I would like to emphasize, particularly North America and then early sell in of the winter product, the snow throwers, the snow blowers, which is good from a sales point of view, but not necessarily supporting us in the mix overall mix. And you will also know that some of the profit pools are not as pronounced in the quarter 3 year and the second half of the year as they are in the first half of the year. So we have the mix from a result point of view returning to that point. We have the lower production volumes and we also have €30,000,000 of currency headwinds for the division. All in all, being €100,000,000 negative in the magnitude. I would like to draw your attention though rather to the year to date because I think you get the wrong picture if you stare too much to the quarter. I don't think that's the right perspective. The right perspective is rather to look at the year to date. You will see sales with 5% up. You will see €300,000,000 of result improvement in the division. I think that's more a fair description of what's going on rather than the quarter as such. Gardena then, well, that is, of course, a big exclamation mark for us in the quarter. You will see the 19% of net sales increase and you will see the leverage, which is, of course, fantastic. And the reason for that being fantastic is, of course, the volume as such, number 1. And number 2, the mix is extremely positive because this is growth in watering and it's also from the geography where we are the strongest price wise. We're talking very much about the DACH region, Germany, Austria, Switzerland and I would like to include France. So the Continental European Space driving it and where pricing is also fairly strong. So the slightly negative result from last year became a bit better than 100 plus for the quarter. So we're very pleased with that. For the year to date, 8% sales wise up, very good number for Gardena, who's been a bit flattish the last few years. And you will see the result improvement there also being significant as well as the margin improvement. Consumer Brands, very much along the same lines as we've seen before sales wise, minus 2018 versus the year to date or minus 2017. We continue the journey we've been on with shrinking to the profitable core and prioritizing value before volume. So it's a bit harsher medicine that we are taking this year than we might have thought we would do a year ago, but it's for the greater good of the division, we believe. So if we try to project what's going on from a sales development point of view, I think we are slowly leveling off now moving into next year and then should be able to see positive developments definitely in 2017 onwards. So maybe a fairly flattish type of situation for 'sixteen and then a more positive year for 'seventeen, 'eighteen. We do not see any reason to change the previously communicated margin target of 5% 2018, but we stick to that. Whereas I have to admit that we had the intention of being even more positive for this year. We were striving for a breakeven, but due to the larger volume decline that is very much a result of proactive decisions, it is not fully in the cards. But it doesn't change the longer period outlook. If we try to understand the sales decline a bit more, there's no real difference in the geographies. You will recall that the dominant share here is coming from the North American space, but the European part is declining in fact even a bit more. And that's partly due to the back flip side of the coin, so to say, of the good weather. The retail space within Lawn Care has been struggling a bit during the late part of the season with their inventories and some of them have stopped purchasing. And that is what we have seen. So there is an element of that for the European space, but I think the large message is lower in all geographies. Result wise, very important with the metal price reductions we carry on pursuing within the Accelerated Improvement Program. We have had a favorable mix in the division, but we're also fighting the headwinds of the currencies with €30,000,000 So all in all, I think to have managed then to reduce the seasonal loss, we are quite pleased with given those circumstances. And you will see that the result for the year to date is not a major difference really. It's fairly comparable. But I'd like to mention also that the lower production rates in the quarter will also have some knock on effects into quarter 4 in terms of under absorption. And maybe you'd like to comment a bit further on that, Jan. Construction, pretty much along the lines of what you have seen. We have 7% net sales increase for the quarter compared to the year to date of 6% continued to be pulled by the North American cycle and demand and still being slightly up in Europe, but very mixed picture. Some countries stick out a bit negatively here like Switzerland, U. K. And not surprisingly, Greece and Russia as well. But by and large, still as an average a positive number there. Increase in the rest of the world driven by Brazil, but Brazil should be understood in the way that end customer demand for what we do here, particularly in the Diamond Stone, is in North America. So it's a lot of value add being done in South America. So it's less the local market reflection here of that when we make that comment, but rather than driven by the end customer demand in North America. Australia, in fact, doing fine as well. So result wise, of course, the volume impact from the sales, but also we are balancing because we're trying to be fairly aggressive in the market, pursuing a profitable growth scheme, expanding the sales capacity. And of course, we could have got even more result leverage should we not have chosen to do that. But we think we're doing the right thing here and we feel comfortable that we can continue on that path. Construction is in our group the odd bird from a result point of view and you will realize we have less added values in North America And North America being the major sales increase, it's a favorable situation for us. Now what about the Accelerated Improvement Program? How are we doing with it? Well, first of all, let's just recap the facts. We launched it quarter 3, 2013. We said it's aiming at doubling the margins from 5% to 10% by 2016. Activity wise, we run it until end of this year and then we will see the full year effect 2016. So the first I'd like to make is the program is delivering even beyond what we were setting out to do. The major reasons main reasons for it being the cost out parts, the purchasing, the value engineering and the SKU complexity reduction elements as well as the profit pool emphasis, so the mix improvement we have done. So these are the major bits and pieces of the program. And what you see here in the graphics is the rolling 12 month EBIT and you will see that we have almost doubled that number in this period of time. And that is, of course, that is a success, I think it's fair to say. But now if we would go back to 2013, look at the exchange rates we had at the time of the launch of the program and look at the margin development now taking away the inflation on the top line, nothing else, we'll take away the inflation on the top line. Well, then we would have a 9.5% margin. So I just want to give you some perspective on, in fact, that we are doing fine from what we could control here. But it is a bit disappointing to see that with the headwinds we are facing, this ends up being 8.2% as reported. So that's the history. But what about going forward and what can we foresee? Well, what we for sure know is that we have had a support from the hedges, currency hedges this year, which is in the magnitude of plus SEK350,000,000 that we will not see next year. So we will need to compensate for that through activities. So if you would look at this, I will say, fairly proud increase of result, we will level off a bit for 2016. Yes, I do believe we can compensate for the minus €350,000,000 plus of headwinds, but it is going to be a lot tougher for us 2016 to show something that is looking like a positive development and hence it is not in the cards to reach the 10% operating margin for 2016. We will need to accept that that's going to be somewhat later. So the result improvements we have seen have been with an underlying pace of CHF500 1,000,000 to CHF700 1,000,000 a year now for the last couple of years. We do not foresee that we can keep up that pace because as you will realize, you do the easiest things first and then it gets increasingly tough and difficult to get to it. But we are at least confident that we should be able to compensate the negative influence of the hedges of the €350,000,000 plus Exactly what we can do beyond that, I'm a bit cautious to say because at the end of the day, we are also exposed to many other factors and influences that are external. But the underlying rate of improvement should continue on that pace, let's say, give and take magnitude of the SEK400 1,000,000 or something, which means moving on towards 'seventeen ish, we should be in better shape to talk about the 10% margin fulfillment. So and I want to be perfectly clear, we have not given up the target. We will get there, but it is delayed because of these reasons. And it will require further measures beyond the accelerated improvement programs. And what we have talked about before that you will have heard me mention is continued cost out and that very much relates to the direct material. It is back to the purchasing and the value engineering in combination, maybe at a somewhat slower rate though than what we have been able to do during the last couple of years. But still we will continue to pursue it. We will also give it a go at the indirect material costs. We will definitely scrutinize the logistics. We will look at the rightsizing of the footprint and you saw a release some weeks ago, which is, let's say, a smaller part of the overall scope we are dealing with and we will also need to look into the SG and A efficiency to some extent. So all those together with the profit pool focus is what should bring the yearly improvements of what I mentioned in the magnitude €400,000,000 something of result improvements. In parallel to that, we will also be working with the working capital and reduce that. I think it's fair to say in the reorganization that we undertook beginning of this year, we had some glitches in the sales and operations planning resulting in a little bit of an inventory increase. And it's an opportunity for us to deal with it even better. And it's particularly I like the point that the inventories, I think payables, receivables have undergone a good continuous improvement. There's nothing wrong with them at all, but the inventories can be sharpened up through an even better planning process. So that's what we're talking about and the reasons you heard me mention why we do that. So that's all clear. And why do I not communicate this as a program then? Well, the reason is because of the fact it is it's going to be very detailed if I start to do that because then I will have to tell you exactly the cost reduction elements, the market investments per division, etcetera. And you will all ask how much it's going to be into various divisions and why, etcetera. And it is not a level of detail that we think is feasible for the external communication as such. So that's why we avoid talking about this as a program. But of course, we are maintaining good practices from the accelerated program and putting it into this kind of environment as well going forward to safeguard that we have this under control. With that, I'll leave to Jan to make some comments on the financials. Okay. Thank you, Kari. Before moving into the financials for the group, just taking a look on the gross profit development in Swedish krona quarter by quarter the last more or less 2 years now. And we can see the impressive journey of the AIP program and the successful execution of the program. We should also remember that this is not with growth. This has happened. It is the underlying quality of the business that is the reason behind this improvement. And of course, the objective is to continue this journey. And as regard cost and cost out activities, there exist 3 ways to decrease the unit cost: volume, which we said we had not seen much of as a group but in different divisions, of course, we have continuous improvements of present situation. And when you are not able actually to get the result you want to achieve from these two measures, you come into structural changes or structural measures. And that was what we announced here 2 weeks ago, one part of the structures measures we are actually taking. Okay. Moving over to the financial of the group. And third quarter, we see the same trends as we have seen in the first half of the year, except then for what was commented by Kai, the currency headwind here in the Q3 minus €60,000,000 We have been leaving for the first half year with plus €100,000,000 per quarter from currencies. Also, we must remember that this is seasonally, from a sales point of view, rather weak quarter compared to the start of the year. Net sales for the group, we were into that in nominal terms, up 8% in the quarter in local currencies more or less 0. And for the 1st 9 months, dollars 30,500,000,000 that is an increase of 11%. But if we take away the currency effect, it's actually down with 2%. Gross income in the quarter, some $110,000,000 better than last year. First of all, Kaivar Intuit, a positive product mix, especially then related to the watering products with the dry weather down in Central Europe. But we should not remember, this was not achieved only by the weather. It was also a result of continuous good work on increased points of sales out in the Gardena division for some 12, 24 months now and also an achievement actually to produce what was needed in this situation. Robotic volume is rather low in the quarter, but still we saw a significant increase in robotics also in this Q3. And then we have the divisional mix. We were into that. We have Husqvarna. We have Gardena and Construction with good profitability. They are increasing with 3.19% and 7% currency adjusted in the quarter, respectively, whereas we have consumer brand with a decrease of 18% of sales currency adjusted with lower profitability. And of course, that mix is impacting positively. But we should remember, as Kael said, the impressive journey that actually consumer brand is doing that despite then the 18% loss of volume actually having a better result and a path of better result these 1st 3 quarters. But headwind from currency is now coming. We saw it in the Q3, minus 30%. It's continuing for consumer brands. And we also have it is a problem to mitigate the around 20% loss of volume. And that will be increasingly challenging, of course, to continue the journey of improving result that Consumer Brands has done now. AIP program, we were into that mainly related to direct material in the quarter, but also despite the volume loss, a small contribution from lower per unit cost on the value added side as well. And prices somewhat positive impact in the Q3, whereas we had the negative currency headwind of €60,000,000 SG and A and if we also include other in selling and administrative, we have an increase of around €35,000,000 mainly related to currency once again. Of course, we have a footprint outside Sweden, which is quite substantial and that gives negative currency effect. Beside of that, somewhat lower logistic costs compared to last year. And we also have other SG and A that are somewhat higher, but that is mainly related to conscious decisions to improve and increase our activity on the market side. So operating income, some 405,000,000, dollars improvement of $75,000,000 in the quarter despite then the $60,000,000 of currency headwind. So strong operational improvement and also divisional mix effect. And if we take a look on the 1st 3 quarters, €3,200,000,000 of operating income, an improvement of $600,000,000 And margin wise, we are up 1 percentage units for the 1st 3 quarters. Compared to last year, we are up to 10.5%. Net income in the quarter, dollars 200,000,000, which is more or less the same as we had last year. And of course, since we had an improvement of operating income, what has happened? Well, we had higher income tax and it's two effects. We have, 1st of all, nonrecurring item in the quarter. And of course, with the weak quarter, that is sticking out if you have a negative one time effect. And then we have the fact that we were earning more taxable income in countries with higher tax rates than last year. So that is also an effect why the tax rate is somewhat higher this quarter. Taking a look on the full year, we are at SEK2.1 billion on net income. That is an improvement of SEK350 1,000,000 dollars compared to last year. Talking about currencies. The balance sheet, of course, affected by currencies due to our U. S. Footprint with the dollar effect and also with our Chinese footprint. But taking a look on the operating working capital items, inventories, Kai was mentioning that we are around $250,000,000 higher than last year, currency adjusted. Trade receivables more or less on the same level if we take out currencies, whereas accounts payable are somewhat lower And that is due to the fact that of the activity lower activity level in our U. S. Footprint. So subsequently, operating working capital as a total, it's slightly higher. And you will see it in also in the working capital or in the cash flow that, that has a negative effect for us. We have then also an increased net debt. We are at SEK 6,700,000,000, some SEK 200,000,000 more than last year, even though we had a quite strong cash flow quarter of $1,500,000,000 that affected the net debt positively. So it actually decreased in the quarter. And if we take a look then on cash flow as such, we started off the year not as good as we have done in 2013 2014. And then we have tried to recover. We are still not there, but we have had some good 2 quarters last 2 quarters now. And this Q3 showed as I said, the Q3 showed SEK1.5 billion of operating working operating cash flow. That is SEK200 1,000,000 better than we saw last year. So now we are up at €1,300,000,000 of operating cash flow for the 1st 3 quarters. We are had around $350,000,000 of CapEx in the quarter. So now we are at $950,000,000 of CapEx, which is more or less the same level as we had last year. Mention net debt and net debt to equity ratio then. Even though we have $200,000,000 more of net debt, we are at the same ratio, 0.5 as we were in September, end of September last year. And that's, of course, also due to the fact that the equity has increased by the earnings. And key figures. So despite then the improved earnings, we see that the key figures are partly offset by the increased working capital and also the fact that we see currency impact in some of the balance sheet items. But if we exclude the Google write down, which is then the item that was affecting comparability, which we did in the Q4 last year. We can see that the profitability key ratios, return on capital employed and return on equity are higher with some percentage units this Q3 than last year. And also that we are somewhat less employees in the group. Average number of employees around 1,000 lower this year. And it is, of course, reflecting the volume decrease in U. S. And also the consolidation we have done in China, which was also announced after the Q2. By that, Kai, I want to summarize. So that leaves me going back to the summary. We have talked about the continued trend of good performance. We have talked about the high margin divisions continuing their sales growth. You will recall sales net sales growth for Husqvarna 5% and for the year to date, Gardena 8, Construction 6. And we talked about Consumer Brands achievement of, in fact, mitigating the lower volume and reducing the seasonal loss being on par with last year's result. We talked about the accelerated improvement program delivering really up to the mark and beyond, but the currency problem for us increasingly in the Q3. The Q4, we foresee €80,000,000 to €90,000,000 headwinds of currencies. And the total effect we didn't talk about for 2016, but for sure we know we will have we will not have the hedges supporting us and that's some €350,000,000 right there that we need to compensate with additional measures. And those additional measures hopefully will support also some market investments and margin improvements going ahead. So looking at the near term quarter 4, yes, we have the €80,000,000 to €90,000,000 of headwinds of the currencies. We have also a fairly low production volumes. So it will be tough to balance last year, but we are moving in that type of surrounding where we hope to do that, but it's not a confident comment to it as you hear from me now. But with the lower volumes, we also have less opportunity to compensate, so to say, through the accelerated improvement program. So the real interesting part of the story actually continues in quarter 1 and quarter 2 next year for us. So I think that pretty much summarizes. And with that, I'd like to leave open for questions. Yes. I have only Anders Schapp from SEB. I have two questions really. When you were talking about the countermeasures versus the currency headwind next year, you said something like €400,000,000 or so that you is the underlying improvement you are aiming for. Is that assuming flat market? What does volumes come in there or not really? That's a good question. It's a little element of positive volumes, but not any significant element of it. And also actually if we could have some guidance on the tax expectations going forward since it was significantly higher than usual this quarter. And I think you should use the history as the benchmark because as you said, it's a small quarter and even a small one off effect gets the tax rate jump up. And as I said, other effect was the counter mix as well and we do not expect that counter mix to prevail. All right. Thank you. Christian Meinegaard from DNB. Firstly, when it comes to the normal profitability for Gardena and Husqvarna in the 3rd quarter, Can you explain a bit what we should expect going forward? Because I mean Gardena had a 12 percentage points improvement year over year. We don't see that too often in other companies. So can you maybe just give some guidance on what to expect in a normal environment for those two divisions in the Q3? That's another good question. Gardena and the Watering business is the most seasonal business of all our businesses to start with. So you will see the largest variation there for sure, but it's a tough one. I haven't made the homework really, but I would if I would shoot a bit from the hip in response to it, it's probably half of that improvement that relates to the exceptional season. I don't know if you tend to agree. You're right. As you said, well, Heather is very important. I'd say it is a very special type of quarter for Gardena, and it's a huge variation between a wet and a dry season, obviously. You asked about Husqvarna as well? Yes, exactly. And maybe also talk about the destocking effect in Q3 that you had this year. You want to give that? Well, Kai was mentioning, we are seeing what we were last year and see that we are closing the gap of where we were, but we are not satisfied. So we will try to decrease stock, of course, but this is also a balance of prebuild and destocking. So let's see if we are successful to come to the same level we were at last year. So but I mean Husqvarna, maybe we should reflect a little on Husqvarna as well because last year's Q3 was actually very good. So we are comparing the contrary to Gardena, a very good twenty 14 with the 'fifteen, Q3 for Husqvarna division. So one part is, of course, an explanation is the good quarter last year of the deterioration of around 4 percentage units of EBIT margin in New Scotland. So if you would normalize it, you would need to add something to this year's quarter, so to say, yes. Johan, Danske Bank. Again, on FX and next year, you're mentioning the lack of the support from hedges, of course. But if we look at how exchange rates stands today, could we get a view on the potential impact on 2016 earnings excluding hedges? Yes. We are saying then that we have plus €350,000,000 of hedges that we do not have. And of course, what will happen in 1st and second quarter because that's very decisive for Husqvarna because then it's what we're doing in most of our deals and net sales. We do not really know. So I mean it will be a slight negative effect on top of the hedges if we are where we are today. But we will be in another situation when we come to this first and second quarter. That's the only thing I know. Perfect. And if I may, if you give an update on the chains production? We are intending to start to ship out and start supply during 2016, and we will see a ramp up during a couple of years after 2016. So yes, there is a slight delay. To give you some feel for what's going on, I would say good quality, but we need to secure also the stability in the production processes. And the quality is really to be seen in the quantities. I mean, to make one chain with quality is maybe, I shouldn't say easy because that is to underestimate it, but that we are capable of. But we need to install the stability in the manufacturing process steps. And ramping up will be a more time consuming matter to safeguard the consistency in the quality. So quality comes first is the long and short of my message and we are a bit delayed. There is no significant EBIT increment for 2016 to be installed in your spreadsheets, so to say. I think if you count on it being fairly neutral for 'sixteen and then starting to see the positive contributions for 'seventeen. And CapEx related to that in total for 'sixteen? Not significant. The major parts have been executed. Yes, there are additional parts remaining, but that is not significant in the overall scheme of things. So the bulk of the CapEx for the new chain manufacturing, it's behind us. And for the group on CapEx? We talk about pretty much similar levels that we have seen this year and in fact last year. Thank you. Rasmus Engeberg with Handelsbanken. With regards to getting consumer brands towards 5%, now you're saying that maybe the say most of the sales decline has been had now. And then so we should sort of hope for a flattish or maybe a small loss for 'sixteen and then growing volumes taking you to 5% in 2018, so to speak. Is that It's correct. It is volume, but it's also further efficiency improvements. We're talking about further cost outs and spec products to the price points. We're talking about the footprint of the manufacturing. We're talking about logistics. We're talking about improving the SG and A efficiency, how we go to market and maybe particularly in the European space. And the largest, I would say, volume exposure is rather in Europe than in U. S. For the next season, where we have been fairly price aggressive this year and still open to see how that plays out versus competitors and what positions they do take on that. But by and large, we stand to the comment we think that volumes are leveling off a little bit of downside risk, particularly then related to the European Park. But all those measures that I mentioned should support improved result going forward. And hopefully, for 'seventeen onwards, we will see the volume contribution kick in. Because of course, we are adding also bits and pieces to the range that will help look better, not necessarily for the 2016 season, but then after that. Yes. So the question really is then that savings probably remains a larger part than because the gross margins are even if they improve, they're still going to be fairly lowish, meaning that to add 5% EBIT margin is not really going to come from top line, is it? No. Savings are still going to be the dominant element. That's correct. Okay. Operator, can we open up for questions from the telephone audience, please? Of course. The first question comes from the line of Jon Tassimo from Kepler Cheuvreux. Please ask your question. Yes. Hi. I guess that was me, Johan Eliason at Kepler Cheuvreux. Just one question. You are talking about this currency headwind of around €350,000,000 hedges running out for next year. But isn't there a tailwind coming on the raw materials for you? Or have you given that all away on pricing? Can you say anything about that No, but it's true. Your comment is correct. There is a slight upside tailwind from the raw materials, particularly on the steel side. The plastics is a much more tricky thing. Its spot prices can't really lock in those prices to any larger extent. And those manufacturers are normally pretty smart at creating bottlenecks irrespective of the total volume. So it's not so obvious that we will see the benefit on the plastics side. But on the steel side, yes, there should be a small upside, yes, correct. Not significant though in the overall scheme of things. And how does it relate to pricing in the next season? We try to avoid making the connection between the raw material prices and the product prices. We try to sell on the value of the products. It's always tricky if you start to argue with the raw material developments in terms of your pricing. So that's something we normally avoid. One can add also this is Jan Ittberg. One can add also that we were quite successful this year as regard plastics. We were actually producing when the plastics were at low levels. So we have a tough benchmark next year. Okay. And what was the overall impact for raw materials on the EBIT line this year then in 2015? I don't think it is that significant really because in fact we locked in the steel prices before the May part of the decline. So it isn't a big all in all, if you would add all the raw materials together, you will not see a huge delta versus 2014. It's not part of any explanation that sticks out. Okay, great. Thank you. We have another question. It comes from the line of Kenneth Toole from Carnegie. Please ask your question. Yes. My question is regarding this guidance for next year. The major currency moves that occurred in late last year and in the Q1 of this year. So when many analysts did calculations on the FX, FX and so on. We could see around when you reported the Q1 that it would be very, very tough for you to get to the 10% EBIT margin for those kind of headwinds from currency in your EBIT. And you were pretty firm at that time saying that we are going to get to that 10%. If we get more headwinds, we're just going to need to do more and that we would do. So my question is, have you have those savings that come in this year coming at a slower pace? Or yes, why do you change your communication now, so to say, not earlier? Maybe Jan would like to comment. I could comment on that. But you're perfectly right, Kennen, that we have locked in a big part of the sales for the 1st and second quarter next year to the high, especially U. S. Rates that we saw in the beginning of the year and in the first half of the year. But of course, we were doing and we are doing what we can to mitigate those effects by the AIP, but also by the new measures introduced here by and we talked about it also after the Q1 that Kaj underlined once again. But of course, we are doing our best. We're trying to mitigate that. And until we are pretty sure that we will not do that, we will not go out and say we are giving up. We are not the first one to give up. We will be the last one. Okay. Thank you. It's not so good if the captain disembrokes the shift, the first. I think you want to keep up the momentum, the pace, the program. There's a lot of people and activities being involved. If you give it up, you also lose momentum. You keep the pace and you do your best. We have done that. And let me also add to that, that at the time, we hadn't locked in the contracts. We weren't we couldn't predict to any larger degree and foresee what 'sixteen would look like. Now we can. And then we feel it's our obligation to also share that with you, so to say. Okay. Thank you. We have no further questions coming through the telephone lines, Sam. Okay. Thank you very much for your attention and coming here. Bye bye.