Earnings Call: Q4 2013

Feb 6, 2014

And the full year results for Husqvarna. Good that I don't have my mobile. We will make it according to standard procedure. I will give an overview presentation of the quarter, expect to the full year and Olof will give you some more details and guiding talking FX, CapEx, etcetera. Then I will come back after that, give you an update on the Accelerated Improvement Program and also say some words related to the investment for chainsaws chains, chainsaw chains, the chains to the chainsaw. And that's about what we intend to do and then of course Q and A. So I'll kick off immediately. And the summary of quarter 4, we would do in the following way. We see that we have a good continued trend from 43. You remember, we had a 12% year on year, 43 top line comparable currencies. And now we are up 8. So and that's a good increase across the business areas. We and maybe it's worth mentioning just to get the framing correct, quarter 4 is seasonally a weak quarter and the least important for us in the year. And hence, we're also talking about lower seasonal operating losses. So we still have losses, but they are lower with an improvement. And very positive for us, particularly given the quarter 3 where we had the problems and we were struggling in North America is that the largest improvement comes from North America now in quarter 4. But we also have improvements in Europe, Asia Pacific and we see a stable development in construction. We have continued the positive cash development in the quarter, and these might be the highlights of the quarter as such. Moving over to the full year directly. You have seen that we have increased the pace of the sales during the second half. You might recall we had a late spring, a slow start of the year, but it picked up. We had a prolonged season. And so the sales for the second half of the year were all in all very favorable. Group operating income declined nevertheless. And why is that? Well, there are maybe 2 big components impacting this. We're talking about the currencies and the under absorption and particularly under absorption then as a consequence of reduction reductions in order to facilitate the inventory reduction. Those 2 together, the currency and the utilization represent SEK 500,000,000 give and take, a little bit south of SEK 500,000,000. So it's a significant impact on the year on year development. We are very pleased to see that we have America now on a breakeven after a couple of difficult years as you surely will remember. So that's a big step and it's a stepping stone of course for starting the new phase of the work in America aiming at the 5% EBIT margin operating margin now in 2016. I'll also make some comments later on after some organizational changes, which we in fact announced today in U. S. We have a strong cash flow for the full year, again driven by inventory reductions, very good cross functional work in the company, but we also have improvements in respect of payables and receivables. Those are more, I would describe as continuous improvements, whereas the inventory improvement is a step change for 20 13. As a consequence of that, net debt equity ratio improved to 0.58 compared to 0.75 previous year. And dividend was remained at SEK 1.50 equal last year. So these are the highlights like that we want to draw your attention to. If I then maybe look more into the quarter, again group figures, we have the 8% net sales adjusted currencies. You see the EBIT of 3.08 dollars compared to minus 3.48 dollars Excluding items that affects comparability. And you remember, 2012, there was extraordinary cost taken, one off cost taken for the personnel reduction program. And that makes up the difference here. But if we try to understand then the result improvement as such, we have the impact from the staff reductions. We have the impact from lower material costs, but we have increased sales costs and I'll come back to that. It's a positive note related to that, but we had a continued negative FX impact as well. So these factors impacted the result. Ulf will give you some more flavors to that a bit later, but I will talk about the regions to start with. I will not venture into details about the inventory reductions. On the full year though, we're talking about €820,000,000 comparable currencies on inventory reduction. That's Eiffel. And the cash flow then was €1,800,000,000 compared to €1,100,000,000 for the group. Moving over to Europe, Asia Pacific. You see again 8% top line improvement in comparable currencies. You see a slight improvement of the EBIT excluding the items affecting comparability. What drove the top line then? Well, primarily handheld sales. 2 aspects: storms, of course, positively for us increasing demand on chainsaws. But also, I would like to point out that the fact that we have chosen to focus a lot on handheld products because it is one of the profit pools we have. So there is also an expression of a high degree of focus internally on that product category. Negative on the top lines, the fact that we have had such mild weather in Europe, of course, is not beneficial for the snowflowers sales. So we had a seasonally weaker sales, particularly of that product in Europe. That will look a bit different in North America as you will see later. So from a response point of view, positive impact, of course, of the sales volume as such, also the product mix, the higher degree handheld products, positive impact from the sales sorry, from the staff reduction program, but then negative from marketing, sales and branding costs. And this is very much to be understood as something we proactively have chosen to do to position ourselves for the TCE14 on one hand. And on another hand, it also relates to Asia Pacific and larger efforts in Asia Pacific. So these are very conscious. We've taken costs from us, but of course they do impact the result. There's also negative FX for Europe Asia Pacific. Americas, 8%, just like Europe. You might recall the quarter 3 number of plus 20% because of the extended season. But we have had benefits top line wise from the cold weather in Northern Americans there here. And snow throwers has really been benefited in that sense. So that has been driving the sales in North America. Seasonal operating loss decline, yes. Lower cost for materials, again, the staff reduction programs supports us somewhat higher logistic cost. That's primarily a consequence of the success with the sales to the dealer channel. We have increased the dealer channel sales with about 11% as you can see here for the full year and there's an inherent high logistic costs related to that channel as such. We are quite pleased, as I mentioned, that we have a positive America for the full year. And I'd also like to draw your attention to the fact that we are now differentiating the organizational model in U. S. Into a profit center for retail respectively and other profit center for dealers. So when we in the Accelerated Improvement Program talk about a higher degree of differentiation, you should see that as one step in that direction. What we expect is a higher profitability focus and stepwise also a better service to the clients in those respective channels, which as I have talked quite extensively about as a quarter 3 have different inherent needs and there are different characteristics related to that. So that's an important step for us in U. S. Construction came out very good top line wise 10% comparable currencies. There were 6% in quarter 3. Up in all regions, but Europe is very much a mixed bag and particularly the Southern European Square is not really recovering in any sense in those numbers. Rather, I'd like to point that U. S. A. And Brazil, and Brazil particularly for the stone business and the multiwire sales and U. S. More in general. Operating income wise, you might ask why haven't we seen any leverage then from that plus 10% of the net sales. And the explanation has hit primarily in the FX. They are hit quite negatively. And I guess you will make some comments in detail about that. But we also had a bit of a negative product mix. We have less of the power cutters, which are highly profitable. But that's nothing that gives them reason for concern moving forward. And I'd also like to draw your attention to the picture here, which represents a high frequency product range that has been launched under the headline of prime. And it's hugely powerful outstanding performance compared to weight. So you get a lot more torque and power per kilo weight. And particularly if you stand working with these products, arms stretch out or even upwards, you realize what that means. So we are very positive of what this will bring to us in the next few years to come. And again, it's a complete range of products and frequency converters and a modular concept as such. So this will support continued growth in construction. In general, if we back out and look at the inventories in the trade, Europe, I would describe as maybe on par with last year beginning of the year, whereas U. S. Inventories in the trade are a bit lower than previous year, I. E. Give some reason then for a little bit more optimism. We have said that we are cautiously optimistic about the outlook for the year. We see European also for the Forest and Garden being a mixed bag. But maybe we are more optimistic about Southern Europe having hopefully bottomed out and maybe we can see improvements from very low levels that we have experienced during 2013. And we also see that the sell in to the season in general is in good shape. So there is no reason for any worries in Europe nor in the U. S. A. So if anything, there's a small slight piece here of optimism, but I don't want to overstate it either because that might be misleading. But if anything, a positive interpretation of the situation as such. Also vital categories for us like the robotics mover is looking okay from a selling perspective. With that, I leave for Ulf to give you some more details as to the financials. Thank you, Kai, and good morning, everyone. So let's move into the consolidated P and L. And I think we'll leave the sales and move down to the gross operating profit income. And let us start with looking at the gross margin percentage. Improved in the Q4. Then you should, of course, have in mind that last year, we did take some SEK 256,000,000 in restructuring charges and SEK 140,000,000 of them were charged to the gross profit. So adjusting for that, we would have a comparable last year gross profit margin of some 25.2%. So you should add back some 3.2 percentage points in order to come to comparison, meaning that we then in the 4th quarter had a flattening out. I mean we have been struggling in Husqvarna for quite some time of a deteriorating gross profit margin. We can see in the Q4 at least we are having on par with last year. Then we shall have in mind that this quarter behind the 25.1 percent, we have still some FX pressure, some 0.5 percentage point. We do have some under absorption that is also putting pressure on us. We have increased R and D. We have some costs attached to the start up of the chain manufacturing facility down in Husqvarna. On the positive side though, we have savings from the SEF reduction program. We have definitely some tailwind when it comes to also the operational excellence related to material costs. All in all, ending up in roughly on par with last year if we adjust for the restructuring charges. If we move further down and look into the SG and A, again, same thing here. You should adjust them for the restructuring charges. That was the residual of the SEK 256,000,000 €116,000,000 were charged to the SG and A last quarter last year. And if we then adjust for that, you can see a slight increase of SG and A, mainly related to increased selling costs. We can see that logistic costs went up specifically in the U. S, Driving the mix towards more dealer sales per se drive also higher logistic costs. However, if we look percentage wise, we do have a better leverage for the group when it comes to SG and A over sales. We may also conclude that construction, we are emphasizing more on driving growth there. So we have hired more staff in construction. So they also have a slightly higher SG and A in the quarter year over year. EuropeAsia Pacific, you know that we have set up an office in Kuala Lumpur. So with the expansion when it comes to APAC, it's also driving some further SG and A cost, but conscious activities that we have talked about before. And then last but not least, and I think Kai will talk more about it at the end, how do we now manage the accelerated improvement programs? Driving more brand, driving more marketing when it comes to the core brands in terms of Husqvarna and Gardena has also attributed higher brand and marketing costs in the Q4. Not gigantically, I mean not huge amounts, but still year over year slightly higher. Important though is that we can see leverage when it comes over sales. SG and A over sales is improving though. But this is at least to give you some guidance on how the SG and A has developed here. And that explains some of why we don't get the full leverage in a quarter 4 for specifically Europe, Asia Pacific because you have the emphasize when it comes to APAC, you have some of the costs related to the brand and marketing, of course, that attributes a higher level than a quarter for 2012. We are quite pleased to confirm that the savings program that we launched in 2012 have been completed, which means that we have achieved we promised you SEK 160,000,000. We have achieved some SEK 174,000,000. So slightly higher pace, which is quite good, meaning that we don't see any, let's say, issues to achieve the full year effect of 2014, reaching some SEK 220,000,000 plus That means we have some incremental savings left that we will see in the Q1 and Q2 and Q3 during 2014. And this is to be seen over 2012 pace. So you have to be clear on that. Moving further down and then concluding the operating income and operating margin, we may see then that we have a loss in the quarter of some €308,000,000 Adjusting for the restructuring cost last year, it is comparable then with the SEK348 1,000,000. That leaves us with an EBIT margin for the quarter of some negative SEK6.5 percent. And to conclude then, we can see that mainly then negatively impacted in the quarter higher costs for logistics and sales and marketing, higher sales and the savings from the program is offsetting as well as the low material cost impact of the operating income positively. Total currency effect in the quarter year over year negative SEK 31,000,000. Ending up then, we guided you on the full year effect of some a span of SEK 350,000,000 to negative SEK 375,000,000. We ended up some 349 year over year, quite significant pressure on our results for sure during 2013. Last quarter mainly trigger for the negative FX is currencies like Aussie dollar, ruble, South African rand and the Canadian dollar. We did get a stronger tailwind from the euro, but not enough to offset the effect in the Q4. I will come back how we looked upon 2014 in a minute. Moving further down, the finance net ending up some negative EUR 125,000,000 versus last year EUR 152,000,000 And of course, a lower interest rate as well as a lower net debt did contribute to a lower finance net per se. Tax. Looking at the full year, which I think is the meaningful amount, we ended up in some negative EUR 264. Billion. We had then a corresponding tax rate of some 22% in tax rate for the year 2013. With that, I'll leave the income statement, move over to the balance sheet. And of course, as you have heard from Kai, main attraction here is, of course, the working capital improvement with the inventory reduction, which we are very pleased with. I think the organization has been very efficient in driving the inventory reductions here. And you can may see then that we are on a €7,100,000,000 roughly versus €1,000,000,000 higher stock levels last year, which is quite an effort taken on here. Trade receivables have also been taken down. Specifically, if we look at the quite an effort there as well. And moving further, 63 days. So quite an effort there as well. And moving further down, looking into the liabilities, the net debt as a result has been able to reduce down to SEK 6,700,000,000 compared to SEK 8,300,000,000 a year ago. And of course, this curve you have seen before. Not only that we have generated a good cash flow for the year, it is also how we have been able to smooth out here in the 1st and the second quarter, which has been the ambition when we moved into the 2013. But again, we generate now a cash flow from $1,800,000,000 than last year of $1,100,000,000 So gradually improvement and definitely a significant improvement if we look at the year of 2011 where we were actually in a negative cash position. So quite pleased to confirm that this is definitely on track and the conscious moves we have taken when it comes to inventory reduction has really paid off. Investments maybe to be mentioned here. I guided you last time we met on some SEK 1,200,000,000 And if we go even further back, I was up on the level of $1,700,000,000 at the Cap Market Day. We took it down gradually. The main reason for this, some carryover, I will come to that later on when it comes to the chain manufacturing, but also that we had a lower activity level in 2013 and that has reduced the CapEx quite a lot since the beginning of the year. We ended up in SEK 1,100,000,000 for the year, roughly. SEK 200 plus 1,000,000 of that is related to this new chain manufacturing investment. Net debt to equity, you have heard that before. We ended up in EUR 0.58,000,000, so an improvement versus then last year of EUR 0.75,000,000. If we would then take out the regulations related to the net how we treat the net pension liabilities and look at the old way of defining the net debt, we are on 0.47 to be compared with 0.59. So quite an achievement here and of course related to the good cash generation in the company. Key figures. Normally, I do not dwell too much about that. Maybe to reflect that one, I talked about the CapEx. You can see that average number of employees have gone down. Of course, as a result of the staff reduction program, we talked about some 500, 600 people that have left. And by that, we have been driving down the staff number to a level of some 14,000 people if we look at the whole year figure. Then if we move into some guidance here. Looking into the CapEx for 2014, we are aiming for a CapEx of some SEK 1 point 5,000,000,000. SEK 500,000,000 of that is related to the new chain manufacturing. And I think Kai will come back to dwelling and elaborating a little bit more about that per se. So SEK 1,500,000,000 well of SEK 500,000,000 related to that production facility in Husqvarna. Husqvarna. It should also be noted that SEK 100,000,000 we expect to charge the P and L of project costs and start up costs during 2014. We have had charges of this character also under during 2013 attracted in the gross profit and some SEK 62,000,000, SEK 60 plus 1,000,000 have been the number. And that I have guided you when we have went through the margin bridges during 2013. And that number will now be some SEK 100,000,000 charged to the gross profits. Continuing with the 2014 guidance. Depreciations, we believe, will be in the range of some SEK 1,000,000,000 to SEK 1,100,000,000, I. E. The additional CapEx, we don't see that, that will start depreciating until we move into 2015, 2016. Tax guidance for 2014, I leave a span between 20% to 24% calculated on income after financial items. We ended up, as I said, 2013 on 22%, so 20% to 24% is the guidance for 2014. And then finally, the FX for 2014, whole year full year effect based on current rates, I would guide you to be in the level of year over year negative SEK 120,000,000 to negative SEK 150,000,000 compared then with 2013. We do see the strengthening of the euro. That will help us for sure, but the weaker sales currencies. And coming back to what we saw already in the Q4 when it comes to the Aussie dollar, the rubles, the rand and to some extent the Canadian dollar are having a negative impact on Husqvarna 2014. As well as a stronger U. S. Dollar, as you know, based on that we import more than we export, is also having some negative impact here. So the range, negative EUR 120,000,000 to EUR 150,000,000 you shall bring with you for 2014. And with that, I believe I leave it with you, Karl, to summarize. Okay. Just repeating briefly again what you have heard. Quarter 4 continued good top line growth 8% towards seasonal operating loss, and you heard the specifics about it and you heard about the continued improvement in cash flow full year, the pickup of the sales in the second half. And despite that, the decline of the operating income, the big burden you heard from FX and under absorption. You heard about Americas breakeven for the full year. You heard about the cash and the impact on net debt and the remainder dividend proposal. So with those comments, I take the liberty to go over to talk about the Accelerated Improvement Program. Just to set the stage again, we launched this at the quarter 3 in October. It is aiming at delivering a 10% EBIT margin. We run the program until end of 2015, I. E. Full impact of P and L is 16. And you remember that we have our earnings in the first half of the year. So there is a certain delay of course into that year. There is nothing between October and today that has changed anything in respect of the program, the focus or expectation of deliveries from the program. So we are completely online according those discussions. I mentioned in October that this will be a bit back ended, back heavy result wise. So it's not a linear interpolation. And I'll elaborate a bit around it. If you I will not go into detail, but just to give you a flavor of it, the biggest impact for 2014, I expect from the focus on the premium brands and the leadership positions. We have, of course, now talked quite a bit about this internally. We have formed plans, targets and we have aligned incentives. So there is an even higher focus on these areas and they will contribute throughout 2014 for sure. I think the second item that will have the largest contribution is material price reductions. We have an array of activities ongoing since the fall. Combined R and D people, purchasing people, in some instances, it's pure negotiations. But for the major part, it's combined efforts. We will see that materialize in 2014. We will see that materialize maybe even more in 2015, but we will see a fair bit in 2014 and an accept change versus 2013. And then there will be a little bit of spillover into 2016 then because of the reasons I mentioned before material wise. So these will have the biggest impact. I don't think we should profitability focus as such that we have in the U. S. By the organizational focus. It will really support it. And the incentives are, of course, reflecting the profitability focus even more than ever before. If we talk further measures to turnaround U. S, we are talking about improving the sales and operations planning. This was a big topic after quarter 3, which was a disappointment as a micro call for us as well as for the external community. We are doing a lot of work to improve that and enhance that ability. We are also very, very consciously continuing to invest in the dealer channel to grow that. You saw the 11% you remember the 11% we had for the full year 13% year on year, now representing 36% of the sales in North America. We have good opportunities to grow in respect of amounts of dealers, but also the share of wallet with our existing dealer base. So that is another important aspect of this. The second vital aspect under operational excellence besides the material cost reduction is complexity reduction. However, this is the one that is the most back ended because the reality of the matter is we start by deleting product from the catalogs or listings. Then it needs to run dry in the warehouses, and then we start to get the full effect of it. So it's a very slow process. And the theme was pretty much set according to all the ambitions for the seasonal 2014. So we have only a fraction of the complexity reduction supporting us for the season of 2014. So the real improvements of the complexity reduction, we will see throughout the second half of twenty fifteen and really into twenty sixteen. And I think even into twenty seventeen, in fact, we will see impacts the complexity reduction. But it's that part is back end loaded. I just want to make that very clear. Emerging Markets, yes, we are focusing a lot more on that. But as I pointed out in October, this is a year where we are enabling a higher ambition in terms of growth. We are improving distribution, setting up distribution centers later in the year. And we will also look at the whole response in that question in R and D for product development. So again, the ambition will be increased. It is being increased, but we are enabling it to be done for the moment being. So the full impact of that will rather be 15, 16 than it's something you will see to the bottom line this year. But you will notice definitely number 1 and 4 as I pointed out doing 14. Okay. Last slide before the Q and A that relates to the chains and the chain investment in Husqvarna. And just recapping a bit why are we doing this. Well, you can imagine if you do the best chainsaw in the world, you like to do the best chain to it as well because really with the chain, you can optimize the complete product. We have a good chain with the supply from Blant. We have an agreement with Blant that goes to the end of 2017. I don't see necessarily that we will terminate the cooperation and supply relation with Blant. I think that can continue, particularly for consumer change. But for the professional change, that's our focus on one hand. And on the other hand, we want to increase the share of chains that we sell in the aftermarket. We are underrepresented quite significantly today without chains and that's not really acceptable as the whole aftermarket as such becomes a higher focus of us. We haven't discussed that in the setting of the Accelerated Improvement Program, but for sure parts and XSRs is becoming more important. And you will realize that's a good profit pool as well. So this is about us being a market leader in chainsaws. We want to optimize the complete product system as such for even better performance, and we want to increase the focus on the aftermarket. To some extent, you can say for a critical component like this, we want to decrease the dependency of a single source. So it's not a general procurement strategy necessarily, but given the strategic importance of this type of component, there is a conclusion. Location Husqvarna, really I would like to emphasize the fact that we have the R and D resources there. We have the manufacturing there for the chainsaw. And with closeness physically, we can, of course, optimize the product quicker. And we also have the infrastructure and support for such a complex undertaking to move it up to running. Then it happened to be the fact that we had a surface that we could utilize, but that's not the decisive factor. The decisive factor was really the R and D connection, manufacturing connections with the chainsaws. We assessed other options at the time. This is prior my arrival, but we looked at Asia, we looked at Poland, etcetera, that this was at the end of the day the most feasible choice, remembering that this is going to be highly automated. Now there is one more slide, I recall. We will have a Capital Market Day in June, and you will have the chance to look at it at that point, I would expect. Okay. Coming back to what Ulf gave you a hint of, what can you then expect in terms of P and L impact? First of all, recapping the comments I've made, a little bit more than €200,000,000 part of CapEx 13, expectedly moving up to something close to €500,000,000 could be rather maybe something a little bit less than that. That could be up in the magnitude of SEK 500,000,000 a little bit residual for the year of 2015. Project costs, €62,000,000 we have carried and burdened the P and L with €13,000,000 That will be €100,000,000 all in all for the full year, so year on year plus 38. Obviously, there is no sales in 2014 because what we're going to do in 2014 is to stabilize manufacturing processes. We're going to do the quality assurance and that is what's going to happen in 2014. And then 2015, particularly second half, we're going to start to produce, but that will not hit the consumers really to any extent before end of the year. So the real impact of sales and EBIT will be for 16. So with this, we want to avoid confusions about what this short term will be. There is no short term leverage from this, but it's strategically important. And just to give you a feel for what this is about, the aftermarket all in all is probably around USD 700,000,000 Let's say that we are give and take around 10% of that today market share, but the installed base represents something like 30%. So you can see the reasons why we think this is interesting. And of course, there is no reason why we should accept over time anything less than a fair market share, which I. E. 30% something range. But let me be very clear, that's not going to happen in the 1st year. I don't think you interpreted that either, but let me be explicit on it. We'll take some years to build it. So we're not talking about that as an ambition for 2016, but in some coming years. I think with those information, you should have an opportunity to see where this is heading. But you also realize it's not a short term return, but it's a very strategic investment for us. Now the last bullet, slide. Capital Market Day, 10th June. We'd like to invite you to Husqvarna. It's more or less a full day event. We will also, of course, talk chains just like we did. We will also give the opportunity to look and feel some of the products. And for those who will have the opportunity, we will be glad to offer it in as well. That is a full day event in any case. So I think with that, we leave open for Q and A. Operator, with that, so that we can open up for questions, please. And we will start with some questions from the floor here in Stockholm. Thank you. Johan Dalle Panser. I was wondering the lower raw material costs which you referred to during 2013, to what extent is that improved processes? And to what extent is it nominal changes in raw material prices? What were the expectations for lower raw material costs in the beginning of the year? And what was the eventual outcome in fairly round numbers? That's my first question. First start and then if you'd like to add something or to that. I think give and take maybe SEK 100,000,000 in the magnitude for the full year, not driven by real and a larger extent to my memory of raw material price variances, but rather from improvements done internally, not impacted necessarily from the accelerated program as such. So you can see this level being more a reflection of the previous, let's say, improvement pace that we like to increase and that you will see increase for 2014 2015. And that will be my first I don't know if you'd like to add something to that. No, I think that's a fair assessment. And I think as you say Kai, this is I mean you entering the arena meaning we are accelerating this now going forward. But what we see in 2013 is really what work started already at the back end of 2012 and then what we launched to you at the Cat Market Day. So a majority of that definitely related to initiatives working with suppliers, working with streamlining to some extent our assortment as well. If I could just follow-up on that because on the other points on the accelerated improvement program, I was can I ask how to what extent have you already engaged your major trade partners in those discussions looking at what's going to happen 2015 2016 both on the supplier side and the major concentrated customer side? What are the sort of initial response you get from that? And you could just help us understand how this communication process is evolving? If you look at the whole supplier arena, we have a program which we call X Sight and that comprises 75% of the external purchases we are doing. And we have a specific communication with that group of, let's say, more strategic suppliers. And what we are looking for here is not just to put the thumb in the eye of these people because they have probably had that for quite some few years before. We are looking for a more dialogue based program where we also put in view for the future higher volumes and scale advantages, longer term relations, but also higher expectations of what they should contribute in terms of supporting cost reductions also by redesign and utilizing their knowledge in that process. My impression is that in general terms that's well received, very positive received because it's moving in something that very often is called partnership that always still remains a little bit like customer supply relation inevitably, but definitely more of a partnership relation than potentially in total. So I would say positively received. There's nothing in that dialogue that gives us reason to believe that it's not achievable to reach the targets. But again, through the complexity reduction, we will also offer these people scale advantages. So we need a complexity reduction to give them scale. It's not only for making our own life simpler, it's also to make their life more attractive working with us as a customer. I don't know if that was the full is it okay? Yes. Hi, good morning. It's Rasmus Enberg with Handelsbanken. I have first a question on your reduction of working capital in 2014. How do you see this developing in this year? Do you plan to take out further? And obviously, this complexity reduction will have significant impacts on your working capital eventually. Would you share some sort of given that you will probably have an increase if you increase your dealer channel business, where should we be looking at this panning out eventually? As I hinted, the complexity reduction will not really support any inventory reductions in 2014. That will come later, but it will surely come. Of course, complexity reduction is really 2 pieces. I mean, it's taking up platforms. But within each and every platform, you always have a tail of product, which is selling to a lower extent. And we can work with cutting the tails that can support us. But the real importance is to take up the platforms, but it will not help us any significance. Then we made a SEK change, 13,000,000 in inventory reductions. 4, 14,000,000 we see it moving over to a more continuous improvement kind of perspective and context, driven by improvements in the sales and operations planning, not only in U. S, but also in Europe. So we are working on that process in general. It will help us have the right delivery capability to a lower inventory level. But it's a process improvement that needs to take it now. We took out some inefficiencies in the stock. Given the current complexity, we need to work the process way to start with and then get support for 2015 2016 from the complexity reduction as such. So you can expect an improvement for this year. That's what we planned for, but it's not going to be in the magnitude what you saw at 2013. And can you sort of help us give some sort of feeling for what we can expect in 2016 or 2017 in terms of percentage of sales maybe? We haven't done the exercise any larger detail. But no, I shouldn't. I should do the homework first and talk later. I'll be glad to come back to you next question. And then I had a question on you talked a bit about the aftermarket. Can you update us on how your profitability is in aftermarket or is the general profitability in the aftermarket compared to the rest of the business? It's definitely over average as you might guess. Maybe this is a thing we could choose to come back to at another after the Q1 and make some more specific comments to rather than doing them too much ad hoc. But the business case is very appealing. And again, it's an opportunity. We haven't fully reaped the opportunities that are there for sure. And the chain is just one example of it. We can do a lot more. Colio Ambulani here, Remium. This 11% growth in the U. S. Dealer channel is obviously a very interesting KPI. Could you give some more details about what's driven by larger number of dealers? Or was it driven by mainly say higher volumes with the 16 ones? I will tend to say the dominant factor is higher sales from the existing dealers. But there is also a net increase of the amount of dealers for sure. But for 13, I rather emphasize the higher sales of the dealers. But you could talk about the total sales. I'm not sure whether it's fair to say that the share of wallet has increased that much, but rather that they have had a good year. And when you look at your offering into the dealer segment now going into 2014, have you is there any major enhancement in that offer going into the 14% and how does the in sale into that segment look? You're talking U. S. Specific or general? Yes. U. S. Specific is interesting. Okay. I think we have improved the delivery capability in season for some of the critical products, for example, handhelds. I think that will support as one example. And we also have very competitive offering in general, again, back to the favorite example of the chainsaws. So we're standing very strong now with the product offering. We have new introductions also on the trimmer side with the fab 5.25, sorry. We have 4 wheel drive products, which are very appreciated on the walk behind, attractive offering and attractive. In general, a very strong product offering as such. So the product offering is there. We have an enhanced supply capability in season that we expect and we should have all the conditions to support a further growth on their behalf. Yes. But we will also consciously we have added sales resources. We will also consciously try to add new leaders to the base. Excellent. On another subject, you have been setting the agenda for the company and now been in charge of the company for 6 months. And there's an interesting article in one of the business locals this morning here in Sweden looking at one of your major shareholders saying that it would be valued to be had by breaking the company up in the consumer part and the professional part. What was your view on that now being with the company for 6 months? Is there really any logic in it or? I think referring to, I guess, Dorje in the street this morning, I guess what he describes as it's a bit ambiguous. You can interpret it in several ways. But I choose to interpret it in the way that he really emphasizes exactly what we do ourselves in the Accelerated Improvement Program, meaning that there are 2 distinct business models and we need to a larger degree separate the way we do business with it. However, and this is my opinion and it has nothing to do with the article today I elaborated around it every quarter 3, There are synergies between these two businesses. I don't think necessarily interpreting this in a different way would be advantages leaving the consumer side. Huge scale advantages, a lot of technologies that is in common, a lot of suppliers, a lot of manufacturing, etcetera. So if that would be a part of your question, I would be less enthusiastic about it. But for sure, we have reason to, from an operational point of view, work through what this means. And the example you heard me talking about where we separate organization in U. S. As of today in fact is a good example of that. It's one step. It's not the last. There will be more steps coming, There is one step in that situation. So I think there is a logic to that part of it. Excellent. Thank you very much. Stefan Klein, Nordea. You had higher cost of marketing and branding in Q4. Can you please specify the amount? And also is this a new level? Will you increase your marketing spending going forward? You want to No, I will not specify exactly the amounts, but it is a higher pace if you look upon it year over year. Then we shall have in mind that we were pretty cautious when we looked into 2012. So 2012 is not even a good benchmark if we look going back in the old days. What is important, it is tied back to the accelerated initiatives that you see here to prepare for a higher sales 2014. And that's that you see here to prepare for a higher sales 2014. And that means that we had these steps down in Q4, specifically in Europe, Asia Pacific, where we have, of course, the majority of Husqvarna and the Gardena brands from a selling perspective. So operator, can we take the questions from the telephone audience please? Thank you. Your first request comes from the line of Aaron Davidson of Goldman Sachs. Your line is open. Yes. Hi, there. Good morning. I hope you're well. I had 3 quick detailed questions, if that's okay. So first of all, I was just wondering if you already now knew roughly what your depreciation would be in relation to the chainsaw or saw chain factory in 2015 2016. Secondly, maybe I got it wrong, but I got your group common costs to around €60,000,000 or so, which is higher than it's been for a while. So I was just wondering if there's anything in particular there or sometimes you bigger in Q4. I'm just wondering what was the driver behind that? And finally, just one question on sort of your growth strategy out of your core markets or into EM Emerging Markets, as you mentioned. How should we think about that when it comes to margin dilution or accretion? Your current sales outside of say the Americas and Europe and Australia, are they in line with your target margins around 10%? Or should we sort of expect additional logistics and marketing costs to more establish yourself in emerging markets? Thank you. Thank you, Erik. I'll let Olof answer the 2 first and I'll try to answer the 3rd. Well, the first one is, no, I will not go in to the details. It's premature to look into 2015 and 2016 when it comes to the depreciation. But as you know, I mean, we talk about investments in the range up to range up to SEK1 1,000,000,000. So I mean, you can do some calculations yourself, of course. And we talk about machinery and equipment. But I will not guide you on a specific figure here. We will come back later on for sure. Specific figure here. We will come back later on for sure on that, but not that. True common cost, correct observation. We have been carrying to CEOs in the latter part of 2013. So there is a higher cost when it comes to common cost in the Q4 to some extent in the Q3 as well. So that explains the higher level that you see specifically in the 4th quarter. Okay. Thank you. And if I try to elaborate on the third question then, I mean, the margin from the emerging markets. In general, the emerging markets are very much characterized by dealer sales. So the dealer channel is strong. In general, it's handheld products, but maybe not to the same extent high performance products in that channel, so rather lower price point, mid price point, but still as a channel and a product category that is advantageous for us. I would say we expect contribution from the emerging markets not to be dilutive, but rather support it, be in line with group average today and if anything staying around that region or potentially even a small positive contribution. That's definitely on group average. But I'm sorry, but just to clarify on the last question. I was just thinking since you're targeting 10% in within a relatively short time frame in your core business. I was just wondering I assume that you obviously have sort of lower scale, etcetera, when you're venturing into these sort of newer markets. So just wondering, do you have a path to sort of 10% there as well? Because generally speaking, when you expand into new areas, you would not expect to have sort of significantly higher margins than group, which obviously your target represents. You have a point in that respect that there could be an element to that. But I think in quarter 3, when I talked about the Accelerated Improvement Program, I was very clear about that the contribution from emerging market is not vital for the success of the complete program as such. It's more a positioning for the future. So we will reach the 10% EBIT margin, I was almost about to say, with or without the margin expansion. It is more the positioning and the strategic importance of the positioning that I'm after, putting it into the program because we haven't explored opportunities to the extent we reasonably can and want to do. So yes, there could even be a burden from the efforts and the expansion of the organizational part, I agree. And there might be some aspects related to new product development that we haven't seen yet that on a temporary basis could burden the whole case somewhat, yes. I'll give you a point in. Thank you very much. On this case. Thank you. Your next question comes from the line of Andreas Lundbeck of ABG. Please ask your question. Yes. Good morning, gentlemen. Just to start with a clarification here. Did you say that of your running cost saving programs that it's about €50,000,000 left to be realized in 2014? Yes. That is the incremental piece that you will see here specifically in the first, second and third quarter. Okay. Got it. Also given that you have a relatively low factory utilization here in 2013, what's I guess it's early now, but what's your outlook for the current year for coming quarters here? We should reasonably expect that it's not going to be of the same size. That's correct. I guess that's where you're heading with the question. Because of the production rate reductions in order to facilitate the inventory reductions 13%, which is not going to be on the same magnitude 14%. You could also, given the outlook that I talked about, expect it to be lower or more neutral, so to say, so non negative under absorption of any magnitude from that position. Then there can always be disturbances appearing with deposit, but that's a different rationale and background. Okay. I don't know if you mentioned that, but can you say something about your own pricing here for the 2014 season? Thank you. I don't want to be specific on the pricing, but I'd like to, in general terms, talk confidently about no erosion for the season of 2014. We have ambitions, of course, as you realize, but I don't want to make that put that into your modeling here in any great expectation fashion. But it's stable pricing, I think, definitely. It's a statement. Okay. Thanks a lot for me. Your final question comes from the line of Anders Straub of SEB. Your line is open. Yes. Hi, there. I just have one question really. I know you've been trying to be very clear on I'm saying that the improvement program is back end loaded, etcetera, etcetera. But maybe you need to be even more clear. So I'm asking basically if you could give some kind of more definite indication of the how much of the improvement that we actually could expect to see in 2014. I'm saying this basically, I'm looking at the backdrop at looking at the forecast. It seems that our market average is expecting about onethree of the improvement between 2013 and 2016 is to come in 2014, and that doesn't seem to comply with what you were indicating. Sorry to disappoint you Anders. I will not venture into any details of that today. But let us bring that with us back and see what we reasonably can do then after quarter 1. We can be more specific about this. I'd like to push it into quarter 1. And we have said that definitely for the Capital Market Day, we also want to be a bit forward looking in terms of the accelerated improvement program. But we should be able to give you some more details as to that after quarter 1. I think that's fair, yes. Okay. Thank you. Okay. It appears we have no more questions. So with that, we conclude. And thank you for calling and see you again on April 24 when we report the Q1 results.