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Good morning, everyone, and welcome to Husqvarna's fourth quarter results presentation. We will follow the usual procedure over here. Mr. Hans Linnarson, our President and CEO, will take us through operations in the quarter, and then Mr. Ulf Liljedahl, our Chief Financial Officer, will provide us with some more details on the financials. Please go ahead, Hans.
Thank you, Tobias. Once again, welcome to all of you here. I want to start with a brief sum-up for the full year. It was off to a good start. Europe, Asia Pacific had a good trend early in the year, with fairly good sell-in for the coming season. As the year progressed, headwind from macro as well as unfavorable weather became more and more apparent. Demand in Europe weakened gradually in the beginning of the year. Weakness was mainly related to Southern Europe, towards the end, we felt a significantly lower demand also in Central and Northern Europe. Americas was off to a very good start. Spring broke early, and we were able to deliver on the strong demand thanks to a strong recovery and mitigation of the production disturbances we had 2011.
You might remember Orangeburg, the factory down there, which has been up several times. I come back to that later on. Americas sales for the full year up 7% compared with 2011. The margin did not quite live up to our expectations, as you know, that is something we have addressed earlier. Over to Construction. Had a good year, driven primarily by positive development in North America. For Construction, the macroeconomic challenges in Europe gradually spread from the Southern to Central and Northern Europe, still Construction, we delivered a solid full year. A priority area during the year has been to restore the cash flow, and I'm pleased to see the substantial improvements in 2012, which mainly was driven by working capital improvements as well as lower CapEx. A couple of comments on recent announcements.
Today, we announced a significant investment in manufacturing of saw chain and further insourcing of cylinder manufacturing, which will give us stronger platform to cement our leadership in the chainsaw market. I will come back to this in a few slides here. In November, as you remember, we announced the start of a reduction program to take out cost and increase flexibility. We will have benefits from that early this year. Dividend. The proposal from the board is that we distribute SEK 1.50 per share as dividend to the shareholders, which is unchanged to 2011. Over to the fourth quarter. For the group, we are down 8% in sales adjusted for currency, which primarily is driven by a very weak market in Europe. Adding to the weakness, sales were also negatively impacted by product launch delays of a handheld product.
For the two businesses, Americas and Construction, sales were a touch lower than previous year. I will come back to that in a few slides. The EBIT for the quarter, of course, impacted by SEK 256 million cost for the staff reduction program, but also significant product and service mix impact related to Europe and Asia Pacific. We go over to slide three when it comes to this 1 billion investment in core technologies. As I said, this morning, we announced a significant investment in core technologies, which will enable us to further strengthen our position as a world leader in chainsaws.
Over the next three years, we will invest around SEK 1 billion in a new factory in the city of Husqvarna or the village outside Jönköping community to start manufacturing of our own saw chains and expand insourcing of cylinder manufacturing in one of our existing sites in U.S., that's in the Nashville factory in U.S. These components are key for the performance of chainsaw, which, as you know, is one of our core product areas. By gaining control of also the chain, which currently is sourced component, we will leverage our technical expertise to develop, design, and manufacture chains. This give us influence to optimize the full influence of the chainsaw. The first chain from the new factory will be reached to the market 2015. The investment will also create an opportunity for us to grow in the after-market.
A chain represents the largest category in that of the market segment. We go over to slide number four, cost structure improvements. This is just to remind you of and summarize what we announced during the fourth quarter. We are currently implementing a cost improvement program to reduce fixed costs and further increase our flexibilities. The benefits in 2013 will be savings of SEK 160 million. Before we get the full annual effect of around SEK 220 million for 2014. The cost, SEK 256 million, was charged to the fourth quarter 2012. Over to slide number five, financial highlights. Here I will focus on the fourth quarter, which as I said earlier, was impacted by a weak macroeconomic environment and demand all over Europe.
A huge impact, especially the second half of the year when it comes to weather related, both in Europe as well as Americas. For Americas and Construction, the development was stable. Group EBIT for the quarter, substantially lower than previous year, mainly impacted by cost for the staff reduction program, as well as the downturn in Europe. Over to slide six and go through Europe, Asia Pacific. As I already said, here is where you have the negative impact in the quarter. Sales decreased 12% adjusted currency effects. Over the quarter, we have seen an increasingly challenging macroeconomic environment. Dealers and retailers across Europe have been very conservative, managing inventory tightly in anticipation of a continued soft consumer demand. Previously, it was mainly a weakness in Southern Europe, but lately the weakness also have been very evident in the center and the Northern part of Europe.
Snow throwers, which mainly are sold the third and fourth quarters, we knew was going to be weak because of remaining trade inventory from previous winter. The demand also for handheld products such as chainsaws has been weak. Adding to the weakness, our sales were also negatively impacted by deliveries in product launches in the handheld product category. The products in question are now shipping in normal manner, but we did miss some selling. Demand has also been weak in Australia, as Australia has the season just now here, have been affected by a very bad weather down there, and normally that's the peak in the garden season in the Southern Hemisphere.
EBIT excluding the one-time staff cost reduction cost, the main negative impact is from the lower sales in Europe and product mix and sales channels mix impact, as sales were lower in high margin areas such as chainsaws sold in the dealer channel. We go over to slide number seven, and that's Americas. Here we had a stable development compared with the fourth quarter previous year. Currency adjusted, sales down 3%, mainly related to snow throwers. Small decline also for handheld. Operating losses decreased compared with prior year's fourth quarter. Continued positive development when it comes to efficiency and improvement in the supply chain. Over to slide number eight, Construction. Also here, a stable development in the fourth quarter. Like we have seen previously in the year, sales were driven by a positive trend in the construction market in North America, than mainly in the U.S.
It was not enough to offset the decline in markets outside North America. Demand in Europe was weak, not just the Southern area, but also middle and Northern Europe. EBIT for the quarter, excluding items affecting comparability, staff reduction cost improved. Negative volume impact was offset by efficiency improvements and also some one-time costs in the fourth quarter last year that were not repeated this year. With that, I hand over to Ulf Liljedahl here, who will take us through the financial details here. Please, Ulf.
Thank you, and good morning. Let us move to slide 10, then actually we will move back to slide nine. Let us start with the gross margin. If we look at the gross margin for the quarter, excluding the costs that we took in the fourth quarter related to staff reductions, we ended up on some 25.2% versus last year, 27.8%. However, in order to make a like-for-like comparison, we shall adjust last year for Orangeburg and some non-recurring items, then we are actually above 29% in 2011, i.e., we have a quite significant delta versus current quarter. As you have heard from Hans, we have had quite a significant mix effect in the quarter that has affected our gross margin for the fourth quarter. There were some FX effect of 0.4%, but the residual is very much related to the mix effect.
Mix effect in terms of channel mix, meaning that the dealer channel actually declined more than the retail channel. That was valid both for Europe as well as for Americas. We have in the product quite a decline when it comes to professional chainsaws, handheld equipment, both related to macro as well as weather, then we had some delays, as mentioned by Hans as well. Then we have, of course, the snow throwers that we sold less of in the fourth quarter compared with last year. Last but not least, as you have seen, Europe did decline quite significantly in the fourth quarter and did decline more than Americas, that's why we do also get a regional negative mix. There you have the primary explanations to the deterioration of the gross margin in the fourth quarter.
If we go back to slide nine again and look at the SG&A. In the quarter, if we take out again the cost for the staff reduction and do similar exercise in 2011 and take, let's say, adjust for currencies as well as some of the non-recurring items, Orangeburg as an example, we have an improvement in absolute terms of some SEK 50 million in the quarter in terms of lower SG&A. If we look on the full year and make a same adjustment for staff reduction cost as well as non-recurring items in 2011, we can see that 2012 full year, we actually improved the ratio from 22% 2011 to 21.3% in 2012. Here we can actually see that we have an underlying momentum that we foresee going forward as well in terms of SG&A in relation to sales.
Continuing further down in the P&L, we can conclude that the EBIT for the fourth quarter, excluding items, ended up on negative SEK 362 versus last year, SEK 236, that gives a negative EBIT margin of some minus 8.1%. The total currency effect in the quarter had been SEK 11 million positive year-over-year. Looking at the financial net, we ended up on minus SEK 139 versus last year negative SEK 127, the reason to the decrease is mainly due to the mark to market valuation of the interest rate component in our FX derivatives. Tax ended up, if we take the full year, ended up on minus SEK 146 versus last year minus SEK 140, that corresponds to a tax rate for the full year of some 12%. We move to the next page and look some on the balance sheet. That means slide 11.
You can see that the inventories are on par with last year. If we adjust for currencies, we have a slight increase of some SEK 0.3 billion, mainly related to, as you have heard here, that we did have a much lower demand than foreseen in the fourth quarter. The buildup or the pre-build we have here is the main explanation to the higher inventory, and that was not matched by the demand from our customers in the fourth quarter. Continuing on the trade receivables, there we though have seen a quite a significant decrease and adjusting for exchange rates to trade receivables are down some SEK 400 million plus versus last year. The days of sales outstanding for the group are better than last year. We are now ending up on 65 days versus 67 days last year.
If we take the next slide, as you have heard from Hans, we are quite proud that we have seen a significant improvement when it comes to cash flow. Next slide 12. We ended up the year with some SEK 1.1 billion positive and a significant improvement versus last year, close to SEK half a billion negative. Although of course the buildup of inventory did take off some of the positive cash flow here in the fourth quarter, it is still a major improvement and a delta of some SEK 1.6 billion attributable to, of course, improved earnings and improved and decreased working capital as well as lower investments. You may say that we are, from a cash flow perspective, at least back on track if we compare with prior year. Moving to the next slide, Net Debt Equity.
You can see that we ended up with a ratio of 0.59 this quarter versus 0.56 last year. There has been a quite a hefty effect of the exchange rates affecting the equity of some close to SEK 800 million negative that has an impact on the net debt equity ratio. Continuing with key figures. Normally, I do not comment all of them. I think one that should be at least mentioned is, as you may see, that the average number of employees in the fourth quarter have decreased with close to 800 people accounted for or defined as full-time equivalents. Last year, we of course, had a lot of related to Orangeburg as an example.
If we move to the guidance that I normally give to you, if we look into 2013 and start with the CapEx, as you have seen earlier today, we announced that the group will invest in a new production facility for manufacturing of saw chains. As well as increase investments in order to expand the capacity for manufacturing cylinders. That means that the investments or the CapEx for 2013 will be close to SEK 1.7 billion, whereof SEK half a billion are related to today's announcement. 1.7 is the guidance for 2013. Depreciations and amortizations for 2013 will be in the range of SEK 1 billion to SEK 1.1 billion. Tax guidance. Here, I will not give you any guidance for 2013. That is due to the overall uncertainty that we face around the interpretation and development of tax regulations in the countries where we have operations.
I have to come back at a later stage should there be more, let's say, clarifications on this. There will be no tax guidance for 2013 as a result. Last but not least, foreign exchange. As implied during 2012, as you know, we have had a positive development of our hedge contracts. Those will not be the case to the same extent in 2013. Here we estimate now in 2013, year-over-year, a negative currency effect of some SEK 200 million, compared with 2012. With that, I hand over to Hans.
Okay, thank you, Ulf. Page 15 to summing up the quarter and the year. For the full year, currency-adjusted group sales were unchanged. We had a good start both in Europe as well as in North America. As the year progressed, the European market gradually weakened as a result of increasing macroeconomic uncertainty as well unfavorable weather for most of the season. The full year currency-adjusted sales declined 6% for Europe, Asia Pacific, was offset by 7% increase for Americas. Mitigation of the production disturbances enabled us to capture on the strong demand in the U.S., especially in the first half of the year. I have to say, very well done here. We are back on track then. We have ticked off this Orangeburg situation here. In Construction, full year sales up 4%, also driven by a positive development in the U.S.
EBIT for the full year was down, mainly due to negative mix shift as sales decreased in our high margin area, Europe, Asia Pacific, and sales increased in our lower margin area, Americas, when it comes to Forest and Garden segment. Substantially higher cash flow for the year, mainly attributable to working capital improvements, as Ulf just commented on. As I already commented, cost structure improvements have been announced, that will give savings in 2013 and beyond. We announced a significant investment in saw chain and cylinder manufacturing, which will strengthen our leading position in chainsaws, and also create a growth opportunity in the aftermarket for saw chains. A very high margin segment for us. The board proposed that the annual dividend to the shareholders remain at SEK 1.50 per share.
The fourth quarter continued the macroeconomic uncertainty and soft consumer demand in Europe. Sharp downturn in sales for Europe, Asia Pacific. The decrease was mainly in higher margin dealer channel. Products such as chainsaws and snow throwers accounted for the major negative impact on EBIT for this business area, as well as for the whole group in the quarter. In other parts of the group, Americas Construction, the fourth quarter development was stable. To round off this here, a few words looking forward. We expect a positive demand development in North America for Forest and Garden products as well as Construction, while Europe is expected to remain challenging due to continued macroeconomic uncertainty. I stop there, we open up for questions here.
Questions from the audience, please.
For those of you on the phone lines, please press star one to ask a question. Your first question comes to the line of Aaron Ibbotson from Goldman Sachs. Please go ahead.
Yes. Hi there. I'm not sure if this was planned or if you wanted to ask questions from the audience first, are you ready? Can you hear me?
Yes.
Yes.
Perfect. I've got a few questions, if I may. Three, to be precise. Firstly, two questions on cash. I've noticed that your taxes paid in the cash flow statement is quite a bit higher than your income taxes. I think I get to 1.9 versus 1.3 over the last three or so years. I was just wondering, is this driven by the losses in the U.S. When do you expect this to change, actually, over the last five years? That was my first question. Secondly, just in light of the increased CapEx guidance, I was wondering if you feel confident that the current dividend will be able to be maintained.
As far as I can see, you haven't quite covered your dividend in free cash flow over the last three years, it doesn't sound like you're going to do it over the next couple of years either. I was just wondering if you were happy to run with the dividend above free cash flow or if you were considering, if you think of that may be reduced. Finally, I was just hoping to get a clarification on your, I believe it was November 7th announcement on the remaining savings. I know I asked this in the third quarter and you said you'd get back to us. I believe there was a 350 or so outstanding, of which you have now announced that you're going to save 50 this year.
Should we expect the other SEK 250-SEK 300 to come in 2014, 2015, or should we see that as water under the bridge? Thank you.
If we start with the cash per se, there you have a phasing when you compare the paid out tax as well as the tax that you take over the P&L. You're right. It has a relationship with U.S., of course. When are we, let's say, back to a normalized situation? That is, of course, very much related to when we have a profitable setup in the U.S. When it comes to the dividend, that is a board of directors decision. We don't have more comments to talk about and tell you and confirm from that perspective. From a management perspective, we have the ambition, of course, to secure a good development from a cash flow perspective, and I think we have proven ourselves during 2012. We don't see any reason why we should not be able to generate good cash going forward as well.
Remaining savings, I believe we were quite clear that the SEK 50 million that we foresaw to come during 2013 are the ones that we have confirmed now. The residual will not come through in 2013. That was confirmed at the same time as we went out with the restructuring program.
Sorry, just to clarify, I get to around SEK 200 million of cash above the dividend for 2012. If you are guiding up CapEx to SEK 1.7 billion, I cannot really see how that is going to be positive for 2013. Are you recommending the dividend to the board, or is the board deciding dividend without your recommendation? Just to clarify the restructuring, is it clear that we are not going to see any further savings of 2014 and 2015? This is the final savings from this move from Sweden to Poland?
When it comes to dividends, we can just confirm. This is a board of directors decision. As you know, the governance is that they suggest that to the AGM, and it is for decision at the AGM. Savings, yes, SEK 50 million is to be seen in 2013. We have in addition 2014, SEK 20 million to SEK 30 million. That is what is left from that old program.
Okay. Thank you.
Your next question from the phone lines comes from Johan Eliason from Cheuvreux. Please go ahead.
Hi, this is Johan at Cheuvreux. Two questions. First, on the chainsaws, can you give us some sort of numbers here to understand what's the sales value today of your chain turnover or input costs or so, and what sort of growth do you forecast, assuming that this will help you improve the aftermarket business for you as well, which I think, if I remember it correctly, is 10% of your turnover right now. Any numbers to know what you're aiming at would be interesting to know. Secondly, you don't give a tax guidance. Do you see a risk that you will lose the whole SEK 180 million-SEK 200 million tax benefit that you have currently from your setup in Belgium on the back of the Swedish tax regulations, or what's the sort of risks we should see there? Thanks.
Okay. If I should start with the question related to this investment for the chainsaws here. When it comes to chainsaws under the Husqvarna brand as well as McCulloch brand, that's a high profitable area already today here, and it's roughly 1/3 or 2/3 net sales in the group when it comes to chainsaws here. As I said, we were high margin already. Of course, we will strengthen the margin when we have now this under full control and in-house. That's the reason why we are doing this. When it comes to the full chainsaw margins as well, what I said, the very important aftermarket, what we call replacement segment here, where it's very high margin as well here. More than so, I will not comment due to I will not give any guidance to our competitors.
You have to be satisfied with that answer. On the tax side, as you rightfully comment, the interpretation of the proposed regulation is very uncertain, and therefore, I need to come back with further input as soon as we understand more and more clarity has been obtained. I don't see that the full effect or let's say the full amount will be affected here. I have to come back when more clarity has been obtained.
Okay. Thank you.
Thanks.
Thank you. Your next question comes to the line of Kenneth Toll Johansson from Carnegie. Please go ahead.
Yeah. Hi, it's Kenneth here. A question on this new plant that you're building. I guess that from a global market for chainsaw chains, you're adding quite a lot of capacity into that market by building this huge plant, right? I was thinking that the suppliers that you have had of those chainsaws, how do you think they will react? Do you think that they will close factories in order to take out capacity? Do you believe that they will respond in cutting their prices in order to protect their sales to off the market and so on? Often when you add a lot of capacity to a market that affects pricing significantly, what are your thoughts on that one?
First, the reason why we do this investment in Sweden, down in Husqvarna, because there we have all this technology and all the labs and all the people who have the expertise when it comes to cutting equipment here. That's one of the reasons why we do this, to have a complete control over the development and production of a chainsaw going forward here. Then when it comes to how the reaction will be. Yeah, in this market, it's mainly two who have 90% of the production of these chains for chainsaws here worldwide. Today, there is not enough capacity. That's the reason why we want to have full control of this very important component for chainsaws by ourselves in-house here. Of course, be able to increase our margin here. Will there be some reaction from our other suppliers when it comes to this?
I doubt that. Most likely not, but that's something I can't comment with reaction that will be. Of course, we have informed yesterday the CEO of the supply of the chainsaws here, we have good relationship with them, we'll have that even in the future here. We source some other components from them as well.
Okay. In the calculations that you have made in order to do this very large investment, you have calculated with some pricing pressure and some tougher competitor behavior in the market, right?
No, I will not comment that even more. Of course, we have done a proper calculation when it comes to this huge investment here.
Okay.
There'll be a very good payback, of course. Otherwise, the board should never approve this huge investment.
Thank you.
Your next question comes from the line of Stefan Cederberg at SEB. Please go ahead.
Thank you. Good morning. Can you quantify the sales decline of the chainsaws in Q4 in 2012?
No, I will not comment that it was minor when it comes to that part.
Okay. What was the reason for the delayed launch of handheld products in Q4?
I thought it was the question here. I will not comment that it was just small technical problems. We want to be sure that we always, under the Husqvarna brand, deliver the right quality. That's the reason why we go for quality and then maybe take some hit to be a little bit delayed in new products going forward. That's the new structure of the company. When it comes to changes all over was due to weather related here. You see that there's been a lot of rain in Northern Europe mainly, where you have the season here. All these big harvester machines have not been able to go out in the forest.
Okay. What's the impact from the beginning of 2013 then?
Nothing. We have resolved everything when it comes to this year for this delay when it comes to the changes. I have to mention, this is what all our customers really want to see a professional company to do here. Of course, we inform them. They appreciate it from them as well that we take our responsibility to deliver new products with good quality and high performance.
Yeah. Has there been any production problem in the quarter in Europe overall?
No, not at all.
Okay. On prices, can you make any comment on what the kind of listings and the price level in 2013?
When it comes to listings and what we call the pre-order, the dealer channel are good. When it comes to the listings, it varies from region to region and customer to customers, but all over in line with previous year. When it comes to price increases, I will not go into that.
All right. Also on the cost side in 2013, do you see additional cost improvement also outside if you exclude the restructuring? Do you see cost improvement continues in 2013 overall?
Yes, of course, that's always a high priority to work on the cost reduction, both when it comes to productivity in our factories, as well when it comes to direct material. That's something we work hard on here. We see some improvements going forward when it comes to reduce cost on our products.
Okay. You said it's a very good payback on the investment. What's your expected return on investment? Do you have any target in the group?
No comments at all to that.
All right. Okay. Thank you.
Your next question comes from Velina Johannal of Penza Bank. Please go ahead.
Thank you. A couple of questions. To start on the inventory situation, we had a quite elaborate discussion last year about excess inventory. This year you're finishing the year with slightly higher FX adjusted. I was just wondering, could you talk a little bit about the composition of that excess inventory, potential absorption effects looking ahead? If I could start there.
Well, as you have seen, a lot is related to that we had a drop in the fourth quarter, meaning that the trade has not taken charge of the inventory to the extent that we expected, i.e., there are, let's say, postponements. That said, as you have heard from Hans, it is still that we see that the listings are good in terms of pre-orders, but they are, let's say, postponing the final order. That has meant that we have, let's say, a built-up inventory at the end of the quarter four related to this. Then that the sales went down to a higher extent than expected. Very much related to finished goods, of course. This is also related to Europe.
Okay. Also you're quite cautious in your outlook for Europe. I presume that if you're not concerned, or I interpret it as you're not concerned over any unresorption effects in the coming first quarter.
I would say, what we work very hard with now, that is not only the Americas plants, but also for the whole group is, the key word to us now is to achieve a higher flexibility. It is a matter for us to secure now, depending on weather or depending on macro, to secure that we can balance off should we see a decline in demand.
Okay. On the U.S. listings, it was a bit difficult to interpret. It was satisfactory, as you mentioned in your statement. What is that really? Is it flat? Is it unchanged? Is it slightly down? Also, if you could please give us some flavor with regards to pricing in the U.S. for 2013.
When it comes to U.S., when it comes to listings and pre-orders here, it varies between the two channels here. Of course, we will continue to focus on the high margin channel, the dealer channel here, that will be our priority, of course. When it comes to U.S., we look into the channel mix as well as the customer mix here. When it comes to going forward when it comes to U.S., what's important there is not volume, it's going for margin. We will look more into profitable growth in U.S. here than actually go for market share. That's the main focus in U.S. going forward.
I appreciate that. The question is whether that's reflected in the listings going into next year, whether you can give any sort of comments regarding pricing.
Yes, of course it is when it comes to U.S.
Okay. On Europe, if I could just quickly ask you with the weak dealer channel, what's your feeling currently? I know it's difficult to get a sense of the dealer inventories in Europe, what's your feel with regards to those levels? Is the sell-through corresponding to the deliveries that you've seen in the quarter?
Yeah. When it comes to the dealer on average in Europe, I think it's normal to a little bit lower because they have focus now by themselves to reduce their inventories a lot here. I think normal towards a little bit lower than normal.
Given your extensive experience, Hans, is that something you expect to snap back in the coming quarters, or is it sort of an investment cycle that you expect to take some time?
I don't know here. As you know, we will see here end of February, beginning of March. We see how the season will take off. That's the first indication here. If we, like we had last year, a very good season for garden products here, if that will be repeated, we see immediately that our sell-in will take off. That's the first indication how the season will go, and that's mainly related to the weather here. If the weather are with us, we will see a peak when it comes to this. That's the reason why we are prepared both to how we have worked when it comes to flexibility. Be ready to deliver, as well if it not take off, to reduce.
Thanks.
We work very close to our dealers, the main counties and the main dealers we have here in what we call now the new classification here. They have more full control what's going on out in the market than before.
Okay.
Thank you. Your next question comes from Andreas Lundberg, from ABG. Please go ahead.
Yeah, thank you, guys. Most of my questions have been asked. Did you say how the inventory channel looked like in North America at the moment?
When it comes to North America, I'd say it's normal.
It's normal, okay.
Yeah.
I couldn't hear about Europe. Could you repeat that or if you said it?
Europe is normal, maybe towards a little bit lower than normal, but let's say normal.
Okay, got you. Lastly, could you give some comments on the outlook for raw material cost in 2013? Thank you.
It's a little bit ups and downs, but I should say it's flat.
Worse than 2012?
Yep.
Okay, thanks.
Thank you. Your next question comes to line of Rasmus Engberg from Handelsbanken. Please go ahead.
Yes. Hi. I have three questions. Firstly, if you could reiterate the CapEx guidance for 2013. I didn't quite get that.
SEK 1.7 billion. As you have seen historically, we have been on the level on meeting the planned depreciation if we go, let's say, prior to the last year and the year before. The main explanation is that half a billion of the SEK 1 billion today announced is chipping up to SEK 1.7.
Okay. Obviously now you are investing quite a lot for the future here. When should we start to think about seeing the benefits of the cylinder and chainsaw investments you're doing?
I think the cylinders you will see during 2014. When it comes to the saw chain, you will see under 2015.
Okay. Finally, just a clarification on the outlook for the first quarter, if that is what you mean here. You say that near term demand outlook, North America market positive. Should I interpret that as you think that your shipments in Q1 will increase even though you had a very, very large increase in Q1 last year?
When it comes to U.S. and the shipments here, that's, of course, once again, it's related to the weather here.
Okay.
It maybe will be dependent of the market situation. Of course, we see that there are slightly better market, and we see in the building areas where housing is going in a better way. Of course, that might affect us in a positive way, but still very slow.
I guess you had an extraordinary start last year, didn't you? I mean, the weather wasn't really normal. You had extraordinary early start of spring. Isn't that right?
When it comes to the weather here, when it comes to first quarter, it was a good weather for us, both in Europe as well as U.S. When it comes to here, U.S., I repeat, we go more for margin than sales.
Okay. All right. I understand.
Our goal is increase our margins and come back to be above 5% EBIT.
Okay. All right. I understand. Thank you.
Thank you. You have a further question from the line of Aron Ibansson from Goldman Sachs. Please go ahead.
Yes. Hi there. Sorry, just a quick follow-up and clarification on your CapEx guidance. Two questions, and apologies if this is obvious, but the capitalization of R&D, I assume is not included in the SEK 1.7 billion CapEx. I was just wondering, if the sort of SEK 1.2 billion, if we exclude the SEK 500 million, quote unquote, extraordinary investment in this new facility, is that a run rate we should expect going forward? Because at least according to my notes here, you've been running quite a bit below that for the last few years. Finally, if you can just let us know, should we expect another SEK 300 million-SEK 400 million in 2014 for this, or is it going to be phased the second half in 2014 and 2015? Thank you.
You actually get the answers that I planned to give you tomorrow. To start with, capitalization of R&D has always been included in the CapEx. That one is included. The answer is yes. When it comes to the SEK 1.2 billion, you're right. We have been quite squeezed if we look at two years back in time. Those are decisions that we take during the year as well, depending on how it looks like from a cash perspective and how it looks like from a business environment perspective. A normalized level is around the SEK 1.1 billion-SEK 1.2 billion to meet our planned depreciation. That is what you should normally use. When it comes to the 2014, it will be some SEK 0.4 billion of the SEK 1 billion that will be attributed to 2014, and then you have the residual in 2015.
That's very clear. Thank you.
Thank you. We have no further questions at this time.
Okay. If we have no more questions, we wrap up from this side. For those of you coming to our capital markets day tomorrow, we look forward to seeing you then. Thank you.
Thank you very much.
Thank you.
Thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect.