Ladies and gentlemen, welcome to the AP Volvo Report on 2012 Operations Conference. Today, I'm pleased to present Olof Persson, President and CEO. For the first part of this call, all participants will be in listen only mode and afterwards, there will be a question and ask session. Olof, please begin.
Thank you very much, operator, and good afternoon, good morning to all of you. And once again, welcome to this presentation of the Q4 2012 for the Volvo Group. I would like to just stay a few seconds on the opening picture wheel loader and this is now the new brick wheel loader that I've been talking about for a couple of years. And this is now the 1st Volvo branded wheel loader that is then really focusing on catching market volumes in the Greek countries. We've launched it in China.
We are starting to ramp up the production. And I'm really excited to see how this will then turn out in the marketplace in China and elsewhere in the BRIC countries. If you then follow me into Page number 2, Q4 in a snapshot, we have called this quarter a destocking quarter because that really reflects what we have been doing and that is very much in line with what we also discussed with you and said in the Q3. And as you can see, the low order intake in Q3 and heavy destocking in Q4 is one of the main activities that had led to and we will come back to that then with a underproduction as we call it compared to sales with a low capacity utilization, but also then a substantial cut in inventories with SEK 5,400,000,000 leading to a positive cash flow and also a net debt ratio, which has gone down from some 44% down to 29%. We also have continued in our investments in R and D, selling and CapEx for our future products.
And I will come back to that a little bit later in the presentation. But as you can see, we have had then about €600,000,000 expense increases in the R and D and selling expenses compared to quarter 4 in 2011. We also have announced and we have been communicating the efficiency programs in Europe and Japan with a total restructuring charge of SEK 9 90,000,000 again, something that we do for the future. Again, we see it as an investment in order to better position ourselves in the future. This has led then to an operating margin of EUR 1,600,000,000 and net financial debt reduced by EUR 12,000,000,000.
So we have actually been doing exactly what we said in the Q3 that we were supposed to focus on the cash flow, focus on the balance sheet and making sure that we enter 2013 in a balanced production way. If you then follow me to Page number 3 and I will come back more in detail on Traction CE and just mention a few words on the other business areas. Buses are still struggling in a very difficult market environment. We have had a tough quarter where the market, both on the city bus and the coachers, are still on a very low level. On top of that, we have a one time charge here, restructuring charge for capacity adjustments in the European system.
And as you can see there but even without that, it would have been a negative result. We are continuing to push forward with programs in buses. We are confirmed we are determined to make sure from that we will be able to reduce the breakeven point on buses going forward here. On the slightly positive news when it comes to buses, we are gaining market shares on the city buses. And also our new technology buses when it comes to hybrid, which we believe is very much a future product, we are having great successes with selling our hybrid buses into different cities around the world.
Volvo Penta, a seasonal weak quarter normally both on the marine side and on industrial engine side. This is a the Q4 is normally a weak quarter, this not being an exception. On top of the market weakness, we also have had some investments in R and D positioning Penta for the future when it comes to emission legislation, primarily the Tier 4 F Tier 4 final emission legislation for the industrial engines. Another good quarter for Financial Services, SEK 12,000,000,000 in new financing. And I would like to stress that what we see now is a very solid new financing.
I think that the control mechanism and also the new businesses we take on board here is a solid one and that is also reflected in the operating income of €390,000,000 And I'm really pleased to report that Financial Services now are within the strategic target bracket of 12% to 15% return on equity. If you then follow me to Page number 4, looking quickly into trends and actions in trucks. When it comes to the demand and order intake, I will come back to that on the next slide, we can conclude that our inventory levels, as I've said, has been substantially reduced and particularly then on the Renault truck side where we have had a major focus on actually managing and getting the inventory on the right level. We have almost succeeded. We still have a little bit of inventory flush out to be done in the Q1 here.
But in all in all, I think we have done a good job. This has then resulted in a total inventory reduction of 5,300 trucks where of 3,700 in new truck and the rest being used trucks. When it comes to the implementation of actions, you can then see that we have during the quarter 4 reduced the pace in Trucks operations by 20%. And if you read it that we then comparing the ingoing pace with the outgoing pace. And if you compare these 2, we don't have an outgoing pace of minus 20%.
And as I said, we also had marketing activities in Europe to reduce inventory source and that was primarily on the Renault trucks side. When we're now looking into Q1, we will continue to manage and focus on under absorption. And we will have to also look at the continued low capacity utilization in France. And when we look at the quarter, we will see that under absorption will be there in January. It will be there also in February.
And then we see that we will be more balanced in production coming into March. If we would then put some sort of a number to that absorption in the Q1 for the trucks, we are looking a under absorption during the Q4, which was a little bit uneven where we actually had high or rather good production in October and then we did break at the back end of the 4th quarter and that is then coming also into the Q1 where we actually say that the January production level is the low point even comparing with December. We are ramping up the production of the new Volvo FH. We have seen and we are very pleased with order intake and acceptance of the new Volvo FH coming into the market. And the order intake is slightly ahead of our internal plans and targets that we have seen.
We have been giving the situation we see, we have reopened the stock base in the Volvo system here in Europe, and we also have decided to increase the production in Brazil as of March. And the reason for that, we can then discuss a little bit more if you follow the situation with 5, where we'll take a look at the total order intake. And if we start at the bottom of this table, you can see that we had an order intake of 52,145 trucks, minus 10% year over year and up 15% quarter over quarter and with a book to bill ratio of 89%. The book to bill ratio is negatively affected by the 3 100,700 trucks that we cleaned out from the inventory, meaning that if we would add those back, you would be around the 95% book to bill rate here. Quickly looking into the different aspects or the different parts of the order intake, we can note that the volumiconvol in Europe had Q4 has continued for Volvo Europe into the 1st days or weeks here in the Q1 and hence the decision to reopen some of the stop days that were planned.
Renault year over year minus 2018. We should remember that we actually had some stoppage in the order intake due to the fact that we wanted to make sure that we really got the inventory out. So we didn't accept orders in certain regions from the Renault, and that's one of the reasons there. The numbers that sticks out, I think, in North America, MAX minus 45 year over year explanation there is very tough comparison numbers from last year where you remember that we had a very high activity level on the MAX. So that's a comparison number.
Otherwise, we are on the plus side in North America quarter over quarter as well. And then finally, South America and Brazil, good year over year numbers, 24%. And we saw that, of course, already in the last quarter. And we see now quarter over quarter, it's another 2% up. And also the book to bill is 150%, which then, of course, is the basis for our decision to increase production in Brazil in March.
Moving then to Page number 6, in CE. I would like to say that the sales drop in CE is on 23%. The production in Q4 was 28% lower than Q4 and utilization at 40%. These are numbers that we haven't seen really since the crisis in 2,008. In general, you can say that there is a big difference though.
That is that this time around, what we see is profitable. What we see has a good consolidated cash flow and what we see also have the inventory lined up and also in being in a good level compared to the demand that we have. And since May 2012, we actually reduced the inventory in CE with 30%. So the destocking has going on for quite some time in CE, which we believe is the absolute right thing to do even though it is, of course, a slowdown that we have seen. We also if we look at the different markets there, China has been heavily impacted minus 30 7%.
But I'm really happy to report that we are actually getting the market share. We do have an all time high, 50% market share. And the price pressure comment that is there on the bullet number 3 is related to China. There has been price pressures. But since we have managed our inventory in a good way, since we have make sure that we do have a balancing there, I think we have managed that in a good way.
When it comes to action for Q1, prepare for spring season production that is, of course, the number one priority. How the spring season will go, we don't really know yet. We will have to wait and see. But we are ready. We have the inventory in line.
We have the production lined up. So we will see how that turns out when we start to see the order intake coming from that. We also have some other movements and I talked about the brick load in China which is being made this effort. I talked about the R and D and the selling expenses being on a high level. And really to illustrate this, I would like to you to follow to Page number 7.
And this is a I think it's a good visual description on the enormous amount of things we are actually doing now. It's a little bit of a crescendo when you talk about actually renewing our fleet, position ourselves for the future and making sure that we are a stronger company going into the years to come. We have, of course, the new Volvo FH and a launch process right now. And we are, as I said before, really happy with the acceptance there. The brick loader just coming out now, starting to ramp up the production.
We are in the final stages of getting everything ready for the Renault launch, which will come in June with a new lineup for Renault. At the same time, we then are finalizing the new Tier 4F engines for the construction and the industrial engine side and of course the Uranus 6 here in Europe when it comes to emission legislation. On top of that, we also then are working very diligent with our new value tracker and platform, which then is a range of products based on the same platform. And that is not only the product by itself. We also build up an industrial system around that with investment in, for instance, Thailand, Kaluga, even though that's not really for the platform.
And then in Bangalore, India and also we're looking into China here. So I think this picture actually says more than 1,000 words when it comes to describing that we are in a very, very exciting part of our development in the Volvo Group going forward. Moving into number 8 and coming back to the standard slide now showing you what is the big issues that has been related to the strategy. And we will not and cannot show you all the activities we're doing because we have now defined the 35 roadmaps and 400 main activities, thousands of smaller activities, which are allocated, defined and now into operations since January 1. 2 years equals 36 months.
We have used up January. That means that we're 35 months to go in order to succeed achieving the targets that we have set out. And you see the different activities, everything from reduction of consultants, consolidate industrial footprint in Japan, IT projects, prioritization and of course, the Dongfeng and the reorganization in Europe and rightsizing in Japan. So there's a lot of things going on both in terms of positioning ourselves in the future, both in terms of strategic and structural things we're doing and of course also making sure that we are dealing with the ups and downs in the market that we have seen. And with that, I hand over to Anders, III, to talk a little bit more about the balance sheet and the financial issues.
Very good. So we turn over to Page number 9 and say a few words about the cash flow and the investment side. Here we can see that our cash flow of EUR 4 point 7,000,000,000 for the quarter is, of course, was driven by the EUR 6,700,000,000 release of working capital. And it's mainly explained, of course, by the inventory reduction as the main contributor. Also, we can see that on a 12 month rolling, we are still in negative territory, largely explained, of course, by the fact that we don't get the contribution from the operating income this quarter as before.
Turning over to the investment on the right hand side, we see there that we are in a high pace of the investments. We know that and we can relate back to a previous slide on the massive product renewals of course. And that explains the bar there that is still on a high level, of course, in 2013 and then moving downwards in 2014 onwards. But we are on a high level. We can see, for instance, that we are still, of course, on a very high level on the tangible side with the tooling, for instance, for India, Russia and Thailand as major reasons, we can also conclude that on the rental fleet side, we are now decreasing on the renewal of that.
And also we can conclude that we still have a R and D capitalization on a high level, but that is also on a downward trend for the 2nd part of this year. Then if we turn to Page number 10 and look on the capital efficiency measures, we can conclude there that we are still trailing on a fairly good level around 30 days on the CCC days on the capital efficiency side. Also on the number of inventory days and that is despite the drop of sales, we have kept the number of inventory days fairly stable. On the ROC, on the same page, we now see that we are on a 17%, of course, lower than the 29%, largely explained by the lower operating income. Then if you follow me to Page number 11, we have concluded before that the net financial debt was net reduced by some $12,000,000,000 over the quarter, largely explained then by the positive cash flow, the divestment of Volvo Aero and some positive currency impact primarily the Japanese yen.
And now of course that means that we can record a net debt over equity at 29% level excluding pensions for the quarter and that has kept the balance sheet at a stable level as we have said before. On the right hand side, we also would like to display the suggestion from the Board of directors to the AGM, which is a dividend of SEK 3, a yield just above 3% right now. Then on the last, I think page, Page number 12, we have also included some guidance for you on reporting changes for 2013. I will not go through all the details here. You're welcome to ask questions about it in the Q and A.
But it's mainly a guidance on the R and D capitalization and on amortization. It is also some of the accounting changes for the pensions and there are also some other changes that we make during the year of 2013. So I think by that, I leave the word back to Olof.
Thank you very much, Anders. And by that, we conclude the presentation and open up for questions and you will then get answers.
Our first question comes from Mr. Alex White from JPMorgan. Please go ahead sir.
Good afternoon, everybody. It's Alex White at JPMorgan. I've got two questions, please. Firstly, could you quantify for us the for us the over absorption benefit in Q1 2012 and Q2 2012 in both 12 ROCs and Construction Equipment? And secondly, in Construction Equipment on the mining side, are you beginning to see stabilization there?
Or does demand continue to deteriorate?
Okay. Let's Kirti will take the overcapacity issue, and I will then comment on the mining. I would say that we see a stabilization, but it is still on, of course, very low level or low levels compared to before. And it's a little bit different in different regions around the world. But at least, I would say that we see a stabilization.
Where it would go from here though, it's very difficult to say because we don't see any sort of clear indication. And that's why I was and especially for the spring season, which is normally a very strong season, as you know, for CE, We have prepared ourselves for it, so we will be able to respond to it. We will have to see how that develops. And Chris, have you Yes. If we look at
the absorption rates in the you can say Q1 of 2012 for trucks, you could say it was about minus 100. And in the Q2, it was also about minus 100. And for Construction Equipment, likewise, about minus 100, both Q1 and Q2.
So 100 under absorption you mean in those quarters?
Correct. Got it. Thanks.
Our next question comes from Mr. Christian Magnegard from DNB. Please go ahead sir.
Hi there. A follow-up on that. Did you have absorption effect for 2011 as well? It would be much appreciated. Secondly, order intake in Latin America in Q4 was strong, but it was not the kind of quarter over quarter growth as we saw for some of the competitors from quarter to 50% growth quarter over quarter.
Is that due to your intention of raising prices? Or is there any other factors? Thirdly, on Construction Equipment, sales were a bit lower than I expected. Was that a destocking problem from in the dealerships that dealers are destocking affecting your sales more than maybe the underlying market? Or does your Q4 reflect the market demand for the moment?
And finally, on the currency for VCE, why that was so positive in Q4?
Okay. I look at you, Chris, on the absorption.
I have to come back with you too on that one. We don't have that with us here and now. It was but it was clearly a good utilization of the industrial system and we had good, you can say, production levels in relation to the staffing levels we had. So it was over absorption, but I don't have the number with me now.
When it comes to the sales in Latin America and Brazil in particular then, you can say that we have made sure in the upturn that we maintain prices. We also had a pricing increase during the Q4. And I must say that looking at our own numbers where we are in terms of market shares and where we are in terms of position ourselves with the Euro5 and the trucks we sell in Brazil in particular. And I'll say that I'm really pleased with the development I see. When it comes to the VCE sales, we are looking at both at the and we are looking very much at, I should say, on the pipeline inventory.
That is the total inventory out also on the dealer side. And when we talk about the destocking and getting in top line, I would say that is reflected all the way in, meaning that what you see in the sales there is actually the as far as we can see then the underlying demand that we had during the quarter. And then on the currency issue, the positive thing there, it's I guess it's currency movements. But I'll leave it to you, Christian.
It's I have to look up the details. But you can say it's primarily balance sheet items, revaluations as well as the derivatives that we are using that are also being realized and you can say changed.
We can supply it with
a breakdown on that. Okay.
Great. I have 2 more things. Firstly, on the theoretical, but since you had over absorption in 2011 and then you have the low hanging combination of raising profitability by 300 basis points from 2011. Is that including the over absorption effect? Or how should we think of that?
No. Basically, you should think about the absorption issue being something that you basically theoretically again now is, of course, a zero sum game. So we do not when we look at the 300 basis points over time, that is sort of with an anticipation and that we are theoretically perfect in terms of getting our production and everything right. So it's a 0 in there.
Okay. And just finally on Construction Equipment, you said that your capacity utilization was 40% in the quarter and that was down 28% from last year. And if I don't remember wrong, Q4 2011 was quite okay. So that means that you should have had last year like 55% to 60% capacity utilization despite the strong quarter. Do you have overcapacity in the system?
Do you need more restructuring in construction equipment? Or is there anything else that I should remember?
No. I think that we are if you look at the system as such, I think we are adding capacity where we believe we're going to grow and we have invested in productivity in the other ones. What is really important for the CE part is that we are implementing very good flexibility. That means that the both on the breakeven point sort of say, but also making sure that we have good flexibility. And there we are taking steps in the right direction definitely, but we also have more to do on that side when we're looking at over the next cycle here.
Okay. Thank you very much.
Our next question comes from Mr. Peter Testa from 1 Investment. Please go ahead sir.
Hi. Thanks very much for taking my questions. Just three quick ones. One is just if you could help us understand on Renault, what you're doing on repositioning the product versus Volvo to try to differentiate and give it some more commercial momentum? The second is just on China.
I understand there's not a lot of visibility into Q2, but I was wondering if you had any comment on sort of softer items such as do you see any change in discounting? Or do you see any utilization changes or spares increases in your business and trying to give some sort of sense of movement? And then the last one is you've described a couple of points like overhead on the absorption sustained in Q1 and some higher launch costs this year, depressing margins. Can you give us some feeling for what's happening in 2013 to boost margins please? Thank you.
Okay. If you look at Renault and the differentiation that is a major part of our brand positioning that we are doing right now. And the positioning there will then be sort of manifested also when we get with the new launches that is coming out now. So that will then give us in the markets in Europe and elsewhere internationally a good possibility to actually do a differentiation which is then optimal for the other. And we have presented the 9% on the Capital Markets Day, the work that we're doing there.
And we're continuing that and it is progressing really well actually. So we're looking forward to that. I should, however, say that repositioning a brand is nothing you do from 1 quarter to the other. This is, of course, something you have to work on. But we have that in mind now when we do the reorganization and restructuring in the European sales network.
That is we have that very much in the front line to see that we have an organization that also supports and makes sure that this repositioning is happening. In China, I would say that we see that the machine utilization basically is minus 10% year over year. So I would say that we call it a little bit of bottoming out. And where it goes from here, it's a little bit too early to say. And I would like to see the spring season the data coming in there before we can actually call it.
We have maintained as you can see in our report the market estimation for China and that is the best we can see now. And the last question sorry that was
It was just you described a couple of points which the overhead under absorption will sustain in 2013 of launch costs in 2013, depressing margins. But trying to understand what you would point to as the main items expected to benefit or push margins up in 20 13 margin?
Yes. And that's a good plan. I mean, if you look at the 2020 targets, the 25 roadmaps that we have, the 35 months that we have to implement there. And of course, all of these will not come at the back end. There will be some that is more back loaded than other, but we will start to see effects of all the activities that we're doing.
And one effect is, for instance, the restructuring in Europe. We have said that the impact there is EUR 600 something million on a yearly basis, full effect in 2014. But of course, we're going to start to see of that already in 2013 in the back end of 2013. So there are a number of things that are in the pipeline based on the strategic objectives that we have that will come through here. But how much of this, exactly when it comes and so on and so forth that we will report to you when that happens.
So we don't give any guidance on that other than the ones that we have given you in the for instance the restructuring.
Okay. Thank you for the answers.
Our next question comes from Mr. Anders Trapp from SEB. Please go ahead sir.
Yes. Hi. Just a bit of a follow-up on the Renault repositioning. Basically, when you sort of have launched the new Renault lineup and the new Volvo FH, would should we expect that the sort of difference in positioning between the two brands have increased or decreased?
I would definitely say that the product by itself has the repositioning and the differentiation has increased. The other part of this is and that's one thing. The other thing is that we also get a commercial system that optimize the differentiation in the absolute best way. And that is exactly what this reorganization is doing. So if you look into 2014 for instance, what you're looking at then is a completely new lineup on the Volvo side and the Renault side with reorganized European sales network that is supporting this, and that is, of course, a lot of hard work.
But generally, you can say that all the costs and investments that we do during 2013 then turns into and become income from 2014 and onwards.
Okay. Also you have the clarification maybe perhaps on the R and D and market or R and D rather costs in the visible in the P and L in 2013, if that is actually going to be higher than in 2012 or higher than the level of rate rather we saw in the Q4.
And so, Kristi, I would say it should be reasonably stable in the P and L. You will probably see a fairly high first half because then we will continue to stand a lot to launch all the products. And as we start to see those product launches coming through, we can say the burn rate in R and D should gradually start to come down towards the second half of the year. But then on the other hand, we will start to amortize more than we are capitalizing. So some headwind in the first half, I would say, on the P and L side.
And then I would say, in the second half fairly neutral.
Yes. Compared to the full year level or compared to the Q4 level? Because Q4 was
a bit quite visibly higher.
Yes. I would say the Q4 level is the level we will have now in the first half.
Okay. Very good. Thank you.
Okay. Operator, no more questions.
Our next question comes from Mr. Martin Michaelson from Redburn. Please go ahead, sir.
Hi. This is Martin Michaelson from Redburn. Thanks for taking my questions. I would have three questions, I may. According to my calculation, a destock of 3,700 vehicles equals to roughly 4 days of sales.
Do you have any idea how many more vehicles will need to be destocked in early 2013? The second question is that I noticed that the truck backlog decreased by about 13,000 trucks in 2012, which I think is quite a bit. When do you see backlog going back up? And is that going to involve further production cuts? And thirdly, if you just could give us any color on the situation in Russia on regarding this truck recycling tax?
How do you see situation developing in further quarters? Thank you.
Okay. Yes. I think that on the first on the destocking activities, as I said, I think that if we look at the demand going forward, we have the destocking and the inventory reduction that we've done. We have a few more on the Renault side, but otherwise, I think we're pretty much in balance. On the order impact, I'm looking at you, Chris.
Well, if you I don't know how you have calculated the backlogs because we don't give that externally. But you can say, nevertheless, we have seen the backlogs or the order book starting to increase now again in both Europe, Brazil and the U. S. While it's still a bit downward trend in Asia, but the big markets in Europe, North America and Brazil are the backlogs are increasing a bit. And that is the reason why we are opening up some more production slots in March, both in Brazil and in Europe.
And then Russian?
Sorry, I missed the Russian. Recycling. Recycling fee?
Yes. Could you take the question once again please?
Yes. Basically I just wanted to ask regarding the Russian recycling fee. I understand that the European OEMs are not able to get the status of the local producer, which means that European truck makers have to pay this tax. And from my understanding, it's very difficult to transfer this cost onto the customer. What is your experience?
And how do we see this developing in future quarters?
You can say, we were actually excluded from the recycling fee initially when it was launched in September because we have committed ourselves to buy a keb plant in Russia, in Kaluga that will be up and running in the second half of twenty fourteen. However, then we got the news in November that we were no longer exempted from this. And therefore, we had a bit of a stock problem. And of course, we couldn't move those €5,000 to the customers because they had already committed price from us. What we will do now in the beginning of this year is, of course, trying to push that recycling fee into the customer hands.
But it will probably take a while because you don't just increase the sticker price by €5,000 It will depend a bit on how our competitors are doing also. But we are certainly pushing now in the next few months.
Sorry, just a quick follow-up on that backlog issue. I've noticed that your book to bill in Europe has been below 1 for 3 quarters in a row. So I'm struggling to figure out how can the European backlog go up if book to bill is below 1 for 3 quarters in a row? Thank you.
Well, we have different type of destockings and other type of you can say movement in there with light duty trucks etcetera. So I would say it's just as of recently that you will see the order book starting to move up a bit. And it's no dramatic increases if I put it that way.
Okay. Thank you.
Our next question comes from Fraser Hill from Bank of America. Please go ahead.
Yes. Hi, good afternoon. Thanks for taking my questions. Just on the European market, I was just interested in your perspective on inventory levels across the market. Obviously, you seem to have got yours into shape heading into 2013.
Are you from your perspective, do you think that the industry as a whole has got fairly healthy inventory levels? And what are you seeing on primacing from your competitors at the moment? Is that remaining competition? Secondly, in Europe as well with regards to the pre buy discussion, I know you've got a flat forecast for the year, but getting towards the end of the year, are you expecting an uplift still? And if so, how are you going to adjust your production footprint for any uplift that might come?
And I think finally just on the Chinese construction equipment market, What's your perspective on inventory levels across wheel loaders and hydraulic excavators? If you've got any idea of how many months inventory you think there might be across the industry as a whole?
Thank you, Marc, for your questions. I think that when it comes to the pricing issue, and I leave the market inventory to you, Kristian, also on the Chinese side there and these 2. I think that in general, you can say that we have experienced some spots and some segments with some price pressure in EU in the 4th quarter. But in generally, there is absolutely no sort of general price pressure all over the map, And that is a little bit of a mixed feeling generally, you can say, holding up quite reasonable. And the same goes for spare parts.
Even though it's a little bit lower volumes on the spare parts side than we have seen before, but the pricing is holding up. When it comes to the pre buy, we just have to wait and see. We haven't seen anything. And I think I should also then highlight the way we look at the market. Yes, it's a flat market, but we say that it's a little bit like a reverse 2012 where you're actually now going to see a slow start in the beginning of the year.
And mathematically, you would then see a strong year ending and gradually improvement over the year. And but when it comes to the free buy, it's I think it's too early to call, and we will have to wait and see if we're going to get any effects of that. When it comes to the production system, we are definitely ready to do any adaptations that we need. And that's why it was so important to me that we came into this year with an inventory level that gives us that flexibility to go up and down in the production system when we see that the market is moving. And that's why we put such a focus on that in Q4.
When it comes to the inventory levels on market side, Kristal, in EU and Chinese construction?
I would say in Europe on trucks, it feels like inventories are in reasonably good shape. The exception could be Russia where it's a bit too much inventory. But otherwise, no big issue for the industry. When it comes to China Construction Equipment, I would say there is still too much inventory out in the dealer networks that is putting some pressure on pricing and down payments as some dealers are having financial difficulty and trying to generate cash. We'll see.
I think if we have a decent spring season that should support and help the industry to clean up some of that coming into the summer.
Thank you.
Our next question comes from Florian Grancolas from AXA. Please go ahead.
Yes. Hello. I wanted to have an idea of the levels of CapEx spend, cash CapEx that you expect for 2013 versus 2012 please.
Okay. Anders? Yes. Our easy guidance there is that you can expect pretty much the
same levels or flat levels there going forward. Maybe with leasing portfolio investments will decrease a little bit.
Yes. I mean there you will see a decreasing trend, yes.
Okay. And maybe a second question, if I may. Just a quick highlight on the change in accounting for the pension system. Can you re summarize quickly what it is about?
Well, this is a change in the IAS 2019. What we do here is to give you a bit of guidance here on how the previous corridor method is removed and the use of the discount rate now for our planned assets puts a lot of volatility into the system there. And really what happens there is and this is really why we put down the guidance is that the pension liabilities, the recognized ones, since we can't have them off balance anymore, they go up with €15,000,000,000 and that in effect has also an effect on the equity. And this is primarily also why we now prefer to show our net debt over equity excluding pension because with a discount rate like this going up and down, it just creates too much volatility in the system.
Okay. Fair enough. So but just from my understanding, the EUR 15,000,000,000 increase is purely due to the change in discount rate?
Yes, you could say that. Because I mean, it's this is nothing changed. This is an accounting treatment that is this changed under the IIS.
Yes, absolutely. I was just to understand correctly where the increase actually came from.
Actually just to give you some more comments there, the pension debt has been there, but it's been off balance sheet due to the corridor method. So it's been recorded as actuarial losses in that.
Yes, yes. No, that's fine. It was just the change year over year. Okay, thanks.
Okay. If there is no further questions, I would like to thank you all for joining and welcome you back then on the Q2 Q1 report in 2013. Thank you very much.