Ladies and gentlemen, welcome to the AB Volvo report on 2012 operations conference. Today, I am 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. Good afternoon, good morning to all of you, once again, welcome to this presentation of the fourth quarter 2012 for the Volvo Group. I would like to just stay a few seconds on the opening picture where you can see a wheel loader. This is now the new BRIC wheel loader that I have been talking about for a couple of years. This is now the first Volvo-branded wheel loader that is then really focusing on capturing market volumes in the BRIC countries. We launched it in China. We are starting to ramp up the production. I am really excited to see how this will then turn out in the marketplace in China and elsewhere in the BRIC countries. Follow me into page number two, Q4 in a snapshot.
We have called this quarter a destocking quarter because that really reflects what we have been doing. That is very much in line with what we also discussed with you and said in the third quarter. As you can see, the low order intake in Q3 and heavy destocking in Q4 is one of the main activities that has led to, we will come back to that then with a underproduction, as we call it, compared to sales with a low capacity utilization, also then a substantial cut in inventories with SEK 5.4 billion 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&D, selling and CapEx for our future products. I will come back to that a little bit later in the presentation.
As you can see, we have had then about SEK 600 million expense increases in the R&D and selling expenses compared to quarter four 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 990 million. 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 1.6%, a net financial debt reduced by SEK 12 billion. We have actually been doing exactly what we said in the Q3 that we were supposed to do. Focus on the cash flow, focus on the balance sheet making sure that we enter 2013 in a balanced production way.
If you now follow me to page three, I will come back more in detail on Trucks and 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 coaches 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. As you can see there, even without that, it would have been a negative result. We are continuing to push forward with programs in buses. We are determined to make sure that we will be able to reduce the break-even 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 the industrial engine side, the fourth quarter is normally a weak quarter, this not being an exception. On top of the market weakness, we also have had some investments in R&D, positioning Penta for the future when it comes to emission legislation, primarily the Tier 4 Final emission legislation for the industrial engines. Another good quarter for financial services, SEK 12 billion in new financing. 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 SEK 390. I am really pleased to report that financial services now are within the strategic target bracket of 12% to 15% return on equity. If you now follow me to page four, looking quickly into transactions 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 have said, has been substantially reduced and particularly down on the Renault Trucks 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 first quarter here, but all in all, I think we have done a good job. This has then resulted in a total inventory reduction of 5,300 trucks, whereof 3,700 is new truck and the rest being used trucks. When it comes to the implementation of actions, you can then see that we have, during quarter four, reduced the pace in Trucks operations by 20%. If you read it that we then comparing the ingoing pace with the outgoing pace, and if you compare these two, we then have an outgoing pace of -20%. As I said, we also had the marketing activities in Europe to reduce the inventory source, and that was primarily on the Renault Trucks side.
We're now looking into Q1, we will continue to manage and keep focus on the under absorption, we will have to also look at the continued low capacity utilization in France. When we look at the quarter, we will see that under absorption will be there in January. It will be there also in February. 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 first quarter for the trucks, we are looking at around SEK 1 billion. The reason for that is that we had an under absorption during the fourth quarter, which was a little bit uneven, where we actually had high, or rather good production in October, we did break at the back end of the fourth quarter.
That is then coming also into the first quarter, 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 the order intake and the acceptance of the new Volvo FH coming into the market, the order intake is slightly ahead of our internal plans and targets that we have seen. We have then, given the situation we see, we have reopened the stop base in the Volvo system here in Europe, we also have decided to increase the production in Brazil as of March. The reason for that, we can then discuss a little bit more if we follow with the page number five, where we take a look at the total order intake.
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, up 15% quarter-over-quarter, with a book-to-bill ratio of 89%. The book-to-bill ratio is negatively affected by the 3,700 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 ratio. Quickly looking into the different aspects or the different parts of the order intake, we can note that the volume we can build in Europe had a positive development both year-over-year and quarter-over-quarter. We also see that the positive trend that we have seen in Q4 has continued for Volvo Europe into the first days or weeks here in the first quarter, hence the decision to reopen some of the stop dates that were planned. Renault year-over-year, minus 18%.
We should, though, 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. We didn't accept orders in certain regions from Renault, that's one of the reasons there. Other numbers that stick out, I think in North America, Mack 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 Mack. That's a comparison number. Otherwise, we are on the plus side in North America quarter-over-quarter as well. Finally, South America and Brazil, good year-over-year numbers, 24%, we saw that, of course, already in the last quarter.
We see now quarter-over-quarter is another 2% up, the book-to-bill 150%, which then, of course, is the basis for our decision to increase production in Brazil in March. Moving to page number six and CE. I would like to say that the sales drop in CE is on 23%. The production in Q4 was 28% lower in Q4 and utilization at 40%. These are numbers that we haven't seen really since the crisis in 2008. In general, you can say that there is a big difference, though. That is that this time around, Volvo CE is profitable. Volvo CE has a good positive cash flow, and Volvo CE also have the inventory lined up and also in being in a good level compared to the demand that we have. Since May 2012, we actually have reduced the inventory in CE with 30%.
The de-stocking 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. If we look at the different markets there, China has been heavily impacted, minus 37%, but I'm really happy to report that we are actually getting the market share. We do have an all-time high 15% market share, and the price pressure comment that is there on the bullet number three is related to China. There has been price pressures, since we have managed our inventory in a good way, since we have made 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 1 priority.
How the spring season will go, we don't really know yet. We will have to wait and see. We are ready. We have the inventory in line. We have the production lined up. We will see how that turns out when we start to see the order intake coming from that. We have some other movements, and I talked about the BRIC loader in China, which is a big step there. I talked about the R&D and the selling expenses being on a high level. Really to illustrate this, I would like you to follow to page number seven. This is, I think is 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 BRIC 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 renewal. We are finalizing the new Tier 4 Final engines for the construction and the industrial engine side, and of course, the Euro 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 tractor platform, which then is a range of products based on the same platform. That is not only the product by itself. We're also building 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. I think this picture actually says more than 1,000 words when it comes to describing that we are in a very exciting part of our development in the Volvo Group going forward. Moving into number eight and coming back to the standard slide now, showing you what is the big issues that have been related to the strategy.
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 1st. Two 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. 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.
There's a lot of things going on, both in terms of position ourself 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. With that, I hand over to Anders Joelsson to talk a little bit more about the balance sheet and the financial issues.
Very good. We turn over to page number nine and say a few words about the cash flow and the investment side. Here we can see that our cash flow of SEK 4.7 billion for the quarter was driven by the SEK 6.7 billion release of working capital. 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 a 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 investment. We know that. We can relate back to a previous slide on the massive product renewals, of course.
That explains the bar there that is still on a high level, of course, in 2013, 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 Renault of that. Also, we can conclude that we still have R&D capitalization on a high level, but that is also on a downward trend for the second part of this year.
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, 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. If you follow me to page number 11, we have concluded before that the net financial debt was net reduced by some 12 billion SEK over the quarter, largely explained by the positive cash flow, the divestment of Volvo Aero, and some positive currency impact, primarily the Japanese yen.
Now, of course, that means that we can record a net debt over equity at a 29% level, excluding pensions for the quarter, 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 three Swedish krona, a yield just above 3% right now. On the last, I think page number 12, we have also included some guidance for you on reporting changes of 2013. I will not go through all the details here. You are welcome to ask questions about it in the Q&A, but it is mainly a guidance on the R&D capitalization and on amortization.
It is also some of the accounting changes for the pensions, there are also some other changes that we make during the year of 2013. 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. You will then get answers.
Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad and you will enter a queue. Our first question comes from Mr. Alex White from J.P. Morgan. Please go ahead, sir.
Yeah, good afternoon, everybody. It is Alex White at J.P. Morgan. I have got two questions, please. Firstly, could you quantify for us the overabsorption benefit in Q1 2012 and Q2 2012 in both Volvo Trucks and Construction Equipment? Secondly, in Construction Equipment on the mining side, are you beginning to see stabilization there, or does demand continue to deteriorate?
Okay. Christian will take the overcapacity issue. I will then comment on the mining. I would say that we see a stabilization, but it is still on, of course, a very low level or low levels compared to before. It is a little bit different in different regions around the world. At least I would say that we see a stabilization. Where it will go from here, though, it is very difficult to say because we do not see any sort of clear indication. Especially for the spring season, which is normally a very strong season as you know for CE. We have prepared ourself for it, so we will be able to respond to it a little. We will have to see how that develops. Christian, how are you?
Yes, if we look at the absorption rates in the, you can say first quarter of 2012, for trucks, you could say it was about -100, and in the second quarter it was also about -100. For Construction Equipment, likewise, about -100, both Q1 and Q2.
100 under absorptions you mean in those quarters?
Correct.
Got it. Thanks.
Our next question comes from Mr. Krister Magnergård from DNB. Please go ahead, sir.
Hi there. Well, follow up on that. Do you have absorption effect for 2011 as well? 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 who reported 50% growth quarter-over-quarter. Is that due to your intention of raising prices or is there any other factors? Thirdly, on construction equipment, the sales were a bit lower than I expected. Was that a de-stocking problem in the dealerships that dealers are de-stocking, affecting your sales more than maybe the underlying market? Or does your Q4 reflect the market demand for the moment? Finally, on the currency for VCE, why that was so positive in the fourth quarter?
Okay. I look at you, Krister, 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 clearly a good utilization of the industrial system, and we had good, you can say, production levels in relation to the surfing levels we had. It was overabsorption, but I don't have the number with me now.
When it comes to the sales in Latin America and Brazil in particular, you can say that we have made sure in the upturn that we maintain prices. We also had a pricing increase during the fourth quarter. I must say that looking at our own numbers, where we are in terms of market shares and where we are in terms of positioning ourselves with the Euro 5 and the trucks we sell in Brazil in particular, I must say that I'm really pleased with the development I see. When it comes to the VCE sales, we are looking very much at, I should say, on the pipeline inventory, that is the total inventory out also on the dealer side.
When we talk about the de-stocking and the getting into line, I would say that is reflected all the way in, meaning that what you see in the sales there is actually, as far as we can see, the underlying demand that we had during the quarter. Then, on the currency issue, the positive thing there is, I guess it's currency movements, but I'll leave it to you, Kristin.
I have to look up the details, 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 with a breakdown on that.
Okay, great.
Just two more things. Firstly on the, it's theoretical, but since you had over-absorption in 2011, then you have an inclination of raising profitability by 300 basis points from 2011. Is that including the over-absorption effect, or how should we think of that?
You should think about the absorption issue being something that you basically, theoretically, again now, it's of course a zero-sum game. 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. It's a zero in there.
Okay. Just finally, on construction equipment, you said that capacity utilization was 40% in the quarter, and that was down 28% from last year. If I don't remember wrong, Q4 2011 was quite okay. That means that you should have had last year 55% or 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?
I think that 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 both on the break-even point, so to say, but also making sure that we have good flexibility. 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.
Okay. Thank you very much.
Our next question comes from Mr. Peter Testa from One 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 softer items such as, do you see any change in discounting or do you see any utilization changes or spares increases in your business in China to give some sort of sense of movement? The last one is, you've described a couple of points like overhead and under-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.
If you look at Renault and the differentiation, that is a major part of our brand positioning work that we are doing right now. The positioning there will then be sort of manifested also when we get the new launches that is coming out now. That will then give us, in the markets in Europe and elsewhere internationally, a good possibility to actually do a differentiation which is then optimum for the other. We have presented, and I presented on Capital Markets Day, the work that we're doing there, and we're continuing that and it is progressing really well, actually. We're looking forward to that. I should, however, say that repositioning a brand is nothing you do from one quarter to the other. This is, of course, something you have to work on.
We have to 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 frontline 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. I would say that we call it a little bit of bottoming out. Where it goes from here, it's a little bit too early to say, and we 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. The last question, sorry, that was?
You've described a couple of points, which the overhead under-absorption will sustain in 2013. You have launch costs in 2013 depressing margins. We're trying to understand what you would point to as the main items expected to benefit or push margins up in 2013.
Yeah. That's a good point. If you look at the 20 targets, the 25 roadmaps that we have, the 35 months that we have to implement there, of course, all of these will not come at the back end. There will be some that are more back-loaded than others, but we will start to see effects of all the activities that we're doing. One effect is, for instance, the restructure in Europe. We have said that the impact there is SEK 600 something million on a yearly basis, full effect in 2014. Of course, we're going to start to see that already in 2013, in the back end of 2013. There are a number of things that are in the pipeline based on the strategic objectives that we have that will come through here.
How much it is, exactly when it comes, and so on and so forth, that we will report to you when that happens. We don't give any guidance on that other than the ones that we have given you in, 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, I wonder, when you have launched the new Renault lineup and the new Volvo FH, should we expect that the 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 optimizes this differentiation in the absolute best way, and that is exactly what this reorganization is doing. 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 a differentiation. You have a reorganized European sales network that is supporting this, and that is, of course, a lot of hard work. Generally, you can say that all the cost 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&D and market, or R&D rather, costs visible in the P&L in 2013, if that is actually going to be higher than in 2012 or higher than the level or rate, rather, we saw in the fourth quarter.
Anders, I would say it should be reasonably stable in the P&L. You will probably see a fairly high first half because then we will continue to spend a lot to launch all the products. As we start to see those product launches coming through, you can say the burn rate in R&D should gradually start to come down towards the second half of the year. On the other hand, we will start to amortize more than we are capitalizing. Some headwind in the first half, I would say, on the P&L side, and then I would say in the second half, fairly neutral.
Yeah. Compared to the full-year level or compared to the Q4 level, because Q4 was quite visibly higher.
Yeah, 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 Viecha from Redburn. Please go ahead, sir.
Hi. This is Martin Viecha from Redburn. Thanks for taking my questions. I would have three questions, if I may. According to my calculation, a destock of 3,700 vehicles equals to roughly four 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? Thirdly, if you just could give us any color on the situation in Russia regarding this truck recycling tax. How do you see the situation developing in further quarters? Thank you.
Okay. 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 intake there, I'm looking at you, Christian.
Well, I don't know how you have calculated the backlogs because we don't give that externally. 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. The big markets in Europe, North America, and Brazil, 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.
The Russian?
Sorry, I missed the Russian.
Recycling.
The recycling fee?
Yes.
Could you take the question once again, please?
Yeah. 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. From my understanding, it's very difficult to transfer this cost on to the customer. What is your experience, and how do you foresee 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 cab plant in Russia, in Kaluga, that will be up and running in the second half of 2014. However, we got the news in November that we were no longer exempted from this, therefore, we had a bit of a stock problem. Of course, we couldn't move those EUR 5,000 to the customers because they had already a 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. It will probably take a while, because you don't just increase the sticker price by EUR 5,000. It will depend a bit on how our competitors are doing also.
We are pushing now and in the next few months.
Sorry, just a quick follow-up on that backlog issue. I have noticed that your book-to-bill in Europe has been below one for three quarters in a row. So I am struggling to figure out how can the European backlog go up if book-to-bill is below one for three quarters in a row. Thank you.
Well, we have a different type of destockings and other type of, you can say, movement in there with light-duty trucks, et cetera. So I would say it is just as of recently that you will see the order book starting to move up a bit. And it is 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.
Hi, good afternoon. Thanks for taking my questions. On the European market, I was interested in your perspective on inventory levels across the market. Obviously, you seem to have got yours into shape, heading into 2013. From your perspective, do you think that the industry as a whole has got fairly healthy inventory levels? What are you seeing on pricing from your competitors at the moment? Is that remaining disciplined, or is there still some challenges there from the 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? If so, how are you going to adjust your production footprint for any uplift that might come?
Finally, 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? Thanks.
Thank you very much for your questions. When it comes to the pricing issue, I leave the market inventory to you, Christian, also on the Chinese side there, these two. In general, you can say that we have experienced some spots and some segments with some price pressure in EU in the fourth quarter. In general, 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. 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 have to wait and see. We haven't seen anything.
I should also highlight the way we look at the market. Yes, it's a flat market, but we also 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 stronger ending and gradual improvement over the year. When it comes to the pre-buy, 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.
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 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, Christian, 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 Grandcolas from AXA. Please go ahead.
Yes, hello. I just wanted to have an idea of the levels of CapEx spend, cash CapEx that you expect for 2013 versus 2012, please.
Okay, Anders?
Yeah. Our easy guidance there is that you can expect pretty much the same levels, so flat levels then going forward.
Maybe with a leasing portfolio, investments will decrease a bit.
Yes. There, you will see a decrease in trend, yes.
Okay. 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?
This is a change in the IAS 19. 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. Really what happens there is, and this is really why we put down the guidance, is that the pension liability is a recognized one, since we can't have them off balance anymore. They go up with SEK 15 billion, and that has also an effect on the equity. 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. Just for my understanding, the SEK 15 billion increase is purely due to the change in discount rate?
Yes, you could say that. This is nothing changed. This is such an accounting treatment that is changed under the IAS.
Yeah, absolutely. It was just to understand correctly just where the increase actually came from.
Actually-
Just the discount.
To give you some more comment there. The pension debt has been there, but it's been off balance sheet due to the corridor method.
Yes, absolutely.
It's been recorded as actuarial losses instead.
Yeah. No, that's fine. It was just the change year-over-year. Okay, thanks.
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Okay. If there is no further questions, I would like to thank you all for joining, and welcome you back then on the Q1 report in 2013. Thank you very much.