Nilfisk Holding A/S (NF1.F) Earnings Call Transcript & Summary

Good morning. My name is Jens Bak-Holder. I am Head of Investor Relations at Nilfisk. To present Nilfisk's results for the full year and the fourth quarter of 2019, together with me today are Hans Henrik Lund, CEO; and Prisca Havranek, CFO. Turning to Slide 2. Before we kick off today's presentation, I want to remind you that this presentation may contain forward-looking statements that, for a number of reasons, should not be relied upon as predictions of actual results. Looking at Slide 3. The agenda of today's presentation is as follows. Hans Henrik will start by going through the highlights of the year. After which, he will go through the performance of each of our reporting segments. This will be followed by Prisca going through the financial performance of Nilfisk, both for the full year and for Q4 in isolation. Finally, we conclude the presentation with our outlook for the financial year 2020. As always, you are invited to ask questions during the Q&A session at the end of the presentation. And with this, I'll leave the voice for Hans Henrik. Please go ahead.

Thank you, Jens. Good morning, everyone, and thank you for joining our call. As Jens mentioned, I'll start by going through the highlights of '19. So please turn to Slide 4, and let's jump straight into it. Organic growth for the year was minus 4.1% for our total business and the EBITDA margin before special items was 9.9%. Both of these numbers are in line with what we told you in our latest guidance, but obviously lower than we had planned for and expected in the beginning of the year. And of course, it is disappointing to us, no doubt about it. We did experience significant headwind in the core markets of EMEA, mostly coming out of Germany with the weakened economical conditions in Q2, and we saw it got worse in Q3. And obviously, in the U.S., we didn't manage to grow the business as we had expected going into the year. Especially Q4 was a huge disappointment where we experienced the softening of the market across all channels. And we will come back with more details on that. On the encouraging side, we made good progress in the continued transformation of Nilfisk, which basically leads me to the next slide. So please take me to Slide 5, where we've listed some of the highlights in terms of the transformation. If I take you back to '18, you know we spend a lot of efforts on simplifying the business. In '19, it was obviously the second year of the transformation for Nilfisk, focusing on building the foundation for our future commercial execution. During '19, we've established a global organization structure. And we have concluded the transition to the full new Nilfisk leadership team. As part of this transition, we have established a stronger focus on global marketing. We've established a global service function. We've removed a significant part of the regional leadership in both Americas and EMEA, which enables us to have a more direct and faster collaboration with our main markets. We have ensured a sales setup that enables us to sell the entire portfolio, giving the customers the benefit of that and using our competitive advantage of the broadest portfolio in the industry. And this has meant that we have integrated Viper, IVS and our high pressure washer activities into our now global functional setup. Speaking of integration, you know that we had a strategic review on our consumer business, and it led us to keep the business. We're now focusing mainly on our core market in EMEA. And therefore, in Q4, we exited the Pacific region. We've also integrated the Consumer business into our functional organization. However, given that there are different channels, we have a dedicated sales force still for the Consumer brand. Finally, on the structural piece. In EMEA, we have initiated the implementation of our new distribution setup, where we are planning over the coming years to have 4 regional distribution centers based on our center of gravity analysis. And these distribution centers will not be operated by us, but by a third-party partner. So a significant structural amount of changes, and we've come a long way in getting closer to our customers, offering them the full benefit of our portfolio. And of course, ensuring the right focus and competencies in general. We did also upgrade on the system side, as we've talked about, with the rollout of Salesforce, ServiceMax across all markets. Additionally, we implemented a new web platform, and we did start introduction of a better e-commerce solution. So systems-wise, we're in a better place as well. We did continue the focus on autonomous, of course, in '19. We commercialized Liberty SC50. We now have it in most markets of significance. Sales are in line with expectations, however, of course, still modest, as we expected. But we've definitely gained traction on the customer level, proving that we have a very good solution for the market. Also in the beginning of the year, we added another platform by announcing a multipartner strategy with Brain Corp, and we expect to introduce that product to the market this year. Finally, and not least, we've continued our commitment to CSR efforts. We've gone through a fairly extensive mapping of our consumption baseline in '19, which is, of course, the whole, yes, baseline for the future. We've established CSR targets, and we have chosen to join the scientific-based target initiative to make sure that we follow a strong detailed method. And then we are, of course, committing to reduce our carbon footprint from direct emissions and purchased electricity by 35% minimum in '30. If I summarize the year, all in all, '19 was a year with many changes, and clearly, the second transition year for us. We now do expect to have the majority of these transformative changes behind us moving into 2020 with clearly fewer changes. So moving on to the overview of the reporting segments on Slide 6. Starting with Americas, we continue to see positive growth in Lat Am and Canada. Especially in Canada, I've been pleased with what I see, with how we work with the customers and the good grasp of the market. But obviously, with the U.S. business being the biggest, we need to say that we are disappointed with not being able to grow in this market as we had expected in the beginning of the year. As mentioned, Q4 was, in particular, bad. And we are disappointed because we firmly believe in the changes we've implemented and the plan we have defined for the market. In the beginning of the year, as you know, we changed the organizational structure, we took out management layers, and we structured the sales organization around regional opportunities rather than product and channel. And we firmly believe in those changes as well as we believe in the strong value of our dealer network. And we have really worked hard to develop that business together with them, being more focused on end users and demand generation. Admittedly, we didn't succeed in '19. And it has taken longer than anticipated, and we are -- we were likely too optimistic in terms of how fast we could turn it around. We are, however, committed to the plan that we've made. In EMEA, as you know, Q1 performance was good. We saw a continuing trend from '18. And during Q2, we started to see the first indications of a shift in the economic conditions with the starting point in central and in Germany in particular. The weakening economy got clearly worse during Q3 to our surprise and affected the performance of Germany, coming from the best year in '18 to the worst year in '19. We were mainly hit in the industrial segment, but also in general. The rest of EMEA was not impacted to the same level. We were, however, impacted in the industrial segments across Europe. But in general, both north and south were in a better shape. Moving on to APAC. We saw continued growth in China, however, lower growth than we were used to. And we basically saw the impact of what we believe comes from the trade war. Australia, as we've talked about, has been a tough nut for us through the year. We believe we're through most of the pain at the moment. However, I still need to see the final stabilization of the market before I dare to conclude. Finally, sales out of Singapore, we saw a slowdown in the marine industry. And as we have spoken about previously, one of our dealers covering Indonesia had a lower demand in the first half, but has come back. Consumer, very eventful year for that business in so many ways. We concluded the strategic review that we were the right owners of the business. And then we started focusing the business, starting by exiting the Pacific region in Q4. That has had an impact on both sales and gross margin in Q4. And Prisca will come back to those aspects of it. The real thing for this year was a very strange market, high season in the high pressure business that we and the competitors experienced, mainly in Europe. That was the main impact on Consumer this year. Finally, Private label. It was a bit up and down through the year. Early in the year, our customers were clearly indicating that they wanted more products in Q3 and Q4 to be well prepared for '20. However, as we went through the year, those situations changed and they got more cautious. And I can only guess, but I would think it has to do with the macroeconomical environment in Europe. In any case, they ended up being more cautious. And therefore, a lower revenue than expected. All in all, in summary, very difficult year for us across all segments. We didn't foresee the macroeconomical downturn, mainly in Germany and across the industrial segment in EMEA. That hit us and it hit our competitors as well. And we have through '19 implemented significant changes to precision Nilfisk for the future. And obviously, that required extra attention on top of a difficult market. Now let's move to Slide 7, and let me just give you a few pointers for 2020. With the progress we've made over '18 and '19 in simplification and globalization, we will see less transformation and more focus on commercial execution in '20. And on back of the structural changes, the system implementation, the additional competencies we've brought in, we believe that '20 will evolve around optimizing our commercial activities and getting back to growth in our business, which is so much needed. Improved customer experience, definitely top of the agenda. We have now established systems, insight, competencies across both sales, marketing and service, who -- and that enables us to engage much deeper with our partners and our customers across our key markets, and we will do that in '20. Every function across the value chain are now ready to really focusing on delivering a better customer experience obviously to facilitate growth. We will have a particular focus on our main markets, Germany, France, U.K. and obviously, on the continued implementation of the U.S. plan. We will continue to fuel a number of growth areas that play to the strength of our complete product portfolio, and you see some of them mentioned at the slide. And finally, we will refocus our consumer resources within EMEA to have the exact, right, sustainable footprint for that business. If I should summarize it for you, I would say, look, 2020 is the year with an even stronger focus on the customers and the commercial opportunities in the market to return to growth. This was all from me for now, and I would like to hand over to Prisca for the financials. Please go ahead, Prisca.

Thank you, Hans Henrik. Please turn to Page 9. Let me start with an overview of our financial performance for the full year and the last quarter. 2019 for Nilfisk was a year with both many internal changes, including major organizational change as well as significant external headwinds in both of our key regions in Europe and Americas. This has led to a significant negative impact from top line, which comes on top of the loss of revenue from the businesses we have divested. While we have executed some very significant cost-saving initiatives and we have delivered on those programs, we have, at the same time, invested heavily to strengthen commercial capabilities and rolled out global systems. As the top line weakened significantly starting in Q2, we have added additional cost-saving initiatives, and we've managed variable spend very tightly onwards in 2019. But the net effect of these developments is a significant negative operational leverage from the loss of top line, which we cannot compensate in our fixed cost for the business at the run rates of both the savings and the investments. So let's look at the highlights. Total revenue for the full year amounted to EUR 967 million and Q4 revenue amounted to EUR 234 million. This represents a loss of revenue of EUR 88 million or EUR 25 million, respectively, for Q4. Organic growth was negative at minus 4.1% for the full year, and after a very soft Q3, we've also seen a very soft Q4 at minus 6.3% organic growth. Q4 is much impacted by our poor performance in the U.S., to which I will get back in a second. We've managed, however, to improve gross margin slightly to 42.3% for the full year despite headwinds from the U.S.-imposed tariffs. Looking into Q4 gross margin, this is negatively impacted by one-offs in our Consumer business, and I will get to that -- back to that. Adjusted EBITDA margin before special items, our operating margin came in at 9.9%, which is a reduction in margin of 160 bps. Operating margin in Q4 was at 8.8%, a minus of 360 bps. Full year free cash flow improved, mainly driven by lower special items. Before we go to segment performance, let's double flip into our top line development. So please turn to the bridge on Slide #10. Overall, reported revenue declined 8.3% compared to '18. 5.5% of this decline or EUR 59.6 million in nominal terms is a result of our divestments in '18 and the business exit in '19. FX effects, which were mainly driven by a stronger dollar, impact positively with around 1.3% or EUR 13.6 million. So in total for the group, this leads to organic growth of minus 4.1% or a corresponding loss in top line of approximately EUR 42 million. As you can see in the bridge below, all reporting segments contributed to this decline in organic growth. For the branded professional business, the growth overall was at minus 2.6%. Now zooming into revenue development in Q4, please turn to Slide 11. Reported revenue was down 9.6% to EUR 233.8 million, which is EUR 11 million or 4 -- of which, sorry, EUR 11 million or 4% stems from the divestments in '18 and the exit of the Consumer business in the Pacific region in '19. FX has a small positive effect, leaving EUR 15.7 million in negative organic revenue development, which corresponds to an organic growth of minus 6.3% for the quarter. Our Americas segment was the largest contributor to this decline due to the negative organic growth in the U.S. business in the quarter. On top of this, the EMEA region and to a lesser extent also APAC contributed to the decline. Overall, the branded professional business came in at minus 7%. Now let's take a closer look into the financial performance of each segment. I will start with EMEA, as it's our largest region. Please turn to Slide 12. Q4 revenue came in at EUR 121.3 million, and we saw organic growth in Q4 of minus 3.7%. So while we saw an improvement from the 7% organic growth we saw in Q3, we are still facing significantly adverse market conditions in Q4 in the central region, which includes Germany. The north and the south regions were not as affected, but they were also slightly down in Q4 with some positive variations in certain countries up and down. Gross margin in Q4 was 1 percentage point lower than last year at 45.1%, which is mainly due to mix effects. For the full year '19, revenue in EMEA amounted to EUR 461.3 million, corresponding to an organic growth of minus 2.2%. So the year has been significantly affected by the weakened economic conditions in Europe, which started in Q2. The manufacturing sector in Germany contracted in 2019. And this has driven down demand significantly, mainly in our industrial business. On a positive note, however, I think it's worth to mention that despite a lot of Brexit-related uncertainty throughout the year, the U.K. posted positive organic growth for the full year, and we are particularly proud of the strong growth of our local service business there. Now coming to earnings. EBITDA margin before special items and excluding the IFRS 16 uplift came to 24 -- sorry, 25.4%, which is an improvement of 70 bps compared to the adjusted margin in '18. The improvement was mainly driven by the reversal of a provision, but also by lower salary expenses and lower overhead costs in general. So despite the market downturn that we've seen in EMEA, we've been able to defend our strong market position in Europe while continuously driving efficiency improvements in these regions. And while we've seen some improvement in Q4 versus Q3, we still believe the current economic conditions in Europe will persist into 2020. Moving on to our second largest region, which is Americas, please turn to 13. Our performance in Q4 in Americas, as Hans Henrik has said, was very disappointing. Overall, for the region, organic growth in Q4 was minus 13.3%. But I would like to point out that this is a quarter where we are really facing very high comps because growth in Q4 2018 was at 4.5%. However, we have to acknowledge that -- and particularly, our U.S. business performed very poorly in this quarter. Outside of the U.S., we saw a strong growth in Latin America. In the U.S., we saw a significantly softer industrial segment compared to the past several quarters, and the business overall didn't manage to land as many large orders with strategic accounts as expected. In addition to that, the high pressure washer business, the agricultural segment that it caters to is still suffering from weak market conditions as well that -- the effect of a discontinuation of a dealer that also impacts, particularly Q4. Overall, for the high pressure washer, we saw a further decline in this market compared to previous 4 quarters. So all in all, the U.S. business delivered a very poor Q4 result year-over-year, which impacted not only the Americas segment, but the Nilfisk group in general in Q4. Some of the market conditions that we have experienced, we believe, will continue in 2020, and I will get back to this under our outlook section later in the presentation. Moving on to earnings for the segment. Cost of goods sold was impacted by U.S. tariffs. And as a consequence, gross margin in Q4 was 13.3 percentage points lower than it was in the last year. Looking into the full year, revenue in Americas amounted to EUR 291.3 million comparing -- corresponding to organic growth of minus 2.8%. So while we saw good growth in Q1 2019 with 3.1%, the weakness, particularly of the high pressure washers due to the soft agricultural end markets and in the industrial business dragged down growth to flattish in Q2 and Q3 before deteriorating in Q4, as I've just explained. Throughout the year, we've had to compensate for the loss of a large Floorcare dealer. So while we are clearly not happy with our performance in U.S. Floorcare, we did see good traction in certain other customer segments, such as our CCI customers. In relative terms, the HPV development accounts for the large part of the negative U.S. performance. EBITDA margin before special items and excluding the IFRS 16 uplift came to 16.9%, which is 3.2 percentage points lower than last year. This stems from the lower gross margin, a bad debt provision and higher underlying overhead cost ratio as a result of lower revenue. Now turning to Slide 14. In APAC, organic growth was minus 4.3% in Q4, which was mainly due to the performance in Australia, and to some extent, also in Singapore. Gross margin was at 37.3%, which was negatively impacted by inventory write-downs related to Australia in Q4, which explains most of the negative deviation of 3.4% compared to the previous year. For the full year, organic growth in APAC was minus 4.3% due to both the performance in Australia -- sorry, of Australia and of Singapore in -- compared to '18. Adjusted EBITDA margin before special items declined by 5.1% year-over-year. So now let's look at the last 2 reporting segments on Slide 15. In the Consumer business, reported growth was impacted by the discontinuation of our business in the Pacific region, which, as you know, we exited within Q4. In Q4, underlying growth in the total remaining business was flat. So the positive organic growth in Q4 was driven by a large one-time sales in the Pacific region before we exited the region. These onetime sales had very low margins and that was a significant contributor to the reduction in gross margin in Q4, which came in at 5.6%. For the full year, organic growth in Consumer was minus 11.8%. As you know, Consumer is a highly seasonal business and the main driver for the organic revenue development was the poor high season in pressure washers, particularly in Europe, which you've seen in the first half of '19. Full year gross margin was at 29.8%. Moving on to the Private label business. Organic growth was at minus 10.4% in Q4 and minus 14.4% for the full year, both impacted by the cautious behavior of our customers, resulting in lower sales. The gross margin improved compared to last year, both in the quarter and the full year. So if we take a closer look into our earnings, let's look at the full income statement, which is on Page 16. We already reviewed the revenue development quite extensively, so let me focus on the main components of our earnings at this point. We have achieved a gross margin of 42.3%, which is 30 bps better than last year. The largest positive effect from this came from the divestment of low-margin businesses in '18, but the margin was also positively affected by pricing and lower freight costs. However, these effects were diluted by negative effects from the U.S. tariffs, which is a negative impact of around EUR 5 million, increases in the costs of certain raw materials and the low margin, which I've just explained in the Consumer business. Reported overhead costs increased by EUR 1.6 million in total. There are, however, several major positive and negative impacts to the total cost base. In 2019, we continued investments into commercial capabilities and our newly established global functions, and we also rolled global IT systems, such as Salesforce and ServiceMax. So this has increased our cost base. At the same time, the cost-saving programs that we initiated in previous years have continued to deliver and contributed to a reduction of the cost base. As we started out 2019, we did mention both the impacts for the investments on the one side and the savings on the other side to inflect -- to reflect the anticipated growth for the period. However, during the course of 2019, we initiated additional cost-saving programs, we reduced some of the investments. We tightly controlled the variable spend such as travel, in particular, in the second half. But overall, these efforts have not been able to compensate the significant loss of top line, and therefore, we've seen a significant negative operating leverage. As a result, both our absolute EBITDA as well as our EBITDA margin has been reduced. EBITDA margin before special items amounted to EUR 121.4 million, down $4.1 million from last year. This number, however, includes an uplift from IFRS 16 of EUR 26 million, so the operational EBITDA was 94 -- EUR 95.4 million, which is comparable to a last year number of EUR 121.2 million. That is adjusted for the phantom share impact that we saw in 2018. EBITDA margin before special items and IFRS was 9.9%, which is in line with our latest guidance. But as I already mentioned earlier, it's 160 basis points lower than last year. Finally, despite an improvement in EBIT due to lower special items, net result has decreased slightly to 8.9 -- to EUR 8.7 million compared to EUR 10 million in 2018. Please note, however, that in 2018, we had a tax income of EUR 5 million that positively impacted the tax result. So I will walk you through the EBITDA impact in detail now. Please turn to Slide 17. As I mentioned before, adjusted EBITDA before special items is down by EUR 25.8 million. If you exclude the divestments, approximately 2/3 of this impact is driven by revenue loss. About 1/3 of the decline is a net result of investments, which are not fully compensated by stepped-up costs, savings and of course, on top of tight expense management in the second half of the year, and the tariffs had an additional negative impact of approximately EUR 5 million. Please note that the bridge below shows the relative development in the margin and explains the impact of the revenue decline on the overall overhead cost ratio. In addition, if you look at the table on the right hand of the slide, we have bridged the adjusted EBITDA margin before special items to the reported EBITDA. Finally, let's have a look at the main balance sheet items and the cash flow for 2019. So please turn to Slide 18. Net working capital was reduced by EUR 12.5 million compared to end 2018. So we saw lower receivables as a result of the lower revenue compared to last year. However, the lower-than-anticipated sales have also negatively impacted our inventories, and we were not able to adjust them downwards to the same extent that our revenue declined. Therefore, year-end inventories were at the same level as last year. In terms of payables, trade payables were roughly in line with last year. So the EUR 14.6 million drop in payables is mainly due to changes in other current liabilities. And these changes primarily come from lower employee-related payables as a result of the closing down of the production factories, in the divested auto business as well as the payout of the phantom shares. Overall, the result of this net working capital movement is an adverse impact on our net working capital ratio, which increased by 2.1 percentage points to 20.6%. CapEx was 4 -- EUR 5.4 million lower than last year. About half of this is due to a change in the way we have handled the sale of rental machines into -- in our accounts in 2018. The rest of the delta is due to the lower CapEx in tools and equipment, whereas CapEx in intangible assets was in line with last year. If you adjust for the way IFRS 16 impacts the cash flow statement in '19 compared to '18, the free cash flow improved by EUR 17.9 million, mainly due to lower special items. Return on capital employed was 7.5 percentage points lower as a result of the lower EBIT before special items. Finally, net interest-bearing debt increased by EUR 44.5 million. But if you adjust for IFRS 16, it was actually -- it reduced by EUR 11.7 million, mainly due to the lower working capital. Financial gearing was at 3.8x if you exclude the IFRS 16 uplift. Now coming to our outlook, please turn to Page 20. Our outlook for 2020 is based on a continuation of the economic conditions that have impacted us in EMEA during 2019. Based on historic experience, where we've typically experienced an organic revenue downturn lasting approximately 4 to 6 quarters before we're through the cycle, we expect demand to pick up in the second half of 2020. In Americas, we expect the softness of the U.S. manufacturing sector to continue. Based on the current visibility, only a minor negative impact from the coronavirus is expected. Underlying conditions in APAC are considered to be stable with demand in China being suppressed on an -- by an ongoing trade war. Another condition factor for our outlook is the low visibility, which impacts the range on which we guide. Based on this, on revenue, we therefore guide for an organic growth in the range of minus 4% to plus 1% growth to a large extent due to Consumer and Private label. We expect the phasing of the organic growth to differ across the year, and we specifically expect negative growth rates in the first half of the year, whereas we expect positive growth rates in the second half. In terms of EBITDA, given the uncertainty regarding the organic growth, we expect an EBITDA margin in the range of approximately 12% to 13%. This concludes our presentation, and we're now ready to take your questions. Operator, will you please proceed?

[Operator Instructions] Our first question is from Kristian Johansen from Danske Bank.

A few questions from me. First of all, you do not address your midterm targets at all. Should we view this as you have abandoned them or no longer consider them realistic? Or can you please elaborate on your thoughts around these?

Kristian, no, we are not abandoning them. I think we will repeat what we said last that with the visibility we have at the moment, we don't feel comfortable giving you a deadline. We need more visibility on the macroeconomical situation before we are ready to give you a firm indication. So that's statement number one. And it's consistent with what I've said before. The second part of this is, we believe in the potential. And we've also said that before. And obviously, the important part for us now is to see growth coming back into the business in second half '20.

All right. Then second question, around these comments you gave on the U.S. market weakness, I was obviously a little bit surprised because, I mean by looking at your largest competitor, it was difficult to spot any weakness in their U.S. numbers. So maybe if you can elaborate a bit on that. And then secondly, on the U.S. You've mentioned that you did not win the strategic account deals that you had hoped for. Can you elaborate on why it is you did not win these?

Yes. Sure, Kristian. So I normally don't compare -- comment on competitors, but I'll do an exception here. We've also heard one of our competitors in October, say that they saw softness in the U.S. market, especially in the industrial side. We have also ISM data confirming that. So that is a pretty solid data background. Now you're right that one of our competitors grew nicely in Q4. However, they were also very clear why they did it because of autonomy, which in this particular case is a special deal that we all know that was made earlier in the year and not reporting growth in the -- in sort of the normal business. So you're not getting me to say, Kristian, that all of this is caused by the market condition, but it is -- there was a big change in Q4. We felt across all our channels that there was a hesitation and a more cautious approach than we normally experience or ever have experienced in a Q4 before. We have also done changes, as you know, and of course, I'm suspicious, how much of it is caused by that. But the external factors are playing a quite big role in that as well. We saw a very different market from Q3 to Q4.

And then on the strategic accounts deals, which you did not win?

Yes, sorry. Very well, yes, there are some details around it that I don't want to share with you. But there were changes in a company that we normally deliver to and internal changes that just made it go -- fall through the cracks in Q4. We didn't lose it to a competitor, but it just didn't materialize because of internal changes.

Okay. So is it primarily 1 customer we are talking about here?

Yes, there was one big 1 that I would have loved to have in Q4.

All right. That's clear. And then thirdly, this reversal of a provision you're doing in EMEA in Q4. Can you just quantify how much is that exactly?

Yes. I'll take that question, Kristian. Yes, so it's around EUR 2.5 million to EUR 3 million, that's impacting Q4.

Okay. And very last question for me. Just to repeat, you're guiding for a special item cost of EUR 10 million to EUR 15 million in 2020. Is it still the case that we should not expect any special items cost once we get to 2021?

Based on our current knowledge, that is correct.

And our next question is from Claus Almer from Nordea.

Yes, also a few questions from my side. The first question is about your cost base. If I look at your staff cost per employee is up by something like 7% if I exclude the pension program in last year, so 2018. Also looking at the overhead cost is also up despite your divestment. Can you put some more color to why you're not able to bring down the costs? That will be the first question.

Yes. So let -- Claus, let me take that. Thank you very much for your question. On the cost -- staff cost per employee, what you see in the number is that is an effect of the divestments. We have divested about 600 FTE between '18 and '19, and around 400 of those are manufacturing, and the majority of which are in China. So that's why, on an average, you see a big increase. If you look at the overhead cost, you have to adjust for the phantom share impact in that. And then I've already mentioned, I think so did Hans Henrik, that there is, of course, an impact from the investments we have done into systems but also into global functions and competencies that you will see in the total OpEx, but of course, also in the overhead -- in the admin cost.

But overhead cost is up despite your divestment, I guess that's slightly surprising.

We have divested costs, but we have also divested margin. And that's what we've tried to show in the bridge of the EBITDA. So of course, you see an impact of the divestments. And then what you see in the remainder is an impact, which is a net-net of the savings that have contributed and the investment we've taken. And then of course, there's one-offs, and then there is things like inflation that is also in there. So overall, it's -- yes, it's an increase. But bear in mind, if you look at overhead costs, of course, there's also a noncash component in there that has increased and that's the amortization.

That I don't understand. First of all, special items is not included in your overhead cost. Is that right? And if you look at your IT costs, yes, amortization is up, but you're having less, and what you call normal IT costs in the P&L. So that's IT in total expensed in the P&L is actually down. So I really do not understand why overhead cost absolutely is not down?

But bear in mind that it's not only amortization of software, it's also amortization of R&D in -- and projects. So you have that included in the R&D expense.

Yes, I know. Okay. Well, looking -- then coming back to your overhead cost. If you look at since 2016, so that's before we started to have the effect from the cost savings programs, which alone has contributed with EUR 15 million lower cost. It is flattish. Why is it that you're not able to bring that down in a situation where revenue is actually coming down due to divestments?

Yes. You are right, revenue is coming down to divestments, but -- and so is actually overhead cost. Now what we've tried to show you on Page 17 of the presentation is the effect of the operating leverage that we see. And that is the main driver next to the tariffs if you then take, including gross margin. But if you just stay at overhead costs, of course, it's the net of the investments and the savings. So you -- we are not able to compensate in the overhead costs, the operating leverage, negative impact from the revenue decline that we saw in the organic growth revenue decline.

I can understand from a percentage point of view, but in absolute terms, it's also not coming down. And I know you have a positive impact from the program, you have a positive impact from the divestments as you -- as mentioned before. To really spending money in other areas that is stealing these positive impacts?

Well, they're not stealing that. We have the savings on the one hand, but we have also investments, as Hans Henrik has mentioned and I have mentioned. Now that's global functions, that's competencies, like marketing, that systems and running cost of systems, and there's, of course, inflation. And what you see, of course, is the net-net impact of all of this. And then if you have on top of that, a year where we lose revenue in such a significant way as we did, mainly in the second half, we are not able to compensate that, also not in the absolute numbers.

But -- okay. Just final question about this topic, just to be sure that the decreasing revenue does not have an impact on your overhead, it doesn't increase your overhead cost in absolute terms. Is that -- I guess, that's correct, right?

What I'm trying to say is, when you start a year like '19 on -- with a positive growth ambition, which the company clearly had, then you take what you anticipate to save in the programs, which are fully delivered, and by the way, on top of that, a lot of additional efforts have been initiated. And the company has decided, which is a continuation of '18, to reinvest those, I would say this amount of money into competencies, into the organization, into systems, in order to reap the benefits from those upgraded capabilities. And then if you in the half year realize that growth is not coming in as anticipated, and I think that was clearly seen in '19, what you then have is, although we were able to increase the savings and reduce the investments net-net, you, of course, have an impact of investments, some of which are also long-term investments that you still have in the run rates of the costs even though revenue decreases. So you're right, of course, in a relative term, it matters. In the absolute term, it doesn't matter, but I was trying to explain to you is the strategic rationale behind it.

Okay. Good. Then just my final question, that is about the -- your organic growth. You're guiding that the -- we see a decline in the first half of 2020. If you just look at the run rate going into 2020, should we expect Q1, which is also up against a slightly tougher comparison, is on the same pattern as we saw in Q4? Or do you already in Q1 start to see some improvement?

Yes, thanks for the question. I'm afraid we will have to leave it at the negative first half and the positive second half. We are not able to give you specifics for the quarters at this point.

Okay. So no comments about how the year has started out so far?

No, it's early in the year.

[Operator Instructions] Our next question is from Casper Blom from ABG Sundal Collier.

First, sort of a question regarding what is -- what's happening in EMEA. The way I understood your explanations as 2019 developed was that the purchasing managers around Europe, especially in Germany, was looking out the window, seeing dark skies, decided to postpone investments into cleaning equipment and that -- eventually, those investments cannot be postponed anymore, and you would expect growth and orders to return. Is that sort of still the general thesis that you are working under? Or has there been sort of any different dynamics popping up in terms of, for example, down-trading or other things? That's my first question, please.

Thank you, Casper. No change to our view on that. We have historical evidence that our machines can be used for up to 6 quarters longer with the extra service, and then people will come back, and there will be a demand. And there was no change to that at all Casper. And we're not seeing any down-trading or anything like that. So it is the same mechanism that we are seeing.

Great. Secondly, regarding the guidance. Last year, as you show on the slide, you had a negative impact of EUR 18 million from operational leverage. And you had organic revenue decline of around 4%. Midpoint of your guidance for 2020 is organic -- negative organic growth of 1.5%. Can we use sort of the same relationship to sort of get to an estimate on the, how I can say, implied negative operational leverage in the guidance for 2020?

I'll take that question, but let me think. I would say, directionally, yes. And we have, of course, to the best of our knowledge, done the sensitivities on the upper ranges, both of the top line guidance, also of the margin guidance. But of course, we have to keep in mind that there's different developments on gross margin, in particular, that can be happening in 2020, also depending on mix. So I would say directionally, yes, you can take that.

Okay. A bit the same topic. Is there any impact from -- sort of additional incremental impact from U.S. tariffs in the guidance for 2020? Because I suppose that the average tariff is higher in 2020 than it was in '19?

Yes, you're right. There's an annualization impact, of course, for the full year. But at this point, it's not a minor -- it's not a major impact.

Okay. Finally, you obviously presented a fairly wide organic growth guidance of 5 percentage points. I understand that the world is difficult to navigate in right now, but has there been any changes in the way you provide guidance? Basically, have you been a bit more cautious after having been surprised a few times last year?

I can't comment on that, Casper. We're doing the best we can in a -- as you call it, a difficult world. And this is how we see it at the moment. We, of course, wish we could guide you more precisely. But given where we are, we just cannot.

Yes. And maybe I would add from my side. I wouldn't read too much into that from a wide guidance range. The wide guidance range is very strongly related to the phasing of the growth that we expect in the year. And as you -- as I think is normal if you have a positive growth trajectory that's further out and the negative that cause -- that by definition, is less visibility, and therefore, we have decided on a wider guidance range.

Fair enough. Last question regarding the U.S., Hans Henrik, you said that you were -- sort of were committed to the strategy you have and want to sort of follow through on it. Has there been a consideration of doing sort of a more radical move in the U.S.? And secondly, I mean how long are you willing to wait? It's -- I know that there has been success stories from time to time. But in general, your U.S. business has been struggling a bit for some years now and have been losing market share for some years now.

The first question, no, there has been no dramatic considerations. Secondly, I think the learning here, Casper, we need -- we probably need to go a bit back in time because we all know that we've had the U.S. problem for many, many years. And I think what I've learned from our partners in U.S., we have done too many changes too quickly. So typically, we gave people a chance to get it right within 18 to 24 months, and then we gave up. And we did a new change, and it became all quite confusing. So I'm very, very committed to the plan and the people we have because it is a matter of executing deeper, executing more, executing faster. But the plan is the right one. And I've seen the first signals of it in the CC&I business, as Prisca mentioned. We need to do better in industrial. The market didn't help in Q4, for sure. And then we need to be better in national accounts. So the plan is there, Casper, and I'm not really up to major changes of that plan.

And our next question is from Mikael Petersen from SEB.

I wonder if you could quantify the revenue that you gained from the inventory sales in Consumer and APAC. I'm not sure if I heard it right, but it seems that the -- it was flat growth, if you exclude the one-time sale, is that correct?

So the revenue of that one-time sale is around EUR 2 million.

Okay. And then maybe I could touch a little bit on what Kristian talked about in relation to Tennant. They're guiding for around 2% organic growth for 2020, and you guys are guiding for a negative around 1.5%. Do you have any idea why that is so different because you're representing the same markets and so on and they see the same decline in EMEA and APAC, as you did, but in the U.S., they performed very strongly, especially in Q4 in comparison to you guys?

We -- I can't comment on the other guys how they guide and what they see. So I'll refrain from that, Mikael.

Okay. Then if we can talk about the Nilfisk Liberty SC50, can you try to explain how 2020 will be in terms of units sold compared to 2019 now that it seems you're committed in all the key markets? Should we expect like a higher traction and thereof, higher units sold? Or how does it look year-on-year?

Yes, you should. And I'm not going to give you any number, but you should expect an acceleration of autonomy. When I look at it in the big perspective at CMD back in '17, we put the numbers out as the first one in the industry, and I think we've been confirmed that the potential is there definitely. On the activity level, what I see from the sales guys now and the customer reactions to our SC50 product, I'm positive. Don't expect a big deal like the one we all know about because that's not what it will be. But I'm very happy with how the product is perceived and rated by customers. So it will definitely grow.

Our next question is from Kristian Johansen from Danske Bank.

Just a follow-up on the guidance wording, you say this range of minus 4% to plus 1%. And then the sentence, to a large extent, due to Consumer and Private label, maybe I wasn't listening before, but can you just elaborate what is it you mean by that? Is it that these 2 units should have a lower growth rate than the branded professional? Or why did you add that statement?

So maybe I'll give you some context. As you have seen, we are guiding on the total business now, which is a difference from what we have guided on in 2019. And the main reason for that is that both the Consumer and the Private label segment have, in relative terms, decreased importance. So we believe the real number for you to look at is the total business. Now what we're trying to do with the wording off to a large extent due to Consumer and Private label is to give you a little bit of a flavor that the organic -- the negative minus 4% to plus 1% is, and I would say I would relate that more to the negative end of the range, is exacerbated by what we expect in the Consumer and the Private label business individually to do. I hope I have been able to get that message across.

And maybe I can add just a little more flavor on the Consumer side, Kristian. You have gotten the point that we're really refocusing the business. And of course, when you refocus the business on certain markets, there is a bigger uncertainty about what -- how that's going to look like. And that's what we're trying to say.

Okay. So just to see if I understand what you're saying, the reason for you to have a range going all the way down to minus 4% is due to the Consumer and Private label outlook?

No. It's not what we have said. What I -- what we have said is that it is, to a large extent, due to Consumer and Private label, but keep in mind, it's a total range. As you have already stated, it's a fairly wide range. And relatively speaking, Consumer and Private label are 15% of our business. So of course, the rest of the business, there's also various outcomes of that, which, of course, also contributes to the total range.

And as there are no further questions, I will hand the word back to the speakers for any final comments.

All right. Then with no further questions, we thank you for being with us for almost an hour and asking questions to us. Great. Thank you for joining. Have a good day.