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Edited Transcript of IETB.BR earnings conference call or presentation 27-Aug-20 4:00pm GMT

Half Year 2020 D'Ieteren SA Earnings Call

Brussels Aug 29, 2020 (Thomson StreetEvents) -- Edited Transcript of D'Ieteren SA earnings conference call or presentation Thursday, August 27, 2020 at 4:00:00pm GMT

TEXT version of Transcript


Corporate Participants


* Arnaud Laviolette

D'Ieteren SA - CFO

* Francis Deprez

D'Ieteren SA - CEO

* Pascale Weber

D'Ieteren SA - Head of Financial Communication




Francis Deprez, D'Ieteren SA - CEO [1]


Good evening, everyone. Welcome on behalf of myself, Francis Deprez; and my colleague, Arnaud Laviolette, to this video call on our half year 2020 results. A couple of key takeaways that I hope you will get from this video call before we dive into the numbers that we published about 10, 15 minutes ago on our website and sent around in our distribution e-mail list.

Well, first of all, it's, of course, been quite an unusual first half, not surprisingly, given the COVID-19 epidemic. And in particular, in the second quarter, with the trough in April, we have seen strong impact of all these measures on the activity levels of our businesses. But nevertheless, we are particularly satisfied with a couple of things. And there's 3 I would like to single out at the beginning of this video call.

First of all, Belron managed, despite the circumstances, to increase its EBITDA margin with 1 percentage point, so a good to 106 basis points, thanks to determined actions. And we're very satisfied with that.

Second, both Belron and D'Ieteren Auto, if you look at June, so the end of the H1, were basically more or less back to pre-COVID-19 levels of activity in the month. And while they were also operating at lower costs, it actually gives us a quite good momentum in June and beyond in the second half of the year.

And thirdly, our free cash flow generation more than doubled over the period of 6 months versus last year, thanks to stringent cash management and good working capital management.

So these are 3 things I would like to highlight as particularly satisfactory of H1.

At the same time, we, of course, have used the crisis of the COVID-19 to also accelerate the transformation at each of our activities. As you know, in the beginning of June, we have announced our intention to -- yes, we've announced the intention to carry out a program to accelerate the transformation of D'Ieteren Auto as, of course, the process we are in consultation and discussions with our social partners with. But we're doing this, and we did this, because it reflects our longer-term belief that both demand and customer behavior will be different in the Belgian car markets. And that is something we do want to be ready for.

Secondly, at Moleskine, we have the arrival of the new CEO, Daniela Riccardi, as you know, since April 1 formally. So we are working very hard with her and her entire team to review the strategy and set up action plans to transform Moleskine.

And also Belron has actually used the occasion over the last couple of months to update its Fit for Growth program and to put more focus on digitalization, to put more focus on efficiency in that. And so these are things that are not just haven't been with us, I would say, in H1 2020, but will help us in the coming years.

Maybe last, but not least, as an introduction, given the continued uncertainties around the pandemic and its impact, we are not putting in place a quantified guidance for the year 2020. As you know, we had pulled back our guidance around the month of April, and we're not replacing with the new guidance for the moment.

So these are the key takeaways. If I just give you some of the highlight numbers before handing over to Arnaud for Belron. On group sales, minus 18% over H1. It's minus 12% at Belron, minus 24% at Auto and minus 42% at Moleskine. What's important, I think, is the trajectory over the semester. Q1 was minus 4%. Q2 was minus 31%. So you really saw the effect, of course, of the April trough very clearly in the second quarter. But we are quite positive and confident when we look at the June numbers, where we were actually plus 11% in group sales. So June was coming out at the end of the semester quite strongly, and it actually continues in July and August.

Same story, more or less, with the adjusted operating results. Same order of magnitude of decline, minus 20%, 21%. Actually, Belron kept its adjusted operating result almost flat. So quite a good performance. D'Ieteren Auto didn't fully compensate the decline and saw a stronger fall-through in results and declined with 56%. And Moleskine remains in negative territory over the 6 months period in terms of operating results.

Again, the same trajectory over time, but with one important caveat. Q1 was minus 27%. But surprisingly, Q2 was only about "minus 18%" in terms of operating results. And it's a testament that both May and June were above last year in our group adjusted operating results. And so this again gives us a good momentum for the second half of the year.

Our typical KPI, profit before tax group share that you know did see a decline of 41.2% at a comparable parameter. The absolute decline is actually the biggest at D'Ieteren Auto, EUR 49 million, about EUR 10 million at Belron, EUR 14 million at Moleskine and more or less flat at corporate, leading to about EUR 103.9 million as an absolute level for the first half of the year.

And in terms of free cash flow generation, quite happy to report that given the stringent management on working capital and so on, we managed to really substantially increase the free cash flow from about EUR 200 million to EUR 439 million, if you take Belron at 44%, 45% share that we have. And that's actually taking the cash of the different activities together, right?

At the same time, if you look at the cash position at the group level, at the corporate level, we had about EUR 1.5 billion, you may remember, at the end of December last year. We are, again, more or less at the EUR 1.45 billion in terms of cash position at the corporate level as well.

So this gives you the highlights, I would say, in terms of group numbers overall. Let me now pass on to Arnaud to give you a bit more flavor on the results of Belron.


Arnaud Laviolette, D'Ieteren SA - CFO [2]


Thank you, Francis. So Belron did make a difference again for us in the first half of the year. As you've seen, the results are really showing a lot of resilience in those very challenging times. So in terms of highlights of the first half, it's 12% approximately sales decline, with 17% lower volumes and essentially due to the COVID pandemic. There were hopefully good high support new things essentially to the model mix and the value mix of our activities. Strong increase, again, in ADAS calibration and a good support on VAPS services.

We have been able to very -- to control costs very stringently, with a decline of our cost base during the first half of the year. We have had flat EBIT on the period. This is a little bit positively impacted by the fact that there is an absence of the LTIP program that was charged last year, which was absent for this period, and also positively impacted by the acquisition we've made in the U.S. last year in August.

So the adjusted PBT group's share is in decline by 9%, essentially due to higher financial charges, because you remember that we have raised additional debt during the fourth quarter of 2019. So that has been representing in the higher financial cost.

Very, very, very strong free cash flow due to a lot of positive measures concerning the cash. Well, first, a flat EBITDA, much lower CapEx, very positive working capital swing. And so the cash generation for the period has been EUR 445 million. This is before capital lease payment of EUR 87 million.

So at the end of the half year, we went with a cash position of EUR 477 million and with the net financial debt post-IFRS of EUR 2.7 billion and before IFRS 16 of EUR 2.1 billion, leading to a leverage ratio for the calculation of the leverage ratio of 3.3x.

So as you know, this has been a very challenging period for a lot of companies, and Belron is no exception. The COVID-19 has had impact on our activities. And initially, we thought that it would be more challenging for the supply chain, because part of our windscreens come from China, but very quickly, it appeared that we had to protect our employees, to protect our customers and suppliers. So we took the right measures. And then we've been hit across the group by the lockdowns in a lot of countries, full lockdowns in some countries, so impacting France, Belgium, Italy massively. And then some activities staying open, because it was an essential service, and I think about the U.S. and Germany as remaining open for the whole period.

So at the worst period of the crisis, we had volumes down by 61% versus last year on some weeks of April. But nonetheless, we've been able to progressively recovery. And starting from the week 15, we've seen progressive recovery till now, in fact, where we still see some lumpiness, but much, much improved trading conditions in general.

We took the right decisions with our people, protecting them, but also in those circumstances, using all the benefit of unemployment where there was support and furloughing of our own employees essentially in the U.S. We had at some point 14,000 people who were not working for the group on a total of a bit more than 30,000. And now we are back -- nearly back to normal situation. And as I mentioned, supply chain was undisturbed during the period. So we had full access to supply in general.

So we took mitigating measures, as I've already mentioned. And this has allowed us to really manage the cost very, very well. We were very proactive in that respect. And I must thank all the management team for all the actions they've taken on that front. And also on the cash management, very early on, we did various stress tests, we took the right measures in order to make sure that in whatever the circumstances we had enough liquidity.

At some point, we told you that we drew on the RCF, but we reimbursed the RCF before the end of June, because that was totally not necessary. We've never really had used it, but it was a safety measure. And now, as I mentioned, we had, at the end of June, EUR 477 million of cash, which was more than enough.

So what is remarkable too is in every single month during this crisis, we remained positive at the trading profit level. So even in April, which was really the worst month, we were still positive. We've seen strong rebounds in volume in June. So from mid-April onwards till June, strong rebound in volume. And because of the cost-mitigating actions we've taken, a very much improved profit in May, in June and continuing as we speak.

In terms of cash management, we deferred some payments, because we thought it was a good thing to do. So we've got a little bit more than EUR 100 million at the 30th of June of deferred payment, and that will normalize in the next 9 months for Belron.

If I go now a little bit more into details for the top line. So as I've mentioned, it's a sales decline of 12.4%, with quite significant differences across the regions and with contribution also from acquisition of last year. Essentially, the TruRoad acquisition that was closed in August, that contributed a little bit more than 2% to the sales in general. So mild currency impact of 0.4%. So all in all, 12.4% decrease.

In terms of region, when you look at the sales split across regions, the U.S. or North America have resisted more or better than Eurozone for the reasons I've mentioned about total lockdowns in Europe for some countries, while Canada and U.S. remained open. And it's more or less the same pattern in the Rest of the World. Australia was trading relatively well during all the crisis. U.K. remained open, but with a much lower level of activity. Scandinavia fared well. And for Eurozone, as I mentioned, a lot of countries were totally closed, so no sales during a long period of time. But when the market reopened there, essentially starting from May, we've seen increased volumes and also the good profit because of the much reduced cost basis.

Inorganic growth in North America, I've mentioned it. Value growth has been an essential contribution -- contributor to the performance essentially with a good model mix, because we've had a little bit more replacement and repair in our product mix. As I've mentioned, ADAS is -- ADAS recalibrations continue to grow. It has been growing in volumes by 20% during this period. And this is, of course, a good contributor to sales, and the value-added products have been increasing too during the period.

In terms of results, next slide, and that's post-IFRS 16, of course. The adjusted results, as we report them, are flat, which is quite extraordinary. As I've mentioned in my introduction for Belron, a bit flattered by the absence of the LTIP chart that we had last year and also a positive acquisition contribution.

Finance cost increasing due to the increased gross debt of the company. And the adjusted PBT being down modestly by 9% on the period. And you see the impact of the ELTIP on the profitability there.

Just to remind you, we had also a mild winter in Europe and in the U.S., which was not really favorable or creating the right environment for our volumes. So this has to be taken into account too. And as I mentioned, we saw a solid impact on profit in April, but catching up very quickly after that in May, June and continuing.

In terms of -- we've got a few adjusting items in the PBT. You've got the list here. As usual, we treat the fuel hedges being positive or negative as an adjusting items. We've had a few amortization of brands and customer contracts essentially linked to the acquisition in U.S., where we amortize those values. We've had an impairment of goodwill for home damage repair and replacement in France in Maisoning, Carglass Maison and limited adjusting items for restructuring cost essentially in U.S. and Canada and some integration cost for the acquisition of TruRoad of August last year.

In terms of cash flow and net debt, this is a very, very impressive performance of the company, I believe, with flat EBITDA, but very, very stringent and efficient working capital management, even if there are some deferred payments there, but still very, very positive on that side. Net CapEx has been scrutinized during the whole period. We've done the essential CapEx for the period. A few other adjustment, but very limited. Some cash tax for the period too, but limited. And of course, the net interest were increasing due to the increased gross debt during the period.

So this has led to a massive free cash flow of EUR 445 million. This is before the capital lease payment of EUR 87 million, leading to an adjusted free cash flow after payment of the capital lease of EUR 357 million, EUR 358 million.

Net debt, there also, I've mentioned the cash position, decrease in the net leverage ratio compared to December 31, 2019, leading to a ratio of 3.3x, which is, I think, a very strong testimony on the deleveraging of the company.

Latest development, as mentioned by Francis, we continue to focus our attention into improving the digitalization of the company, transforming the business, accelerating some initiatives. So we are really steaming ahead in that direction. We hope to see the benefit of that in the future. We have been highly successful in integrating TruRoad into Safelite since the beginning -- since August very, very quickly, and we see the positive results of that. And we are reviewing, you remember that we had the ambition to grow outside of VGRR, we are currently reviewing the strategy in service extension in home damage repair and replacement and also in ADRR.

Outlook, we see improving. It's a little bit volatile, as you can imagine. The volumes are a little bit volatile. But nonetheless, we see improved trading or improving trading conditions. And so the month of July and August seem to be strong. So we have higher profit -- higher trading profit probably for those 2 months. But of course, we live in a very volatile and uncertain world. So it's really impossible for us to give a clear guidance for this year.


Francis Deprez, D'Ieteren SA - CEO [3]


Thank you, Arnaud, to talk about Belron, to also give a bit more flesh around D'Ieteren Auto. And I will go through the slides that can give some flesh around the market dynamics on Page #18.

So the Belgian car market, quite different from the last couple of years. It clearly saw a drop, about 30%, in the new car market over the 6 months period, both with or without the registrations less than 30 days. Doesn't make much of a difference. And it's, of course, because here in Belgium, showrooms and so on had to close down for quite some time. Only reopened for B2B on May 4 and for B2C on May 11.

There has been continued uncertainty around fiscal treatment of cars. Belgium does not compare to some other markets like France and Germany, introduced kind of laws, plans to stimulate the greening of cars and so on. We have a lot less of that in Belgium. So there is a bit of an uncertainty still around that.

In that period, I mean, really you can look at it on the chart on Page 18, on the left, the 217,000 new cars sold in Belgium, that's really the lowest level over the last 12 years or so. But in that context, D'Ieteren Auto managed to increase its market share with about 98 basis points to above 23%. So we're quite happy with that. And I'll come back to it with a bit of details for brands on that later.

In commercial vehicles, however, we had a less -- we had some less lineup of models. We hope to improve it in the coming months, but also a bit of a decrease in market share on the commercial vehicle side.

Splitting that market dynamic into types of cars. The fuel mix continues to develop towards greener energy. And I think it's quite a jump from 7% to 12%. We see it in the market. That's a mixture of full electric, CNG and hybrid. I think we, as D'Ieteren Auto, have followed very much a trend on the electric cars, the full electric cars, because we had some nice models ourselves. I think on hybrid, plug-in hybrid, we've been a bit below the average of the market. And we hope in the coming months and years, with the arrival of some attractive new models, to compensate for that.

In the buyer mix, B2B, B2C, a bit contrary to the trends over the last couple of years. This time, the B2C has been a bit above 50% and B2B with 49% below half. Some hesitation that we see at the business segment and continue to see at the business segment about ordering fleets of cars, both technical and (inaudible) in this uncertain macroeconomic environment. SUV's success, however, continues, both in the market and in our share. So this is steadily following the trend over the last couple of years, now reaching over 42% of the overall market.

Within our brands, all brands actually made market share progress, except for SEAT where we remain more or less flat at above -- slightly above 2%. But I think that we saw quite a nice jump, especially at Škoda, helped by the Scala, the Kamiq very much and also the Octavia still. Audi doing a good thing. And Volkswagen continues to keep its market leadership position, helped a lot by the T-Roc and the T-Cross.

Also here, COVID-19 at D'Ieteren Auto, well, Belgium, of course, with a closure for quite some weeks, using temporary unemployment, of course, as we could for over about 1,500 employees at the peak of the crisis. We put the brake on marketing spend, limited mainly to digital channels-only and seeing what that actually leads to. Quite interesting learnings we have from that as well. And continued reduction in other costs, contractors, IT, transport, logistics, rents. The most important IT projects that will be important for us for the future, we of course keep rolling those out and investing in those, because we will need them for our dealer management, for our logistics management and so on. And so those we have not put on hold.

Very impressive and good working capital management by the team of D'Ieteren Auto. Very close management, nonreceivables, and in particularly on the, let's say, amounts that the Volkswagen Group still owe us, and that typically is quite a substantial amount, they were quite supportive to basically accelerate the payment of some of those uncashed factory support invoices. And that has really made a big difference for us during this H1 period. And hopefully, we're now at a level with them that we can more or less keep stable at the level going forward.

Some nonfinancial actions. We, of course, had to close our dealerships, showrooms, even auto dealers, except for essential services for emergency sector, health care workers and so on. We also put some cars at their disposal of those people, including Poppy cars in here in Brussels, for instance, and in Antwerp. And we have, of course, introduced teleworking across the board for our office people. And this, by the way, continues as we speak. A lot of the people are at least 3 days a week on homeworking, if not more.

Now what are the kind of highlights in terms of financial numbers. Delivery of cars is minus 92 -- 90 -- sorry, 29.5%. Sales declined minus 24%, as I mentioned before. The dynamic, of course, in April, very heavy. We were at minus 88% sales in April, coming out in May with minus 39% and recovering in June with plus 18%. So really a bit of a catch-up effect that we saw after this very brutal April month.

Our gross margins were okay actually, even increasing from 14.3% to 14.8%, given a positive model mix mainly. Nevertheless, the translation of that into adjusted operating profit was not entirely perfect, because the minus 24% in sales resulted in minus 56% in operating result as a percentage. That means that the cost savings that we did do did not fully compensate for the loss in gross margin that we had.

And it's also important to note that we did include now, when we go to net results, adjusting items, particularly linked to a EUR 20.9 million provision that we had included for the announced intention to accelerate the transformation of D'Ieteren Auto in consultation with our social partners, of course. But to already anticipate there, we have basically agreed with our auditors to already put a provision into our numbers. And then there have been some pension provisioning as well for about EUR 4 million.

So these are the highlights. You can see them in the table on Page 23 in more detail. But the numbers are basically the same that I've already more or less highlighted in the previous page.

On cash flow and net debt, again, very impressive performance of D'Ieteren Auto. Yes, we did have a lower EBITDA, but the change in working capital was a whopping EUR 209 million, thanks to mainly the trade and other payables increase that we had. Some less CapEx, some less tax-related elements and a very similar net interest payments, leading to basically a tripling of the adjusted free cash flow at the level of D'Ieteren Auto. And they're basically creating some net debt at the period-end of about EUR 100 million. And we can come back to that later when we talk about why that was the case.

Latest development in auto. Of course, a lot of the attention today of the management and definitely over the summer and in the coming weeks is around the acceleration of the transformation and our intention to do that. We are in very intensive discussions with the social partners on that front as we speak. And of course, as soon as we have more to report on that, we will do so.

But we're doing this, because we do anticipate that not just this year, but also in the years to come, the Belgian car market will be a lower car market, both because of the demand, but also because of changing customer behavior, we believe, new cars versus second-hand cars, for instance, and things like that.

Our strategic objectives remain unchanged in 2025 towards adapt, expand and innovate. So we're doing that. And this is clearly the strategic direction. So things around Lab Box, things around new initiatives that we identified already as part of the Magellan plan continue to really be front of mind of the management.

And as you may have heard or noticed, within Lab Box, we had one arrival of a new capital partner at the level of Skipr, which is the multimodal app that allows you to plan your city trips between train, tram, bus, taxi, car, sharing car, what have you. And so we're very happy to welcome Belfius along our side in the development of Skipr.

Outlook for Auto, as I said, the car market for Belgium for this year, we expect it to be down at least 20%, between 20%, 25%. The economic situation is too uncertain to translate that exactly into, let's say, quantified profit numbers. So we're not giving a full year guidance for D'Ieteren Auto on that.

At the same time, we do have some attractive models in our pipeline. You can see 2 pictures here and are faces of the Panamera, for those of you who are interested to consider that fantastic car, or the Arteon Shooting Brake for the people who love the Volkswagen brand. And of course, there's other brands that each have their innovations as well, the Cupra, for instance, in the SEAT family to just mention one.

And then I hand back to Arnaud again for Moleskine and talk about H1 at Moleskine.


Arnaud Laviolette, D'Ieteren SA - CFO [4]


Thank you, Francis. So very tough trading conditions for Moleskine for the first half of the year, as you have already seen, and which are the highlights.

So it's a sales decline of 42% on the period. It's going from EUR 71 million to EUR 41 million, so it's a EUR 30 million decline in top line. As you can imagine, this was not the best period for gifting, for corporate events, for the retail segment either. And so we suffered a lot in some of our segments in some of our channels during the period, with some regions also more affected than others and especially EMEA. So the (inaudible).

What has been positive is the evolution of e-commerce with an acceleration of the trend in Q2, where for the first half, it's a growth of 8%; and for the second quarter, it's a 48% growth in sales. We've been able to -- so just remember that Moleskine is a very high gross margin business. So when you lose EUR 30 million of sales, you lose approximately EUR 22 million, EUR 23 million of gross margins. So in order to compensate for that, we need to find important economies and savings in the other lines of the P&L.

So we've been able to save a little bit more than EUR 12 million in OpEx, in personnel during the period. But that, of course, has not been enough to compensate for the shortfall in sales and gross profit.

We still have a very strong cash position with EUR 32 million of cash at the end of that period. We've been -- due to the COVID impact, we've taken an initial impairment on goodwill, because the performance was different than the one we had expected on this period and are expected to be during the full year. So we took -- we've taken an impairment of EUR 21 million. Once again, no guidance as for the business of our activities because of the lack of visibility we have at this stage.

And very positive news. We have onboarded Daniela Riccardi from the 1st of April of this year and very happy to have her onboard. She is reviewing the strategy and putting in order to put Moleskine back on track of profitable growth.

Impact of COVID-19. We were at -- very early on, because of our supply chain in China, we've seen it coming, the impact of COVID-19. But in fact, we had very limited impact on supply. So that was not a problem. But very quickly, all the brick-and-mortar on the wholesale channel, which the big retail chains in the U.S. and Europe, have been either closed or really decreasing massively their sales. And so we've been impacted there by the closure.

The online demand came a little bit late in the quarter on the half year in order to have a real impact. And fourthly, that channel is still a little bit too small to have an important contribution. But what we've seen is that all our wholesale customers having an online channel have increased their orders for that specific channel. So this is -- this bodes well for the future. And as I have mentioned, the supply chain was that not much impacted during the period.

Mitigating actions, like for all our activities, people first and people safety first, customer safety too. So we took all the measures in order to protect our employees and our customers. A lot, of course, of remote work, homeworking during this period, especially from the staff in Milano. And -- at the peak of the crisis, around 50% of our people were on temporary unemployment.

Government support has been received at the tune of EUR 1.8 million, leading to EUR 1.8 million of savings. That was welcome. And retail is not yet fully opened. 33 out of the 60 stores we still have are currently opened. And we see differences across the regions, U.S. still not really opened, Europe progressively reopening and Asia a little bit more.

Top line evolution. With the evolution across the channels in the region, most important impact of lower sales come from the Wholesale channel in absolute numbers. 50% of the decline can be explained by wholesale America and Wholesale EMEA. The rest is essentially B2B causable because of lack of orders from corporates, no gifting, no events. And so no notebooks to be sold to them. And also retail, which, as I've mentioned, has been closed during the period. And in terms of region, as I mentioned, EMEA hardly hit -- more hit than the rest of the regions because of the full lockdown in some countries.

And you can move to the next one. In terms of P&L, as I've mentioned, the loss of EUR 30 million of sales has a big impact on the gross margin. Mitigating actions in order to compensate for that were not enough to compensate for the shortfall. And so we end the half year with a negative trading profit of EUR 9.5 million. A little bit more financial charges led to an increased adjusted PBT loss of close to EUR 16 million. Minor taxes on the period and the impairment of EUR 21 million, leading to the net group share results negative of EUR 37 million.

In terms of cash flow, the first half of the year -- normally, we prepare the high season of Moleskine, which is in the second half of the year. So we've had a modest increase in inventory to prepare for the second half of the year. Mainly a negative impact on other trade working capital, essentially lower tax duties, VAT and social costs or social payables explaining the decrease in the working capital -- or the increase in working capital.

Lower CapEx versus last year. We focused on essential CapEx for a few programs. So negative free cash flow for the period after capital lease payments of close to EUR 11 million. And you see that we have a net debt at the end of the period post-IFRS 16 of EUR 308 million. And the net debt for the banks is EUR 87 million.

Outlook. So we are very pleased to have Daniela onboard, the new CEO. She is really working hard on a new strategy, focusing on a very simple motto of fewer, better, bigger for Moleskine. Fewer products, I would say, fewer SKUs. There has been a little bit of proliferation of SKUs for the company the last year. So we want to focus on the essentials that will have a positive impact, because we'll really put emphasis on the products that are the ones matter for the customers with bigger impact on sales, bigger impact on gross margin. And also having a more efficient organization, because having to work with less product in general.

We are reviewing the customer experience in our direct channel. We are improving our capabilities in CRM. We are upgrading for the future or e-commerce site with new suppliers working on that. Redesigning, rethinking about category management for the Retail segment too, which will improve the customer experience and hopefully improve sales and profitability for that segment.

So we are also, as I've mentioned, reviewing the portfolio of products with lower SKUs to be expected for the future. Simplification of the business model, we have been [finding a] bit too much complexity and cost across the organization. So we want to bring it to the more essential ones. Improving our presence on social media in general, creating more visibility on those media for the brand with curated content, with curated specialists giving the positive image by the company.

And as I've mentioned, no guidance due to COVID-19 impact where the visibility still is relatively limited.


Francis Deprez, D'Ieteren SA - CEO [5]


Thank you, Arnaud. So on Corporate & Unallocated, which is basically the mixture of the (inaudible) gallery and the headquarters, you see that basically the results, adjusted operating results are a bit lower in '20 versus '19, that the adjusted PBT is more or less in line. The net results also a bit lower.

The adjusting items, it's -- note that last year, we had a $6.5 million gain on disposal of property, which we didn't have this year. And we had still the EUR 10.6 million loss on the fair value of a continued liability as part of the CD&R transaction within Belron.

Also important to note is, within these numbers, we have included the solidarity program that we had basically announced in the month of May to support our collaborators that may be in need, given the COVID-19 crisis. And so even though that was somehow taken by adapting the -- some of our initial dividend reflections that we may have had at the beginning of the year, this is basically -- we put it in our P&L in the corporate element. And that's why it impacted our numbers here in H1.

In terms of our debt structure, and let's say, between the companies or within the companies, you may remember that at Belron, we have actually issued a new term loan B at -- in Q4 of 2019. So this combined with some of the other effects and their subsequent, let's say, shareholder payment of EUR 850 million led to a EUR 555 million net debt increase at the level of Belron and the ratio, which Arnaud already mentioned of 3.32x net financial debt over EBITDA multiple at the end of June. So fast deleveraging for sure.

And then the net cap position at our Corporate & Unallocated did increase with another EUR 382 million, a combination of some of those proceeds from Belron, the dividend payments, of course, we did in the month of June and some preferred share transaction that we had with the CD&R at February of this year as well. So all of that together net led to an increase of EUR 380-something million.

And it goes without saying that in terms of the EUR 1.45 billion cash that we have at the corporate level, this is, of course, the war chest that we keep very much reserved to systematically and consistently pursuing our investment strategy, as we have outlined also in our previous talks last year and the year before.

Let me wrap up before answering some of the questions that I start see coming in or have since started coming in since the beginning of our talk. It is at in this very special period, we are particularly grateful to efforts of all our people within the D'Ieteren Group. It was a very demanding period. There has been lots of uncertainty. But I think the determination of action and the support of everybody across the group has been just fantastic. And we're really, really grateful, and a big thank you for that.

And second of all, we have not only focused on financial numbers and financial results and our customers, but also on our respective communities across the globe, in the different countries at Moleskine, at Belron, at D'Ieteren Auto and at the corporate level. I'm not talking only about the solidarity program here, but also about gifting of masks and gloves and hand gel where appropriate. D'Ieteren Auto putting cars at the disposal of health care workers or hospital personnel, where they could, including Poppies and so on.

But also lots of charity support for very lots of local initiatives in many, many countries, including here at corporate to basically try and be supportive of the communities around us that have all gone through a very difficult period. So with that, I would wrap it up here and start going to some of the questions that we have started to receive. Now is there a particular order for the questions? Or can I just answer them as they are here on the screen from above to below?


Arnaud Laviolette, D'Ieteren SA - CFO [6]


I think we need to move up.


Francis Deprez, D'Ieteren SA - CEO [7]


We need to [muffle up at] the screen, if we can, because there were questions before the ones that I see on the screen right now, if we can.

So there may, by the way, be a 30-second delay sometimes on you typing a question and us seeing it. So bear with us a little bit.


Questions and Answers


Francis Deprez, D'Ieteren SA - CEO [1]


So the first question is from David Vagman from ING. Can you please explain the Belron EBITDA margin dynamic in H1 '20 versus last year? And what conclusions can be drawn for H2?


Arnaud Laviolette, D'Ieteren SA - CFO [2]


Okay. I'm happy to take that one, Francis. So it's a mix of actions, I would say. If you look at the lost sales and the impact on the gross margin, we've lost close to EUR 190 million of gross margin during the period. And so to land at a flat EBITDA, we have taken actions.

And if you look at the cost basis, we've made savings in, like, labor. We've taken savings in operation and supply chain, in sales and marketing. We increased a little bit the overhead. The bonus have been the bonus accruals because of the results have been going down. And so all explains -- it's a really mixed bag of initiatives, which has allowed us to keep the EBITDA at the same level as last year. So a lot of savings in, of course, a protracted environment -- sales environment.


Francis Deprez, D'Ieteren SA - CEO [3]


If I give a bit of flesh on how this goes back as the activity was picking up again, we of course have been able to put back capacity of technicians and call center people in a progressive manner. And that has typically helped us also on the profitability side, because it means that we have basically been able to put on people that were productive almost from the very first moment that it came back to work. And so we have actually seen increased productivity as the activity was ramping up again. And this has been part of the EBITDA margin dynamic, let's say, since May towards June, July and August as well. So that's the first question.

If you can move up again in the page, because it seems to be scrolling down all the time. And second question we have...


Arnaud Laviolette, D'Ieteren SA - CFO [4]


I think it's on the temporary unemployment measures. So we do -- we've given some details for Moleskine, but not for all the activities. Yes, we have enjoyed and benefited from them. We don't give the full details. What you need to understand, so we -- that has played a positive role, not a massive one, frankly, but a positive role. But never forget that we had sometimes an existing activity.

So when -- for Auto, Francis mentioned that we were closed on the 17th of March till the 4th of May, which means that we had 1.5 months nearly without any sales. So no sales, no profit by definition. Still some stranded costs. And so we don't give the details of the grants we received from governments, the local authorities. But once again, it's in an environment where we had hardly any sales.


Francis Deprez, D'Ieteren SA - CEO [5]


Yes. So that was actually the second question of the (inaudible) on the temporary unemployment. Then we have a question on the impact of government measures on free cash flow in H1 and expected reversal in H2.


Arnaud Laviolette, D'Ieteren SA - CFO [6]


Relatively limited. It's mainly some tax breaks or temporary tax breaks for delaying VAT taxes, corporate taxes. So we've seen that for Auto, but that has been regularized quite quickly. And then we still see it at Belron, where in some countries, we'll pay some taxes in the -- well, first quarter of 2021. It's -- when I mentioned the deferred payments of suppliers, part of that is due to taxes, and that will normalize in the next 9 months progressively.


Francis Deprez, D'Ieteren SA - CEO [7]


Yes. Then another question from David Vagman. What are the latest sales trends so far in Q2 at Belron? Did you see a softening of the recovery in the U.S. in particular?


Arnaud Laviolette, D'Ieteren SA - CFO [8]


And I think you want to -- it's not Q2, it's Q3. The question -- that's precision you bring just after. So a little bit volatile, but it's generally mid-single-digit lower volumes compared to last year. When we look at the evolution on a weekly basis of the volume trends at Belron, it's around mid-single-digit decrease with some volatility...


Francis Deprez, D'Ieteren SA - CEO [9]


In volume.


Arnaud Laviolette, D'Ieteren SA - CFO [10]


In volume, yes, in volume, week-by-week and also some volatility across the countries. And there is a precision demanded on the U.S., more or less the same trend. We do not see a strong deterioration because of the measures that some states have been taking, but some volatility, which makes it, of course, difficult for the management to manage the business and forecast. But once again, they are incredibly reactive or analytical, and they decide based on facts. And there is a lot of agility, which has been built in the system.


Francis Deprez, D'Ieteren SA - CEO [11]


To maybe -- so in the U.S., particular, in almost all states, the Safelite service is considered an essential service. That basically means that even when there are lockdowns or local ones in cities or what have you, we are not necessarily forced to lock down the Safelite service centers. They can remain open. And so we can play with capacity. And so of course, within the U.S., being a very flexible labor market, we can play with the capacity.

And there's 3 times a day, there are updates done at the local level being centralized up to the level of Safelite and at the level of Belron to tweak what capacity should we foresee, given the level of demand that we have coming in on call centers and what have you to -- for the work. So it's a very fine-tuned steering of a flexible labor force that we have in the U.S. to tweak the demand, which is a bit unpredictable per definition, given that it's -- and so even if the Texas or Florida or in Arizona went to real spikes of COVID during the summer months, we were able to tweak very precisely the capacity required. And that's actually what makes all the difference, I think, at the Belron and Safelite in keeping the productivity and keeping the margin in line with the real demand.


Arnaud Laviolette, D'Ieteren SA - CFO [12]


Still a question of David on Belron. I think it's -- what improving cost and cash flow seen in H1 at Belron or either temporary or even to be reversed in H2 2021 -- and in 2021. Temporary unemployment, working capital requirements, project postponement.

This crisis has made nearly all our activities more conscious about measures that we thought were not possible to take, being the new reality, the new normal. And we see renegotiation of rents, because we believe that in some places, we don't need so many square meters for the offices. We see some important decline, of course, by definition in travel costs. So will that be temporary or definitive? We'll see. But I've got a feeling that some of them are really definitive.

As I've mentioned, for the cash flow, there will be a reversal of deferred payment for Belron during the second half of the year and a little bit in Q1 2021. I've mentioned the number a little bit north of EUR 100 million. So that will reverse. And still we believe that with the current momentum, which is, of course, fragile and can change in function of the evolution of the pandemic, we'll be still generating cash during the period.

So I think that some of the improvement are temporary, but a big part will be definitive. What will change is for sure CapEx, because CapEx has been everywhere at a very, very low point, especially at Belron. And we have in front of us some transformation, IT transformation, which will be with higher demand in terms of CapEx for the coming quarters.


Pascale Weber, D'Ieteren SA - Head of Financial Communication [13]


Then another question also from David, but on Moleskine this time. You have -- I have seen that you have cut again a number of stores by about 10. Can you already give us more info about the important strategic decisions to be taken to restore profitability?

It's clearly one of the topics that Daniela has very high in our agenda. It's to understand what stores give what profitability depending on what they do and especially their setup. So how big are they, what's the rental costs and the fixed costs that you have, combination of rental and personnel. And what do you offer in the stores.

And so one of the things she's immediately done, and that's based on her experience in her previous companies she worked for, is to do a detailed category management at the store level to see depending on the type of products you show and how much shelf space you give them, what works well and what doesn't work well, either in real immediate sales or in terms of giving visibility to strategically important or brand-building products or things around that, building traffic or increasing the conversion or the average ticket price inside a shop.

And so there's a very detailed database analysis been going on in -- for all of our existing shops. And I think as the shops come out of the confinements and they start reopening again, that will be a very useful tool to actually manage in real-time stores and get to a sales density per store, per square meter in a store, that is more in line with our expectations. And so it's a very, store-per-store, SKU-per-SKU type of analysis based on the sales tickets of the store that is being put in place to start working on that.

So I think this is a tactical way of operationally working on the performance of the retail stores. At the same time there's a bit more of a strategic reflection going on of what do you expect a own retail store to deliver, where do you want to have them in terms of locations. As you know, we have a mix of travel locations, some more main street type of locations and more shopping mall type of locations. So that is also a reflection to work with that.

So very down-to-earth and pragmatic work. And I think even though she's only started on April 1 and only landed in Milan as soon as the travel restrictions between France and Italy were taken away at the end of May, you already -- we already see the impact in the way she interacts with the team, and the team is changing management and behavior.

The next question is from Kepler Cheuvreux, Matthijs. Any comment on your substantial cash position in terms of shareholder distribution, M&A, et cetera?

Well, we keep consistency with our M&A, of course. So there's no changes to be noted there. And we do believe that some files we had been looking at, and I think we've seen that across the board, have been put on hold during this confinement period, because some sellers wanted to wait and see what's going on and have not necessarily restarted those processes again.

At the same time, discussions that were ongoing have been kept ongoing, thanks to Zoom and other technologies. And at the same time, we also see opportunities coming at the horizon, maybe not immediately right now, but I think in the coming months, we do anticipate that companies that have ambitious plans, but not necessarily have the financial means may be knocking on our door or we may be knocking on their door to see whether it's useful for us to do things together.

So in M&A, we're very consistently pursuing that. Yes, there has been some stuff on hold, given that processes were not necessarily pursued, but we also see additional opportunities popping up.

And in terms of shareholder distribution, as you have seen, our dividend policy has remained intact as we stuck to our EUR 1 dividend this year compared to EUR 1 also the year before. So we've always said we keep it stable or slightly increased, if we permit, given the COVID uncertainty and initial increase of $0.15 we ended up not doing it and using it for a solidarity program. But so we anticipate to use the same dividend policy going forward that we have always had, if that's the question.

And in terms of share buybacks, as you know, we have put it on hold in the midst of the uncertainty. And given that we have still unclear outlooks going forward, we have kept that on hold for the moment. So that's that question.


Arnaud Laviolette, D'Ieteren SA - CFO [14]


So a question from David on Belron. Can you explain the mechanics of the increase of your stake in the company?

Yes, there is a modest increase (inaudible), thanks to the purchase at the beginning of the year in February of EUR 150 million of preferred shares. Those deferred shares are eating, are having an interest rate or a coupon of 10%, which is eating into the profit after tax of the company, as we have a much higher shares of the preferred than on the ordinary. This (inaudible) offtake in the company to the level we've mentioned, and I'm available to give you the full detail on that.


Francis Deprez, D'Ieteren SA - CEO [15]


And then the question is whether the 3.3% leverage we have on debt at Belron gives any insight on dividend policy from Belron towards its shareholders?


Arnaud Laviolette, D'Ieteren SA - CFO [16]


No, no change at this stage. Once again, we live in a very volatile environment. We want to play really safe and keep dry powder. We are very happy to see the leverage at that level, and there is no intention to do any dividend recap, for example, as we speak.


Francis Deprez, D'Ieteren SA - CEO [17]


Okay. And we have a question from [Nihil] on Auto. Whether the recovery in auto registrations of June, July, are they a catch-up? Or are they a structural demand?

Well, for sure, there has been some catch-up in there. That's clear. Cars that were either already on our parking lots during the confinement that we weren't able to deliver to our customers. And I think we're not the only ones in Belgium in that situation. So what we've seen definitely in June, there has been some catch-up. I think, in July, product catch-up was already gone.

And so it's more about how will the B2C and how will the B2B market reacts. We see that the B2C market is actually a relatively okay demand. So people keep, let's say, doing themselves, I wouldn't say the pleasure, but they're saying "If it's time for a new car, why not do that? I survived the crisis. So let's buy a car." In the B2B, you do see more hesitation clearly about people looking what will be my outlook on recruitment, on a number of jobs, on restructurings. And that influences a little bit their decisions, either both on technical cars and on company cars from the B2B side.

So in that sense, I don't think we can use June, July as a pure indication of how the year will really land in terms of cars. But as I said before, we anticipate about 435,000 new car registrations for the Belgian market for the year outlook, which would be about a 21% decline versus last year, more or less, give or take. And we do not anticipate the number to drastically increase next year and the year after that, but to rather stay around the 450,000 cars in the years to come.

Quality of my eyes is so bad, I have to go a little bit forward to read those questions. So the next question is from David. What are your thoughts on share buyback?

I think we've mentioned that and dividend and then investment, I think we've mentioned that.

A question from Wim Hoste, KBC Securities on potential acquisitions. Is the current economic environment changing the way you look at it in terms of sectors and those priorities?

Not in terms of sectors. In terms of priorities also, not in terms of angles, of course, we are also looking a little bit more opportunistically whether certain companies that may not necessarily have been on the selling side or not on the open to dialogues, whether they might be open to dialogues. But otherwise, we remain very consistent with what we've been doing before.


Arnaud Laviolette, D'Ieteren SA - CFO [18]


So a question on BDP from Emmanuel Carlier. We've already answered that one. Another one from Emmanuel, what is the effect of 8% lower volumes on sales in rebate? Do you expect volume to recover further in coming months?

Emmanuel, if you could precise on which of our activities it relates...


Francis Deprez, D'Ieteren SA - CEO [19]


It's probably Belron in June. We were 8% lower volumes.


Arnaud Laviolette, D'Ieteren SA - CFO [20]


Yes. So can you please clarify that? That would be helpful.

A question from Matthijs Van Leijenhorst. How should we look at working capital going forward?

So we've enjoyed a very strong uplift or improvement of the working capital in the first half of the year. We believe that part of that is temporary, part of that is there to remain. As you know, historically, we've always had a high level of credit note from the factory, and we believe that we can much better manage that. That's one of the objectives.

We entered the -- as you know, we had EUR 220 million of credit notes on the 30th of December. We've lowered that to EUR 150 million at the end of June. And we believe that it is a place where we can stay there for the foreseeable future. So there will be maybe some -- we'll lose some of the benefits that we've enjoyed on other part of the working capital in the second half of the year. But we also hope that the activity will be generating higher EBITDA during the period.

Other question from Emmanuel, does future upsides of Belron have to come from improving volumes and price mix? Or do you still see room for further OpEx savings?

I think that it would be a combination. I'm not totally sure that there will be an important decrease in OpEx. But in percentage of sales, I think that we can still improve. That's my short answer. And I hope here that we can still improve the volumes. And the price/mix, I'm relatively comfortable on that one.


Francis Deprez, D'Ieteren SA - CEO [21]


Yes. So Emmanuel has added that the 8% question was about Belron. And so -- but I think you've mentioned a little bit about the volumes. What do you think that the effect will continue to be in terms of volumes.

So we know we are in a structurally slightly declining volume type of environment, yes? But a lot of the upside comes from the value. That's price, that's ADAS, that's VAPS and all these elements. And on top of that, we're looking at every single P&L cost line item where exactly the percentage improvements are still ongoing as we see.


Arnaud Laviolette, D'Ieteren SA - CFO [22]


Question from [Mikel Laclair]. Do you see any changes regarding competition in ADAS calibration markets? The answer is no.

And I think that we are at the end of the questions.


Francis Deprez, D'Ieteren SA - CEO [23]


These are the questions that we have received. There may always be a 30-second delay, I understand, in seeing the questions of it and being asked. But I think we have had a good overview on many of those topics.

So if we do not see immediately new questions popping up, I would say, well, thank you very much to all of you in this video call. It's a very unusual environment. And looking forward to talking to you next time or in the coming days and weeks that we have, some of the road shows going on also in a virtual manner in the different -- or with the different geographies that we typically cover.

So thank you very much. And if there's anything more you would like to ask, do not hesitate to contact us either via mail or via phone. Have a great evening, and talk to you soon.


Arnaud Laviolette, D'Ieteren SA - CFO [24]


Thank you.


Francis Deprez, D'Ieteren SA - CEO [25]