Ladies and gentlemen, welcome to the DTHN twenty twenty one Alfier Reserve Conference Call. I now hand over to Mr. Francis Depre, CEO and Arnaud Labiolet, CFO. Gentlemen, please go ahead.
Thank you, and good evening to all of you or good afternoon, depending on where you're calling from. Yes, Arnaud and myself on the half year results 2021 for the Diturin Group. In terms of key highlights at the highest level, well, we are quite happy with our record results and strong performance over this H1 twenty twenty one period that has really been driven by all our businesses across the board. And in terms of guidance for the rest of the year or for the total year, we are confirming or reconfirming our latest guidance, which has been the one that we updated during the spring to grow by at least 45% and is driven by all three activities as well for the full year. So that's at the highest level.
If I take some of the key elements at the group level to your attention, in terms of combined group sales, so the top line, we have shown a plus 25.2 top line growth. It has been all double digit in each activities. The highest this time around has been Zittrack Automotive with plus 25.5%, followed very closely by Belron at 25% plus 3% growth. And also, Molskeen had a solid 14.6 top line growth, which left us in a combined sales slightly above EUR 4,200,000,000.0. The translation of that into combined adjusted operating results has given us a whopping plus 119.3%.
Basically, again, doubling at more or less at Belron, plus 98.7%, doubling even a bit higher than doubling at Digital Automotive, plus 108.8% to EUR 73,500,000.0. And Molsconjure was in negative territory during H1 last year, given lockdowns, etcetera, have been landed in positive territory in this first semester of 2021, albeit a slight positive number with plus NOK 2,000,000. Group wise, we, of course, always look at our group KPI, the adjusted profit before tax group share. And there, the number that we have 8,800,000.0, NOK which is a plus 183.3% increase versus last year. Again, of course, we had a comparison here to 2020, which was very depressed last year.
But nevertheless, the EUR $289,000,000 is a record number, I think, in the if you go back even ten, fifteen years or so in the history of the group. The biggest contribution has been, not surprisingly, Belron, also an absolute increase versus last year. But also, auto added a good EUR 40,000,000 and about EUR 12,000,000 added by Molsken. And our corporate such unallocated is also about EUR 10,000,000 higher than last year. So overall, a very satisfactory top line or sorry, top type of number in PBT group share.
Free cash flow generation, albeit smaller than last year because we had quite an unusual free cash flow generation in Automotive last year. We are generating a EUR $218,000,000 group share free cash flow adjusted this time around, still EUR 18,000,000 positive at auto, slightly higher at the moment than the year before at EUR 43,000,000 and also plus EUR 4,000,000 for Molsken. The big change in free cash flow has mainly been driven that as we're more and more back in business, we, of course, need more working capital to manage the larger businesses that we have. At the same time, I did on automotive, we had some onetime effects last year that we did not have this year around credit notes, etcetera. And also at Belron, have been extremely cautious last year in doing everything for cash preservation, whereas this year, we were in a bit more normal state of a benefits
that have
the of of the for our debt a benefits structure and is not surprisingly such. And this is, of course, the picture of the June, which means it is before the announced TVH transaction, but after the refinancing that we had done in April with Belron, so you see that the EUR 2,100,000,000.0, which is almost on our books in terms of negative net debt, if you like, is, of course, contributed by the dividend upstream we've seen from Belron on the one hand, but it's still before the payments to be done on PVH. So that number. And in terms of ESG, last but not least, before I hand over to Arnaud to go into a little bit more depth on Belrom, is that in ESG, we have continued to progress on working out a responsible investment charge. On the one hand.
We were already PRI signatory, and we've, of course, applied this in all our due diligence that we've done in the last month. But we have also now introduced with Sustainalytics a kind of a metric that scores us compared to other diversified financial industry players or multi asset holders as Sustainalytics does that, and they have given us a score of 11.6, which on a scale between 100, zero being the best, is a clear indication of a very low risk level on sustainability as interpreted by Sustainalytics. But we continue to work and implement on our business specific ESG strategies as well, productivity. They work on the, let's say, most material items that have been identified a year before. They're becoming very concrete, and they are also flanked by a more top down request to work on a couple of KPIs, amongst which carbon reduction ambition is quite an important one.
And for instance, Automotive, a couple of months ago, has announced quite an ambitious plan to reduce by 50% by 2025. We have activities also working on this. And last but not least, as you know, we had a solidarity program launched last year linked to COVID and its impact for our collaborators. This year, we unfortunately had to use it also for some effects we've seen, not with our collaborators, but more with our independent dealers in the Wallonia part of Belgium, where the waterfloods have actually affected some of their operations and their collaborators. And so we have used an amount of 100,000 from our remaining solidarity funds to support them in that front.
This is just something to note as well. Let me hand over to Arnaud for to give you a bit more details on the evolution at Belron.
Thank you, Francis. I'm really delighted to inform you about the stellar performance of Belron during the first half of the year. In terms of top line growth, we've seen close to 29% organic at constant FX growth, which is subdivided into a little bit more than 20% volume growth and close to nine percent of value growth, mainly explained by an increase in the product mix, the model mix, increased ADAS recalibration and also of VAP. Our operating profit nearly doubled to EUR $465,000,000 with a margin record margin of 20%. And this was driven by the top line growth but also the kind of operating leverage that we have in the activity with a clear focus on cost control, continuous improvement on all the cost fronts.
The adjusted PBT also increased more substantially than the operating profit. This is mainly due to the fact that the interest charge were stable compared to the first half of last year. The free cash flow remains very, very strong with close to EUR $267,000,000 for the first half. Once again, this is a consequence of much higher EBITDA, also controlled CapEx and some negative swing in working capital where we have kind of returned to normal compared to the first half of last year, which was quite extraordinary in terms of working capital swing positive working capital swing. Very tight control on debt, too, instead well, even with the important capital distribution that we have had during the first half, we have been able to maintain a very reasonable leverage ratios with net debt to EBITDA for the first half of 3.23x compared to 2.57x at the December 2020.
Also very important, we focus a lot on customer satisfaction. Some downward pressure there with still an incredibly high rating, a little bit below last year at 83%, and this is mainly due to the kind of capacity constraints we see in the business as we speak. If I look at more closely at the sales, It was mainly organic, very limited impact of acquisitions, some negative headwind from FX, some so that explains the top line performance. In terms of geographic split, the it's the comeback of Europe after last year, which was heavily impacted by lockdowns. This first half of the year, the situation was much improved.
So a stellar performance with close to 40% increase in sales in Europe. Then for those rest of the world with 30%. And the North America, still very, very strong performance, close to 24% sales increase. The volumes recovered, as I mentioned, a little bit more than 20% volume recovery compared to last year, which was mainly skewed to the second quarter of the year, which saw close to 44% volume increase compared to last year's second quarter. The value of our average job has increased quite significantly during the first half compared to last year with mainly its model impact.
It's also partially a mix impact, but also a higher contribution from recalibration fees and from value added product services. In terms of recalibration, strong growth again. And there, you see the impressive penetration rate, a little bit more than what we had expected or what we had guided for, and this is not exceptional. It's really an acceleration of a trend that we see currently with the penetration average penetration rate on the first half of the year of 22% compared to 14.8% last year. So quite more than what we had guided for where we saw generally, you can expect 4% increase in the penetration rate.
So we are at much higher level now. And also improvement in the attachment rate for VAPS with an increase from 17% to 21.6%. So the trend that we see and that we've explained to you already a few since a few years, are being confirmed by the performance in your first half of the year and some negative headwind from U. S. Depreciation compared to last year, in fact.
In terms of operating profit, well, you see here the results. You know record result, as I've mentioned, with nearly doubling of the operating profit. Once again, stable finance costs despite the higher net leverage and net debt, but this is mainly due to some FX movement and so a lower base for the interest rates. And you must know that even if we have reported that in the adjusted items, we face some increased costs linked to transformation program, which includes million in the operating profit, CHF13.5 million of cost, and I will come back on that later on. Then on the operating level, which are the adjusting elements items, positive impact of the fuel hedges that we've in place of a little bit more than EUR 4,000,000, some amortization of brands and customer contracts at the level essentially of Safe Flight following the acquisition of TruHorde in 2019 and some other adjusting items linked essentially to the sale of activities to the discontinued activities.
You know that we've been selling activities in Belgium and in Italy and in The U. K. In body shop for cars, and we sold the mezzanine activity in France with, unfortunately, a loss. For the adjusted free cash flow, as I mentioned, still very, very strong free cash flow generation increasing, in fact, compared to last year, which was already at record level. Once again, explained by the higher EBITDA, by the fact we had not this time any impact of the legacy ESP plan that ended in 2019.
And what played negatively against us was the swing of working capital, close to 200,000,000 negative swing. But notwithstanding that, we are able to improve marginally the free cash flow generation, which remains really at a high level. Thanks to that, we've been able to diminish the leverage well, not diminish, but mitigate the impact of the capital distribution that we've done with recourse to debt during the first quarter of the year. And as I mentioned before, remaining at a very satisfactory level of 3.25x 23x EBITDA. I've mentioned the transformation plan.
You know that we commented we announced in 2018 a quite ambitious plan in terms of fit that we qualified as Fit for Growth. And Fit for Growth has two legs. The first one is the acceleration one, which has yielded impressive results in terms of top line, in terms of bottom line improvement. And this program is continuing. So you can expect continuous improvement on that one for the future years.
And on top of that, now we have put in place after a long maturation of the plan, but everything for that kind of plan is in the preparation and making sure that we've identified all the right levers and the right software in order to better perform. So now we are ready to announce a transformation plan, which will be quite sizable. So we've quantified it. We have defined a period of investments, which I will qualify later. And so it's an impressive program between EUR $230,000,000 and EUR $250,000,000 on the period 'twenty one'twenty five, okay?
And it's essentially on improving the IT infrastructure of the organization and improving the IT robustness of our systems. And there are a few areas where we want to make a It's in terms of customer experience, in terms of supply chain in The U. S, supply chain in Europe, in terms of finance, in terms of HR, in terms of data led decisions, in terms of IT infrastructure. So very well identified work streams.
We're working on that. We have quantified the cost of implementing those software. What you see here is the total cost of the program. And the program will be impacting us negatively because all those costs historically were capitalized and then depreciated. And now with the new IFRS norm, new IFRS directive, we are not allowed anymore to capitalize those costs as those investments are essentially implementation costs for software, which will be based on the cloud, which will be service Software as a Service, we are not allowed anymore to capitalize those costs.
So we need to take them directly in the P and L. And we have decided to qualify those costs as recurrent, so adjusted costs. So you won't see that in a separate line in terms of adjusted costs. We could adjusting costs, we could have decided to do that, but we'll give you in the future a lot of clarity on those costs. So you will be able to identify, isolate, if you wish, and see also later on the impact on the P and L, positive and negative.
We are expecting we as I mentioned, 13,500,000.0 of those implementation costs were already in the first half of the year. You are expecting an acceleration of that spend in the second half of the year, still an acceleration in 2022. And starting in 2023, we'll see a positive impact of the benefit of the plan compared to the cost of the plan. And at the end of the plan in 2025, we can expect on top of the margin increase that we're expecting for the acceleration program, we're expecting at least a 2% margin increase, thanks to the transformation plan. So I think it's a significant investment, significant decision.
It is a little bit a game changer that we're expecting in terms of technology and usage of the technology for Beloan and this positions us at a very distinctive level compared to competition. And as I mentioned, we'll provide regular updates on that. And when I say regular, it's during full year and half year results, regular update on that plan. Last comment on Belen. We see volumes recovering.
During the first half of the year, we are still well, we were, as I told you, massively up compared to 2020. We were slightly down compared still compared to 2019, so minus 3% in volume. But in terms of value, we're much higher. As I mentioned, the transformation program has been approved and is already now in full swing. We have exited the service expansion activities with the exception of Canada, but that should be done in a few months.
And also important management change with the announcements of the nomination of Rene Caixiello. Rene with a double E, she's a lady, will be succeeding Tom Feeney from the December 1. In terms of an outlook, we see still very, very solid and very robust trading conditions. The margins for the second half of the year should be lower and partially due to the transformation program that I've just mentioned. And also an important point that we had already disclosed a few weeks ago is that for the future, we'll be consolidating Beloan at 50.01% after the dilution of the conversion of preferred shares and the full dilution of the incentive plan of the management.
Thank you, Arnaud. On the detail in automotive, maybe jumping immediately to Page 19, which talks about the markets. Yes, we saw a slightly better car market in the '1 versus last year, plus 6% or 7%, if you correct for the less than thirty day deregistration. But this is, of course, only a partial recovery. This is not a surprise to us.
We have we did not anticipate a full recovery at all. We are at a lower level, and we don't expect to get back to pre COVID levels very soon either. So this has remained at a relatively depressed level in terms of overall market. And this has, by the way, not been helped by the supply chain issues related to the shortage of semiconductors and other components. And this will, by the way, continue to play a role in the months ahead.
But in this difficult market environment, Peter Automotive managed to increase its market share actually quite substantially, zero five percentage point to 23.5%. So quite a satisfactory margin market share. And we that's allowed us to deliver more cars because we still have orders from the year before, about 23% more deliveries and registrations than the year before. So you can see in the typical picture that the 232,000 vehicles of the Belgian market in H1 is clearly below what was usual in the years 'fifteen 'nineteen. But our market share is at its peak or close to its peak as we speak.
In terms of the mix of cars in the market, again, fuel mix is continuing its trend where, of course, new energy sourced cars increased their share from 15% to 21%. In the 21%, about 19% are full electrics or full electric still a niche, of course, but it's now at 3.9% of the total car market. The buyer mix is relatively stable. So B2B being a bit bigger than B2C. So the fleet people have been back into the market really.
The private markets have been a little bit more cautious still. And in the SUV share, we're actually doing the continued increase of SUV, meaning that it's at 47% in the overall market by now. So really almost half of the cars in Belgium sold are SUVs of all types and shapes and forms. Now our position within that mix, you can see on Page 21, you see that Audi, in particular, has done a great performance, jumping from 5.8% share to 7% share. And that's good news because Audi actually comes is a bit more premium than some of the other brands.
So very good news. Skoda, a very nice sustained development, thanks to the Kamik, the Caro of the Kodiak to 4.3%. Fiat, quite stable, even if you include Cupra. Porsche, nice, back in the market at 0.7%. And it's the Volkswagen brand who actually have suffered the most, if you like, in this difficult market environment because they cannot rely as much anymore on the older models like Polo and even the Golf, etcetera.
And the newer models like ID. Three and four who work quite well are not of the same volumes as the other models, the classical models. And so overall, Volkswagen has been declining a bit in its overall position. Still one in the kind of mass market brands, but in the overall brands, in that sense, not one during H1 of the market. What is particularly satisfactory for us is that if you just zoom into the niche of the full electric cars, our market share is 30.6%.
So this is significantly above the average of our overall market share, which bodes well for this growth segment in the market, of course. And we don't only have the ID. 3s and 4s of Volkswagen, we also have the Enyaqs of Skodaq, the e trons of Audi, and this is a good mix of vehicles to have in your catalog. In SUVs, we're always underrepresented compared to the rest of the market. We have continued to increase EBITDA share there to 20.5, but we're still not at the average of the overall market there.
Bottom line for digital automotive, of course, the comparison is to a very tough twenty twenty H1. We have reached a 4% return on sales as the adjusted operating margin, quite a satisfactory number, and it's the result of a couple of things. Of course, a bit more vehicles compared to last year, but a lot less than what we used to have in 2019. If, however, you compare the profitability of 2019 to the profitability of H1 twenty twenty one, well, with 13,000, 14,000 less vehicles sold, we're delivering about the same amount of absolute profit. And so this is a very good result, really, if you think about it.
And that's partially because we have a great mix of models. Audi and Porsche, of course, are good vehicles to have in the mix. But it's also the result of our cost initiatives and efficiency initiatives of last year. As you recall, we had a social plan that was finalized at the December, while we're reaping benefits of that this year in 2021. And a couple of other things where we have been quite cautious in marketing spend and things like that.
So a good margin overall. And by the way, the retail footprint, especially the Porsche one and the one in the Antwerp region have contributed positively as well to the profitability of Dietern Automotive overall. Translation to free cash flow. As I already said at the beginning, less, let's say, abundant as last year. That was really an exceptional free cash flow for Dieter and Alto, but still a nice positive one at EUR 80,000,000.
We need more working capital given that we're back in business and we have more vehicles going through our system. We did have the payout of the transformation plan early this year, which, of course, was a cash out. And then the higher EBITDA, of course, compensated for that. We also had a bit of a different mix in credit note support from the factories. So these are all the components that have contributed to the difference between the 79,500,000.0 versus the EUR 237,600,000.0 of last year.
Maybe on a different note, we have, and there will be more news on that in about ten days from now or fifteen days from now. In Belgium, we have something called the week of mobility in the September. And Digital Automotive will use this to publish a report that we have done on the Belgian market about expected trends and behavior changes from consumers around mobility in Belgium. And so we have interviewed 3,800 consumers, 300 business participants in the market. And what we've learned from that and all the details will be found for free on our website as of September 8, is that actually post COVID will not be the same as pre COVID.
So we do not anticipate, given the increasing share of e commerce, given a sustained percentage of home working or teleworking, we do anticipate less commuting trips overall in the country or less shopping trips and recreational trips overall, so about 6%. You may say not that much, but still that's an impact. And the mix of those trips about what mode of transportation to use, that's the good news for us. We will still expect over 50%, 56% to be precise, of those trips to be by cars. So cars will remain the absolute main mode of transportation.
Whether you own the car or you lease the car or you get the car somewhere else is a different question. But cars are still the main mobility mode of transportation for Belgians in 02/1930. Bikes will increase in importance to about 15%. And other forms of multimodal transport, so a combination of public transportation, maybe car sharing, etcetera, about 12%. The real change in the market, so the precursors, the early adopters, the drivers of innovation are less the general public, but there are more the B2B, the business side.
They are the customers that will drive the change that are pushing employees to switch to electric vehicles, that are pushing employees to commute not only by car but also using multimodal alternatives. And this is good for us to know. So we will use the results of the survey to tweak the strategy of digital automotive to those modes of transportation that Belgians will be using and to, of course, also align our CO2 reduction plans with that and our investments in LAPBOX and the like. In terms of latest developments in auto, we're continuing to make good progress on all our initiatives, both the core business initiatives on cost and efficiency, the adjacencies, the ESG components. And our outlook is we are actually reducing our overall market outlook for Belgium new car sales from 450,000, which we announced in March to 430,000.
This is really primarily driven by the continued difficulties in delivery and production of vehicles. I mean, all brands, not only Volkswagen Group, but all brands have been announcing in the last couple of weeks continued deceleration in production numbers of cars given semiconductors and the like being lacking. And so we will, therefore, anticipate, even though we have a record order book, we do not think that what we thought we would be able to all deliver and therefore invoice before the end of the year, part of that will only happen at the beginning of next year. So the shift from H1 to H2 is there, and there will be more delivery in H2, but some of that will also shift into 2022. It's not lost business.
It's more of a shift in time that we anticipate to see. We continue to invest in things like Labox, of course. And as you can see, some pictures, some ideas of the new models and model replacement and refreshes, facelifts that will happen in the coming months. Volkswagen Tigos maybe a word not every one of you have heard before. It's a small SUV that will be brought into the market and that's people who used to buy Polos and so on might be quite appealing for them.
Let's move to Moleskine.
And again, Arnaud, maybe you can take over on Moleskine.
Thank you, Francis. So good performance of Moleskine during the first half. You know it's a EUR 6,000,000 increase in sales, translating into close to 15% growth for the sales for the revenues. It is mainly a strong catch up after the COVID crisis of last year, but retail remains under pressure. As you know that kind of travel location like rail stations and airport are still suffering from very low traffic.
The cost has been extraordinarily well contained during the first half. And you know sort of EUR 6,000,000 sales increase translates into a 15 an increase profit of EUR 15.8 EUR 15,500,000.0, sorry, so which is showing the good effort, the stronger control and cost the company is generating now. The adjusted PBT is still in negative territory, which is normal for the first half of the year because we generate the highest portion of our profit in the second half of the year. The adjusted free cash flow turned positive, close to EUR 4,000,000, which has allowed us to lower our bank debt and the net debt declined just below EUR 300,000,000, but that confines, as you know, a very important shareholder loan, which is considered an equity. In terms of sales evolution by segment, B2B was increasing the most during the first half.
But once again, it was from very low level of activity in 2020. So customers are proactively starting to reorder for the gifting activity. Wholesale is increasing quite nicely. And what is positive there is that with the large retailers, we are really playing with the winners there and also with a very strong growth in the digital channel of our most important retail clients. Retail, our own retail activity, as I mentioned, is still under severe pressure because of where we have our retail locations, mainly in Europe and also in travel locations.
E commerce, a little disappointing growth for the first half of the year, but we changed the e commerce side. And I think that we've lost a few customers in the journey, and we're hoping to recover them in the second half of the year. In terms of geography, same consequence as for the other activities. Europe getting out stronger from the lockdowns of the first half of last year with a 25% growth, Americas and APAC following. In terms of profitability, we are on track compared to budget.
We are even a little bit above budget in terms of bottom line. Once again, as I mentioned, strong operating leverage with improved gross margin, which is positive for the brand. Are at record level for the gross margin of that activity and decline of all the cost line in the P and L being being operating cost and personnel costs. In terms of free cash flow, as I mentioned, it was a positive free cash flow generation with a good trading cash flow and with a limited amount of taxes paid and an interest charge, which is lower than in the first half of last year. The interest on the shareholder loan is not paid in cash, so it is accrued.
And so you do not see it here in the free cash flow generation. In terms of recent developments, we are very happy about the progress we are making with the strategy put in place by the new CEO, Daniela, with fewer bigger and better motto. We are making big progress there in terms of simplification of structure, in terms of rationalization, less is more of the products and improved or increased people ownership of the issues at Moleskine. The master plan, which had been put in place one year ago, is progressing according to plan. The new e commerce platform, as I mentioned, was successfully launched in May 2021.
We are accelerating innovation. You will see at the end of the year a few launch of new digital products. And also, made big progress in terms of sustainability with clear targets in terms of suppliers, ESG criteria, in terms of carbon footprint, in terms of reduction of waste. The outlook is that we are seeing Moleskine performing according to the plan. And we see some and it is, as mentioned by Francis Fordyt Renato, as not yet mentioned by me for Beron, we see some tension in the supply chain, and Moleskine is, of course, not an exception to that.
In terms of corporate unallocated, nothing really special to report, except that the provision that we had booked in the 2020 for the solidarity funds was nonrecurring. And so we have had a good performance in terms of cost at the level of the corporate, good performance of the real estate, which has improved its performance, which is leading to just above zero profit for the corporate and unallocated segment for the first half of the year. Francis?
All right. So before opening up for questions, the closing remarks. Very strong results in H1 'twenty one across the board, thanks to a balanced mix of top line development and cost containment. Reiteration of our outlook for the remainder of the year, so planning to land for the full year on at least 45%, which basically implies that in H2, we continue to see some car delivery issues in auto and the Belleron transformation costs will stick in a bit more than in H1. And these are the two main drivers why that kind of leads to us not changing the guidance at this point in time.
Thirdly, projects put in place are making good progress, ESG projects, transformation projects with the real acceleration and the new strategy at the Molskeen. And of course, as a last note, the two big announcements we have made in the July, we'll, of course, continue to work them and finalize them. For TVH, we are between signing and closing. We anticipate the closing, as said before, to happen somewhere around Q4. So this is still the timing we have in mind.
And also the arrival of three new sets of investors alongside CDNR at Belron is also something that will close around the fourth quarter. So in that sense, those two eventful things will definitely be more prominent, I guess, in when we see each other or talk to each other again in six months from now. This is maybe a good time to open up for questions from your side.
The first question comes from Emmanuel Kalief from
It's Emmanuel Kalief from Kempen. A few questions. I will give them one by one. On Belrom, so the ADAS penetration rate was up, I think, 500 basis points in the first half of the year. You used to guide for 400 basis points per annum.
What do you expect going forward as a kind of annual run rate?
Probably, above the guidance we gave before, which was 4%. And it depends on the countries where you're operating and on the average age of the car park. Because if you take The U. S, where the car park is approximately 12, 13 years of age, then you can expect the kind of renewal by 8% of the car park, and you cannot expect that the old nearly all the new cars. But that's the assumption which needs to be checked and followed.
Nearly all the new cars are now equipped with ADAS. And that increase, that penetration is higher than what we had expected. So probably, we can expect that it would increase by six to 7% a year for the coming years. And that trend is very clear, Emmanuel, because of safety reasons,
for
deregulatory reasons. As you know, by 2022, all new models in The U. S. And in Europe will have to be equipped with ADAS. So
And that's one factor, which we have probably seen come a bit faster than anticipated that the parts are being that the cameras are actually installed more than we thought in new vehicles and in new models a bit faster. Are gaining much second one is that we are better equipped. We are upgrading our equipment. We're covering almost all requests on recalibration that we can do, technically speaking. And so we are losing less recalibration jobs than we may have lost before.
And this has been that's probably a bit of a catch up effect that we have seen in the last six to nine months that was maybe underestimated. And so it's true, we have already seen about 1.5 per quarter increase since about six months. This has continued now. This will probably continue for a bit. But I think if you project it out three, four years from now, we'll probably go back to the 1% per quarter at some point in time.
But for the moment, we're going a bit faster.
And is pricing unchanged and hence the economics as well?
No. The price has been moving in the right direction, Emmanuel. So the average price per recalibration has been increasing during the first half compared to last year.
It has changed positively for the moment, but plan anticipate massive changes were up nor down for the future. But for the moment, yes, it's more by the geographical mix that have seen a change than anything else.
Yes. Okay. Then the second question is about the transformation plan. I'm not sure if I fully understood how it works. So the CHF $230,000,000 to CHF $250,000,000 is the annual cost?
No, it's not what will have.
An investment amount, so it's not a it's an investment amount, first of all. But we still, of course, book it accounting wise as a cost or as an expense. But it's the accumulated amount over five years. So on average, it's CHF 50,000,000 a year, if you like. We've done CHF 13,500,000.0 in H1 of this year.
We'll probably be a bit more EUR 50,000,000 overall for the total year because you do a bit of upfront loading in 'twenty one and 'twenty two of the EUR $250,000,000 and a bit less towards the end of the time period. So that's really the amount over the years that will be invested and expensed in the P and L accounting wise. But that is, of course, an investment in the future because that's what's going to allow us structurally increase the margin with two percentage points once this thing is at full speed.
Yes. Okay. So it's a two to three year payback basically. Sorry? So it's a two to three year payback?
Yes. Starting in 2023, we'll have a positive impact on the P and L because the benefit of the program will be higher than the cost. And as I mentioned, 2025, the kind of dilution of the margin, operating margin of Belron of more than 2%.
Yes. Yes. Okay. And then on Belron. So I was a bit surprised.
Privately, they paid a lot for Belron. It's, of course, a very nice asset. I understand it's based on the five year plan, which is something that is not really available for the analysts, also not for the minority shareholders at dividend. So I hope you could provide a little bit more color on where the profitability level of Belron could end up to. So I'm glad that you shared the transformation plan.
Based on the ADAS stuff you mentioned, it looks like on top of that, there will be more margin expansion from mix effects. But happy to hear, yes, if you could share maybe the five year plan or at least give a bit more color on that.
Emmanuel, we don't do that. We don't need
to share even the five year plan because you can really do your own calculation. If you take the acceleration work streams where you can more or less model what happens automatically with ADAS and VAPS, and of course, can have certain level of ambitions that are more cautious or less cautious, and you add on top of transformation for which we have given the kind of the big numbers, you can do the calculation just as they have done, and they have done those calculations. And maybe what has played in that as well is that they really have seen and are seeing a best in class company within Belron in its industry or in its sector. And so you compare it to what other similar Champion League business services companies are doing, yes, that's the type of calculation they have done, and that's where they came So there's no miracle in that.
Mainly the multiples
play a huge role. When we look at the analyst consensus on the numbers and then the multiples that you apply, sometimes you are far off the mark compared to the benchmark of the best in class services company.
Yes. Yes. All right. And then the final question is on if you look at the sum of the parts, I think based on the Belvoir valuation, think, yes, you quite easily arrive at around EUR 200 or even more. So the discount to the sum of the parts is, despite all the good news, unchanged, which is a bit surprising.
So how do you look at it? And what steps do you intend to take to close that gap? And related to that, would you consider, for example, to do a buyback?
No. So the buyback is frozen until further notice. That's the first part of the answer. The second part, I think that we are very transparent in our communication. It's up to the investors and the analysts to make up their mind.
And so we are not managing the discount. We just communicate on what we do, what we see, and then the market decides.
The
next question comes from David Bagman from ING.
Congrats for the strong results. So first, on Belron. I'm struggling a bit to understand why the guidance, maybe overall for Deteron, but in particular, for I guess, for Beltran, why the guidance has not increased? Could you quantify, so in this respect, the negative that you expect in H2? So I think you've answered part of my question already on the transformation program expense.
But then maybe on the pricemix evolution that you expect in H2. So if I do quickly the math, I think in H1, if I look at the volume, plus 20% and then the organic growth, plus 30%, so you had around 10% pricemix impact. Should we expect quite a slowdown in H2? That's my first question. Maybe I'll let you answer that one and then come with next one after that.
Well, maybe one part on the volume side. I think 2021, we anticipate this to be a bit more normal year for Belron, like we used to know in 'sixteen, 'seventeen, 'eighteen and so on in terms of seasonality. And so 2020 was probably an exception on the seasonality where H2 had catch up given that we had an H1, which, of course, was depressed, etcetera. Having a slower H2 is not uncommon for Belron. And so this is what we, of course, use in our general planning that we have a seasonality, which is more in line with the norm.
You still have July, which is typically a great month and October, but many of the other months are a bit lesser volume months. And so this is what's one driver of this. The other driver and therefore, the typical margins you have in H2 are not necessarily always the same as the ones of H1. If you add on that the transformation costs and so on, which we do think are now in an acceleration phase, and so they are really picking up. These are actually the main two drivers behind that.
We are not anticipating any changes in the pricing logic or drivers of the pricing if you compare H2 to H1, neither in what's happening around recalibration or VATS and so on. And therefore, it's not a price effect. And so David,
as mentioned by Francis, those elements plays. And once again, it's again very strong H2 in 2020. Business remained extremely robust. We still see progress in terms of volumes. As I mentioned during the first half of the year, the volumes were minus 3% compared to 2019.
And now we are above 2019 on a monthly basis for the second half of the year. So we cannot really complain about the volumes. We see some capacity constraints in terms of labor force, in terms of logistics, which is also a little bit impacting. And the time to serve has been increasing due to that. We see some inflation a little bit on raw materials, but not that much, but more on labor, especially in The U.
S, which is impacting marginally the margin. And as mentioned by Francis, transformation costs, which, again, would have qualified as being capitalized according to former accounting rules is not expensed, and that has a big impact. As you also
say that we haven't increased our guidance, while we have increased it in was it in May or whenever it was. So in that sense, that's something that we have somehow anticipated, and we don't see a reason today to suddenly change that view of that we had then.
And is it is it correct to think so that on the transformation program expenses, so you're sort of guiding to, let's say, so in H1, you had something like EUR 30,000,000, if I'm correct? And then Yes. And then in H2, we should expect a similar amount?
No, no, much higher. Much higher.
Much higher. Okay.
Okay. That's it's not five times CHF 50,000,000 a year. It will be probably a bit more than CHF 50,000,000 for the full year. And so you can see already the CHF 13,000,000, well then in H2, it's probably going to be
Okay. It was CHF 13,000,000, not CHF 30,000,000. Okay, CHF 13,000,000. Okay, okay. So that was good.
Okay. So it was getting like, let's say, okay, 50 or 60 in H2, basically. Okay. And then my second question on auto. Could you give us a feel of how you see pricing evolving in H2?
Also, when I'm saying pricing, I mean, this mix thing with the SUV, the EV, also potentially, I'm thinking about the not just the premiumization, but also the discount. I mean, I think we if you read the press, etcetera, you can read quite a few articles saying that dealers don't place to give discount anymore because there is such a scarcity in the market. So I'm curious about how you see that evolving in H2 and how it could impact the margin of the auto business in H2, given that we all need to be more prudent, I guess, in volume for H2, given the scarcity in chip and so on?
Well, in terms of mix, we don't anticipate major changes in H2 versus H1. So I think the momentum the brand that have momentum and the models within the brand that have momentum will remain more or less the same. This is not something that certainly changes drastically in the course of the year. And some of the new models that are up and coming, yes, they are across the board. So they go from premium to smaller models.
So that's not going to fundamentally change. We have already, since a couple of years, never pushed market share to the max. We've always said market share, but not if we have to start giving massive discounts. So we have increased market share despite not giving massive discounts. So in that sense, you're right.
We remain, let's say, disciplined. So the team of automotive remains quite disciplined on that. And also there, we do not plan to change anything drastically. So we will stay on that. Yes, there is some raw material costs here and there, which, of course, the OEMs have started to calculate into their catalog prices, and therefore, they pass us along in the way we do that.
But there you have the kind of the natural rhythm, which is probably a bit has been a bit faster and may continue to be a bit faster. So overall, for the moment, yes, price increases, if you like, are to a large degree being passed along into the market.
And David, as mentioned by Francis about the consumer survey, where additional services are expected by the consumers, we are increasing the pace there. And so the Lapbox initiative will weigh because it's not yet profitable. We are investing massively there that will weigh a little bit on the margin in the second half.
Yes. That's also planned, if you like.
Okay. Yes. And last question from my side. I'm sorry to come back on Berhon. On the transformation plan, is it correct to understand that the 2% additional margin, so in four years' time, are mostly to come from the SG and A, let's say, the indirect cost rather than the gross margin, basically?
Initiatives, whereby we'll be able to generate more leads, we'll be able to convert more customers. So conversion ratio will increase, so increase volume. So it's really a combination of cost efficiency and also volume increase, thanks to new like And there are some indirect procurement still in
there as well, connecting all these in transformation. So it means that the non transformational cost efficiency, of course, also continues, as we have already done during the COVID crisis and so on. I think the major difference with the past has been that in transformation, we're now really investing, and we expect this two percentage point uplift directly linked to that specific investment.
And to be clear, it's at least 2% margin uplift on sales number of 2025, okay, which will, as we've guided for, is increasing by the year. So that's important to mention also.
Investments will also have an impact a bit on working capital efficiency, but that's more a balance sheet discussion.
The next question comes from Ross Teplitz from Degroof Petercam.
Chris Kippur, Degroof. Can you hear me?
Yes. Hi, Chris.
Perfect. A lot of questions have been asked already, but a couple of one remaining. First one, if you talked about already some hiccups left and right, but not too much in Belrom. To what extent is it at risk for the company with this volume growth? The supply chain, that's not an issue for the second half or H1 'twenty two?
Well, so the volume or capacity constraints have played at two levels. One has been labor. We were, of course, ramping up already since the latter part of last year, the capacity of technicians. So knowing that volumes would go back up to make sure people are there or trained, etcetera. And what we have seen, and I think we've talked maybe a bit about that in Q1 numbers, is that the, let's say, the labor market overall in The U.
S. Has been a bit tense. And so some players like Amazon and Walmart and McDonald's and so on have increased minimum wages. And so to be attractive as an employer, you have to follow that a little bit. And so there has been some constraints around how fast can we hireretain all our technicians and call center people, etcetera.
And that has been a bit of a constraint on our ability to have all capacity really there when we wanted it. That's more or less that effect is a bit gone, but what's not gone S. In several states, not across the board, but in some states. The fourth wave of COVID is reducing a little bit the presence of some of our people and not just only way of ourselves, but also of some of our suppliers.
And so when you talk about supply chain issues, the ones that we have within The U. S. Is driven by COVID potentially related issues, for instance, of our glass suppliers and other people suppliers inside The U. S. And then there, where we actually import stuff from China, we have the usual effect that everybody has is that the cost of transportation from China have gone up, that the capacity of transportation from China is a bit more constrained.
We don't have an immediate issue because our inventories can normally deal with that, but of course, not unlimited. So if it were to drag on for six months or so, then we might start seeing some of the effect of that. But if it's more of a matter of a couple of months, then we normally have enough inventory to deal with that. But so this is some of the supply chain constraints that I think many businesses are living through these days.
Yes. Okay. And then a follow-up on Doron. If you look at the relative market share and the margins that you can realize, are there still countries today which are materially lagging due to not that sustained volumes that should be the case or due to operational issues still? Or what's the potential from still coming from that side?
General comment, Chris, is that we are increasing market share in nearly nearly all the geographies we are present. And once again, as mentioned in 2020, and it's the same more or less in 2021, the crisis has led to the behavior of the consumers going to safe heaven, good business partners, and of course, Belgrade is one of them. So we've been increasing market share in nearly all the countries that are active, and we see that trend continuing. On top of that, there is the ADAS recalibration where a lot of competitors cannot follow. As mentioned by Francis, we've invested massively in training, in IT, in technology recently in order to seize that opportunity, and that's something that the others cannot cope with.
So and no big laggards, I would say. I don't remember any country where we are really lagging in terms of market share. We can make progress in Scandinavia still. We can make progress in Switzerland. We can still make progress in countries like Spain.
In all the countries, we're making progress. But in terms of lagging behind, yes, in Sweden, we are two. In Switzerland, we are two. And so those are clear countries we want to improve.
Okay. And then the last question. Following the transaction with TVH, of course, quite some cash has been spent, but could you confirm that you continue to search for a number of transactions? And how is the landscape currently with prices, of course, not being easy, but any evolution?
Yes. So we still have even after we will have done the TVH deal closing, we will still have a bit of cash. And our investment origination strategy remains completely unchanged. So it means we continue to look at many files and pursue them at different degrees of maturity with the objective to still continue to add growth platforms in our portfolio. So we have now a fourth one up and coming with TVH, but that's not yet a handful.
And so in that sense, we continue to look using the same set of criteria, the same sets of fishing ponds, the same set of organization internally. And so that continues systematically and in a disciplined manner. As before, PVH as such has not suddenly changed anything with regards to that.
And in the short term, would you consider a net debt position also at the holding level? Or is that not a target? No,
we never really it, and we're not really planning to do that in Europe.
The next question comes from Michaud Delclair from TBC Securities.
Maybe my first question is on Beron as well. Really strong and nice recovery in volumes. We could say that in 2021, we will almost or even reach the number of 2019, let's say. However, I would also assume that there are also some market share gains in there. If you just look at the sector as a whole, how much do you think in level of activity we are still below COVID levels?
So not looking at your number, but looking at in the sector in general, as if COVID never happened and where we should be. Do you have an idea on that?
Well, we you're absolutely right. I think we as an overall market, and it's always a bit difficult to measure the size of the market, of course, and we only know it's typically a couple of months later, we're not yet at pre COVID levels. And so if you just look at the mobility trends, they are not necessarily everywhere yet there where they were before, and that will take its time. People have started to come out again and start solving the issue. But again, there, you may see some countries that are a bit more cautious than others in doing nothing about a broken or a chip in the windshield.
So it's difficult to put a percentage on it. So I have difficulty saying is it between 510%, but it's probably around that order of magnitude, I would say, that the market is not yet back at a classical level of activity.
Okay. Clear. Just a bit you already discussed it a bit on the inflation and potential constraints that could be seen in the second half of the year. But looking at, for example, the labor inflation and just the product inflation in general, is this something that you believe can be passed on towards the customers or and therefore, maybe positively impacted the top line growth?
Yes, definitely. That's the position we are in, allows us to pass those costs to the end consumer. With some delays sometimes. But well, you've seen the value increase per job 9%, approximately just below 9% during the first half is a good testimony of that. And so as I mentioned, all single line of the P and L activity being direct material costs, being operations, being the supply chain, except sales and marketing, where we increased the spend quite substantially because it's in those kind of fields that you make the difference.
Every single line of the P and L has been going down in percentage of sales. And we hope to continue on that trajectory.
Okay. Clear. Maybe on diesel and auto a bit, of course, quite some impacts from the chip shortage. Stated that you've seen a record order book at the moment. Let's say that there wouldn't be any chip shortage as is occurring today.
How do you see demand from the customers? Do you believe otherwise, the four and fifty thousand registrations would have been achievable? Or yes, just your view on that.
The four fifty thousand, yes. So that's really driven by the slower supply of production of cars. So demand has been there. Demand has not been absent, particularly on the B2B side. In the B2C side, as we have seen uncertainty for quite a while, that uncertainty remains.
Okay, there is some more clarity on fiscal stuff and so on in Belgium, yes. But people are still a bit at a loss of what should I buy? Should I really go electric already now? Or should I wait a bit? So this type of uncertainty in B2C is there, but has been there, I would say, for the last two years.
The B2B has been more or less back. But depending a bit on the macroeconomic situation, we'll have to see whether that will continue like this or like that. So for the moment, it's really not at all a demand issue, definitely not for our brands. We didn't have a Salon I think it typically favors the well known and stronger brands, which fortunately, we have the luxury of having those in house. And so that has helped us for sure.
And yes, so that's more or less how we look at it. And so we have always said we anticipate this for the coming years, every single year. Well, we have not yet done our budget for next year. So we'll see what that leads to.
But Michiel, it's quite a sizable order book. It's more than 50% higher than the same period last year. It's more than 50% higher than the same period of 2019. So
But part of it is supply driven.
And part of it is supply driven. And once again, we are quite confident and optimistic for the coming twelve months. Now the difficulty is to assess the timing of delivery from the we're
to
we're
see that
in year. So there will be maybe some swing effect there between 2021 and 2022. So it bodes very well for the future. The question is about the timing, and then this is why the P and L impact is a bit difficult to assess.
Okay. I understand. Just one final question, a bit on the new shareholder base at Baoran, of course. How are you looking at the transaction at the new players? How could they add value to Ballon as a whole in terms of their expertise?
Just your view on that maybe.
Well, H and F, Thurman and Friedman are not unfamiliar with business services businesses also related to automotive services. So they are owner of Auto Scout. It's a different business, but still in terms of secondhand cars, etcetera. The way that, that evolves and how business models are evolving around these things, this can be an interesting contribution in the reflections on Belron on what happens around digitalization and the like. They're also the owner of Abra Kaliber in The U.
S, so one of the largest body shop players. Again, a very distributed distressed services business, where I'm sure they can add value to Belaran on that. The other two players, BlackRock and GIC, I think, are more from a type of investor model interesting for Belaran and for us, if you like, even because they represent a part of the public and the private markets and a part of The U. S. And the Asian markets, which really allows to broaden the reflections for Belron on its role to play around the world and its role to play in terms of setup.
So we see for us, Peter, that has all kinds of optionality actually. And for Belron, it basically adds expertise, which is either geographical or linked to the type of businesses they're active in.
So those people know the service industry quite well. And they have identified in Belron a unique situation, a unique champion. As mentioned by you, the relative market share of Beloan is unique. You will never find that in any kind of service industry. The drivers of that industry, the increase in value, the continuous increase in market share, the recalibration opportunity, which is now materializing, and you see it really clearly in the accounts, the impact that it has on the margin, on operating leverage, the program, the transformation program, which is very, very well defined with a clear trajectory, with clear benefits, the free cash flow generation profile of the activity makes it totally unique for them.
And they've spotted that asset. They are professional investors. They are there for the return. And they totally support the governance because there is very limited change in the governance. The only change is that Helman and Friedman will have a Board member at Belon.
And we keep majority at the Board. We keep majority of the shares, and we welcome those people. They will bring something, probably we'll discover that. Maybe more in terms of technology, maybe more in terms of digitalization. But it's mainly due to the fact that they've identified a great management team and a great business and with a lot of opportunities.
Okay. Great. Very interesting. That's it from
my end. Thank you again.
Next question comes from Emmanuel Kalid from Kempen. Sir, please go ahead.
Just two very quick questions from me left. One is on the CapEx at Belron. I have to say that the CapEx came in much lower than what I expected. Could you give some guidance on 2021 and the midterm? And secondly, also on Belron, what was the kind of wind effect for Belron?
I think it was a quite favorable year from a winter perspective. Maybe you could make some comments on that.
Yes. So the winter, probably a positive impact, difficult to quantify as usual, We tend the last few years, we intend to take some distance from the weather impact because it's up to us and up to management to manage the right capacity and then to fine tune marketing in order if demand is a little bit slow or sluggish to stimulate sales by increased marketing. Then on your question on CapEx, indeed, still there's a low level of CapEx. Even if we've decided to increase CapEx for recalibration, which is partially done in the first half of the year, but will also be more important second half of the year and in 2022. The fact that the investment in the transformation plan will be expenses rather than CapEx than activated will play a role in the future.
So you should not expect going back to the previous levels of CapEx for Belron because in today's world, we have a lot of IT CapEx and which is here directly in the bottom line in the
P and L. So we always talked about 2% to 3% CapEx on sales. I think we are now below 2% in our revised numbers, given that this accounting change now confirms
And is that already for 2021 as well because that would mean a quite big step of CapEx in second half of the year?
No, no.
With that more the midterm guidance?
We'll still be below 2%, in many ways.
Yes. Yes. And just very fine on the transformation plan. So this was not expected. So what is the best guidance you can give in terms of costs for 2021?
Is that the DKK 60,000,000 to DKK 70,000,000?
We spent CHF 13,000,000, CHF 13 already in H1. And so it will probably be around CHF 50,000,000, 60,000,000 for H2.
No, for the full year.
CHF 60,000,000 for the full year. So you add another CHF 50,000,000 more or less for H2?
EUR 60,000,000 for the full year.
EUR 60,000,000 for the full year, so you add another EUR 45,000,000 to 50,000,000 for H2.
Yes. Yes. All right.
And once again, Emmanuel, for that, but it's the accounting rules have changed. And so we want to be transparent there, and we could play tricks and put that below in adjusting items, but we are fully transparent and provide a number like that.
No, no, it's yes, I think it's very clear. I think it's for all of us, mainly a switch from CapEx towards the P
and L. Exactly. It's from CapEx to OpEx. That doesn't change anything to the free cash flow generation of the company.
We
don't have any further questions. We'd like to remind But you that
in that case, if there's no more questions, I would like to thank all of you for joining this call and looking forward to any follow-up discussions in the coming days or weeks or then, of course, at the latest in our next round of view six months from now. Thanks a lot, and have a great day.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.