Earnings Call: H1 2020

Aug 27, 2020

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 email list. Well, first of all, it's, of course, been quite an unusual first half, not surprisingly, given the COVID-19 epidemic. In particular, in the second quarter, with a 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 three 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 one percentage point, so a good 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. 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. Thirdly, our free cash flow generation more than doubled over the period of six months versus last year, thanks to stringent cash management and good working capital management. So these are three 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 carry out a program to accelerate the transformation of D'Ieteren Auto. This, of course, a 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 market. 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. Belron has actually used the occasion of 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. 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 that second quarter. We are quite positive and confident when we looked at the June numbers, where we were actually +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-month 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 minus 18% in terms of operating results. This is a testament that both May and June were above last year in our group adjusted operating results. 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. 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 the 44%-45% share that we have. 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 Laviolette to give you a bit more flavor on the results of Belron. Thank you, Francis. 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. In terms of highlights of the first half, it's a 12% approximately sales decline with 17% lower volumes, and essentially due to the COVID-19 pandemic. There was hopefully good price support, thanks essentially to the model mix and the value mix of our activities. A strong increase again in ADAS calibration and good support from our VAPS services. We have been able to control costs very stringently, with a decline of our cost basis during the first half of the year. We have had a 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. The adjusted PBT group 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. That has been representing on higher financial costs. Very strong free cash flow due to a lot of positive measures concerning the cash. First, a flat EBITDA, much lower CapEx, very positive working capital swing, and so the cash generation for the period has been of EUR 445 million. This is before capital lease payment of EUR 87 million. At the end of the half year, we've ended 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 3.3 times. 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. 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. We took the right measures. 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. 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. 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 recover. Starting from week 15, we've seen progressive recovery till now, in fact, where we still see some lumpiness, but 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 for 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. Now we are back nearly to normal situation. As I mentioned, supply chain was undisturbed during the period, so we had full access to supply in general. We took mitigating measures, as I've already mentioned. This has allowed us to really manage the costs very well. We were very proactive in that respect. I must thank all the management team for all the actions they've taken on that front. 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'd draw 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. Now, as I mentioned, we had at the end of June, EUR 477 million of cash, which was more than enough. What is remarkable too, is in every single month during this crisis, we remain positive at the trading profit level. Even in April, which was really the worst month, we were still positive. We've seen strong rebounds in volume in June. From mid-April onwards till June, strong rebound in volume. 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 the good thing to do. 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 nine months for Belron. If I go now a little bit more into details for the top line. 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 TrueHoop acquisition that was closed in August, that contributed to a little bit more than 2% to the sales in general. 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. 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 very good profit because of the much reduced cost basis. Inorganic growth in North America, I've mentioned it. Value growth has been an essential contributor to the performance, essentially with a good model mix because we've had a little bit more replacement than repair in our product mix. As I've mentioned, ADAS recalibration continue to grow. It has been growing in volumes by 20% during this period. This is, of course, a good contributor to sales and the value-added product have been increasing too, during the period. In terms of results, next slide. That is post IFRS 16, of course. The adjusted results as we report them are flat, which is quite extraordinary. As I have mentioned in my introduction for Belron, a little bit flattered by the absence of the LTIP charge 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. You see the impact on the LTIP 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 volumes, so this has to be taken into account too. 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 have got a few adjusting items in the PBT. You have got the list here. As usual, we treat the fuel hedges being positive or negative as an adjusting items. We have had a few amortization of brands and customer contracts, essentially linked to the acquisition in U.S. where we amortize those values. We have had an impairment of goodwill for our home and damage repair and replacement in France in Maisons Link, Carglass Maison, and limited adjusting items for restructuring costs, essentially in the U.S. and Canada, and some integration costs for the acquisition of TrueHoop of August last year. In terms of cash flow and net debt, this is a very impressive performance of the company, I believe, with flat EBITDA, but very stringent and efficient working capital management, even if there are some deferred payments there, but still very positive on that side. Net CapEx has been scrutinized during the whole period. We have done the essential CapEx for the period. A few other adjustments, but very limited. Some cash tax for the period too, but limited. Of course, the net interest were increasing due to the increased gross debt during the period. 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 358 million. Net debt. There also I have mentioned the cash position decrease in the net leverage ratio compared to 31st of December 2019, leading to a ratio of 3.3 times, 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 integrating TrueHoop into Safelite since the beginning, since August, very quickly, and we see the positive results of that. We are reviewing it. You remember that we had the ambition to go 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 is a little bit volatile, as you can imagine. The volume is a little bit volatile, but nonetheless, we see improved trading or improving trading conditions. The month of July and August seem to be strong. So with higher profit, higher trading profit, probably for those two months. We live in a very volatile and uncertain world. So it is really impossible for us to give a clear guidance for this year. Thank you, Arnaud. To talk about Belron, to also give a bit more flesh around D'Ieteren Auto, I really go into the slides that give some flesh around the market dynamics on page 18. The Belgian car market, quite different from the last couple of years, clearly saw a drop, about 30% in the new car market over those six months period, both with or without the registrations less than 30 days, does not make much of a difference. It is of course because here in Belgium, showrooms and so on had to close down for quite some time, only reopened for B2B on May 4th and for B2C on May 11th. 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 relance 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, really, you can look at it on the chart, on page 18 on the left, the 217,000 new cars sold in Belgium, that is 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 are quite happy with that. I will come back to a bit of details per brands on that later. In commercial vehicles, however, we had a bit less. We had some less lineup of models. We hope to improve it in the coming months, but there was 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 is quite a jump from 7% to 12% we see it in the market. That is a mixture of full electric, CNG, and hybrid. I think we, as D'Ieteren Auto, have followed very much the trend on the electric cars, the full electric cars, because we have some nice models ourselves. I think on hybrids, plug-in hybrids, we have 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 of the last couple of years, this time the B2C has been a bit above 50% and the 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 bedrijfswagens or voiture de société, in this uncertain macroeconomic environment. SUV success, however, continues, both in the market and in our share. 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 remained more or less flat at above, slightly above 2%. I think 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, 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, limiting mainly to digital channels only, and seeing what that actually leads to. Quite interesting learnings we have from that as well. Continued reduction 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. With those, we have not put on hold. Very impressive and good working capital management by the team of D'Ieteren Auto. Very close management on receivables, and in particularly on the, let's say, amounts that 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. Hopefully, we are now at a level with them that we can more or less keep and stable at that level going forward. Some non-financial actions. We, of course, had to close our Dealerships, showrooms, even ateliers, except for essential services for emergency sector, healthcare workers, and so on. We also put some cars at their disposal of those people, including Poppy cars here in Brussels, for instance, and in Antwerp. We have, of course, introduced teleworking across the board for our office people. This, by the way, continues as we speak. A lot of the people are at least three days a week on home working, if not more. What are the kind of highlights in terms of financial numbers? Delivery of cars, 29.5%. Sales decline 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 result 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. It is 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 have included for the announced intention to accelerate the transformation of D'Ieteren Auto, in consultation with our social partners, of course. To already anticipate there, we have basically agreed with our auditors to already put a provision into our numbers. Then there have been some pension provisioning as well for about EUR 4 million. These are the highlights. You can see them in the table on page 23 in more detail. The numbers are basically the same that I have 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 payments 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. They are basically creating some net debt at the period end of about EUR 100 million. We can come back to that later, when we talk about why that was the case. Latest developments 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. Of course, as soon as we have more to report on that, we will do so. We are 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 secondhand cars, for instance, and things like that. Our strategic objectives remain unchanged in 2025 towards adapt, expand, and innovate. We are doing that. This is clearly the strategic direction. 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. As you may have heard or noticed within Lab Box, we have 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. We are 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 us say, quantified profit numbers, so we are 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 two pictures here, the 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. 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. Then I hand back to Arnaud again for Moleskine and talk about H1 at Moleskine. Thank you, Francis. Very tough trading conditions for Moleskine for the first half of the year, as you have already seen. Which are the highlights? 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. With, as you can imagine, this was not the best period for gifting, for corporate events, for the retail segment either. We suffered a lot in some of our segments, in some of our channels during the period, with some regions also more affected by it than others, and especially EMEA, so the Eurozone. 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. 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 margin. In order to compensate for that, we need to find important economies and savings in the other lines of the P&L. We've been able to save a little bit more than EUR 12 million in OPEX, in personal during the period, but that, of course, has not been enough to compensate for the shortfall in sales and gross profits. We still have a very strong cash position with EUR 32 million of cash at the end of that period. Due to the COVID impact, we've taken an additional 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. We've taken an impairment of EUR 21 million. Once again, no guidance as for the other business of our activities because of the lack of visibility we have at this stage. Very positive news, we have onboarded Daniela Riccardi from the 1st of April of this year, and very happy to have her on board. She is reviewing the strategy in order to put Moleskine back on track of profitable growth. Impact of COVID-19. 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 supplying, 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. 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. Unfortunately, that channel is still a little bit too small to have an important contribution. What we have seen is that all our wholesale customers having an online channel have increased their orders for that specific channel. This bodes well for the future. As I have mentioned, the supply chain was not that 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, home working during this period, especially from the staff in Milano. 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. Retail is not yet fully open. 33 out of the 60 stores we still have are currently opened, and we see differences across the regions. U.S. still not really open, Europe progressively reopening, and Asia a little bit more. Top line evolution with the evolution across the channels and 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 across the board because of lack of orders from corporates, no gifting, no events, and so no notebooks to be sold to them. Also retail, which as I have mentioned, has been closed during the period. In terms of region, as I mentioned, EMEA more hit than the rest of the regions because of the full lockdown in some countries. I think we can move to the next one. In terms of P&L, as I have 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. 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, minus 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 have 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 or 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. We are very pleased to have Daniela on board, 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 will really put emphasis on the products that are the ones that 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 our 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. We are also, as I have mentioned, reviewing the portfolio of products with lower SKUs to be expected for the future. Simplification of the business model. We have been piling on a bit too much complexity and cost across the organization, so 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 about the company. As I have mentioned, no guidance due to COVID-19 impact, where the visibility still is relatively limited. Thank you, Arnaud. On corporate unallocated, which is basically a mixture of the D'Ieteren Immo gallery and the headquarters, you see that basically the results, adjusted operating results, are a bit lower in 2020 versus 2019. That adjusted PBT is more or less in line than the results, also a bit lower. Adjusting items, it is to note that last year we had a 6.5 million gain on a disposal of a property which we did not have this year, and we had still the 10.6 million loss on the fair value of a contingent liability as part of the CD&R transaction within Belron. Also important to note is that within these numbers, we have included the solidarity program that we have basically announced in the month of May to support our collaborators that may be in need given the COVID-19 crisis. Even though that was somehow taken by adapting 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 is why it impacted our numbers here in H1. On terms of our debt structure and, let us say, between the companies or within the companies, you may remember that at Belron, we have actually issued a new term loan B in Q4 of 2019. This combined with some of the other effects and a subsequent, let us say, shareholder payment of EUR 850 million led to a EUR 555 million net debt increase at the level of Belron. The ratio, which Arnaud already mentioned, of 3.32 times net financial debt over EBITDA multiple at the end of June, so fast deleveraging for sure. Then the net cash 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 CD&R at February of this year as well. So all of that together net led to an increase of EUR 380 something million. 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 seeing coming in, or have seen starting coming in since the beginning of our talk. It is 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. 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 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 healthcare workers or hospital personnel where they could, including Poppy and so on, but also lots of charity support for very lots of local initiatives, 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? I think we need to move up. We need to move up the screen if we can, because there were questions before the ones that I see on the screen right now, if we can. 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. The first question is from David Vagman from ING. Can you please explain the Belron EBITDA margin dynamic in H1 2020 versus last year and what conclusions can be drawn for H2? Okay. I am happy to take that one, Francis. It is a mix of actions, I would say. If you look at the lost sales and impact on the gross margin, we have lost close to EUR 190 million of gross margin during the period. To land at a flat EBITDA, we have taken actions. If you look at the cost basis, we have made savings in direct labor. We have taken savings in operation and supply chain, in sales marketing. We increased a little bit the overhead. The bonus accruals because of the results have been going down. All explains, it is a really mixed bag of initiatives, which has allowed us to keep the EBITDA at the same level as last year. A lot of savings in, of course, a protracted sales environment. 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 they came back to work. We have actually seen increased productivity as the activity was ramping up again, and this has been part of the EBITDA margin dynamic, let us say since May, towards June, July and August as well. That is the first question. If you can move up again the page, because it seems to be scrolling down all the time. A second question we have- I think it is on the temporary and employment measures. We have given some detail for Moleskine, but not for all the activities. Yes, we have enjoyed and benefited from them. We do not give the full details. What you need to understand, that has played a positive role, not a massive one, frankly, but a positive role. Never forget, that we had sometimes in existing activity, so for Auto, Francis mentioned that we were closed from the 17th of March till the 4th of May, which means that we had one month and a half nearly without any sales. No sales, no profit by definition, still some standard cost. We do not give the details of the grants we receive from governments, local authorities. Once again, it is in an environment where we had hardly any sales. Yeah. That was actually the second question of Degroof Petercam 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. Relatively limited. It is mainly some tax breaks or temporary tax breaks, for delaying VAT taxes, corporate taxes. We have seen that for Auto, but that has been regularized quite quickly. Then we still see it at Belron, where in some countries we will pay some taxes in the first quarter of 2021. 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. Yeah. 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? I think you want to. It is not Q2, it is Q3. The question that precision you bring just after. A little bit volatile, but it is generally mid-single digit lower volumes compared to last year. When we look at evolution on a weekly basis of the volume trends at Belron, it is around mid-single digit decrease with some volatility. In volume, right? In volume. Yes, in volume. Week by week, and also some volatility across the countries. 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 taken, 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. 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. So we can play with capacity. So of course, within the U.S. being a very flexible labor market, we can play with the capacity. As at three 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 for the work. It is a very fine-tuned steering of a flexible labor force that we have in the U.S. to tweak the demands, which is a bit unpredictable per definition given that it is. Even if Texas or Florida or Arizona went through real spikes of COVID during the summer months, we were able to tweak very precisely the capacity required. That is actually what makes all the difference, I think at the Belron or the Safelite in keeping the productivity and keeping the margin in line with the real demands. Still a question of David on Belron. I think it's, what improvement cost and cash flow seen in H1 at Belron are either temporary or even to be reversed in H2 2021, and in 2021? Temporary in employment, 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. We see renegotiation of rents because we believe that in some places we don't need so many square meter for the offices. We see some important decline, of course, by definition, travel costs. 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 of a little bit north of EUR 100 million. That will reverse. Still, we believe that with the current momentum, which is of course fragile and can change in function of the evolution of the pandemic, will be still generating cash during the period. I think that some of the improvements 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. We have in front of us some transformation, IT transformation, which will be with higher demand in terms of CapEx for the coming quarters. Another question also from David, but on Moleskine this time. I have seen that you have cut again the 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 on her agenda. It's to understand what stores give what profitability depending on what they do, and especially their setup. How big are they? What's the rental cost and the fixed cost that you have, combination of rental and personnel, and what do you offer in the stores? 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. So building traffic or increasing the conversion or the average ticket price inside the shop. There's a very detailed database analysis been going on for all of our existing shops. And I think as the shops come out of the confinement and they start reopening again, that would be a very useful tool to actually manage real-time stores and get to a sales density per store or per square meter in a store that is more in line with our expectations. 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, well, what do you expect an 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, 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 Matthijs Kepler Cheuvreux. Matthijs, good evening. Any comment on your substantial cash position in terms of shareholder distribution, M&A, et cetera? Well, we keep consistent with our M&A of course, so there's no changes to be noted there. 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, the discussions that were ongoing have been kept ongoing, thanks to Zoom and other technologies. 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. In M&A, we are very consistently pursuing that. There has been some stuff on hold, given that processes were not necessarily pursued, but we also see additional opportunities popping up. 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. We have always said we keep it stable or slightly increased if we permit. Given the COVID-19 uncertainty and initial increase of EUR 0.15, we ended up not doing it and using it for a solidarity program. We anticipate to use the same dividend policy going forward that we have always had, if that is the question. In terms of share buybacks, as you know, we have put it on hold in the midst of the uncertainty. Given that we have still unclear outlooks going forward, we have kept that on hold for the moment. That is that question. 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, a dilution, thanks to the purchase at the beginning of the year, in February, of EUR 150 million of preferred shares. Those preferred shares are having an interest rate or a coupon of 10%, which is eating into the profit after tax of the company, as we have much higher shares of the preferred than on the ordinary. This dilutes our stake in the company to the level we have mentioned, and I am available to give you the full detail on that. 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. 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. Okay. Then we have a question from Michiel 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 were not the only ones in Belgium in that situation. What we've seen definitely in June has been some catch-up. I think in July, part of that catch-up was already gone. It's more about how will the B2C and how will the B2B market react. We see that the B2C market is actually a relatively okay demand. People keep, let's say, doing themselves, I won't say the pleasure, but they're saying, "Hmm, 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 number of jobs, on restructurings. That influences a little bit of decisions, either both on technical cars and on company cars from the B2B side. 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. 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. Next question. The quality of my eyes is so bad, I have to go a little bit forward to read those questions. The next question is from David: "What are your thoughts on share buyback?" I think we have mentioned that, and dividend and investment, I think we have 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 with 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 within 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 have been doing before. Question on SDBB from Emmanuel Calderie. We have already answered that one. Another one from Emmanuel: "What is the effect of 8% lower volumes on sales and EBIT? Do you expect volume to recover further in coming months?" Emmanuel, if you could precise on which of our activities it relates. It is probably Belron in June. We were 8% lower volumes. Yes. Can you please clarify that? Yeah. That would be helpful. A note from, a question from Matteo Sonnoto: "How should we look at working capital going forward?" 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 crisis, 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. 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. On other question from Emmanuel Calderie: "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 will 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, yes, that we can still improve the volumes and the price mix. I'm relatively comfortable on that one. Emmanuel Calderie has added that the 8% question was about Belron. But I think you've mentioned a little bit the volumes. What do you think that the effects will continue to be in terms of volume? We know we are in a structurally, slightly declining volume type of environment. 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. Question from Michiel Declercq. Do you see any changes regarding competition in ADAS calibration markets? The answer is no. I think that we are at the end of the questions. These are the questions that we have received. There may always be a 30-second delay, I understand, in seeing the questions other than being asked. I think we have had a good overview on many of those topics. If we do not see immediately new questions popping up, I would say thank you very much to all of you in this video call in this very unusual environment, and looking forward to talking to you next time or in the coming days and weeks as we have some of the road shows going on also in a virtual manner with the different geographies that we typically cover. Thank you very much. If there is 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. Thank you.