Belysse Group NV (BELYS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the final year 2019 results [ investment ] call. [Operator Instructions] I am now pleased to present Cyrille Ragoucy, Chairman of the Board, CEO; Jan-Christian Werner, CFO; and Emmanuel Rigaux, CTO. Gentlemen, please go ahead.

Okay. Thank you very much. Good morning, everyone, and welcome to Balta's 2019 full year result call. And I'm Cyrille. If you have not already done so, please download, you can download the earnings statement and this presentation from the Investor Relations section on baltainvestors.com. I need to start with bringing to your attention the disclaimer on Page 2. I will not read it out, but please do make sure that you have it. On Page 3. So turning to Page 3. And for today's agenda. So I will start with our 2019 headlines. JC Werner, our CFO, will then take you through the financial review of 2019. Emmanuel Rigaux, our CTO, will give an update on the status of our NEXT program and talk to you about our progress, first results and milestone of NEXT. And then at the end, I will wrap up the 2019 full year results call with our strategic priorities for 2020 and beyond. So turning on Page 4, starting with our 2019 financial summary. We ended up 2019 with full year revenue of EUR 671 million, which is 3.9% above last year. Excluding the impact of currency, our revenue grew by 2.6%. The organic top line growth was driven by Rugs and Commercial, where Residential declined. Full year adjusted EBITDA was EUR 74.4 million, this is at the end of the range we provided in our December trading update. Year-on-year, we posted higher adjusted EBITDA, both in Residential and Commercial on a like-for-like basis. At the same time, adjusted EBITDA for the group was impacted by negative one-offs in Rugs. Leverage at the end of 2019 was 4x, that is stable versus 3.9x at the end of Q3. The increased leverage year-on-year is mainly a result of the slightly lower adjusted EBITDA in combination with one-offs from NEXT. I will now give the floor to JC, our CFO, who will go into more detail into the financial review. So go ahead, JC.

Yes. Thank you, Cyrille, and good morning, everyone. Moving on to Page 6, for the Q4 2019 revenue bridge. In Q4, we achieved consolidated revenues of EUR 164 million, down 5.3% year-on-year. In Rugs, revenues were EUR 4.5 million or 8.2% below last year, impacted by delayed U.S. outdoor shipments and e-commerce sales, which remained well below our expectations. While the market environment in Europe remains challenging, revenues in Europe were up mid-single digits versus Q4 2018. Our Commercial business delivered another solid quarter with top line growth of 4.1%, driven by continued strong growth in our U.S. business, where our growth initiatives continue to pay off. Our European business declined by low single digits versus Q4 last year as a result of the challenging market environment in Europe. In Residential, revenues declined by 13.7% in the fourth quarter, mainly related to a lower sales in the U.K. in relation to pre-Brexit destocking. The same dynamics we saw during the first half year of 2019. Turning to Page 7 on the Q4 adjusted EBITDA. Similar to previous quarters, we have adjusted for the impact of IFRS 16 on our 2018 results in order to allow for like-for-like comparison with reported 2019 figures. Our Q4 consolidated adjusted EBITDA was at EUR 19.8 million, down 13.6% versus last year. This represents an adjusted EBITDA margin of 12.1%, a decline from the 13.2% achieved during Q4 2018. In Rugs, Q4 adjusted EBITDA margin was at 10.1%, notable increase versus previous quarter, while down versus the high margins of 18.2% achieved during Q4 2018. Q4 2019 adjusted EBITDA was largely impacted by the timing of our U.S. outdoor rollout and the lower-than-expected e-commerce sales, while the infrastructure for serving much higher e-commerce volumes was already in place. In Commercial, Q4 adjusted EBITDA margin was at 17.6%, which represents a further increase versus last year, driven by the successful execution on our growth and pricing initiatives. In Residential, fourth quarter adjusted EBITDA margin increased further to 7.8%, well above last year's realized margin of 5.2%. This is attributable to our successful focus on higher-margin products, the implemented price increases in Continental Europe as well as lower raw material prices. Moving on to Page 8, the full year revenue bridge. We achieved full year consolidated revenues of EUR 671 million, up 3.9% versus last year. In Rugs -- in our Rugs business, we realized full year revenue of EUR 213 million, representing a year-over-year growth by 7.4%. The growth was driven by double-digit increase in Europe as well as the U.S. where we gained our share of wallet with home improvement customers for 2019. Our e-commerce business, however, remained well below expectations as we encountered several operational challenges in the ramp-up. Our Commercial business posted full year revenue of EUR 236 million, representing a growth of 9.7%. In the U.S., our business realized double-digit growth as we continued to gain market share through our investments in additional sales resources and our focus on new adjustment segments like higher education, multi-family and government. In Europe, our revenues declined further in a competitive market environment while volume losses were partially offset by mix and price improvements, in line with our direct route-to-market strategy. Finally, in Residential, full year revenue amounted to EUR 194 million, down 5.8% versus 2018. The performance reflects our focus on higher-margin products and a challenging trading environment across our key markets, both in the U.K. as well as in Continental Europe. In line with our strategy, sales of higher-margin broadloom products grew mid-single digits in 2019 and now represent 37% of overall residential sales. Turning to Page 9 for our full year adjusted EBITDA. Similar to previous quarters, we have adjusted for the impact of IFRS 16 on our 2018 results in order to allow for like-for-like comparison with reported 2019 figures. Full year adjusted EBITDA of EUR 74.4 million compared to EUR 78.8 million as of last year on a like-for-like basis. This represents an adjusted EBITDA margin of 11.1%, a decline from the 12.2% achieved during 2018. Full year adjusted EBITDA 2019 includes overall EUR 3 million of one-off items, mainly benefiting Residential. In addition to the net benefit of EUR 2 million from the release of accruals during the first half of 2019, in Q4 2019, another one-off gain of EUR 1 million was realized from the sale of excess European emission allowances. In Rugs, the year -- full year adjusted EBITDA was EUR 16.8 million, representing an adjusted EBITDA margin of 7.9%, down materially versus the 14.6% margin achieved during 2018. Adjusted EBITDA was impacted by a competitive trading environment for Rugs as well as a combination of higher raw material prices and the upfront investment in NEXT, for example, e-commerce. In addition, Rugs has been impacted by a number of negative one-offs during 2019, such as the temporarily higher production cost in H1 2019 related to exceptionally high volumes as well as high sales discounts in relation to issues with packaging in U.S. e-commerce. In Commercial, full year adjusted EBITDA was EUR 40.5 million, with a margin of 17.2%. This is largely attributable to our continued success and execution on our growth strategy on Commercial U.S. while our European business continues to face a challenging market environment. However, first signs of the success of the direct route-to-market initiative start to show also in Europe. In Residential, full year adjusted EBITDA was EUR 15.1 million. The continued shift to more higher-margin products, in combination with price increases realized in Continental Europe, improved the adjusted EBITDA margin to 7.7%, up from 5.7% in 2018. Turning to Slide 10, the 2019 income statement. Driven by the operational impacts just outlined in the previous slides, the operating profit came in at EUR 28.1 million, down by EUR 4.1 million versus last year. While the increase in depreciation is related to the first-time adoption of IFRS 16, the exceptional expenses, which amounts to EUR 6.6 million for 2019, are mainly related to advisory fees in the framework of our NEXT program. Financial income expense remains basically flat compared to last year, while the income tax gain for the year of EUR 7.4 million is mainly related to the recognition of previously unrecognized tax losses as a result of the alignment of our intercompany financing to the enacted tax legislation. Our reported net profit for financial year 2019 is at EUR 10.4 million which compares to net profit of EUR 7.3 million as of last year. Moving to Page 11, the cash flow statement. Cash generated from operating activities amounts to EUR 49.3 million for full year 2019. CapEx of EUR 27.4 million is slightly below last year due to disciplined CapEx spending as well as some delays of projects in connection with NEXT. The financing cash flow increased by EUR 3.5 million versus last year to negative EUR 29.5 million, largely related to the first-time adoption of IFRS 16. Overall, change in net cash was negative EUR 7.6 million, which represents a slight improvement versus 2018 and is largely related to the upfront investments in NEXT. Moving on to Page 12. Net debt and leverage. End of December 2019, net debt amounted to EUR 313.7 million, including EUR 44.7 million of debt related to IFRS 16. Excluding the impact from IFRS 16, net debt was at EUR 269 million, resulting in a leverage of 4x on a like-for-like basis. The evolution in 2019 was mainly impacted by the upfront investments in NEXT in a combination with the slightly lower adjusted EBITDA. Moving to Page 13, financing structure. Following the early repayment of our EUR 35 million short-term loan, the NEXT debt maturity are the senior secured notes, which are due in the second half of 2022. Before that, only the existing RCF facility will require attention. As communicated earlier this year, we have successfully closed a new sale-and-leaseback transactions with 2 Belgian production sites. The contract has a maturity of at least 10 years at a fixed interest rate of 2.7%. By focusing for 2020 on the further execution of NEXT in order to deliver the respective EBITDA improvements, we continue to closely monitor the debt markets and will report back as soon as possible on any news. With that, I will give the floor to Emmanuel Rigaux, our CTO, who will now give now you a detailed insight into our NEXT program.

P Thank you, Jan-Christian, and good morning, everyone. We are excited to present more detail today on our NEXT program. Just as an introduction, NEXT impacts presented hereafter in the following pages are to be understood as follows. The assumptions are calculated versus the baseline of 2018 or 2019, as indicated on the slides. Impacts shown for the revenue initiatives on the anticipated gross impacts and take no in account -- and take no accounts, sorry, of possible cannibalization effects from legacy channels or legacy products or the current macroeconomic uncertainty. Impacts shown for the margin initiatives are the anticipated gross impacts before cost inflation. Impacts are calculated on the basis of forecast volumes. ForEx rates are assumed stable over the period. And last, Lean and Procurement impacts are P&L impacts; therefore excluding CapEx savings or cost avoidance; and affect either COGS, raw materials consumption or costs; or fixed expenses, such as maintenance. Moving along to Page 16 for a general update on NEXT, our 3-year transformation program. NEXT has 2 key pillars: top line growth and commercial excellence, on the one hand; cost competitiveness and margin improvement, on the other hand. The implementation of NEXT, which is the 3-year program designed to deliver a significant improvement in our earnings, started in Q2 2019 and is well on track. Our 2 key growth drivers in the e-commerce channels and direct route-to-market approach to architects and developers as well as other high-growth segments in Commercial Tiles have already started to deliver and will represent EUR 85 million of additional sales in 2021 versus 2019. After overcoming initial pain points in the supply chain process in 2019, we now have a fully operational e-commerce fulfillment center for Rugs in the U.S. and are now expecting solid growth in 2020 and 2021. Our direct route-to-market initiative in Commercial Tiles, focus -- focuses on projects and high-growth segments, such as multi-family, education and government, which already represents 35% of our U.S. sales. This, of course, contributed strongly to our top line performance in 2019 and will represent significant additional sales over the next few years. Moving on to Page 17 for the second pillar of the NEXT program, which is our cost competitiveness program based on the lean process and a strong drive on procurement. Our Lean program started in H1 2019 with our Bentley, Tielt and Sint-Baafs-Vijve plants and continued in the second half with our Waregem and Zele plants. The program in Usak, our plant in Turkey, started at the end of 2019. Let me say here that our key initiatives such as raw materials consumption, electricity consumption reduction and productivity gains generated already a margin improvement of EUR 6 million in 2019. And we are expecting another EUR 7 million saving in 2020 by fully leveraging the Lean program in all our plants. On Procurement, our improvements were ahead of plan over the period with EUR 4 million savings in 2019 and another EUR 3 million expected in 2020, and that's mainly in raw materials such as yarn, fiber or limestone sealers for example, but also in services and other categories. Our NEXT CapEx envelope is comprised of projects with a payback of 18 to 24 months, mostly on the manufacturing side. So CapEx invested in 2019 and 2020 will deliver in 2020 and 2021. Overall, we are on the right track with the execution of NEXT, and we'll continue to focus on delivering the program. Let me now dive a little bit more into the details of our revenue growth drivers on Page 18. In e-commerce, we focused our efforts on getting the U.S. initiative on the right track, with the right products, the right design, the right packaging at the right time. So as already discussed, we opened a dedicated state-of-the-art e-commerce warehouse in Savannah. We set up strong partnerships with pure and omni-channel players both in U.S. and in Europe, with 3 dedicated teams on the Balta side. We opened a photo studio in the U.S. to increase the agility of our product development process, and to be able to respond to new customer trends. Last, we introduced a new indoor Rugs collection in the U.S., which we are continuing into 2020. As mentioned before, by Jan-Christian and Cyrille, our volumes from the U.S. e-commerce initiative grew more slowly than originally expected due to various operational challenges. As an example, the packaging we used for the e-commerce shipments appeared to be insufficiently strong, resulting in a higher-than-expected level of returns and product claims. We remain convinced, though, that the overall growth in online sales truly confirms the relevance of this strategic priority moving forward. In 2020, we plan to introduce a new collection of indoor rugs and launch an EDI -- a fully integrated EDI customer integration in the U.S. And in Europe, we will finalize our online strategy with a new dedicated e-commerce team and roll out a e-fulfillment process. Let me now turn to Page 19 with some more color on the e-commerce initiative. So the U.S. clearly offers the largest online market potential and, therefore, is our prime target. In 2019, we strengthened significantly our organization to serve the specific U.S. e-commerce channel. Last year, we introduced 600 new SKUs on various online platforms, and we will launch 250 additional new designs in the first quarter of 2020. We developed also a fast track prototyping process to create new online products for brick and click retailers. And finally, our new warehouse in Savannah allows us to achieve end-user delivery across the U.S. within 2 to 3 days and same-day order fulfillment with a 99% accuracy, which is above market standards. Moving on now to Slide 20. I want to elaborate further on our focus segments and direct route-to-market approach. As mentioned by Jan, Cyrille -- Jan-Christian and Cyrille, 2019 was an outstanding year for our Commercial Tile business with double-digit growth in the U.S., thanks to the success of our focus segments approach and the investments we made in additional salesforce and online tools. In the U.S., we successfully entered adjacent segments like education, multi-family and government. We invested also in new machines to expand our tile range such as the colourpoint machine at Bentley, and we broadened our product portfolio with LVT products imported from a third party. Now in 2020, we will further leverage the investment made in our sales and marketing at modulyss and Bentley as well as leverage synergies across the 2 brands for cross-selling. We continue our growth in the LVT market with the introduction of 2 LVT collections with our own designs and sourced directly by ourselves. On Slide 21, just some color on both Bentley and modulyss. Our U.S. tile business at Bentley is a leader in the high-end segment and was traditionally focused on offices. As a result of NEXT, we started targeting new segments such as multi-family, higher education and government. And over the last year, in 2019, we hired 13 additional sales representatives, specifically for those new segments. In 2019, roughly 65% of our U.S. sales went into the office segment, and therefore, 35% in our new segment. And now Education is already our second largest market segment. Turning to Page 22 on modulyss. We decided to further differentiate our modulyss brand, and we are increasingly approaching architects and designers directly. Architects and designers have high service expectations and need real-time creative solutions. Therefore, we have developed digital initiatives to enhance our customer experience such as online sample ordering and visualization tools. In 2019, we hired new sales people and opened 5 showrooms in large urban centers across our key focus countries: Belgium, France, U.K. and Germany. So this is for Bentley and modulyss. On Slide 23, our revenue initiatives also include the introduction of differentiated pricing through pricing tools and specific governance as well as the launch of a high number of new sustainable products, some of them with a certified recycled content. Design to Recycle drives our product development process, which has been aligned with our ESG goals. The development of new products is now more robust to ensure faster time-to-market process. As a result, we launched business-wide new collections, including our innovative recycled Re_Generation collection in rugs. So turning to Page 24. Let me share with you 2 examples of new launches. Our Rugs division recently launched Re_Generation at Domotex in January 2020 with a good reception. Re_Generation is a new range of indoor and outdoor area rugs made from recycled materials, comprising PET-bottles, discarded cotton fabric or pre-consumer leather waste. The rugs are certified by the Belgian Quality Association and, as such, Re_Generation rugs will be added to our sustainable product portfolio. In the past, we had already launched a range of new generation rugs easy to recycle and made from one single polymer. Today, these new generation rugs generate already 10% of Rugs revenues. Turning to Page 25. A second example of new products is Papilio. Last year, we added the award-winning brand Papilio to our portfolio, providing a new product offer that brings the quality and craft of handwoven rugs. Papilio offers everything from recycled polyester and due to upcycled cotton, linen, viscose and wool. It is designed in-house in close collaboration with our customers. And interestingly, we doubled revenues in 2019, starting from a small base, and already have orders confirmed to double again in 2020. Turning to Slide 26 of the presentation and looking now at our cost competitiveness initiatives. We are, as I already said, implementing a global Lean program in all our plants in order to be able to establish a superior cost position and to improve our margins in a sustainable way. At the end of 2019, we started the implementation also in our plants in Usak, in Turkey, after successful implementation in all -- in our production sites in Europe and in the U.S. In the months to come, we will have fully deployed all Lean modules, including maintenance across all plants and all lines. Our key levers in terms of savings are raw material consumption, energy optimization, quality improvement and, of course, productivity gains. We deployed, for that purpose, 15 change agents across the plants to drive the cultural change and continuous mindset improvement. We already delivered EUR 6 million margin improvement in 2019, and we will deliver another EUR 11 million in the next 2 years. Turning to Page 27. Let me share with you a good example, I think, of a Lean initiative we are implementing in our finishing line at the Sint-Baafs-Vijve plant in Rugs. We increased their machine utilization by reducing unexpected short stocks and by installing visual control screens and cameras, we have increased the value-added time of our operators, which enables them to manage 3 machines rather than 2 at the same time. So a very good example here. Another example on Page 28, which brought a 10% raw materials inventory reduction in our residential broadloom division. Here, for semi-finished products, which are raws which we buy externally, we set up vendor-owned inventory where we call off goods as we need them rather than taking them into our inventory as soon as they are ready. And for bought yarns, we've worked with our key suppliers to shorten the overall lead time from ordering to receiving creels by full month which reduces our own raw materials inventory. On Slide 29, moving to Procurement. The Balta Group was able to exceed its planned savings with EUR 4 million realized over the full year 2019. The savings resulted from our One Balta mindset by working together on multiple fronts such as new suppliers, raw materials adjustment and price negotiations with our key suppliers. In 2020, further actions on raw materials and focus on transport should enable us to reach and exceed our planned savings in excess of EUR 6 million in the next 2 years. To put a bit of color, turning to Page 30 on the Procurement drive. Let me mention that we've recruited a dedicated procurement specialist in the U.S. who is already delivering good savings in 2019, in close cooperation with his European colleagues. So Bentley was closely associated with the rest of the group. Last year, we created 4 global working groups dedicated to plastic packaging, cardboard packaging, machinery spare parts with 10 specialists focusing on product optimization, sourcing projects and purchase SKUs reduction. So these working groups working together have delivered very tangible achievements as they were able to divide the number of purchase spare parts by 2 and are now sourcing from new geographies such as Turkey. Let me now move quickly to supply chain, as shown on Slide 31, supply chain optimization. In 2019, we optimized our existing planning and CRM tools to improve forecast accuracy, which is clearly key to provide better service to our customers. At the same time, our enhanced tools provide a higher control on our inventories from the very start. Especially for externally bought yarns, the lead time is significant. So inventory reduction, excluding e-commerce and Bentley, amounted to EUR 5 million in 2019, exceeding our targets. In 2020, we will implement a new planning and forecasting tool which will further support inventory reduction and also better support our e-commerce growth. Turning to Page 32, a couple of words finally on complexity reduction. In 2019, we first created transparency on complexity drivers and costs at SKU level, and we were able to already reduce SKUs in Residential by 10%, and yarn types in Rugs by 25%. So we expect a further net reduction of 10% in Residential in 2020. We are more proactively managing our product offering, simplifying, in particular, our yarn streams where it makes sense and creating room for the addition of new SKUs that will help drive our growth with e-commerce and new collections. So let me finish our first detailed insight on NEXT by saying that we are on the right track to deliver NEXT. And let me hand over back now to Cyrille for a recap on our strategic priorities.

Thank you, Emmanuel also, and thank you, JC, for the update on the financials 2019. So Balta has 3 strategic priority today: It's NEXT, the ESG and Digital Transformation. I will not come back on NEXT, the -- Emmanuel has explained that thoroughly, and so I won't come back. But as you know, we have 2 big things on NEXT, it's the top line and then the operational and the cost side. The second priority is ESG, our focus on environmental, social and corporate governance. We strongly believe that sustainable and recyclable products are key for the success -- for our success and for the success of our customers. That is why we have, as Executive Committee, appointed a dedicated head of innovation and sustainability. The principle of [ Design to Recycle ] will drive our product development pipeline. The recent launch of mono-polymer polypropylene and polyester rugs with certified recycled content is a good example of our commitment to win in this area. We have set a clear objective to reduce emission and waste as well. Lastly, in the ESG, One Balta For Safety. We made good progress in 2019. We consistently increased safety awareness internally with the launch of our "5 Golden Safety Rules." My goal as CEO is zero harm to Balta employees. Our third and final strategic priority is Digital Transformation. This includes all product line and processes from production to supply chain, planning and sales. Emmanuel is also leading the Digital Transformation agenda. We already developed digital solution initiatives to enhance the customer experience of the Architect and Design community. Our customers have high service expectations for real-time creative solution and will keep -- and we will keep launching new tools. In parallel with our customers' tools, we have initiated the digital transformation in our operation. Digital connectivity of our plants, processes and people is a key element of the successful rollout of our global Lean program. So before we move to the Q&A, let me conclude this 2019 earnings presentation and wrap up things. So 2019 was a strong year for our Commercial business with double-digit growth in U.S. with further margin enhancement. In Residential, our strategy of focusing on higher-margin products, in combination with cost saving action, is paying off through improved margin. In our Rugs business, 2019 proved to be a disappointing year. U.S. e-commerce required higher cost and has been slower than planned. We addressed the issue at hand and remain confident about the long-term potential of the division. Finally, we progressed well with the implementation of NEXT and are on the right track to deliver. With the NEXT initiative in place, we expect significant top line and EBITDA growth in the next year. However, macroeconomic condition remain uncertain. The situation with coronavirus is rapidly evolving, and it may create headwinds for our business in 2020. We are obviously monitoring the situation closely in term of the well-being of our employees, but as well for the logistics side of our business. We will update you as necessary. So thank you for listening, and I would pass on the -- to the operator for -- if there is any questions from the analyst.

[Operator Instructions] We have one first question from Wim Hoste from KBC Securities. [Operator Instructions]

Wim Hoste speaking. I wanted to start with the Rugs business. Looking into 2020, can you maybe elaborate a little bit on how you see top line evolving, both in the U.S. and Europe? For the U.S., is the kind of delay that there was to the start of the outdoor season, is that going to be fully visible and contributing to Q1 already? And can you maybe quantify that? On the European side of things, you made good progress in 2019 on the top line level. Can you maybe elaborate whether that is on the back of multiyear contracts? And how do you see the order book basically evolving in Europe? So that is the first question on Rugs. And the second one would be on the CapEx. There is some quantification of NEXT-related CapEx, EUR 8 million for this year, but maybe what is the overall CapEx guidance you could give us? And also what kind of projects or initiatives will that amount go to?

Okay. Well, we'll share the answer between JC and myself. So this is Cyrille. On the Rugs side, yes. So what has been delayed at the end of '19 is we're seeing that moving at -- in early '20. So that's in U.S. We will -- as usual, we won't give any guidance on the outdoor or even on the European side. What I can tell you in U.S. is that we -- and this is not new news. We shared that in the past. 30% of the business for Rugs in U.S. is in -- through e-commerce and this is why we want to be there. We have, as Emmanuel said, we have a new design team and we have designed rugs especially for the market in U.S. We have a new photo studio. We -- and it's working. Syndication has been made in all the major websites in U.S. The planning has been adapted. Our own -- our planning for rugs has been adapted. The replenishment with the new algorithm is -- has been designed, and we're comfortable with this. So if I step back, I think the -- all the back office and the -- everything to make it happen, we're ready. Now we -- it's about attracting our customers and to our rugs and to get clicks and orders. And this is what we find to be slower than what we were expecting at the start. And just to give some -- a bit of flavor in how prepared we are. We have EUR 5 million inventory in U.S. on e-comm already, and this is needed. So that's what you have in the 2019 figures. And -- so this is needed to move forward. On the CapEx, the -- so on the NEXT CapEx, we have EUR 8 million. The -- as Emmanuel said, the NEXT CapEx is all with 18 to 24-months payback. And we're pushing hard to make that happen because that's a very quick payback and it's needed, and it can improve a lot our results. On the rest of the CapEx, do you want to talk about it, JC?

Yes. What I maybe would add to that in terms of CapEx is, as I said earlier, we've spent EUR 27.4 million in 2019, which was related largely to disciplined CapEx spending as well as to some delays in relation to NEXT project. So if you assume the 2019 figure and you're adding the EUR 8 million of NEXT CapEx, that gives you a guidance range. So I would assume CapEx to be around EUR 30 million to EUR 35 million for 2020.

Okay. And to come back on the rugs in Europe. Yes, the growth that you posted in 2019, can you maybe be a bit more specific on whether this is multiyear contracts? Is it with large customers like IKEA? What is driving that performance? And how should we bank on it going forward?

So when -- we said that the start of -- we won't be too specific, as usual, I would say. What we said at the start of the year, in Europe, we had a significant increase in volume. And this -- that's part of the one-off that we're talking about the -- in the Rugs business in H1. We had 2 of our collection that were -- 2 of our SKUs, actually, that works extremely well with one of our large customers, and that has triggered some impact on our cost. Obviously -- and that was not seen. They were supposed to be manufactured in Turkey. We had to repatriate some manufacturing in Belgium. We had to buy additional yarns that, obviously, we didn't foresee that. So -- and the whole planning process has been disorganized because of that. So this is what -- part of it was driven by those 2 SKUs early in the year. After that, what we see in Europe and what we see almost everywhere in all our large market is that shift between brick-and-mortars -- our brick-and-mortar customers and through e-commerce or brick-and-click. So this is common to all our markets, and this is why we need to be an actor in the e-commerce side.

Next question is from Maxime Stranart from ING.

So I also had 2 questions. So first of all, on NEXT, so you're mentioning a potential increase in sales of EUR 85 million by 2021. Excluding the potential impact of cannibalization, may I ask what is the percentage of sales that is basically at risk of cannibalization? And then my second question would be on working capital. So it was a clear objective to decrease working capital need as a percentage of sales. If you look at this year, it has, again, increased due to a sharp decrease in payables. So what's basically your target on that topic?

So yes, Emmanuel, do you want to take the question on NEXT?

Yes. Thank you, Maxime. Indeed, we have not quantified the cannibalization effect. It's -- and we have -- we said very clearly that the impacts that we are giving do not factor that in. What is clear is that some of our markets are shifting to digital in a very rapid manner. There is a general view that up to 25% of online sales in Rugs are now -- online sales represent 25% of the rug market in U.S. So since this is shifting quite rapidly, it's actually very difficult to give a specific number on the cannibalization. But as we move, we will certainly better understand these effects. But we are not giving -- we are not able to quantify this precisely at this point.

Okay. On the working capital.

Okay. Yes, on the working capital, the fact that it hasn't reduced is probably related, as you said, to the fact that the accounts payable reduced by EUR 10 million. This is largely related to NEXT initiatives or initiatives which are related to NEXT in terms of make or buy, sourcing or unsourcing, and then in connection with the payment terms of the respective suppliers.

Okay. And to add on that, maybe a target that you have in mind in terms of working capital as a percentage of sales?

Well, we are certainly in the process of rolling out e-commerce, for example, which, as Cyrille mentioned earlier before, requires additional inventory in the beginning to get the process started.

Yes, we don't give a guidance, Maxime, on this. We'll work it out for the next call.

Next question is from Mr...

Maybe first question on raw materials. Obviously, we've seen a lot of decrease in the oil price and also in a number of key plastic materials. So I was wondering if you could give us what the total invoice was for 2019 and what kind of cost inflation you would expect on that front in 2020. And maybe a second question on secularity, more precisely, which I think is an interesting initiative. In the industry within interface, on that front, and we see [ backend ] doing a lot also as well now. So could you maybe share what percentage of recycled materials your most -- your best performing product uses? And if there is some kind of time line to include more and more recycled materials going forward? And in terms of also the potential CO2 emissions that you could be saving in a perfect world using -- having reached maturity in terms of the use of recycled materials? And maybe one last question. There was EUR 1 million of the U.S. sales in your earnings in 2019. So could you share your position on your total inventory of the U.S.? And if you see any kind of threat from the reform of the new system starting in 2021?

Okay. Maybe starting first with the question on the raw materials. What we've seen in the market is actually reduction in PPA prices, which started, depending on the kind of material in Q2, respectively, Q3 of 2019. And if you remember that it takes roughly 3 -- 6 months for us to roll, let's say, the raw material price decreases that we are seeing into our P&L. We started to see some initial tailwinds in Q4 and especially towards the end of the year and are expecting to see additional tailwinds in 2020 from raw material price developments.

Okay. Yes, thank you. Let's talk about sustainability a bit. So we have -- part of our Re_Generation, for example, products, and that's in rugs, has 40% to 100% recycled content. I think instead of talking about recycle content, what we're looking for recyclability. And the fact that so it's cradle to cradle and looking how to recycle our overall products. And we have some initiatives today in the group to -- for all product lines, so our products. So it's true for Rugs, it's true for broadloom, and it's true for Captiqs, and it's true for tiles as well, where we're looking for 100% recyclability. We have an objective to lower by 30% our -- all our emissions in the next 10 years. I think we can do better than that, but we need to understand what needs to be done before we can be more ambitious. By the way, Bentley is already gold on cradle to cradle, and we are applying for that gold context in modulyss as well. And we should be gold by the end of the year on certain production. So it's a big push for the group. We are definitely committed to it. And our customers are looking forward. One thing that, in Domotex, for example, our Re_Generation products was one of the highlights of Domotex. That's, in my mind at least. UAE, just you had a question on UAE sale. What we did is sell the excess that we had on UAE that was -- that we had in the past. So we don't see any problem for incoming. The new rules or the new way, I think, we have to assess. It's not finalized yet, and we're looking into that.

Okay. And maybe just one follow-up on the 100% recyclability target. Is there a timeline behind that number?

We have some rugs already that are using 100% recyclable content. And this is part -- with what we presented in the presentation, this is part of the Re_Generation rugs. And so we are working, for example, in Captiqs, we're working as well with a fully recyclable group, carpet group there. So we are working in all product lines with something that will be 100% recyclable.

If I may follow up on that. What are the implications for your raw material costs when you increase the competitive recycled materials and the content of -- and focus on the recyclability of your product line?

And Pierre, this is exactly what I'm saying. This is -- sometimes it's about recycled content, but sometimes it's about the recyclability. It's -- so recycled content, we all know that the RPET, for example, is more expensive. So our products are maybe a bit more expensive. And -- but the customer -- our customers are wishing -- willing for that. In some cases, we're developing products with the same material that we currently have that are fully recycled -- recyclable. And that's the beauty of what we're doing as we speak. And it's may be very different from what our competitors are doing as well. And this is why we have a small team. Actually, we have very good experts in our product manufacturing side, but we have a person animating the whole project in the group on this. But it might be -- I'm not saying that it might be PP, but it's going to be 100% PP.

We have no other questions, sir.

Okay. Well, thank you very much for -- this was an hour-long call. It's a bit more than what we're used to. Thank you for listening. Thank you for attending. And we'll talk to you at the next call in -- for our Q1 results, which will be in -- okay, well, we'll let you know, nobody knows that. It's in March -- no, in April. Okay. Thank you very much. Bye.

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.