Belysse Group NV (BELYS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the shareholders call regarding the full year 2020 results. [Operator Instructions] I'm now pleased to present Cyrille Ragoucy, Chairman of the Board and CEO; Jan-Christian Werner, CFO; and Emmanuel Rigaux, CTO. Gentlemen, please go ahead.

Thank you very much, and good morning, everyone, and welcome to Balta 2020 full year results call, and I'm Cyrille. If you have not already done so, you can download the earnings statement in this presentation from the Investor Relations section on baltainvestors.com. I need to start with bringing your attention to the disclaimer on Page 2. I will not read it out, but please do make sure that you have done so. Turning to Page 3 for today's agenda. I will start with the general 2020 summary and the latest news on Balta strategic initiatives. Emmanuel Rigaux, our CTO, will then elaborate in more detail on our next results. And Jan-Christian Werner, our CFO, will take us through the financial review. We will end this call with a question-and-answer session with the analysts following our talk. So turning to Slide 4 for the financial summary of the full year 2020. 2020 was an unprecedented year due to COVID-19 disruption and its material challenge to our industry. Following a strong start in the first 2 months, the impact of COVID-19 began in March. We took swift and decisive measures to protect our employees and to reduce our operating cost and manage our cash flows. In the second quarter, we temporarily shut down plants on a voluntary basis, senior staff took voluntary reduction in pay, the vast majority of our staff were put in temporary unemployment and all nonessential expenditures were deferred. We, however, retained the flexibility to resume partial production at our facility to satisfy demand and customer orders. Finally, as a precautionary measure, we fully drew our revolving credit facilities. Through the second half of 2020, all plants were operational, while fixed and variable cost savings measure were still in place. We prepared for the market reopening with procurement, inventory and other working capital items well managed. Starting in July, revenue began to recover to normal levels in Rugs and Residential. Commercial rebounded less strongly and volumes are still to recover. Let me provide you with more detail on the full year 2020 performance. You will notice that the fourth quarter of 2020 was, again, a strong quarter for Balta as the Q3 was. We again exceeded prior year's quarterly revenue in Rugs and Residential. We ended 2020 with consolidated revenue of EUR 562 million, which is 16% below 2019. Despite the strong second half of the year for Rugs and Residential, we could not fully compensate for the significant volume drop in the second quarter caused by COVID-19 subdued demand. While our adjusted EBITDA ended below last year's, the adjusted EBITDA margin was up 102 basis points to 12.1%. The adjusted EBITDA on the second half of 2020 ended up 34% above last year second half, and our Q4 adjusted EBITDA was the best since the IPO. The profitability improvement reflects the strong margin upside of NEXT initiatives, our rigorous fixed cost savings and the tailwind of lower material price that we had during the second half of 2020. Our leverage was further reduced to 4.2x from the peak of 5.9x in Q2 2020. Year-on-year net debt declined with EUR 30.4 million to EUR 283 million. Finally, we refinanced and extended the European super senior revolving credit facility and our senior secured note into 2024, which essentially improved our debt maturity profile. I won't go further into detail in those financials. Jan-Christian will provide us with more detail in his presentation. Let me turn to Slide 5 for a short status on our strategic priorities. In line with our quarter 3 communication, we want to quickly highlight some important milestones achieved in 2020 regarding our 3 strategic priorities, which we believe are crucial to drive the long-term value of our business. Emmanuel will provide us more detail on the full 2020 achievement regarding NEXT. But pretty much what I can say is we're on track albeit slightly delayed due to decisions made during the first wave of the pandemic, where we delayed our investments -- our CapEx. The second strategic priority is ESG. We strongly believe that sustainability and recycled products are key for success with our customers. This is why the design to recycle principle drives our product development pipeline to ultimately achieve a circular lifetime -- life cycle, sorry. Operationally, we continue to reduce emission and waste. As communicated in Q3 call, we have successfully achieved 127 cradle-to-cradle product certifications and modules. The carbon neutral qualification of these products give us a competitive advantage and wider access to more specified projects. In Rugs, we launched 10 collections already representing 20% of Rugs revenue in 2020. On well-being, our One Balta for Safety strategy made good progress in 2020. Not only we have implemented the 5 golden hygiene rules to protect our people, our employees against COVID-19, but our overall lost time accident frequency rate reduced by 30% year-over-year. Our third strategic priority is digital transformation. This is starting with our customers, making sure that doing business with Balta is easy and digital. In 2020, we launched a digital solution to enhance the customer experience, such as online sample ordering in Bentley. Digital transformation includes all product line and process from production to supply chain and planning to sale. Concerning operation, we piloted the field service management tool in 2 plants in 2020, and we'll roll it out through all plants in 2021. Let me give the floor now to Emmanuel for the next update. Emmanuel, the floor is yours.

Thank you, Cyrille. So moving to Page 6 for the full year NEXT numbers. When reflecting on 2020, our NEXT program delivered strong results in the first 2 months of 2020 until COVID-19, as you know, disrupted the rollout of the NEXT program. As of July, the NEXT program though, NEXT program initiatives resumed, restarted and although slightly delayed, a material part of our margin improvement in the second half of 2020 was achieved through the NEXT initiatives. Regarding our top line growth initiatives, we are well on track with EUR 68 million of cumulative sales since we started NEXT in 2019. We achieved EUR 43 million incremental revenues in 2020 versus 2019. So to go a little more in detail in e-com, we continued the solid incremental growth during 2020 through our U.S. e-commerce fulfillment center for Rugs in Savanna, and our European partnerships with leading digital platforms. E-commerce revenues overall more than doubled in 2020 and now represents 17% of the North American revenue. Interesting to note is that same-day shipping improved in 2020 to 95% for e-commerce products in the U.S. On our direct group to market, our direct group to market approach to architects and developers and other high growth segments, particularly health care and education in commercial tiles, delivered EUR 7 million of incremental sales versus 2019. Other NEXT revenue initiatives, continued to deliver strong results with EUR 28 million of incremental sales in 2020, and this was achieved particularly through the launch of more product-specific in line with customer markets and specific market needs. For example, our Residential line introduced a premium carpets range with a strong focus on durability and comfort whereas Rugs introduced new sustainable policies, which already represents 20% of their Q4 2020 revenue. As for Bentley, Bentley's EliteFlex range targets health care and education segments, which are key segments, with its unique noise absorbing backing and thermoplastic layers, which are impermeable to moisture. So specific products for specific market needs. Moving on to Page 7 for an update on cost competitiveness and margin improvements. So of course, as Cyrille mentioned, due to the adjusted production volumes related to COVID-19, we saw limited NEXT results in lean and procurement from March to June 2020, and we put on hold new lean related CapEx investments until early July. But whilst we gradually ramped up production as of May in our Belgian plants, production at Bentley continued steadily throughout 2020 with continued benefits from the lean action plans. And for the full group, NEXT initiatives restarted in July for the rest of our plants. And in the second half of 2020, we relaunched multiple ways in parallel in our 8 plants as we had started at the beginning of 2020. So in 2020, NEXT initiatives achieved, as a result, EUR 7 million of incremental adjusted EBITDA versus 2019 and contributed to the cash generation -- cash-generating reduction of inventory. We continue to have a strong pipeline of NEXT cost initiatives for 2021. Just as an illustration, let me provide you with an example of a lean initiative in our Avelgem plant. And turning to Slide 8. What you can see there is that our lean team, together with the plant have designed and implemented an initiative to increase the overall equipment effectiveness in a significant way of the new generation finishing lines. So new generation rugs are the ones which are easily washable and fully recyclable rugs, made with single material, which we launched in 2018. The time to move from 1 product to the next has been reduced by 12% and the addition of cameras and sensors have enabled us to improve predictive maintenance, in line with our global maintenance initiatives. So a very good success for Avelgem. And I will now give the floor to Jan-Christian for the financial update.

Yes. Thank you, Emmanuel, and good morning, everyone. Turning to Page 9 for the fourth quarter 2020 revenue bridge. As already highlighted by Cyrille, Q4 overall was a strong quarter for Balta with fourth quarter revenues of EUR 151.1 million. While the positive trends in Rugs and Residential from Q3 continued also in Q4, and both divisions had Q4 revenues above last year, the continued weaker but stable performance in our Commercial business caused the overall Q4 sales to remain by 8% below last year. In Rugs, fourth quarter revenues were EUR 50.2 million, 1% up versus last year. Especially our U.S. Rugs business continued its strong recovery versus the second quarter and outperformed last year's fourth quarter. Also, our U.S. e-commerce business continues to grow. Rugs e-commerce sales increased strongly, already representing 17% of overall North American revenues, but remain impaired by fixed cost as the critical mass has not yet been achieved. Our Commercial business declined year-over-year by 25.2% to EUR 45.5 million as we continue to experience deferred lead times as well as some cautiousness on starting new projects. While the overall Commercial market remains a bit more cautious, we see that our direct route to market approach continues to deliver. In Residential, revenues grew to EUR 51.3 million, up 9.7% versus Q4 2019. We benefited from solid demand in the U.K., France and Benelux as well as some pre-Brexit stocking towards year-end. Even without the EUR 2.5 million of pre-Brexit sales delivered during December, the Residential Q4 sales performance would have been well above last year. These pre-Brexit sales are expected to unwind during Q1 2021. Turning to Page 10 on the fourth quarter adjusted EBITDA. Despite that still COVID-19 affected economic environment, we achieved fourth quarter consolidated adjusted EBITDA of EUR 27.9 million, materially up by 40.9% versus the comparable period of last year, which represents one of the strongest quarterly EBITDA performance since the IPO. With year-over-year decline in revenues, the adjusted EBITDA margin increased to 18.5%, up 6.4 percentage points year-over-year from 12.1% during Q4 2019. Looking at Q4 drivers, we see the trend from Q3 continued with our business transformation to more higher-margin products, the direct route to market, growing export sales and the efficiency savings from lean, while being supported by favorable raw material prices. This resulted in an increased contribution margin of 36%, nearly a 4 percentage points contribution margin increase versus last year. In combination with the continued fixed cost savings of around EUR 5 million, these are the key drivers for the strong fourth quarter adjusted EBITDA result. Rugs adjusted EBITDA in the fourth quarter was EUR 9.5 million, up EUR 4.5 million or 91% compared to the same period last year. Also, the adjusted EBITDA margin increased significantly from 10.1% to 19% due to better product mix, lower material costs, strict cost control as well as NEXT initiatives. Commercial adjusted EBITDA in Q4 was EUR 9.6 million, down EUR 1.1 million or 11% compared to the same period last year. In spite of the material COVID-19 related volume drop, the adjusted EBITDA margin improved to 21.1%, underlining the strong potential of our Commercial business. We have also adjusted our mode of operations to the lower but stable current business environment, benefiting from better product mix and fixed cost savings made in the U.S. and Europe as well as the positive effects coming from NEXT initiatives. Residential adjusted EBITDA amounted to EUR 8.6 million, up EUR 4.9 million or 136% compared to last year. The adjusted EBITDA margin of 16.9% more than doubled versus the 7.8% margin achieved in the fourth quarter of 2019. Residential benefited strongly from improved volumes, NEXT savings and lower raw material prices. Turning to Page 11 for the full year 2020 revenue bridge. Our full year revenues were EUR 561.8 million, a year-over-year decline of 16.3%. This is driven by 2 key developments: first, the lockdown during the second quarter, obviously, hit market participants unprepared and resulted in a strong impact on our second quarter business as shops and stores in most of our end markets closed. To recall, Q2 sales were down 36% versus last year. The second driver for the lower 2020 sales is related to the fact that our Commercial business due to its nature by selling directly into projects and limited via stores has been affected less in Q2 by the COVID-19 measures, but didn't see a material recovery in the second half of the year as it remains fairly stable on an overall lower level. In Rugs, full year revenues were EUR 182.9 million, 14.2% down versus last year. Our U.S. Rugs business showed double-digit growth with our e-com business continuing to grow strongly and the U.S. 2021 outdoor season secured. In Europe, revenues declined strongly, starting as early as from mid-March due to COVID-19 lockdowns but substantially rebounded afterwards as of June. Our Commercial business declined year-over-year by 19.2% to EUR 190.5 million. The U.S. saw a double-digit decline in revenues as COVID-19 restrictions were felt across all segments. Despite this, our gross margin improved as we continue to focus on new segments outside our traditional strength in offices. In Europe, the loss of revenue due to COVID-19 was partly offset by product mix and price improvements. In Residential, revenues declined to EUR 171.2 million, 11.9% below last year, reflecting both the impact of COVID-19 and a strong rebound in the second half of the year. Higher margins -- higher-margin products now represent around 40% of the Residential revenues. Turning to Page 12 on the full year adjusted EBITDA. Thanks to the strong second half year performance, full year adjusted EBITDA came in at EUR 68 million or 8.6% below last year. Looking back at this extraordinary year, all quarters, except the second quarter, which was heavily distorted by the COVID-19 lockdowns showed strong performance versus last year. This resulted in an adjusted EBITDA margin of 12.1%, up 1 percentage point year-over-year from 11.1% in 2019. Rugs full year adjusted EBITDA 2020 increased by 4.3% to EUR 17.5 million, with an adjusted EBITDA margin of 9.6%, up from 7.9% in 2019. Against the backdrop of subdued volumes due to COVID-19, adjusted EBITDA improved due to better product mix, lower raw material prices, strict cost control, and margin improvements from NEXT initiatives. Despite the strong growth, U.S. e-commerce margin continued to be impacted by its fixed cost basis. Commercial adjusted EBITDA in 2020 was EUR 30.7 million, down 24.2% from EUR 40.5 million in the same period last year. In spite of the material COVID-19 related volume drop, the adjusted EBITDA margin reduced only slightly to 16.1% from 17.2% in 2019. This underlines the resilience and quality of our Commercial business. Despite strong results from NEXT initiatives and fixed cost savings, the margin impact of the lower volumes could, however, not be entirely mitigated. Residential adjusted EBITDA amounted to EUR 19 million, up 26% versus 2019. The adjusted EBITDA margin of 11.1% substantially increased versus the 7.7% margin achieved in 2019. Our continued focus on growing our share of higher-margin products, lower raw material prices, cost control and margin enhancements from NEXT more than compensated for the drop in volumes. Moving on to Page 13, full year cash flow. As already announced with the trading update in February, we hold a year-end cash position of EUR 106.3 million, including EUR 62.8 million drawn under our revolving credit facilities, which equals an increase in net cash by EUR 24.3 million during 2020. With a further EUR 7.4 million available under our U.S. revolving credit facility, total available liquidity amounted to EUR 113.7 million as of year-end 2020. The strong cash generation during 2020 is largely a result of the tight working capital management as well as disciplined CapEx spending. While we delayed nonessential CapEx spend during the second quarter in order to preserve cash, we restarted NEXT and other projects with short paybacks of below 2 years as of July. With a CapEx of EUR 26.2 million, we remain well within our previous guidance of mid-20s. The second driver for the positive cash flow generation is our tight working capital management, which added EUR 32.4 million. We substantially reduced inventory levels, driven by inventory volume reduction as well as raw material price reduction by almost EUR 28 million. The anticipated seasonal fourth quarter inventory unwinding due to tight management also turned out to be slightly lower than projected. Trade receivables and trade payables combined resulted in a positive cash flow of around EUR 10 million, while we did not see any material changes in payment terms, factoring levels nor in bad debt levels. Other working capital was negative EUR 5.5 million. In the fourth quarter, we paid the EUR 13 million of Belgian social security deferral, which we deferred from the second quarter, in line with governmental support measures. Moving on to Page 14, leverage. Our net debt position, including EUR 36.4 million of debt related to IFRS 16 amounted to EUR 283.2 million at the end of December. Excluding IFRS 16 related debt, net debt stood at EUR 246.9 million. The reduction in net debt is primarily driven by the improved cash position as a result of before mentioned actions. Therefore, resulting from the increased EBITDA and reduced net debt, our net leverage decreased considerably from 5.9x at the peak of Q2 2020 to 4.2x at year-end 2020. Representing, despite this extraordinary year, only a marginal increase in leverage of 0.2x versus last year. Moving on to Page 15, financing structure. Following the early repayment of our EUR 35 million short-term loan in the first quarter of 2020, we focused on the extension of our European debt. Thanks to the strong cash flow generation and consequently reduced net debt, we managed to successfully amend and extend our European RCF facilities as well as our notes into 2024, having received strong support for both transactions from banks and bondholders. This way, we managed to substantially improve our debt maturity profile going forward. As highlighted in our latest press release, the exchange offer for our senior secured notes successfully concluded last Monday on March 8 with the issuing of the new notes maturing in December 2024 now. With that, I will give the floor back to Cyrille.

Thanks, JC. So before we move to the Q&A, let me conclude this presentation. While we have seen 3 strong quarters, 2020 was mostly marked by -- with a significant impact from COVID-19 pandemic. After the first wave and its unprecedented restriction, we have seen a strong rebound in the second half of 2020. Overall, we are broadly seeing the same trend for -- in January. With the NEXT initiatives in place, we expect materials earning investment in the next years, albeit with a slight delay due to short-term uncertainty created by the pandemic. While working capital management resulted in almost EUR 28 million of sustainable inventory savings, our total available liquidity of EUR 130 million at the end of 2020 provides us with a comfortable buffer for 2021, especially with our debt maturity profile now extended to 2024. I think we have to note that, however, macroeconomic conditions remain uncertain. And we remain very vigilant as new pandemic restriction has been imposed in most of our markets. And together with other market distortion, such as capacity constraints of raw material supply and freight congestion, all those 2 issues are leading to cost increase. To finalize my presentation, I must say that the management team of Balta is committed to continue the transformation of Balta by improving its operating performance. So thank you for listening. And now we are -- Emmanuel, JC and myself are ready to take any questions from the analysts.

[Operator Instructions] So the first question coming from Mr. Wim Hoste from KBC Securities.

I have a couple of questions. Maybe first on the Rugs business. Can you elaborate a little bit about the U.S. outdoor season 2021. The press release mentioned a stable share. But can you say something about, what are the conditions, which for you can typically create some shift Q1 to Q2 or vice versa? So a bit of color on that. And also, the press release mentions that you are improving product mix in Rugs. Can you elaborate a little bit more on that? Is that sustainable? Is that due to some one-off or temporary orders? That is the first question. Maybe I'll ask them one by one. I think that's easier.

Wim, this is Cyrille. So thank you for your question. So concerning the Rugs business, on the outdoor season 2021, what we -- what we see today is our -- first of all, the -- we secured our 2021, and we are negotiating as -- actually our 2022. We have -- and we are shipping it as we speak. So this is ongoing, and we see a strong demand for that. The product mix in Rugs, the -- I think it's sustainable. It's -- there is 2 things that's going on. There is -- one is geographic mix. And the other one is the collection. So I don't see why it would not be sustainable.

Okay. Understood. Then the second question is a bit on raw materials and passing through and all of that. So yes. Can you maybe quantify how much savings or benefit you had in 2020? And certainly, looking at Q4 from lower raw material prices in a year-on-year comparison? And then also, yes, with the raw material prices, I'm looking at things like polyamide, et cetera, well up, talking about tens and tens of percentage points. So looking a little bit at your pricing initiatives to pass that through? I know that the raw material price increase is not going to hit your P&L immediately, but in a number of months, it will. And so can you maybe elaborate whether you have succeeded in pushing that to your entire product ranges or in all divisions? Or are you still struggling in some of them? Can you maybe elaborate a little bit on that as well?

Yes. So I'll leave JC answer the 2020. What I can tell you is what's going on today. So what's going on today is we see, obviously, raw material price, and this is what we said in the press release and in my -- in what I said, and the freight cost moving up. What we're doing as we speak is looking at price increase, and we have already -- have increased our products already once, but we might have to do it a second time to cover all those material cost increase. This is for 2021, and we are confident that we should be able to do it. I will let JC maybe answer. JC, you want to answer the 2020?

Yes. Yes, I can do that, Wim. When you're looking at 2020 and when you're looking at the impact of raw materials, I think I would say it's a fair assumption that round about 1.5% to 2% of the contribution margin increase that you're seeing on a full year basis, it's related to raw material improvements. And as you stated yourself, what you typically see in our business is that it takes 4 to 6 months for the raw material price, if it's an increase or a decrease, to roll into our P&L because of the way how it's flowing through inventories.

Our next question is coming from Maxime Stranart from ING Bank.

Yes. Maxime Stranart, ING Bank. So also 2 questions from my side. First of all, we have seen a clear trend towards home improvement and refurbishment due to the COVID-19 pandemic. Can you maybe a bit elaborate on how the market share of carpet has evolved in Residential compared to other products? And second question, on the Commercial side, again a question linked to the pandemic. Looking at the medium-term and working from home environment, how do you see the business proposal of Commercial evolving over the medium term?

Maxime, this is Cyrille. I'll start answering your question and then if any of my colleagues want to, to pop-in, then JC and Emmanuel can intervene. So let me answer first the -- your second part of the question, which is Commercial. I think I strongly believe that people today are tired of working at home and tired of working in their home environment. They need to see their colleagues and I think there is a bit of an overreaction on what's going on today in Commercial. So what we see, for example, in Europe and even in U.S. is definitely -- we are at a low level as we speak, but we see the light at the end of the tunnel coming. Even -- and obviously, it will take more time to recover than home and broadloom. But the -- it will come, and we're expecting that towards the end of this year, at least towards the end of this year, we're seeing a recovery on where we are today, which is more or less today, minus 20% to 25%. On the carpet side, market share, I can -- first of all, it depends on the market. As you know, the U.K. is a very strong market. Germany is a strong market as well. All the rest of Europe is quite low. But what we see is definitely a refurbishment and people want to -- because they're not investing in traveling. They're not investing in other means. They are investing at home, and we're benefiting from that. So -- and so maybe JC wants to add something, and I see that Emmanuel wants to add something as well. Emmanuel, do you want to?

Yes. What we see is clearly increasing spend on refurbishment and through digital channels. So these are 2 very important factors for us. Because our products, whether they are Rugs or Residential types, for example, are particularly prone to e-commerce. And obviously, our growth has been fueled and boosted in the last 2 quarters of 2020, but even during Q2, to some extent, by the growth of online channels. So this is very much a structural pattern that we expect to see continuing.

Yes. Thanks, Emmanuel. And this is a very good point. Actually, a lot of -- we have lots of questions on e-commerce U.S. and Emmanuel is bringing that up, but he is absolutely right. We're expecting the e-commerce U.S. to be -- to fully cover its cost by this year. So mid-year. And which would be definitely a large improvement compared to where we were before. And with a significant increase as well. As you know, we doubled our sales in e-commerce U.S. last year. So we'll continue to increase significantly in 2021. That's what we're expecting. JC, do you want to add something on this?

Well, I think what I might want to add to the Commercial comments that you made, is a key driver for, let's say, the recovery or the growth, again, in our Commercial segment will be vaccination levels. Once people are able to move freely again, once projects can be started up because of people returning back to the offices. Because as I said, we see some cautiousness in terms of starting up new projects. So what we would expect once the vaccination levels are there, that these costs -- these projects that have been put on hold for the time being will kick in and will get started. So we assume there might be also some kind of a catch-up. We don't expect it to be as tremendous as we saw it in Rugs and Residential, but there will be also a bit of a catch-up once people can go back to offices. And the whole economy restarts on vaccination levels.

A new question coming from Wim Hoste from KBC Securities.

A couple of additional questions. First on the savings, both from NEXT and other savings. There was EUR 13 million aggregate EBITDA contribution from NEXT so far, meaning you have EUR 3 million to go. I think that's in the books or that's in the planning for 2021. But can you maybe comment a bit more on, yes, what kind of other fixed cost saving potential you're seeing and also other savings like, for example, travel expenses that might have decreased structurally, I think we are all used to Zoom and digital meetings and all of that. Is that leading to some structural savings at your end as well? Can you maybe elaborate a little bit on that? That's the first question.

Yes. Thanks, Wim. So maybe Emmanuel can answer the saving on NEXT, and then I'll take the rest.

Yes. On the NEXT savings, as we said earlier, we had a slight delay on some of the initiatives on the CapEx related initiatives. But -- so some of those CapEx are going to actually take place this year with the benefits actually going into 2022. But we were able to compensate largely with other initiatives, particularly on the logistical side, the logistical efficiencies, which explained that we were able to reach our target despite a lower level of CapEx. For other cost-saving initiatives, maybe, Jan-Christian, do you want to comment on that?

Just one thing on NEXT. I think we'll reach more than EUR 3 million in 2021. So that's our -- objective is definitely more than EUR 3 million.

Yes. JC, do you want to comment on travel, on the other initiatives on the?

Yes, I can do that. On the fixed cost, as I said earlier on in the call, we had savings of roughly EUR 5 million in the fourth quarter compared to last year. And these savings are a combination of personnel expense savings as we adjusted our mode of operations, as I said, and on the other side, they're related to operating expense savings, as you indicated, less travel, less trade fairs and a different way of operating the business. In both areas, we do expect, let's say, savings to be partially recurring and partially, let's say, the expenses to come back once business reopens again. Certainly, marketing and certain initiatives will kick in again once the markets are reopening, once these events are possible again. But we also do expect a substantial amount of the fixed cost savings to be recurring as well going forward.

So Wim -- if you look at travel, obviously, it's -- we will not travel as much as before, the fair, definitely, we have been able, and that's an interesting view is there was no fair in 2020. So -- but we have been able to present to all our customers -- our new collection through initiatives and through Zoom or whatever you want to call it Zoom, Facetime or Teams. But we have been able with the right pictures, the right design, the right film to present to our customer, our new collection, a huge enthusiasm. And that's changing the way we're seeing our business as well. So it's not only on our side, but the side of the customer as well. And what we have done on savings as well because it seems to be very small, but it's significant as well. Sampling, the way we're handling sampling, for example, in our tile business. Instead of a big tile and a big sample because before we were just giving that to our customer or our potential customers, now we have decided to divide that by 4 because you have to ship it to them. So it's, it's 1/4 of the cost, obviously. So it's -- all that are examples that things are moving and things are improving. Does that answer your question, Wim?

Yes, it does. And then I would like to dive a little bit into working capital and CapEx for 2021. Yes, I think on working capital, you've progressed pretty well. But with, for example, rising raw material costs and maybe also probably also your business that will grow, how are you looking at working capital in 2021? And also, yes, on CapEx, if I recall from the documentation provided at the time of the notes exchange offer announcements, there was a hinting of mid-30s CapEx for 2021. Can you confirm that number still and also explain what is behind that? How much is, for example, NEXT related? How much is other initiatives? A little bit of color on that would also be helpful.

Yes. Yes. So I can confirm the number of CapEx, so EUR 30 million. That's the right number. We won't disclose the way we're allocating CapEx because that -- we don't want to do that. But there is significant amount for NEXT, as you can imagine. On the working cap, it's a bit different. We have -- -- we have extremely strict follow-up on working cap. Emmanuel has put in place some strict KPIs to look at that. And obviously, the BUs are looking at that very carefully as well. The only thing that I would put a bit of a caveat on it is because of e-commerce. So it's -- on the e-commerce side, the working cap is -- we're looking at that a bit differently because we need to. So -- but on the actual business, the way we're running our business, the working cap, what we have done in 2020 as -- will be forwarded in 2021. So it's sustainable. And we are and the whole ExCom actually is extremely vigilant in looking at that. JC, do you want to add something on this? Or?

Yes, yes. Maybe to add to that, in terms of working capital and primarily also in terms of inventory developments, what we are expecting. So we generally expect working capital to develop certainly in line with sales. However, we do, and I said that before, we do expect a large part of the savings to be sustainable that we've done in inventories because they are related to improvement initiatives that we've done, that we've taken so that volumes basically have been reduced. So we expect that to continue. And the other topic that I wanted to make in this respect is that we certainly -- while we are expecting inventory levels to be at the end of 2021, more or less on the same level from a volume basis at end of 2020, we will certainly have the typical, let's say, seasonal cyclical effects that we are seeing in our business, which typically means a slight increase in working capital in the first half of the year, which is driven by U.S. outdoor season and other events. And then a reduction in inventories again towards -- again towards the end of the year. But as Cyrille said, overall, we expect it stable and to develop in line with sales.

Yes. Let me add just one thing on -- because we talked about Commercial business. Just one thing that, thinking about it, we didn't say is, obviously, one thing that we're committed to is our margin. So we ended up with a good margin. We definitely want to keep this in. So with the market increase, the -- obviously, it will reflect very quickly.

Okay. So we currently have no more questions. Back to you, gentlemen, if you want to do a small conclusion.

Well, thank you very much for the call. Thank you for your question-and-answer -- well your questions. And then we'll see you at the next quarter for quarter 1 results. Thank you very much.

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