D'Ieteren Group SA (DIE) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the D'Ieteren 2019 Full Year Results Conference Call. I now hand over to Mr. Francis Deprez, CEO; and Arnaud Laviolette, CFO. Gentlemen, please go ahead.

Well, thank you very much, and good evening to everyone. We're 1 minute or a small minute early, so I hope everybody has been able to join the call by now yet. We are exactly 18 hours, so we can start. Big Ben has sounded. Welcome to our end of 2019 results session or annual results session. There are actually 3 key messages I would like you to takeaway, then I will give a bit of a general overview at group level, and then we'll deep dive into Belron, first; D'Ieteren Auto, second; Moleskine, third; and then the rest of the group at the end. Three key messages. First of all, well, in 2019, we made a substantial profit jump of 40% in adjusted profit before tax group share. We're very happy with that amount. It's driven mainly by Belron's excellent performance on the one hand, but also by another year of improvement at D'Ieteren Auto. So that's message number one. Message #2 is that our guidance for 2020 is that we aim to increase our adjusted PBT group share by at least 25%. This is a guidance that does not take into account potential risks and consequences related to coronavirus. We will have to add right away, but for the moment so far, we have not seen any substantial impact of that on any of our businesses, but we can come back to that later. And third message of today of this evening is that we will propose a gross ordinary dividend per share of EUR 1.15, so 15% higher than last year through our general assembly a bit later in the year. So these are the 3 messages. Of course, the first one, the jump of 40% in adjusted PBT is the first highlight. It brings us to over EUR 301 million in terms of PBT group share. On a comparable basis, in post-IFRS terms, the equivalent number we will be using as from now and going forward to compare with '19 is EUR 295 million. Our sales went up to 8.2% and past the EUR 8 billion mark. And our group adjusted free cash flow group share reached about EUR 250 million. It's about 8x more than EUR 25 million of last year. And our net cash position overall, at the group level, equaled about EUR 1.5 billion at the end of '19. Now the stories for the 3 activities are quite different over '19. It's clear that the highlight has clearly been Belron with a significant step-up in profits. It's a reflection both of a solid sales growth, mainly in the U.S. Sales in U.S. have seen quite a double-digit growth. But also the success across the whole group and across all geographies of the Fit for Growth program. And so that's actually good news. D'Ieteren Auto, and of course, we will have more details in a minute, managed to increase its share in the market that was more resilient than we actually had anticipated. There's positive impact of higher volumes. There's positive impact of improved gross margin at import, but has been partially offset by a lower profit contribution from retail activity, in particular. But overall, a satisfactory progress for D'Ieteren Auto. And the disappointment of 2019 had been Moleskine. Its performance disappointing both in sales and in profits. The one piece of good news, I would say, is the adjusted free cash flow that improved nicely through effective inventory management. And the focus, of course, will be on streamlining the organization. We will, by the way, onboard a new CEO. Lorenzo Viglione, the previous CEO, we have basically, in common agreement, parted ways at the end of November. We have been looking for a new external CEO that we have found. Unfortunately, we cannot yet communicate the name at this point in time because it depends on the communication on the other side where the person is coming from. The CEO will join in April, and we're very happy to have the new person coming on board. So a couple of highlight numbers at the group level. As I mentioned, sales plus 8.2%. It's double digits at Belron, 10.1%, very similar to, by the way, last year, which is also plus 10.1%. Plus 6.7% at Auto, which is more than double the increase they had the year before where it was plus 3.2%, so in a very respectable mid-single-digit increase. Moleskine, a decline of mid-single digits or minus almost 6% in top line. Of course, in the overall combined sales, the EUR 8 billion mark was passed by that, which is a nice progress of above 8%. The fall through of that in operating results or adjusted operating results have actually been quite significant, plus 51.6%. And in Belron, plus 10% in sales, plus 86% in adjusted operating results increase, very high fall through. Last year, it was plus 10% in sales and plus 19% in fall through. So in that sense, a quite spectacular jump. D'Ieteren Auto, in line with revenues. So revenue is plus 6.7%, the result, plus 5%. And Moleskine, given, of course, the structure of its margins and P&L, the minus 6% translates to the minus 35% disappointing operating result decline. If I take our usual guidance parameter of adjusted PBT group share, we went up 39.8%. So I did round this with -- when I was saying 40%. The jump mainly comes from the EUR 90.7 million from Belron, as you see on Page 6. And what we gained in Auto, we lost in Moleskine and in some of the remaining corporates. But -- so we passed the EUR 300 million mark there. When we look at the adjusted free cash flow generation on Page 7, on the left, with our proportional share of Belron; on the right, with 100% of Belron, you see a nice jump on both sides. If I take the left side of the page, the jump of EUR 190 million is almost for EUR 140 million coming from Belron, but also the other activities improved their free cash flow. Moleskine from EUR 12 million to EUR 21 million. Auto was negative, is still negative, but clearly less negative than the year before. And also the small corporate level was less negative than before. With that, these are the overall numbers. And I suggest to pass it along to Arnaud to take us through the key highlights of Belron.

Thank you, Francis, and good evening to everyone. So very solid year for Belron, excellent performance in all dimensions. Top line growth in organic, plus 7.5%, and that was mainly driven by market growth, by a positive model mix impact, increased recalibration -- VGRR recalibration, higher attachment rate in the value-added product and services. We had a very good and strong fall through too with a strongly improved operating profit, increasing by 86% on a comparable basis. And this was mainly due to value growth and very tight control on cost. On the adjusted PBT, which is our indicator -- reporting indicator, more than doubling on a comparable basis at plus 110%. Still very strong commercial performance, delighting still the customers with the kind of record NPS at 84.2%. Strong guidance for next year. We see a continuous improvement of the bottom line with an expected improvement on a comparable basis of 35% to 40% of the adjusted PBT. And the important acquisition of TruRoad that we've announced in August is now well integrated and we are expecting results for 2020. If I look more in details at the top line growth, it's a mixed bag when you look at the geographies. North America with -- especially the U.S., has been really driving the performance there in its market, which was growing market share, too. Positive price/mix impact, very positive contribution of ADAS and VAPS. So really, all the stars were well aligned in the U.S. last year, and that has contributed to a very strong organic growth of 13% for the region. Eurozone was a little bit more challenging in terms of volume because we had a tough comparison versus last year in terms of weather. So we had a very mild winter in 2019, which has led to some important volume declines in some countries. But notwithstanding that, we've been able to compensate with a better product mix with increase in ADAS and VAPS, which has led to a 2.4% organic growth. And for the rest of the world, there are also difficult market conditions in the U.K. with a very soft winter. But notwithstanding that, we've been able to increase the sales. So organically, for the whole group, 7.5%. Still, limited impact of acquisitions because we've done the TruRoad acquisition more at the end of the year. And -- but the very strong news is recalibration are still increasing quite substantially. We did 875,000 recalibration. That's more than doubling versus last year. And value-added products, we will continue to increase where we increased our attachment rates from 14% to 19%. We've had also some positive tailwind from currency impact, mainly U.S. dollar, Canadian dollar and the sterling. The fall through has been quite remarkable with a strongly improved adjusted operating results. For Belron as a whole, we've increased by 86% if we take into account a deduction of EUR 10.3 million depreciation charge in 2018 to EUR 400.5 million, very strong performance. This amount includes close to EUR 60 million of ELTIP charge, so the long-term incentive plan. And that was the last leg of a 3-year plan of provisions for the LTIP, so that will not be repeated in the future. And so the EUR 400 million that you see in adjusted operating result is after the impact of close to EUR 60 million of ELTIP charge. Once again, the strategy, Fit for Growth has delivered great results in terms of acceleration of our strategy. So it's finding more opportunities to increase the sales, still controlling quite tightly the cost, and that has led to a very good fall through, as I mentioned. All the regions also when I mentioned weakness in terms of volume in eurozone and rest of the world, even in that circumstances, we've been able to improve the trading profit in those 2 areas. When I look at the adjusted PBT, there's also strong improvement. We've -- so this is the result, of course, of the improved adjusted operating profit. We've had higher finance costs. This is due to the dividend distribution and the increased indebtedness that we have experienced in 2018 -- at the end of 2018, which has had a full impact on 2019, and the impact of the refinancing of -- at the end of the year 2019 was moderate on that number. We'll have full impact in 2020. So strong increase in adjusted PBT group share. What is important also that in terms of jobs, we work in a stabilized environment, growing in the U.S. and under pressure in rest of the world and in eurozone, but that was partially due to weather conditions. What is remarkable is also the improvement in the operating margin where before -- or after the LTIP charge, we are close to 10% at 9.5%, but that's before that LTIP charge. And this bodes well for the future. We were at 10.9%. There are some elements of adjusting items in the PBT. So we detailed them a little bit more in our appendix. But we have the regular amortization of brands and customer contracts for EUR 13.6 million. We've had, and that was already announced during the June results, an impairment in Italy for EUR 21 million. And then another cost bucket, which is quite exceptional, in restructuring charges in some countries where we stopped some activities and some disposal costs. In terms of cash flow and net debt, once again, the strong growth in operating profit translated itself also in terms of EBITDA. We've had also had an improvement in the working capital. So very strict, tight control of the working capital inventory, creditors, suppliers, so quite a strong improvement there. Relatively, more limited CapEx. We've had years of intense CapEx spend the last years to equip ourselves in ADAS and opening branches. It was less the case in 2019. And also we postponed a little bit some IT decisions. So IT CapEx was lower than last year and should increase in the future. So a very stong cash generation. This is before the acquisition of TruRoad, of course, but you see the potential of such an organization to increase quite substantially the cash generation. And we believe it is sustainable. So the net secured leverage, after the refinancing of the end of the year, now reached 3.67x EBITDA. This is a pro forma EBITDA. And we feel to be comfortable with that level. And once again, the free cash flow generation will help to increase that in the future. The outlook for 2020. We continue on pushing the Fit for Growth program. We've seen already the first results of the acceleration leg of the program. We still do see -- need to see a substantial improvement from the transformation one. It will come in the coming years. We are expecting, as usually, kind of mid-single organic sales growth for Belron in 2020 and a continuous improvement of the bottom line with an adjusted PBT group share, which is expected to improve by 35% to 40%. And this is at constant FX rates and with a stake in Belron of 52.48%.

Okay. Thank you, Arnaud. Let me move to D'Ieteren Auto for the highlights of 2019 there. Against most expectations, the number of new car registrations continued to rise very slightly still with 0.1% to 550,000, that's the gross registrations. After netting them out with the exclusion of registrations of less than 30 days, there was a slight decline of the market of 2.5%. We had planned about a year ago of minus 5%. We ended up with minus 2.5%. Our share -- this increase, plus 80 basis points on a gross comparison, plus 130 basis points to a net -- on a net basis. So we've reached 22.75%. Having delivered over 129,000 vehicles, which is 6% more than the year before, resulting in 6.7% more revenues, 5.3% more operating results. And our guidance for D'Ieteren Auto for 2020 is that we anticipate to continue to increase our market share. The market, however, we expect to decline with a high single-digit number in 2020 versus '19. And our adjusted PBT group share, we are guiding it to be at least flat compared to 2019, comparing it to the EUR 128.4 million post-IFRS number of 2019. So if you look on Page 18, you see a bit that this market development actually made 2019 the second record market of the last decade or so compared to 2011 where we were a bit higher, but we were very much in line with the last 4 years. In our netted-out market share on the right, you see that the nice increase to 22.75% was really there and even puts us above the level we had in 2014. There is a split between, let's say, passenger cars and light commercial vehicles also. In light commercial vehicles, the market was actually good, rising by 4.3%, and our market share also going up with 23 basis points. If I look inside this market, turning on Page 19, you see that, over time, the stake of the business customers has increased and actually moved beyond half of the market to 56%, whereas the private segment have gradually declined over the years and last year declined with 6%. As you can see from the right, this kind of business-dominated markets has been the case since -- for the last 4, 5 years or so in Belgium. In terms of brands, Volkswagen confirmed its clear market leader position, growing additionally to 10.22%, mainly thanks to T-Cross and T-Roc. Audi, who has had a couple of difficult years, managed to actually do the biggest increase in market share too with 57 basis points on top. They are still #3 behind Mercedes and BMW in Belgium, but the success of a couple of models like the e-tron or like the A1 and the Q3 have really contributed here. Both Škoda and SEAT kind of reached a earmarked market share, more than 4% for Škoda, 2% for SEAT, thanks to a number of models, mainly SUVs at Škoda and a broad range of models at SEAT. For SEAT, it actually have been quite a successful year if I compare it to the last -- probably last 8 to 10 years. Porsche was actually the one brand that has some difficulty in 2019. It was a mixture of the fiscal regime in Belgium, which de-favored the kind of heavier hybrid cars like Panameras and Cayennes, who also don't have yet a very big electric range, and therefore, they fall on the wrong side of the calculation for fiscal advantageous treatment. And we've seen that immediately in the sales of those 2 models. The 911, which works very well, had a couple of months delay in its delivery, and therefore, our invoicing and also the registrations, therefore, we're a bit later than planned. Macan did compensate for the volume quite nicely and well, but of course, Macan doesn't have the same, I would say, margins as some of the other models here. The SUV is still the talk of the town in the Belgian car market. For the market, it's 40% of the sales. In our portfolio, it has been 36% of our sales versus 28% a year before. It's across the brands really, at Volkswagen, at Škoda, at SEAT, at Porsche really. And I think what is good to note is that not all of these SUVs are heavy, let's say, Q7-type cars. They are more and more also smaller SUVs that are very -- in high demand with city users or with all kinds of users that are looking for an alternative to a Polo or a Golf or what have you. In terms of kind of new energy cars on Page 22, a 176% rise in electric cars for us and also -- especially that has worked very well with us. The overall new energy cars market did increase 19% to 38,000. We sold about 6,357. That's actually less than the year before because the hybrid category, as I mentioned before, due to fiscal regime, suffered. But our electric category is starting to become size -- of a certain size. We sold 1,238 out of 8,834 to Belgian market, so it's nice. I'm sure this will be a lot higher number already this year and then the years to come. But 2019 was not yet the year of the breakthrough, I would say, of the fully electric car that was for the years to come. And the models on Page 23 that are in the offering are coming. Actually, all brands are introducing electric cars. What you see here are some Volkswagen examples. The ID.3, of course, which is the [ car sales salon ] earlier in the year. The ID.4, which was launched earlier this week, as a small electric -- fully electric SUV. And there are other concept cars that kind of show the beginnings of the 75 all-electric models that we anticipate to receive from the Volkswagen Group between now and 2029. So this is really the big e-offensive that they are engaged in. So the translation of these commercial efforts in terms of numbers, as I mentioned before, was 6.7% more revenues and 5.3% more adjusted operating result. If I were to take out some of the reversals that happened between '18 and '19 and that kind of onetime effect, it was a 7.9% improvement of the operating profit, mainly thanks to more volumes and higher margins at import and, however, also hampered by a lower contribution of the retail activity. Our retail has 3 components. It has our Porsche dealers. And as we have a bit less Porsche volume, they immediately noticed that also in the retail activity of Porsche. We own 6 of the 9 dealerships of Porsche in the country. We have the Brussels-based dealerships that historically have been with us for many years, have been loss-making for quite a while or still loss-making as we have a way to go to get out of that. However, the dealerships that we have on the Antwerp-Mechelen axis that we have -- we need to consolidate in -- as part of our Market Areas, they are profitable. They did actually quite well in 2019. So they're doing very well. There have been some adjusting items for the Market Area strategy, which is, by the way, finalized now 1 year ahead of plan. So the 25-or-so Market Areas are now completed in their ownership. They're, of course, continuing to work in consolidating inside the operations now, but the actual M&A activity and the potential just behind Rietje are over and are behind us. And actually, we are very happy that we have done that so early compared to our competitors. Page 25 shows you the table with the numbers I've talked about. It's a return on sales of Auto. If I exclude VDFin like in these numbers, it's 3.3%. If you add VDFin, it would be a bit higher, around 3.6%. The number at the bottom in absolute numbers increased from EUR 121 million to EUR 128.4 million as the main number here. Free cash flow and net debt at Auto. The free cash flow is still slightly negative. We have some -- especially, I would say, given the increase in inventories where we had an increase and some receivables increase, is of course, a picture taken at the end of December of 2019, but those pictures were such that we have actually received a lot of cars in the last weeks of the year that we have not yet been able to deliver to the dealers or to the customers, and therefore, were still on our books. We had a bit of a higher CapEx. It mainly relates to IT because it's really an acceleration in IT investments in D'Ieteren Auto. There was one outfitting of a Porsche dealership as well, and that explains the higher CapEx. But so overall, free cash flow is a bit minus 18.7%, still slightly negative. The outlook for '20, to wrap up in Auto, is higher market share, lower markets with high single-digit, lower in terms of overall sales for the market. Our PBT group share is expected to be flat. We have a couple of exciting models lined up, which -- just looking at the Škoda Vision iV here -- I mean it's the -- it gets the it makes the customer's dream. Let's talk -- and I actually skipped one page, I see, which is Page 27 on some of the latest developments. Actually, quite important for D'Ieteren Auto because '19 was a year where they engaged in a big exercise of strategic reflection. Out of that came forth Magellan. Out of that came a lot of very concrete initiatives, either around the adapt area, which is becoming best-in-class in each and single activity; around expand chapter, which is more about doing adjacencies; or around about through innovation like Lab Box has been doing for a couple of years and our newly formed EDI, Electric by D'Ieteren, entity has been added last year to that. The strategy has been defined. It has been put into place in the second half of the year. And I see we anticipate starting first results coming in this year, the majority of which, however, will still come, I would say, in '21. But already, some of that will be in 2020 as well. D'Ieteren Auto has really chosen to put quite a structured Transformation Office on top of that and to the company through the cultural program to make sure people are excited to work on excellence. Leading the D'Ieteren Auto Way is the name of that program. And I think, with that, I will finish here with D'Ieteren Auto and pass again to Arnaud for Moleskine.

Thank you, Francis. So let's start. For Moleskine, a very disappointing year for Moleskine. We started the year with difficulty, as you've seen in the first half results, but we've not been able to compensate during the second half for the decline of the first half. So in aggregate, it's a decline of EUR 10 million in sales, with mainly decline in B2B in EMEA and wholesale in America, which represents 71% and 14% of the sales decline. So it's highly concentrated in B2B in EMEA. With the gross margin at around 74%, 75%, the decline in sales translated directly through to the bottom line to the adjusted operating results and to the adjusted PBT. So you've got a kind of proportional decline of operating results. The good news is about the free cash flow, which has been improved last year, mainly thanks to very strong improvements in the working capital and especially on inventory, which have been -- where we've been reducing it quite drastically from September onwards. For 2020, we aim at conservatively at flat sales for the year and double-digit improvements in adjusted PBT. And important news, we've been parted up -- we decided in common agreement to stop the contract with the former CEO. We announce the arrival of the new CEO by mid-April. We are not in a position to announce yet the name of the person, but it's really high-caliber in the fast-moving goods industry. If I look now -- I turn to the sales growth and I look at the origin of the decline, first, in the channels. I mentioned already the decline in wholesale, and that was mainly concentrated in America where we have experienced some issues with the classical brick-and-mortar retailers with Barnes & Noble where there has been a change of ownership. We've also worked with Target where we didn't really do a great job at fulfilling the performance there. In B2B, the decline is essentially in Europe. So strong performance in the U.S. where our partner did a good job, but in Europe, we have not been able to repeat very large orders that we experienced in 2018. We are above the sales level of 2017 to put the decline in perspective, but still we faced a big drop in loyalty programs essentially with some big retailers in Europe. In retail, we continue to prune the store of networks. We went from 80 to 77. We've had a negative like-for-like sales of 1.4%. And due to the closure of stores, we ended with minus 5%. E-commerce, some difficulty in fulfilling the orders there, so mild decline of 2%. And if I look at regions, in EMEA, the decline is mainly due to -- almost due to lower B2B sales, as I mentioned. America, it's a modest decline, but it is essentially due to wholesale channel, which has been declining for the reasons I've mentioned. And in APAC, which is a small portion of the total, all the channels reported lower sales. We've had some issues, as you can imagine, in Hong Kong due to the incidents over there. We've had some issues in Australia with our distributor and a strong decline in retail because we closed some stores over there. In terms of results, as I mentioned, with the very high gross margin, the EUR 10 million decline there translates directly into kind of a EUR 7.5 million decline in the gross margin. We've had also imported American duties, which were on imported goods from China, which has had also a negative impact of close to EUR 2 million, and that vastly explains the difference in terms of profitability. We've been able to react in cutting costs at -- on September onwards. So we'll see further benefit of that hopefully in 2020, but this was not enough to compensate for the sales shortfall. We have decided that it's important news. We've decided to take an impairment on the goodwill we have on Moleskine. So for all of our activities, we performed impairment based on the goodwill. We've decided that due to the performance of the business and also revised WACC -- increased WACC at close to 8%, we should take an impairment. That has been agreed by the Board, and we've taken a EUR 102 million impairment on the goodwill of Moleskine. On cash flow and net debt, more positive picture. As I mentioned, we've made great progress in better managing our inventory, especially starting in September. So you've got a positive impact of that better management in 2019, which compares very favorably to 2018. So we've been able to generate EUR 21 million of free cash flow in 2019, which has allowed us to decrease net debt. And part of -- a large part of that debt is internal debt with D'Ieteren and we still have a net bad debt of EUR 77 million. The outlook for 2020. As I mentioned, we expect at least stable sales for the year with double-digit improvement in the adjusted PBT. We've taken some measures on various lines of costs, which should be benefiting from here. The focus of the year will be really on streamlining again the organization, prioritizing projects, improving operations in all the regions and functions and in part of the arrival of the new CEO to ride with us the next chapter of the growth journey of Moleskine. If I turn now to corporate and unallocated, nothing really important to report there. A higher loss on the activity there, but this is mainly due to some exceptional items. Nothing really significant to report. We have experienced a positive capital gain on the sale of a property, that was for EUR 6.5 million. And we've also booked a loss on the fair value of a contingent liability that we have with CD&R on the sale of the 40% stake of Belron. For the debt structure, we give more details by activity. You will see there on the Slide 36, the current level of debt of D'Ieteren Auto, which is pre-IFRS at EUR 120 million. For Belron, the net debt is at EUR 2.324 million (sic) [ billion ]. At Moleskine, EUR 267 million. And for the corporate, we had, on the 31st of December 2019, 1.5 -- with more than EUR 1.5 billion of cash. As we have announced a few weeks ago, we've invested EUR 150 million of that cash into preferred shares of Belron. And so we still have a very, very comfortable cash position that we intend to invest in the future. The guidance for the whole year. We've communicated on at least 25% increase compared to last year after -- post-IFRS 16 of the adjusted PBT. And this guidance assumes a 52.48% stake in Belron. As mentioned earlier, we have looked at the impact of coronavirus as we speak. It is not significant. Here and there, half of our business are penalized. I think about our Italian colleagues at Belron and at Moleskine where there are -- the region in Lombardy is deeply affected, but no huge impact on the business. I think also about China where we had some issues in terms of supply, especially for Moleskine, but that has stopped now and the factories are producing again. So we deliver normalized situation over there. And at Belron level, we've taken measures in order to secure the supply. We've increased inventory temporarily in order to face potentially extreme circumstances that we've taken the right actions over there.

Thank you very much, Arnaud. I think, with that, we've gone through the presentation. And I would almost suggest we open it up for questions.

[Operator Instructions] The first question comes from Matthijs Van Leijenhorst from Kepler Cheuvreux.

The first question is obviously on Belron, which, in my view, is the bull case for shares. You've seen quite a significant step-up from especially the Fit for Growth program and top line growth. Could you give some color on where do you see further improvements possible? The second question is regarding the working capital at Auto distribution. I'm a bit surprised by the increase in receivables and actually the national working capital outflow. So could you give some more color what actually is happening there? Those are the first 2 questions.

Should I take the first one maybe on what can we expect further from Fit for Growth? So there's 2 components of Fit for Growth. One is acceleration workstream and the other are transformation workstream. In the acceleration workstream, you can actually continue to see growth coming from that. I think we have explained in previous calls already, that's the recalibration, as you now call the ADAS growth, will continue. Yes, of course, there was a bit of a extra catch up probably last year, given it's the first year that we were fully up and running, I would say, across the geographies, with our people, with our equipment for everything. And so cases that we may not have been able to pick up in '18 or in '17, we picked them up in '19. And so now as from '20, the growth will mainly come from the continuous growth in the number of cars that are on the roads and that have a camera built into their windscreen. And so we had about 11% of all our windshield replacements required a recalibration job on top of it, yes. Well, that percentage, you can expect this to go up with about 4% every year as the park becomes more and more ADAS-compatible if you like. So you will see continued growth also from -- perhaps from the value-added products and services where the pickup rates between, let's say, the country that is the farthest away. And the average of the country is still substantial. We have some countries that are about 30% in their pickup rates or attachment rates, if you like. We are now at an average of 19%, as you've seen in 2019. So this gives you space to continue to go up for a couple of years, even with the existing accessories that we are offering even -- and of course, we are thinking to add additional accessories where possible. So there is some of that acceleration workstream that will continue to work in the coming years, and that is not just staying flat, but continues to grow. Some of the things around the transformation workstreams. I think we'll start seeing, as of this year, there's got to be an additional focus on IT. And investing more in IT will require some CapEx because I think we were probably abnormally low with 2% CapEx on sales last year. We always said that between 2% and 3% is a normal rate. We want to anticipate a bit more CapEx this year. But the IT investments are typically driven to drive either automation, yes, with the automation of administrative procedures or getting tools in people's hands to do things more productively or to clean up some of the legacy stuff so that you can have less maintenance costs in IT. You will see also a workstream around supply chain. That will be a multiyear workstream where, both in the U.S. and in Europe, there are possibilities to do things in a better, more coordinated way. It's partially linked to the way of rethinking our service delivery model. We talked about some countries experimenting with going from day plus 1 to day plus 2. There's actually quite positive feedback from that. And so as we adapt the service delivery model towards that, it will also allow for a more efficient supply chain behind that. And maybe last but not least, of course, I'm not exhaustive here, but one thing to mention is around the more overhead and support function costs, both at the European level and at U.K. level. To give one example, specific programs have been set up. One is called [ Turbo ]. The other is called [ Broom ]. They are very concrete now with a lot of quantified and real measures behind it. And these, we will also still have to see because they haven't been put into any number of 2019 yet. And so that makes us actually looking that we are broadening the Fit for Growth programs in such a way that it allows to continue to work on the margins. For the second question, working capital and receivables?

Yes, Matthijs. It's a very good question indeed. We are a bit disappointed there by the evolution in terms of working capital. Part of that is explained by inventory, which has been going up. In terms of volume at import, it's close to 1,600 cars, and this is linked to, well, increased activity at the end of the year, but also kind of lumpy deliveries from the factories to D'Ieteren Auto. And it goes very fast. As you can imagine, when you look at our sales number in terms of number of cars, we are selling close to 500 cars a day, which means that 2, 3 days of additional delivery brings us to high inventory levels. So in total, it has been an increase in inventory by EUR 48 million, EUR 49 million. So that's the first impact. The second impact is due to receivables. We've done a good job in improving the credit terms of what we call the factory receivables, which have been going down in absolute numbers marginally, but going down. But we've done a lousy job, I think, in terms of other receivables where we've had an increased receivable with the subsidiary of us of close to EUR 40 million. So that should be compensated in 2020. And so we are expecting a steep increase in working capital in this year.

Okay. If I may have one more question on Belron. On the back of all these, yes, restructuring measures and top line growth, what kind of EBIT margins do you expect to reach midterm?

No. We are not communicating on that. We'll give more visibility on the trajectory, in fact, during the Capital Day on the 14th of May. But we are not at the end of the improvement, that would be my message.

Next question from David Vagman from ING.

Maybe first on Belron and on the 2020 guidance for the 35% to 40% increase in PBT. And sorry to come back a bit. I missed a bit of your answer. So could you, let's say, maybe quantify or break it down a bit between ADAS, cost savings, maybe most typical earnings driver like the price/mix, also maybe in terms of geographies, explaining the dynamic? Then second question, what would be the risk for the guidance that you see in 2020? And of course, taking into account maybe the coronavirus impact. And then last question, third question, on the, let's say, hoping a bit that the share buyback and the dividend and maybe also your investment in Belron preference shares, could you explain us your strategy, given also taking into account the share price evolution? Do you plan, let's say, to change a bit your share buyback program? Do you think you could -- be it in terms of technicalities or really, let's say, more profoundly, do you think you could come with a more, let's say, clear policy in terms of combining, let's say, dividend and share buyback and maybe also explaining a bit more, let's say, the investment in Belron preference shares?

So if I take the first question maybe on the 34% to 40%, there -- I mean everything I mentioned before around Fit for Growth, of course, will have its impact by definition and across, again, the geographies. So that means even without any top line growth in classic VGRR, I would say, these elements will contribute. There are, of course, a couple of effects that are a part of the 35% to 40% that are specific to this year, 2020. For instance, the TruRoad acquisition within the U.S. happened in the middle of the year in August. The integration has been done, but you don't have the full year effect yet in 2020. So of course, part of that is now -- in '19 yet, sorry. So in 2020, we'll have a full year effect out of that. And the integration actually went very well. There is the onetime effect around the [ best ]. So the management rolling plan of around EUR 60 million that Arnaud mentioned and of which we have our part, I would say, that actually falls away. Of course, you do have a bit of additional interest expense, given some additional debt that was added last year. So if you take those onetime effects out, the majority will really come from a continuous working on Fit for Growth. And the fact that TruRoad is in the U.S., the U.S. is, of course, a little bit held by that where other countries are a bit less held by that.

Yes, but it will be a more balanced growth in terms of trading profit from the different geographies. So U.S. still contributing the higher, but Europe and rest of the world catching up quite nicely in terms of contribution. And David, it's difficult to single out one element of the profit improvement, which is expected in 2020. We are expecting modest improvement in a lot of line of the P&L. And of course, you've got VAPS and ADAS that we are expecting to continue growing and contribute nicely to the profitability.

Yes. So risk on the guide was the second question.

Of the 34% to 50%? So as there are a couple of specific 2020 effects in, I think they're almost automatic though. So the risks on the guidance is more related to the speed of execution and implementation of the Fit for Growth elements. I think we have not counted on a massive market share or market volume growth as a whole. We didn't plan for a heavy winter or anything like that in our numbers. So this is really more linked to the execution of Fit for Growth more than the market. And then you, of course, have very extreme situations that the coronavirus might lead to. I have not yet seen that today where suddenly the whole economy stops and we would have to close stuff, which has not been the case, not even in Lombardy, I think, we had to close any service center at all. And then on share buyback and preferred share, you've got something on that?

Yes. So on the preferred shares, we are under a transaction with CD&R, which was a totally aligned transaction because they always like to have a cash return as soon as possible and we're very happy to be able to buy those shares, which are yielding. It's not a guarantee, of course, because it's subordinated, but a nice yield of 10%. And this will also help us mitigate the expected dilution on the ordinary shares that we see because you know that we have put in place a management reward plan, which has allowed the management to invest especially in the ordinary equity of the company with some ratchet shares in function of achieved performance. We'll be able to count that extra performance when CD&R will exit, but we believe that there is a high probability already that those ratchet shares are in the money. So that's an extra dilution for us. And we compensate that extra dilution by acquiring those preferred shares, which will have a little bit of a different regime that the actual preferred shares because the preferred shares are the first ones to be reimbursed through the dividend distribution that we've done the last 2 years. And so we intend not to see those preferred shares reimbursed and be then converted into ordinary shares, limiting our dilution when there will be an exit event for CD&R. On the strategy on share buyback and dividends. So you've seen that, yes, indeed, we've announced mid -- well, in August last year that we started a share buyback program. I think we are disciplined there. So we are in the market. We have defined a very clear strategy. We will continue to be in the market for the coming months. We have defined an envelope, which is an envelope of EUR 150 million. Until recently, we reached a little bit more than EUR 21 million of share buyback. We benefit from the market dip in order to buy more shares in the last few days and weeks. And it's really a balancing act. We've announced an increase in dividend, which shows the trust we have in the sustained performance of all our activities. So that's the first point. And we continue to, through the buyback, send money back to our shareholders and also renewed the ones which stay with us. So it's really balancing act. We believe that we still have a lot of flexibility on that front. We've got ample cash. Well, of course, the intention is not to buy back shares, however. It's to invest that cash, but it's a way to improve the returns in the expansion of the share price.

Maybe just maybe one quick follow-up on the free cash flow generation, both for Belron, let's say, and then Auto. In particular, for Belron for 2020, is there any particular element we should have in mind? Let's say, as you -- Francis, you mentioned higher CapEx potentially. And maybe on Auto, if you can remind the old, so to speak, guidance of a free cash flow generation potentially of up to EUR 80 million or should we be thinking of a normalized free cash flow generation for Auto, in particular, about 2020, but more in general?

So for Belron, the free cash flow, we expect an improvement in EBITDA. We expect an increase in CapEx for this year, mainly because we are -- now we have decided on important IT CapEx plans. So that will be -- that will show an increase in total CapEx. There will be also the payments in -- at the end of this month of the former LTIP of the company, so that's a cost -- a cashout cost of EUR 93 million. So that's relatively substantial. And more than that, in terms of working capital, that should be more or less flat versus last year. So it's mainly higher EBITDA, higher CapEx, higher cash out of the LTIP and also higher -- potentially higher taxes because of continuous improvement in the results, especially in U.S.

And then maybe on Auto...

But still, David, start with free cash flow generation.

On Auto, there's actually no reason why the medium-term target of the...

EUR 70 million. We guided for EUR 70 million of free cash flow for Auto. We believe it is highly achievable. So you've seen our numbers there. We are increasing a bit CapEx at Auto, especially because we've got some important IT spend. We are changing our DMS or dealer management systems, which is an important one. We are still investing quite a lot, so heavily in digital. There is a little bit of outfitting, but nothing big as we speak. Some CapEx potentially for Poppy within Lab Box. And for the rest, we -- as I mentioned, the working capital swing that we've seen, the negative one that we've seen in 2019 should not be repeated in 2020. On the contrary, we're expecting a positive inflow from positive working capital management. And we've guided for a flat adjusted PBT for this year. So I guess, that EBITDA also will be close to flat. So with probably, yes, CapEx close to what we did, a little bit higher. And so all in all, you will have a very positive contribution in terms of cash of Auto this year.

Next question from Nathalie Debruyne from Degroof Petercam.

Most of them have been answered, but maybe if I can come back to Belron and the strategy that we see today to -- with the pref shares, et cetera, and going forward because I'm wondering, is CD&R voluntarily reducing their stake in Belron? And I assume that at exit, it will be, well, still lower than what it is today because I'm guessing you still have the possibility at a later stage to keep on buying pref shares from them. If you could just confirm, it would be helpful. So I'm wondering what is their strategy there? Is that really going for cash returns as soon as possible? And then at exit, what are the options that you -- that you are currently looking at? Could it be a listing? And if so do you absolutely want to maintain a 50%-plus stake in Belron? So that would be the first question. And then maybe I will come later on because it's already a lot.

Okay. Let me answer maybe first to the -- well, I will not comment for the CD&R strategy. What we have to do is to improve the operating performance of Belron, that increased optionality in terms of way to finance the company. As you've seen in the last 2 years, we've enjoyed substantial capital distribution, thanks to the improved performance of the company. So this is really the first focus point for us. Then we've got a structure in the capital with -- whereby you've got ordinary shares and preferred shares. Those preferred shares, normally, it would be case that there are still capital distribution, should be positively reimbursed. And so the stake in our preferred shares will be or could be reimbursed if there is a new capital distribution for the company. And for their exit, for the exit route, we've got a contract with a 5-year lock-in. So once again, the preferred thing to do is to deliver the results and position the company has been successful in order to continue to create value. And then there will be various options, but it's much too early to discuss those options. [ The strategy ] in function of a lot of elements, our intention is to remain the majority shareholder of Belron. That's -- it's maybe not a strategy. It's a statement. And we'll see in the future where it will bring us.

Okay. It's very clear. And then I have a question on Moleskine. Because ever since you acquired it, well, to be honest, I think we need to be fair, the performance has been quite disappointing. So what do you expect from the new CEO? Is there a possibility that we see, indeed, substantial improvement from this year, even without top line growth? And if top line keeps on declining, what would be the impact on your guidance?

So basically, if I put the business into perspective, in '17 and '18, the company showed solid top line growth. In '17, we have purpose-invested and so it didn't translate into bottom line growth. In '18, we were all happy with the trajectory that was going. And in '19, the growth engine of -- and I think our learning out of it is that it's not a matter of the potential of the company. It's a matter of executing in a focused manner after having made clear choices on where to invest and where to grow and where not and not buying everything at the same time. So our first expectation, I would say, from the new CEO is to help make the right choices on where to focus on and use it as a basis to start growing again and -- but profitably growing again, of course. So our focus is, of course, profitable growth. Moleskine has been enjoying attractive margins and we'll continue to enjoy attractive margins. To do that, we are not counting on the top line growth this year, and we basically guide stable sales, but to recuperate part of the margin declines this year. And we, of course, work together with the new CEO to come up with a plan that kind of finds the right balance between the big potential that is in the brand and in the company and the execution capabilities that the company is currently struggling with.

Okay. And where -- if I may add to that, where would you say that you see the most upside potential? Is that in getting the cost, like overhead costs? Or is it in keeping on adapting the size of the retail channel or moving more to e-commerce? Or where do you see the most upside coming from in the coming years in terms of margin?

It's basically doing less, first of all, and then doing them better, and I think playing on the strength that the brand has. And there are a couple of product categories that have not yet fully exploited their potential at all where we very strongly believe there's lots of upside. And there's a couple of others where you, of course, have to trial and error and see whether they can work or not and then make them work. So I'm not looking at geography on it. I think, geography-wise, we are already quite global, but of course, APAC is still a little bit underrepresented, I would say, in overall potential. But you also believe the U.S. is still underrepresented, but of course, there is a more difficult retail environment over there. And so you have to find the right model or channel approach or go-to-market approach, I would say, to really -- and the large potential of the U.S. market, which is huge, really has. Europe, I think, is relatively quiet under control, but also have to make some hard choices on what to stop doing, but again, it's too early to talk about that right now. I think that's [indiscernible] together with the [ CEO ] and the team.

Next question from Peter Testa from One Investment.

I have got a few questions. I'll just go one at a time to make it easier to remember everything. Firstly, just on Belron. If you look at the cost side, you talked about continuing to work on the organization in Europe and integration. And I was wondering if you could -- took an overall view of operating cost inflation, whether the savings and efforts you're making can continue to hold the Belron costs relatively flat?

We have not yet totally experienced save -- absolute savings. The savings we're seeing is in percentage of sales, whereby nearly all the cost items of the P&L of Belron has been going down in percentage of sales. So it's kind of cost control, very much cost control, making sure that we are not growing the cost basis faster than the top line, and that has been very successful in 2019. We expect it to continue in 2020, so that was mainly. And then the programs Francis mentioned, which will take some more time, that's kind of transformation program for Belron where potentially, structurally, we could see absolute decline of some lines of the P&L, that will be for probably 2021, I would say. Does that answer your question?

Right. Okay. Yes, it does. And then the next question is just if you look at the revenue growth of Belron in 2019, can you say how much of that revenue growth came from the calibration in VAP (sic) VAPS growth, just to understand the total?

Yes. It's approximately 2% for ADAS in terms of revenue contribution, revenue growth, and a little bit less than 1% for -- between 0.5% and 1% for the VAPS, for the value-added products and services.

So that's percentage of sales or a big growth rate?

No, no, no. Percentage of sales.

Percentage of sales. Yes, okay. And then just on understanding the guidance a bit more clearly because it includes the LTIP, I just want to make sure. So we should take the 52.4% of the LTIP, which disappears in 2020 versus 2019 on the pretax. And then also we have the interest, which is going to go up. How much is the interest going to go up in 2020 versus 2019?

By approximately -- mutatis mutandis. With the current capital structure, by a little bit more than EUR 30 million.

For the total Belron.

It's for the total Belron...

The total Belron. Okay. So it should take 15 point something. Okay, fine. So on that basis, we have 540 -- I'm sorry, sorry. Excuse me, PBT 3 to 9x, 1.3x. So you have about EUR 445 million, say, of PBT. We have to subtract about EUR 27 million for the -- sorry, for the LTIP share and another EUR 15 million for the interest share to get to the underlying growth in PBT at Belron, just to make sure I'm 100% on that.

And then you need to include the contribution of TruRoad in which we have not communicated.

Right. Okay. And then the last question was just on the dividend upstreaming. When we look at the total balance sheet of the parent and the cash that you have of just over EUR 1.5 billion, in fact, has that included any upstreaming from Belron that's expected to be received for the 2019 throughout to 2020? Or is that still to come?

No, no. That's -- first, it's a picture, it's a photography at the end of December 2019, that is after the, what we call dividend recapture, the distribution to the shareholders of the result of the financing of Belron of the last year we issue.

That's before.

And that's before the acquisition of the EUR 150 million of preferred shares that we've announced a few weeks ago from CD&R. And so for this year, you will have the positive contribution of the free cash flow of Moleskine, of Auto, plus some contribution from Belron, hopefully, either under the form of an ordinary dividend or another form of distribution if the performance of the business allows it.

Okay. But should we expect also to receive a dividend from Belron relating to 2019? Or was the recap hard to total?

Well, we could, but that's not at the agenda. We didn't decide to distribute an ordinary dividend. It's not on the agenda, but indeed, we could decide to do it.

We have a new question from Matthijs Van Leijenhorst from Kepler Cheuvreux.

Yes. It's on the balance sheet and the net cash position of EUR 1.5 billion. Obviously, you're looking for a fourth pillar. So can you please tell us whether there's any progress on that side? And if not, why don't you increase the dividends?

So of course, we continuously make progress in our origination efforts. It's just the way it's structured. So we've been working with this way since 9 or so months -- 9 or more months on that. And so of course, we have -- we see many things. We see many opportunities in many teams and investors, but we're very disciplined in pursuing or not pursuing. And so there's no additional news on that front, you can say. And we don't necessarily feel restless or uncomfortable having the amount of cash at hand. It doesn't force us to do things that we otherwise wouldn't do that way.

And on the dividend, Matthijs, we've announced an increase in dividend, 15%. So the objective for us is to make sure that we can always distribute that kind of dividend. So it's a -- we communicate at least stable and possibly increasing. I think it's an important step. It shows confidence for the future. And we still want to keep the right order for opportunities in the market.

Okay. Okay, yes. Then again, you could argue the EUR 1.5 billion. I agree that it is a significant increase, 15%, but you could also argue that the EUR 1.5 billion is actually doing nothing momentarily. Is there is something coming up short-term?

But that's not the long-term objectives that we keep that EUR 1.5 billion in cash for the years to come. So we'll try to invest it in a smart way. But the strategy of the company is to invest that cash and not to distribute everything to the shareholders as we speak.

We have a new question from David Vagman from ING.

On -- maybe on the current market evolution and the macroeconomic situation, could you give us your view? Of course, it's related to the reinvestment. What do you see in terms of transaction multiples? What is a bit your thinking here? That's my first question. Maybe second on ADAS. Do you see a new drive of, let's say, new entrants coming to this market or more from, let's say, a car repair or services companies or other VGRR companies?

Maybe start with the last one first. Yes, of course, there is competition. The OEMs are doing ADAS recalibration. They are some of our competitors, but I think we have a head start in being prepared, equipped and trained to do it and do it systematically. Will competitors stand up at some point in time in some countries? Probably yes, or quite likely so even, but I don't think we see, for the moment, particular players that are doing a major announcements around it, but we are, of course, monitoring that at every single country very carefully. And yes, I think it's more the execution that helps us really in this one here for the years to come. And of course, there will be competition and we'll deal with it when it's there.

And David, what is also important in ADAS as it is really a life-safety device, it's the assurance we can bring to the insurance companies. And the assurance is making sure that the job of recalibration is done perfectly well and that we can demonstrate that that we can bring evidence that it has been done. And so there -- it's a kind of promise we always make at Belron, is to delight the customer, making sure that we deliver on our promise. And this assurance level is critical. And we do sometimes mystery shopping to see if competitors are calibrating. And it's not always the case, frankly. So when we do a calibration job, the job is done. When we cannot do it because of technicality -- of technical issues because we have not access to the OBD port of the car or because we don't have the latest version of the software allowing us to do the calibration, we just don't do it. We say to the client and we send it to another party, but that has to be very, very transparent. And this is the promise we do to the customer, to the end customer and to the insurance industry. And in terms of keeping evidence on that, it's a lot of paperwork. It's a lot of IT which is involved there. And once again, I think that our size and our expertise gives us a big advantage there. And on your question about valuation multiple, unfortunately, we live in a world where interest rates are ever decreasing, and you've got an immediate correlation between, well, interest rates level, growth expectations, free cash flow generation and multiples. We have not yet seen a decline of multiples, David. It's a pity because we'd like to see that. But we live in a world where there is very cheap credit, where you've got a lot of liquidity in the system and it's a good sellers' market it's -- in terms of finding the right opportunities at the right price, it's a hard job.

And does the recent market correction, let's say, would make some targets -- maybe listed target more attractive?

Yes, but it moves so quickly everyday. We see the big swings. Unfortunately, it's -- sometimes it's short-lived. So yes, we're happy to see a correction. So that's -- I'm not sure it's sustainable. So if coronavirus issue long -- last longer, yes, it will have impact on valuation, and we'll see then if it is attractive enough for us to make the right move.

We're going to have to wrap up. Maybe one last question.

We don't have any more question. Back to you for the conclusion.

Okay. Well, then, thank you very much to all of you, and have a great evening.

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.