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

Ladies and gentlemen, welcome to the D'Ieteren Group 2022 Full Year Results Conference Call. I now hand over to Mr. Francis Deprez, CEO; and Arnaud Laviolette, CFO. Gentlemen, please go ahead.

Thank you. Well, a good evening or a good afternoon to all of you for the publication of our full year results of 2022. Three main messages on 2022 we'd like to talk to you about. First of all, it has been, of course, a very uncertain and inflationary environment in 2022 and our entire family of businesses have been very agile in that environment, thanks to really highly engaged people across all our organization and so really a big thank you to all of them for that flexibility and agility. Second message is that we have delivered record results. Basically, more than 50% above the previous year in our favorite KPI, the profit before tax group share. To be precise, we increased a bit 50.9% and reaching EUR 733 million. And we are guiding for the new year, so for 2023, an adjusted profit before tax group share of around EUR 900 million for 2023. And the third message is that we plan and we propose to increase our dividend per share to EUR 3, an increase of almost 43% vis-a-vis last year, which we would, of course, propose to our General Assembly at the end of May. If I give a bit more meat around those record results that I mentioned and immediately go to the Page 4 of our presentation that you can find on our website or that you got through the distribution mail, starting with sales. Our combined group sales increased at about 43% and that has been a nice acceleration in the second half of the year. The first half of the year was about plus 30%; second half of the year was about plus 56%, leading to almost EUR 12 billion. So EUR 11.9 billion is the total number in combined sales that we have achieved. And as you look at the contribution or the growth of the different activities, they have all been between 10% and 20% of growth. It's, of course, the first year where we have TVH fully in there for 12 months. We also have 5 months of PHE in here. But if I look at all the other percentages of growth, they are between 11% and 20%, the highest being Belron with plus 20%, then all around 18% between Moleskine, TVH and PHE, and even Auto plus 11% in terms of sales. The translation of that into the adjusted operating results, again a combined figure here, is an increase of over 51% leading to almost EUR 1.5 billion. Similar picture as in top line, meaning the second half of the year showed a nice acceleration where we had a growth of almost 67%, where it was still about 38% in the first half of the year. I think here, the EUR 1.5 billion composition, of course, there is a full year deviation here. There are the 5 months of PHE in here with EUR 71 million, but there's also nice increases at Moleskine with more than 72% growth; and even Automotive, a very nice plus 35.6% growth; and also Belron, a growth which is higher than its top line at 21.6% growth. So that shows us basically the breakdown of the EUR 733 million PBT group share that I talked to you about before, that you can see that we went from EUR 486 million to EUR 733 million. All activities contributed to the growth of that number. What I think is nice to note, that if you compare the composition of the column on the left on Page 6 to the composition of the column on the right of Page 6, that you see that the contribution of Belron, which was still about 72% of our PBT last year or 2 years ago in 2021, has basically become 59% now in 2022. So that means that the non-Belron activities, Auto, TVH, PHE and Moleskine together, contributes 41% of our total PBT. So in that sense, our portfolio is more balanced, if you like, compared to where we were still in 2021. The positive contributions you can actually read on the chart in detail, I will not elaborate on -- to that here. The free cash flow, that's Page 7, has been somehow different from the years before. We have a lower free cash flow number, both in the group share and in the combined number over 2022 and it's about EUR 166 million combined, about EUR 48 million group share. Three main effects explain this decrease in free cash flow. One has been the big inventory effect that the photo finish of the 31st of December has given us at Auto. That is in Auto, we suddenly started receiving quite a large number of vehicles in the last days -- and 2 weeks of December, which we were not able to distribute in time to our dealers and to the end customers. And as a result, we have easily a EUR 200 million-plus effect from those deliveries on the picture of 31st of December. The second effect in the lower free cash flow has been the M&A at Belron, where we spent about EUR 160 million on 23 bolt-on acquisitions. And so this is, of course, something that has also an impact on the free cash flow at the end of the day, if we add it all up. And then thirdly, we have seen across most of our businesses, and it's true for TVH, it's true for PHE, it's also true for Belron to some degree: To avoid disruption in the supply chain and to try and buy raw materials or components earlier in the year before, let's say, the price increases that were happening to do so, all of our companies have actually invested in somehow higher inventories and in more inventory, and that has also had an effect on the free cash flow generation when you take it for the full year. So that's a bit of explanation on why that number has been lower in '22. And we for sure anticipate that to increase in 2023. On Page 8, the debt structure or the net cash structure at the group level and at the different activities. It's the usual table that we show here. And at the bottom right of that table, you can see the corporate level net debt or amount that is there, which is, of course, a negative amount, meaning we still have some cash at hand at the group level. It's about EUR 635 million, if you include the shareholder loans that we have towards TVH and Moleskine. If you exclude those, there is a pure cash, if you like, a pot of about EUR 322 million at the end of December last year. That takes into account, of course, the fact that we have paid for PHE after the closing in August; that we have paid our dividends in June and received dividends from our activities throughout the year as well. On ESG, very nice progress in 2022. We are very proud that we won the sustainable growth award from the Euronext Brussels over 2022. And also our Sustainalytics score improved from 11.6 to 11.3 and we kept the AA score at the MSCI and that we have actually continued to develop and work a lot on all sustainability strategies at the group and at the activity level and you'll hear more details about that in a minute as we go through the activities. I suggest, Arnaud, that you take us through the highlights of Belron on 2022 before we continue with...

Thank you, Francis. So good evening or good afternoon, everyone. So as you mentioned, very strong growth at the level of Belron, with a top line growth of 20%, which is organic 12.8% with significant contribution from currency, with 6.8%. In terms of geographies, the North America market has been growing at a very significant pace, plus 16% organic. But if you add ForEx on top of that, we land at 28.7% growth for North American market. Eurozone has a steady growth of 7.2% organic and the Rest of the World has contributed to 12.3% organic growth. That growth was based on volumes. Volumes themselves following gain of market share. Even if we have some capacity issues, because the attrition rate of our employees was relatively high in the full year, so we had kind of capacity challenges. But notwithstanding that, we've been able to generate significant volume growth. And if you add the recalibration volume and you consider that those volumes are adding up, it gives a 7.3% total volume growth for the group in 2022. The good news also is that we continue on the value growth trajectory with another increasing value of the windscreen that we replace and repair in an inflationary environment. So it was not easy to pass on to the customers the price increase that we have had on the glass cost, but we've been able to do that relatively well. And of course, the ever-increasing windscreen technology is helping the mix in general with -- on top of that recalibration. The ADAS recalibration has had a significant growth in '22, again. It's a repetitive performance, growing sales by more than 30% and having reached a penetration rate of 30% on average on the year. We continue also to make progress with what we call the VAPS, the value-added products and services, with an attachment rate increasing to 23% coming from 21%. We had good fall-through. You remember at the half year results, we said that the H1 was a bit challenging and that we were more hopeful to convert sales growth into higher profit with a better fall-through in the second half. That's what we did. The operating margin is higher in H2 than in H1 at 18.5%, leading to a full year EBIT margin of 18.2% coming from 18% in '21. And this is notwithstanding the fact that we have embarked into a very important transformation journey with an important program that will last until '25, '26. And that program has burdened the cost structure by EUR 69.7 million, close to EUR 70 million, which is an increase of around EUR 27 million compared to last year, which is relatively significant. This translates into a margin attrition of close to 0.5 percentage point. The improvement that we see this year is also linked to cost discipline. In a lot of our cost items, we've been able to be disciplined and put some pressure on that front. And again, the contribution from ADAS recalibration and VAPS is also adding to the margin as those are at a higher incremental margin. The adjusted PBT group share, which is an important KPI for us, also grew by 23.6%, which is again higher than the sales growth. So good fall-through on that front also. Adjusting items, I won't spend too much time on that. You can take your time in order to read them. But you will see there is in the finance, and we already alluded on that, during the first half results, there is a large FX impact on the appreciation of the dollar on our debt, which -- where we have to put it through the P&L in September. We've restructured a little bit the way we report there and that will go through the equity accounts in the future. So no more volatility on the P&L coming from there. And for the rest, you've got the various details of the various adjusting items, especially on the other, which are relatively important, but no big change compared to last year in terms of methodology here, no change. The free cash flow and net debt. We also had good cash flow generation, especially when you look at just the EBITDA minus CapEx, that was a very strong cash conversion. But as you know, we detail much more the free cash flow on our side. So we go all the way through the real free cash flow. And there, we had -- it was a relatively expense year in terms of M&A with EUR 160 million of M&A spend, and that was in Spain, in Scandinavia a little bit and in the U.S., essentially, 23 acquisitions for a total of EUR 160 million. We have some higher cash cost for adjusting items, and that was mainly the payment of the Belron -- thank you -- last year, which was paid in 2022. We had a negative impact of working capital because of supply chain issues and growth in our volumes. So we have a little bit of buffer inventory in order to make sure that we can deliver to customers. And we had higher CapEx because we have increased the footprint. We opened new stores and we invested in additional ADAS equipment. So that explains the lower free cash flow for the year, then we have also distributed a dividend in August of last year of EUR 404 million. And there has been also an appreciation of the dollar, which has had a negative impact on debt, with an increased debt. However, the leverage remains more under control. We are at 2.95x EBITDA, which is totally under control. And you may remember that we've had a rating outlook increased by S&P by the end of the year, which bodes well for the future. The latest development, you know that we embarked on the transformation program. That's a very important one, of defining for the future of the company, that would put us ahead of any service company in terms of quality of IT infrastructure and that will hopefully lead to multiple opportunities for the future. We've invested quite significantly, close to EUR 123 million in '22. We have so far invested a bit less than EUR 200 million on the program. We have resized the program to around EUR 400 million. There is a scope change, there is some inflation in the cost, as we've seen in '22 and there is -- there are also some currency impact on that. So we are very enthusiastic about what the program will give in terms of contribution in the future. But still, as we speak, having cost -- more cost than benefit. We continue on the bolt-on acquisition strategy. I've mentioned that already. And very important news, Gary Lubner, the fantastic CEO we've had for more than 20 years at Belron, has no -- not left the company because he's still a Board member, but he has been giving the torch to Carlos Brito, who is CEO since the 1st of March. And really, the ambition of Brito and the whole management team, is to build an even better Belron for the future. The outlook for '23, and that's the case for all the activities, we've assumed relatively benign or tough, in fact, macroeconomic environment. So kind of no-growth scenario. It's not yet recession but we've been relatively cautious on that front. And that's the case for Belron, but that's the case for all our activities. We expect that inflation will continue for a while and that the average exchange rate will remain. The assumption is that it will remain at the level of December of last year. So we are still expecting for Belron significant growth, high single digits, due essentially to some volume, because we'll continue to gain market share, but also positive price/mix impact and again and again, the higher penetration rate of ADAS recalibration and VAPS contribution. In terms of profit, we continue our journey of improving returns, improving margin. We're expecting at least 150 bps increase in the EBIT -- in the operating profit margin. This is linked to the good contribution of the growth that we are expecting to have in top line, with a good fall-through, with still very conscious mitigating -- cost-mitigating measures. We won't have big benefit from the transformation program yet. That will be more visible in '24 and beyond, but there won't be any negative scissor impact of higher adjusted cost of the program, because we'll be a little bit below what we have experienced in 2022. The free cash flow, we expect a significant increase in free cash flow, once again driven by EBITDA growth, improved working capital, because we see that the purchase conditions are getting better. The delay before getting the goods is shrinking, which is good for us, and we had a little bit of buffer inventory. And we continue to invest quite significantly in our footprint in a lot of countries and we continue to invest heavily in ADAS equipment in order to answer the demand. The important topic is ESG journey for all our activities. The one of Belron does not make any exception. We call that Responsible Business at the level of Belron. We are trying to build a kind of circular company, circular economic company. We have improved quite significantly the level of glass recycling in 2022, reaching 89%. That allows us, by the way, to achieve one of the KPIs we have for the Sustainability-Linked Loans we have issued, and that is 1 year ahead of the targets, which is once again, great work done by the team on that one. We are -- we have submitted an SBTi -- CO2 long-term reduction targets and we expect the validation of SBTi hopefully this year. We are making big progress in terms of creating a safer environment and healthy environment for employees. We are measuring that and hoping to make big progress. The objective is really no harm for all employees. Making also progress in diversity, equity, inclusion. That's high on the agenda. We are hiring a lot of female technicians because we provide the right tooling, the right training in order to be performing well. We've got an increase of close to 30% of female executives in our respective geographies. We have completed 37 suppliers audit in '22, which is ahead of our target. And we -- as you know, we are a great giving back organization. In total, give back -- given back is EUR 8.5 million. And among that, there is EUR 2.2 million for our long-standing partner, Afrika Tikkun. You see also the great performance in terms of employee satisfaction. In a very, very tough social environment in '22, we've been able to increase what was already a record level, above 86% -- 86.2%. NPS went down a little bit marginally. It's an issue we want to tackle, of course. It's still a great NPS, but we always want to make progress there. And CO2 emissions, scope 1, 2, 3, has been going down marginally, but don't forget that we have also higher volumes. So happy also about the trajectory of our ESG Responsible Business Framework.

All right. Let's continue with it in Automotive. And I immediately go to Page 20, where you can see that the market has been actually quite depressing in Belgium last year. Just look at the last 10 years and so finishing the year with 366,000 car registrations, that's more than 200,000 less than a year like 2011 for just 1 example here. Nevertheless, a lining of hope in H2, because the 171,000 was already a bit higher than the 150,000 of the year before. So hopefully, from now on, we're back out of that valley of tears and we get more cars delivered. Of course, the bottleneck was the production of cars, not the sales of cars, because on the sales of cars, we've continued to do very well. The market share in terms of the cars delivered has been lower, 22.5%. However, the market share of the cars ordered is actually a bit higher. And so in that sense, we feel commercially quite fine with this market share number, even if the deliveries were not yet there in 2022. And the market share, you can see the evolution basically between net and gross. It doesn't make much of a difference last year. They're very close to each other. The mix of cars in the Belgian market on Page 21 has continued to follow the trends of the last couple of years. That means increasingly, new forms of energy, of course, full electric, hybrid, CNG, LPG. We're talking about more than 1/3 of the market now, 35%, of which 1/3 or so 30%, are full electric. So that's really rapidly increasing as a share of the new car sales. The buyer mix continues to be more and more skewed to B2B, 64% now and only 36% B2C. That has been going on for a couple of years, but it's particularly been marked in 2022. And the SUV mix also keeps growing up. So we're now already at a 50-50 between SUV and other vehicles. In terms of market share for us at Page 22. The decline in market share was mainly attributable to SKODA in the biggest, where we lost 60 basis points; 43 basis points at the brand Volkswagen, where the popular models like Golf, Tiguan and Passat are getting a little bit later in their life cycle and therefore, creating a bit less excitement there. Audi was actually a very good and solid year at 7.2% market share, with good models and its electric models for sure, the EV, the A4, the SUV. And SEAT and Cupra combined basically very close to what the SEAT used to be without Cupra, so about 2%. And Porsche's share increased further, almost getting to 1% in the market. So that is actually quite nice and has been helped by the Macan and the Taycan in particular. Our market share of D'Ieteren in the full electric vehicles remains to be very high at 26%. We are very happy with this. So we have a good offering for electric vehicles. Think about the Skoda Enyaq, of course, the e-tron, the ID family at Volkswagen, et cetera, and the Taycan at Porsche. In terms of results for D'Ieteren Automotive in this very depressing car market, we're actually very happy because not only did they manage to increase their sales at 11.4%, and that despite a decreased delivery of 3.5%, less than 90,000 vehicles that were delivered. But especially the margin has actually moved nicely and they have a profit gain increase of 35.6%, which leads to a return on sales of 3.9%. So quite -- getting quite close to the 4% we always gave as an outlook medium term for Auto. And as you may recall, in H1, they were actually above the 4%. But we, of course, knew that H1 was very much skewed to a Porsche-Audi mix and that mix has become a little bit more normal in the second part of the year. In terms of free cash flow on Page 24. Well there, we had actually a photo finish which was not very pleasant for D'Ieteren Auto because there were suddenly an awful lot of cars arriving by train and by truck at -- from the 19th of December onwards, which lasted until the 6th of January. And that actually made the photo finish on free cash flow not look very good. So we saw, because of the sudden acceleration of deliveries, a swing of over EUR 200 million in our free cash flow evolution. At the same time, there was a bit of CapEx, of course, about EUR 34 million. There were some acquisitions, about EUR 11 million, and this also had a little bit of impact on our overall free cash flow for the year. What have been very well is our interactions with the factories in terms of the credit notes that we typically have with them there. We actually -- the management of D'Ieteren Auto did a very good job in managing these outstanding credit notes downward and we're very pleased to see that. In terms of latest developments at Auto, while we do start seeing this acceleration of deliveries as we speak, I would say, it's still quite lumpy. So some cars that you think are going to take a year to be delivered suddenly arrive earlier and others that you think are going to only take 4, 5 months, suddenly take longer. So the lumpiness at the factory level is still there and we don't have much control at D'Ieteren Automotive to influence that. But at least this normalization is slowly but surely happening, will take its time during 2023, but at least will definitely help us because, as you know, our order book is record high. It was over 100,000, 107,000, actually, at the end of February of this year. And so this is boding quite well for the months to come. We've also done 6 acquisitions at D'Ieteren Automotive, typically around newer forms of mobility: Around taxis; around solar panels with Go-Solar; around bikes with Lucien. And so this has also changed and is continuing to change a little bit the profile of D'Ieteren Automotive. And last but not least, we are celebrating this year the 75th anniversary of our partnership with the Volkswagen Group, which started in 1948, and which some people who have visited our gallery may be very familiar with. The outlook for this year is a market in terms of deliveries and registrations of 460,000 vehicles, so clearly higher than last year. Given that we have a backlog of 107,000, we do anticipate a plus 30% growth in terms of sales for D'Ieteren Automotive, it includes some market share gains and it includes, of course, the continued growth of our new mobility initiatives. We do expect the margins to slightly erode because this kind of model mix that was abnormally skewed to premium models will, of course, start to normalize more and more. And of course, we've had some pressures on salaries, et cetera, with the Belgian inflation automatic indexation that we have. And as you also know, we had a Salon de l'auto again physically this year, which is, of course, something we have not had in the last 3 years anymore. There are new products coming in. As you can see some pictures on the bottom. And our free cash flow should be better and should be positive again in 2023. We should not have this big photo finish issue, hopefully, this year that we had last year. On ESG, not only is Auto working on ESG through its portfolio of mobility solutions: the Microlino that we're distributing; EDI, that's selling the charging stations, 6,800 of them were installed last year; the acquisition of Go-Solar, which contributes to basically generating sun energy at home or at work when you charge your electric car; and then, of course, the bike retail network, which is -- we had 14 stores now in March 2023 as we speak. But apart from that, D'Ieteren Auto is also working on its own environment targets; its own SBTi targets for CO2 emission; its own diversity policy where they also increase the number of women in leadership positions; and to continue to generate an attractive and good people engagement score with 86%; customer satisfaction scores on the sales side to develop positively, on the after-sales a little bit downwards; and then on CO2 emissions, a 15% decline that delivered in 2022. PHE, Arnaud?

Thank you, Francis, so...

The new kid on the block.

Exactly. The newcomer in our family of businesses. We are very happy to have them on board. It was a great onboarding, by the way. And the quality of interaction we have with the management team is really outstanding. So you see here in their first contribution for -- it's not full year because we consolidated them since the 1st of August. So it's only 5 months in our accounts. Once again, very good performance in general, top line growth close to 70%. We gained market share in every single country, in France especially, where we continue to make a difference, but we continue to grow quite strongly in Spain, Italy, in Belgium. So overall, everywhere, strong growth. We've had a solid margin in terms of EBIT on the period, 7.4% margin. We've got a contribution to our KPI adjusted PBT group share of close to EUR 39 million for the period. The cash flow was positive before acquisition with a EUR 29 million positive, but we made EUR 36 million of acquisitions. The free cash flow according to our definition, which is deduction of everything, in fact, arrived at EUR 6.1 million. And we look at, in fact, a little bit different [ measure ] than the PHE one because we've got the holding company on top of that, that we include in our segment reporting. The net debt increased slightly due to the negative free cash flow generation linked to the acquisitions essentially and also the buffer that we've taken for nearly all our companies in terms of inventory because the priority was to serve the customer in a challenging supply chain environment as everywhere. For the full year, you've got a view of the very strong organic growth. On top of that, we've made significant acquisitions. So top line, plus 15%, close to 9% organic. Adjusted operating results of EUR 178 million, a comfortable margin of 7.9% for that type of activity. EBITDA was at EUR 279 million. What is important to report here, it is without Mondial Pare-Brise. You know that before sanctioning, agreeing the acquisition, the European Commission imposed on us some remedies, 1 of them being the sale of Mondial Pare-Brise. That sale has been achieved at the beginning of the year, but we've deconsolidated from the accounts of '22 Mondial Pare-Brise. So Mondial Pare-Brise is not anymore in the sales figure, nor in the profit. The adjusted profit before tax group share for PHE if we had consolidated on the full year is close to EUR 87 million. So as I mentioned, strong contribution from PHE for the first 5 months. We hope, of course, for the best for 2023. I won't go into too much details about the free cash flow and net debt once again because it's not totally representative of the full year. This is only for the last 5 months of the year, but you've got the main aggregates here. We continue to invest, by the way, in terms of CapEx because it's not such a capital-intensive activity, but we want to increase the footprint in general, we invest in new technology, in IT systems. We've got, as we rent nearly all our premises, we've got a few capital paid on lease liabilities. We paid taxes this year at a significant amount because the company is much more profitable. And we always have relatively significant interest cost because we -- the company has a debt level which is sub-investment grade as we speak. In terms of latest developments, speaking about that, Moody's and S&P have increased the rating on our debt, which is good news, and we hope to continue on that path. We've done the request to dispose of Mondial Pare-Brise and that was for a nice amount. So we are very happy about the outcome. We continue on the acquisition path: 9 in total, 3 in Spain, 5 in Italy. We continue to increase the footprint in Spain, where we see still a lot of opportunities. In Italy, we made big progress in covering the whole market. And we believe that we are now #1 in Italy, which is quite an achievement. And we've made 1 acquisition in France of 1 of our independent distributors at the end of the year. We, as all our activities, we continue to invest heavily in sustainability capabilities. So we will develop a full team there also for PHE, with new KPIs to be disclosed hopefully in 2023. The outlook, once again, same macro environment, we are not expecting growth from the economy in general. So it will be a little bit more challenging than in 2022. We continue to expect a high single-digit organic sales growth. This is essentially market share gains, some price increase linked to the increase of our purchase of goods. We -- and we are going for a stable EBIT margin, essentially because we'll have higher energy costs. The energy costs were kind of capped in for the full year 2022. We will have higher energy cost for '23. And also, the inflation on personnel is increasing. In some countries like Belgium, we've got indexation; in France, we are negotiating with our social partners and that will lead to higher personnel costs. Free cash should improve versus 2022 and it's essentially growth in EBITDA and also in the working capital which will lead to a higher free cash flow.

For TVH then, also has been a very pleasant opportunity to see them operate for a full year now in 2022. And on Page 34, you can see that in terms of sales, they ended up at EUR 1.6 billion top line, which is more than a 20% increase compared to the year before. The composition of the 20% is to a large degree for 13.4% organic growth across the different regions and across the different verticals: America, EMEA, materials handling, construction equipment. So quite a lot of positives. The 1 negative, of course, has been less business in Russia/Ukraine, given the war situation over there, with a EUR 17 million negative impact that we've seen. There's also been some contribution from M&A activities into that sales number, 1.7% and some foreign exchange effect, a good 5% into that. Now this sales ended up leading us to adjusted operating results which was 14% higher than the year before, so reaching EUR 257 million. That basically is a 15.9% margin, slightly lower than the year before, and that's mainly due to inventory write-offs that we have seen. Let me take some water, sorry.

We've been speaking a lot today. You know this is why our voice is fading away.

Our voice is fading away, exactly. If you were to look at the EBITDA margin, however, you would see that the margin there has gone up, and it's really this inventory write-off that has led to the slightly decrease in the EBIT margin. And so the PBT contribution on our group share, if you like, has therefore been EUR 98 million for the year. The free cash flow at TVH, and it's a bit similar to what Arnaud mentioned about PHE, they have continued to invest in inventory to basically avoid supply chain issues, to avoid price increases throughout the year and to make sure that they are the one-stop shop, which they are, to their customers and it allows us to gain market share, basically. This has been supported by continued investment in inventory and also some trade receivable capital being tied up. And so this is the major explanation why the free cash flow in the end has been negative at minus EUR 53 million. What also contributes to that is some substantial CapEx, about 5.8% of sales has been invested in CapEx. Part of it was a bit of a onetime effect given that the new headquarters, the hub in Waregem, have now been finalized and open, but there are also continuous automation initiatives that have been happening in several of their warehouses, amongst which one in Waregem, to take the most notable one. Now thanks to the good EBITDA generation, of course, there was also positive free cash flow contribution there and it leads to a net debt overall of about EUR 900 million in the case of TVH. What are important developments at TVH? Already last year, and it continues very much this year, is the big digital transformation program called Innovatis, for which in this year, a first wave of new software are expected to be implemented in a first lead country, I would say first country, which will be the United States. At the same time, TVH has continued to do some acquisitions. Just 2 examples here, the U.K. and Portugal were ones that were actually closed formally in last year. And as I mentioned before, the Russian operations, of course, we haven't stopped them and we are in the process of selling them to the local management as we speak. Outlook for TVH, again similar to PHE, in this limited demand environment and inflation, we do anticipate a high single-digit organic growth. We do anticipate a broadly stable margin expectation, where somehow the cost increases can be compensated with, let's say, price-through initiatives. And last but not least, the free cash flow should be improving vis-a-vis '22 as we get to a more normalized level of investments into inventory. There will be continued costs on CapEx and on Innovatis, for sure. But still overall, the free cash flow should look a bit better compared to 2022. On ESG, there is now a comprehensive sustainability strategy in place. It's been aligned with all the stakeholders and clearly defined. First, let's say, measurements in terms of carbon footprint have started to happen, which can now become the basis to define objectives and ambitions. And they have also won a Ecovadis bronze metal last year, which basically shows that in the way they interact with suppliers and as an actor in the wholesale and machinery and equipment industry, they are really standing up there. People engagement has been very pleasingly at a high level of 81%. Customer satisfaction went up 10 points from 40 to 50, Net Promoter Score, a very nice to see. And on CO2 emissions, we are gathering, as I said, the numbers which will become the basis for measurements. That's TVH, and let's go to Moleskine, maybe, as our last of our 5 before we go to Immo and the group.

Yes. Thank you, Francis. So Moleskine, the return to profitable growth continues with top line increasing by close to 18% for the full year with 11.3% organic and 6.5% FX impact due to the strength of the dollar. In terms of segment channels, wholesale continues to be the main channel with a bit more than 50% of the total sales, growing at 13% and very strong -- strong growth for the strategic partnership channel with a growth of 34%. Retail was reopened in '22, not everywhere, because in Asia, we had still some COVID restrictions, but retail grew back to -- by 43%. E-commerce softer after the boom of the COVID years, a softer performance of the e-commerce channel. And in terms of geographies, the stellar performance from the U.S., which has generated sales growth of 29%, followed by Europe, EMEA, 15% and APAC was softer, again, due to COVID lockdown and restrictions. In terms of results, as you know, the gross margin contribution of Moleskine is very high. So if we have good sales growth, disciplined cost, it translates directly into much improved operating margin. You see here, with increased operating profit, while sales are growing 18%, operating profit has grown by 72%, which corresponds to a margin of 14.8% compared to 10.1%, and we expect that to continue. The free cash flow has been also relatively important. We've paid a little bit of interest on our shareholder debt, but it landed at 17.3% before -- at EUR 17.3 million, before interest it was at EUR 21 million. So good cash conversion of 88%. And we have no more net bank debt because we still have EUR 15 million of bank debt, but we've got close to EUR 27 million of cash, so we'll easily and quickly reimburse the bank and -- before refinancing the company. The latest developments, we continue to increase our leadership, we believe, in the notebook segment, which remains competitive, but are happy about the strength of the brand everywhere, especially in the U.S., where you see the growth. We've been able to position some interesting gifting products, which bodes well for the future. We believe that's a promising product category for the group. We've made big progress in terms of writing pens, with the partnerships we have with Kaweco, the smart writing set continues to grow. So new development on that front. And for the channels, it was a bit softer with Amazon as with all e-commerce partners in general, but strategic partnership went very well, especially in the U.S. again, and we are happy to see that the retail channel is growing again at a very steady pace for the company. The outlook, once again, the macro environment, you know it. We assume similar exchange rate than the one prevailing at the end of the year. We're expecting to grow sales by at least 15% in '23. That's mainly -- there will be some value increase in the mix of products and some price increases. And once again, due to the nature of the activity, we are expecting faster growth of the adjusted operating profit. We expect it to be, in terms of margin, above 20%, and we continue to manage very finely the cost structure. The ESG journey, we continue there. In terms of circular economy, we've been able to recycle much more than the year before, with 72.5 tons compared to 11 tons. So that's a very good progress. We've also kind of redesigned, repurposed, more than 25,000 notebooks that we've given to nonprofit organizations, more than -- well, 27 of them, in fact. We commit to SBTi for Moleskine also and will be submitting our carbon reduction targets by this year, by '23 and we are really taking important measures in order to reduce our carbon footprint. We are doing much more near-shoring of production, closer to the customer markets. In terms of sustainable procurement, we receive all the necessary certification in terms of social and environmental, especially for the quality of paper. And Moleskine is quite unique in terms of gender representation, with 60% of top and middle management which are represented by women and we've got more than 15 nationalities. So it's a very, very diverse environment, as you can read. On corporate and unallocated, I won't enter into too much details, but you see there that we are also making progress. That activity is contributing to the profit. It's marginal, of course, but you see here the progress that we've made for the real estate activity. And also, I would qualify the central cost as frugal, as you know. So good progress on that front. And I leave the final closing remarks to Francis.

Thank you, Arnaud. So 2022, another successful year for sure, thanks to the PHE acquisition on the 1 hand, and a very nice progress in all of our businesses in terms of their results, their agility and their engagement. Our KPI, adjusted PBT group share, is 2.5x higher than it was in 2019. Second year in a row we increased even more than 50%. At the same time, we keep looking for new growth pillars as part of our origination strategy. We made nice progress on the nonfinancial side, with ESG in particular. '23 will be challenging for sure, the continued inflation, uncertain macroeconomic environment, but we are guiding for around EUR 900 million adjusted profit before tax group share, so a nice increase again vis-a-vis last year. And we are comfortably on track with that vis-a-vis the midterm targets that we have outlined to you in April of last year during our Investor Day, where we gave a bit of a view towards 2025. So with that, I suggest to open it up for your questions.

[Operator Instructions] The first question comes from Michiel Declercq from KBC Securities.

Yes. Thanks for taking my questions, Francis and Arnaud. The first one will be on Belron. Overall, again, a very nice set of results. Just thinking a bit about the outlook for 2023. So you guide for, let's say, high single-digit growth. This is about what you usually set in your 2025 guidance. So with all the inflation that you still need to pass through, I think it looks a bit at the lower end. Can you maybe elaborate a bit on this, because this is more like a growth number that you have seen over the past years as well? So that would be my first question, is this a bit of a counter effect between inflation and volumes, let's say? And then the second question is on the general strategy, of Belron, of course, with the new CEO that started earlier this month. What will be his focus? Can you maybe say what will be short-term focus? Should we expect additional cost savings on top of the transformation plan? Will it be more expansion focused or maybe preparing it to go public? So that would be my second question. And maybe a very small one on the -- yes, the sizable amount of acquisitions that took place within Belron, can you give how much inorganic volume growth we should expect from that in '23? So these would be my questions.

You want to take the first one on the single-digit top line?

Yes. Once again, we've got some, some [ embed ] inflation. We are not expecting to increase substantially the price in '23, except if market conditions evolve and that there are additional inflationary pressure on the cost of glass, on labor costs and so on. But we've assumed a relatively subdued inflationary environment. And we are entering into '23 with [ embed ] inflation in our sales, which is relatively important. But indeed, we are -- once again, I laid the framework about the macroeconomic environment, we are not expecting that the market will have volume growth in general, but we are expecting to gain market share, okay? Then as usual, the price/mix impact for Belron will be favorable and the ADAS contribution will continue to kick in. So this is why in that kind of environment, we are guiding for a high single-digit growth rate, which is, I think, realistic in the current circumstances.

Then your second question, Michiel, on Brito's focus for 2023. Well, the handover actually happened last weekend. So it was a very energizing moment when he took over the baton from Gary. He basically has been running around already in the last 7, 8 weeks, visiting countries, talking to many people internally but also starting externally. And so his first focus will be to basically continue the current execution of everything Belron has been working on, both in terms of the Fit for Growth digital transformation program as well on what we've guided here for, is to do at least 150 basis points increase in the margin. So the margin focus will for sure be there. But of course, in the very short term, it will be trying to materialize what is all -- the whole teams are basically working on for the moment. We will, of course, take our time with him in the months to come to also start to reflect on, let's say, 5-year strategies and so on going beyond, but this is really very, very early days to say, well, what will that lead to? For the moment, his focus is on get on board, which he has, and work with the teams on delivering the plans that have been outlined for the 2023 budget. And then we'll use that as a basis to then, of course, work further from there. And on your third question.

But there is a clear ambition from him and the whole management team, as we said, to build an even better Belron for what it means. So they will be, as mentioned by Francis, probably a new plan in the future, but the ambition is really to continue to improve the performance of the company.

Yes. I mean basically, his first reflections have been: One, a confirmation of what he thought he was going to find by coming into the company; and second, to see more opportunities than he even thought when he arrived. And so when and how to capture those opportunities, both in the marketplace and inside in the company, I think will be part of the reflections of the new year plan on what makes sense at that point in time. But so really, this is his very first early reflections, and we should give him the time to just arrive and get his grips together with the leadership team of Belron around the business as it is. And then your third question, the acquisitions.

The contribution will be around 1%, not far from that. So not...

Okay. Can I maybe quickly ask a follow-up on the first question. So did I understand it correct that there is not a very big inflation pass-through or that it will be very limited?

It's mainly less volume. There's mainly not much volume, not much volume.

Not much volume. And the inflationary is more [ embed ] inflation, you know that we've negotiated -- price increase that we've negotiated in '22 first half, second half, that will be continuing to have a positive impact in 2023.

I thought that it was more like a gradual process, that it took sometimes 2 to 3 years depending on all the insurers. So -- but now you're saying it's basically the impact that you had in '22 that will continue to have its impact in '23, right?

Yes. Exactly, exactly. Because we renegotiated nearly all the contracts, because of what happened in '22. So we knocked on all the insurance companies' doors in order to re-discuss the terms and conditions and we've been relatively successful in that area.

Okay. Quite impressive, that -- I think it's quite impressive that you keep the -- to your margin growth outlook despite not having this massive inflation pass-through. So congrats with that.

And if we need to increase the price again, we'll do it, of course.

The next question comes from David Vagman from ING.

I hope you can hear me. So first, 2 questions on Belron. On the first part on Belron is on the margin dynamic that we're seeing, so -- and a bit more longer term, I would say than 2023. And I'm referring here more about the CMD guidance, the 23% EBIT margin target that was disclosed back then. It seems to me like it has become quite conservative, because if I understand correctly, so you'll be getting close to 20% EBIT margin by 2023, then you have the benefit coming of the transformation plan, essentially to materialize, so let's say, 2%. And you -- yes, you've got still the ADAS [indiscernible] that's got to fully unfold, quite some benefit every year from the price/mix improvement. So that's essentially, yes -- that's essentially -- I would like to get your thinking on that, your view on that. Second question on Belron. As Michiel was noting, so there has been a bit of a step-up on acquisition in 2022, also okay in the big scheme of things. It's not major, of course, but still, could you explain a bit what has been going on? Does it mark a bit of an acceleration on M&A? Yes, what about the multiples that you see? Do you see more competition? That's my second question. Last one on working capital. And that's more for, let's say, maybe Auto and TVH. What could be a bit of normalized level of working capital for these 2 businesses? Probably preferred or -- what could be like -- and I think for TVH, they have some ambition to decrease working capital, if I remember correctly? So if you could come back on these targets, some quantification could be helpful.

Okay. On the margin dynamic, I mean we're at 18.2% margin now. Medium term, we said 23%. That's still 5 percentage points to go. So that there's still some hard work to be done, it's not automatic, that's for sure. And we have had that rhythm where we typically could do about 1.5% per year. So if you project that out, that basically takes you until 2025, more or less. So for me, there is no reason today to start deviating from the outlook towards the 23% that we had set in the Capital Market Day based on what we know today, meaning Fit for Growth, meaning what we're working on for this year and the kind of normal continuous improvement that we do on any line item in the P&L. So if I put all of these things together, this remains nicely on track and there's no reason today to kind of put out any different number, I would say, at this point in time. On the M&A, do you want to say something on that?

As usual, you need 2 to tango and there were more opportunities to close M&A transactions in '22 than in '21. We've done them essentially in the U.S. where we have been able to complement the footprint of acquisition. So this is nearly kind of organic CapEx. It's organic M&A, in fact. Those are not very big acquisitions, not very sizable, but those are important for -- to improve our footprint in the region. Then we did more strategic acquisitions in Spain with [indiscernible]. And once again, we are not divulging any multiple. There is a bit more competition for the assets. There is 1 group in Europe and then another one in the U.S., which tries not to emulate us, you know, but try to also make acquisitions. So that has increased a little bit the multiples that we need to pay. But once again, after you look for synergies and things like that, those are accretive acquisitions, so no big change there.

Yes. And on the working capital normalized levels for Auto and for TVH. I mean in TVH, we know that the working capital level is, of course, strongly influenced by the inventory levels that they have and that they hold. And I think also there, we have given medium-term targets to kind of get to the level below -- I mean they are above 40% today. And so we want to, of course, get more into the 30-something levels at some point in time. Now part of their commercial strategy is to have quite a lot of inventory. So I think they will also, if you were to benchmark them, they'll be a bit higher than you would -- because it's so intricately part of their economic model and their commercial model. But there is, of course, a couple of percentage points to go down from where they are today. Also...

To continue maybe on TVH, we are currently working with the management in order to do a new 5-year plan, okay? They will define new ambitions in terms of top line, in terms of margin, in terms of working capital intensity. So we keep that for ourselves for the moment, David. Sorry for that. Then for Auto, the year has been massively skewed in terms of inventory by the end-of-the-year deliveries of Volkswagen Group. We -- we've got a great order book, so at some point, we expect the cars to be delivered. They were, in the last month of the year, as mentioned by Francis, kind of over-delivered. And we cannot supply or distribute those cars in December to our end customers. That has created a massive impact, negative impact, on our working capital. Once again, the good news is that those cars are ordered. So we are not producing inventory which is potentially dead stock. Those cars are ordered, there is always an order behind that -- those cars. So we are -- we know that we'll be selling them. And even in January, it was -- we still receive more cars, but we were able to deliver much more cars. So we had relatively massive swing, positive swing, in terms of cash inflows in January. But once again, as we mentioned already, during the whole last year, it's a battle in the dark about the deliveries. And sometimes, you can have massive influx and so we need to manage that. And then a period where we receive less cars and we need to be -- to keep, as mentioned by Francis, agility in our system. Also I want to come back to TVH, because in the results you see, at the level of EBITDA and the level of EBIT, there is a EUR 26 million write-off in inventory and we believe it's still good stock, you know, but it is due to the very conservative valuation of inventory quality of the company. So just imagine what the performance would have looked like if we had that kind of write-down last year.

Two very quick follow-ups. The first one is on Belron, and I understand it's true, we're getting closer in a way to 2025. And so it's quite a step-up to move from 18% to 23%. Now my view was a little bit that indeed, you've got this 150 bps that you get laterally, I would say, in a way from ADAS and price/mix improvement. And okay, maybe at some point, just the incremental improvement is getting lower. I was thinking that you already had it, 150 this year, without the benefit of the transformation plan. And then for 2024 or 2025, you get it on top. So that's a bit what I meant, but okay, that's -- I understand that remains the target.

Just to be clear, once again, '25, it's getting near, but it's not -- we are not yet there, okay? And as you know, in the world we live in, there can be a lot of volatility. And once again, when we disclosed initially the transformation plan, we said that it would add 2% margin, EBIT margin, in '25, okay, on top of what we would have achieved at that moment. So indeed, this is why we stick to the 23% EBIT margin and we're still happy about that.

And so last follow-up. So on Auto, in the end, you think it has become the new normal for Volkswagen to deliver you a bunch of cars at the very, very end of the year and that we should...

No. It has been a very abnormal situation and we really hope that the normalization will be there by the end of this year. But again, it's still very lumpy and therefore, today, we're not at that situation. So no, no, at some point in time, we really hope it gets a bit more stable again.

And we've got a massive order book to deliver.

The next question comes from Kris Kippers from Degroof Petercam.

A couple of questions remaining from my side. Firstly, looking at inflation that we've seen across the year, of course, to what extent actually would we cycle still difficult quarters? Could you share with us what is happening also perhaps on the deflation side, do you see transport costs going down, raw materials a bit easing? So is there some relief we should anticipate gradually towards the second half, for example? And my second question would be more a question for the management team, given now that the numerous assets at TVH and PHE that have been added, to what extent is management involved on 100% basis on managing these assets or what is the spare time you could still spend on potential new transactions? And how should we look at that from the holding perspective?

Well, we didn't plan for deflation. So in our budgets, as we said, we plan for a macroeconomic environment with limited volume and with continued inflation, that's what we planned for. And so of course, we will observe and monitor throughout the year what may happen around either cost items that might get cheaper or -- but they are not going to change, so to say, the strategy of what we're trying to do, it may just allow us to do certain things a bit more fastly or differently than originally budgeted for. So -- but it's not what -- it's not our base scenario, I would say, for the year. And on management, I think you speak about the corporate team, us. Yes, of course, we spend time onboarding PHE and we have been very much involved in TVH, but we have organized ourselves in such a flexible way with our small team of 20 people here that we can do that. We can follow those and dialogue with those activities intensively while at the same time continuing to pursue our origination activity. So there is no -- we've been doing that since the last 5, 6, 7 years and we'll continue to do so and we organize ourselves for that. So we can easily recruit a couple of people, we can have some internal promotions. We set ourselves up in such a way that we can actually manage the portfolio now of 5 plus 1 activities, where we only had 3 plus 1, 2 years ago.

It's still not a [ heptathlon ] and we may go for a decathlon at some point.

The next question comes from Emmanuel Carlier from Kempen.

Yes. Emmanuel Carlier from an Kempen. A few questions from me. I will do them one by one. So first, I have a few small ones on Belron. What is the ADAS penetration at the end of 2022?

The ADAS penetration? 33% at the end of the year, okay? 33% at the end of the year, 30% average.

Yes. Okay. And then you mentioned that there was a company in the U.S. that is also trying to do M&A. Could you disclose which company that is?

It's already well-known, I guess you know, Driven Brands is relatively active. It has been acquiring a few companies the last 24 months.

Yes. Okay. And then in terms of regional expansion, has your view changed on that? Because a few years ago, you were saying, yes, let's focus on ADAS and U.S. and Europe. With Brito coming in, I guess there will be more focus on potentially expanding into LatAm and maybe Asia. Is there any new insights on that topic?

No new insights. So maybe, maybe not. So regularly, the team is revisiting geographies that potentially could be good for Belron. And I'm sure Brito will himself want to understand as well, hey, why did you say no in the past or why -- when do you say yes in the past and what makes sense here. But at this stage, there is no change in focus to suddenly do things because there is still an awful lot to do in the geographies in which we're in. So it's not for a lack of work or for a lack of focus or attention that we suddenly say, "Oh, let's now go and try and do something else." Now it will be revisited as it has been done in the past. And then what will come out of it is it's very too early to speculate on that. As you know, we also, we have franchisee operations in quite a number of countries, and it is a very low-cost way for us to kind of get our feet in the water and sense what's going on in different markets. And so this is a good opportunity, and that team is very active and continues to be very active as well.

Okay. Then moving to TVH. So on the inventory write-down, is this something that is always high? What is the kind of normalized level? And what is the main reason if it is substantially higher? Why is that?

So on what dimension of the inventory? So once again....

The write-down, right?

So what you need to understand also is that indeed, we've increased the depth and the breadth of the inventory by entering new markets. We increased quite significantly in construction equipment. And there, you build inventory, you can have a rotation of -- we know a little bit less that segment of the market. So you build inventory. Maybe initially, it rotates a little bit slower and then you take, because it's a very strict rule and a very stringent rule that we apply, and then you've got higher height in the beginning. So I'm not expecting that to be a trend. On the contrary, I think we should enjoy in '23, not a reversal of the write-off, but probably lower write-off.

Okay. That's clear. Then another general question on your guidance. So you guide for no volume growth or limited volume growth for most of the activities. Could you disclose how the year started? Because -- yes, I've heard many companies stating that the first months of the year were not that bad. So I just want to know if the first 2 months were a bit ahead of the full year guidance.

We are happy about the start of the year for all the activities in general.

Okay. And then 2 remaining questions. One is on CapEx. Could you maybe especially for the big portfolio companies, give a little bit your guidance on the CapEx and maybe also on cash interest costs given that rates have gone up a lot?

I mean CapEx, there is nothing in -- and indeed, also nothing particular, I would say, in CapEx compared to other years. At Belron, they were at 1.5% last year in '22. I think this is more or less the rhythm that they are on for the moment, between 1% and 2% is what they always had, I would say, in terms of CapEx. At TVH, they were at 5.8% and they will continue to do CapEx both on physical hardware, automation and things for the Innovatis program. So there is no real fixed range, but I would say they would probably remain in a similar order of magnitude for the moment. PHE, it's at 2.3% CapEx that they had last year. Again, this will probably be similar, I would say, steady for the years to come. And in Auto, it's very minor anyway.

We are investing quite significantly. And we increased the CapEx on Belron. We mentioned footprint in ADAS, that will continue. That will be a little bit higher in '23 than in '22, okay, but not significantly higher. As mentioned by Francis, we see that the TVH journey is really a significant growth and that demands increasing the footprint, having bigger warehouse, faster logistics, so more automated warehouse. So we'll continue to increase. But once again, this is to build sustainable growing businesses and we are very happy to support that kind of investment. And so for PHE, it relatively stable in terms of percentage of sales, no big jump or no big swings to be expected on that front.

Okay. And maybe the last question on the interest costs. So I don't know if anything has changed there with respect to maturity profile, yes. Some companies have a...

There is no maturity cliff. That's the first point. We have no refinancing to be -- to do before 2025. The big one is for Belron, but that's more for 2028. So we've got plenty of time to do that. The -- well, Belron is not the most levered because PHE is more leveraged. But Belron close to 70% of the interest are fixed, are hedged from variable to fixed. So this is good news, and we continue to deliver very strong free cash flow and the EBITDA growing, the leverage ratio will continue to come down. On PHE, we've got maturity in '25, so it's closer but not for tomorrow. And there, it's mainly fixed interest rate. And for the variable part, we've taken an option which caps the Euribor to a certain level, which protects against further increase in the interest rates. So we continue to manage that in a careful manner.

I have to wrap up more or less now because I think the time is going. So urgent questions, or was it -- or are we done?

We have no more questions.

Okay. All right. Well, thank you all very much and a good evening to all of you and looking forward to continuing the dialogue with you in the days, weeks or months to come. Have a great evening.