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

Hello, and welcome to the D'Ieteren Group Half Year Results Conference Call. [Operator Instructions] Please note, this call is being recorded. Today, I am pleased to present Francis Deprez, CEO; Edouard Janssen, CFO; and Nicolas Saillez, CIO. Gentlemen, please go ahead.

Well, thank you very much, and a very good evening to all of you. As you've heard, we are operating under a new setup as of September 1. So we have extended our executive committee to 4 members, of which 3 are at the table here. So myself, Edouard Janssen with a welcome because it's his first or is fourth or fifth working day since September 1. And Nicolas Saillez, Chief Investment Officer, who's been around with us for about 8 years, and he is also very welcome here. And of course, Stephanie Voisin, our Head of Investor Relations, is amongst us as well. There are 3 key messages I would like you to take away from -- to this evening's call. One is that we had quite strong H1 2023 results. Our adjusted profit before tax group share landed 46.5% higher than last year, reaching EUR 549 million, and we also generated a solid cash flow. That's message #1. The second message I would like you to take away is that we're revising our guidance slightly upwards. We now expect to land above EUR 960 million for the entire year. That does include some restatements on a number of items among with long-term incentive plans for around a small EUR 50 million or so. This is the de facto, an upward revision of a good EUR 10 million to EUR 15 million, more or less, of what we had said before. And the third message was the one on the extended Executive Committee, which I already mentioned. The key highlights in terms of numbers, the 46.5% increase in PBT, Group share includes, of course, PHE for the first time. And if you exclude PHE for those 6 months, it would have been plus 25.6%. That's important to keep in mind. And our free cash flow numbers that are solid. I'm talking about EUR 186 million, mainly driven by Belron, by the way, and also the sale of Mondial Pare-Brise, one of the things the remedies at the European Union has requested us to do at PHE, and as well as positive operational improvements, of course, at our activities. Now this outstanding semester is really driven by strong operational performance and some scope effect of PHE. The strong operational performance, particularly noteworthy at Belron, where our adjusted margin reached 21.9%. Remember, we were at 18% in H1 of last year. Thanks to higher sales, strong cost control, and good measures in top and bottom line in an inflationary environment, as you recall, since a good 12 months ago. D'Ieteren Automotive also had a very strong result, boosted by the upturn in production at the Volkswagen Group on the one hand and therefore, deliveries to our customers finally, I would say. Market share gains on top of that, a positive price/mix effect as well and also growth of the other mobility initiatives at D'Ieteren Automotive, that leads to a record margin of 5.4% of auto or 42% growth in PBT, Group share versus last year H1. PHE for the first time in our numbers contributing EUR 78 million to our PBT group share, with a very strong top line development, including pricing initiatives for an inflationary environment. We'll talk about it later. TVH, not surprisingly, with the cyberattack that's behind us, has a lower contribution to the adjusted PBT versus last year. It was EUR 55.6 million last year, it's EUR 36.9 million, so almost EUR 37 million this year. It is mainly the cyberattack, of course, with the interruption of a good 2.5 weeks that has led to that. And then last but not least, Moleskine. As we already mentioned in Q1, more cautious inventory management by our large customers, both online accounts and retail chains, especially in the U.S. But they have done good cost containment and therefore, were able to increase their adjusted operating profit with about 23%. Nevertheless, if you take into account the financing costs for the internal shareholder loan that we have with them and obviously, of course, also our charged interest charges, we do land at a negative PBT at the end for the H1. And so following these outstanding results, we do now expect, as I mentioned already, to land above EUR 960 million for the full year, but you should realize that there are some adjustments -- accounting adjustments included in that number. And so what used to be EUR 900 million before, was more around EUR 950-ish million, if you take all those adjustments into account. And so that's from around EUR 950 million, we're talking basically now about above EUR 960 million. How much above, we will see. So the highlight numbers as of Page 4, plus 65% in our sales group share. The top of the bill is D'Ieteren Automotive at plus 48% almost, followed by PHE, plus 17%. Of course, for us, it's the first time in our numbers, but if you compare to their numbers of last year, it's plus 17%, plus 12% more or less for Belron, still flat, slightly growing, even for TVH at plus 0.4% and minus 6% at Moleskine. The translation of that in adjusted operating results group share, which increased plus 60%. Again, these are automotive leading the pack with plus 52%, Belron increasing about 36%, Moleskine about 23% higher than last year. And then the negative effect, as I mentioned, at PVH of about 26% due to the cyberattack. On Page 6, our adjusted PBT group share, plus 46.5%. Basically, positive contributions mainly from Belron Automotive and PHE versus last year, somewhat lower at TVH and at Moleskine and then Corporate & Allocated is not that much. What I think it's important to note on the right-hand side of Page 6, is that by now, about half of the contribution to the PBT is non-Belron. Belron is, of course, still very important for us, and will continue to be very important for us. But thanks to our Evolve portfolio, the non-Belron port is also now about half of the PBT group share, and I think that's not an important to note. The free cash flow generation at the group level has been strong. It's about EUR 186 million versus EUR 208.6 million last year in H1. It's mainly Belron and the sale of Mondial Pare-Brise. Important to note that you can see it from the chart, the blue of D'Ieteren Auto is negative on our H1, not a surprise because really are in the phase of the car market, where we're receiving many cars. Some of them are even receiving earlier than planned, and so they may sit on our parking lots for a couple of weeks, before we can deliver them to our fleet customers. And we also have some constraints in actually delivering all of those cars to private customers, because we haven't been used with any more for about 1.5 years or so. And last but not least on free cash flow, the TVH free cash flow is slightly negative, but clearly better than it was a year ago. On ESG -- sorry, before ESG, the debt setup and the cash position table we show you each time. We are sitting on some cash at the D'Ieteren Group. It's the number you see on the right at the bottom. It's basically EUR 934 million kind of as a cash position, but it's not all pure cash because part of it is shareholder loan. So it's about EUR 600 million, a good EUR 600 million that we have real cash at the Group. And of course, we are happy to be able to use that in the coming years, for either new acquisitions or for helping our activities continue to develop. On ESG, we continue to make progress. Almost all our activities are in the science-based target initiative with already Moleskine is, Belron is, Automotive is on its way. TVH has been working mainly on renewable energy. They have quite some buildings and they're putting solar panels everywhere. Belron is starting to electrify its fleet of vans. Automotive is, of course, through its activities, doing a lot towards Project ZERO. And as a group, we also are not only participating in the science-based target initiatives, but we're also part of the carbon disclosure program, which -- for which we did an assessment in this particular year. I suggest to go a little bit more depth through the different activities before we open it up for questions, and I would suggest Nico, as you, of course, been following Belron for quite a while in the past as well. If you could take us to the Belron slide.

S Sure. Thank you, Francis. So Belron had a great first half in 2023. Revenues increased by 11.5% to EUR 3.074 billion. And that's on the basis of an organic growth around 10% and contribution for acquisition from M&A, around 2% and negative ForEx effect of minus 0.6%. We had double-digit growth in revenues in Eurozone and rest of the world, a bit less, around 7% organic in North America. Volumes were overall positive in the Group as 1.5%, driven by the recovery in U.S. opportunities in Q2, specifically, and a continuation of a good trend in Europe. The work price increases last year clearly helped Belron in the first part of the year. What also helped is the strong growth that we've seen in revenue, coming from ADAS, so recalibration, where penetration increased to 35% coming from 28.6% a year ago. And the sales from VAPS, so the value-added products and services were broadly flat at 22% of total revenues -- sorry, of attachment rate. The margin was very strong. So the adjusted operating result came in at EUR 673 million. That's a 21.9% adjusted operating margin. That's almost a 4% increase from last year. So coming both from the excellent top line growth that the company has experienced, and several cost containment initiatives and measures taken over the last 6 months. The adjusted net financial costs are about EUR 100 million, and take into account the additional debt that we've taken on board in April this year, for a couple of months. Adjusted PBT group share of EUR 286.8 million. That's almost a 35% increase year-on-year. You also have the details on the adjusting items that are on EUR 84.6 million and coming from, as usual, the amortization of customer contracts, employee costs in relation to the RSUs that were awarded in December in 2021, and also EUR 44 million coming from the fees to system integrators, as part of the transformation program ongoing at Belron and also some one-offs. In terms of free cash flow, excellent picture here. Belron had a free cash flow of EUR 409 million for the first 6 months. That's more than double the free cash flow of last year, coming from the increase in EBITDA, obviously, and also positive working capital development for EUR 47 million and the lower cash outflow from adjusting items for the rest. And that's partially offset by higher cash interest. I've just spoken about these and CapEx and taxes. So the net debt increased, mainly from the dividend that we pay consecutive to the new debt that we took on board in April. The net debt to leverage -- sorry, the secured leverage ratio is at 3.03x at the end of June 2023 and saw a fairly nice deleverage compared to the situation a year ago.

All right. Well, thank you, Nico on Belron. Moving to the D'Ieteren Automotive, and I'll go right away to Page 19 to give you a bit more of the details. The car market in itself has really been going up. It's increased by 35%. Finally, I would say, the period of shortage of vehicle components and the lower production of the Volkswagen Group is behind us. In that environment, we managed to still increase our market share to 22.9%, so 64 basis points higher. And also in commercial vehicles, our registration increased to 23%, with a market share close to 10%. You can see it in a 15-year time frame, almost that 2023 H1 is back to a better vintage, than the last 3 years that we went through since COVID, and also our market share, as I said, for a third year in consecutive and upward trends. The mix of cars on Page 20, again, very much in line with the last couple of years. The fuel mix continues to go greener and greener. We're talking 44% of the total now in new forms of energy, of which hybrids was a significant chunk. There was a particular change in fiscal policy in Belgium on July 1. And so already last year, but also still this year until the 30th of June, we've seen lots of interest for hybrid vehicles before that fiscal rule changed. But also electric, 37% of the 44% were deliveries or registrations of electric vehicles. So that's really been taking off. The buyer mix is -- has always been, but it's more than ever a B2B market in Belgium. 2/3, really, 67% in H1 this year. So this is, of course, special to Belgium. And the SUV mix continues to steadily but surely become bigger and bigger and have actually surpassed now half of the market with 52%. Our market shares on Page 21 went up nicely in VW, lots of deliveries of the ID models in the meantime. Audi is doing -- is holding good, it is a bit lower because of the Q3 to A4 and the e-Tron, they've been around for a little bit. And so -- we have a bit less uptick, I would say, from newer models there. Škoda, very nice performance; Cupra, in particular, very nice performance. Porsche remains very high. 0.9% is actually high in historical perspective. And as I said in the SUV mix, we always had a bit of a delay, as the Volkswagen Group distributor to sell many SUVs. But with 21.8%, I think we're really getting close to the market average. And in new energy, we are the market leader, and I'm very proud to be the market leader at 27.8%, across the sum of our different brands, of course, Volkswagen being the #2 but if you add Audi, Porsche Taycan and Škoda Enyaq, we are clearly the #1 in the market in Belgium. The rebound in sales to EUR 2.7 billion is at 47.8% increase. The 5.4% margin already mentioned, and adjusted operating margin is really great, EUR 147 million. That's a really nice number. As you recall, we always want to be above medium term, we wanted to be above 4%, where we've really beaten the 5% this time around in H1. H1 is always a bit stronger than H2. But for H1, I'm not going to complain. And our adjusted PBT with EUR 141.5 million is really a very nice or EUR 143.2 million include equity accounted entities is really a good number. There are some adjusting items, EUR 8.2 million for which they're typically linked to this restatement that we've done around the long-term incentive plans, which also exists at D'Ieteren Automotive. The free cash flow at D'Ieteren Automotive, not surprisingly, have remained negative at the level of the free cash flow. It was slightly positive at the trading cash flow. There have, of course, been some acquisitions, EUR 24 million, we actually completed our footprint on the Brussels [indiscernible] with an acquisition in the [indiscernible] area with Genes, and that was the payment of the EUR 24 million, mainly, I would say, but also some bike [ buying ] acquisitions we have with these are smaller amounts. Of course, the biggest change for Auto to look at is the working capital linked to inventories. The inventories have continued to go up. You may recall that in December, we had a negative free cash flow that surprised some of you. I can tell you, by the end of January that free cash flow was clearly positive again. But as of February, we started getting deliveries again and that hasn't stopped. So since February, we've been receiving cars and cars and cars and we're pretty happy, because our cars that were sold with real customers behind, it explains the growth in sales. But we are in this phase of the markets where, given those higher number of deliveries, we have just more working capital tied up in the value chain between Volkswagen first as an importer, then towards the retailer and then from the retailer to the final customers. We have also, and that doesn't make our life easier, quite some erratic deliveries, so several cars which are supposed to be delivered let's say, in October, we've already received them or we've received -- we were supposed to receive them in July, we received them in April. And so that means that especially for lease cars, where the lease contracts still go on for a couple of weeks or months, we have those cars longer on our parking lots, and that explains partly why, at this point of the market, we do have more working capital tied up. At the same time, we also have some bottlenecks still in delivering cars to our end customers because since COVID, we haven't had those volumes anymore, and it takes us a couple of months to get that back to order, but that's getting better and better under control. So that's the free cash flow generation impact that we've seen. And there is some debt level at Auto as well. It's around EUR 310 million at that level, and that's a healthy ratio to have. It's about 1.4% over time, say, the EBITDA over the last 12 months. For PHE, again, I suggest to pass over to Nico, as he's very familiar with the PHE situation.

Okay. The PHE strong set of results for the company. Revenue came in at bit shy of EUR 1.3 billion. That's a 17% growth year-on-year, driven by 12% organic growth and 5% from acquisitions, mainly in Spain. France is about 75% -- 65%, sorry, of the revenues and International 35% and both grew organically at about 12%. The adjusted operating profit margin was a high mark of 9.5% and adjusted PBT at -- sorry, at EUR 78 million. Adjusted items for PHE this first 6 months at EUR 35.3 million, and that's primarily the amortization of intangible, following the PPA after the acquisition and expenses related to the cash settled share-based payments. In terms of cash flow. Cash flow was good at EUR 17 million, driven by strong operational results and the divestment of Mondial Pare-Brise that we closed in the first quarter. And these positive effects were offset by a negative impact on working capital, from a very conscious decision to lower the use of non-recourse factoring acting EUR 104 million, just to decrease the cash interest expense. CapEx was at 1.7% of sales, nothing to really mention here. Net debt declined very slightly at EUR 1.2 billion, and that's a lender-based debt ratio of 3.7x.

All right. Thank you very much. Then move to TVH and I'll go right away to Page 30, where you see a bit the table with the numbers from which I can tell the TVH story. So sales came in slightly positive 0.4% already flat actually -- it's 0.5% organic. The cyberattack is in there, but actually also the CIS region. So Ukraine, Russia of course, did have some weight around EUR 50 million before the whole war in the Ukraine. Well, of course, there's not much going on in Russia at all and actually was stopped that activity. And of course, Ukraine is also at a very small level of activity. There's 1.2% growth on the external side. So some acquisitions that are starting to play their role, and a negative 1.3% currency translation effect in those top line numbers. The adjusted operating result of EUR 106 million is about a 13.4% margin, so clearly lower than H1 of last year, and that's the cyberattack. But it's also the conscious decision during and after the cyberattack, to not put our foot on the brake in terms of future investments. So the personnel and SG&A that TVH basically had on board, we are really counting on them to continue for the future. And so we have not, like in the COVID times, I would say, of 2020, they can drastic measures to put everything on a break from that point of view. There are, of course, some recruiting freezings and postponements in that sense, but things that are important for the future. That's true for IT investments. That's also true, by the way, for CapEx investments. We have continued to do them at TVH. There are some adjusting items at the operating profit level of EUR 53 million. Part of it is the PPA that, of course, now you see in our numbers coming through customer contracts and other intangible assets. They are also on a transformation program, it's called Innovatis at TVH. With the cyberattack, we've, of course, postponed the implementation of the plan, but in terms of development of new software selection and setting up all the process design for that program that continues to go on. And so there are some fees linked to systems integrators, about EUR 8 million in our adjustments here. And by the way, we have now also fully-impaired the TVH Russia activity. We had done some impairment already last year, but the last EUR 6 million of impairments here are also being taken in adjusting items. And so as adjusted PBT, we are landing at the EUR 37 million number that I have mentioned before. The finance costs, as you can see, have also gone up a bit from EUR 5 million to EUR 40 million more linked to, I would say, an additional level of RCF that they're using, in general compared to last year and some of the rates that have evolved there as well. The free cash flow and net debt situation at TVH is still negative, but clearly better than last year, so minus EUR 18.7 million but better. The improvement came mainly from stricter inventory management at TVH now. Now the lower operating results, of course, work the other way with them, and the higher CapEx also works the other way with them on overall free cash flow. The CapEx expenditures is about 6% of sales. It's been mainly an automation project that was already ongoing from last year and that we've now completed in Waregem as one of their major warehouses and then the Innovatis transformation program for which we are, of course, doing the right things for the future. The net debt has slightly increased to EUR 907 million, due to the free cash flow evolution. And then Moleskine, last but not least, in terms of activities, we have a 6% decline in sales. We have, similar to what we told after Q1, cautious inventory management by our wholesale customers, retail chains and online accounts that was particularly true in Q1, a bit less true in Q2, but still there, and so that explains the minus 6%. But despite this, cost containment has worked quite well. And so we -- the management team has been able to improve the operating results, adjusted by almost 23%, and that leads to a margin of 11.3%, which is higher than the 8.7% of H1 of last year. We have the shareholder loan to them, and they are, of course, are charged some interest charges on that. That is also somehow linked to the Euribor and so it leads to a higher noncash financial charges for them, if you take into account the negative -- the adjusted PBT, sorry, it becomes slightly negative at EUR 4.6 million with Moleskine in H1. The free cash flow generation has been actually quite good. The cash conversion is over 60%. They reached EUR 5.9 million positive free cash flow, because they are managing the working capital quite strictly, and the net debt has been quite stable. Again, it's a shareholder loan with us at around EUR 278.5 million. You can see the details on Page 34 in terms of the different channels. Wholesale is the biggest [ predator ] , of course, this cautious inventory management plays the most. Strategic Partnerships, we still see some cautious budgets from business customers in ordering customized notebooks. Retail has done really well. It's been a nice growth, almost more than 22% at Retail. E-commerce grew nicely in the U.S., but was declined in Asia, as Asia was actually coming out of lockdowns last year. Last year, they were locked down. This year, they came out of it and so that they have a bit less e-commerce there. And Americas is the region where they have the most difficulty. Europe had a slight increase at Moleskine. I think I've talked about the operating margin already. And what that means, and I've talked about the profit before tax as well. And in the free cash flow, I think I've also given the numbers already. You see the details spelled out on Page 36. And to wrap it up before opening for questions, in Corporate & Unallocated, not many big changes. We have a somewhat higher adjusted PBT of EUR 8.6 million. Our real estate is, of course, part of that. We had some expert fees of PHE last year. We did have them of course, in this year. We have also some adjusting items related to share-based payment schemes, and the net financial income was linked to the intersegment financing interest that we have with TVH and Moleskine. Sorry, I'm taking a bit of water here. But as closing remarks, we have this year, our usual seasonality meaning in H1, which is a bit stronger than in H2, but it has been amplified particularly by deliveries at D'Ieteren Auto in terms of cars. And of course, in H1, we saw this pricing affect both PHE and Belron, particularly strong in H1, and that will, of course, normalize a bit more this year. Our KPI for the first half year is higher than the full year of 2021. If you really think about it, we've made progress on ESG. We are increasing our guidance for PBT to EUR 960 million. And I recall that I've not actually gone through the page with the details of that. But there are a couple of details on the guidance update for activity. For instance, at Belron, we are now quoting at least 200 bps increase in the margin, where we had said 150 basis points before. We are basically talking about D'Ieteren Auto, where now we anticipate a market of 480,000 new registrations for the full market, and so we anticipate very high volumes there, even if we have some capacity constraints to deliver. And at TVH, we do anticipate that we will be in a more lower volume growth environment, and a profit margin that will still be in decline for the full year compared to what we were used to. And at Moleskine, we see basically a gradual recovery in the coming quarters, leading to a lower sales growth for the entire year. And with that, I would suggest I open the floor to questions.

[Operator Instructions] And we have a question from Alexander Craeymeersch from Kepler. One moment while we open up your line.

At Belron, we saw the leverage decrease already to 3.1x EBITDA, which is close to your 2025 targets. Does that mean that there's additional room for cash upstream to the group level? Second question on Belron would be that you mentioned that the margin increase would be 200 bps at least versus 2022 for the full year 2023. But why did you not put this higher? Do you expect some margin pressure in the second half and if not, where would you end in terms of guidance if you are able to maintain that -- those current margins? Then maybe on Auto. Could you maybe tell us how the change in legislation in Belgium with hybrids not advantageously deductible from July onwards? How is that affecting your order intake and your results going into the second half? And does that also lower your expectations for 2024? And then maybe second question on Auto would be, how sustainable your 5.4% margins are considering that you initially guided for margin erosion? And then maybe one question on TVH, which would be on the cyberattack. What was the impact on the profitability? Because I mean, looking just at the margin decrease there, would it be safe to assume that margins would have been the same as last year, at least, and that the cost impact was probably more towards EUR 35 million on the bottom line?

Okay. That's already quite a handful of questions. On the first one, with the 3-point average, do you want to say something, Nico?

It's an easy one, so I can take it. Yes. So as you know, we have agreed on a deleverage trajectory path with our partners. And the mark for 2024 is at 3.5x. So we are lower than that. So we'll see, if indeed by the end of the year, there will be room for further shareholder remuneration.

Yes. But typically, we do those things once a year. We've done our thing in April. So we're more looking at next year, probably better than anything else. But as usual, it's a number of factors that we're looking at, including the needs for Belron, the market conditions and a couple of things like that. So we're not necessarily deviating from our normal rhythm, I would say, at Belron. On the 200 basis points margin improvement for this year. Well, a couple of points. So the pricing effects were, of course, quite noticeable in H1 and they will start to normalize because we kind of have a, I wouldn't call it an anniversary, but we had many of these things taking effect as of the summer of last year. And so that basically will reduce and normalize the pricing effects we have there. At the same time at Belron, we want to make sure that we kind of get a little bit out of the yoyo effect of recruiting technicians and then -- there we don't need to have bit less in the winter, and then we take them back in and onboard and have to train them and so on. Now that we finally have a bit low, lower turnaround turnover ratios with them, we're going to see to which extent we cannot play that a bit smarter. And that might lead to maybe some more marketing investments on the one hand or some lower productivity in a couple of months later. So -- as usual, by the way, in Belron, H2 has a lower margin than H1. This was not the case last year, but that was an abnormality. If you look at many of the previous years, that was a normality. So you cannot take the 21.9% of the margin for the full year. So -- and that's the reason why we're basically guiding to be a bit above the 200 basis points. All right. On the questions around Auto, the hybrids, yes, everybody was, of course, fighting for orders for hybrids before the 30th of June, and we did our bit in that, and I worked very well. I think our order intake for H2, of course, you will have less hybrid orders, that's for sure. But we have enough other modules, I would say, in the catalog to offer. So you asked about impact for 2024. Not necessarily. I think the overall -- we had a high order book at the end of December. We still have a high order book at the end of June, it was over 90,000 cars. Of course, that will go down, but -- and the overall level of orders in the Belgian markets will probably be a bit lower in 2023 versus in 2022. But it's not something that -- I actually would say that if you take the combination of our high order book, and the level of orders that we anticipate to get in this year, this will set us up for a good 2024. So not that we're suddenly getting worried about 2024. The 5.4% margin, though, is, of course, not representative for the entire year. And so our slight margin erosion for the entire year, we are sticking to that. We're not expecting a high change versus that, because they're having some restatements in our numbers. And so that explains maybe the difference that you might see for the -- that we don't change our guidance on the overall margin erosion. But typically, again, in Auto, H1 margin is higher than H2 margin. I think that was the case last year. We had 4.8%, I think, in H1, and then we ended up the year below 4%. And so we'll see where we land this year. And then in cyber, the cyber impact, well, we have about, I would say, an 85% -- EUR 85 million top line effect probably in terms of top line during those difficult weeks. That had a negative fall through, of course, in those months, and you see that in our H1 numbers. I think for H2, we are now more driven by, I would say, what's going on in the different markets, the different verticals in different regions that we are. And it is true that in several of the verticals and in several of the regions, we don't necessarily have the same volume growth anymore that we had across the board, I would say, in the last year. And also the full price effect that you may have had last year and earlier this year, we also have a bit less of. And therefore, we see a more differentiated picture, between the different regions and the different verticals, I would say, at TVH and that what leads us to a somehow lower volume growth environment. Still volume, still growth and still volume growth but less than maybe what we had seen prior to the cyberattack. Whether that is now exactly the 35 million number that you put in your -- that you mentioned, it's really more, I would say -- no, I mean the margin decrease that we've seen in H1 is clearly linked to the cyberattack, and so we should not see that -- seeing delta going forward, of course.

So it's fair to say that margins would have been at 18%, excluding the cyberattack?

I have not done the exact calculation however to take it, but the margins are -- were stable in our outlook, and that has not -- in that sense, has not changed if we had not had the cyberattack.

Okay. That's perfect. And again, congrats on the nice results.

Our next question comes from David Vagman from ING Belgium.

First, in general, overall, when looking at your full year guidance, I estimate this implies there will be little growth of the adjusted PBT in H2, and even I would say, maybe low single digit growth, adjusting for PHE. So if we could look a bit at each participation and, of course, probably more on better -- on margin discussion for H2. And on TVH, so if you become particularly careful about the end market. Then second question on the margin expansion at Belron. Could you explain us or quantify the impact of the LTIP reclassification? So maybe another way to look at it, alternatively to look at what was -- what were the EBIT margin in H1 2022 and in 2022 overall, if they have been restated? So all the picture look like in terms of margin expansion on a restated basis. And then last question on TVH and the variability of costs there. What was the impact? I think you gave some idea, the impact of the total innovative impact on the adjusted EBIT. I think it's about EUR 12 million, if I'm correct. And what could be the impact for the full year? And overall, if you could help us better understand the cost variability. So on the gross margin side, but also be more the OpEx, the SG&A, et cetera.

Okay. Thank you, David. So on the Belron margin, I mean, there is actually no restatement effect on LTIP or on the long-term incentive plans, because that was already -- of course, they've been going on for a couple of years with their incentive schemes and there's no change and no restatement whatsoever in their numbers. So it's more PHE and a bit of Auto and so on, where you have that. Then at TVH, variability of costs. Well, the biggest cost is personnel, of course, and then SG&A. And in personnel, they are a growth company. And so of course, their recruiting plans have been ongoing, and they've been more playing with hiring freezes, I would say. And so now before continuing the recruiting, they're really turning every request 2 or 3 times around, before seeing is that recruiting really necessary. And so the variability of costs at the personnel cost, I would say, first of all, we had, of course, 3,000 of the 500 employees of TVH [indiscernible] in Belgium. And so we had the inflationary adjustment at the 1st of January, as we all had with around 11%. And so that's kind of a fixed cost. But then the number of people that you have is more about, are you going to recruit less going forward, or you're not going to replace when people leave. And so they've been becoming a lot more stricter. But it's not something where you see an effect immediately in 1 or 2 months. And so the way they can play with the variability of the personnel cost, is just by postponing recruitment basically and asking people to have to do it with a bit less resources, so to say, which you can only do to a certain extent because it's an ambitious company with many projects, very important projects, and we want to continue to invest. And so it does not, that it is a recruiting stop. The second part of the variability of cost debt at TVH is more the SG&A. And I think the -- one of the elements that they have been spending money is the Innovatis program, and that program continues. And so even though they have delayed the deployment dates for that program, they are continuing to redesign processes. They are continuing to program the software, to select the software to get ready for deployments, and so that means that the "burn rates" of these things have not fundamentally changed. You could, of course, do that [ in proven holds ] but all you're doing is creating a bigger problem tomorrow. And so that's not necessarily what you're doing. On the gross margin, offer of EVH, there is actually not much change. The gross margins are actually good and solid. And if you see variations, it's more, as we said before, mixes you may have between the Agri market, versus the NPA markets, versus the construction market and so on. And so there, we have not seen big changes. And there, you are more dependent on how fast are you growing in the newer verticals versus not.

If I can come back on the overall adjusted PBT growth in H2. It's fair to assume that you expect only very limited growth in H2?

Well, the growth in PBT is, of course, a reflection of the fact that we anticipate continued great stuff at Belron, at Auto and at PHE. But somehow, we are more cautious at Moleskine and at TVH, and in particular, what we've kind of lost a bit at TVH. Yes, we'll also have its mark on the full year. And that's why if you take the sum of those elements, you may end up to the conclusion that you're ending up with. But as I said, we're not saying around EUR 960 million, we're saying above EUR 960 million. How much above, we'll see.

We have a question from Michiel Declercq from KBC Securities.

Yes. Thank you, and welcome Edouard and Nico as well. My first question would be that on Belron, some of the comments that you passed earlier it is correct to assume, because you mentioned that you want to have a bit less yoyo effect for the technicians, let's say, are these technicians that were already higher in the first half of the year, and that does will continue to be employed in the second half and because you have lower volumes, though, create the margin pressure? Is that correct? That would be my first question. And my second question on Belron, a bit of a follow-up is, I think in the first quarter of the year or in the first half, you had a bit of volume impact in the U.S. as well. How do you expect that to evolve in the second half of the year? Has your shortages been completely improved? Or are you fully-staffed right now? And then maybe a third question would be on the Auto division. If I look at the deliveries and the sales from new vehicles, it looks like you have another very strong price increase or average price per vehicle. I was wondering, is this because of the EV or the hybrid boom, which come with higher prices? And my question will also be, do they have a big difference in gross margin? Or what part of the overall, more than 5% margin was driven by gross margin improvements? So these would be my question.

Okay. Well, on Belron technicians, I mean this really plays out more towards the end of the year, because we still have some very busy months in the summer typically and then in October and so on. So it's more towards November and December that you could have " " and these ignitions will not be sitting idle. So we will, of course, do the right marketing spend and see whether we can actually create the right number of jobs. So we're not going to have people sitting idle. That's not at all the points. It's just that we had, we had a relatively low volume increase in H1, and we actually did not overspend too much in marketing either. And so in H2, we do anticipate to spend a bit more on marketing, and see what the volume effect of that will be. And we will, of course, adapt our technician capacity to that. So that's what I meant with avoiding a little bit the yo-yo effect. And so the volume effect, as you know, we budgeted for not much volume increase this year. We had exactly that in Quarter 1. We had a bit more in quarter 2, and I think we're seeing more and more of a normalization for Q3 and Q4, from that perspective on. So that's what I meant. But we will be spending a bit more on marketing as well. And so you may see some productivity, a technician stuff in more November, December. And that's why we think we would see a more normal margin trajectory at H2, but higher than before. So I did say at least 200 basis points higher. So it's not nothing at Belron. That's, I think, the Belron thing. On Auto, average price increases, well, our mix has been normalizing a bit more than a year ago. So yes, we are still delivering cars that come from an order book, where there were a few discounts to be given, where you do have electric vehicles, which on average are a bit more expensive than maybe their combustion engine equivalents. So yes, that price effect does play its role and does play its contribution to margins. Now I thought that our gross margins are fundamentally higher than they were a year ago, that would explain the 5.4%. As I said before, it's a contribution of a number of factors at the import level, at the retail level, at the new forms of mobility level that have contributed to the overall good numbers of Auto. It's not only the mix of cars.

Okay. That's clear. Maybe quickly coming back towards the debt margin on Belron in the second half. You mentioned that margins in the second half should still improve. If you take the 200 basis points at least guidance, that would actually remain roughly flat compared to the second half of last year.

To improve compared to H2 of last year, of course, because you will not get to the 200 basis points if you would go down from here.

But the last year, in the second half, it was also around 18%, if I'm not mistaken.

I think it was 18.5%, if I'm not mistaken, I don't have the exact number. I got 18.5% in H2, which made us land at 18.2% in total for the year. And so you should compare the 200 basis points to the 18.2%, which was the number for the full year of last year.

Okay. Yes, I talked to you were talking specifically about the second half, you know.

[Operator Instructions] The question comes from Kris Kippers from Degroof Petercam.

That's the advantage when you are late, a lot of questions have been asked. 2 remaining from my side. Firstly, looking at PHE, what is the strategy going forward for the reverse factoring? What's the amount that has been reduced, it's EUR 104 million. So what is still remaining? And would it imply that you would not reverse this going forward? Then my second question, also a bit cash flow generation driven. If you would take out all the exceptional items you had in H1, meaning, the working capital hiccups in Auto, also indeed PHE, but also certain CapEx effects, is it fair to assume that actually the underlying free cash flow was actually quite strong? And then just as a small follow-up. Around the group level, we see a gross cash position now of about EUR 900 million. How will you spend it, given the free cash flow improvements towards, I would say, Q1 '24, probably?

I can take the first one on the non-recourse factoring program. I think this program is around EUR 200 million today, is used historically at a level around EUR 150 million. I think structurally, we're going to be lower than that going forward, more in the EUR 100 million. And we see that as available liquidity really. So we're not going to change the program. It's still going to be available, but it's just going to run at a lower end, and at a number which is going to be structurally lower than historically.

Our free cash flow, yes. If you take out the exceptionals, yes, you would have a nice level of free cash flow, of course. And on the cash, where not all of the EUR 900 million is cash and several of the loans are in there, so it's EUR 612 million cash. And we will be using it as we have done in the last couple of years. That means we are always looking at opportunities to either add an additional growth platform to our group, or to help our existing activities in the development if they go beyond their free cash flow that they generate themselves. We always have an open ear to their ideas and suggestions of the management teams over there. And so while, of course, continuing our dividend policy, which is unchanged. That means, we want to go up if results permit. So no change in that either. So our capital allocation policy has not changed, with the number of EUR 600 million cash that we have at hand today.

And just coming back on that last question. So if you look at some of your start-ups or well, no longer that much start-ups anymore, but some medium-sized companies, for example. Is there one of those companies that could be a candidate to become a new pillar going forward, when you go, I would say, out of Belgium, for example, for some of them on the pan-European level? Is that an option? Or is it not on the cards?

You're maybe referring to some of the activities that indeed in Auto that are local today, and could become international tomorrow. I mean honestly, these are really such a small [ car ] things. So no, I'm not talking -- I'm not thinking about that. So we'll be more thinking about more transformative M&A at the level of one or multiple of our existing activities, not just a business development for one or the other small scale up or startup.

And we have 1 question. One moment, while we will announce you. The question comes from Mr. David Vagman from ING Belgium.

So we could come back on the Belron EBIT margin for H2. I didn't quite catch what you were saying. Do you expect its margin in H2 to be stable compared to last year, I mean, year-on-year? And then I had a question on the -- for Auto in general. So okay, we've seen this working capital fluctuation. We also see the CapEx increasing, or should we be thinking about the long term somewhat, the 2025 free cash flow target? Any reason to be more cautious?

I obviously haven't done the calculation specifically for H2, Belron because it's -- we're really focusing more on the full year number that what will specifically happen in July and December. But again, on the overall year, it should be 200 basis points higher. But I think if you do the math, that does reflect somewhat higher margin in H2, because we're 300-something basis points higher on H1. And if we were basically want to get to 200 for 6 months, we need to do higher than last year as well. So yes, it should go up with a reasonable amount, I would say, a reasonable number. On the free cash flow, that's Auto free cash flow, 2025, you're asking?

Yes.

I do anticipate that this effect of more working capital in the system and erratic including early deliveries of cars will persist throughout the end of the year and still part of next year. But I would really hope that by the end of next year, we are really more in normal territory. And so far, when you talk 2025, there is no reason to think that why the free cash flow profile of Auto would be structurally different than what it has been in the past. As you know, we've had multiple years where it was really a cash generator at D'Ieteren Auto and this is not going to change once we go through this phase of erratic deliveries.

And on the CapEx side, you are still, let's say, on track?

CapEx of Auto is actually not that high. I think we had about 1% as CapEx part of it. No, there's nothing particular to note on the CapEx side of Auto. I mean, basically, in H1, you should know that the CapEx spend to a large degree was actually that we've added quite some vehicles at Poppy, the car sharing activity, which, by the way, we may still think whether we really want to keep this as an asset buy or we thought smart to put it on a leasing formula. But we'll see a bit what we will do with that. But that has been the main driver, and this is really more of a one-off thing than anything else. We're not going to adding thousands of cars in an environment where the competition has also increased for Poppy in Brussels for instance.

And at this moment, we have no further questions. I would like to return the conference back to you.

Well, thank you very much. Thank you all, and wishing you all a great evening, and I'm sure we'll be in touch in the coming days and weeks with at least some of you. Have a great evening.

Thank you. This now concludes our presentation. Thank you all for attending. You may now disconnect.