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

Ladies and gentlemen, welcome to the D'Ieteren Group 2023 Full Year Results Conference Call. [Operator Instructions] Please note this call is being recorded. Today I'm pleased to present Francis Deprez, CEO; Edouard Janssen, CFO; and Nicolas Saillez, CIO. Gentlemen. Please go ahead.

Thank you very much and a good evening to everyone or good afternoon or good morning, depending on which part of the world you're in. We have 3 messages today concerns the results of 2023 for the D'Ieteren Group: one is on our normal profit before tax group share KPI where we have strong 2023 results reaching EUR 970.8 million. As a number you recall, we guided for EUR 960 million, so we're a good EUR 10 million above that, and that's an increase of 28.1% versus last year. We've also generated over EUR 600 million -- EUR 605.4 million, to be precise, of free cash flow group share. That's about 12x more than '22 and that comes, amongst others, also from D'Ieteren Automotive, which you may recall last year did not have a positive free cash flow. That now definitely is the case. And then third key message is that our guidance for 2024 is to continue to grow our PBT group share, and we anticipate a mid-to-high single-digit growth in that KPI. So these are the 3 key messages, I would say, of today. And let me give you a little bit of flavor more on how we got to those results. It's really been driven by a strong operational performance of several of our businesses and also the full-year scope effect of PHE, which we, as you recall, only had 5 months of in '22 and now had 12 months in 2023. At Belron, the adjusted PBT group share improved with over 17.5%. Actually, we ended up with a margin improvement of 226 basis points. You recall, we guided for 200 basis points at least, and so we're a bit above that. And so we passed the 20% margin mark, landing at 20.5% to be precise in 2023. At D'Ieteren Auto, we had, of course, a lot more car deliveries coming in, which allowed us to invoice them and to gain market shares. And so we posted a record adjusted PBT group share that grew 36.6% compared to the year before. We also reached return on sales of 4.2%, which is actually slightly better than the year before. We had guided for a slightly lower one, but we delivered a slightly better one than 2022. In PHE, we have a contribution of about EUR 138 million in our PBT group share, so a sizable number for this first full year, I would say. And there was a solid level of activity at PHE with both price evolution and also good cost control. TVH recorded an adjusted PBT group share of around EUR 75 million. It's 24% less than the year before, and it's, of course, the result of the cyberattack on the one hand because it had a temporary interruption for a number of weeks, but we also had some adverse foreign exchange effect, and we had some softer sales in the months afterwards, and we fully took out Russia, by the way, as well now in 2023. And then last but not least, Moleskine, the story is similar to what we had been telling already at the half year, destocking policies at the retailers and ecommerce platforms and restricted corporate gifting budgets have continued to weigh on Moleskine, but they've improved their margins. So we landed with a PBT group share of EUR 2.2 million but at a higher operating margin of about 18%. Maybe also important to note is the gross dividend that we will recommend to the General Assembly at the end of May is going to be EUR 3.75, so it's about 25% more than the EUR 3 of last year. And when I was guiding mid-to-high single-digit growth for the PBT group share for 2024, it's also important to note that we will be calculating that starting from a number where we have aligned the different foreign exchange rates to the rate of the 31st of December 2023. And so the starting number will not be the EUR 970.8 million, but it will be EUR 962.4 million, to be precise. I think Stephanie asked me to clarify that number from the start, so that I don't forget to mention that. So a little bit more flavor to some of the numbers. In terms of top line growth, you see it on Page 4, plus 43%. The biggest one is clearly D'Ieteren Automotive with almost 47% growth. Both Belron and PHE had attractive growth rates as well, 13.1% for PHE, 8.5% for Belron. TVH has a flat revenue development and Moleskine a slight decline of 9%. The translation of that in bottom line was also close to 40% increase, so plus 37.6% to be precise. We now landed over EUR 1 billion, EUR 1.184 billion as adjusted operating result group share in total. Belron, of course, being the biggest contributor. They increased their profit with 22%. Auto increased it even more than the top line with 52%. PHE has now a nice contribution of EUR 232 million. TVH did suffer given the flat sales, and we continue to invest in the future growth, a somewhat slower margin and so we have a 16% lower adjusted operating result. And Moleskine could actually really, despite the minus 9% in the top line, almost hold its absolute profitability number with only a 1.7% decline there. The adjusted PBT EUR 970.8 million that I mentioned before. You can see the decomposition on Page 6. We have 3 sizable contributions beyond Belron. Belron, of course, remaining the biggest one with over EUR 0.5 billion, but 3 sizable ones with Auto EUR 211 million with PHE EUR 138 million and almost EUR 75 million for TVH, the other 2 being more minor. For free cash flow and net debt, I hand over to Edouard, who wants to maybe give a little bit of flavor on Page 7 and 8.

Definitely. So strong free cash flow generation in 2023. Roughly 12x on 2022 cash flow generation and strong contribution from all our activities in the sense that all of them are positive. D'Ieteren Automotive, probably we should flag that it's the third year that they are fully autonomous, and they have done a significant effort. You'll remember that they were negative in 2022, so EUR 139 million positive free cash flow generation. Belron remains, of course, a strong cash contributor with a strong cash conversion, and we see that with EUR 350 million for us. To be flagged as well, PHE, TVH. and Moleskine have also contributed to this number, EUR 605 million of positive free cash flow. And let's again highlight that working capital improvements at Belron, Auto, TVH were significant to allow to deliver that number. Now if we move to Slide 8 on the group's debt structure, most of our entities had stable levels of net debt and leverage. Hence let me focus on the corporate and unallocated cash position. Of course, we finished the year with a net cash position close to EUR 1.2 billion, and this is mainly thanks to the dividend received from Belron. You remember a dividend recap in April and an interim ordinary dividend in December, but as well as dividends from Auto and interest paid from Moleskine on their shareholder loan. So EUR 1.2 billion being the total. This amount includes EUR 272.4 million of shareholder loan to Moleskine and a position of EUR 94.8 million of investment reclassified in noncurrent assets being invested in the Credit Suisse Supply Chain Finance Fund. That fund has been put in liquidation, and we wrote EUR 19.6 million off of that position in order to reflect the provisions taken within the fund for the liquidation process, as well as a discounting due to uncertainty on the timing of recuperation. Hence, at the end of '23, a position of EUR 94.8 million. To give a little bit of background here, we actually invested in that fund in a period of negative interest rates. These EUR 95 million represents some 7% of our treasury position. The rest being placed besides the shareholder loan to Moleskine, mainly in bank deposits and rated commercial paper which are yielding decent short-term returns at low risk. More broadly, we used part of the cash received to pay a dividend to our shareholders to acquire treasury shares, notably as part of our share buyback programs. The first one, as you know, which ended in May '23, and the second one of EUR 100 million which started at the end of 2023. Finally, to be highlighted, in May, we acquired some additional Belron shares from the Employee Benefit Trust, which brought our fully diluted stake in Belron to 50.3%. Now, if we move to our ESG progress, important to flag that the group and its businesses made solid progress in that field in 2023. Very recently, at the end of February, D'Ieteren Group had its own objective validated by the SBTi, and this implies that on top of reducing the emissions of the holding by 30% in 2027, we are asking all our [ entities ] to get a validated SBTi target by that year as well, 2027. The [ entities ] are working with that aim in mind. With regards to CSRD, the European directive on sustainability reporting, our preparation is ongoing, and businesses have all proceeded with a Double Materiality Analysis involving, of course, their stakeholders throughout their value chain. This has enabled a thorough identification of material ESG aspects for each of them, which will help them to refine their respective sustainability strategies. Important to flag as well our 3 ESG ratings. The new one this year was a Carbon Disclosure Project where we obtained a B score, which is good for first time, and we maintained our AA rating from MSCI and 11.5 from Sustainalytics. I will now hand over to Francis who will talk about the Belron results.

Thank you, Edouard. And so on Belron, I suggest I go right away to Page 12 that gives a little bit of detail on the sales evolution and the growth drivers. As you can see on the table on the right, the 8.5% that we have in top line growth was not really helped by foreign exchange because we have minus 2.4%. It was a little bit helped by acquisitions 1.9%, but the main portion, of course, has been 9% organic growth. That organic growth has been across the board. If you look at the geographical splits, it has been particularly strong in what we call the rest of the world. That's U.K., Australia, the Nordics and a couple of countries like that, 16.4%. The Eurozone close to 14%, and it's actually mainly been in North America where the top line sales has been the least, with a 5.1% organic growth. You may recall that we somehow had a lesser winter early 2023, and that actually had some impact on the overall organic growth level in North America. There was overall a volume growth of 2%. As a combined number, I would say. You may recall it was about 1% in H1 while it was about 3% in H2, so on average, we ended up with 2.1%. We've continued to do recalibration, of course. We are now at 36.4% penetration of windscreen replacement jobs that also require a second recalibration job, so 6% higher than a year before. In VAPS we did not make much progress, to be honest. We remained at 22.1%, slightly below the 22.3% from before, mainly because actually the U.S., as you may recall, had lots of issues on technician retention, on building the right capacity, on training the right amount of people, and so they deprioritized a little bit to the VAPS attachment rate, and that's the main reason why we didn't make progress there. But they'll definitely pick that up again in 2024. Now the adjusted operating profit on Page 13 for Belron, that's how you can see the evolution from 18.2% to 20.5% margin. And so a good fall through that we had, it's linked to good cost mitigation, to good pricing mitigation against inflationary pressures, which, of course, are still very present in 2023. We've continued to invest in a transformation program. It was about 124 million spend, of which EUR 57 million has been classified as adjusting items, and so an amount which is similar to 2022, a little bit lower, I would say. And so beyond the margin improvement of 226 basis points, we, of course, also had some additional finance costs. And so given the new debt issuance in April, you can see that the adjusted net finance costs reached about EUR 222 million in 2023. All that leading to the 50-odd percent that we have of the EUR 1 billion adjusted PBT of Belron, so EUR 511 million, which is 17.5% higher. In terms of adjusting items at Belron. The usual suspects, we have some amortizations of customer contracts, we have a bit of numbers on the restricted share units of the long-term incentive program that we have to all the employees in the company that we had the last couple of years as well, and in the other adjusting items, the main component of the EUR 93.5 million are the fees to systems integrators, which were [ exactly ] the EUR 57 million that I mentioned before next to couple of other items. The free cash flow and net debt at Belron, well, a significant increase in free cash flow from EUR 300 million to EUR 700 million plus, thanks to EBITDA, of course, but also thanks to a very positive working capital development. The extra stock levels they had held on in 2022 when there were some supply chain issues, they've actually brought it back to more normalized levels, and that really helped a bit, about EUR 135 million. They spent a bit less on acquisitions. You recall the high number of EUR 160 million in '22. Well, it was closer to EUR 56 million in '23. Still about 17 acquisitions, but smaller acquisitions and then some other, of course, lower cash outflow items linked to the transformation program. The net debt in itself is, of course, linked to the additional financing that was done in April 2023. So now we landed about EUR 4.6 million, EUR 4.7 billion as net debt at the end of December, which brings us and keeps us, despite all these dividend payments, below the 3x leverage ratio. So we're at 2.95x, to be precise, at the end of December for Belron. In ESG, to highlight a couple of points. Glass recycling very important, of course, for someone who repairs and replaces glass. We're at 97% now. A very good number. Very happy with that. We have now validated SBTi targets at Belron a year ahead of what they actually tried to achieve. We have a very ambitious program in safety and health going on in the organization with a consistent set of standards and which where we have lots of hopes on to continue to reduce the number of work-related injuries and therefore well-being of our people. We've done 39 procurement audits as well last year, and in the [ good to ] Belron tradition, giving back to society, they have continued to do that with almost EUR 9 million. They have great people engagement scores above 89%. They have great NPS scores above 84%, 84.7%. The CO2 emission numbers we're still waiting for. We'll get those in April, but I'm sure they will also be developing in a good direction. Brito has been around for almost a year -- actually for a year, as we speak, because we have already passed March 1 this year. He spent a lot of time in the field, multiple times in almost all the countries around the world, and has really driven a new level of energy across the organization. Maybe a couple of points to mention as well is the investment grade rating. So we had already S&P. We now also have Fitch that puts Belron on investment grade rating. So one to go. We have bolt-on acquisitions. I talked about that. Transformation program is progressing well. I talked about that as well. Maybe a bit on the outlook for 2024. What is our outlook there? Well, we are guiding for a mid-to-high single-digit sales growth number, of course, driven by continued price/mix, continued recalibration, normalized pricing, and normalized inflation rates, and a bit of volume, of course, as well. We continue to improve our margin. So we want to continue, or we guide on a margin improvement, which is very much on track to reach our ambition of 2025, the 23% objective we mentioned in April 2022. So we hold very much onto that, and that's where we're on track to do that. In transformation, there will still be some spend, less than in the last couple of years, but still around to EUR 90 million, with about 1/3 in adjusting items of that. And we do anticipate a free cash flow that is expected to remain at high levels. For D'Ieteren Automotive, I will still continue to talk a bit before handing over to my colleagues for the other activities. Again, I will immediately go to Page 20 where you see the market. The car market in Belgium had, of course, a fantastic year last year with plus 30% in [indiscernible]. We at D'Ieteren Automotive have been very happy to be able to grow our market share in that better markets to 24.2%, so an increase of 170 basis points, very nice. And so the year you can compare 2023 almost to the years 2012, '13, '14. So a more normal year, I would say, since last 3 years that were quite abnormal. In terms of mix of cars sold or registered, we are at almost 50%, to be precise, 49% of new energy vehicles. Not surprisingly, hybrid still being the highest. All driven, of course, by orders that were done before the 30th of June, because we had a fiscal change at the 30th of June last year, so lots of orders in H1, a lot less in H2. However, the fully electric vehicles have taken over, and so we are now for the entire year at a 20% share of full electric. And so hybrid plus full electric together is bigger than petrol, I would say, for the first time in 2023. It's still very much and even more so than ever a B2B market in Belgium, 69% that we have reached last year. And it's also more than ever an SUV-driven market where we're now at 54%. But, of course, many electric vehicles are also seen as SUVs. Our specific market shares for the D'Ieteren Automotive brands you can find on Page 22. I'm not going to talk too much about it. It's basically an increase with all brands and Porsche a little bit down, but that was an abnormally high number in '22. We are very happy with our overall electric car market share, which is 28.1%. So that makes us the largest in Belgium if you take the combination of all our brands. And so we have quite some brands that did very well -- quite some models within our brand, sorry, that did very well. In terms of margins and profits. On Page 23, you can see that we did slightly improve from 4.1% return on sales to 4.2% return on sales. We delivered close to 125,000 cars ourselves, which led to a sales increase of close to 47%, a profit increase of 52%. There are, of course, some adjusting items as well. But when you look at the overall PBT number, of course, also a very nice increase of 36.6% overall. There was a little bit less contribution of VDFin, by the way, because with the increasing interest rates, not surprisingly, their contribution has been lesser. And that is something you see also, including the PBT, which you may not have necessarily seen in the [ EBIT as such ]. And then on free cash flow for Automotive, I already told you it's a positive development. Now, the higher EBITDA helped, but at the same time, the change in working capital from minus EUR 155 million to plus EUR 24.4 million is, of course, a very significant contributor to this. There was some CapEx similar to the year before. There were a bit more acquisitions for EUR 28 million, a bit more taxes paid, a bit more interest paid, of course, because they have a little bit of debt at Auto as well, for EUR 14 million. And the sum of all that together led first, well, to EUR 139 million as a free cash flow number for D'Ieteren Automotive. What is worth mentioning in latest developments? We started the year or ended the previous year with 58,000 in our order book. That's still a high number, by the way. It's more or less double what we have in a normal year, but, of course, lower than the [ EUR 100,000 ] or so we had the year before. We're working a lot on CROSS, a big IT program in Auto that's being rolled out to all our different dealerships. It's a dealer management system. We've been working on that for a couple of years, and now it's going live. And we expect some increased efficiency from that, which I think is always good in times where the downstream, let's say, of car distribution needs to be as efficient as possible. And as you also may recall, we have acquired one more dealer in Belgium. It's called Jennes in the Lucien area, between Brussels and [ Leuvensesteenweg ], and completes, more or less, our Brussels to Antwerp axis of dealerships where we have an ownership ourselves. The market outlook is about the same as the number of last year, so about 480,000 new registrations expected in the market. What do we guide in terms of top line? Well, not a specific guidance, I would say. We have a good view on H1, thanks to our high order backlog. We have less visibility on H2, so no overall guidance there. We do guide, however, that the overall margin is expected to slightly erode. I thought we had guided already last year, but we did better. This year we do expect, given that we go to a more normal mix of cars and we have some of those IT projects, to have a slight erosion in the margin, but we do anticipate a free cash flow to continue to improve beyond the number that we've delivered at the end of 2023. And I have some ESG developments at auto as well. 22% of sales were electric cars, more than 8,000 charging stations installed, more than 200,000 square meters of solar panels installed at people's homes and at companies. Our bicycle operation has now 19 stores in total. So it's becoming a little bit of a national network. Not entirely yet, so some white spaces still, but a nice development. And we've done over 1 million trips with Poppy, the car sharing activity that we have in Brussels and Antwerp, et cetera, that we have worked on. And so add to that good people engagement scores of 83%. A bit lesser customer satisfaction scores. Given that delivery times have been long and were quite unpredictable last year, people have given us that feedback, 'we didn't like that, that much.' So sales and after sales, customer satisfaction was a little bit down compared to the year before. And CO2 emissions had gone a little bit up because we had a lot more activity, of course, but we're on track to improve on that in the years to come as well. And with that, I hand over to Nicolas Saillez for PHE, Parts Holding Europe.

So PHE, as a reminder, we're consolidating PHE since August 2022, so it's the first year we have it fully consolidated for the entire year. Very strong year at PHE. The company at revenue increased of 13.1% versus 2022, driven by 5.9% organic growth and 3.6% from M&A, from acquisitions. We've seen both France and international growing by more than 9%, plus 9.7% for France and plus 9.4% for international on the back of, let's say, favorable pricing environment, certainly in the first part of 2023, and gain in market share, which is something that the company has been able to do in almost all geographies throughout 2022. The adjusted operating profit margin was a record high at 9.1%, again, driven by this favorable pricing environment and cost control. Adjusting items are at EUR 65 million, EUR 65.2 million, mainly coming from amortization of intangibles. That's a technical element following the purchase price allocation finalized by [indiscernible] group, and also some expenses relating to the LTI provisions that we already discussed, I think, at our semiannual result. So adjusted operating result were at EUR 231.6 million and adjusted PBT group share at EUR 137.6 million. Just mentioning that because it's also something Stephanie insisted upon. There are noncontrolling interest in some of the subsidiaries of PHE. When they did several acquisitions, they only acquired 75% in order to leave a local anchor, a local flavor, culture, and motivation. And that's what you find in the noncontrolling in this small amount of EUR 8.9 million of noncontrolling interest. In terms of free cash flow. Free cash flow with a strict definition was 36.9 million. Trading cash flow was EUR 101 million. And I just remind everyone that the free cash flow was impacted by a negative working capital requirement worth EUR 104.5 million. That comes from a conscious decision of the company to save on interest cost and not draw on nonrecourse factoring and rather use the cash they had in hands from the divestment of Mondial Pare-Brise in order to do that. CapEx was at EUR 1.8 million, so quite reasonable, as they have shown over the past years. Net debt declined slightly. Net debt to EBITDA ratio to lenders is at 3.6x. The latest developments, I'll just again remind everyone that the company is on track to consolidate more of the market they're already present in, specifically in Spain. They did 3 acquisitions in 2023, and they are looking at other acquisition today. In terms of financial leverage. We had the very positive news of an upgrade from S&P to BB minus and Moody's has also confirmed its positive outlook with a B2 rating. On the back of that, in early 2024, we decided to refinance -- actually, we did refinance the entire the existing TLBs, which had 2 different maturities. And so we had a very good and strong execution, a good book, and we were able to refinance the entire debt structure with a new TLB, 7 years, EUR 960 million at Euribor plus 375 bps, so quite happy. And we also took the opportunity to increase the RCF, which is today at EUR 242.5 million. In terms of outlook, PHE expects this year mid-single-digit organic revenue growth, again, driven by this constant ability to take market share and a more normalized pricing environment. We expect adjusted operating result margin to be similar in line with their record high that they achieved in 2023 at 9.1%. And again, the noncontrolling interest that I just mentioned are expected to be around EUR 10 million, approximately. In terms of ESG, it's fair to say that the company is not the most advanced among the portfolio companies, certainly not in terms of beliefs and mindset, but more in terms of processes. But we are working in close collaboration with them and they're really eager to catch up with the rest. So we are completing a Double Materiality assessment as we speak, which is, as you know, the first step to get CSRD approval. And then we also like to mention that the company very recently hired a young, promising Group Environmental Director, which certainly is going to help us and our teams to accelerate the effort in ESG. Customer satisfaction, well, it's not an NPS, because they measure it differently. But let's say that both scores on the total of 5 came at 4.56 for B2B, and 4.61 of B2C, which are deemed to be quite strong. And on the people engagement front, they are 90%, which again is quite strong.

Let's move to TVH. Edouard?

Yes, absolutely. So as an introduction, let's remember, of course, that 2023 was a tough year for TVH, with the cyberattack, which incurred on March 19, operations were down until April 5 and fully operational again on April 17. So it was communicated earlier, around 4 weeks of downtime and EUR 85 million of lost sales. Important as well to flag that in 2023, TVH stopped its operations in Russia, which, if we compare to 2022, generated lost sales of up to EUR 15 million. So all of that led to sales year-on-year decline of minus 0.9%. If we move to the next slide with the P&L, we see that this minus 0.9% is composed of flat organic growth, 0.7% of external and acquisitions. Actually, 2 acquisitions were made by TVH, in construction equipment parts, which together with the full year 2022 acquisition contributed to 0.7% of top line growth. And finally, there was a negative FX translation effect of 1.6% leading to this negative 0.9%. It is important to flag that one of the consequence of the cyberattack was the fact that TVH didn't really lose any client but lost some share of wallet at some clients. Logically, these clients wanted to diversify the supplier base from a risk perspective, and we then entered into a low-volume-growth environment in some areas, notably in materials handling in which TVH is, of course, a very strong player, and we ended the year with flat organic sales. As we said, some small acquisitions were done and throughout that year TVH continued to invest in future growth and advances were made throughout the year on several IT tools aiming at better operational efficiency, mainly in e commerce, in HR management, or in enterprise performance management. As we said, we impaired the activity in Russia. And these activities were suspended. And this is why, of course, the adjusted operating result of EUR 217.9 million experienced a 16.1% decline year on year with a margin of only 13.6%, because, like we said, TVH continued to invest both in increased personnel and, of course, through SG&A cost, including the transformation program. If we move to the next slide, the cash flow and the debt situation. We can flag a nice improvement on the free cash flow of TVH, which was negative in 2022 and was positive at EUR 85.6 million in 2023. This is mainly due to working capital improvement and focus. You might remember that in 2022 we were facing supply chain disruption and TVH voluntarily increased its inventory levels. That situation has since been normalized and hence we had a positive working capital reduction in 2023. As we said, lower EBITDA generation, driven by the cyberattack and also partially driven by higher cash interests due to higher interest rates in 2023 versus 2022. Capital expenditures have remained significant and broadly stable at 5.9% of sales. These CapEx were mainly related to the transformation program, notably as we said on ecommerce and also on various logistics project, including in Waregem, the new WB3, which is an impressive automated warehouse. And finally, to be flagged on the free cash flow and net debt situation is to be said that TVH has reimbursed the shareholder loan of EUR 100 million at the end of 2023, out of which EUR 40 million for [indiscernible] shares. If we look at the latest developments and the outlook, so given the perspective that was given, we guide towards restored volume growth in 2024 versus 2023 of around 10%. This will be, of course, in a normalized inflation environment, yes, a restored volume growth. From a margin perspective, we expect an improvement of around 100 basis points versus the 13.6% level recorded in 2023. On the free cash flow, we expect free cash flow to remain good, although somewhat lower than 2023, mainly because TVH continues to invest for its medium- to long-term growth, as we said, on working capital and on various types of capital expenditures. On the ESG side, TVH has made significant progress. It has performed its CSRD Double Materiality Analysis, and there is progress or close to stable or progress on all 3 of its group ESG KPIs, nice improvement on people engagement. This has to be flagged. In an environment with the cyberattack, the fact that the people engagement increased. Definitely there was a strong -- they can be congratulated for this very strong positive reaction of the organization. It's probably a reflection of the strong culture as well that they were really altogether, let's say, fighting against this cyberattack, and it reinforced the people engagement. And on customer satisfaction and CO2 emission we see stability or small progress.

All right, let's move to Moleskine. Nico?

So Moleskine had a contrasting year. On one side we had a revenue decline, but we had a strong improvement in margin. So revenue declined by 9.1% year on year or minus 7.5% in constant currency. The 2 underlying explanations were really driven by the pervasive uncertain economic conditions that we observed throughout 2023 on one side, destocking at retailer that we've seen in the U.S. that has affected many other consumer companies and among them Moleskine, and another effect was the restriction on corporate gifting that we've seen across the board in all geographies. Despite this negative sales evolution, the company was able to increase its adjusted operating result margin to 18% from 16.6% and benefit also from a very high cash conversion. The company was able to pay EUR 20.1 million of interest to D'Ieteren Group as interest to our shareholder loan. So the net debt declined slightly at Moleskine to EUR 269.3 million, and that's the shareholder loan from D'Ieteren Group. [ Luckily ], there is not much change in terms of breakdown per channel. The only thing I'd like to mention is that we've seen it throughout 2023, and at the end of the year, quite strong development in direct channels which are retail and ecommerce. Our adjusted operating result, as I said, was EUR 23.4 million, so 18% margin. There were some adjusting items amounting to EUR 3.5 million, reflecting from one side a full provision reversal of the LTI and on the other side a provision for an exceptional cash bonus that has been granted to management and the team for their efforts this past year. In terms of latest development, we continue to work together with our management team to reinforce the brand. Also, Moleskine has opened 6 permanent stores and multiple pop-up stores throughout 2023. This is a strategy that we intend to continue specifically in geographies like the U.S., China, and Japan. The important milestones were also reached in terms of supply chain nearshoring to organize alternatives to agent sourcing around Turkey for Europe and Ecuador for the U.S. market. In terms of outlook, the sales are expected to grow by low double digits compared to 2023. Again, as you know, the seasonality of Moleskine is heavily tipped towards the second part of the year, and we think we're going to have the same pattern in 2024, and the adjusted operating result margin should again improve by at least 150 bps, reflecting this strong top line trends and the cost control of the management. In terms of ESG, so Moleskine, their emission reduction plan has been validated by this SBTi. So the main tools that will drive these carbon emissions down are renewable energy in direct stores, strategic sourcing, logistics, and product innovation. In terms of circular economy, the company recycled 250 tons of products, so much higher than last year, and representing 36% of unsellable stock, which is quite a high level, and their FSC certification was again renewed for 5 years. In terms of people engagement, the company reached 71% roughly stable, and I already commented on CO2 emissions.

Thank you very much, Nico. Corporate and unallocated.

Corporate and unallocated briefly. So corporate and unallocated mainly includes the corporate and real estate activities of D'Ieteren Group. We already touched upon one adjusting item in the net finance costs with the EUR 19.6 million impairment charge recognized on our outstanding investment in the Supply Chain Finance Fund managed by Credit Suisse. And Nico also touched upon the fact that Moleskine repaid an intersegment financing interest of EUR 20.1 million, which explains the increase.

All right, so before opening up to Q&A, closing remarks. 2023 was another strong year for us at D'Ieteren Group. We made progress on many, many fronts, and we anticipate further growth in our group's KPI in 2024. We're very comfortable on track to reach the ambitions that we set in April 2022 Investor Day, and we continue to be very committed on the ESG front to also do our contributions on that front. And with that, I open up the floor for any questions you may have.

[Operator Instructions] Our first question comes from the line of Michiel Declercq from KBC Securities.

I have 2 questions, both on Belron. Francis, you already mentioned for the volumes that there was some pressure in the U.S. because of the seasonality and a bad winter. I was just wondering, is there anything more to it besides the volumes? Because if I look at the second half, it was only up about 3% organic, but if I look at the group volumes, they were actually quite good. And then also in Europe, you see a bit the opposite effect. So just a bit more color on that on both the U.S. and Europe just if there is anything more than a soft winter. And then my second question would be on the outlook for Belron. I was maybe expecting a bit more detail on the margin improvement. I was just wondering, is there any reason why you're not a bit more specific in terms of margin improvement? And maybe if you could, can you already give some comments on a potential positive impact from the transformation plan that you expect this year? So it was 200 basis points by next year. And if I recall correctly, you already expected some basis points positive this year. So I was just wondering, can you give a bit of rough idea on this? And if we look at your EUR 90 million transformation costs for this year, will this be offset by potential positives? Those would be my 2 questions.

All right. Well, on the U.S., Europe in H2, well, in the U.S., as you recall, the capacity of technicians has continued to be something they've been working on throughout the year. So if you say, is there anything else than volume, well, they were a bit volume constrained because they didn't necessarily have all the technicians. That's one of the reasons why they, by the way, kept a bit more technicians toward the end of the year. I think we've talked about that before as well, but there are no other specific things that happened in the U.S. that somehow -- well they did play out in H2, and I think this is something we had been telling already since 6 months, is that the pricing [ through ] effects that we had after the cost inflation, of course, started to reduce in effect after the summer of 2023. And that is an effect that you clearly saw in the U.S. as well. But I think this is nothing new. We had said that before, and that has been behind what we saw in H2 versus in H1. On your second question for the outlook of Belron. Well, we've now at 20.5% in the year 2023. We want to reach at least a 23% in 2025. That gives us 2 years to go, and we're on track to work towards that. So I think that is relatively specific without giving a specific number. It's, I think, specific enough to give you an idea what we're talking about. And on the transformation benefits, yes, we are starting to see more and more transformation benefits, of course. First you see operational KPIs improving, then you see financial results improving. If you now ask me what the specific bottom line effect is of the [ EUR 90 million ] spend but of the previous spends, and will they compensate the benefits? Well, in the margin improvement, you will somehow see the transformation effect, of course, but it's not something that you can suddenly add or use to sink away the EUR 90 million. The EUR 90 million is something we will spend and so this is something we will spend.

Okay. But in the past you did say that you have 200 basis points positive by '25, right?

[indiscernible]. Part of the margin improvement of 2023 is already attributable to transformation, and part of the margin improvement in 2024 will also be attributable to our transformation. But to put this precise number on how much of the margin improvement is business as usual and how much is transformation, to be honest, that ends up being a theoretical exercise that we regularly have with the finance teams of Belron, but you end up in a theoretical debate. So for me, what counts is that the margin goes up and that we reach our medium-term targets.

The next question comes from the line of David Vagman from ING.

I hope you can hear me well. I've got 2 questions on Belron and one on Auto. So Nico, first on Belron, I'll come back on the margin guidance and just on the wording and maybe I'm just being a bit picky. In the press release, you say you're on track to reach the 23% EBIT margin. I thought it was at least 23%. And I think you also made clear during the call that you're comfortably on track or very comfortably on track to reach this guidance. So just to be sure that we're not missing anything here. Then secondly, on the U.S., if we can zoom indeed on this lower organic growth and the tactical move you did to keep technician onboard, could you quantify the negative impact this had? So keeping the technician onboard, while actually the volume was not that great, the winter was not that supportive and vice versa what it could mean in 2024, if you could give us some early indication of how the winter has been in the U.S. and whether Belron having this technician onboard is helping in terms of productivity and volume constraint, et cetera. And last question on Auto. And I know, okay, that there is no revenue guidance, let's say, for 2024, but still, I'm trying to put together the pieces of the puzzle. So we've got this Belgian market, which is flat, then I think you're clear you want to gain share. That's the objective you've unveiled at the time of the CMD in 2022, and EVs are helping. I think you also want to grow clearly outside of Auto and also in used cars, et cetera. So if you could help us a bit, let's say, to understand where, especially looking at the very, very strong sales in 2023, how we should think about the revenue level of 2024 for Auto, also taking, of course, into account the price/mix with maybe some more rebates or discounts. But on the other end, the EV mix progressing very positively. And sorry, it's a long question.

Okay. Well, on the wording of Belron, yes, it is what it says in the text, and I think there's no, let's say, divergence between what we say and what we write, so both are valid. Technicians onboard at the U.S., we're talking about 200 people here that they basically kept onboard, that in other situations, they may have not kept onboard. And some of them, of course, are also taking some holiday during the winter break, because we know there are less volumes and so on. So again, I don't have a specific number to quote on what the impact is. I think you may have noted that also in H2 2023, the margin of Belron has continued to improve compared to H2 of 2022. So in that sense, it has been not such a nature that it has had a negative impact on the margin. Margins continue to improve. But again, I don't have a specific number to give you on that today, unless you have something to add.

Maybe to add a bit of perspective on these U.S. technicians is that turnover has been high recently, and so turnover has declined to 34.7% compared to 42.2% in 2022, lowest it has been in 2 years, which is a positive result, of course, and implies sufficient capacity going into 2024. And so that strategy had a known cost in terms of productivity and wages, of course, but it was clearly a conscious choice to limit additional cost of hiring, training, and lower productivity ahead of the high season. So maybe I'm saying something you already know, but I just wanted to highlight it because it's clearly a conscious choice, taken also by Brito [indiscernible].

To say much about the winter, it's too early days to really say much about 2024. So there have been winter storms, of course, in the U.S., and then during the storm people can't move that much. And when the storm is over, they get out and they start repairing their things. So it's a bit early to give you a flavor of the winter to date. You'll hear more about that when we give our Q1 updates in May. And then also the top line revenue level, well, the drivers that you mentioned are, of course, correct ones. So price/mix, we have seen a beginning of a normalization already last year compared to 2022 with not only the premium models and the premium brands, et cetera, was a more normal mix. What we have continued to see is the lesser discounts. So I would say that in the order book that we started the year with, we also don't have any major discounts yet. And I think it's more the competitive dynamics of the months to come that will determine to what degree there would be more or less discounts. But you have to keep in mind that even if there were to be a bit more discounts on particular models or particular cars, that doesn't necessarily affect our margin directly, because these are typically programs that we, of course, align with the factories of the different brands. And to the degree that they want to push certain models, we pass it along to the customer. So it's not necessarily something that eats directly into our margin. So these are the drivers behind that. The volume, that's I guess where we have a little bit of the lack of visibility for the full year. We have a good visibility for the first half given that we have a good order book, and it will depend a bit like in a normal year, by the way. In a normal year, we don't have that visibility entirely. And so that's why we have refrained from giving a top line guidance at Auto.

Maybe one just very quick follow up on Belron. Any negative element we should have in mind this year in terms of cost, inflation or any other headwinds?

No, nothing particular to note. It's a relatively normal year again in terms of inflation dynamics.

The next question comes from the line of Jeremy Kincaid from Lanschot Kempen.

I have 3 questions as well. Just the first one on Belron free cash flow. With your guidance statement, you're saying free cash flow is expected to remain at higher levels, which is obviously slightly different from some of the other statements like around auto where you say you expect it to improve. That's against the backdrop of widening margins and improving revenue growth. I was just hoping, if you could talk to the moving parts between EBIT and free cash flow that we should think about. My second question is just on TVH. Could you also just provide a bit of an update on demand or activity levels in each of the key end markets there? And then just finally on the EUR 95 million Credit Suisse Supply Chain Fund, could you just give some guidance on when you expect that to turn from an asset into cash again?

All right. Maybe I'll take the second question and then ask for the first and the third question, I don't know, whether that's something Edouard is more comfortable to talk about, but on TVH, demand in different verticals, I think we had mentioned that before in the fall that as of the summer we had a more differentiated picture in terms of overall demand in the different sub vertical/regions. And that has actually continued to play out until the end of 2023, I would say, where you saw a couple of European markets, for instance, in the construction industry, where you saw demand being impacted. Now, fortunately, TVH is still a relatively small player in the construction equipment market and Sakura was not actually suffering much from that. But we really did sense that the demand overall and the utilization of equipment in the construction industry was lesser. We've also seen that in some of the forklifts and [ MPA ] markets, the online activity and the warehousing activity somehow drives a little bit the use of these types of equipments, of course. And these have also seen in the U.S., for instance, a little bit of lesser activity there. And in [ MPA ], we are, of course, a little bit of a stronger player. And so there we have a bit more cyclical effect depending on what happens in the demand side. In the agricultural verticals, I think it was not a lack of demand, it was more about price sensitivity. So people have been more price sensitive. And that in some instances helps, by the way, TVH, because we have some, let's say, I wouldn't say generic, but similar in quality to the OEMs, but not OEMs. And so to the degree that agricultural people, which typically are very loyal to the OEM brands, are willing to try a cheaper component that can help us, but to the degree that they stick to the brand, of course, it doesn't necessarily help us. And so that has been some of the demand dynamics we've seen in several of the verticals at TVH. For the CS fund, Edouard.

For the CS fund, it's about the timing. So in our impairment, we took a hypothesis of a 3-year discount, meaning that it is possible within that timeframe. However, it's important to flag that Credit Suisse has talked of a 2031 deadline in some of their communication, which would be significantly longer, of course. So basically, this has been moved to noncurrent assets because we lack clarity on the timing. But we could say that we took 3 years in our time value of money discount. And so yes, so I'm not very precise, because, honestly, we don't know very precisely.

And then on the free cash flow at Belron remaining high, there's actually nothing particular to note.

No. The acquisition level, if you want a simple example, acquisition level of Belron in '22 versus '23 has been very significant. So we don't have specific elements. The cash conversion has been strong in 2023, but, of course, that level may depend on acquisition opportunities.

All right.

Yes. Eventually we could add an element also on the interest charges. I don't want to make hypothesis, but you know the history of dividend recaps and -- yes, so that could have an impact, potentially, on interest charges year on year as well as free cash flow.

We have increased the debt of Belarus in 2023, at some point. So it was in May. And so you will have the full effect of that debt being geared up, so slightly higher interest expenses.

Yes.

And you have seen the leverage ratio at the end of '23, right?

Okay?

The next question comes from the line of Alexander Craeymeersch from Kepler Cheuvreux.

Alexander Craeymeersch from Kepler Cheuvreux. So yes, first off, congrats on the nice set of good results to the team. Yes, just picking up on that last item that you were discussing. So yes, leverage for Belron, I think the target leverage was 3.5x for year-end 2024. Right now you're at 2.95x. So you'll probably arrive around 2.3x, 2.5x by year-end 2024, actually. So that does give some potential for more upstream at Belron. Is this really on the table? Because you've been discussing already some interest charges impact. So I assume that maybe that you are already in discussion, or given the higher rate environment, you might opt to not go for additional upstreams. Then second question from my side would be on TVH because I'm trying to square that guidance that you gave. So you expect 100 bps margin increase versus 2023. But I think on the midyear figures you mentioned that the cyberattack costed a direct cost EUR 35 million alone. And if we add back this to the results of last year and the first half, you quickly arrived at 17% margin for the first half, and that is excluding the operating leverage coming from restored volumes that you mentioned. So could you please explain us and help us to square this guidance a bit? And then the third question would be on PHE. You guide for a stable margin. But I thought from the past you expected efficiency gains from the [ organic ] growth activities, such as coming from areas such as procurement, et cetera. So are those efficiency gains now not expected anymore, or how do we need to look at this?

Well, on the leverage with Belron, really nothing special. So all the conditions have to be there for us to either do something or not do something, like in all the previous years. And so at some point in time throughout the year, we may sit around the table with the different shareholders, look at the cash needs of Belron and the plans that they have, look at the market situations, look at the ratio, which, as you rightly point out, is 3.5 in 2024, and then either do something or not do something. And so in that sense, nothing special to note. It may or may not happen, but we will definitely sit at the table at some point in time throughout the year as we have done in all the previous years. TVH, 100 bps and a 35% effect of the volume. To be honest, I don't have a particular point of view on that. I think, yes, of course, we will recuperate parts of the losses that we had. Now, there had been some continued cost inflation, of course, here and there at TVH, we will continue to invest in different programs at TVH. But what you don't have any more in '24, at least less in 2024 than you had in 2023, is the effect of price through. And of course, price through works into the bottom line right away, whereas other elements don't work in a fall through right away. And so part of the margin that you may read in our guidance or our caution of guidance on the margin is that it's less a top line, price-driven growth and a bit more of a volume-driven growth. So it comes with a certain variable cost. And so that should help to hopefully triangulize your calculations. And on the stable margins on PHE.

And on PHE, well, it's true that we still expect some improvement in margin in the future years. What is also true is that the [indiscernible] that they were able to achieve in 2023 was quite strong. And so from that basis, because of the slightly inflated cost basis that the company is facing today, we think 2024 is probably going to be evolving sideways in terms of adjusted operating margin. But, yes, I think the comment that we had at the time of the acquisition, I think, that we would expect a gradual, slight improvement in margin still holds for future years.

The next question comes from the line of Pallav Mittal from Barclays.

This is Pallav Mittal on behalf of Gaurav Jain from Barclays. I have 2 questions. Can you talk about the long-term impact on your Auto business from the rise of Chinese EV companies? And you have said that margins are expected to erode slightly in the business in 2024. Can you give some more color on that? And the second question is on TVH. The free cash flow is expected to decline in 2024 due to growth-related investments. Can you please outline these investments?

All right. The long-term impact on Auto of Chinese EVs. Yes, it's, of course, one of the newer forms of competition in Europe. I think the competition of Chinese EVs for the moment in Europe has still been relatively limited. If I looked at the market shares in 2023, they're really still single digit, I would say. Now, of course, in the years to come, that may clearly change, and it will partly depend on when the EVs are becoming more of a mass market phenomenon, we will, of course, also have more mass market models of EVs, which so far we had less of. We had more premium models of EVs. Now, as mass market models of EVs come in, I'm sure the Chinese brands, or several of the Chinese brands will try and position themselves on that very much as well, and then will be a matter of at what price will they offer and how competitive will, let's say, the European brands, which, of course, we have from the Volkswagen group, will be able to offer that. There may or there may not be some impact of tariffs. We don't know that, of course. We'll see how that plays out. But I also don't make myself any illusions. Chinese manufacturers will, of course, also open plants in Europe and some are already working on it. And so some of those cars will be produced locally and so they will then also have the input factors that we know here in Europe as well. And so in that sense, I would say, we always welcome competition. We also welcome Chinese competition. And we'll do our best that the Volkswagen group has models in place at attractive enough prices to keep defending or growing our market share that we have. In the very-long-term impact, honestly, it's pure speculation, I would say, whether this will fundamentally change the dynamics between what are today the larger groups in the world versus what may be the larger groups in the world tomorrow. That is really, for me, difficult to project. We know the Volkswagen group has some collaborations with one of the Chinese players in China for the moment. Who knows? That may take on different dimensions going forward. At the same time, we at D'Ieteren, we are in a very strong partnership with the Volkswagen Group, but we're not married with the Volkswagen group. Let's see if there are certain models that the Volkswagen group is not offering, certain categories, certain segments, we can actually try and import those from other manufacturers as well. And we're already doing this in micromobility today where we have an Italian produced, Swiss branded Microlino. Well, maybe in the future we could have other segments that are not well covered by the Volkswagen Group, and say, well, those we can source them, for instance, in China or, for instance, in other parts of the world. So that is not to exclude for us as an importer either. So the long answer to that first question. You then asked a question about the margin erosion at Auto that we anticipate. It's really driven by a normalization of the mix of vehicles that we will be offering or that we will be delivering, so to say. And the fact that we have some IT projects going on, for instance, the dealer management system that we talked about, that is being rolled out to older dealers that cost a bit of money. Now, we would also charge for that a little bit, so it's not a pure increased cost. But I think we had always said that if Auto can bypass the 4% return on sales, that would be a nice medium-term target. Well, they've actually bypassed it last year and they've increased it slightly this year with 4.2%. So in that sense, we are not necessarily anticipating that they will be able to keep growing that margin every single year. And that's why we've highlighted a guidance of a slightly lower margin. There are also, as they've been very successful in '23 and we hope to continue success in '24, some long-term incentive plan charges that may also have an impact at some point in time. But this is really not at the ROS level. That's more at the adjusted level below the line. And then the third question on TVH, free cash flow growth.

Yes. So on TVH, simply 2 main buckets, right? Working capital and CapEx. If you take 2023 as an example, on the CapEx side, 2 main types of CapEx that are likely, one on the transformation side, the other one on really warehousing development automation, et cetera. And on the working capital side, if we take a step back, remember that TVH, we guide towards around 10% of growth. And before that, in '21 and '22, they were experiencing strong growth. So the goal is for them to go back to strong growth and there is an element of cautiousness there as well. Where will they finish in terms of working capital. That's why just we are guiding towards a slightly more prudent free cash flow in 2024 to say that the goal is to generate growth in 2024 and in the coming years through working capital and CapEx.

The next question comes from the line of Kris Kippers from Degroof Petercam.

Yes. A couple of small ones remaining. First one, looking at your solid free cash flow in 2023 and given the guidance of the different units, it does seem that your cash position is going to increase much further in '24. So how will you spend it? Because we've seen a nice dividend increase, but it won't save the day. Would you consider, again, ongoing M&A capital reductions or buybacks, because that will be helpful, of course? Second question, a bit on Belron sensor part. If you look at ADAS penetration, there recently has been a launch of Volvo's electric EX90, which seems to have its sensors outside the window. Personally, I don't think it's a nice solution for the time being, but is there a risk this would become more of a standard? And then third question would be working capital. It had quite an improvement in '23. What is a normal level for '24, generally speaking? Are there still hiccups to be expected or should we anticipate a further normalization given the fact that raw material flows or logistical hiccups are less and things like that?

Well, logistical flow hiccups, there have been some, of course, this year around the Red Sea again. So it won't be prudent to say that everything is normalized all the time. And I know that Belron, for instance, has of course, been in very close contact with its overseas suppliers to make sure that doesn't lead to much delay or problems of providing glass at the right moment at the right time. So you never know what happens with supply chains these days. On the ADAS, penetration on the outside of the windscreen, no, this is really not a trend that we see pervasive. I won't talk about the aesthetics of it anyway. But apart from the aesthetics, I also don't necessarily think it's a practical solution. So no, we don't anticipate that in all our discussions with the OEMs, the glass OEMs and the car OEMs, it's really such building on the type of fitting that we know and that we see today. On the free cash flow, how to spend, that's a capital allocation question. So maybe perfect question for...

The dividend that we announced, the share buyback the program is on, and the rest we're always looking for new investment opportunities. Actually, we also look for investment opportunities within our portfolio companies, who are always eager to reinforce, if it's possible, their capacity to do potentially larger transactions. And we also look at different investment opportunities at group level. We've been doing so for quite some years. We're still doing it today; we'll do it tomorrow. And so we have a very strict and well-structured governance and investment process. And who knows, in the next future we might indeed make several new acquisitions. Yes, it's possible.

[Operator Instructions] The next question comes from the line of David Vagman from ING.

Yes. One follow-up on the Moleskine payment of intersegment financing interest, the EUR 20 million. It seems quite high. Could you explain the logic and the accounting rationale?

It's a standard shareholder loan with actually market-based conditions.

And they had some cash.

And you know, the shareholder loan is quite significant, right?

Yes, it is.

It is EUR 380 million. So you do the math and you will quickly estimate the interest that they paid is actually quite standard. And they had cash. Their free cash flow generation was really strong in 2023, and so we decided to ask them to pay the interest in cash.

And earlier they had repaid their bank debt and so they had cash indeed. So yes, it's simply [ discipline ].

Since we have no further questions, I'll hand the conference back to you speakers.

Well then, thank you very much, I would say. And have a great evening and if you have any follow-on questions later on, you know where to find us. So wishing you a peaceful evening to all of you.

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