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D'Ieteren Group SA ( OTCPK:SIETY ) Q2 2024 Earnings Call Transcript September 9, 2024 1:00 PM ET Company Participants Francis Deprez - CEO Edouard Janssen - CFO Nicolas Saillez - CIO Amelie Coens - Chief Legal Officer Conference Call Participants David Vagman - ING Michiel Declercq - KBC Securities Alexander Craeymeersch - Kepler Cheuvreux Kris Kippers - Degroof Petercam Jeremy Kincaid - Van Lanschot Kempen Pallav Mittal - Barclays Operator Ladies and gentlemen welcome to the D'Ieteren Group 2024 Half-Year Results Conference Call. Throughout the call, all participants will be in a listen-only mode. Afterwards, there will be a question-and-answer session.
Please note that this call is being recorded. Today, I am pleased to present Francis Deprez, CEO; and Edouard Janssen, CFO. Gentlemen, please go ahead.
Francis Deprez Thank you and good evening to everyone. I'm actually here together with Edouard, but also together with Amelie Coens, our Chief Legal Officer; and Nicolas Saillez, our Chief Investment Officer; and of course, Stephanie Voisin, our Investor Relations; and Bram Geeroms, our new addition to the Investor Relations team as well. So good evening to everyone.
Before we're going to go to our usual semestrial results publication and highlights of that, you may have noticed that we have a second announcement to make today, and I would like to start with that one. It's actually about a planned reorganization of the family shareholding for long-term stability at the D'Ieteren Group. It is quite logical for family companies that once in a generation they look at ways to simplify the shareholdership going forward and we are at that moment within D'Ieteren Groups.
The family shareholders, Nicolas D'Ieteren and Olivier Perier, who are two family shareholders have come to an agreement to concentrate the family ownership into one single branch around Nicolas D'Ieteren in particular. A logical evolution, very much so, but one that for us as management and for all of us, optimally positions us really for the future because it will allow us for the decades to come as a long-term oriented investor to continue to execute our strategy efficiently and to continue to create value for all our stakeholders. So for us as management, very good, at least cement and anchor the family for the decades to come, it gives us lots of stability going forward.
The second component of this once-in-a-generation shareholder reorganization is that there will also be an exceptional cash return to reward all shareholders. Today, in the Board of Directors of D'Ieteren Group, a proposal has been made that will be put forward to a special general assembly to accompany all of this with a proposed extraordinary dividend of EUR74 per share as a reward to Group shareholders for their continued support after the value creation in the recent years. The third component and I'll give you more details about this in a minute.
The third component of the reorganization is that we'll be putting in place the financial structure built on the strength of the D'Ieteren Group because the envisaged operation foresees a combination of using the cash available at the Group level to also raise some debt at the D'Ieteren Group level, and to also do some additional financing at the Belron level. And fourth, but not least, we also confirm fully the strategy of the D'Ieteren Group. Herewith, we will continue to pursue the strategy that has been successful for us in the past, fully supporting each and every one of our businesses in their own development, be it through organic growth, through bolt-on acquisitions, operational improvements and the like, while gradually ramping up again our strategic investment capacity, as we have done in the past and will continue to do so in the future.
Concretely speaking, what will happen? Well, the idea is that Nayarit, the family office of Nicolas D'Ieteren will acquire 16.7% of the shares that SPDG, the family office of Olivier Perier holds at a price equivalent to EUR223.75 that includes a dividend per ordinary share.
In doing so, Nayarit will be able to increase its stake to 50.1% ensuring the anchoring, the long-term stability of the family shareholding, as I mentioned before. And SPDG will retain 10.
6% of its shares in the D'Ieteren Group and then exit gradually over the next five years going forward. Speaking about the exceptional cash return to overall -- to all shareholders, I talked about the EUR74 per share that actually constitutes about EUR4 billion as a total amount. And so the financing structure that is building on D'Ieteren Group strength is basically going to create the available liquidity or use the available liquidity at the D'Ieteren Group, take on EUR1 billion of debt under the form of underwritten bank loans at the level of D'Ieteren Group, which we expect to repay half of which in the next two years, so quite rapidly, really.
Belron then intends, and Belron already has its financing in place, but it intends to refinance its existing loans and also to issue EUR3.8 billion additional debt, which will bring it to a leverage ratio of 5.5 times.
And that will allow it together with its available liquidity to fund an extraordinary dividend of EUR4.3 billion, of which, given our stake of 50.3% in Belron, would give us access to EUR2.
2 billion for the D'Ieteren Group. We do expect a deleveraging in the years to come, both at the D'Ieteren Group level and at the Belron level. If you just look at the track record of the past, there is no reason to expect this to change going forward and so this deleveraging is to be expected.
And confirming the strategy, no specific numbers to quote on that, but it goes without saying that it is absolutely crucial in this whole reorganization. Now, in terms of percentages on Page 4. On the left, you see how this looked like pre-transaction and on the right you see how it looks like post-transaction.
So Nayarit will go from 33.4% to 50.1%, and the 27.
3% from SPDG and then first instance would go to 10.6%, and then will be progressively be disposed off in an orderly manner in the next years on a best efforts basis. The free float in the short term doesn't change, but could of course, go up a little bit depending on how this goes in the years to come.
And also the treasury shares this year assumes to be stable. In practice, how does it work to basically upstream or generate a cash return to shareholders on Page 5. Well, as you can see starting from the bottom, the exceptional dividends that Belron would offer of EUR4.
3 billion would be offered to all its shareholders including ourselves, D'Ieteren Group. That would be EUR2.2 billion.
Then we would add the other elements that I mentioned before to that, and which will allow the EUR74 per share, so EUR4 billion exceptional dividends to all D'Ieteren Group shareholders moving upwards. In terms of free cash flow generation on Page 6, again starting at the bottom of the page, Belron can use its half billion available liquidity, can -- will refinance its existing loans, will have access to additional debt of EUR3.8 billion if market conditions permit.
All that together basically would create a total debt of EUR8.9 billion and a leverage ratio of 5.5.
If you look at historical evolutions, Belron has had strong free cash flow generations, and there's no reason to believe this would change going forward. So this will contribute to a deleveraging and also the ability to continue to pay ordinary dividends from Belron to its shareholders in the years to come. At the D'Ieteren Group, we have the available liquidity of about a good EUR800 million if I exclude the shareholder loan of Moleskine.
We will add to that the EUR1 billion of underwritten bank loans, half of which will have a short maturity, a two-year maturity, and that one we expect to repay within the next two years. And then another half would have a five-year maturity. But also there we expect given the cash up streams from the different businesses that we have in the Group, to be able to use that to reduce the debt situation in the years to come.
And of course, the EUR2.2 billion extraordinary dividend that would then come from Belron contributes to that as well. On the dividend front, from the D'Ieteren Group perspective, we will -- I mean, this extraordinary dividend represents, of course, many years of usual dividends, if you think about it.
But for the years to come, and that we will do for the first time in March next year, we will rebase our dividend going forward and then follow our normal dividend policy again, which is to be stable and to keep growing after that. But we'll do that from a rebased amount that will be fixed in March next year, and -- or actually proposed in March next year and then fixed at the General Assembly in May, June of next year. So, Page 7.
This is all in a continuation of the growth story that we have in pursuing as a group. I don't have to elaborate on that. I think that speaks for itself.
On Page 8, it's important to point out that as a publicly-quoted company, we have, of course, followed here the Belgian code for companies, and in particular Article 797, paragraph four, where we have appointed an ad hoc Committee of Independent Directors within the D'Ieteren Group's Board of Directors. That ad hoc committee has with the assistance of independent fiscal -- sorry legal and financial experts come up with an advice. That advice has been presented to the Board of D'Ieteren Group today, actually, as we were sitting together with the Board of Directors today covering certain aspects of the operation which you can consider as related party transactions, that's where the role of the Independent Directors really came into play.
Now, based on the thorough analysis, the Board of Directors have discussed all this today and this afternoon and has come to a full support of the envisaged operation, which is the reason why we can announce all of this here today. So, as key takeaways, before I move on to the numbers of H1, 2024. The reorganization of the family shareholdering basically anchors the family ownership for the decades to come, optimally positioning the Group for continued success.
It happens in an unchanged strategy at the Group and of each of our businesses. There is a proposal to -- for an exceptional cash return to shareholders of EUR74 per share as I mentioned. We have a strong track record of free cash flow generation that going forward should allow also for a good deleveraging at the Group and at Belron.
And last but not least, the dividend, as I mentioned, will be rebased after this exceptional distribution. And then we will link again with the previous policy of at least a stable dividend year-on-year thereafter. With that, I suggest we move to the H1 result numbers of 2024.
The key messages here, there's basically three plus one small addition. One is that our adjusted profit before tax, Group share is up 6.4% to EUR585.
5 million. Second, and I think we're particularly happy with that, that we have almost tripled our free cash flow Group share. It has basically generated EUR540 million in the first half of 2024.
And thirdly, we confirm hereby our mid to high-single-digit growth in adjusted PBT Group share. As we have given that guidance at the beginning of the year, we are confirming that for the entire year. And we are also announcing that we're planning to organize three years after the last one, a new Investor Day, the last one was in April 2022 and we will do this in May of 2025, the next Investor Day.
Now, in terms of the key highlights, I will jump right away to maybe the graphic charts on Page 4 of the of the numbers presentation. The top line growth has been at plus 5.8%, mainly driven this time by 7% growth at PHE, followed closely by 6.
8% growth at TVH and 6.7% at Belron, and then followed by 4.8% growth at D'Ieteren Auto and a slight decline of 8% at Moleskine.
The translation of that into adjusted operating result Group share has seen an even higher increase, so not 5.8% but 6.7%.
And here it's been particularly TVH who had a nice growth of 34.4% followed by PHE, 6.9% and Auto, 7.
6% then Belron plus 3.4%. And we know that Moleskine always depends a lot on its top line.
So with the business top-line, we had a decline of 66% in the adjusted operating results at the Moleskine level. The PBT Group share evolution from EUR550 million to EUR585.5 million was basically mainly increased by almost EUR18 million from PVH and EUR13 million from the Corporate and Unallocated level, then a bit more than EUR6 million at both D'Ieteren Automotive and PHE, additional contributions versus last year and then minus EUR2.
5 million and minus EUR6 million from the Belron contributions to the PBT adjusted Group share number overall. The free cash flow generation as already mentioned has been very strong, nearly tripling mainly thanks to Auto. You can see it from the chart that the blue part of the bar, EUR228.
3 million it's been quite significant. Also, PHE has been growing with, it is now at EUR116 million when it was EUR18 million a year ago. TVH grew to EUR16 million.
Belron is a little bit lower given that there were financial charges but still a very respectable EUR183 million and then Moleskine, a light negative number with EUR8 million. That's also because they paid some interest towards the shareholder loan at the D'Ieteren Group level, so it's a little bit left pocket to right pocket from that perspective. And then last but not least, before we go into the details of the specific activities, the table with our overall debt structure and cash position at the Group, the number at the bottom right is typically the number to look at most.
So we have a net cash position of about EUR1 billion, almost EUR1.1 billion at the Group level. If you extract the shareholder loan is about EUR800 million.
It's because we actually paid EUR200 million to our shareholders and received dividends from Automotive and from TVH in the first part of the year. You may also recall that we mentioned our investment in the Supply Chain Finance Fund from Credit Suisse when we discussed this in May. We have now actually received an offer from UBS to settle the outstanding amount.
We have decided to accept that offer, which has basically allowed us to recover close to EUR80 million of the outstanding investment. But it did basically lead to an additional impairment charge of EUR15 million at the level of the Group for that. Now, as I talk about it, it's not in the summary here, but we'll talk about it later when we talk about Moleskine.
Moleskine, we have also done an impairment at the Moleskine level for about EUR130 million. I think it's also good when we talk about impairments at this point in time. Then going through the detailed activities, I will take Belron for myself and then hand on to my colleague for the other activities.
The Belron top-line growth I already mentioned is 6.7%. You can see on the table on Page 11.
It's mainly organic growth, 5.9%, a little bit of acquisitions, 0.7% and a little bit of foreign exchange support of 0.
1%. The geographical split has been quite heterogeneous. Here you can really see it on the left side of the chart.
The US has been quite flat, plus 0.7%. The volumes were really not there in the first half of the year.
However, the Eurozone has done particularly well with plus 18% in overall growth and plus 16.9% in organic growth. And the rest of the world has been plus 9.
2% organic, 9.5% overall. So in that sense, it's quite a heterogeneous picture where rest of the world and Europe was very strong and Northern America, in terms of top-line growth, has been a bit less.
In terms of bottom-line results. On Page 12, you can see at the margin of 21.2% is higher than the full-year margin of last year, which you may recall was at 20.
5%, but somewhat lower than at 21.9% that it was in H1 of 2023 basically been driven by those lower volume months in the US, where we had actually more than enough capacity on technicians in the US, and we actually also had quite some marketing expenses trying to stimulate demand. But the market in itself was basically softer, and so that has led to some additional cost and a bit lower margin on that end.
However, at the European level and so on the margins really improved nicely and so we keep on track in our margin development with Belron that we have and for the year and for the medium-term outlook of next year, despite this 68 basis points lower margin in H1. There's also been a bit more financial cost with the some higher interest rates, which basically explain the small decline in the PBT at Belron. But I think still very respectable with EUR560.
6 million. The adjusting items are the usual suspect, the fees from system integrators is the LTIP expenses, it's amortizations of customer contracts. I think nothing really special to note on that front.
And on the free cash flow and at Belron, it's slightly lower than 2021, again, because you have some higher cash interest and a bit of higher cash taxes. But we also have a positive working capital development and of course the positive adjusted EBITDA contribution. I think with an 88% cash conversion, this is still a very respectable number.
And actually, Belron has the end of June reached a leverage ratio of 2.8 times compared to the 2.95 times that we had at the end of December.
The latest developments of Belron are multiple but just choose a couple. We've had our own Olympic Games, if you like, in the month of June, the best of Belron, we have it every two years. It as in Lisbon this time where 1,500 people gathered to see our top technicians repair and replace windshields and sight glass, et cetera, with and against each other.
It was a really energizing event with the heroes of our business. The transformation program continues to be rolled out and to roll out the technical foundations that are now built and are being launched in more and more regions and functional areas. The responsible business strategy is also pursuing very nicely to continue to have a 97% recycling rate.
And then a global training program has been set up for the first time. It's a way to basically accelerate the development of future managerial talent at the level of Belron as well. In terms of our outlook for Belron, we have not made any changes.
We stick to the mid to high single-digit organic sales growth and to the continued margin improvements over the entire year beyond the 20.5% of last year on track to go to our 23% ambition of next year at least and also the free cash flow remains at high levels. And with that I hand over to Edouard for D'Ieteren Automotive.
Edouard Janssen Yes, hello and good evening, everyone. On D'Ieteren Automotive, also very solid results in the first half of 2024. If we talk about the market for a second, the market, the Belgian market declined slightly of more or less 1%, 0.
9% year-on-year in the first half of the year. But in this environment, D'Ieteren Auto had overall market share increasing by close to 1%, 97 bps exactly, leading it to 23.8%.
This was mainly driven by Skoda and Audi's performance in the first half of the year. In terms of the number of vehicles delivered in this first half, we are talking about 68,000 units, so a slight increase compared to last year of 2.7% and overall the top-line, so the sales of D'Ieteren Automotive have increased by 4.
8% year-on-year, supported mainly by volumes as well as price/mix and other mobility services. Important to flag here the development of retail activity and after-sales activities as well, which have developed together with the number of vehicles delivered. The margin has progressed well up to 5.
5%, largely driven by the sales mix. And finally, as Francis already highlighted, the free cash flow has been very strong in the first half of the year, up to EUR228 million compared to a slightly negative, minus EUR21 million the first half of last year. If we move directly to slide 19, a few elements about the market.
First about registrations in the new cars market in Belgium, new energy share in the market mix continued to increase from 49% to 50%, close to 52%. And D'Ieteren Automotive remain the leader in full electric vehicles in Belgium with a market share close to 21%. The business segment, important to highlight as well that the business segment share in new car sales declined slightly to 61% of the total, which signals a return of the B2C customer to the market.
And finally, the SUV mix, we can see has continued to grow compared to last year slightly from 54% last year to 56% in the beginning of this year. And if we look at the detail of the -- how this market share gain was delivered in the first half of the year, we see indeed that the main progress and development came from Audi and Skoda with Volkswagen being stable. If we look more into the detail in Skoda, it was various models such as Enyaq, Octavia and Kamiq that performed well and that Audi, it was mainly the A3, the Q3 and the Q6.
And in the second half of the year, we can say that the launches of various models such as A6 or the E-Macan from Porsche are also promising. As we said, SUVs are developing well. And in terms of New Energy, D'Ieteren Automotive remains the leader in full electric vehicles with 20.
8% market share. If we look in more details at the H1 results. So like we said, market share gains and the good sales mix which have driven strong results.
When we talk about the outlook, we will elaborate a bit further on this. As we said, new vehicles delivered have increased slightly at 2.7% and external sales have increased 4.
8%, leading if we look at the adjusted operating result to a strong increase of 7.6% and an adjusted operating result margin increase of up to 5.5% from 5.
4% in the first half of last year. This evolution and this progression was mainly driven by the sales. Adjusting items important to flag actually adjusting items in operating results which were at minus EUR35 million primarily related to the cash-settled share-based payment expense recognized as part of the LTIP, Long-Term Incentive Plan.
Going on as already flagged by Francis, very strong free cash flow delivered by D'Ieteren Auto in the first half of the year. Of course, as we said, progressively adjusted EBITDA which allowed for that and a positive change in working capital. If you remember, in the first half of last year, we had a negative change in working capital of around EUR100 million, which this year in the first half was strongly counterbalanced by a positive number of EUR112 million.
As we said, strong progression of the EBITDA of around 11% year-on-year and a decline in CapEx versus last year's investment in Poppy's fleet, less also some acquisitions that were delivered last year, all of that together, which has delivered this strong free cash flow for the first half of the year of EUR228 million. In parallel with this, we see clearly the deleveraging of D'Ieteren Automotive which has happened. If we look at the end of last year in June, we were at EUR310 million of net debt which had already increased to EUR250 million at the end of December and we are now only at EUR83 million.
Of course, this is related to the strong free cash flow generation and the reduction of the working capital. In terms of latest developments and outlook. Important to highlight that the order book of D'Ieteren Automotive continues its normalization and it, as you know, and it was around 33,000 vehicles at the end of June.
Important to flag as well on the sustainability side, that D'Ieteren Auto won the Ecovadis Gold Award for its overall approach in sustainability. And finally, D'Ieteren Auto has submitted its carbon emission reduction targets to SBTi. As a reminder, this commitment includes a 2030 target and a 2050 target and D'Ieteren Auto is committing to a 42% reduction by 2030 for Scope 1, Scope 2 and Scope 3 with 2023 as a base year and net zero target in 2050.
In terms of outlook, as we have discussed, the Belgian market is expected to slightly decline compared to 2023 at 460,000 new registrations versus last year 476,000. In this environment, after a strong 2023 and a good first half of the year, we expect sales to be broadly flat versus 2023 while given the strong performance of H1 and the good development of the year, we are slightly increasing our outlook on adjusted operating results margin which is now expected to slightly increase versus the 4.2% which we had reported in 2023, mainly supported by the sales mix as we have already said.
And finally, we expect free cash flow to continue to improve further from 2023 level of EUR140 million. And now I will pass you, PHE. Nico? Nicolas Saillez Hello.
So PHE has a strong start of the year, so revenues came in at EUR1.387 billion. So it was 7% increase compared to last year, 4.
2% organic, and the rest from acquisitions. Growth in France was 3.7% but that's well ahead of the market.
So we see PHE continuing to gain market share in France as they did in Spain, Italy, and the Netherlands where organic growth was quite nice. So the adjusted operating result was at EUR132.4 million that's the flat margin compared to last year at 9.
5%, resulting from positive top-line performance, obviously a profitability improvement from international, and obviously some cost containment initiatives, specifically in France where obviously the cost basis was inflated by the recent inflation index. So, adjusting items was EUR33.6 million as usual, composed of amortization of customer relationship recognized during our PPA on one side and on the other side, the LTI provision.
The PHE contributed EUR84.4 million to our adjusted PBT, which was 8.2% growth.
The free cash flow was quite decent. Equity free cash flow was EUR116 million. That obviously was a massive improvement compared to last year.
As you can see in the table on Page 27, it's obviously driven by the very strong EBITDA, the control on CapEx and on working capital, specifically the fact that we've grown on the non-recourse factoring, which was exactly the opposite of what we did last year at the same time. The net debt declined slightly to EUR1.093 million thanks to the strong cash flow generation that I just mentioned, and then coming up with a leverage ratio of 3.
2 times, which was obviously lower than what we announced at the end of 2023. In terms of latest development, as you know, we've refinanced the debt that was back in January. It was EUR960 million TLB with seven-year maturity.
In that context, we got a nice upgrade from S&P to BB minus and a stable rating from Moody's and we had the opportunity also to organize for those who were lucky enough to be there, a D'Ieteren Group PHE Day at Logisteo, which is their -- the Central Logistics facility near Paris. In terms of outlook, we don't charge anything, so we still expect mid-single-digit organic sales driven by market share gains and a normalized pricing environment and adjusting operating margin, which should be flat compared to 2023. Edouard, back to you.
Edouard Janssen Thank you very much, Nico. So if we go to TVH, as you remember, we expected a normal semester in H1 compared to H1 2023, which had experienced a significant cyberattack. And the market environment in H1 has been characterized by some softness in the environment in the market, resulting in slower growth.
Indeed, TVH posted total sales of close to EUR850 million, representing 6.8% year-on-year top-line growth, of which 6.5% organic and 0.
3% external. However, on the margin side, adjusted operating results came in at a 34% rebound, representing an adjusted operating margin at 16.8% compared to only 13.
4% last year, mainly driven by revenue growth and strict containment efforts in operating expenses as well as an insurance indemnity following the cyberattack in 2023. On adjusted profit before tax, Group share, we can notice a 48% increase compared to the same period last year, also helped by lower financial charges driven by exchange gains. And finally on free cash flow, some progress compared to last year with a 41% -- EUR41 million positive number, mainly driven by improvement in operational results, lower cash taxes and lower capital expenditures offset by some acquisitions as we'll talk about in a second.
Net debt was relatively stable as driven by these cash flows. On the next slide, if we talk about profitability, we see indeed the strong rebound in both adjusted operating results and adjusted PBT by 34% and 48%. As we have explained in an environment of more modest revenue growth than anticipated earlier in the year, but strict containment efforts in terms of operating expenses and the insurance indemnity on the cyberattack.
However, strong rebound on the margin and the operating results. Finally on the free cash flow as we have highlighted too, free cash flow has improved significantly compared to last year with a total amount of EUR41 million compared to a negative number of around minus EUR19 million last year, driven mainly by the progression in EBITDA and lower net CapEx leading to a stronger trading cash flow. Important to flag as well that on the acquisition side, PVH has done an acquisition -- has spent a bit more on acquisition including an acquisition in Turkiye in spare parts for the agricultural equipment market.
In terms of outlook, if we go to the last slide, important to flag that following the performance of H1, we are lowering the organic top-line growth which is expected now to a mid-single-digit percentage, but we are increasing the outlook in terms of adjusted operating results margin which is now expected to improve by around 150 basis points versus 2023 and the level at the time was 13.6% and we confirm the outlook on the free cash flow. And back to Nico for Moleskine.
Nicolas Saillez So, Moleskine had a bit of a difficult first start of the year. We alluded to it during our first quarter trading update where we announced some adverse policies at some e-commerce platform. That has improved.
But having said that, we also had an unfortunate cut-off date from a large order and continuing weakness in what we consider is a more cyclical sales channel for Moleskine, which is the strategic partnership. So you've seen Moleskine sales declined by 8% year-on-year at EUR52.9 million.
So mostly in the wholesale, mostly in the US, with, as mentioned before, also the strategic partnership down 6%. The adjusted operating results stood at EUR2.2 million, obviously negatively impacted by the decline in revenue and despite some cost-cutting initiative from management, margin was under pressure at 4.
2% compared to 11.3% a year ago. So the PBT Group share came in at EUR7.
1 million negative. Free cash flow was at -- was declined from almost EUR6 million to minus EUR8.1 million.
But that's mainly due to the fact that this year, we asked Moleskine to pay a cash interest of EUR9.6 million in June. And it is something we have done annually in the last years.
And it was also obviously the decline in adjusted EBITDA as I just mentioned, and a cash payout of EUR2 million relating to a past provision. The net financial [impact] (ph) was EUR279 million. That's the shareholder loan level that we have with Moleskine.
So there was on the several latest developments, a few brand's elevation initiatives that were really nicely welcomed by the market was a detour in Milan that had an important success and as you've seen, the direct channel strategy, e-commerce and retail are performing quite well and it was a recent -- good partners, strong partnership between Moleskine and the Van Gogh Museum. In terms of outlook, we have changed. We've slightly changed the outlook.
The sales are now expected to grow, but mid to high-single. It was previously low-double-digits. And whereas we had hoped that the operating margin would improve by 150 bps, we think today that a more realistic view is that they would indeed improve but slightly increase versus 2023.
So to be extremely prudent from an accounting point of view, we've decided to take an impairment of EUR131 million on the assets. It really to reflect a prudent accounting vision. We are -- we remain fully convinced about the development potential of Moleskine and the strategy that we're following together with management.
A very quick word on corporate and unallocated, just to highlight higher adjusted PBT from corporate and allocated mainly because thanks to the cash position and higher interest income, this has increased from EUR8.6 million to EUR22 million in the first half of the year. Francis Deprez So as wrapping up before we open it up for questions, solid performance to the adjusted profit before tax.
A great free cash flow generation almost three times as much as a year ago. A confirmation of our mid to high single-digit PBT group share outlook for the entire year and at the beginning of our call, of course, our once-in-generation shareholding reorganization that we have announced with four important components. It's an agreement that sets us up optimally for the future and that the management can only applaud that, an exceptional cash return to reward all shareholders.
A financing structure that is built on our strength as D'Ieteren Group and a confirmation of our long term investment strategy going forward. Now, maybe one last note is that of course the PBT group share KPI that we have confirmed in our guidance now is of course still in the current setup. Once the transaction on the once-in-generation shareholding reorganization, hopefully taken place in the course of the fourth quarter, we will of course give an update on the exact impact that may have on the PBT group share, given that some of the financial charges made for some part of the year to have an impact.
And now, I actually open up the floor to any questions and give it back to the moderator. Question-and-Answer Session Operator [Operator Instructions] And your first question will be from David Vagman at ING. Please go ahead.
David Vagman Yes, good evening, everyone. I hope you can hear me well. Thanks for taking my question.
The first on the transaction, a bit unsurprisingly, what is the basis for the transaction price? So the EUR223.75 million it's quite precise. Or have you been, if you can tell us a bit more? Or have you been assessing the value of D'Ieteren? Basically, what has been the thinking on the discount? The discount to the fair value? So that's my first question.
Second, on the structuring of the transaction, what triggered the decision to pay this exceptional EUR4 billion dividend? So you've been over the last few years, in particular from Belron that you've been rather accumulating cash for participation and then from participation and then investing, but mostly accumulating, so on the EUR4 billion, is this purely related to the transaction between the two branch of the family? Or was there a view that the share was undervalued or is it that you lack investment opportunities and indeed related to the investment opportunities, can you -- can we make a link between the impact of these EUR4 billion dividends and the capacity to support the participation? So the current participation for strategic M&A, for instance, was it juxtapose. So and the very last point, right now, I think, so Francis, you said that you will rebase the dividend for next year and to be kind of at least stable, what does it exactly mean? It will be decreased. But is there a change a bit in the philosophy, do you intend to pay more of the cash flow you receive from participation or rather less to happily deliver at the organic level? Thank you.
Francis Deprez Okay. Thank you, David, for those questions. First, on the basis of the transaction prices, of course, the prices have been set between the two family shareholders themselves, and we have not, as management been part of that discussion or that fixing of that price.
So it's basically something that was really done between them at their level. And so we don't really have any particular thing to note on that particular price. On your question of the EUR4 billion, well, it's of course an opportunity for us to return cash to all shareholders and in that sense, thank them for the great returns that have been generated over the years to come.
So that's, of course, part of why this is happening. At the same time is of course also something that will allow this shareholder realignment to happen. Now, we, of course, are always on the lookout for growth platforms and investment opportunities but there was not necessarily something where on the very, very short term, I would say, we had to do this, so we could actually also free up our existing cash reserve to be part of this EUR4 billion.
And so in that sense, it's a bit of a combination of factors, I would say, that allows us to do what we're announcing here tonight. And on the third question, sorry, the rebasing, I don't know whether Edouard, you want to comment on that or? Edouard Janssen Sure. Yes.
So, yes, as Francis has explained on the rebasing of the dividend, our debt, let's take a step back for a second. On the debt level at D'Ieteren Group, there will be two tranches, one, all right, one at two years and one at five years. And our goal will be to repay the two year tranche within a two-year period.
And so in order to achieve that, we will definitely have a cash and deleveraging focus in the coming, in the short term. And part of that will -- at the same time, in order to define the dividend that will be paid next year, one of our goal will be to rebase such dividend, so that we can restart with a dividend policy that will be stable or increasing as the business and the activities develop going forward. So our goal indeed is to remain to something, as we said, the strategy in the medium to long term does not change.
And so these are the two main elements to take into consideration. David Vagman Would you have a special level to accelerate the deleveraging and then the number rebasing, so to speak, or is it just like really like a one and a single, basically new dividend policy come after this exceptional one of course? Edouard Janssen Yeah, exactly. It's more like one rebasement, one rebasing, if you like.
We haven't had today, of course, when we know the results of 2024 and we know the free cash flow outlook and all these things with a bit more precision than six months later. But this is something we'll discuss in March and then have proposed for a decision to the General Assembly in May, June of next year. David Vagman Okay, thanks very much.
And maybe very quickly on Belron, if you can explain the drivers of the margin in H1, what has been impacting the margin, and all these drivers, all this should play out basically in H2. And I'm thinking in particular of the geographical split between Europe and North America. Maybe it's not the most important? Francis Deprez Yeah, the Eurozone has really seen a nice margin development with all the usual suspects of driving that margin forward, I would say.
And they had been supported by also volume. As on the top line, the mix between volume and price had a bit less price this year than in the years before because this kind of inflation wave has been behind us, and it's the volume that has made a difference. So in Eurozone, we had nice volume and so we could have nice productivities, we could fully leverage the capacity at hand.
We didn't have to do much marketing expenses to keep working on our market share. And so you had actually everything aligned to. And of course, the transformation program started playing into that as well.
I think the reason why the margin of EUR21.1 million is somehow lower compared to the EUR21.9 million of H1 of last year is specifically linked to the lower volume months in the US, where we had anticipated some more volume.
The winter was a bit mild and we've also seen some, let's say, claims avoidance in certain groups and segments of certain customers that didn't want to use their insurance necessarily for, let's say, a small crack in the window, or said, well, I'd rather pay for it in cash and things like that. And so that has made the market softer in the US. We had the capacity, we did to the marketing spend, and so the positive margin evolutions that we continue to have in the US around transformation, around all the other goodies and even in productivity, et cetera, were counterbalanced by some negative links to that marketing and to that, let's say, too high capacity that we had in place at the beginning of the year.
And so the marketing expense, of course, will help more for the second half of the year because you can do lots of marketing in May, June, it helped you in July and August, et cetera. And so for the remainder part of the year, we do not necessarily anticipate that the US will suddenly see a massive, massive growth in volume, but however, they will be able to have adapted their capacity in line with the real demand. They have been able to also tweak a number of things on productivity.
And so there are a number of initiatives within the US going on to work on the profitability for H2 so that we can, and that's why we're confident to stick to our overall guidance to have a positive margin evolution for Belron, for the entire [Technical Difficulty] with our expectations for this and for next year. David Vagman Thanks very much. Operator Thank you.
Next question will be from Michiel Declercq at KBC Securities. Please go ahead. Michiel Declercq Yes, hi, and thanks for taking my questions.
Bit of a follow-up on David's question on the shareholder deal. I think in the past, of course, you were always of the opinion not to have debt on the holding level. Okay, I think in light of this transaction, it makes sense, but just wandering a bit and you mentioned that now in terms of potential deals, the opportunities are maybe a bit lower.
However, should something arrive in the first two or even five year, looking at the maturity that you mentioned, is there -- or would you be willing to further increase that level, or do you have room to do that if the right opportunity arrives? So that would be the first question. Second, also on the leverage at Belron, you will now be at 5.5%.
Is there a new target leverage ratio that you have in mind? Would that be 3% or the 2.5% that was cited previously? And then lastly, also on Belron, on the operational front, you mentioned that there were some, that there were less insurance claims. Can you explain that to me a bit more clearly? Because people didn't want to use their insurance for a small crack, but how I understand that if it's a small crack, then it becomes bigger, and then you have to replace it either way.
And then maybe also on the idea to keep the technicians staffed. Is there already an idea on what you will be doing by the end of this year, as you will have to make the same decision again? Of course, now you're a bit unlucky with the mild weather conditions, but do you already have some visibility on how this will play out or your decision will play out later this year? Those will be my questions. Edouard Janssen Okay.
On the future deals, on your first question, as Edouard mentioned, the debt that we are going to take on here at D'Ieteren Group level will be structuring two different instruments. One would be short-term dated, and the other one would be five-year amortizing. The short-term dated we do intend to reimburse quite quickly, so it will not prevent us from seizing acquisition opportunities when they arise, whether it's at the level of our portfolio or portfolio companies, or whether it's at the level of D'Ieteren Group.
That will be my first answer. Francis Deprez Yeah, exactly. On the 5.
5 times leverage ratio at Belron. Well, the idea is, of course, to develop back to the levels that we have known currently. I would say this is ultimately the type of medium-term evolution we would have because that basically opens or basically allows you to have a maximum amount of optionality, I would say.
So the idea is, of course, that the 5.5 times will go down in the direction of current levels. Edouard Janssen Can I add something to that? Francis Deprez Yeah, of course.
Edouard Janssen Yeah. We have added one slide on the strong deleveraging history of -- in recent years, in line with the dividends which have been paid either in the form of ordinary dividends or dividend recaps in the past, just to illustrate, because we don't do a specific deleveraging commitment. But like Francis said, clearly the direction of travel is to go back to close to the current level in terms of leverage at Belron.
Francis Deprez Exactly. Yeah. So then you have a specific question on insurance claims and how some consumers react to that.
Well, like in many other countries, the insurance premiums have gone up also in the United States, and some of the people we have seen in the market overall have been a bit more hesitant to declare a crack or something in D'Ieteren. And you're absolutely right. The longer they wait, the worse it gets.
But in the short term, they have either shown some more postponement behavior and saying, I'm not going to act on it or I'm going to pay cash for it because otherwise I may have the risk that my premium goes up again and so I'd rather pay cash for it. And so, as you know, we are mainly focused with Safelite on the insurance market in the US and we're a bit less focused on the cash market in the US. And so relatively speaking, we may have a bit passing beside some of that cash volume because it was not necessarily so much in our focus.
Now, going forward, we are, of course, interested in the cash market in the US as well. And so this is a focus that we will continue to focus on in the combination of insured market and cash market were ideally placed. In terms of number of technicians and capacity of technicians towards the fourth quarter or preparing even for the first quarter of next year, again, the budgeting exercise at Belron and at Safelite is actually happening as we speak, September, October are typical months in which that's being done.
And so for the moment, it's a bit too early for me. I don't have the feedback yet to say how exactly they will deal with planning the capacity for the first month of 2025. So that's a bit too early to say.
Edouard Janssen Yeah. Just to add one element is to say that given the relative softness in the first half of the year in the US, there is some action, as Francis explained earlier, which is being taken in order to adjust, let's say, capacity with demand and protect the margin. Some action, I would say a lot of action to also increase and improve the margin.
Francis Deprez Definitely, yes, a lot of action. Absolutely. Michiel Declercq Okay.
Thank you very much. Clear. Operator Thank you.
Next question will be from Alexander Craeymeersch at Kepler Cheuvreux. Please go ahead. Alexander Craeymeersch Hey, Alex here from Kepler Cheuvreux speaking.
Just also a small question. On the deal side, is there a lockup on the level of Nayarit? That would be the first question. And then the second question would also be on the deal, of course, you plan to distribute this special dividend.
Is there any fiscally friendly methods that are available to distribute this? And then on the business side, I was just wondering, on Auto. I mean, this margin increase, I think caught you by surprise. But I'm just wondering how that was able to happen, because you clearly got it for lower margins, but you already had a good view on the mix going forward.
And then on the B2C market increase in Auto, is this purely related to the EV subsidy? Because I believe that that one is going away next year. So I'm just wondering, how we need to look at that. And then maybe on the elephant in the room with the debt raised at Belron and then the extraordinary dividend.
Do you have maybe a word to say on the strategy of CD&R now? Because in the past, I think it was hinted that they look for liquidity after their lockup expired early this year. So I'm wondering if maybe you have something to say on their strategy as well. Thank you.
Edouard Janssen Can I ask what you originally -- your first question? The lockup at Nayarit. What kind of a lockup..
. Alexander Craeymeersch Yeah. Is there any -- because you mentioned that the family is going to pave the way or build a path forward, a.
And I'm just wondering if there is then also any lockup at the level on Nayarit? Amelie Coens Hello, this is Amelie Coens. Yeah, we are not aware of any lockup that has been undertaken by the Nayarit group. Francis Deprez Okay.
On the fiscally friendly method. Edouard Janssen On the tax question, I would just say that for minority shareholders, tax treatment will depend, of course, on the country and the structure. So the best would be to contact a fiscal advisor, as in several instances, withholding taxes may or can be potentially partly recovered.
Francis Deprez All right, then you had a question on the auto margins and why we changed now our view on the margins. We had always said at the beginning of the year that we had a very good visibility on H1, but not yet on H2. And so now we're, of course, six months later.
So now we have a better view on H2. And that has basically -- has allowed us when we look at what we've realized in H1 first of all, and also now on our visibility that we have for H2, that we can actually change our guidance from a slightly eroding margin to a slightly increasing margin at auto. So that's basically what's behind that discussion.
Then, on the EV subsidy, I wasn't entirely sure what your question was. You wanted to know whether that subsidy disappears. Something will happen to our market share or to the market.
Alexander Craeymeersch Well, to the market, of course, to the market. I'm not assuming that it would change the market share, but of course, we saw a significant increase in the B2C market. I'm just wondering if that EV subsidy, of course it helped, but to what extent it helped and to what extent you think it will be sticky? Thanks.
Francis Deprez So the B2C portion has been a little bit going up again, by the way, good news, because I think they were a little bit absent the years before. I would not attribute it entirely to the electric vehicles, by the way. We have actually seen quite some demand also for combustion engine motorization in the B2C market, and we have some models there as well.
So it's really not been attributed only to that. And I would not even say that the subsidy from the Flemish government has made a huge difference in the B2C electric market at this stage yet. But so there is a bit more B2C.
That's true. But don't forget that the majority of the market remains B2B. And actually, we've seen that that continues to be the case.
And so -- and that's the real driver of the electric vehicle market. So the split that you've seen of the almost 50% new energy cars, of which 25% so a quarter of the total market is now electric vehicles is still very much driven to a large degree by the B2B market and that continues to be the case. Now, also the market shares within B2C in electric has been going up, but from very, very low percentages to somewhat higher percentages.
But they're still, I would say, still in the higher single digits. They're not necessarily a lot higher than that yet. So all that to say that it's still a mixed demand for different technologies in the market, and that's good because that's probably what's going to be around for the years to come as well.
And then you asked on the Belron, the CD&R strategy with regards to this. Well, of course, this change in the financing at the level of Belron, which will be launched in the weeks to come has been a joint decision by all shareholders around the table at the Boards of Belron, including therefore CD&R and the other shareholders, et cetera. So wholesalers have been part of that.
Now, if the financing happens and then there's exceptional dividends to the Belron shareholders happens, this of course gives some liquidity to everybody, including the other shareholders. That doesn't change their medium-term interest to have a real liquidity event, of course, at Belron, but at -- let's say, gives them a bit of short-term access to liquidity. And for the rest, there's nothing changing.
Also in the near term outlook for Belron, nothing is changing. All options remain on the table as they have been in the past and that will continue to be the case with or without this announcement of tonight. Alexander Craeymeersch Okay, thank you.
And if I maybe have -- can I have one small additional question, which is on TVH. You acquired a business in Turkiye. Of course, Turkish lira brings an additional layer of complexity to manage their working capital, which was already a working point in -- for TVH.
I'm just wondering, with their whole market still ready for consolidation, I'm just wondering what the thought process was there. Thank you. Francis Deprez Well, Turkiye is an interesting market overall, because it's not only a big market in and of itself, for instance, for agricultural equipment and so on.
And so with that, we can strengthen our domestic position, as in that market, and be a more credible player in the Turkiye market. But on top of that, you also have a lot of manufacturing of spare parts in the Turkish market and therefore Turkiye is also an interesting export market from Turkiye to other clients in other markets. And so at the same time, it basically helped us also get access to spare parts that fit right up the alley of TVH.
But that can be served or used to clients all over the world. And so for us, it's an opportunity that allows us to do, I would say, two flights in one go, so to say. And we are happy enough to be able to, as part of this acquisition, to continue to work with a very strong management team over there in Turkiye of people that have been in this business for quite a while, who know the market inside and out and who know the export market inside and out.
And so we're looking forward to collaborating with this very entrepreneurial family and have them join the TVH family now. Alexander Craeymeersch Okay, thank you, and congrats on the nice results. Operator Thank you.
Next question will be from Kris Kippers at Degroof Petercam. please go ahead. Kris Kippers Thank you.
Yes, good evening, Chris Kippers. I hope you can hear me well. Thank you for taking some of my questions.
A couple of ones remaining. Firstly, TVH, could you share with us regarding the more softer market situation, which segments you're witnessing this? And then linked to that, of course, we knew the cyberattack results that some clients realized their high dependency on TVH. So could you share with us whether indeed there is some lost market share and has this now stabilized? That's my first one.
And then secondly, could you share also with us the market situation on Belron currently in the US? Because I think some peers have been vocal on that. And then linked to that, of course, ADAS penetration, we still see it going up quite rapidly. Is there any risk this could slow down from the current 41.
3% levels? And then an interesting one, of course, is CMD you will keep next year. Could you share already with us what the focus will be on? Or is that too early? And then question still on the leverage together with the interesting Capital Markets Day we had at PHE. Suppose tomorrow there will be a major player.
You alluded to the Tier 1, Tier 2 players you made up in the presentation back then. What if there is a big one showing up? Would that be a risk for the group leverage to be too high? And would you, for example, have the optionality to create some leverage at auto, for example? Or is it not an option? Thank you. These were my questions.
Sorry. Perhaps a long list. Francis Deprez Sure, sure.
All right. So TVH is the softer market, which segment? Well, it's a little bit across the multiple segments, but of course, our starting position is different. In the NPA market for the materials handling equipment, you do see that there's some less activity at some of our customers or the customers of our customers, and therefore a bit less breakage and therefore a bit less demand from our side.
And we are of course market leader in NPA. And so therefore you have some effect linked to that. In the construction equipment, you -- the market may be with softer position is that one of an attacker.
And there we continue to see nice growth numbers, actually. So in that sense, for us, the effect when you have, let's say, softness in multiple markets plays out the most on the NPA side and in some of our regions around the world, in particular the US, for instance, our NPA is a little bit more represented than the other segments in Europe. We have really a more mixed, let's say, representation of verticals.
And so we can be a little bit more robust. So it's a combination of factors where you see the softness playing out. The -- you also asked whether the post-cyberattack, the fact that certain customers saw that they were very dependent on us and that had changed and we lost some share of wallet so to say.
That's actually going quite well to not only stabilize, I think we've gained back here and there some share of wallet again. Now, at the same time, when people were very happy having found an alternative supplier at a cheap price and with a good service, they don't necessarily have to switch back. So we have to really fight for it and do that step-by-step.
So it's a very gradual process, I would say in that regard. In terms of the Belron US peers. So what's going on in the dynamics in the market, in the US? Any comments you want to give on that? Nicolas Saillez We've seen the collision guys and driven brands announcing indeed some weakness, soft market and claim avoidances.
We think it's a tail effect of high inflation that was passed by insurance company on premier in 2023. It's situation that is improving in 2024, but the market needs to absorb that. It is one of those moments where temporary, there seem to be pockets of weaknesses here and there.
We recognize that as well. I mean it's been also part of Safelite story. Having said that, we think the market will absorb it.
So we do nothing structural today. And we think for a comparison, if you want to make one, there are some of the trends that affected the peer that indeed do affect Safelite in a relatively similar manner. Francis Deprez And as you know, we didn't have many contracts up for renegotiation this year.
Of course, next year that will start happening again as well. And given that those premiums have been going up at the insurance company, this allows us again to go into discussions with the insurance industry to continue to develop positively again I would say on that front. The ADAS penetration question, no particular comments.
Edouard Janssen It continues to develop, and I have -- had communicated some time ago compared to the end of last year. So positive development on the ADAS penetration. Of course, very satisfactory for Belron.
And then the CMD next year. What's the focus? Yeah, so, I mean the CMD next year, the focus, it's three years after the previous one. And the goal will be to hear the bid -- the plan, the business plans, and to hear the management of the different activities and an update of ourselves, I would say, of the Group.
Clearly, I mean, given the transaction we have announced today, we will definitely talk a bit as well about how this is going. We will have more clarity by then on, I mean, subject to market conditions, the financing will have been achieved. The transaction will have been achieved in Q4, subject to market conditions.
And so it will be a way to go deeper into the Group and its activities. I don't know if you have particular questions about the CMD, but depending on PHE, is there any deal to be done? Nicolas Saillez So we'll find, as I mentioned, PHE is quite a decent liquidity, so cash available for acquisition and also some debt capacity. So that's the first part of the answer.
The second part of the answer is indeed there is a large or larger transaction that creates value where there are synergy to be exploited, we'll find a way to structure it. That's what we pay for. Francis Deprez Exactly.
Kris Kippers Okay. Thank you very much. Francis Deprez Thank you, Kris.
Operator Thank you. Next question will befrom Jeremy Kincaid at Van Lanschot Kempen. Please go ahead.
Jeremy Kincaid Good evening, all. I have three or four questions as well. Firstly, on the deal, you obviously mentioned in your presentation that the consolidation into -- or concentrating ownership into one single branch will create value for all stakeholders.
Could you just articulate how that will occur or what will change, or how that value will be created for all stakeholders? Secondly, do you -- or the SPDG stake will obviously be sold down over the next five years? Will that be sold to the Nayarit branch as well in the future, or will that position be sold through the market? And then finally, just on this deal, could you provide some color on some of the potential debt costs, particularly for some of that shorter term debt? And then just finally on Moleskine, obviously, there's a bit of a business reset here with this deal. I'm just wondering why you decided not to sell Moleskine in the process. Those are my questions.
Thanks. Francis Deprez Okay. Well, the value creation for all our stakeholders having one family brands instead of two.
Of course, in the past, the two family branches worked very well together. And so I think our successful development over the last year is the testimony to how it works very well together. But you can, like in any family, anticipate, you can always anticipate -- we cannot anticipate early enough, we would say, what might happen when you have a transition between a seven and eight generation x years from today.
And so this basically simplifies things. It simplify things from the point of view of Nayarit towards its transition between seven and eight generation and supervising towards PDG from a transition between the seven and eight generation six years from today. And so for us, basically at D'Ieteren Group now having Nicolas D'Ieteren as the family branch that is squarely behind us for the future to go simplifies things really and that basically means we can be even more agile.
We have already been very agile, but we'll continue to be very agile. We were already very efficient. We can continue to be very efficient, but we can for sure sustain that in the decades to come.
And I think that gives us a long-term stability and anchoring with a portfolio of activities that you know that we have now built as a family of businesses in the last years to come so that we can continue to build our family of businesses. And that's good for everybody. It's good for those businesses.
And of course, one part of the stakeholders and order the employees and its customers linked to that, but it's also important to the value creation financially speaking towards our shareholders. And from a non-financial point of view. So also on all the nonfinancial elements, be it customer people, but also ESG related, this is very much in line and clarifies our governance going forward as well.
So this is only benefits to be seen from the simplification going forward. You then ask whether SPDG as it reduces its stake in the years to come, whom it will sell to at the base case is, of course, to sell that into the market or to other parties, I would say that's the base thing. So in that sense, potentially even increase the liquidity, if you like, in the D'Ieteren stock, but that remains, of course, to be seen exactly how that will unfold in the years to come.
You talked about some cost, cost of debt. Edouard Janssen Cost of debt, that's too early. I mean we will be able to provide you with more information down the line when we when we start structuring that debt and executing these transactions.
Francis Deprez Yeah. So that finalized and cleared and we, of course, give more details so that you have a clear visibility on what that all entails, and we'll provide that when it's available. And then you asked, and this is not the first time, of course, we get this question around Moleskine.
It's one of the family members in our group. And it's not because of this deal that we somehow certainly put into question or look differently at Moleskine. We're always evaluating Moleskine its own merits and its own potential.
And so that's basically what we're doing. And actually, we don't need to suddenly change our view on Moleskine because of the announcements we make today. We're looking really on its merits on a stand-alone basis and do these type of recollections.
As you have always done them in the past, are we still the natural owner. And so far, we continue to think that we are. And as long as that's the case, there's nothing that changes on that front.
Nicolas Saillez And that's the exercise we do for all of our assets, by the way. Edouard Janssen And then to reinforce that message, the it is not necessary for deleveraging, right? We expect cash upstream from our businesses.
