D'Ieteren Group NV

XBRU:DIE

Earnings Call Transcript 2018-Q2

[Operator]

Ladies and gentlemen, welcome to the D'Ieteren 2018 Half-Year Results Conference Call.I now hand over to Mr. Axel Miller, CEO. Sir, please go ahead.

[Axel Miller, CEO, MD & Director]

Thank you, sir. Good afternoon to all of you. As usual, for the communication of our results, I'm here in Brussels surrounded by my 2 colleagues from the executive team at D'Ieteren: Arnaud Laviolette, our Finance Director; and Francis Deprez, who is more particularly in charge of dealing with operational activities. We're also here with Pascale Weber, who is our Head of Investor Relations; and Jean-François Bourguignon and Emerson Dussart who are responsible for the production of our accounts.And as Arnaud will tell you in a second, we have some technical elements to understand the comparability of our accounts for the first half of 2018 compared to the first half of 2017, given in particular, the sale of 40% in Belron to CD&R, which took place in February of this year.But before we get going into that, I would like to give you some highlights about the first semester of this year. The first semester was a very positive one for D'Ieteren, with a very high level of activity across our 3 main businesses, Belron, D'Ieteren Auto and Moleskine. We experienced robust sales growth with combined group sales, which are now slightly above EUR 4 billion, that's an increase of close to 9% compared to the first semester last year.We also had a very good beat on the adjusted profit before tax group share, which was by 18% to close to EUR 155 million, and this is at comparable perimeter, and this is really a reflection of a high level of activities across the board both at Belron, D'Ieteren Auto and Moleskine.Given the high level of activity during the first part of the year, given the forecast that is backed by a very strong July and August across our various activities, our conclusion is that the guidance we have given at the beginning of the year, which was mid- to high single-digit improvement compared to last year, will probably be in the range of 10% to 15% in full year 2018 compared to full year 2017.If you look at Slide 3, you see that the good level of sales and good increase in sales is something that we see across the board. Not only at Moleskine where our constant FX, the increase was 12.5%. But also at Belron, 8.3% increase and at D'Ieteren Auto, 9.4%.The combined adjusted operating results, so if we take 100% of each and every one of our activities, including Belron, which is not the way it's reflected in D'Ieteren's account given the sale, but that's 100% of each of the activities, you see that the increase on Slide 4 is 21.2%. You have to retrieve that for an accounting treatment for the amortization of certain assets, the real increase is the one we see on Page 5, which is about 17.8%, between H1 2017 and H1 2018. So that's the global image.The translation to profit was good as well at Belron, at D'Ieteren Auto. Actually, EBITDA improved slightly at Moleskine, reflecting profitable growth, so that's a big source of satisfaction for us for a number of reasons that Arnaud will explain to you. The PBT group share at Belron is less for the first half of this year than for the first half of next year, but we keep our guidance for the full year of Moleskine unchanged, with a double-digit growth also for the PBT for the full year 2018.Given all of that, if we look forward to the end of the year, we feel -- we're definitely comfortable increasing our guidance to 10%, 15% increase. All in all, I think it's going to go in history as a very robust year for D'Ieteren and for the reason that I'm going to let Arnaud explain to you in more detail now.Arnaud?

[Arnaud Laviolette, Chief Financial Officer]

Yes. Good afternoon, everyone. First, as mentioned by Axel, we -- I need to announce 2 reporting changes. The first one is that we give more clarity on the numbers of the -- what we call the automotive distribution because we make the distinction between the auto activities and the corporate activity that we named Other. So that's one precision. The second one is the important changes in terms of accounting methodology for our stake in Belron. As you know, we have closed the transaction with CD&R on the 7th of February of this year, and this has led to the fact that we have no -- not anymore, an exclusive control on Belron, but we shared that with CD&R, and that we need from that moment to account for the results of Belron under the equity methodology.So this mean, in a nutshell, that we have taken into consideration the weighted average percentage of the tension of Belron on the first half of the year, and this gives us an average weight of participation of 64.68%, and we have rebased that -- the numbers of 2017 according to that percentage. For the rest of the year, we have ended the -- end of June, with a stake of 54.11%. We continue to have that stake in the company until the end of the year and the weighted average percentage that we are expecting to have in the full year is now 57.78%. So that will be the average weighted asset participation we have in the company. This is not offsetting the fact that at the end of the year, we'll be at 54.11%.So we've rebased the numbers when we speak about that just as numbers on that percentage to make the figures comparable, fundamentally.So let me now go through the performance of the various activities. First on Belron, as mentioned by Axel, it has been a very strong first half of the year. We have a steep increase in the number of consumers with approximately 11% increase. We are nearing in order the $10 million mark for the first half with sales growth organically at a very robust level of 11%, and the origin of that growth is, yes, markets have been favorable nearly across all our geographies with some exception but on average, we have a strong support of the market. But also what is remarkable is the continuous market share gains and especially in important countries and the favorable impact of highest mix on our top line. So it is contributing a lot to the growth, as I mentioned, we have to face some epic headwind during the period because of the weakening essentially of the dollar and of the sterling. So it is -- give us -- giving us a negative headwind of 5.1%. So all in all, we have a total sales growth of 8.3%.We've made also some acquisitions and have started to integrate them into the Belron organization. With the acquisition of CARe which is now -- we made the acquisition in March 2017 but now we have a full half year behind us. We have had also the acquisition of Maisoning in France and Laser in Australia/New Zealand.Strong performance also in additional services and in ADAS where we are calibrating more and more windscreen. We feel very favorable trend there too.We have been able to deliver so many new services. So many services with maintaining a very high level of customer satisfaction at above 82% in terms of Net Promoter Score. And also employee satisfaction level is at very good levels.The good news is that the full [indiscernible] has been positive with not just at operating results growth of close to 18% at EUR 136 million. If you take and if you deduct the additional -- well, the add-back depreciation due to accounting issues. Nearly all the countries, the top 10 countries, are growing in terms of profit with one exception. We have had to face a higher ESP charge than what was expected because of the strong results of this year, but also probably more favorable projections for the years to come. And we have also had more central costs essentially due to the once every 2 years organization of the Best of Belron event and the higher logistic cost at Hasselt in Belgium.So very strong results, in general, as I mentioned. We have had a few adjusting items during the first half of the year with, essentially, the transaction bonus that we paid to the management for the effort and what they have achieved with what we call the blossom transaction. We've also had to support additional professional fees for the transaction and you will see also at the consolidated level for Belron and D'Ieteren, the big consolidated gain, not only on the disposal of our 44 -- of our 40% in Belron but also the consolidated gain on what we think Belron -- we have revalued that stake to the level of the value of the transaction with CD&R.Good progress on the cash flow, very good progress on the cash flow front. We told you, the last euros that we were investing quite heavily to support the growth, especially in the U.S. So now, we are starting to have, as you know, what we -- the seeds we planted. So you see a nice progression in terms of EBITDA, increased interest base, but that is due to the increased leverage after the refinancing for the whole organization in second half of last year. We pay higher taxes because we fundamentally changed the structure of the group -- the fiscal structure of the group and also positive evolution of working capital to a relatively normal level and lower CapEx due essentially to lower CapEx in the U.S. because we are quite well-equipped in [ plans ], and we are very selective in all our investments.So positive free cash flow generation. And you see that the net debt at the end of the period is at a reasonable level, I would say, for -- after the re-leveraging operations of last year, we started at around 4.25, and we are now at 3.57, and hopefully, more room to improve that leverage going forward.We put in place a new Management Reward Plan. This is really important for -- well, I think this is defining even for this organization. We made them, really, shareholders of this company so this involves 250 key employees of the group. It's an important effort -- financial effort that they have produced, too, investing $21 million. And so they became shareholders of the company. And we have put in place favorable incentive schemes with asset shares, which can give the management additional returns and which could have for us additional economic dilution if in 4 to 5 years, the returns are as we expect them.In terms of accounting method, I already mentioned the fact that we, after the closing of transaction, we have, for the first half of the year, an average -- weighted average participation of 64.68%, and the updated total for 2018 after the first half of the year, we were initially expecting a moderate organic growth but now, we see it more at around 10% for the full year, and we had expected a high single-digit increase of adjusted PBT, and we see it more around 15% for the full year, and this is assuming dollar-euro rates of 1.18 for full year.We had also some start-up and transaction costs last year in H2 and we are not expecting to have them again for this year because we have already had started some investment -- well, in '17 and in '18, and we are not expecting additional start-up and transaction costs for the second half of the year.Now let's move to D'Ieteren Auto. We have had a robust solid market in general because the Belgian new car was up 2.6% in terms of registrations, so it is positive market environment. We have, within that environment, been able to increase our market share. That is a promise we did to the market already a few years ago. So no, we see our performance commercial and performance improving. And we see that in important brands of our portfolio, especially Volkswagen, Fiat, even if Audi and Škoda have declining margin, but margin declining margins. So across the group and the brands' strong -- very strong performance.What is also very encouraging, we -- when I say, we, or the Volkswagen Group was a little bit late or behind the curve in terms of SUV development and launch. Now we have really a full-range offer of SUV, the large one, the medium size one and the small one, and this is very helpful and supportive for our sales or volume but also for our margin. You see the steep increase of SUV sales, 62% increase, that's massive versus the first half of 2017, and so the momentum there is very positive. In SUV, in all car mix represent 28% of the registration -- across the registrations.In terms of new energy engines, important progress is there, still relatively modest because when you look at the total market, that category of engines, it only represents 6% of the new car registrations, it's 7% with us. So we are gaining some traction there and the lion's share is really taken by hybrid cars, and then CNG where we have a strong offer, and then only the full electric ones.We are, however, building a very strong and impressive lineup of new product of new electric cars. This is a very important service area for the group, Volkswagen. We are announcing a launch of more than 30 new vehicles for up till the 2025. The group Volkswagen is expecting to sell new cars, new engine, new energy engine cars in 2025 of 25% of the total new car, so it is really massive change and progress, and we are very confident that we'll be able to capitalize on that important trend.Strong operating -- strong sales and operating profit growth for the first half of the year with 9.4% growth with lower-volume growth, it's 1.7%. So you see there the impact of the product mix, really, in that sales growth. We have also a modest contribution, but EUR 9 million is not that small contribution from the acquisition of Rietje that we did in the first half of the year, and we had also a mildly negative impact of lower Audi sales during the first half of the year.We have, thanks to, once again, the model mix and a good leverage on -- of the operations, very steep increase of the adjusted operating profit of close to 30%, and this is very encouraging for that activity, and we hope to keep momentum till the end of the year but the second half will be more challenging and, I will come back on that.So you've got a summary of the results. I will not come back on that with the adjusted profit evolution, then you have the adjusting items with a minor impact over there. We are the end or close to the end of the Market Area program where we are regrouping various dealers in stronger market areas leaders, and we are helping supporting that initiative into -- for the first half of the year, it was an effort of EUR 4.4 million. We have had positive impact of change of accounting methodology for the weaker services with VDFin. So all in all, limited impact of adjusting items in PBT.Cash flow, a little bit less satisfactory picture, but it is mainly linked to the level of activity, to the extraordinary level of activity of the first half of the year. So in -- we have built quite massively inventory during the first half of the year for first delivery, the cars in the summertime, we have a very strong order book and also WLTP, which is really defining for the second half of the year. We have built up inventory before knowing that we will have strong demand before the 1st of September. And so we increased it quite substantially in the first half of the year and it will go back to normal during the second half of the year.Change in working capital, that's inventory, mainly, but also increasing credit, not from the factory, because of the good results and long delays in payment terms from the Volkswagen Group.So it's the first time that we report the numbers of that activity, and you see that we are not putting any leverage, any financial leverage, on that activity. It is net cash positive -- close to net cash positive at the end of the first half of the year and the cash flow profile of the second half of the year should be more favorable.The commercial developments, you know probably that we have a lot of initiatives called Wondercar in the bodywork activity. We have also opened new, and it's a very impressive and big facility, our new bodywork facility in the Brussels area in June and it is now up and running. We have changed the identity of My Way in the second-hand car market where we see a lot of progress to be made and a lot of potential. We've made acquisition of dealership of Bentley and Audi in Knokke. We take important initiatives in the mobility of the future with the Poppy initiative we have in Antwerp. We have just announced last week, I think, the initiative of putting on the street of Antwerp, 25 scooters -- electric scooters and if there is traction from the market, we'll go to 100. And also, we are accelerating the digital transformation of the group of the activity and invest in sales -- well digital sales initiative with the new CRM with new campaigns, which will be much more digital, and we have started with some brands and we'll roll that to all the brands and the mix of the Volkswagen Group.Outlook for the rest of the year, for the full year. The WLTP creates a lot of uncertainty, so it's really difficult. You can see that from all the carmakers, some of them maybe are ready, some others are not totally ready, the visibility is not that great, frankly. We have a good order book, but the question is, will we be able to deliver that order book before the end of the year? Will there be some postponement of orders? Will there be some postponement of delivery? All that is highly probable, so we are managing that as well as we can. We have had strong month of July and August, but we need to see what will happen, frankly, in September.We have a strong product pipeline for the second half of the year, and we are confident to review the guidance there, expecting close to 15% growth in adjusted PBT for the whole year 2018.For Moleskine, as mentioned by Axel, we are very satisfied by the top line progress of Moleskine, quite impressive especially when you look at the constant FX progression in terms of the sales of the company, it's 18%, close to 19% sales at constant FX, so very happy with the performance. After the headwind of the dollar, mainly, we are still at 12.5%. So really strong double-digit growth for the first half of the year.We have had a tremendous success in one channel, especially, which is B2B. Some part of that was probably postponed orders from '17, but a very strong momentum and we see that continuing into the second half.Good progress also in the wholesale. Retail, too, with robust same-store sales of 3%. And the e-commerce channel was a little bit weak, but that was mainly due to the first quarter of the year where we have had some delivery issues and fulfillment issues in the first quarter with our supplier there.In terms of region, noteworthy to see that APAC is impacted, really, by the fact that we have changed -- we had taken the decision to change the distributor in Japan, it took a while before landing to an agreement with it. We only agreed on a deal in June of the first half. And it goes without saying that during that period, the distributor was not ordering, so this has had an impact, a substantial impact, on the sales of the region and we view that totally as temporary and it will be a catch-up in the second half of the year.So once again, robust growth across the region, really relatively robust growth across the various channels and also strong and encouraging growth in the new products that we have learned, the digital product, the digital suite of products but also the [ bag ] collection is really highly successful.In terms of results, you'll see that EBITDA is progressive -- progressing quite significantly, it's a 32% progression of the EBITDA. This is not reflected in the EBIT results or the operating result because of kind of one-off elements, one of them is the fact that we set up a long-term incentive program for the management, which was not present last year and that has had a EUR 1.5 million impact on the EBIT for the first half of the year and also some -- the negotiation with the Japanese distributor led to further costs and that also one-off cost and also investing, once again, in the future, in digital initiatives, in strengthening the organization with high profiles and launching some important change programs within the organization.So in terms of cash flow, once again, the first half of the year is not really significant for the cash flow. It is historically a negative free cash flow generator, first half of the year. As I mentioned, EBITDA was quite strong, change in working capital was mainly due to higher inventory, and the high inventory is mainly linked to the optimism we have for the second half of the year where we see sustained stronger sales and, of course, we'll have to deliver the goods and due to the lead times with the suppliers, we need to not pile up inventory but build inventory before being able to deliver payment.So a small decline of the net debt compared to the same period of last year. What is important also is, and this is very important news and positive news, we have been able to negotiate with the fiscal authority in Italy, a new tax scheme for the Patent Box. This have had an immediate tax impact of EUR 6 million for the first half of the year. I will not be entering into too much detail because it's highly technical, but the fiscal authority recognize, in fact, the value of the brand of Moleskine, and allow us to deduct the cost of that brand from a pretax basis. And this is giving us a good -- a great fiscal advantage. This is recognized for the period 2015 till 2017, that is EUR 6 million that you'll see. But going forward, we still have 2 years of benefit of that regime, which will be highly supportive for the net profit of the organization.In terms of product innovation, I mentioned the success of the digital product, we have launched a new model of new design and new functionality of the Pen+ Ellipse. That's for the Smart Writing Set. And we have launched new bag collections which are highly successful.For the guidance, for the full year, unchanged guidance, we guided towards a double-digit growth in terms of sales and adjusted profit, so no change on that. And we see a solid pipeline of new projects in B2Bs, strong growth expected from all the regions so quite optimistic for the second half of the year. And you all know that the performance is mainly done in the fourth quarter, and so we are preparing also for -- from Q4 for this year.Then let's move to the Other segment, which comprises the corporate activity, the gallery with our collection of old timers and real estate activity that we have a structural deficit, I would say, because of the cost nature of those activities. So we have, for the first half of the year, an adjusted PBT of minus EUR 3.6 million, this is higher than last year, but there are some movement to timing of some management fees that we are charging to the activity. And also the fact that we had, last year, a positive reversal of accrual of advisory charges for Moleskine. So all in all, it's normal level, kind of flat level of cost of deficit for that segment of the market.And we have some adjusting items there, it's mainly linked to the professional fees we have paid in 2018 for the Blossom transaction. So the entry of CD&R in the capital of Belron.We give you also a picture of D'Ieteren's activity's debt structure or financing structure. You see that the automotive activity, the auto activity, has some excess cash. And when you look at the EBITDA, we for sure have levered capability there, but we'll not abuse of that. For Belron, you'll see in the evolution of the net debt during the first half of the year, which is highly favorable for us. Moleskine, less favorable free cash flow because the first half of the year is, by definition, seasonally structurally less favorable and the order, now that the important movement linked to the sale of a participation, the 40% sales participation in Belron. So we -- and you know, with the segment corporate was an important cash pile and just a word on that, we are actively looking for new acquisition opportunities, nothing to announce at this stage, but we are actively searching there.So the revised guidance for the whole group is particularly, [ I guess ], we are guiding for mid- to high single-digit improvement. And now, we are guiding more towards the 10% to 15% of adjusted PBT group share for the year. So this puts us into a very satisfactory place, with strong momentum across all the activity.

[Axel Miller, CEO, MD & Director]

Thank you, Arnaud. I will open the floor for questions because that's the place to go. Are there any questions?

[Operator]

[Operator Instructions] The first question comes from Nathalie Debruyne, Degroof Petercam.

[Nathalie Debruyne, Analyst]

I just have one question, actually, on automotive, so distribution business. So I understand very well that you had solid top line growth, positive volume, positive mix. And then you mentioned operating leverage, and that operating leverage actually seems to be quite impressive. So could you help me understand a little bit what it was driven by and how that actually works? Because, yes, to me, it indeed looks impressive. We're not expecting something like that. And can we expect something like that, I mean, in the future? Or yes, I'd just like to have some more clarity on that operating leverage, and to what extent it contributed to the profit before tax growth.

[Arnaud Laviolette, Chief Financial Officer]

Yes, thank you for the question, Nathalie. It's a very good one. We have had, well, improved top line, improved gross margin, which is a kind of valuable margin. And then you have a category of growth that you can qualify as valuable, and then as fixed. So the operating leverage you see here, it's just kind of fixed nature of the fixed cost, which is really kicking in. We cannot really say, at this stage, that it is due to strong massive effort in terms of cost containment, okay? So it's mainly linked to the fixed nature of some of the cost of the P&L, which is really supporting that. Now we are embarked, too, in some programs, but you do not see in the first half of the year the structural benefits of those products. It will be more already probably partially in second half of the year, but more in the years to come.

[Axel Miller, CEO, MD & Director]

One of the elements, Nathalie, for example, is that on the personnel costs, you have seen in previous years some provisions, which were made for internal reorganizations. One of them is also to accompany the movement towards a more concentrated network. So we are adjusting the size of the team's following the network, but also, at the same time, sometimes increasing capabilities in certain departments. All of that has led to some departures. And if you look globally at the personnel cost evolution, it's probably even slightly less than [indiscernible] . So that's an element which underlines, if you want, the operating leverage that Arnaud was referring to. But there is not a specific effort that can be pinpointed. It's more a global phenomenon of costs, which are remaining globally stable when it's announced, and a high-margin gross margin.

[Arnaud Laviolette, Chief Financial Officer]

And we have also a kind of windfall profit of write-down on inventory provisions that we took the years before. So that explained also the overall performance in terms of operating leverage.

[Nathalie Debruyne, Analyst]

Okay. And that write-down on inventory, that's a one-off effect, I guess, or -- as well?

[Arnaud Laviolette, Chief Financial Officer]

Yes.

[Nathalie Debruyne, Analyst]

Okay. All right. And so if I can follow up on this. What kind of margin do you expect actually to be, I would say, sustainable through the cycle? Because now it really materially improved. Let's assume that volumes are, I don't know, 2% or something like that stable mix, unless you do not have these effects that we have seen that year -- this year, actually, in H1, what would be a decent margin to consider for the future?

[Axel Miller, CEO, MD & Director]

It will depend over time on the mix between the various activities because what you are seeing is a mix of import, retail, logistics, use -- franchise for the bodyworks finance as well. So all of that taken together may vary in terms of risks. I think across the cycle, we'd probably have a mix, which is going to be around 3%, with sometimes better years and sometimes worse year. But that would be my sort of guess at this point in time.

[Nathalie Debruyne, Analyst]

For the mix effect or for the margin?

[Axel Miller, CEO, MD & Director]

For the margin, gross margin.

[Operator]

[Operator Instructions] The next question comes from David Vagman, ING.

[David Vagman, Research Analyst]

Yes. First question on Belron. Have you measured and, I guess, you have, but can you somehow, let's say, indicate us to which extent you benefited from a very good market condition, what is really, let's say, self-help or own initiative would be when looking at the margin development of the services last year? And to which extent can we extrapolate, let's say, this very good margin to the coming years and even, let's say, better development? And also, on Belron, let's say, can you explain the dynamics by country? And sorry if you did explain it. I just missed a few minutes of the call. And last question on Belron, can you give us an indication of the impact of the change in tax regime in the U.S. on the overall effective tax rate of Belron? And then lastly, on Moleskine, if you can explain in more detail why the EBIT margin, the EBITDA margin and the EBIT margin are quite relatively disappointing.

[Arnaud Laviolette, Chief Financial Officer]

Okay. So I've noted 4 questions, David?

[David Vagman, Research Analyst]

Yes, indeed. Yes.

[Arnaud Laviolette, Chief Financial Officer]

The margin impact, what is linked to the market evolution. So we have -- in the slide, we have a waterfall about what is, in terms of top line, the contribution of the market evolution. And you'll see that this year, it has had a positive impact. So overall due to especially -- well, good winter, which made a strong winter, harsh winter in North America, in the Northeast. And in Europe this year, we have had a very supportive market. When I say very supportive, you see the contribution there is 2.5% on the sales. So it's a supportive market. It's difficult to pinpoint that element to analyze the margin, the impact that that's had on the margin. Because you see that there is much more self-help in the progress of our top line, which is linked to market share gains, which are quite significant in some regions. And also the favorable mix we have with probably more replacement with bigger models, ADAS, which is really starting to contribute now. So it is really self-help. Gaining market share, working on the mix, working on the value-added services and products, this is really self-help. So what has been now the impact of all of that in terms of trading positive evolution. What we can say is that the [ full-through ] is positive this year, the growth has translated into a higher profit with an improved operating margin if you guide for some elements. But we have an operating margin which is very close to the 7%, and as we were closer to the 6% before. So it's probably not yet the place where we want to be long-term, but this is a positive evolution, and it is mainly supported by all our efforts.

[Axel Miller, CEO, MD & Director]

We have seen times, David, where increased volumes resulted in lower profitability because we had a difficulty to convert or to convert at good prices. So here, there is an alignment of stars. But I think what's probably much more important is that whilst the market is probably relatively stable in some countries or slighter declines in volumes than we might have expected. The markets are definitely growing in value, and we are capturing a bigger share of that. So I would ascribe quite some value to the self-help as opposed to the weather effect. But it's there. I mean, it helped the volumes clearly.

[Arnaud Laviolette, Chief Financial Officer]

And in terms of country contribution, what was remarkable for the first half of the year is that you've kind of balanced growth, top line growth between Europe and the rest of the world. And the rest of the world is -- it's what you noted in the U.S., Canada using a little trading fundamentally. So relatively, balanced growth across the regions there. Then in terms of profitability, the U.S. has a very impressive progression. And in Europe, in some countries like France and U.K., the U.K. is in positive territory. So it is important to announce it, to confirm, because it was already mildly the case or modestly the case in '17. But -- so we have the confirmation in the first half of '18 that's a U.K. can run with a profit. So it's mainly across the regions and across the countries with some higher contribution. As we read in the document, 9 out of the 10 countries, the 10 largest countries, have had positive evolution of their trading profit, with one exception, and which is Belgium, which is linked to a quite challenging ERP implementation essentially. So happy about the development across the regions and across the countries, I would say. Then the tax regime change in the U.S., this could be a little bit of a challenge for us going forward. We have tax losses in the U.S. Well, I do not want to enter into too much detail about the license, but the U.S. is paying to the group, to the U.K. essentially for the usage of the license. But we'll need probably to revisit or not. We still don't know, but the impact is, as we speak, not achievable as expected. But I can give you more details on that. On the [ full-through ] of Moleskine in terms of EBITDA and EBIT, I think we've had a very strong performance in terms of EBITDA. When you look at the progression, it's maybe not the absolute number we want to see yet. But in terms of progression versus last year, it's quite significant with a 32% increase when you have a 12% increase in terms of sales. And then the bridge between EBITDA and EBIT, it's mainly linked to the fact that we have taken some provisions in terms of receivables and inventory, and also the change I've mentioned, in terms of LTI, long-term incentive plan, for the management, which explains the bridge between EBITDA and EBIT.

[David Vagman, Research Analyst]

Okay. Maybe just a very quick follow-up on the margin at Belron. You mentioned on the -- in the presentation that you paid or you've provisioned EUR 14 million of ELTIP. If I'm correct, I thought that the ELTIP was discontinued with other TIP. The impact, let's say, would be much lower this year. So is there any change?

[Arnaud Laviolette, Chief Financial Officer]

Very good remark. So we -- you know that we have a 3-year rolling plan for the ELTIP of Belron. We have discontinued plan, which means that in 2018, there is no new ELTIP plan. But we still have 2 plans to be rolled into 2018 and 2019, okay? And what you see is a lower basis, normally, because there are 2 plans and not 3. But the expected results for 2018 and the expected result for 2019 are higher than what was anticipated last year. And this is the reason why we need to provide more for the 2 remaining plans. So it's short-term negative news or it's a headwind to the operating profit, but I think it bodes well for the future. It shows you that we anticipate higher growth rate for '18 and '19, higher growth rate than what was expected when we provided in 2017.

[Operator]

We currently have no further questions. [Operator Instructions] The next question comes from Nathalie Debruyne, Degroof Petercam.

[Nathalie Debruyne, Analyst]

Yes. I would just like to follow up on cash generation and Belron, and especially on CapEx, because it materially came down this year. So that's just to actually fill in my model. But I'd like -- I would appreciate if you could give us a bit of an idea of what we can expect for the full year and for the medium term.

[Arnaud Laviolette, Chief Financial Officer]

Yes. Quite a significant impact in terms of CapEx. We told you the previous years that we were investing quite heavily to support future growth. That's -- and I hope you see the result of that now, and especially in the U.S., frankly. For the first half of the year, we had invested quite heavily the year before, especially in vans in the U.S. We are very strict in reviewing, and the management is very strict in reviewing the hurdle rates of every CapEx program. And so, yes, this is why we have a big difference versus last year. And also for the landing this year, we'll be -- well, I can give you a broad range, and this is true for this year and probably the years to come, which will be between EUR 100 million and EUR 150 million, but coming from EUR 180 million in 2017. So yes, there is some decline versus last year and even versus the year before because, as I mentioned, we have really invested heavily. And now we see more moderate CapEx.

[Axel Miller, CEO, MD & Director]

Especially in the U.S.

[Arnaud Laviolette, Chief Financial Officer]

Especially in the U.S., yes. But if we continue to gain market shares. Like we do in the U.S., we'll have to, again, probably put some more CapEx. But yes, looking at that with very Scottish eyes, and we want to make sure that it is delivering results.

[Nathalie Debruyne, Analyst]

Okay. That was actually my next question. What if you keep on grabbing market share? But I was wondering, the sale to CD&R, and the fact that they now have a few seats at the board, does that change anything? Or well...

[Axel Miller, CEO, MD & Director]

That's a tricky question, Nathalie, because it's not changing anything. Then of course, if I'm saying it's changing something, then I'm in trouble. So it's difficult to say yes or no. Well, it's a ménage à trois, right?

[Nathalie Debruyne, Analyst]

Yes, exactly.

[Axel Miller, CEO, MD & Director]

And it's a happy ménage à trois. I hope that they are not listening because I'm going to make them blush. But I think, and I think management shares the view that the relationship works very well. We are going along extremely well, and it doesn't come in the way of our good relationship with Gary and the management team. So that's a plus. They are contributing their experience, their discipline, and we are on all topics on the same page. Now does that change our view of the world and the view that we have of Belron in particular? No. We have not sold our stake to CD&R because we were having problems with Belron. We thought we should be doing that as part of a larger strategic plan we have for D'Ieteren and wanted to find the right partner, who can sort of move along with us in that direction. So long story short, yes, it changes things because it's not the same situation as before. But what you see here, is that your question? But I'm expressing my mind talk here. It's not the result of the particular effect of the arrival of CD&R around the table. This is more the result of, yes, we've done a lot of investment in the past. And sometimes, there was a critical eye on the capital expenditures being made. It's normal that these capital expenditures start to give their benefit. We have also extensively invested in IT, in particular in digital, and that's something that we see today. So the run rate of CapEx is quite naturally -- and I think we have guided to that during our Investor Day. It's going to be a notch lower on a run rate, all things being equal, than before. But CD&R and us, at the same time, have a close eye for working capital management, for the absolute level of capital expenditures and for the interesting profitability of the business. Because only a profitable business will continue to grow and grab market share, as you know.

[Arnaud Laviolette, Chief Financial Officer]

And with a full alignment with the management. You know there are shareholders now, which helps in the dialogue.

[Nathalie Debruyne, Analyst]

Okay. Makes sense. And I was also wondering why, I guess, you cannot give me many details on that. What was the service extension contribution at top line and profitably level if already profitable?

[Arnaud Laviolette, Chief Financial Officer]

No, not yet profitable. And on top line, I think it's close to EUR 50 million.

[Nathalie Debruyne, Analyst]

EUR 55 million.

[Axel Miller, CEO, MD & Director]

I think it's in the presentation, no? The top line is 2.2%. Yes, it's 2.2% of the sales increase if I made the calculation.

[Nathalie Debruyne, Analyst]

That is acquisitions. But when I say service extension, I mean, broadly speaking...

[Axel Miller, CEO, MD & Director]

Oh, you mean with a select attached in cost and all rest of it?

[Nathalie Debruyne, Analyst]

Yes, exactly.

[Arnaud Laviolette, Chief Financial Officer]

Well, we are not disclosing that. And to make my answer a little bit more subtle than what I said, you need to look at service extension in the U.S., which is the claim management D'Ieteren held the [ first notice ] a plus, which is relatively sizable. And then in -- if we look at ADRR, which is the automotive repair and replacement, then we have a contribution in terms of sales, which I will not give you the right number precisely, no, but it's around the EUR 50 million. And in home, it's still relatively modest. So it is starting -- well, once again, it's modest in a group which has more than EUR 1.9 billion of sales for the rest of the year. So it's modest in relation to that. But it's an important focus area. We really want to make it successful. And currently, we are testing the opportunities and looking how we can grow full blast if we desire.

[Operator]

The next question comes from Matthijs Van Leijenhorst, Kepler Cheuvreux.

[Matthijs Van Leijenhorst, Analyst]

Yes. Matthijs Van Leijenhorst, Kepler Cheuvreux. It is regarding your balance sheet. I think it still looks quite healthy. So I was just wondering, could you remind me what your policy is? Are you still looking for further M&A or maybe an extra shareholder distribution like you did earlier this year? Could you give some more color on the balance sheet and the cash position?

[Arnaud Laviolette, Chief Financial Officer]

Yes. So we are happy about the evolution of the balance sheet. We still have a big cash pile. And we are -- as we speak, there is no intention to do an additional exceptional dividend like we did in the first half of the year. So we are, as I mentioned earlier, looking for acquisition, M&A opportunities, and then making the best use of that cash by being very selective in terms of quality of the target, potential of the target and price of the target. And it's -- we live in a world where there is ample liquidity, where there are more buyers than sellers. So price of assets are quite high. So we try to be as disciplined as possible.

[Axel Miller, CEO, MD & Director]

And the exceptional was a special circumstance of -- the special circumstance that was the sale of 40% to CD&R [indiscernible] .

[Operator]

The last question comes from David Vagman, ING.

[David Vagman, Research Analyst]

Yes. Actually, it's a follow-up on the services extension of Belron. And you already partly answered my question, but basically I wanted to know how you see -- let's say the start of these, in particular on the [indiscernible] , how do you see the start of these activities, and particularly in Belgium at CARe Carrosserie? And how would you want, how fast you want to allow actually these -- to extend these activities, be that in Belgium through market share gains or in other countries?

[Axel Miller, CEO, MD & Director]

Good questions, David. And the jury is still out. I will give you a two-pronged response. The first one is the level of excitement about the concept remains very high. Remember, the concept is if there is a fragmented market, if there is relatively no quality of service across the board, if the insurance companies are not happy, and if the customer's experience can be improved, then there is a favorable environment for Belron's way of working and business model. And after the acquisition of CARe, we've done a number of tests, including on the marketing side, including in discussions with insurance companies. We have had experience with customers within the network, which has been rebranded Carglass Carrosserie already. And all of that confirms the hypothesis on which we have based our strategic thinking for service extension. So all of that goes in the right direction, and we are happy to report. Now part of looking at all of that and testing all of that entails certain costs to us. So that's part of the game, but we are willing to do that because it's a good test. Now the next question is, when do you go full blast? I have to take the words of Arnaud. It's going to take a little bit more time, for a very specific reason is that there is a chicken-and-egg question in all of this. I mean, if you want to go national with an insurance company, if you want to make a promise to your customers, you need to be able to deliver on the back of that. To deliver on the back of that, you need to have national coverage, and you need to have capacity. So you, first, in a way, need to build capacity before you are able to make the promise to turn on the marketing button and to deliver to consumers and the insurance company. And that's the chicken-and-egg thing, where you need to find the way to do that. So we've got a number of ideas. We've got a number of things we're still further working on. The last thing -- I'm not going to talk for others, but the last thing I want to see is 3, 4, 5 years of heavy investments, and then 5 years down the road revenues and profitability coming. I think that the time gap is too long. So how you can progressively do what's needed to get the revenue, to do what's needed to get the revenue, et cetera, there are a number of ideas on the table, but we haven't really finally cracked the code there. Will we get there? Ultimately, I think we will. But it's still too early to tell. In terms of our level of impatience, my level of impatience, there is none. It's, today, not material at group level. We are not forced or in a hurry to do that. What we do, we want to do it well. So it will take the time it will take. There might be as well -- David, to have a comprehensive answer, there might be a point where we say, "Okay. Now we see how we need to organize these activities," because they are, in a way, very similar, but in another way very different from the relatively simple act of repairing and replacing a windshield. We might say "Okay. Now we see how we need to crack the code, and we want to get the capacity by a larger acquisition," because now we know exactly what we're going to do right after the large acquisition. So all of that are still options on the table, of which we are reviewing. So I think when we embarked on this course, we said very specifically and very clearly, "We are not putting ourselves into a time crunch." And I'm just restating that message. Time is not of the essence here. When we'll be ready, we'll move, but it might still take a bit of time. I hope it's clear. I'm not trying to evade it, I'm trying to explain the context as much -- as best as I can.

[Operator]

We have no further question over the phone.

[Axel Miller, CEO, MD & Director]

Thank you. Ladies and gentlemen, thank you very much for your attention and participation. It has been a pleasure, as always. See you next time around.

[Operator]

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