Belron Reports Non-Cash Impairment Charge of $121.9 Million USD

After an annual review of goodwill and intangible assets by D’Ieteren, it is reporting a non-cash impairment charge for Belron of $121.9 million USD (€98 Euros), which “will be necessary in relation to the activities of Belron in the United Kingdom and in China.”

United Kingdom

A non-cash goodwill impairment charge is required for Belron based on the changes in the U.K. market, according to officials.

“Despite increases in market share and the structural efficiency actions that are currently underway, profitability is not expected to recover to a level that supports the value [$206.24 million USD] €166 million Euros of goodwill and intangible assets with indefinite useful lives allocated to the U.K. Based on current long-term projections, a [$110.6 million USD] €89 million Euros non-cash goodwill impairment charge is therefore required,” officials write in the report.

“As part of the purchase price allocation following the acquisition of Belron by D’Ieteren in 1999, a significant share of the total goodwill and brand value on the acquisition was attributed to the U.K. businesses as they were the main contributors to Belron’s profitability at the time,” according to a statement by D’Ieteren.

“A goodwill impairment charge is incurred when the fair value of a company’s goodwill is less than the recorded value. If the fair value of goodwill is less than the recorded value, a company’s goodwill is said to be ‘impaired’ and the difference (between the fair value and recorded value) must be charged off as an expense,” according to Wikinvest.

“Since 2010, Belron has been facing adverse market conditions in the U.K. with the vehicle glass repair and replacement market down by circa 40 percent over the period (down 12 percent in 2014) together with price deflation. This has led to an erosion in profitability during the period,” according to the statement.

In response to this, Belron is looking to change from a branch and mobile network to a fully mobile operation in the U.K.

“Administrative functions performed at branch level are proposed to be centralized, while 23 warehouses and multiple small-scale stock locations located closer to the end customer will ensure the supply of glass to mobile units currently performed by the 73 branches operating today. This, together with the streamlining of activities performed centrally is expected to generate annualized savings in excess of [$18.6 million USD] €15 million Euros,” according to officials.

The business is in a “formal consultation process” with employees who will be directly affected.

“We can confirm that we are consulting with 179 branch-based employees regarding proposals to change our operating model,” said Tom Hubbard, a company spokesperson, when news of the change broke last week. “We appreciate this will be a difficult time for the individuals affected and as such we are making every effort to provide the appropriate support and identify new opportunities for our people.”

China

Belron entered China in 2009 and expanded to 39 branches that offer wholesale glass and automotive glass replacements. The company is now closing many of those locations leading to a non-cash goodwill impairment charge of $11.2 million USD (€9 million in Euros) at year-end.

“Experience-to-date has shown that Belron’s high business standards were not compatible with the carrying out of a profitable wholesale business in the region,” according to the company’s statement.

The company had decided to discontinue the wholesale business, which means that many of Belron’s branches in China are “no longer viable in the long term and will be either closed or sold.”

The business change will result in $8.7 million USD (€7 million Euros) in “unusual costs,” as well as the non-cash goodwill impairment charge.

“Following the closure of 31 non-profitable locations, Belron’s footprint in China will be concentrated on eight branches. Compared with 2014, this should generate annual savings of circa [$5 million USD] €4 million Euros,” according to the statement.

Italy

Belron’s Italian business is changing after the AGRR market declined by about 8 percent and one of the company’s major insurance partners decided to establish its own network to fulfill glass claims during the year.

“Belron has decided to implement a number of efficiency improvement measures,” according to officials. “This will encompass merging the back offices of Carglass Italy and Doctor Glass, its franchise operation, as well as reducing administrative work in several branches thanks to the roll out of the new remote advisor system. The resulting [$5 million USD] €4 million Euros in unusual costs will be fully provided for at the end of this year and will generate savings that should partially compensate for the reduction is sales.”

The Netherlands

Looking to the Netherlands, officials explained that the AGRR market has “halved in the last five years following the roll out of a new road surfacing technology that resulted in the vehicle glass breakage rate reverting to the European average while it was previously significantly higher.”

The company is implementing “profit improvement measures” both centrally and in the field that will lead to $5 million USD (€4 million Euros) in unusual costs.

Germany

Over in Germany, Carglass has been running a separate activity offering AGRR services for heavy commercial vehicles, such as buses. This activity will be closed.

“The profitability of this business has deteriorated in recent years due to the contraction in this market segment and will be negative by [$4.4 million USD] €3.5 million in Euros in 2014. The decision has been made to close this business for total unusual costs of [$11.2 million USD] €9 million Euros,” according to the statement.

A Company-Wide View

On a company-wide basis, Belron’s year-to-date sales were up 1.3 percent over 2013, including 0.4 percent organic growth and 2.1 percent growth from acquisitions. This was partially offset by a 0.8 percent negative currency translation effect and a 0.4-percent decline due to fewer trading days.

Automotive glass repair and replacement jobs have increased by 1.7 percent to 10.3 million, according to the statement.

“In Europe, despite share growth, sales were down 4.8 percent, consisting of an organic decline of 6.6 percent due to severe market declines following an exceptionally mild 2013-2014 winter weather in Northern Europe, and a 0.6 percent decline due to fewer trading days, partially offset by 1.8 percent growth from acquisitions and a 0.6 percent positive currency impact,” officials explain.

“Outside of Europe, sales were up 8.3 percent, consisting of an organic growth of 8.4 percent predominantly due to the extreme winter weather in the eastern U.S. at the beginning of the year, and 2.5 percent growth from acquisitions, partially offset by a 2.4 percent negative currency translation effect and a 0.2 percent-decline due to fewer trading days,” they add.

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3 Responses to Belron Reports Non-Cash Impairment Charge of $121.9 Million USD

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