Bekaert Sa Ord

That full start, but good morning, everyone. Thank you so much for joining today's Q1 2024 trading updates. I'll hand over very shortly to Eve and Tawfiq, but just before that, it's important to take you through the safe harbor statement. Just to remind, this presentation may contain forward-looking statements. Such statements reflect the current views of management regarding future events and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Bekaert is providing the information in this presentation as of its date and does not undertake any obligation to update any forward-looking statements contained in it in light of new information, future events or otherwise. Bekaert disclaims any liability for statements made or published by third parties and does not undertake any obligation to correct inaccurate data, information, conclusions or opinions published by third parties in relation to this or any other publication issued by Bekaert. With that, Claire, I'd love to hand over to Yves.

Thank you. Thank you, Paul. So the year started solid for us with the performance in line with our four-year expectation. And today, myself and Daphne will give you some further color on this performance. So on the first quarter, top line, we achieved 1 billion 25 million. This is compared to a very strong QE1-23 down, top line sales of 14%. As you remember, QE1-23 was the last quarter of very high, let's say, input materials, raw materials and energy costs, which we passed through to the market in QE1, as well as pre-stocking and customer stocking both in China and in some other regions of the world. If you make the evolution of quarter four, 23 versus quarter one this year, we have a top line of 5%. So in that context environment, we continue to focus on delivering on our strategy and preparing for the upcoming year and years. First of all, by further ramping up our growth businesses, we keep the pricing discipline in the core businesses and be very selective in the business we are in. We continue to focus on our cost efficiency and optimize our working capital management, and we continue to work on further margin improvement and strong cash flow generation. As mentioned, QI performance for us remains in line with our full year expectations, and we are confident as management to deliver on our full year 2024 guidance and meet current targets at FPN in the capital market day. So some highlights in Q1 on proof points of our strategic evolution in the different business segments we are active in. First of all, in our tire reinforcement, where we gained momentum and traction together with one of our premium customers, Coutier, on bringing a product to the market with 90% recycled materials, including the Bekaert recycled steel gold. In the BBRG area, we have a mooring solution for largest offshore floating solar plant and synthetic mooring expertise for tailwind floating offshore project. So happy to be part of this demonstrated projects for the future. In the area of energy transition, we got qualification of the solar impulse foundation for the current of product as a solution which is contributing to sustainability. On the telecommunication in the U.S., we've been qualified and certified as a buy in America, which gives us further opportunities for growth in energy utilities in the upcoming months and years in the U.S. And then also progressing on how we handle steel circularity in the value chain with our suppliers and our customers. So we continue working on driving our performance while also improving and increasing, let's say, our portfolio towards more sustainable products. And as you see, the 42% of our full product portfolio in the sustainability category continue trying to make it 50-50 in the future by bringing products to the markets which influence the way we live and move. Having said that, I pass now to Tawfiq for more insight in the performance on the top line of our different businesses.

Thank you very much, Yves, and good morning, everyone. So I will just start this part with an overview of the total consolidated sales for Bekaert. So as you see in Q1-24, the consolidated sales topped 1 billion 25 million euros, roughly contracting by 14% compared to Q1 of last year. In the overall context, we are dealing with market conditions which have remained mixed. This is leading to a consolidated organic volume decrease of 5%. And I think it's important to put the volume decrease of 5% in the context of the overall 14% contraction that we are reporting. Specifically about these contractions, they are part of a broader industry challenge, which is reflecting a subdued demand in certain sectors. But the important element there is that we have been dealing with the normalization of some of the input costs as compared to last year. And the reduction that we see this year is actually a reduction of the past on inflation, which contributed to a 70 million euros decrease in sales. So again, the change is largely due to the normalization of cost. as we're seeing a stabilization from the previously high energy and raw material prices. These two elements were particularly pronounced last year in rubber reinforcement and steel wire solutions. And you might remember that, for instance, we have benefited in 2023 from so-called energy surcharges, which have increased our top line, but didn't have any impact in terms of margin. so despite these challenges the sales figures are in line with our expectations so we are not dealing with a surprising situation so to speak and again considering the high base of q1 2023 which included this significant country one of contribution we kind of anticipated this situation so we remain actively focused on addressing this dynamic so we have the right strategic initiatives in place to help us improve the operational efficiency and adapt to this specific, hopefully punctual market conditions. And in 2024, we will remain focused on navigating these challenges and be, again, as usual, very opportunistic in terms of enhancing our overall performance. Now, if we look at the dynamics within the specific business units and starting with RR, so we're reporting a decrease of the top line of 17% compared to the same quarter of last year. But I think it's important to mention that if this quarter compared to Q1 of last year, we're reporting a drop of volume of 6%. This evolution corresponds to an increase of 6% versus Q4 of last year. So the volumes, again, are picking up compared to the last proof point of Q4. Regionally, we see sales volume dropping in China by 5%, 3% in EMEA. But it's also very important to mention that we are seeing a significant boost of the top line by almost 20%. in the southeast region. So, again, a dynamic which is primarily driven by the phase-out of some of the energy surcharges from early 2023 and a stabilization of the wire road prices. Moving to steel wire solution, a 14% contraction in sales versus Q1 of last year. Two main contributors, volume for 5% and a similar decrease in the past on wire road prices. A contraction as well in the range of 4.5% in terms of price and mix. We did see a very strong start in January. However, the segment didn't really show a crystallization of this trend for the balance of the quarter. And we did see as well a demand which is remaining weak in some of our more commoditized areas. Compared to Q4, there's a 5% increase in volume and a 10% increase in revenue. So it's picking up again versus the end of 2023. Regionally, the region which has suffered the most is the north of Latin America with a 19% reduction. mainly compounded by the situation in Ecuador with all the political situation that the country is dealing with. North America and EMEA declining, but in a smaller percentage. And China, a significant growth of almost 7%. Then moving to specialty business, a 5% decrease in consolidated sales, mainly impacted by the pricing pressure that we had to deal with in some specific segments, including construction. But construction did see a volume pickup of almost 7%. primarily in Europe, which has been benefiting from more business at a lower average sales price. So it's helping in terms of absorption and allowing us to crystallize the strategy that we have established in terms of gaining market share. And we see the adoption of the steel fiber reinforced concrete in growth market is progressing with some significant project wins across the world. And the shared of our high-end application, the DRAMIX 4D and 5D, is increasing from 46% last year to 51% this year, which is really a very strong performance. Fiber technology within specialty business there as well, we have a top-line increase, almost 5% in terms of sales. Then moving to BBRG, sales were 15% lower. Primarily driven by almost 20% in decrease. However, we did see a strong positive price and mix effect, which has partially mitigated some of these deviations I have referred to. The issues that we had to deal with are mainly related to punctual phasing issues. of projects in Europe and as well some production challenges in the US in terms of production output. So we continue to benefit from a good momentum in the significant mooring projects which are ongoing and it's clearly something which is enhancing our positioning in the renewable energy solutions for the company. With that, I hand it over to Yves for the outlook.

Thanks, Patrick. So for the full year of 2024, We will continue to focus on our plans and our strategy. So we expect a modest growth, as mentioned in previous outlooks, a moderate growth for 2024, and basically a performance in terms of margins in line with previous year, slightly above. So having that, I hand over to Guy for the Q&A.

Yeah, super. Many thanks, Yves and Tavik. I see a number of hands already up. William, if you are first, please go ahead.

Yes, thank you. Good morning, everybody. A couple of questions from my side. Can you maybe comment a bit on the rubber reinforcement business and the profitability gap between China and the rest of the world? It seems that the efforts you've taken in China are helping to reduce the gap, but I would like to have some color on that. Also, with respect to the rubber reinforcement momentum, can you maybe elaborate on the difference in momentum between truck and car segments? That would also be interesting. And then another question would be on ceramics. Can you comment a bit more on the order books for that business and also – Diving into the pricing, you seem to indicate that there's some pricing pressure in Europe at least. But can you maybe elaborate whether that's now fully in the books? Where do you see additional pressure in Q2 and the coming quarters on that? So those were the questions. Thank you.

Okay, thanks for the question. I will start with the construction question and then Tafik will give your perspective on RR. So first of all, on the DRAMIX, as you know, as we discussed strategically, this is a conversion game from steel bar and mesh, correct? And so it is also one of our growth platforms, which we take a multi-year approach. And for 2024, we have a clear approach by market, by country, by region. on gaining share, not share in fibres, but share in conversion from steel and rebar reinforcement to fibres. So what we see here and mentioned by TARFIP is what we planned, being a little bit more aggressive on some of the projects. But again, it demonstrated on one hand the growth that we are capturing with 7-7-0 increase in the volume side. And of course, I will continue to do full year with that approach.

okay so taking the the question on on china and some of the evolutions that we see so first of all in terms of macro related to the automotive sector so ev market in china continues to remain strong so it's clearly supported by promotions subsidies incentives and so on the truck market is rather stable In the replacement transportation, the passenger market is positive, while the truck is impacted by lower construction in industry. So what... So this is for the environment. As far as Bekaert is concerned, and I think that we mentioned it in one of the previous exchanges, our plants are running at full capacity in China. So it's clearly a positive. but it's happening in a context where we needed to do some tactical concessions in terms of pricing, but we are benefiting from the fixed cost absorption. We have an over absorption as we speak because of this situation. So it's clearly a very good momentum that we see in China. At the same time, we see that the share of our premium constructions is increasing, so it's above almost topping 50% as we speak, so very good momentum as far as China is concerned. The other regions and starting with EMEA, EMEA is a bit subdued. Demand is clearly not crystallizing. And on top of that, we see an inflow of imported goods primarily from China. So this is creating some tensions in terms of pricing in a context where, as I mentioned, demand is not there. Then if we move to the U.S., very good momentum. Well, hopefully a very good momentum, which will be confirmed in the next quarters. But why I'm positive about the U.S., it's primarily because we do see a pickup environment and the demand has been rather, yeah, flattish recently. in the past. You know that in the US we have trading business and local production. Our trading business, which is mainly imports from overseas, is performing at very good margins. The margins with our local production is on the profitability standpoint a bit more under pressure. So, I mean, labor is expensive in the U.S. Local supply of steel is also expensive. But when you balance out our trading business with our local production, we are ending up with a very decent performance. So then the follow-up question was trucks and car segments. I think I mentioned very quickly some of the evolutions that we see. So again, car is especially – there's a clear catalyst, which is the EV, plus all the different incentives which are in place. When you look at the truck, which is roughly 50% of our business, there is a more direct correlation with the GDP evolution. And since industry, construction, and so on are not at their best, we do see some pressure on the truck business.

Very clear. Thank you.

Frank, I think you're still on mute. A sec. Very good. There we are.

Can you hear me? Yes, here we are. Okay, sorry for that. Good morning, all. Three questions, please. First of all, on the wire rot prices, what is your, let's say, main assumption for the rest of the year on the wire rot price redevelopments? And what do you see in the different regions? That's my first question. Then secondly, on the hydrogen, you indicated in the press release some re-phasing of demand. What do you exactly mean with that? And can you elaborate whether you still see, let's say, the doubling potential of revenues for the hydrogen part? And then finally, working capital. What kind of swings have you seen in Q1? Is it in line with your expectation? And what do you expect for working capital for this year? Thank you.

We'll start, Frank, with hydrogen. So let me give some context. So if you look at the projects that were planned for installing of electrolysis installation and equipment. So we've seen recently, last couple of months, some delays in some of these projects due to funding, regulations, approvals, but also, of course, due to the inflation, increased capex for these projects. Now, what is the impact? So if you look at the long-term, they're coming until 2030, the upcoming years, we see there a delay of around some of the projects that amount 18 months to two years. Now, what it means for us in our business, first of all, we see an opposite trend is that our customers are ordering our PTLs earlier in the total project time phase. That means that we expect versus our plans, a delay of one year. Now, that's from a demand side for the PTLs. On the other side is the progress we are making, being expecting and qualified, where we are making really good progress. An other element in the equation is that the balance between, let's say, AWE technology and the PEM technology, and if you remember, we are in the PEM technology, We see more wins and also successes for some of the PAM technologies projects. So all in all, netting that out, there's a slight delay, but not impacting our business plan. So we are still targeting doubling the sales every year. slightly below doubling, but still nice figures in scaling up. And in parallel, we continue to work, as explained, on our MEA strategy to expand our offering and bringing a MEA product to the market in the upcoming years. So we follow the market very closely on what's happening with market information, but also to our customers. We adopt our scaling of our capacity. But strategically, we continue on our investment journey because the outlook remains on the mid and the long term the same for us.

We'll take the next two questions. So as far as the wire rod is concerned, so first of all, in terms of demand, it continues to be rather low. So suppliers are reducing capacity in different regions. Obviously, the situation might change depending on China and the stimulus policies which could be implemented. Then the dynamic could obviously change. As far as Bicart is concerned in terms of pricing, the prices do remain low, which is, again, a positive for us in terms of cash conversion. There could be minor punctual increases in some regions like U.S., and China, but translated in other words, we are not expecting major inventory revaluation impacts coming out of YROD in 2024. But again, I mean, putting this aside, I think it's again important to insist on the fact that the impact on margins are anyway rather low because YROD is going through a pass-through effect. And this is also the reason why we have netted the inventory valuation amount from the price and mix impact in a context where, I mean, we do think that it should be embedded into this category. Then the next question is related to working capital. So when you look at the patterns that uh bekaft usually had i mean q1 is uh typically used to be typically a quarter where we do a working capital build up especially inventories i mean we mainly driven by the fact that in some of our segments like construction for instance we prepare for for the high season We are being very cautious with that. I mean, I think that a couple of times the question has been asked to me whether we have low-hanging fruits in terms of working capital. I said yes. I'm giving the same answer. Working capital is under control. For the moment, it's trending rather positively, and we don't see any reason for any specific deviation for the balance of the year.

Okay, that's helpful. Thank you.

Can I go ahead? Yes, can you hear us? Can you bring this guy out?

Yeah, okay, great. Yeah, good morning, all. I have a couple questions. Maybe firstly, just looking at capital allocation. So, obviously, in the last quarter, you announced the pause of the share buyback scheme and you You said the reasoning behind that was to basically provide optionality for either inorganic or organic growth opportunities. And I'm just curious on how you're looking at that now. Is there still a pipeline for acquisitions or have you identified other organic growth opportunities? Just any sort of color on your capital allocations for the remainder of 2024, please.

Yep. So the positioning of our narrative on capital allocation, I mean, we mentioned it and we referred to it for the year 2024. We are just at the first quarter. And what I can say is that the narrative is not changing. So we still want to give ourselves optionality, as you rightly pointed out. And we are actively working on that more to follow in the next coming months and quarters.

Okay, great. Thank you. And then my second question, you've obviously spoken quite a lot about your repositioning in SWS towards more energy and utilities markets, given the, yeah, sort of the positive mix effects you can see there and the growth potential there. I believe at full year 23, you recorded that about 23% of SWS was exposed to energy and utilities. Could you give us an indication as to how that's changed or what sort of level in terms of exposure that's at now?

On a full year basis, we're expecting the percentage and the exposure to sustainability energy transition and so on to slightly increase. We will have a quarter to quarter difference because of the ordering patterns and so on from some of our key customers in the U.S., But the ambition, the plan, and the prospect to grow that segment within SWS is as valid as ever. I mean, you know that we are enjoying very nice margins from that business. It's meant to continue for the foreseeable future.

Okay, but only a small year-on-year increase this year? Yes, exactly, exactly. Okay, perfect. And then just one final question from my side. Looking at the specialty businesses segment, obviously you've spoken that the market environment for the combustion tech and the hosting and variable business is still quite weak and is largely offsetting the positive developments in, for example, dry mix or hydrogen. Do you see a light to the end of the tunnel for these end markets? Do you see any sort of positive indicators there for the remainder of 2024, or do you expect that to really remain negative or subdued for the coming year?

I understand that this line was not perfect, but it was a question more on the segments in specialty business, combustion technology, as well as at the wholesale. So on the combustion technology, and we explained the demand reset last year, correct? The good news is that this year our top line is in line with our expectations, correct? So we see a stable environment there. And we also adjusted our full capacity footprint to that adjusted to the mountain and sails. So there's a pretty stable environment for this year. If you call the monitoring in the energy transition, what will happen towards next year, but stable there. On horsewiring and freighter belt, I think we also have a stable situation, so the mount has stabilized. So basically in line with what we expected for this year. So no further decline in the stable situation in these two segments, but not showing growth, of course, in these two segments of specialty business. Okay. That's very clear.

Thank you, gentlemen.

Super. Thank you, Chase. And Stein, you're next. Please go ahead.

Yes. Good morning. Thanks. Thanks for taking my questions. Can you hear me? Because I have a bit of a technical difficulty with this call. Very clear. Okay, perfect. So my first question is actually on the sales guidance. What level of confidence do you have in reaching this ambition of modest sales growth? Because if I make my math correct, you need 5% sales growth for the remainder of the year to be flat year over year. But WireRot isn't exactly helping. I learned from the previous question. And Q2.com doesn't strike me as necessarily that much easier either. So can you help me understand the building blocks of that sales uplift that you expect over the next nine months? That's my first question.

Yeah.

So in order to keep flat sales or slightly increasing as per the guidance that we gave, that means that we need to do roughly 1.1 billion euros of sales per quarter. We closed Q1, which is typically one of or the second lowest quarter of the year at $1.25 billion. So you can do the average. We need to do 1.1 for the balance of the year, knowing that Q2 is typically the strongest quarter. So which... where we should hopefully deliver a level of sales higher than what we have done in Q1. So, I mean, in terms of calendarization, I think that the narrative is clear and it's compounded by the previous trends. As far as the YROD impact and the steel prices are concerned, we mentioned that we are not expecting major deviations in terms of YROD. It's meant to be flat, so we will not see a negative impact in terms of YROD pass-throughs and so on impacting our top line as far as this year is concerned. So these are, I think, the two key elements to answer your question.

Okay. Can you maybe to go further on that, you expect a better Q2 versus Q1? Why route which was a drag in the Q1 bridge will no longer be a drag in the bridges going forward? Is that a good interpretation?

That's the right interpretation, yes.

Okay. And then you mentioned Q over Q volume increase in Q1 versus Q4. But this is partly due to a typical season uplift you see there. As you mentioned, Q4 is typically the smallest quarter and then Q1. So over the 6%, how much is seasonal and how much is actually a peak of underlying demand? Yes.

I think that most of it from Q4 to Q1 is seasonal. You have some demand pickup primarily coming in some regions like China with the situation we're facing with the very strong demand and plant occupation that we have. We have also the significant volume increases that we are reporting in applications like construction, where we're reporting a volume increase by 7%. So again, you will need to look at it segment by segment. Then when you compound all these pluses and minuses, I mean, we will be definitely topping a top line which is in the range of 1.2 billion, 1.1, between 1.1 and 1.2 in Q2. We will have the phasing impact with some of the delayed projects which have negatively impacted us. in Q1, especially in BBRG, coming back online in the balance of the year, hopefully between Q2 and Q3. So this should also drive the sales up. And this is also the other elements which are explaining why we remain confident on our ability to deliver at least 4.3 billion euros of sales for the full year.

Okay. So you wouldn't see a typical seasonally weaker Q4 then is the end outcome of this exercise?

Yeah. I mean, we always have a typical low Q4 for two main reasons. The first one is that while it's the winter and it's the low construction season, so typically we see a contraction. in the construction applications and by nature it's also a short quarter with all the vacations so we have lower production output. Having said that, and last year probably was another example of that, you do see sometimes some punctual events happening, which distorts these historical patterns. And we did see last year in Q4 some significant restocking happening in China. And we are not immune of any of these specific events if they again happen in Q4. But I rely only on on what we know and the usual patterns q4 is typically a low month low quarter so we might expect a level of sales which will be a bit below the 1.1 billion that i have referred to but we have ahead of us two strong quarters, which are Q2 and Q3, long quarters where we usually have the highest level of demand in some of our key markets like construction. I referred to, and Chase has asked the question on the situation with the energy and utilities business in the U.S. We did see some delays in Q1, which might come back in terms of order intake in Q2 and Q3, and this would further consolidate the expectation that we have in terms of sales for the two next quarters.

Okay, understood. Final question, and apologies because maybe I'm misunderstood because the line dropped a bit. But on hydrogen, you mentioned you still expect in the long term the business to double every year, but in 2024 it will probably be somewhat less. Is that correct? What I heard correctly?

It's close to doubling, correct? So it's not 100% doubling what we expect, but almost close. So I think there is no change versus what we heard.

Can you remind me the 23 base?

30 million revenue.

Okay. All right. Thanks. Thanks for clarifying. These were my questions.

Next time. Alexander, you're next. Please go ahead.

Hey, thank you. Two questions on my side. So one was on the rubber reinforcement segment. Sorry, I forgot to put on my camera. So you mentioned that rubber reinforcement continues to drive margins, and I was just wondering what the difference is in margin between low tensile and high tensile, because I think if you take the implied currency, which was €400 million... In EBIT, I think probably you're expecting an EBIT margin of 11% in the rubber reinforcement segment, whilst your mid-term target is 9%. And I was just wondering if that 11% that you're seeing is sustainable, considering actually that the EV trends are positive, etc. And my second question would be on the cost optimization at Bekaerts. which you mentioned and which has already been mentioned in quite some press releases in the past. So I know cost optimization is a constant at BigHat, but I'm just wondering how much is available there still. So thank you for that.

Okay, I will start with the second part. So cash conversion and the cost reduction. I mean, when we speak about cash conversion optimization, I mean, it's not that we're doing restructurings or anything like that. It's just that we're doing what any company should do is being cost conscious and flexing the cost wherever we can, making sure that what we spend on our operation is meant for production, going after the waste and doing continuous improvement. So, I mean, again, I'm not saying that this is an exercise which has a start. And it will continue. We have some significant programs on which we're working in terms of cash conversion cost. It ranges anywhere from optimizing the energy intensity of our machines to making sure that we simplify the scope of our steel ordering to benefit from higher discount from our suppliers through a focus on engineering simplification and things like that. So this is something which is constant, which will continue, which will continue to have an impact on our cash conversion costs, and we will accelerate the activities on that. It has nothing to do with punctual restructuring or anything like that, and it's something that we like, that we're proud of, and on which we are stretching our people. The first question, Alex, was on, yeah, our rubber reinforcement. So, indeed, I mean, we do see a good momentum in terms of the STUT construction. So, I mean, we have... a nice progression of the volumes associated with these constructions. So I think that I mentioned that it's roughly about 50% of our business are currently. The key catalyst is clearly the EV. We didn't disclose and we will not disclose the margin spread between the standard construction and these premium constructions. However, I mean, if you try to reconcile with the level of margin that we have guided for and the statement that I have just made, I think it's important to take into consideration as well the impact of the regional mix. So I think that in a normalized environment where Europe is doing well, North America is doing well, these are the two regions where we have the highest margin contribution, yes, we can expect the margin to be at 10, between 10 and 11%. This is not the case. We do see the situation in Europe continuing to be subdued. The regions where the business is picking up significantly is China and Southeast Asia, including India. And these are typically regions where the margins are a bit lower or lower than what we usually deliver in Europe and North America. and explaining some of the reasons why we're guiding for a more prudent margin delivery for the time being.

Okay. All right. That's clear. Then maybe just a last question. It was on the energy surcharges. And you mentioned that the energy surcharges are now not applicable. I was just wondering, does that mean that they're not embedded in the contract anymore with the clients? And if you could just remind us how much you profited from the surcharges last year. Thank you.

yeah i mean the energy surcharges closed are embedded in the contracts and basically they kick off when energy prices are above a certain threshold so now this price energy prices are normalizing electricity prices are normalizing we're still benefiting still marginally uh from from them depending on the region where some of the supplies are scarce, but they are embedded in the contracts. They are there to stay. The only thing is that they are triggered when we see deviation versus a pre-agreed level of energy. I don't recall if we isolated from 2023 results the specific impact From it, checking with the team, it's not the case. So unfortunately, I will not be able to state a precise figure on that. But you did profit. Yeah, obviously. And I think that we explained it when we refer to all this push through of inflation cost, which has generated sales, which didn't deliver margin. And out of memory, it was, I mean, the impact on top line was around 800 million euros in 2022. If you remember, and we said that these sales didn't generate any margin because it was primarily push-throughs of cost inflation.

And then maybe just as a simple question, but you're still confident with the implied guidance of 400 million in EBITS 2024?

We are definitely comfortable and we are confirming these guidance.

Thank you very much.

Thanks for attending. Thank you very much. Bye.

Bye. Thank you. Thank you.

Thank you. Bye.