Bekaert Sa Ord

Good morning and welcome to the Bekaert 2024 results call. At this time, all participants are in a listen only mode and we will open the floor for your questions after the presentation. If you require assistance, you may press star zero on your keypad at any time and an operator will assist you. If you wish to join the queue to ask a question at any time, you may press star one. And should you wish to remove yourself from the queue, press star two. As a reminder, this conference is being recorded. It is now my pleasure to turn the floor over to your host, Guy Marks, VP, Investor Relations. Sir, the floor is yours. Guy Marks, VP, Investor Relations. Sir, the floor is yours.

Guy Marks, VP, Investor Relations. Sir, the floor is yours. Guy Marks, VP, Investor Relations. Sir, the floor is yours. Guy Marks, VP, Investor Relations. Sir, the floor is yours. Guy Marks, VP, Investor Relations. Sir, the floor is yours. Guy Marks, VP, Investor Relations. Sir, the floor is yours. Guy Marks, VP, Investor Relations. Sir, the floor is yours. Guy Marks, VP, Investor Relations. Sir, the floor is yours. Guy Marks, VP, Investor Relations. Sir, the floor is yours. Guy Marks, VP, Investor Relations. Sir, the floor is yours. Guy Marks, VP, Investor Relations. Sir, the Let me just take you through the safe harbor. And 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. Becca 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. Becker also 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 published publication issued by Becker. With that tongue twister out of the way, I'd like to hand over to Dave.

Thank you. Thanks, Guy, and also a warm welcome from my side. So 2020-2024 results. So another year of resilient delivery in a business environment that has been challenging, with 24 with two phases. First half still good market amount, and second half, which, you know, we hear market amount in many of our end markets. In that context, we deliver a $4 billion top line and an EBITU margin around 9% on the higher end of our guidance. Underlying EPS and leverage broadly in line and stable with previous years. So some highlights on 24. We continued, of course, working on our mix improvement cost structure, minimizing the impact of lower volumes. while also evolving or progressing, as announced this morning, on our business portfolio with a further divestment of our activities in Costa Rica, Ecuador, and Venezuela at attractive multiples. We've been commenting during the last year's calls about the evolution of the growth platforms. So based on geopolitical situation and priorities in the end markets, we've seen some slowdown in some of our growth platforms. our delays we will come back later how we look into the future on the other end we've successfully integrated in the synthetic gross business our acquisition of Mexico and the Flintstone business one of the challenges we shared in the second half of the first half of the year and then uh we copy in the first second half of the year was the operational challenges in our always business in Europe and North America. And we're happy to report that the recovery plan as laid out in the second half of the year has been materialized and we brought back the business in the profitability levels that was targeted. So having said that, this introduction, I hand over to Seppo who will give you more details about our financial and operational review by Cegna and those at the company.

Thank you, Yves. Let's start by looking at the group performance, and as you can see on the graph there on the left-hand side, sales at 4 billion euro level, that is down 9% compared to the year before, due to lower sales in vegan end markets. Main factors behind the sales reductions are coming from various places, and it's maybe due to lower faster material and lower volumes. Low was passed on material energy costs at 3.9%, the volume is 3.5%. There's also 1.2% negative effects on price and mixed effects. Variancy movements had a relatively small effect, 0.7% negative, and acquisitions they made during the year increased sales about 0.8%. EBIT margin was stable at 8.8%, despite the lower volumes, that is thanks to improved mix, We also have an intensive focus on coast improvements and working on our coast structure, both on administration, SGA coasts, as well as gas conversion coasts. And also work done on footprint optimization in the past is also visible in the resilience of the result. Then let's move to rapid reinforcement, where we also see resilient performance in vehicle and markets. Sales were down 9.5% and reached 1.7 billion euro level. It's mainly also due to lower past and material energy costs by about 6.2% and lower volumes 2.2%. Price and mix effects were probably stable, just negative 0.2% and currency movements negative 1.1%. We had also volume growth. in Indonesia and India, that is thanks to new production capacity that has been installed there to serve in this local demand. We had lower volumes in Europe and North America, about 3% down, and lower volumes in China, but then we had to remember that 2023 was a very strong year, and then we saw a reduction of about 5%. EBIT, new underlying EBIT margin was 8.7 percent compared to 9.6 percent the year before. You see there that the competition in the global bio market continues to intensify and margins are mostly impacted in Europe with lower sales volumes and related occupation levels and we have kept year as there's strong focus on post-pull business selection as well as on business portfolio customer portfolio development. In steward solutions, we also face the reduction when it comes to sales, but there is important to note that a big part of the four-year reduction of about 5.9% is coming from close-off operations in India and Indonesia the year before. That's about two-thirds of the drop in the volume. We had higher volume increases in China, offset by some small volume decreases in Europe and North America, and volumes were also weaker in Colombia and Ecuador. And the effect of lower fast and material energy flows and price and mix rate was about 2.8. Positive thing in SWE-STO solutions, this actually was EVU margin increase to 10.4%. That is almost 3 percentage points increase compared to 2023. That is thanks to further mixed improvements towards higher margin applications in the portfolio. and also actions around footprint, goal savings, and business selections that have structurally improved margins and taking profitability to a new level. We had also strong cash generation in steelware solutions, thanks to good, or I could say even excellent, working capital management, and improved profitability also helped to improve cash flow. In PBRT, Our operational issues had an effect on top line as well as on profitability. Our sales went down about 6% to 552 million euro level. There was positive effects from price and mix of about 0.9%, but volumes were down 11.7%, and currency movements had negative effects of 1.1%. Acquisitions, that's mainly textiles that we acquired last year, had positive impact of 5.7%. We have been solving operational issues we had and faced last year in US and UK. It's positive that we can now say that we are returning to normal production in Q4 last year, but that would not offset impact of lower performance in the steel growth sub-segment during the year. But of course, it is a good start for the new year. Synthetics grew strongly in sales and profitability, And also important to tell and notice that integration of DEXRA and Flintstone has done well and meet our expectations. EPQ margin at 9%, that is a reflection of lower sales and lower cost absorption, yield output issues, primarily in steel rods, like mentioned earlier. And stronger Q4 in steel rods lifted the margin up from first half of the year 7.4% to ten-and-a-half percent now in the second half. It shows that we are on the right track. We are working and continue to work on optimizing production footprint, and we have recently announced closure of the plant following our footprint review. Then moving to specialty businesses, where we are navigating short-term challenges in the end markets. The sustainable construction volumes were up 1% compared to 2023, and we had volume growth in all regions except North America. Volumes increased primarily in India, Latin America, Turkey, and the Middle East markets. Also positive is that over 50% of the volumes are from 4D and 5D ceramics, and also important steps have been taken In sustainable constructions, we have first projects on the Sigma Slat, elevated floors in Central America, first projects on seamless flooring in China, and prestigious tunneling projects in Saudi Arabia, just to name three good examples. In hydrogen business, our sales went up 36% compared to the year before, but cancellations and policy uncertainty has slowed down expected growth. through our progress in the business. Our production rampart has been carefully faced, the line goes based with demand, and we continue with our modular approach here when it comes to investments, so that we are ready to capture the growth and invest more when the markets come back to normal growth path as we expect. And we have continued to invest in R&D in hydrogen. That is, of course, having some effect on profitability as well. In the other businesses especially, I can mention that filtration and pipeline markets have been stable, but the demand for ultrafine wires was lower in the second half of 2024, following the technology crisis. And those one-way and better combustion technologies faced lower demand during the year. Then we could look at the debit bridge. And then we can see that March is happy, well protected despite lower volumes through post control and mixed improvement that we have worked on. And if you look at the EBIT percent, it's going down from 9 to 8.8%, which is, I think, the full regime and taking into account the top line decline that we have faced. And as you can see on the picture, it's very much relating when it comes to Euro-wise to volume and gas conversion for absorption. because of the volume that has been driving the EBIT, in EBIT wise, the EBIT, in Euro wise, the EBIT down. Then moving to our joint ventures, and I want to highlight the performance Yeah, as it is not included in our EBITDA or EBIT because what reported below. So good performance on joint ventures has continued. Also positive margin development if you look at the profitability of that has developed. Also it has created positive cash flow through solid dividend flow as you can see over the years and last year we received 51 million euro dividends from our joint ventures and they profited profitability was at 49 million euros. So quite significant contribution to the pet card as a company. Then couple words on our one of goals that we have with the result. It's at 52 million euros level at the same level with last year. And this was another year of restructuring for the future health of the pet card. a big part of the restructuring charges, but 44 million relate to changes at the sites in China, Belgium and the UK. Those are good changes and optimizations that we are doing. There is some 8 billion relating to environmental remediation and our ongoing investment in M&A. These actions that we are taking, And the posts that we are taking up front make us more resilient, that we have also seen in the results developed last year, that the margins have been quite steady despite the lower top line. And, of course, all the time making us more post-competitive as we are taking out posts and including occupancy rates at our remaining plants, and that way making us more post-competitive. Then let's move forward and look at the income statement. sort of below EBIT. There you can see a reduction of the interest costs, net income and expenses, and banking charges. One thing to pay attention is also relatively flat tax rates and taxes paid during the year. And this positive still has led that the EPS figure is down only 4% for the period of sales decline of 9%. Working capital is one focus area for us in the year that has started. Overall, working capital was up about €10 million in 2024 versus 2023. This mainly linked acquisitions and currency impact. And we are working on reducing working capital to improve our cash flow. We are targeting to bring it down to maximum 15% level when it comes to 30% ratio to sales. We were at 16.5% at the end of last year. But our cash flow generation has been robust, as you can see. despite the lower sales and an over EBITDA level in euros. So the cash flow was at 193 million euros for 2024. CARB-X in 2025 will be flat compared to 2024. And we have done a very good job there when it comes to managing the CARB-X levels going forward also with the modular capacity ramp up to avoid overspend as well as potential capacity, overcapacity impacting our margins. And we will continue this strategy also going forward and potentially increase capital expenditure once we see that the expected growth is coming back. Then finally, about shareholder returns, we have consistently generated strong cash flows and that has also continued last year. Alongside growing the business, this has also enabled us to give extra returns to our shareholders. We continue this also now with the continuing of our Progressive Dividend Policy with a proposed dividend of 1.9 euros per share. That is an increase of 6% year-on-year. This return, about 100 million euros, is on top and alongside the share price program that we are currently undertaking, as announced earlier in November, 200 billion euros over two years. And now I hand back to you, Iitko, to operational strategy review. So please.

Let's have a look at the progress we are making at our strategic priorities. So we did identify five or four priorities. First of all, is to become more market-driven to these end markets, and I will give you an update, and creating business units that are self-sufficient from strategy to resources, from strategy to execution. Secondly, is to transform our business portfolio to capture more growth opportunities in the future, drive more innovation in these end markets, and build global brands. And in the meantime, strengthening our fundamentals. If you look how we are progressing, type of self-assessment, performance, point of view as management, as mentioned, stable performance in a difficult market environment, to be used above the 10% margin level, and robust cash regeneration. On the transformation side, making progress on some smaller acquisitions, successfully integrating them, adding value to Baycard, but also on the divestment side, further disposal of more commoditized businesses at interesting multiples for our company. We continue to work on the portfolio rationalization, but also on our footprint rationalization in the upcoming years. And the M&A pipeline is increasing, so we increase the review of potential investments to diversify, but also focus our portfolio in this end market. The area where we have less progressing and less satisfied is with the growth area. So due to market market environments changing in sustainability priorities and divestment or delays of investments. We've seen a delay in our growth platforms. However, we are confident and I'll come back to that that we are positioned to capture the growth in the future. The areas where we see growth like India and Southeast Asia, we keep on expanding our capabilities and capacity there, mainly in the area of rubber reinforcements. And for the growth platforms on the long term, we still aim at 5% growth in this end market. Having a look at the priority markets that our business units are serving, so the 7 billion tire reinforcement markets in terms of addressable markets, Steel wire solutions focusing on transmission and performance wires. There you will see that these figures have been updated versus the previous communication. In that sense that we were looking at 28, now we are looking at 2030 end markets. And we updated also the estimate potential markets for performance wires in this segment. We confirmed the market visibility in our ropes business, both steel as well as synthetic ropes as well as advanced cords. Specialty business, $7 billion. in which 4.5 billion 4.5 billion is the hydrogen play 2030 reconfirmed and then the last one sustainable construction went from 2 billion to 3 billion by including the potential of conversion in the tunnel segment from traditional reinforcements to the fiber reinforcements so having some quick words on how we are progressing in these end markets and some recent developments. So first, in the tire reinforcement business, we continue to focus on capturing opportunities with the trends of electrification and sustainability. In the recent developments, what we've seen in 2024 is a weaker end-market demand, mainly in Europe and in China, and an increased competition in the global tire market. On the other end, we've been successfully renewing long-term agreements with our main customers, and intensifying our collaboration with the strategic partners both on technical as customer proximity. Looking in 2025, beginning of the year, we see this cyclicality in the tire market holding on in the first half with a recovery in the second half. And of course, we have to monitor how the service geopolitical uncertainty will play out in this industry. We expect volume growth still in the same regions like India and Southeast Asia. We see some opportunities in the U.S., and we continue to drive our mixing group. If you look at the next segment, transmission and performance wires, so a $3 billion addressable market, we are continuing to capture opportunities from grid connection and rising electricity data demand and data demand, mainly in markets like U.S., but also more and more in Europe. We've seen 24, a very strong automotive business for us in China, of course linked to the strong automotive OEM business in China, both locally but also export for them. We've seen a very strong or solid demand in transmission, and we've seen weaker demand in Europe and China in the construction and consumer business. Moving into 25, we see a solid supply end markets. The automotive market continues to be strong in China, but less so in Europe. And we see, of course, local opportunities in this business based on the new tariffs. Moving to advanced lifting and lowering, so 5 billion end markets. We will continue to work on strengthening our offering here. We've seen strong demand in synthetics, both in oil gas as well as offshore wind. We see softer markets in specific segments like coal mining and gain in industrial. And for 2025, we see more uncertain market outlook in Europe, while a better outlook for North and South America and the mining in Australia. Recovery in this segment in construction is still hesitant. We look into energy transition. As mentioned, the electrification, renewable, Of course, we've seen recently the delays in investment and policy changes, which lead to postponement of projects. On the other hand, we've seen an increase of the final investment decisions up to 20 gigawatts for the upcoming years in terms of electrolysis installments. We see consolidation play in the electrolysis equipment manufacturers reprioritizing investments. that we are confident that we are connected with the winners of the future in this industry, and we are happy to see the continued interest of the customers in our products, our PTOs, but also in the more innovative solution of Maya, and that we are focusing on securing being qualified, but also getting new LTSA in this segment. So clearly, 25 will continue to see these delays, also emptying the supply chain in this segment, but long-term remains a potential for us and we are ready to scale up in this business. Also to remind you that Beka received or was eligible for subsidies from the green hydrogen, from the European Investment Innovation Fund up to more than 20, 25 million to further deploy our solutions in hydrogen, both manufacturing as well as innovation. The other segments, smaller segments in energy transition, filtration and hose wire and conveyor belt remain pretty stable, and we expect them also for 2025 to be stable performance. Moving to sustainable construction to conclude here, so a $3 billion dump. We've seen in the last two years, 2022-2023, a normalization of the high pricing in this segment. which were pretty high in the last two years, so 24 normalized pricing and lower activity in the sector in Europe. We are serving two end segments, the building and infrastructure. So, first of all, we see an increased potential in the infrastructure segments with investments from governments in the infrastructure, while also healthy pipeline in tunneling and flooring projects. It's certainly an upside in the U.S. over time with the strengthening of the local production, which is leading to additional manufacturing, warehousing investments in Europe. From a portfolio point of view, we announced this morning the sale of our business in Costa Rica, Ecuador, and Venezuela. Enterprise value of 73 million with a proceeds net of 37. So multiples around 6.3 million in line with the divestments in Chile and Peru. This decision is driven by the focus on rationalizing our portfolio, having businesses which are less commoditized and less cyclical, and positioning ourselves for focused businesses in the future. Happy to have our operations and our teams landing in a family holding a group of AGs which give them a very nice home for the future. The hot topic of the last couple of weeks, months, is the evolution of the import tariffs and the potential impact on global flows. We have mitigation actually in place like in the past. Descartes has a global footprint around the world. with a strong presence in the U.S. for local production, but also local supply of wireless, complemented by imports from Latin America, but also from Europe and China. So we will monitor closely how import duties will play out, not only for the half products, but also for the final products that are driving the demand in the markets. So if we look a little bit back in terms of our performance, happy to report out another year of resilient performance in terms of profitability despite a volatile market environment and we are reiterating our mission on the midterm to drive to a 10 business from a profitability point of view having some words on the outlook for 25 we see the Weakened business environment in second half continuing. Now, second half, Q3 and Q4 had a slightly different image. Q3 was really weak. Q4 was stabilizing. And we see a continuation of that stable demand going from Q4 into the first half of this year. So, on the overall full year, we expect flat to slightly improving revenues and at least stable margins from a profitability point of view. which is more half-half equally split between the first half and the second half. This has to do with the business profile and the businesses we are in. So thanks for listening to our explanation and I think Guy, we are over for you for the Q&A. Yeah, actually back to the operator.

Thank you. Ladies and gentlemen, the floor is now open for questions. If you wish to join the queue to ask a question at this time, please press star 1. We do ask if listening on speakerphone today, please pick up your handset while asking your question to provide optimum sound quality. Once again, please press star 1 on your phone at this time to join the queue to ask a question. Please hold a moment while we poll for questions. Thank you. Our first question is coming from Wim Host with KBC Securities. Your line is live.

Thank you. Good morning. I have a couple of questions. I'll ask them one by one if I can. First would be on the general cost outlook for 2025, things like energy, wire rods, other raw materials, freight, to name a few. If you can just elaborate a little bit on that, how you see the outlook evolving also salaries, for example. If you can just walk a little bit around that subject, that's the first question, please.

Well, I think fair to say in general that inflation is and has been coming down and has stabilized. So in that sense, I think it's quite a change compared to the past couple of years. So no bigger changes. Of course, salaries typically follow inflation rates in various countries. I think the biggest question is around the logistics, how that will be affected in the supply chain because of the tariffs and disturbances that can have caused on the on the supply chains and freight costs globally. But other than that, no bigger... Yeah, perhaps I can add, Wim, to Seppo's comments.

If you look at the Y-road, we see pretty stability. Now we see increasing Y-road in the US already. That's, I think, the region where we've seen movements. And, of course, to be further monitored based on the import duties and the flows.

Okay, understood. And then my second question would be on capital allocation in general. You have the share buyback program, but can you maybe talk also on M&A? What kind of size of potential M&A targets are you looking at? You said the pipeline is filling up, but Yeah, how much transactions can we expect? I presume still in the growth areas mainly. Also, if you can talk on other parts of the capital allocation discussion, CapEx, how much CapEx are you foreseeing for 2025? And also, can you then maybe elaborate a little bit on the projects that you would spend money on? Back to you.

Let me start with M&A and then fill in on the CapEx side. So on M&A, as you said correctly, we continue to look at a couple of segments and targets. Some of the targets we are looking at are JCCC complementary to some of our growth areas to consolidate some of these offerings or strengthen them. So that's one area. We are looking also at new segments for Beka, where our capabilities, as we said, in terms of scaling business globally and in segments where we think we can play a role. So I think that grunting over time is the second segment we're looking at. And then we are constantly also looking at all our businesses where we say, where are they in the maturity curve? and which type of next, let's say, stage we need. Is it an innovation? Is it a consolidation play? So gradually, over time, in terms of the portfolio evolution, these are the three dimensions we are looking at into our M&A. From the CapEx, I will hand over to Seppo.

Yeah, thanks, Ivan. And like mentioned, we foresee that the capital expenditure for 2025 will be more or less at the same level as 2024, so about 190 billion euros. But like I said, if and when we see growth coming back when it comes to our growth platforms and bringing new growth opportunities, we are willing and able to increase that from this 190 million euro level.

If I can add, in the previous years, we had a slightly higher capital allocation to the CAPEX, mainly in the growth areas. I think we are now well positioned with the capacity capabilities we have. So that's why you see slightly lower levels than what we planned for 2024. Also, people think to take the opportunity to further strengthen in the operations of patient performance improvements which will help us on productivity and also making sure our assets are equipped for the future.

And on top of that, the capital allocation, as you know, about 100 million is the dividend that we have proposed. And then another 100 roughly this year for the share buyback that we announced in November, 100 plus 100 in over two years.

No. Okay. Understood. Yeah, those were my questions. Thank you very much.

Thank you. Our next question is coming from Frank Klassen with DeGroof Petrochem. Your line is live.

Yes. Good morning, all. I'll also ask my questions one by one. First of all, on your guidance of flat revenues, can you roughly break it down? What are your assumptions for, let's say, pricing, and what are your assumptions for volumes? Is it both flattish or maybe pricing a bit up, volumes a bit down, or what are your thoughts on that?

Good question, because of our different segments have been through, because this is, of course, some of all our segments. I would say It's both pretty flat, I would say, on the volume and on the pricing side. Of course, we now have to see with the latest evolution of the tariffs we see in some regions, certainly price increases. Certainly in the U.S., we see that. We will see there are more price opportunities, correct? But I would say across the businesses, it's both dimensions.

Okay.

Thanks. And then on working capital, Indeed, it increased a bit versus last year. Yeah, and you still have the target of 15%. Can you elaborate why was this? Is this a temporary thing? What are you doing to improve the ratio? Can you elaborate on that, please?

Yeah, thank you. It's a good question, and I fully agree with you that it's rather at the high end of the of the range that we want to be, and we have set the target to be at 15% or below. I think if you look at the drivers for higher working capital, and also in relative terms, it's driven by several things. One relates to the inventories, which are a bit at the high end because of the slowdown of the business and volumes. So we need to continue to manage the inventory levels and adjust production better to the demand. Second area that we face, and that was visible at the end of the year, was that some of the customers were delaying their payments over the new year. That is correcting at the moment. And that is partly a reflection of probably the hard business environment out there. We don't see that, I don't see that as credit risk when it comes to our customer portfolio. It was rather behavior-related thing over the new year that was one thing, but obviously puts also our focus more and more on the customer receivable collections, then sure that we are getting our money on time. And we have actually started to look at the various places there, and we are focusing on, like I mentioned already, to improve the collections of the overdue receivables. Also, of course, working on payment terms, both on the customer side and on the supplier side, because that is, of course, one of the key things when it comes to working capital management. And when it comes to inventory, it's, of course, a lot about production planning, sales forecasting, improving our sales and operations planning. in order to ensure that our production plan is matching to the expected demand and delivery schedule so that we don't build too high inventories. There also comes a question of consignment stock arrangements that we provide to our customers, how those are managed, do we have and what kind of consignment stock arrangements from our own. suppliers, as well as the public stocks that we keep and carry. That's how to optimize those and that also leads to supply season operations planning as well. So we are working on many fronts there and that way we are confident that this is a temporary increase in the working calendar.

Perhaps an additional point is that we also positioned some stocks strategically.

Okay, that's helpful. One final question on the SWS. Yeah, the margin improved quite a bit from 6% to 10% last year. Is the 10%, is that the new normal or can it increase even a bit further? And yeah, can you spend a few words on that, please?

So of course we are happy with the performance of our SWS division. And I think it was a strong performance driven by good business energy and utilities in the U.S., but also good operations in China, strong automotive pool, correct? And then also in Europe with good results. So I think we are pretty happy and pleased. We need to be realistic in the steel wire solution business, correct? So from a portfolio point of view, So it's a mix on one hand, focusing on certain business with better margins, and then, let's say, not divesting, but stopping some of the segments. And then, of course, comes now the further divestments of the three countries in Latin America. So I think we need to remain realistic with this business segment. Of course, if the group wishes to be above 10% segment,

Okay. Thank you very much.

Thank you. Our next question is coming from Alexander Klymarsh with Kepler Chevro. Your line is live.

Hey, Alexander from Capital Chauffeur here. Four questions from my side. So, in 2023 at the CMD, Bicard put out some sharp targets for the mid-term and that was at that stage 2026. You now mentioned again mid-term, but those for the 10% EBIT margin target. But does this still mean 2026 or does the cautious outlook on 2025 also imply that your 2026 EBITDA targets are on hold and you get some more visibility there? Then I'll ask them all at once. So then the second question would be the addressable markets seem everywhere the same in 2030. versus the previous communication on the 2028 addressable markets except for the sustainable construction. Where does this basically no growth from 2028 to 2030 come from? Is it just a delay in the orders? And the third question would be on the outlook. You state at least stable margins, so you seem to have some confidence that we are at a trough on the margins. I'm just wondering where the confidence comes from and what could drive the margins higher? And the fourth question, the last one, just a small one, the divestment in LATAM that's planned for Q3, is that just the full LATAM North business? Thank you.

All right, good. I hope you all captured your questions. Let me start with the first two and then on the outlook, you can jump in and I will take back the divestments and So, first of all, on the medium-time survey, the CMD has two components. One is how do we drive performance and profitability, and how do we drive growth? And I simplified this a bit. So, by 26, we set the profitability targets of 10%. This was driven by the performance improvement and then gradually getting the growth platforms kicking in. So, what we are saying here is that we are still targeting the 10% in 2026. So, we are hovering around 9%. So, our assessment based on the evolution of the portfolio, the performance improvement we are doing, that this will be enriched. We repeat our 10% profitability for 2026. The element which is on that side, or is less favorable, is the contribution of the growth platforms to that profitability target in 2026. On the other hand, we are making good progress on some of the core businesses as well. So I would say we need to look at this a little bit balancing out and what we see for the moment we are targeting. Of course, we still have to see how the global economy will evolve in 2025, how the whole geopolitical situation will play out, how all the tariffs will play out. I think that's a big uncertainty that I think we all of us have. On the growth side, what we communicate is that on the long-term, mid-term, the growth is ambitious of bigger than 5%, and that was clearly linked to, of course, a change in portfolio and the deepening of these growth platforms. So certainly on the growth side, we didn't specify a timing because it was linked to these platforms. On the thumbs side, So, you're right. So, we didn't want to, let's say, go behind the comma. But if you look at tire industry, yes, you have some growth, 1% to 3%, some region more, some less. So, for that point of view, it doesn't fundamentally change the addressable market. the same for the ropes business. Now, where we updated it was on the lifting and the modeling. As I said, because we looked more at the scope of it and the sustainable construction also because we increased the addressable marketing tunneling. And I would like to mention there, so we look at the steel reinforced concrete in a different application and we make an assessment which part can be converted to fibers. Then in energy transition, it's really a delay. So that's really, if you would look at the time of 28 would be down, but we estimated that with the two years delay, we was looking at the same addressable markets. And of course there is out of the 7 billion is 4.5 billion with our offering in PTL and Maya. And of course we have to see how that industry would further people, but that's our latest update. So I think by that, I guess from my life and, and, Tell me, Alexei, if I didn't fully clarify your question, but let's go to the article perhaps that we first think divestment on LATAM and also if you look at our operations, the operations in Colombia will remain under the joint venture structure with DECA and our joint venture partners. And so that's basically the operation that remains, what we call LATAM North-South. Of course, we still have our joint venture in Brazil. So, Colombia will remain under our joint venture partnership moving forward. So, can you go on?

Yeah, thanks. Thanks, Ivan, on the outlook and our statement on at least stable margins. That relates to the fact that we already, second half of last year, started actions to work on the post-test. to adjust to the lower top line, as well as improve our cost competitiveness. So that gives us a better starting point for this year. We also continue focusing on our SGA structure, looking at using our SGA costs further this year, as well as gas conversion costs. So we have put a lot of focus on cost improvements going forward, and that is the key. Also, you have to remember that we have done quite a lot of footprint optimization in the past, but it's also improving our margins and our post-competitiveness over time, so it's not only post-reduction actions, but also the footprint improvements that we have done, and improving that day our capacity or occupancy rates in the plants. And also, our sourcing is working on several fronts when it comes to sourcing of various raw materials and other things, and that's been improving our position when it comes to costs of input materials.

Okay. Thank you very much for that.

Thank you. Our next question is coming from Chase Cochran with Bangalore Shot Kempton. Your line is live.

Hi, good morning all. Thank you for taking my questions. I'll go back to the former trend of taking them one at a time, please. Maybe starting with the rubber reinforcement margin in the second half of the year, obviously it saw some pressure. I believe that's, of course, due to the declining environment. But you also comment on intensifying competition in the tire market there. And I'm curious on what exactly you're seeing. How much is that affecting prices? And how do you plan on protecting from this intensifying competition from a sort of innovation standpoint or perhaps a cost standpoint as well? That's my first question.

Good. So, it is on the diet industry market. So, what we see is From a global market perspective, of course, and that's normal when you have a more stagnating market environment and limited road. The whole automotive, so the two segments, automotive and then more the B2B truck business and off-the-road business. But if you look at automotive, the competitive landscape of the OEMs and then linking to the tire supply, Of course, you have the aftermarket as well. But we see between, let's say, the more established players and then the newcomers in the industry and increased competition there. Now, the good news is we are serving all customers globally, right? So the Chinese, OEMs, tire makers, the Indian, European, American, Japanese, who have a strong position across the board. And so we are monitoring closely how the share of different players will evolve in this more competitive landscape. I think there's also, if you look at the press releases or the results of some of the players, they indicate some volume drops and some intensified competitive landscape. For us, it's important to understand how that will play out, and we are monitoring that carefully. I will be there in 2025.

Okay, clear. Then my second question would be regarding Dramix. Of course, you've spoken to some volume growth for that division this year. However, you also commented on the normalization of pricing there, obviously some pricing declines. But I'm curious on also the competitive aspect there. I think in a previous press release, you spoke to some increased competition in Europe specifically for the 3D business. So I'm curious on how that's developing and if you're seeing any increased competitive pressures on the 4D or 5D ranges there.

No, no remains. I think the most competitive forces are on the 3D and not on 4D, 5D where you're more expecting with more complex construction. So It remains no further, certainly not on innovative products. We've been growing innovative products as well, year on year. That's our focus, and that results in a higher mix of 4D, 5D. It's not about this product mix, but it's going big-spec-ed into applications that will create recurring businesses. Also, further first steps in precast. So I think we are happy with how we strategically are progressing. We're But the disappointment is we don't realize the close to double-digit growth in a business like that. But we need to be realistic in a market environment where construction in Europe is down, China is down. And so, yeah, that's the competitive situation.

All right, great. And then one final question regarding divestments. Of course, you've just mentioned that. The divestment this morning was sort of the last portion from the LATAM divestment pipeline that you had. I'm curious on sort of how many more divestments do you still believe you have to do if you want to achieve this 10% EBIT margin? Or what other sort of areas of the business are you looking at to potentially divest? Could you provide any more color on that? Yeah.

So you have to see it in the context of the long-term evolution of the portfolio. As mentioned before, on one hand, we are pretty happy with the very wide portfolio that Beka has put in geographical as product segments, because that gives you a sort of automatic hedging. On the other hand, it's a challenge. on the equity story. It's a challenge on the capital allocation and the resource allocation. And as mentioned, we are people think over the years to have more focused capital allocation and resource allocation to areas where there is more growth potential in the future. So you have to see that in that context and two things need to happen. One is continue to scrutinize segments that are because of cyclicality or margins or where they are in the maturity graph or also of size. are candidates for divestments and we've been very diligent to make sure we find the right partners at the right value for these businesses. And on the other side of the spectrum, where we hope to make also more progress is on the acquisition side by adding acquisitions that help us to position in these end markets as a stronger player, being number one and two in these segments, perhaps also playing more consolidation play as a leader, like we did in our previous decades in core businesses where we've been building up a leadership position So that's also on the investment side. So I think, yes, on both sides, you can expect things to come. Not only 25, but this is a journey for the upcoming years.

Okay. Thank you very much. I'll jump back.

Thank you. Our next question is coming from Sten de Meester with ING Financial Markets. Your line is left.

Yes, good morning. Thanks for taking my question. I also have four. We'll ask them one by one. The first one is on specialty. I might have missed it in the call, but can you provide some color on the short profitability drop in H2 in specialty businesses to a level that we have actually not seen since 2020? So are there specific structural elements that are driving this decline? And also, yeah, what should we expect for the units going forward? Because the declining trend has been now – visible for some semesters now.

Right. So let me give some color to that. A different component, you know, the specialty business is a group of businesses in different segments. So one non-construction, we discussed programming, that's one. And there we performance is stable, profitability is good. Only the growth area, that's where we want to get more success. If you look at the other business and the specialty business, which we categorize more serving the energy transition market, they're a colorful business. And so, first of all, you have the filtration business, the fiber business, and then we see stable performance with margins. You have then the hydrogen business. As you know, we've been now growing to 30, 40%, not doubling the revenue like for seed, right? And in that segment, of course, we invested in R&D, development, capability organization for the future. and what you will see what you see happening in 24 impact on the pnl also referred by sepo is of course these r d costs are impacting our pnl of this segment positively this segment is profitable correct so despite all the the future. This segment is still profitable, but of course, the profitability levels also impacted by the R&D investments we do and the scaling up of the factories. So we doubled. We had one in China, we have now one in Wetterer, and the one in Wetterer is ready, is producing, but it's not at full capacity. So these things, they have a short-term impact on the profitability. The other segment in there is ultrafront wire, which we communicated, I think, in the middle of last year. It's a smaller segment serving two end markets, core wire for a solar wafer base cutting, but also for the semiconductors. Semiconductor business is going still very good. As mentioned on the solar wave screen cutting, there was a disruption from the product we are delivering with the new material tungsten. And that means that was a small business, but nice profitability. And that's what you see, of course. H1 was still there. H2 and 24, not anymore. And that will be one of the variances going into 25 as well, versus an H1 comparable of 2024. So that's where you still see the impact of a very high profitable business Small revenue with profit contribution, cash contribution. And then the last statement is HGB, hose wire conveyor belt. I think there we could say we are in a stable environment, stable but not strong demand, but basically not the main driver for profit corrosion.

You've been muted. To unmute yourself, press star six.

on the positive side. And then we have the last segment, the combustion technology, which was disrupted by the change in Germany about policies about gas. Now these things are pivoting back. We've been restructuring that segment by moving all the production to Romania. So there we are back at healthy margin levels, but of course at the lower size of the business. We see some small growth, some small businesses coming back there. to make any big comment on that. So, especially the big back, and you know that the two factors for us in the future is, of course, the construction play, and in energy, that's just hydrogen filtration, clean tech solutions. That's our priority areas.

Understood. Any chance to quantify the margin in this ultra-fine wire segment, or the importance of it in the first half of in the first half results. And is there any chance for recovery going forward? I have, but I've been muted, I think. Can you hear me?

Yes, sir. I can hear you, sir.

But I'm muted in the call, so they cannot hear me.

Can you hear us, operator, or was the line cut?

I can hear me. Can everybody hear me?

Yes, I can hear you. We can hear you, but they cannot hear me. So can you unmute me, please? Okay, sir.

One moment. Okay, sir. Can you hear me now? I can hear you. Am I back in the call? Steve, can you hear me?

One moment, sir.

I will remove you from the queue, and if you just rejoin, okay? Okay, can you hear me, folks? Okay. Can you hear me, folks?

You are no longer muted.

Hello?

Yes.

Hello, sir. There seemed to have been a technical issue there. I'm going to place Steen back into the queue for questions, okay, sir? So I'm going to promote him now, and he can go back and ask his question. Sorry, Steen, your line is live again, sir.

Okay.

So you can all hear me again?

Yes, yes, yes. Thanks.

Perfect, perfect. Yeah, the follow-up on the first answer on the ultra-fine wire segment, how important was this in the first half, and is there any chance for recovering this business, or is this gone like we've seen in the past, for example, sawing wire?

Yeah, so as mentioned previously, Revenue not material from a profit contribution material for the specialty business and that business is we phased out that business in the second half. So that will not come back.

Understood. Then a second question I have is on The impact of self-help that is baked in your 2025 guidance or the EBIT guidance, since this is positive, what are the negatives you expect for next year if you would have to draw an EBIT bridge for 2025? So, quantum of self-help.

Yeah. I think biggest risks and negatives, I think it's more around uncertainties in the global economy. What does it mean when these targets are implemented? How does that affect business volumes, costs, et cetera? Of course, having said that, it's also like I mentioned earlier, I think we are pretty well prepared. It can also be an opportunity, but I think that is one of the biggest question marks.

Yeah. And then the question is, how will import duties play out? If you look at some of the segments, we see still our products basically having import duties, but not the final product. Now that can evolve. In other cases, it's protected. So I think that's from a business perspective, it's with plus and minuses. From the self-help measures, but with your SIPA25, it's mainly also continue strategically to have an organization and our resources in the BUs, right, close to the markets, increasing our, what we call, front line. uh optimizing further our back office administration correct so uh so i would not call it self-help measures measures but it's more strategically evolving further um and and that that's that's within our paragraph 25 we will continue to look at at uh the mass supply balances if needed um factory adjustments consolidation um but also ramping up so i hope that We also, one day, will be discussing upside opportunities in the market, and then we will react as well to the upside as well as to how we react to the downside.

Understood. And a final question, more of a housekeeping question. Can you share what EBIT was generated in 2024 in the divested SWS business, and to what extent the guidance for flat sales changed? and at least stable profitability already takes into account the divestment. Has it now been classified as out for sale, or is it still included in the guidance scope?

It is still included in the figures, and of course, we have now signed the contract, and we have to wait for closing, and that can take, like I mentioned, until Q3 this year.

I think it was on the valuation of the business. You know, six times around, six times multiples of EBITDA gives you a feeling about the performance of that business. So you can see it's soft 9%.

Understood. Yeah, I can make an assumption or EBIT margin. Okay, that's it for me. Thank you.

Thank you. As we have no further questions on the line at this time, I'd like to hand it back over to our CEO, Yves Kirsten, for any closing remarks.

Thanks, moderator, and thanks for all the questions. So thanks for attending. We had a good review of 24. We're already two months into 25, correct? So I wish you all a good continuation of the day and a good weekend, and then let's reconnect soon. In the next occasion. Thank you very much. Thank you.

Thank you. This does conclude today's call. You may disconnect your lines at this time and have a wonderful day. And we thank you for your participation.