NV Bekaert SA (BEKB) Earnings Call Transcript & Summary

Okay. Well, welcome to the analyst session for our discussion of 2019 results, and welcome to those who are joining us through the webcast as well. Let me start with safety instructions for here in the building because we're in a different room to where we've been before. So from the room here, basically 2 exit routes. One, if you come out through the door you've just come up. You can't use the elevators in a fire, but next to the elevators, there's a staircase. Alternatively, if you walk straight down the corridor just outside this door to the far door and then turn right, there's another elevator and another staircase beside it, and those are the 2 evacuation routes. Safety continues to be one of our primary concerns as a company. And last year, we showed very strong improvement in safety with a reduction of 26% in accident rate and in the number of high-potential accident situations. So a very good safety year for us. Okay. Let me talk now on to the business and the highlights you'll have seen from our press release in terms of the fact that we laid out some priorities at the beginning of last year, and we've lived up to those priorities in terms of improving our margin, reducing significantly our working capital and using that to enable us to deleverage our net debt-to-EBITDA ratio. If I just go through a little bit the high-level financial results and what it means for us. On the customer side, we did see our market share increase in our rubber reinforcement business in China, primarily through high-end product introduction of the ST/UT product derivatives. We've achieved some significant improvement in pricing across most areas of our business. I'll come back to that, and Taoufiq will also come back to that later. And we've also a driven very strong mix, which has underpinned the business performance in a couple of the business units as well, which we'll also touch on. We've driven a lot of cost savings in the business over the last year, and that will both -- has impacted the results from last year, but a lot of it will flow through and improve more significantly the results this year as well. Some of that is on variable costs, so our cash conversion cost in the factories, which is primarily driven by our manufacturing excellence programs, but also taking out structural costs in the business, both in terms of closing operations that are not profitable or turning those operations around as well as reducing the overall cost structure in the business. We've also had the impact of some benefits on our financing -- refinancing, particularly of the BBRG debt but also of our refinancing of our loans. And that has also reduced our interest payments, which has made another contribution to our net profits. But really, the -- probably the biggest single highlight is the work done through a very focused approach to our sales and operations planning and to our customer receivable management, which has enabled us to bring our working capital down very significantly in 2019, which, together with some strong control on CapEx spend last year, means that we've reduced our overall net debt-to-EBITDA leverage from 2.7% in 2018 -- or at the end of 2018 to 2.1% at the end of 2019. With that, I'll hand over to Taoufiq to go through some more of the financial detail.

Okay. Thank you, Matthew. So again, in many aspects, 2019 has been a pivotal year. So we had many improvements in some significant cornerstones of the -- our financial performance. So Matthew highlighted the work done in terms of cost reduction, in terms of balance sheet structure, but also from the commercial aspect. I will try to give you some more flavor on the specific areas as we go through some details of the financials. So starting with the sales. So the evolution that we had in 2019 is basically made of 2 components. So the positive -- on the positive side, we had the positive effect of the price mix and the effects, which has accounted for an improvement of 3.7%. On the headwind side, we were -- these improvements were somehow offset by some volume contraction in some areas. And also the fact that we had some passed-on wire rod prices to our customers, and this has accounted for 3.2%, resulting in the net variance of the 0.4% that we're showing. In terms of combined sales, so a 1% improvement, which is mainly resulting from the growth of the result generated by our JV partners in Brazil. Moving to the gross profit. The result that we see at EUR 588 million is actually the result of a significant improvement in terms of performance from the business. So we have generated EUR 75 million extra gross profit, resulting mainly from the profit restoration actions that we have taken in many areas of the business, the smart pricing initiatives also that we have implemented, the reduction in OpEx, the optimization of what we refer to as cash conversion cost in our factory. So all this had -- has a significant and quite positive impact in the results. Unfortunately, all this upside has been somehow offset to a certain extent by the inventory adjustment that we had to suffer from resulting from the wire rod price's movements. And we had also an impact on lower cost absorption resulting from lower activity in our engineering business, which is also absorbing another EUR 16 million out of the improvements I was referring to earlier. In terms of overhead structure, looking at the indirect costs. So a sizable effort has been delivered on that specific area, with a better cost control and a better allocation of our resources. So a EUR 27.5 million cost reduction, which is bringing our overall SG&A on sales at 8.4%, 70 basis points down versus last year, resulting in an improvement in the EBIT, which, I mean, the improvement has flown directly to the EBIT, with an improvement overall of EUR 32 million, bringing the total EBIT-U delivered at EUR 242 million. So when we combine the impact resulting from EBIT and our capital -- working capital structure, so you see as well that there is a sizable improvement in terms of ROCE. So we have improved it by 150 basis points at 9.5%, again, a result of the different combined actions in terms of cost, both direct and indirect. The one-offs that we have recorded during the year. So for most of you, it's not really a surprise. So this is in line with some of the guidances that -- and some of the expectations that you had. These costs were mainly related to the different sites in some -- 2 main business units that we had. So with rubber reinforcement, mainly in the U.S. with the steel wire solutions with the closure in Malaysia and Shelbyville in the U.S. So this has allowed us to regain some flexibility in our machine. So we're gaining more agility, and we have seen some results out of these actions impacting our EBITDA in 2019, and we will see potentially more of it coming throughout the year 2020. Looking at the year-on-year variation by building blocks. So what we would like to highlight is the fact that most of the actionable building blocks of the performance have trended positively in 2019. So we see a sizable improvement when it comes to pricing and mix, EUR 57 million. The cost effort that we have delivered, both in direct and indirect, accounting for EUR 36 million. Unfortunately, we had the headwind coming out of the wire rod prices, which has mainly accelerated during the second half of the year, which has absorbed a part of all these improvements that we have generated during the year. Looking at it from the business segment and starting with rubber reinforcement. So despite higher volumes and sales, a solid growth of 2.4%, we have been as well impacted by the inventory adjustments. So the effort which have been done in terms of optimizing the structure have been somehow absorbed. Moving to the steel wire solution. This is where we had quite -- we'll not call it significant, but we had a contraction of our overall volumes, mainly impacted in some of the geographies, which went through some turmoil. I'm thinking specifically about Latin America in 2019. But in -- to some large extent, we have been able to compensate the headwind coming out of this commercial and geographical problems through massive actions taken in terms of pricing, mix, segmentation and also cleaning of our portfolio of businesses. Then start looking at our specialty business made of 4 segments; starting with the building products, which is, in many aspects, one of the success story of the year. So the business unit had already strong sales last year. We are still on with the strong sales comparable to the level that we had last year, but we have driven the performance even further through incremental effort when it comes to pricing and segmentation. The fiber technology segment has been roughly stable. It has, to some extent, suffered from the downward trend in the automotive sector and the combustion technology segment has seen the business performance down by 4% during 2019. The sawing wire business. So you see an improvement of EUR 12 million year-on-year. It's the result of the completion of our turnaround plan. So it's the result coming off a relatively small level volume of business. So the business is breakeven now, but the completion of this turnaround plan has allowed us to generate a EUR 12 million improvement year-on-year. The other success story for 2019 resulting from the BBRG turnaround actions and the profit restoration initiatives that we have launched. So a good improvement year-on-year with several actions taken in terms of pricing mix and also in terms of cost structure optimization. And back to you, Matthew, for the segment...

I will go through a little bit more detail on each of the segments. Let me start with the rubber reinforcement. So this is a bit of a mixed result. I think we've grown, and we've grown off the back of improving market share around the world. We did get the negative impact of stock valuation, but at the same time, we also got hit here a little bit more by some of the renegotiation of long-term contracts with some of our bigger customers, which were lower pricing than previously. We've offset quite a lot of that with cost improvements through the business, but not all of it. So you see some pricing mix negativity here, but then there's some cost benefit, and then you get the impact of the inventory reductions, which have combined to bring the margin down a little bit on this product. I think, though, that our underlying pricing capability and market share growth in the more profitable product lines underpins the opportunity to take this business further forward in 2020, assuming we don't get the same negative impact from FIFO. It -- what we've seen is, particularly the growth in China has been stronger than the rest of the world. Europe and North America were a little bit down year-on-year. And that mix has also hit the business a little bit in total terms as well. But even with, again, the very strong work on working capital in this business unit, meant that even with a lower EBIT margin, we still improved the return on capital in that business unit. On steel wire solutions, as Taoufiq touched on, this has been the more depressed of the end market sectors in which we compete. So we've seen more pressure in volume terms across this business, and we very early on took a view that we would not try and chase the volume in different parts of the world, but we would chase margins. And what we've seen is Latin America was relatively flat on volumes last year. North America was weak on volume, particularly in the first half of the year. Europe was a little bit weaker last year than it had been the year before, but we did make up some of that in China, where we strengthened quite considerably. Obviously, this is an area where we've been tackling cost structure quite significantly over capacity and our overall footprint. So we did close Shelbyville in U.S., we closed Ipoh in Malaysia, and we also closed half of our operation in Bradford in the U.K. and worked on turnaround of other businesses. And I think, though, the one that I would pick out there, in particular, is our operation in Qingdao in China, where through really driving our technology solutions forward and working on our water-air patenting solution to replace lead bars, that's given us a product advantage in China, which we've used to break into different segments quite effectively. And so that business in China moved from being loss-making to being really quite a profitable business. That turnaround had started at the back end of 2018, as we've been working on it for quite a while, and it really flowed through again in 2019 and is set up to continue in that vein in 2020 in a normalized environment anyway. And again, some really outstanding work on capital. Working capital reduction in the business unit, particularly in inventories, helped the liquidity of this business in particular. If I look at the specialty businesses, again, Taoufiq touched on the different units in here. I'd start by talking about building products. So building products, really for about 2.5 years now, we've been working on footprint plan to enable us to really reduce the cash conversion cost in this business, so that we can get much more competitive in different markets in the world, and we've been implementing that, as you know, with the closure of Costa Rica and the closure of Moen. We're now expanding in Czech Republic in Petrovice and in India in Lonand. That's enabled us to bring cost per -- cost of manufacturing the product down. At the same time, we've worked very strongly on mix as we've grown in new markets, new geographies, but also expanded in Europe. We've reduced the mix of 3D products, which is a more commoditized version of the Dramix product, and moved more into 4D and 5D, where we command a stronger premium price, and we've also increased quite significantly the volume of our Murfor Compact product in the masonry reinforcement in buildings. And that helped our building products business to double its profitability last year. And that was the key element of doubling the overall specialty business unit profitability. On fibers. Fibers faced some challenges, in particular, the decline in the automotive industry and the diesel market within automotive because one of the biggest, if not the biggest, segment we had within the fibers business was diesel particulate filters. And so that market reduced very, very significantly last year. We offset it in different ways in different parts of the business. We also faced a challenge from industrial action in Zwevegem, which spread out from other plants into the fibers business as well. But despite all of that, we still managed to improve the underlying results in the fibers business as we expanded into new sectors. And that, again, bodes well for future growth in that business. The disappointing business within the specialty businesses was our combustion technologies business, which is a good technology story for us, but the market in which we were anticipating more growth to happen, which was in China, really slowed down last year due to some incentive structure changes in China, which stopped people moving away from coal-fired heating solutions to gas-fired heating solutions. That, we see reversing as we go forward, so we expect this business to start coming back. We also have some new technologies, which we think will enable us to grow in the marketplace. So we see that coming back over the next couple of years, and we see it as a strong part of the overall business in the next couple of years. And then you come onto the sawing wire business. And here, our focus has been on, one, keeping our technology at the leading edge there, bringing down the cost of producing the product so that we can get ourselves to breakeven. That, we've done. We've taken some fixed cost out at the same time, but the key has been actually in terms of getting the product right and getting the lowest -- the smaller diameters out into the market, and that's what's enabled us to get out to breakeven. Now as we look forward, that's opened up a little bit of time for us to work on the options that we are working our way through at the moment for the future of our sawing wire business. But overall, moving it from loss-making to breakeven has been a big contributor to the overall improvement in result in the specialty businesses. Then looking at BBRG. And as Taoufiq said, this is one of the bigger parts of our overall turnaround. In fact, the biggest -- that's about the biggest in -- single business unit turnaround, where we had an improvement of EUR 19 million. The advanced cords business was relatively stable as we went through the year. It's not growing in terms of volume at the moment. We do see some more opportunity to grow, particularly in terms of the timing belt business. But it still kept a strong financial performance. So we didn't see deterioration in advanced cords. So strong margin business and continues to perform well. However, the vast majority of the improvement in underlying profit in this business unit came through the ropes business, which is where we'd had bigger challenges. And in the ropes business, it came despite a significant reduction in volume. So we took a decision going back actually about 18 months now. We took a very clear decision to move away from filler product and to move more into areas of product coverage, where we know we have a differentiated advantage in the marketplace and concentrate on those. And we also took the decision to unilaterally push pricing quite hard in the market. The combination of those 2 things drove a huge improvement in pricing and mix for the business, which is what has been the key driver of this profit turnaround. As we move through last year, we also began taking stronger cost actions in the business, and you will see, I think, the impact of those cost actions flowing through into 2020. That's when you will really start feeling the effect of them. There wasn't much impact from the cost actions in 2019, but we have taken a lot of cost actions, and we'll continue to do so. So we would, again, in a normalized environment, expect to see significantly improved results going forward in BBRG as well, even from this revised level that we've got to now. So that's it on the business units. And with that, I'll hand it back to Taoufiq to go through some of the key data.

Okay. So on the key data, looking at some specific KPIs. So the results before taxes has doubled compared to Q2 last year. So this is mainly resulting from the fact that we have lower financing cost since we completed the refinancing of BBRG in the back end of 2018. The income taxes in percentage have improved, so on the profit-making entities, our percentage has been reduced by 3.5% down to 16.5%. We're still suffering from high ETR, which is the result of the loss-making entities and the impact from the one-offs that we have incurred during the year. On the following KPIs, I think the relevant and the key messages there is the performance coming out of the joint ventures in Brazil, both in rubber reinforcement and steel wire solutions, which have contributed quite -- in a quite good way in our overall results. You see as well a movement of roughly EUR 30 million positive in the line allocated to noncontrolling interest, and this is basically mainly related to the fact that in 2018, we were allocating the results to the former minority partner within BBRG. Now back to the cash flow and the balance sheet items. So we have already made the reference to the performance in terms of free cash flow and liquidity generation. So overall, for -- during the year, we have increased our cash flow generation from operating activities by EUR 244 million (sic) [ by EUR 280 million from EUR 244 million in 2018 ], resulting from operational -- higher level of operation cash generation from our businesses. We have also implemented significant level of actions in order to better control our inventory levels, our receivables. This has resulted in an overall improvement of the balance sheet items from the asset side of more than EUR 270 million. We have increased slightly our level of factoring by EUR 47 million, this EUR 47 million, corresponding to 17% of the overall performance or improvement that we have generated from the asset side of the working capital. The other relevant information is mainly related to the financing activities during the year. So we have -- in terms of inflow, we have collected the Schuldschein and the retail bond for EUR 520 million during the year, which has allowed us to repay the bridge loan and the retail bond back in December. On the working capital. So inventories, overall, working -- net reduction in working capital of EUR 176 million, mainly coming out of the actions generated from inventory reduction and accounts receivables, a lower level of accounts payable, which is offsetting somehow the impact from all these reductions, but quite good work across the businesses from all the BUs, which is now allowing us to deliver working capital on sales in the range of 18%, with the month of December being the record low for the last 25 years with a percentage of 16.5% -- 16.2%, sorry. So the consolidated balance sheet, so no real major change in the overall profile of our assets and liabilities. What we see, however, is a better profile in terms of spread and maturity of our debt with a better spread and higher portion of long-term debt being allocated. So as a result of all these actions being taken on balance sheet items and P&L, you see that we are significantly improving our leverage down to 2.1. Excluding the IFRS impact, we are in the range of 2, which is a quite good performance. So we will continue on that, working on that, and this is one of the area where I think most of the team deserve congratulations for what they have done because it was a collective effort from everyone in the business. So key figures per share. So earnings per share at EUR 0.73 compared to EUR 0.70 last year with no changes -- major changes in terms of number of existing shares and other KPIs. Back to you, Matthew.

Now the easy bit. I have no idea. Is that good enough? It's a difficult outlook to give at this point in time. And I'll talk a little bit about -- well, I'll talk a bit more about COVID in a minute. But you've seen the outlook statement, so I don't think I need to read that one precisely at the moment. I suppose one way of describing it, if we'd been having this meeting without the sort of cloud of coronavirus hanging over us, I think we'd have been talking about flow-through impact of the actions that we've taken over the last 12 months together with additional actions that we continue to take this year. We would believe in a low growth environment, so we would not be projecting much growth because we were thinking anyway that, as we'd mentioned in many previous meetings, that the underlying economic growth would have been relatively low. So we would have been talking about a stable to very slight growth environment for our business that we would have continued to see progress in the same sort of vein as we'd seen it from '18 to '19. We would have expected that same sort of improvement into '20 as well as we got the flow-through impact of a lot of activities. Obviously, coronavirus changes that in some aspects. Our situation today, and I have to be very clear it's just today, is actually not bad. Yes, we've seen a specific impact of our factories in -- if we go to the next slide, we've seen a specific impact on our factories in China of losing 1.5 weeks' to 2 weeks' production, but that, we felt that actually was reasonably absorbable within our overall business outlook for the year. So -- and right now, all of our operations in China are working pretty normally. The supply chain is working fairly normally for us. And I think from a supply chain perspective, it's also worth pointing out the challenges on us from a supply chain perspective are different to a lot of other companies. We don't buy components. So we buy raw material. That's essentially our biggest area of purchasing. And so as long as a steel company is making steel, we get wire rod and as long as it can move through borders and so on. And frankly, most of the steel operations are not in areas of high coronavirus risk because they tend to be out -- not in urban locations, so they are less at risk. And so there is pretty good supply at the moment of wire rod, and it is moving fairly freely. There are higher costs on transport, which are impacting a little bit. But also, we're able to move our finished goods at the moment reasonably easily around the world as well. So the supply chain for us is not as bigger problem as it might be for others. If I look at sort of order banks as they sit right now. And so I give this -- well, I want to give you a picture of today. Our order banks are fairly normal around the world. They are more or less what we would have expected them to be. In China, as a -- just as a number, they are higher than we would expect to be. However, we're very clear in our minds that, that also reflects some duplication of orders because we know that companies will have ordered from us and from our competitors to try and guarantee supply in an environment in which they worry about supply. So we have accounted for that in looking at how our forecast is at the moment. But obviously, that doesn't take into account that the end markets could all collapse tomorrow in different ways, in different parts of the world and, therefore, would have a more significant impact. And that bit of the forecast is extremely difficult for us to be able to give any sort of concrete perspective to. We know it will get worse than it is at the moment. What we are really very unclear on is how deep and how long that will last. There is a lot of stimulus beginning to happen around the world, and that will help some of the rebound. But we also see that the expansion of the infection rates, particularly now in Europe and the Middle East, is beginning to accelerate. I'm sure it will also happen in the U.S. and South America at some stage. And how much that will impact every sector is very, very difficult to read at the moment. So it will have impact, but we also feel that things will move quite quickly, and there will be a lot of activity to try and keep industrial activity happening. So very much what you see in China today, so the government is very actively encouraging operations back to work. It's very actively putting in place stimulus to try and get people moving again, and balancing that with the need to contain the spread of the virus. From our own perspective, I think we've done a pretty good job, actually, of containing spread so far. We've acted quite early, a lot earlier than sort of local legislation and so on would require us to do to stop travel, to ban people from traveling to places at risk. So we moved quickly on that. We moved very quickly on people to self-isolate if they've been in any area of risk. We did that, I think, extremely effectively in our operations in China, which is what allowed us to get back up to speed and running in the vast majority of our operations. By the 10th of February, we were back up and running at pretty normal levels. The only one which was really later than that was our ropes business in Hangzhou. That was a week later because the infection rate was higher overall in the province in which Hangzhou is. So I think we've been controlling this right from the outset. We do a lot of scenario planning to try and work through where are we likely to find problems in the supply chain, where are we likely to see different issues in demand and supply. We've been able to offset shortages of product coming out of China, in other parts of the world, which is where our global footprint gives us some advantage at a specific point in time. So far, that's why I say the impact is not significant on us. It will get worse. How quickly we can recover from that is the bit that we find very difficult to give a forecast on, so we just continue to prepare to manage our liquidity through that period to hold on to the strong moves we've made both on pricing and cost in our businesses as we go through that but also to retain our capability. So we look back at lessons we learned through other crises, like the SARS crisis in China. One of the things at that point in time, unlike a lot of other businesses and our competitors, we didn't lay people off in China. We moved to different working patterns, which is again what we're doing right now. We moved to different working patterns, and those different working patterns allow us to retain the capability of our people, which means that when things do bounce back, you can move more quickly and respond more quickly to moves in the market. So we work on how we can keep control of cost but also keep our people and keep the motivation level of our people high during this time as well. It is about as far as you can get from an accurate science. So it is just a daily -- it's a daily grind we have at the moment. We have our Crisis Management Committee working on this, full stop. We have various workstreams coming out of that, particularly in terms of liquidity management and supply chain management, but we work on all the different options open to us to make sure we have contingency plans on any of the different scenarios we look at. But to give a forecast of what impact it will have on our business, I'm not going to venture down that road today, I'm afraid. And with that, I will now open it up to questions.

Yes?

Stefaan Genoe, Degroof Petercam. On the demand side, which is the difficult part to estimate, do you see current differences in behavior from the OEM business and the replacement business?

For us, not a huge amount at the moment. But that's partly because we're one step removed from it. So whereinto the tire makers, the tire makers are maintaining fairly high levels of demand on us at the moment. So we haven't seen -- we haven't actually seen any of the tire makers come to us with significant reductions so far. I do expect it to happen. And I probably expect it to happen a little bit more actually in Europe and North America than I do in China. Now that may seem odd because the China car market has fallen very dramatically. But one, the China car market is not a big driver of our business that we are anyway at the very high end of the tires going into the car market, and that is a little bit less affected. We are much more affected by truck tires in China and the replacement cycle of truck tires in China. And the stimulus packages in China will drive, we think, truck usage, and that will drive, therefore, replacement tires. However, I do think that the passenger car markets where we have more exposure in the rest of the world will be affected, and so that will have some impact on us. Today, we haven't yet seen any reduction in that demand. So we anticipate it. So we're working out how we manage our operations to meet the right level of demand. But at the same time, today, we've got to meet the demand that those customers have put on us for now. And the demand they put on us for now is a fairly normal level of demand.

Is it also perhaps because, short term, even if their OEM sales decline, they might anticipate supply chain issues and therefore...

That's why I said I think we have duplicate orders and things like that coming through our system. Mainly that, and I'd say mainly in China because I do think people are protecting themselves a little bit in that sense, yes. Then though, you have to account there will be a balance between the need to manage liquidity and the need to manage your supply chain. And so I think that balance for them is also quite challenging. You don't want to overorder and find your end market goes and, suddenly, you've built up to 2 months' stock of normal -- in normal running terms, but then market halves for a bit and so you've got 4 months' stock. And so I think those will -- those things will iron themselves out over the coming few weeks, actually. I think the next few weeks are going to be important in that sense.

Okay. And one second question perhaps, on the measures that have been taken in 2019, there will be -- a lot of those measures will be 12-months impact in 2020. Can you quantify this in euro terms or in percentage-wise?

No -- yes, I can to a degree, but they're offset by a lot of other things that go on as well. So -- but that's why I say, in a normalized circumstance, I would have been talking about expect the same sort of overall improvement in 2020 as you would have seen in 2019. So we will continue to move in the right direction on a stable volume or a stable sales environment. And that would mean, yes, you've got inflationary impacts. You've got other pricing deterioration impacts in certain sectors being offset by more cost activity and more pricing activity and maybe even more than last year, it could have been, but I think I would have been talking broadly in those terms.

Yes, I have a question on rubber reinforcements. You gained quite some market share last year, I think, certainly, on being first with high-tensile tire cords. And can you maybe update what the situation is? Has competition catched up or tried to catch up with that? And is that -- yes, the reason why price mix is, apart from the contract negotiations, is coming down towards year-end '19?

Competition is catching up. It always does. But we continue to try and move more out of now ST into UT as well in China, which is another step. For most of our competitors in China, ST is still something they don't really want to do because it does not make them the same margin as some of the more commoditized products because their raw material costs are much higher than ours on that because they have to import wire rod out of Japan to be able to make the ST products. Xingda can now make it out of local products. So they are catching up more in that sense, but the processing costs are still higher to get to the ST capability. So Xingda have not pushed hard on ST. The rest of the players have done very little ST. So -- but they are catching up. So we concentrate on what are the next steps for us so that we can continue to move forward. However, I think that what we did see was quite a significant dip in the third quarter in terms of market, and probably, our team in China wanted to hold on to market share gains that they've made rather than margin gains that they made during that period of time. So I think we lost a little bit of the impact of our pricing during the third quarter, which we've been rebuilding since then again. So yes, there is a bit of negativity on the pricing environment there. But I think that was -- with the benefit of hindsight, I think it would have been better to try and preserve the margins and accept a cost impact because of the lower volumes. As it was, we kept the volumes high. But I think we're through that as a major pain at the moment. So -- and that's why I would expect it to get better as we go forward.

And is there a -- I thought you mentioned some contract renegotiations with them at lower terms. Is there anything -- is there a big wave of contracts you envisage coming up now or...

No, they tend to roll through. So most of the long-term supply agreements we have are 3-year ones, and they are with the big players, not with the smaller players. So they tend to come around 1 or 2 a year. There's always -- and last year, we had a couple of the big ones, so there's always an impact of it coming through. We try and plan for that to offset it with both reductions in our cost base but also with -- we try for different products going into those customers, and we'll continue to do that. It normally -- it doesn't necessarily all hit in that first year, your actions to offset it. So it's been an ongoing cycle. But I would say that last year, any work done to do that was then offset by some of the FIFO impact as well. And FIFO impact is not really a number you should look at in total for a year. We've talked about it, but because you can manage it well, it gives you an opportunity to hold on for at least for a bit of time to a little bit more on the pricing, and that's helped us last year, which is why I think some of the pricing performance has been so strong. But actually, within those numbers, it's still very strong underlying pricing discipline that's what's helped us last year.

It's on the indirect cost base. You made quite some progress over the last 2 years. And based on my estimates, your underlying OpEx is around 8% of total sales. Other you're mentioning, well, you expect stable sales -- if you expect stable sales volume, you would like to -- most likely, you will see further cost savings or further increase in profitability. Could you give some more color on where you see still some gross savings left, at any percentage?

We still have a very distributed footprint, and we still have operations, which in themselves are not profitable. And we work both on a combination of either eliminating those loss-making units, which then has a flow-through impact into the margin of the business, or we look at driving turnaround in those businesses. So I would expect to get much less improvement in, let's say, Weihai in China because that's always been a lead plant, high-volume plant for us and is our lowest cost operation for RR and cord. I don't expect to continue getting every year the same level of improvement. It keeps narrowing down a bit, but we will continue to improve, but there are still areas wherein our processing and in our overall approach to how the factory is managed. We will continue to be able to take certain elements of cost out. But it is -- that plant, I think, is competitive with any low-end Chinese manufacturer. So it's a very cost-competitive plant, but it's also 175,000-tonne plant, whereas we have a 30,000-tonne plant in Chongqing. So we have to find ways to continue down to those same sort of levels of cost as well. So yes, there is still room. I think what we did in Qingdao is a good example of how we can take loss-making businesses, work on the processes, work on the technology that allows us to actually get both the cost out but also improve the pricing at the same time and turn around the business like that. So these things are not just done in isolation. It's a combination of different activities of improvement. So the manufacturing excellence program will always go and will continue to drive, I think, improvements in our underlying cash conversion cost in the business. But also, it's cost structure then. It's how we operate those plants. So I'll give you another example of one of the things that we did last year in China, which -- and this is, finally, we start seeing the benefits of looking at our operations as a whole as opposed to individually. So in Bekaert, historically, every plant was a P&L, and when you ever measure everything as an individual P&L, you want everything in that plant to be profitable. And so for example, if you make half product in one plant, not in another, and you sell the half product from one plant to another plant, that buying plant is always going to have a weaker margin. So there's always an argument that says I should have half product in every plant. Actually, that's not a good business decision when you look at it as a whole. So for example, in Weihai, again, we've increased the capacity of half product in Weihai. We no longer do half product in Jiangyin, which is a neighboring plant to Weihai. We ship it all out of Weihai to Jiangyin. We just concentrate on the finished goods, so we've invested in finished goods capacity in Jiangyin, which has improved our overall capacity for us in China and brought down our overall cost. Because rather than having one low-volume half product ISC line in Jiangyin, we're incorporating it into, I think, the 11 lines or something that we have in Weihai. So it seems like that had enabled us to take decisions that allow our businesses to continue to reduce cost, which are not necessarily a part of just a process improvement but really driving down fundamental cost structure in our business. And that's where I think we still have opportunities.

And just to complement Matthew's answer. So I mean, in terms of the actions that we have taken, did have an impact on the results of 2019. But we only saw 2 months of impact basically. In 2020, we will have the 12 full months of impact from the initiatives that we took. The other element as well is that we are expecting higher level of activity from the engineering group, so which allow us -- will allow us to have higher level of absorption of cost with the 2 combined elements. It's difficult to quantify, but we have this in our radar screen.

Sorry, didn't -- the higher level of engineering, that's related to CapEx.

Yes.

Yes.

[ And it will be Capital Markets Day. ] It should be between EUR 150 million and EUR 200 million, right?

Yes. I would narrow that down now probably to being EUR 150 million, EUR 170 million. I don't think we're going to jump too high up from where we've been. The major increments in CapEx will be the Vietnam project, which will expand on this year and also the expansion of our Dramix manufacturing footprint. So as we closed [ Pune ] and Moen last year, this year, we want to expand in Petrovice and in Lonand in India to reinstate that capacity and add more capacity to [ expand ] the Dramix business from here. So that's -- those are the principal drivers. There is also some incremental spend on safety as we do more isolation of parts of our operating processes so that they have less risk exposure.

First question on working capital improvement. Do you believe that the current level is sustainable? And then related to that, historically, receivables were driven by -- to a large extent, by China. Do you see a deterioration of payment terms already, given the situation there? Or is it too soon to sort of comment on that?

I think it's a bit -- on that last bit, I think it's a bit soon to say that's going to hit us. We haven't seen it yet. I think overall, it's sustainable. And actually, I think we could still make further improvements on total working capital. If I look at where the improvements came, so I think we put a lot of focus onto our sales and operations planning processes last year, which has been a key part of looking at where the inventory is and what are the optimal levels of inventory that we can manage with. I think we probably went a little bit too far more specifically in Latin America because there's longer lead times because most of what we bring into Latin America is out of China. So if that slows down for any reason, that can hit us. So there, I would expect us -- that to go up a little bit from where we were. But in most other parts of the world, I've looked very carefully, and I genuinely don't think we've lost any business by not having enough raw material inventory around us or even finished goods inventory. I think we can continue to improve on that depending on pattern -- sourcing patterns, contingency stocks with some of our suppliers as well, which may have some opportunities for us on inventory. On receivables. The primary driver of improvement on receivables, as Taoufiq explained, I think people assume it's all done because of the factoring. The factoring was an element of the improvement in receivables. I think in pure receivables, it is about 1/3 of it, between 1/4 and 1/3 of it. But actually, it was by Taoufiq and his team working very strongly in conjunction with the business units on focusing on overdue payments and really taking out that -- which has an added benefit that you then don't have to take bad debt provisions either. So it has a double -- a double hit to -- for you, and you can really improve on that. And that was a primary focus. And I think we got our overdue levels down quite significantly, and that was a key driver there. And given that China is playing a bigger part in our overall business and had -- has longer payment terms than anywhere else in the world, we've contained that within that improvement on receivables as well. So at the moment, that's in a -- we're in a pretty good situation. If we had, had the same level of overdues as we normally have going into the situation we're coming into now with coronavirus, I'd be a lot more worried. But we don't have much overdue. So we've got -- again, got a little bit of flexibility there. And then the final element as to why do I believe that they can also get better. Well, I think, one, we can do more factoring. And I think at the moment, the cost of doing that is very low. So we will continue to look at factoring opportunities. But more importantly is, if you look at it in the makeup, we actually made EUR 275 million of improvement on receivables and inventory year-on-year but then lost EUR 100 million of that in payables. I think some of that payables will come back partly because we'll be in a more stable -- not saying we will be -- we would have anticipated being in a more stable purchasing environment. Because last year, we were bringing down our inventory. So you're buying less and less. Once you've flattened on, your inventories and your receivables balance out -- sorry, your inventories and your payables balance out a bit more. And so I'd expect us to see a little bit more payables coming through. So I do see that we can continue to improve on working capital, and we're certainly very focused on that.

Another question on rubber reinforcement. You mentioned in the beginning of the meeting lower pricing on long-term contracts. How important is it for the business? And do you see it as something that could drive or could be a factor in 2020 to this pricing?

No, no. And this is -- I don't want to make more of it than it is. This happens every time you get a long-term supply agreement. So the customers want you to reduce your prices, and they don't want to continue doing continuous price reductions through the lifetime of the contract. The way we work on that is, one, we use that as a planning base for where we want to focus on cost and process. But it's also the starting point then and working through with the different products. Because what you're looking at is price reduction on existing products and solutions to them, what you then work on is, okay, how do we move out from those products into new products where you're then setting a new price as well. So yes, and sometimes, that takes a bit longer with some companies than others and so on, and that has some impacts, but it's fairly normal business. I don't expect it to be more significant or even necessarily less significant in 2020. I would expect less FIFO impact, and that, therefore, not to hit the rest of what we do to the same extent and perhaps say expect it to see more positive on overall price mix dynamics in the RR business.

A final question on the -- the mid-term margin target. You left out the timing part this time around. Is that on purpose?

No. No. I guess there's one -- there's an element because of this year being relatively uncertain as to what its impact is. But actually, I feel -- so I say at the beginning, if I was looking at this in a normalized year, I would have said, we are taking another fairly significant step towards it this year. And underlying, I think we will continue that because we still have more cost reduction capability, which we're working on. So I continue to see it in a short to medium term that we should be able to get there. This year is difficult to predict. So -- and as long as we can hold onto the underlying improvements that we've made, the structural improvements that we've made that even if this year in itself goes in the wrong direction, we'll get even more flow-through impact in next year. So we just improved by over 0.5 point of margin. And I would expect to do that as we go forward the next few years.

It's just -- I mean, in the past, you mentioned 2 to 3 years.

Yes. It's the same thing...

Normalized, that doesn't change.

No. I don't think we ever said a number of years. We just said -- yes.

One question with regards to the inventory revaluation. I apologize if you've already mentioned what it was in the preliminary remarks. But could you split out roughly or even in euro amount what the new allocation was for rubber reinforcement and SWS so we can get to the true underlying performance of the division?

I think we can do that with you separately. I think we do have the numbers. I don't know, but it is...

More or less half and half, a little more in SWS and...

It was EUR 20 million to...

EUR 25 million and EUR 30 million, something like that.

That, is that correct? Or should we calculate with EUR 25 million for SWS, EUR 25 million roughly for RR? That's the part I understand

It's around EUR 25 million for RR and close to EUR 34 million SWS, and then the rest in the other businesses.

Unfortunately, for BBRG until now, they haven't reported that in the same way, so you can't look at it. Although, it's actually, if you look at BBRG, they would have had -- the percentage would have been about the same impact in percentage terms as we see on SWS because they're using the same type of [ layers ], but I think you would assume that. And the pricing, the pricing and the mix actually in BBRG would have been even stronger than it is with that whole thing. But these are not -- and again, I think we've talked about it before, it's very difficult to read these numbers in total and through a year. You can look at it in its quarterly impact. But by definition, if your raw material cost is going down, it opens a door to you to at least being able to hold on to your pricing for a little bit longer or not to pass on all of it to our customers. So it makes the pricing environment a little bit easier for you in that sense. And so that helps your pricing mix. It doesn't give it to you, but it helps your ability to do it.

And then a follow-up on the working capital. I think you previously said at the Capital Markets Day that factoring had a target of plus/minus 20% year, almost on that level. Is that the same type of percentage that we should take into account for 2020? That's the second -- first question. And you also touched upon supply chain financing as something that you were going to have a look at. Did you use that in 2019? And if so, by how much?

In 2019, we didn't use any supply chain tools or financing tools. For the moment, we are still in the process of identifying additional opportunities in terms of factoring. We will hold to the level of percentage that we had booked or recorded for 2019, but we will be opportunistic given the market conditions, and we might potentially increase it in some specific geographies.

And the factoring target remains at roughly 20%?

Yes. Correct.

Over time. I think we will push harder this year. I think, particularly with the environment that we're going into now, we want to make sure the liquidity doesn't ebb away. And so we will still be quite focused on looking actively -- as Taoufiq said, actively looking for opportunities to -- there are some parts of the business where we do almost none, and BBRG is actually one of those. We do almost no factoring in BBRG. So that's one area where we've got some fairly specific focus to see what we can do.

Okay. And then the final one. If I look at the consolidated cash flow statement, and I apologize again because we're relatively new to Bekaert. You have a noncash item included in the operating results from investing. Last year, it was minus EUR 31 million. And this year, it's plus EUR 3 million. What does this relate to? And what does the new swing explain? Page 18 in your press release. That's my financing question.

We need to get back to you on this one.

I will come back to you on this one. Which one is it? Which line was it?

It's the third line: investing items included in operating results. And it's a minus in the cash flow in 2018, and it's a plus in 2019, this swing from year to year.

A question on your wire rod's availability, impact from quota systems, tariffs. Is there anything changing? Is Brazil still under the last year's scheme?

Yes. Brazil is still under a quota scheme, nothing fundamentally changing at the moment. So we continue to try and manage it through both exemptions to -- for certain product categories that we need to source, so that we can have more flexibility in sourcing. The dynamic that changed quite fundamentally last year is the decline in the U.S. market as a whole meant the demand for steel went down quite rapidly, and that drove prices down. So whereas previously, I think we explained in 2018 that we got really squeezed by the fact that the steel prices to us, particularly in our SWS business, went up dramatically, but the wire prices, because our competitors are the vertically integrated steelmakers, they really squeezed us in and really hit our margins hard. The very weak first half was not driven by -- so much by that. It was driven by really low markets -- really low market demand for all sorts of reasons. And that caused the steelmakers themselves to drop wire rod prices and steel prices as a whole quite significantly. Scrap prices went down dramatically. And so we saw a lot of the growth that we'd seen in 2018 come out of the U.S. last year. That hit us hard on FIFO. But by the end of the year, it was in a position where we were more competitive and normalized, and we've seen a much stronger finish to the year and start to this year on our North American business as a result. So we'd expect that to sort of continue. So it's a little bit more normalized now than it was.

Okay. And on -- yes, sawing wire, is there any -- it's breakeven, so it's not bleeding.

We're actively working essentially on 2 different scenarios. One is that we find a partner in the business. We will not invest in expanding capacity in the business because it's still, for us, in the fairly narrow part of the overall value chain that we sit in for diamond wire and its applications. It's still a risky investment because you don't know how long the technology is going to last. And therefore, you make a big investment in equipment and you suddenly find you've got nowhere to send your product. But for people who actually sit with a broader position on the total value chain within the solar industry, they have more flexibility on that. And so we are talking to some of them. One in particular, we're talking very actively to see whether they want to partner with us in our diamond wire business and our overall sawing wire business. And so they would invest in capacity, and that would allow us to build from the very strong technology base we have because we really are, today, leaders in technology there and processing and drive through volumes, which I think could give us some good profits over the short to medium term in conjunction with the partner. If that doesn't work, if we can't get to that point, then I would see us exiting the diamond wire aspect of the business at some stage, and that could be through either sale, closure, whatever the right option for us is and to concentrate our efforts on the core wire business and other applications, so the loose abrasive wire. So back to our core activity, what we know we're good at and be able to do that. Being -- at least, being breakeven means we're not pouring money down the train by keeping that operation going, and that was the key for us. That was very key to get to that position. I would expect it even without investment to be breakeven or a bit better than breakeven first half of the year but not long term, sustainably.

With regards to BBRG, could you tell us because the A-Cords business has been relatively stable in terms of its EBIT margins?

Yes.

Can you tell us something a little bit more about the ropes business in terms of profitability? Is it still loss-making? Is it nearing breakeven?

No, no. It's not loss-making. It's certainly profitable. It's not at those level of margins that we would want in the business, but pretty much all of the improvement that you see in the BBRG numbers last year comes from the ropes business. And that's put it certainly into an EBIT-profitable level. So it is profitably not loss-making or not breakeven. Still a long way from the targets that we have put, but I think that we have a fairly clear plan of how we improve that profitability over the coming sort of 2 to 3 years. We expect to see significant improvement again in this year in a normalized environment, obviously, through a combination of much more cost action that we've had that we did last year. So we've already done cost -- a lot of cost reduction this year. There's more to come -- sorry, last year. There's more to come this year. We continue to push quite hard on pricing. We feel that the market can't sustain more pricing, and we are happy to give up some volume to achieve that pricing as well. So be prepared for that. And being a pricing leader in the market does encourage others to follow, which means that you don't necessarily lose volume. The margins for everybody in the business are weak. So there is a lot of appetite to try and push pricing where it's possible. And so we will continue to lead on that front. But we'll also do it by looking very carefully at what sectors we're in, what segments we're in, what products we're selling and how we make money out of those individually. So we will continue to focus on costs. We will continue to focus on pricing and mix, and that will continue to improve the profitability there. We will look also at other restructuring actions if and when they become necessary.

At the Capital Markets Day, you said you were kind of pessimistic about the outlook for the profitability if the oil and gas market wouldn't turn around.

In terms of being able to reach our long-term targets, I would still be pessimistic. If oil and gas is not strong within that in the longer term, then I would still be pessimistic because we still have a long way to go. But right now with oil and gas where it is, we can certainly show significant improvement this year.

Okay. So what kind of growth was there from the oil and gas? Is that low single digit, high single digit?

No, there's not a lot of growth happening in oil and gas. In profitability, yes because of the products that they're concentrating on. Our volumes were down 6% in BBRG in the ropes business and advanced cords by volume. But in the ropes business, our volume -- I think it was 6% volumes for -- is it 6%?

Matthew, I don't see that in ropes.

Oh, ropes -- hang on a second. Hang on...

That's not really...

No, no, no. But I'm just saying ropes as a whole was down. And yet, sales was up and in an environment in which rope price is going down. So that really demonstrates to you the impact of mix and pricing in the BBRG business. We made huge strides. We started about 18, 20 months ago because it was in -- I think it was probably in the first half results that we talked to you about in 2018. That's when we had already started that process. And I think we talked to you about it then. And it's -- before we bought the business fully in-house, before we took it back from a PPP, we'd already started that process. And that is -- these things don't happen overnight. They take time. What you saw last year was the impact of some of that action, and you'll see more of it through this year as well.

You mentioned something during the presentation, I think, about late replacement, product that didn't really get, which product it was, where there was a turnaround from loss-making to profitable from 2016 onwards...

Qingdao.

Qingdao.

Qingdao in China. So an SWS plant in China, which we've had since 2011 or '12 -- '12, I think, bought from some Korean manufacturers, and it's been loss-making pretty much the whole time. We put a lot of effort into moving out of lead baths in there to put water-air patenting in place to give ourselves a technological advantage in the marketplace and to target very specific sectors. So we moved out of a lot of loss-making products individually. So we've done a lot of work on segmentation and looked very hard at how we could then create value for our customers with that. Put the pricing in place. And so last year, we saw volume growth based on those targeted segments. We took advantage of the cost actions we'd done to reduce in -- the cost in the plant, and it now is a robustly profitable business.

And which are the core products that are driving sales and profit there? And how big is the impact 2019 versus 2018 on profitability?

On Qingdao, specifically -- I've got it in my head. I want to say EUR 4.5 million. I can look up the actual swing of profit. But it's a fairly good sort of -- I've haven't got the number here. I suspect it's going to be in the double-digit million euros in terms of the actual swing that we've seen, probably at that level. I don't know. We can check it quickly. But in terms of which markets, really, it is going to utility segments, so things like cable armoring, cable segments themselves, so things like PC strand and products like that into construction, undersea armoring of undersea cables as well. So quite specialist products that require specialist coatings. There, we've been able to make, I think, a lot of progress. [ Anne ], could you get my iPad off my desk? And I'll look up the answer for that question as we're talking. So we can get to that, I think, fairly quickly.

And is this an activity where you, in the coming 2020, '21, you expect further margin improvement?

We have to invest to be able to grow to drive the market further, I think. So we've reached -- I think we reached an improvement plateau. Now we need to invest in certain technologies and certain capacity to be able to take it further, and that is another part of our investment plan for this year. Some of it -- because we do want to keep our CapEx profile fairly tight, some of it will end up going into 2021. But the end of the day, some of that investment will be made this year and then next year again as well. I think it's a very good example of a very motivated team that understood if we -- guys, if you don't get this turnaround, there is no future for this, really working on the combination of costs and the combination of the discipline in the factory. And it's sales and -- at the end of the day, it's sales and profit for us. But if we look at all the measures, it really shines through in quality, in safety, in delivery performance to customers because the more you work on the processes, the more of those things end up coming together to drive that improvement. So we translate it when we talked to you about improvements -- thanks very much, [ Anne ] -- about improvements in the financial performance of the business. But actually, part of the reason you can go to the customers and [ sell them ] more is because your quality is also better and delivery is also better, and those things all end up coming together. So I'm just going to try and see if I can find the number for you quickly. But meanwhile, we can also -- we'll have another question.

Two follow-ups, please. One on China, where you said that your teams, again, switched to volume mode in Q4 to...

Q3, Q3.

In Q3 to take some market share. How will you explain that -- I mean, clearly, you're looking to drive that business with margin as a focus. So how would you explain that it seems continued to switch back to the old mode whenever it gets a bit down? Do you see it as a risk for this year obviously given China...

No. I don't at the moment because -- and I'm going to be very transparent here, and I probably shouldn't be, and I'll get told off at some stage. We lost the head of our RR business in China in July last year. He was relatively new and was made an offer by another business, and he left. And it has taken us a while to replace him, and so we were trying to sort of oversee that business a little bit from here. That didn't really work. And so I think in China, particularly, because the market changes so much so quickly, we've got in place a very good sales and operation planning process, but it needs a very disciplined leader to make sure it's working properly every day. And quite simply, we didn't have the people in China to do -- to oversee that. And it went down a level where I think some of their priorities were different, and so we had to go back and look. We now -- actually, for the time being, primarily because of coronavirus, Jun Liao, who was the predecessor to the guy we hired last year, is back overseeing that business. He is the guy who put in place all of those processes. So he's very strong in it, but we have a new head of the business starting in May who will take over. So I'm fairly confident to avoid that. It was, I think, unfortunately, a little bit of a lack of control from our side.

Jun Liao will then switch back to specialty.

He still -- so for just -- this is really for 2 months at the moment that we are seeing. Whilst he can't leave China to come and run BCT in Assen and fibers here, I will run those 2 businesses myself or oversee them, and he will stay in China and run the RR business. As and when we free up the travel or when the new guy starts in China, he will revert back. So this is a very temporary pragmatic solution to challenges we face.

The new guy will come in when?

In May. May.

And then a second follow-up on the bridge on Slide 13 on BBRG, you mentioned there the EUR 19 million delta. Can you remind me of the negative one-off you had in 2018 to put that number into perspective? It was EUR 13 million or EUR 15 million?

EUR 14 million write-offs and...

So the underlying improvement is actually only EUR 5 million to EUR 6 million. I would have expected it to be, given all the pricing actions...

At the end of the year, I think we hit EUR 7 million.

Related to write-offs...

Yes, but on EBIT, so not all of it goes into the EBIT number. I think it was EUR 7 million...

It wasn't underlying. Production wasn't underlying.

But at the end of the year -- was it EUR 14 million at the end of the year?

And then additional impairment was within the underlying...

Yes, given why, I think you'd expect to see more coming through this year.

Okay. To what level? I mean the one-off clearly distorts this picture. Do you see same improvement underlying...

No, more. Because the -- really, the impact of cost actions was [ done ] something last year. So I think you'd continue to see benefit from pricing actions, but then you get a fairly strong full year impact of the actions. So the swing in Qingdao, back to where we were in there, was EUR 6 million from '18 to '19.

A question on our RR footprint. You're investing, obviously, outside of China now. Your average size plant in China is, I would say, significantly below like Xingda, which is one big plant. And I think your biggest is 3x smaller, something like that. So are you competitive with that footprint and with the plants you have in -- outside of China? Or should we expect adjustments down the road?

I don't think you're going to have to write out adjustments, but we've got about the right capacity level in China for what we see is our requirements over the coming years. So we do less export out of China now, and with the growth of Vietnam, those exports will go down further. So our China capacity will be used very much for satisfying of the China market. We still have a couple of plants which I would put into the category of being maybe too small. So our Weihai plant is absolutely competitive with Xingda even though a 1/3 of the size. So it's absolutely competitive. I think where the bigger advantages come when you get to that sort of scale is actually in the capital cost enabling you to get there. But if that's already -- if your capacity is already there, then the variable cost of doing it, we're fairly -- we are fully competitive in Weihai and probably now in most of our Jiangyin footprints as well. Chongqing, Jining, probably less so. But Jining now, we operate as a satellite of Weihai, so that's now getting to a position where we're fully competitive. So there may still be things that we have to do on the footprint. But until we understand really our ability to create more capacity in other units, I wouldn't expect any significant change in the short term. As and when -- the primary driver of Vietnam as an investment is not from replacement of capacity elsewhere. It is what we see that we will need as incremental capacity [ in the coming decade ]. But what we're not going to be doing is just doing it by creating lots more smaller plants. So as and when we get the opportunity, our capacity will increase either in existing operations or high-volume new operations.

You are fairly comfortable with the current wire rods' prices volatility. Although, if I'm not mistaken, in China, wire rod prices were down quite a lot in the first 2 months.

I would expect wire rod prices to still come down a bit this year. I don't think they're as low as they can go by any stretch of the imagination. And depending a bit on what happens in end markets over the coming months, that will have an influence. Particularly, the construction market will have an influence, I think, of what we see happening on wire rod. But again, as is normal stimulus activity tends to get quite focused on construction, so in a way, it's a bit difficult to read right now. But I -- at the beginning of the year, my assumption would have been that you would expect to see raw material prices go down a bit this year, nothing like they did last year but still some downward momentum.

And your ability to pass this through or to maintain pricing hasn't changed?

Has improved.

Has improved? Because at the Capital Markets event, you were quite skeptical or negative on this.

Yes, but I think we did better than I had expected. With the exception of what happened in the third quarter in China, I think it's improving.

So you shouldn't see the same degree of FIFO impact next year?

The FIFO impact will be the same, but you'll have more pricing to offset it. Well, I wouldn't expect anyway as much FIFO. But if you had a constant level of FIFO, I would expect us to have more pricing to offset that FIFO than we've had in -- historically. So I think our discipline on pricing has got better and better over the last couple of years, and I think that's been key to it. So -- and I think that will continue to improve. Anything else? But basically, we have no idea.

Margin up or down this year?

You know we'd love to be able to tell you it's an exact science. Right now, it's the beginning. Okay. Thank you very much, indeed.