NV Bekaert SA (BEKB) Earnings Call Transcript & Summary

Ladies and gentlemen, a warm welcome to Bekaert's Capital Markets Day. My name is Jurgen Tinggren. I'm the Chairman of the Board. And I was very much looking forward to this opportunity to meet with you, even if it has to be digital or by virtual means this time, but also to explain to you a little bit the challenges and the progress made at Bekaert. We are at experience at the moment, of course, a very challenging global economy and disruptions in many markets. And we felt it's really a good time to update everybody on how Bekaert responds and adapts to the changing environment. So today, there are 5 topics, which we would like to cover with you. We'd like to start off with sharing with you some deep dives that we did on the megatrends and how they impact Bekaert and the needs to adapt to this new world. Out of that, we go on to looking at our strategy for responding to these new challenges and opportunities and driving value creation in the strategy. And obviously, to deploy the strategy successfully, there's a lot of strategic transformation that has to follow. And we will go through that as well that you get a good understanding of what we're about to change there. And then before opening up for the Q&A session, we want to share our ambition related to the results that we want to achieve for this year as well as for the midterm. But before we dive into these topics, a few words about who you will meet today. So I am about to start us off, obviously, but then follow and much more importantly, follows by our CEO, Oswald Schmid, who will take you through the strategy to drive the value creation. And Oswald then will be followed by Juan Carlos Alonso, who is our Chief Strategy Officer, and he will explain how the strategy is also deployed by this strategic transformation that is underway. Last but not least, our CFO, Taoufiq Boussaid, will then take you through how all these strategies comes together in a financial ambition, as well, I share with you our guidance for this year, as well as our midterm ambition, and then we move into Q&A. But let me start with a brief overview of Bekaert and what sets us apart. So Bekaert has a very, very strong foundation. Coming off the strong leadership position and still wide transformation and coating technologies, which has allowed us to build up a global presence with customers and partners in over 120 countries. This is supported by a very robust worldwide manufacturing platform, which then also has a strong regional footprint. And there's over 27,000 engaged employees working with us every day. And we have also said a huge, since many years, a huge emphasis on to be a very corporate social responsible company. But really, what sets us apart from -- in our industry is that we probably have an unmatched innovative products and solutions for customers across a wide range of industries. We are definitely in our field, a technology leader with around 1,800 patents and patent rights in our portfolio. And also in the industry, I have to say that we have the most advanced manufacturing capabilities. And that is paired with a local footprint, with a strong experience team that has a deep understanding of the local customer needs. And this is now pared. The Board has just approved the strategy that management developed on sustainability. And we have a real ambitious agenda and actions for a sustainable business to find. Now adapting to a new world. Obviously, we have to recognize the changes taking place in our markets in our general society. So Board and management spent some time in the last 12 months to do deep dive to understand the implication of these megatrends and how they impact our company. And I have to say as a summary, the impact that we see is in an overall very positive market outlook. There is a real opportunity for us to leverage these strong fundaments and the strong position we have to capture some of the good growth opportunities coming out of these new changes and megatrends. We will need to take the opportunity to enhance our offering with new innovative end products. There is also a great need to digitize the business to enhance our competitiveness, and also we have an opportunity to lead as a sustainable business. So out of this megatrends, there are more several focus areas for Bekaert's. And if I just start with new mobility, one of the areas there we are now focusing on it's obviously the area of lightweight, smart and green materials for tires. It's going to be very critical for us, and we have a strong focus there. On the megatrend of urbanization, we have also advanced courts for the vertical city requirements that are extremely important part of our portfolio, which we need to develop further. They actually go into the elevator and lift industry. As the cities go vertical, there needs to be more elevators and more opportunities to lift people and materials. So it's a huge focus on advanced cohorts, huge focus on the organization megatrends on smart placing solutions where we have unique thin fiber technologies that goes into glazing. And also extremely important, we have unique technologies and unique opportunities to help to do these low-carbon concrete reinforcement. So that means that you will see it later in this presentation, but you can reduce the amount of concrete used and achieving the same strength and therefore, decarbonized quite nicely. We're also focusing on the -- the opportunities to focus on the megatrend of renewable energy. We have developed lightweight mooring for offshore floating wind turbines, and we have new fibers for hydrogen electrolysis. In the connected and smart city megatrends, we have developed new solutions for the 5G and data transmission technology for fiber optic networks. As countries needs to connect more of their citizens and households to the web, to the Internet. There's a huge push here on data transmission networks and technologies, and we are at the forefront of that. And then last but not least, we took out a trend of reverse globalization where we see that we really need to ensure that our regional footprint stays in place. but becomes more agile and digital in the supply chain. So we see an opportunity here for again for being a very strong regional partner to our customers. Underlying all these 5 megatrends is obviously the one of sustainability, which is only present, and I mentioned some of them as I went through this, and it's impactful on all of these areas. So based on this challenge and opportunities that the management Board defined, we defined a strategy, how we can reposition Bekaert towards more value and growth by executing along 5 key initiatives. So the first one, that's up and running and quite advanced is to push and to realize the full potential of our core business. We just need to perform at a different level and realize this full potential that we have of our core businesses. We also put in place a very active portfolio management and selective M&As to follow. So for you who has been with us for some time, have seen that we have moved out of some businesses where we have engaged stronger in others. And that active portfolio management is critical going forward. And then the issue about transformation will be focused on innovation and moving beyond the core. We want to move beyond your steel. We want to go downstream. We want to go adjacent and more of that later today, you will see some specific steps we're taking. And then, obviously, also a key initiative is we need to embrace sustainability as a value-creating opportunity. It's really something that we can leverage and get great benefit out of. So at the end, all this should allow us to be a growing company because we are better positioned, we're more focused and more innovative. So now I'm pleased to hand over to our CEO, Oswald Schmid, who will explain our strategy for driving the value creation along the framework of perform, transform and grow. So please, Oswald, it's all yours.

Thank you very much, Jurgen. Ladies and gentlemen, a warm welcome also from my side. I will take you through our value creation agenda, as mentioned by Jurgen, and how we will drive this. But let me start with a brief recap on 2020, which for sure, as we all experienced was a very different and unusual year. In fact, for us, it was a year of 2 different halves. In the first half, a full hit and impact of the outbreak of COVID-19 with the mediated urgency to put all strong self-help measures and risk mitigation actions in place. Followed by the second half where we saw in many areas, a much faster rebound of activities than expected, which also was quite a challenge to manage and to capture the benefits out of it. But finally, looking back, we closed the year with a solid profit growth and strengthened balance sheet. Let me have some figures there. We lost about EUR 550 million of sales. We had a decline of 13%. We came up with EUR 3-point-almost-8 billion of sales. But on the other side, we had a 30% decline in sales. We had a 13% increase in the EBIT underlying coming from 5.6% to 7.2 percentage. When we look on the operating cash flow, we could increase significantly from EUR 414 million to EUR 449 million by 8%. The working capital from EUR 699 million, we could reduce by 23% to EUR 535 million was a significant decline of 23%. And the net debt coming from EUR 970 million at the end of last year, we could reduce by 38% down to EUR 604 million, which then really leads to a net debt on underlying EBIT by 1.3% and even a little below. We have 4 business units. And these business units are serving a global market with a broad offering. And this business is structured in 4 business units and a synergetic business. When we look, our upper info cement business is the biggest one 43%, followed by SWS with 36%, BBRG 11% and especially the business with 10%. When we look on our business in relation to our regions, we see Asia Pacific is the biggest one, 39%, of course, including the big part of China; followed by EMEA with 27%; LATAM, 18%; and finally, in North America, 16%. But you also see we have a lot of different end markets, which have also different size and magnitude. Let me go to the tire and automotive market. Just a few examples, what this is with 40%, what's in there. It's the tire cord. We know all, it's the bit wire, its wiper blades, its spring wires, window regulators, cars seat heating, AdBlue's tube heating for the people who drive diesels. When you look on the construction business, which covers about 19% of our business, you find our drama, but you find also measures, you find ropes for bridges and geotechnical solutions, for example, for rockfall protections. Agriculture with 9%, you find the various range of fencing wine wires, paid buyers where we started on our company, but also aquaculture cages and mooring line, plus in addition, horticulture protections. Let's have a look on energy and utilities covering about 8%. You see a lot of cable mooring about deep sea and overhead power lines for telecommunication, for solar energy, a very broad range of specification. We can see here equipment, very strong hosting wire for cranes, Flexi mat for conveyor belts in the mining industry. And they are consumer goods, and they are very famous for -- even it's a small product, our chamber or even the book binding by may be familiar with you. When we now say Bekaert, many of our customers, they say, you are the preferred partner because we have quite some most challenging projects where we need you. And I would like to give you now, for example, the 1 -- the first one is in the construction market. Bekaert Dramix steel fibers are perfect solution to realize the most demanding concrete reinforce projects like the goal-based tunnel and who knows the connection between Switzerland and Italy, it's an amazing tunnel. It's the world's longest and standard. And I think the building time was about 12 to 17 years. Another example where we selected as the first sample technology partner is Hywind Tampen tampon in the Norwegian North Sea. It's the world's largest floating offshore wind farm in industrializing solution for future offshore wind power projects. BBRG was selected and see long-term moving lines for this project. Another example is, we have also the right solution for a wide range of hoist and lifting applications and now look at the Bekaert, the world's largest and most powerful crane in the world equipped, of course, with BBRG hubs. This crane can lift 5,000 tons and even sometimes more. Now moving from the heaviest load, the lightweight solution is possible and a small step for Bekaert. Our super and ultra-tensile steel cord range and it was lighter tire designs from our customers. And our target is a special coating on the steel cord filaments, excludes the need for tire makers to add cobalt to the rubber compounds, which has an environmental-friendly impact. Now the highlights of 2020. I think the first and most important one, the health and the safety of our people. It was not only about the COVID-related infection. We also made substantial good progress in reducing injuries in our plants, in our operations. We had a 30% decline of such incidents. The second one was, of course, protect our business and our company in these turbulent times, especially when you look back in the first half of 2020. It was really profit restoration programs, footprint adjustments. We have to make sure that the supply chain excellence and the interactions with our customers are very solid, are very interactive and very frequent. We've also made sure that we deploy new digital tools and channels in order to stay connected in times where we only can virtually talk to on connected which either in place liquidity one of the topic of the CFO working every day, disciplined working capital and cost control. And this, of course, led, as we said before, to the strong deleverage of the debt. Out of this crisis, our aim was to emerge stronger. And we really gained market share in Europe, in India and Latin America. We intensified our relationship with customers because they can -- they could really understand they can count on us. And we delivered a strong profitability and an excellent balance sheet, which allow us to implement our growth strategy. Now let's have a look on the Bekaert Group executive on our colleagues. This executive team is a leading with a shared ambition and the ambitions to generate value growth. It's a balanced mix of senior Bekaert executives with a very long and successful career at Bekaert when you look at Stijn running the division of the silver solution. When you look at Curd, he is responsible for the BBRG. And we have some newcomers also around. And for example, this is Arnaud, who is running our biggest division on the Rubber Reinforcement. Taoufiq, you will say later on, our CFO; Juan Carlos, all of them are about 2 years here. We have most recent joiners like Yves Kerstens, who comes from Axalta, which is a spinoff of Debault coating materials and he has a lot of experience as well with Bridgestone. And Kerstin, she now recently joined us from Austria, from Borealis, having a huge background and experience in the HR area. And here you see also Jon, who gives us a big help helping hand, what can we do more even in China. Myself, I joined in December 2019, just 1.5 years ago. But I have to confess and most of you know maybe I know Bekaert since a very long time, more than 25 years. In my function -- one of my functions at Continental, I was also the Chief Procurement Officer and had a very long-lasting relationship with Bekaert and knowing a lot of the factories of the competencies and the strong foundation. I was always also with the company of Schindler, and Schindler also used Bekaert a cords in the belt inside when they carry the cabins to the utmost height. So I was always a little bit lucky being with companies. We had leading position, strong foundations, but also were on the move, and this is maybe similar to Bekaert. Creating sustainable value for all our stakeholders. This is what this PGE team has in mind. This means making our customers successful. We really want them to succeed in their markets in the application. We are truly better together. This is Bekaert than you see it on the right side our logo. This is not a slogan only. It's really in our DNA. that better together, it works much better. We want to attract people. We want to make them feel well, and we want to understand where we are heading to. We commit to high performance. This is about performance culture. This is about leadership. It's about getting the things done. And it's also when we talk about we are not alone of this planet, and we have to have the next generations in mind. So our ambition is really to create value for our customers, for employees, for the shareholders and communities. Now you might say this is maybe applicable for many companies. But let me in the next slide show you how we go for that. The first imperative out of our 3 imperatives is we perform. This is our foundation. It's somehow the non negotiator ones. It's the basis. This includes all self-help measures we can do ourselves and realizing the full potential. The second block is we transform. As Jurgen mentioned before, the world is adapt is changing. We have to adapt to this new world. We have to strengthen our portfolio. We have we have to build capabilities to drive our value creation. Last but not least, this would result in growth. We want to capture the growth opportunities deriving from the megatrends in our defined key markets. Let me now start with Perform. You could also say unlocking our full potential. This means strong in execution, and we deliver on our objectives we set. This touches the area of commercial excellence, how intensively are we working with our customers? Do we have the appropriate channels to communicate to respond, to be active? And of course, we need smart pricing models because we all are aware via other pricing, and we have to be very smart how we translate this wire goes in resi, how we pass this on to our customer base. A second part of performance is the supply chain optimization. It's the integration from our suppliers to us and then to the customer, make it very easy, make it smooth, make it interrupt without a lot of complexity, string in working capital control was absolutely necessary. We had in the first half year the issue too much on the way to us we had to cancel. And in the second half, we had to make sure how we can get the materials to serve the needs of our customers. But we also -- we're focusing and cooperating with our suppliers. In a virtual supplier campaign this were about 400 to 500 suppliers where we were looking how can we improve our cost position with them, and there was a significant from our suppliers to contribute to make a strong foundation for Bekaert, operational excellence every day. No discussion. How we run our factories, how efficient are we workshop models we do there. And of course, how we look on our processes, how we look on our process in our factories, how we can improve and how we can get more efficiency. And this is a very strong focus where we have been looking also in the operations, for example, in the corporate functions, can we improve processes? Can we take out complexity? Last but not least, leadership and accountability. Let's make sure that our people are healthy and safe. Make sure that we have sufficient communication in the time we are not connected. We don't see ourselves in the office. Where we will need to make sure that people have a common understanding what we would like to do and where to go. And one other topic is project execution. Sometimes you find projects, they were done, but we need to make sure that there are milestones, they are deliverables, there's ownership and accountability there. And fourth, when you go for a project, it's important that we don't just have it on paper that we really allocate the financial and human resources to make this project successfully happen. Perform. Just a few examples on the execution part. We have implemented footprint adjustments where it was necessary as there were no options to turn them into sustainably creating activities. This includes, as you all know, Shelbyville in U.S., this was point clear just recently at the beginning of the year in Canada. We talked about Ingelmunster. We also sorted and phased out the Diamond Wire in China and another factory in Malaysia. At the same time, we implemented enhancements for investments and process improvements in Slovakia, Romania, India, Russia, Czech Republic. This was really to capture the full opportunities, to get the full utilization and occupation out of our factories to really get the best OE, we would say, in cost positions in our factories. And further, we look into the growth areas. All of us knows Southeast Asia, China will be the areas of growth in the future. And we want to be ready when the markets increase there again and continue to increase, and this is why we are just about to continue our Vietnam plant construction. Finally, we achieved effective improvements in our activities and implementing the business portfolio, the product portfolio. I mentioned before, the supply chain excellence. This was one of our high priorities. The increase of the manufacturing productivity, as indicated, cost savings wherever we could find this can be in the SG&A. This can be materials. This can be in process improvements. And of course, very good examples where the profit restoration programs like in BBRG. And again, we were very careful where we spend money. We have a very clear governance process for the capital allocation in place. The second pillar after Perform is We Transform. And this is, of course, the most -- the biggest part is portfolio management. And this is about, which are the areas when we look at our portfolio where we would like to invest for growth. Oh, we have maybe areas where we have a small business, but we are not sure if we can keep it or we can scale it up. And there are areas where we say the turnaround is necessary or even as I mentioned before, on the Diamond Wire as there is no value add, finally, we go for an exit. Organizational capabilities, and I'm very proud here to do this together, of course, throughout the company with all our colleagues, but especially with Casting. We've had strong background in HR, our new CHRO. It's really about the leadership framework. How do we lead the company, how do we set objectives, how do we build a performance culture. But also what we see when we have to adapt to a new world, we also need different capabilities and competencies today. So there's also a lot of transformation ongoing, looking where we are going to, what are the capabilities and competencies we need and how can we source this. This also means that we need to be able to attract companies. A very good example for the changing generation is the digital. We have identified 3 transversal capabilities Juan Carlos, my colleague, will later go into that in much more depth. But digital innovation and sustainability. These are our 3 core transversal capabilities we need for the transformation to be able to adapt to this new world also indicated by Jurgen. And this digitalization, this covers the operations. Can we get is about data generation? Can we get data out of our machines? Can we explore when the best time is to maintenance, predictive maintenance, preventive maintenance? Second one is customer. How can we get, again, as mentioned before, be close with the customer. Let's make the customer easy to deal with us. Let's make sure that he can track his materials, which we sent to him. Processes is always continuous improvement. It's about processes. We think about together with my dear colleague from CFO, Taoufiq, how can we automate our purchase to pay cash to order, all these things? How can we really reduce the contraction costs. And on products, there are new opportunities. Many of you know the digital twin. And I think such kind of applications could really help us to develop and innovate much faster. Innovation has again 3 steps. And the 3 steps is we are doing a daily base. We continue to improve our quality. Maybe we adapt a little bit the specification for our customer for a certain need of his wire, office [ home. ]The second thing is we develop something new because maybe for a certain SUV, for a higher team size, the customer needs a special strength. We can do it. We will develop it with our engineers. And then last but not least, this is an area where we need to step in, for sure, certainly in a later stage and the earliest later stage, where we say, yes, are there any disruptive opportunities we would like to capture to find new fields to go beyond the goal. Sustainability. Jurgen mentioned it, it was in the latest Board meeting. We got the full commitment empowerment to go really on the sustainability. Everything that is linked with environment. This is a decarbonization. This is waste. This is water. This is another example is the social. Of course, we talk about gender diversity, equal rates and no discussion on the governance. And I'm not sure if you have listened, but some oil companies, they got really invited to have stronger measurements and criteria for the environmental targets. Give me some example now on the business portfolio. Regarding optimizing Bekaert's business portfolio, we have undertaken a deep review of each of our businesses from 2 key perspectives. Firstly, in the terms of market attractiveness, growth, profitability and risk. And secondly, in the terms of ability to win the rights to player in those markets, our competitive position and ability to differentiate. Based on this analysis, we classified our businesses in 3 categories and established differentiated mandates that drive the priorities in each business as well as our capital and resource allocation. As you can see, we have a mixed portfolio today. A strong 60% of our business and is in the Invest for Growth category. A small percentage in businesses on which we are looking to build up capabilities and to scale up. And the part of where our focus is on profit turnaround or to a limited extent where we may look to divest or exit when the time is right. And our division is CSO, they have clear mandates. And with the teams, the focus on achieving all these objectives, we would like to achieve in this portfolio management. Actively managing our portfolio to improve our growth potential and returns. Allow me to give you some examples. From an investment for growth perspective, we can highlight our continued growth in the Rubber Reinforcement in Asia, where we are moving forward to better serve the Southeast Asian growing markets with new capacity in Vietnam as well as optimizing our Chinese capacity to serve the continued growth in China. Similarly, as we will touch upon later, we are developing new applications and partnerships for our building products business. This is for the construction business, for example, precasting and elevated flooring. From a strategic scale-up perspective, we continue to develop our synthetic groups, technology and businesses with strong partnerships, for example, Applied Fiber and Ideol. Regarding turnaround, we have stepped up our profit restoration plan for BBRG, streamlining our footprint, driving commercial and operational excellence in order to realize the full business potential. And they are proving they are very well underway to meet the targets and move up the metrics. A further turnaround, which is progressing very well is our combustion business, where we have the same turnaround plan and is really progressing to a very nice level. Finally, we also evaluate some potential exits or divestments as we have done with the Diamond Sawing buyer, businesses was stopped at the end of 2020. This is active portfolio management. We improved our overall business mix and profitability over the next years. We Grow? is the third one. We perform, we transform and we grow. Jurgen has shown the megatrends new mobility, renewable energy, urbanization, connected and smart reverse globalization and sustainability. And we have identified the focus on key markets. This is mobility, construction infrastructure, lifting and hoisting, energy and utilities and agriculture. And what really sets us apart is we have leadership positions. We are a partner of choice in big projects, in small projects, in daily projects. We have a huge technology competence. And our global scale with local break-ins helps us relatively close to the customer and the responsive supply chain really confirms what -- confirms us a preferred partner to our customers. So when we would like to move beyond the core, it's about to get closer to the end markets. It's about differentiating offering, services and solutions and to increase the value add and the available profit pool. As I described earlier, we see opportunities for organic growth linked to our 5 key markets. We have positive dynamics and supported better megatrends. Additionally, we see potential opportunities coming from M&A, which given our regained financial flexibility, we are seriously analyzing and progressively developing a pipeline. The way we see M&A in 5 directions. First, looking to reinforce our core business and consolidate wherever is possible. And then looking at adjacencies and going downstream to move closer to our customers into a higher value-added solutions and access larger markets. Finally, looking to bring complementary capabilities that can allow us to further develop our business, go into services, move into smart solutions, for example. Importantly, we will only do M&A if we are convinced there's a strong business case, supported with synergies and/or growth potential. Similarly to the way we approach our CapEx allocation, we follow rigorously processed to analyze to ensure M&A will support our value creation agenda. Focus and priorities of '21. No discussion, health and safety and well-being of our employees as number 1. We want to continue to capture the growth opportunity and further gain market share. And hassle-free supply chain is a nonnegotiable. This is the base for our supply promise, the string and capital allocation governance to invest in the right projects. And of course, one very important is to further development and deployment of our strategic transformations. This is about innovation, sustainability, digitization. And I would like now to hand over to Juan Carlos who will talk you about innovation, sustainability and digitalization. Please.

Thank you, Oswald, and thank you, everybody, for joining us today. As Jurgen and Oswald have presented, we have embarked in an ambitious value creation journey with a comprehensive review of our business, its full potential and the opportunities we face. As you can see, Bekaert is already on the move, and we have clarity on the direction. It is my pleasure then to guide you through our strategic transformation vision. There are 2 key elements underpinning our strategic transformation. Firstly, which as was already described in some detail, simplifying and optimizing our business portfolio and focusing on a clear set of key markets on which to develop. Secondly, we are prioritizing 3 major transformation pillars: innovation, sustainability and digital to evolve Bekaert into higher impact and value creation. These elements will give us a stronger base from which to grow and realize our ambition. Our 3 transformation pillars are key to move beyond our current model towards a more sustainable value-creating one. I will elaborate on each of these 3 pillars, but let me first touch on them at a high level. Firstly, we're looking to step up our technology and innovation efforts to move beyond our current products to complement with new solutions and services. Also to enter new applications or growing some markets like, for example, the emerging new renewable energy markets like floating offshore wind and hydrogen. Secondly, we have decided on a higher ambition on sustainability for Bekaert to go beyond into more sustainable outcomes and become part of the solution to some of the major ESG challenges our markets, our customers and we face. As well as capture opportunities and drive competitive advantage. Thirdly, on digital, where we will further develop our capabilities to bring efficiencies to our operations and processes and specially to improve customer experience and develop smart solutions. Now these 3 pillars are, of course, not independent from each other. On the contrary, they're very interrelated, and they reinforce each other. For example, we cannot think of our sustainability strategy without thinking of innovating into new sustainable solutions to bring to our customers and value chains. We also need to innovate in our processes to, for example, reduce our energy consumption and our environmental footprint. If we think of sustainability and digital, they are also quite complementary as digital and automation will enable our operations to be more efficient, optimized and safe. Digital is also a critical piece of our innovation ambition, of course. We're looking to develop smart wires and solutions and new business models where we can capture value in the data and intelligence more than only in our products alone. Let me show briefly an example to illustrate the direction we're moving to. In BBRG, we have been working to innovate and develop solutions to automate the inspection of ropes in, for example, bridges or Skyways. As part of our strategy to develop our business and move further from only supplying ropes towards full-service solutions. Today, in partnership with Vision Tech, we have developed part of the solution, which allows us to measure, monitor, predict and optimize the lifetime of these products. Services, which we are starting to bring into the market today. With a similar approach, we're looking at other applications to enhance our business portfolio. If I move now to innovation. On the innovation front, it is important to note that we start from a strong base with around EUR 60 million annual investments and more than 600 technical experts. However, our ambition is to develop our innovation capabilities further to be able to develop at least 15% new sales from innovative solutions over the next 5 years. To achieve this, We will rebalance our innovation portfolio, while also increasing our investments by up to 50% over this period. Firstly, we will look to continue investing on improving our operations and processes but looking for efficiencies through digital, smart and remote service processes. Secondly, we will boost our product and solution development to move from incremental developments towards elevating our offer, to look to better resolve customer needs, to increase our differentiation and bring more sustainable solutions. All with strong portfolio governance to ensure investing on the most promising innovation platforms. Finally, we will focus new investments into more breakthrough innovation. As Oswald mentioned, this is a key area of development that we want to invest and we will develop further with ring-fence entrepreneurial teams looking to develop, in particular, smart products and solutions as well as new solutions for new growing markets. These we see through key partnerships with complementary market leaders. A couple of examples to illustrate these developments. First, if we look at the area of new mobility. In new mobility, we participate in several developments of newer transportation modes. One example is the Hyperloop testing tunnel in California. Second one, highlighted here is the Cargo Sous Terrain project in Switzerland, which is looking to revolutionize the logistic world. What this project looks at is to keep people over ground, manage cargo on the ground, with fully digitalized cargo wagons from 1 logistics center to other in Switzerland. In these cases, besides our corporate venturing opportunities, we are working with our high-performance Dramix steel fibers for tunneling reinforcement and additionally, looking at opportunities for our advanced cords hoisting business. With this, looking to set the new standard of tunneling reinforcement through these emblematic projects, to further expand globally as there is growing interest from various countries and cities in the world. A second example in the area of new energy. Currently, we're serving the hydrogen electrolysis market with our fiber technology solutions for electrodes. We have joined forces through the high consortium with other renowned Belgian industrial players to develop new generation electrolysis technologies, which actually was announced today. And the objective is to find -- to develop these technologies that are more efficient, lower cost that enable and accelerate the development of green hydrogen. As you can see, there is a strong sustainability element on these examples. And that sets me into our second transformation pillar, sustainability. Now as is every day more evident, sustainability is critical to most, if not all businesses. And Bekaert is not an exception. We see sustainability as an important challenge, but especially as a major opportunity for Bekaert to lead and create value, not to be driven by others, but to become part of the solution. If we look at all our main stakeholders, we see a rapid movement to our sustainability. Many of our customers and suppliers are looking to collaborate to develop new, more sustainable solutions, and we see higher growth in several applications with a strong sustainability angle. Also, it is critical for our people and our communities. We have seen great engagement as we have developed our sustainability strategy, and we look forward to continue in that direction. Of course, on the investing and financing front, there is a growing focus on the long-term sustainability impact and the growing evidence of correlation of sustainability to the ability to bring more value. And finally, we see sustainability as an opportunity to gain competitive advantage. And keep ahead of our competition by being able to reduce our cost, to differentiate more and to bring better solutions to our customers. Now given all of this, we have decided to set an ambitious agenda for Bekaert, which, as you heard earlier today, it was approved by our Board just a couple of weeks ago, and I want to present to you. There are many elements that comprise our sustainability agenda in the 3 fronts of environmental, social and governance. I will highlight some of them but acknowledging that all of them are very important. Regarding environment, we commit to reduce our greenhouse gas emissions in line with science-based targets by 2030. And to aim for carbonate material 0 by 2050. What this means is that we will aim to reduce by 45%, at least 45% are greenhouse gas emissions. On sustainable solutions, as I highlighted earlier, we're looking to increase our innovation and their share of sales to around 65% of our overall portfolio by 2030. Today, we're at a level of around 35%. So we see this as a significant effort to position Bekaert in the higher-growth markets. I will bring some examples later on to elaborate further. We're also working to improve our water consumption and recycling. Now on the social front, we will strongly drive our diversity inclusion agenda, and we will target a minimum of 40% females within our managers and white collar population by 2030. We will also increase our community efforts in line with the specific targets that we will set -- a specific topics that we will set as priority. Finally, on the governance side, we will continue reinforcing our ethics and compliance standards, and we will move to integrated reporting within the next couple of years. Now I wanted to bring a couple of additional examples of how Bekaert is developing sustainable solutions and enabling significant impacts across the value chains we participate in. First, let's look at offshore wind energy, where our BBRG mooring business as well as our SWS cable armoring and also our fiber cable heating business have been developing new solutions to serve these emerging market needs and enable Bekaert to go beyond in many aspects, enter new high-growth markets, develop with new materials, collaborating strong partnerships and leverage digital to find the best solutions. So far, we have been successful in positioning ourselves in most, if not all, of the major floating offshore wind projects. A second example highlights the potential impact that Bekaert Solutions can bring also on the environmental footprint in some of the key applications we serve. In our Building Products business, we're developing solutions like SigmaSlab, which we unveiled very recently, where we can bring a very significant reduction in the material intensity to reinforce flooring, for example. Not only with a strong reduction in the amount of steel used up to 70% compared to traditional methods, but also on the concrete required. Now besides the obvious TCO benefit, there is a major impact of reducing 30% to 40% of the overall carbon footprint. And we believe innovative solutions like this will drive a higher growth and more value to our business. And of course, it will have a significant impact on the carbon footprint of our business and our customers' business. Now finally, let me move to our third major transformation pillar, digital. I have already mentioned a few innovations enabled by digital, and we are working to strongly expand our capabilities and explore partnerships to further leverage digital technologies and develop more breakthrough solutions. From a broad perspective, we have organized our digital ambitions around 4 different axis: customer, product, process and operations that cut across all our businesses. In all these areas, we're tackling today several quick wins while at the same time, developing our capabilities to go further and truly impact our ability to become better connected with our customers, providing them a better customer experience, more efficient and reliable in our operations and our processes and more intelligent to take the right commercial and operational decisions. At this point, I will not go into further detail, but I'm happy to answer any specific questions during the Q&A. Now as you have seen, we have an ambitious value-creation agenda, supported by a disciplined and active portfolio management and our key 3 transformation pillars. Now we will translate this into our financial perspective. And I have the pleasure to hand over to Taoufiq, our Chief Financial Officer. Thank you.

Thank you very much, Juan Carlos. Hello, everyone, and thank you very much for joining us today. I will directly jump into it, and will take you through the financial translation of our strategy, and I will start with the sales. So our goal over the last couple of years was to take out us from this flattish cycle of growth that we went through during the years 2018 and 2019. 2020, in some aspect was a bit peculiar because of the COVID crisis, but we did manage to secure a significant rebound in Q3 and Q4 of last year. This rebound has further crystallized in Q1 of 2021, and we have been able to report record sales level. This tailwind and the momentum does continue. And we are expecting further improvement for the balance of the year, but I will come back later on in that. We do, however, want to remain cautious because we're still dealing with the fluid environment. There are a couple of areas of attention. Some of them are related to the historical seasonality of Bekaert business. So there's a typical seasonality in H2. We are still not sure how this will evolve in the context where the demand is growing. There is a significant economic impact from the strong economical cycle in Latin America. There's a question mark on how long this cycle will continue. There are disruptions in the automotive market. So we -- it's something also that we want to carefully watch. And we are expecting the competition to return. So we're carefully watching, which kind of arbitrage that we'll be making in terms of volume versus price. So the last element that is an element of focus for us is the stimulus program. It's something that we're aiming to benefit from. There have been some delays. The U.S. has announced recently the delay in its stimulus program or reduction of the initially considered envelope. So it's something, which can potentially impact us for the balance of the year. And last but not least, the FX evolution can also potentially generate some good news for us because it can potentially make some imports from our Chinese competition a bit more expensive in some specific geographies. So despite of all these elements, we do remain confident, and we're upgrading our 2021 sales guidance to at least a level of EUR 4.4 billion. So moving beyond 2021, our ambition is very clear. We want to beat the EUR 5 billion mark. And we want to reach at least EUR 5.1 billion of sales, excluding inorganic moves. So to back up this plan, we have a clearly defined set of expectations. These expectations and I will go through them for each one of our key business franchises, and I will start with our Rubber Reinforcement business. In the Rubber Reinforcement business, the demand is expected to grow by a compounded 2.4% over the 5 years plan. The incremental tire cord market share is also expected to increase in China, and we want to maintain our leadership in key geographies, such as EMEA, Southeast Asia and Latin America. We will focus with our big 6 customers on innovation, and we will further enhance our positioning as a partner of choice with the future Chinese winners. On Steel Wire Solutions, the agriculture, utilities and energy market will grow by 2% percentage annually. We will move further from only steel and wire into adjacencies, and we will create new and more stable revenue streams. On the Specialty business, we are expecting a very solid and strong growth of 8% throughout the cycle. This growth will come on the back of increasing penetration of our Dramix product into concrete reinforcement and a shift in mix towards higher-end glut and specialized fibers. In addition, we also expect growth in scalable segments in Filtration and heating. Last but not least, on BBRG, we do also expect a strong top line growth in excess of 6% per year on the back of a growth in synthetic ropes -- ropes services as well. And our business franchise will further expand into core business segments, typically cranes, industrial, mining, marine applications. And in our advanced core business, we will further leverage our positioning in the hoisting segments. This market development will be compounded through 5 key strategic areas of focus. The first one is the market positioning and the mix improvement with a further push towards higher smarter segmentation. The second cornerstone is around our pricing discipline and the governance we will be implementing that we have actually already implemented in the context where we expect the raw material prices to still be subject to significant level of fluidity. We will further leverage on some of the customer successes. We will push further the customer -- our customer intimacy. And we will clearly position ourselves as a strategic partner. The operational excellence and Oswald has touched on that, will be an absolute key for us, and we will continue having a focused approach in terms of quality, cost and time. Moving to the profitability. So 2020 somehow has initiated a turnaround towards a higher gearing for profitability. And now we have strong foundations to build upon and move above and beyond. In 2021, we have leverage on many actions. We have seized the momentum and the momentum was right because we have benefited from increased volumes. And we have also been successful in capturing the full potential of the operational leverage resulting from the incremental volumes. Combined with a disciplined approach in terms of pricing, smart segmentation, we are upgrading our EBIT-U guidance to at least 8% on sales for the year 2021. Beyond 2021 and in terms of midterm guidance, we want to establish the 8% as the baseline. It will be the baseline upon which we will further step up our performance to move to a solid 10% towards the 5-years plan. So this increase then the step-up in terms of financial performance, we rely as well on a series of assumptions that we have fully assessed. So when we look at how we will position our journey towards this higher profitability, it starts obviously with our core markets. So our core markets and the new segments that we're planning to enter will allow us to generate roughly 700,000 tons -- incremental tons by 2026. This will obviously have a knock-on impact on the operational leverage. It will be combined with a solid pricing mix positioning, which will contribute to our overall result and which will be backed by solid pricing, governance, segmentation, moves towards -- higher move towards innovation and our ability to capture new revenue streams. In terms of cost, they will be further reduced to ongoing further optimization -- footprint optimization program. We do expect during the 5-year strategic plan, a raw material move. And we are also expecting some impacts in terms of FIFO. And this is -- this has been embedded into our assumption. The second lever will be around depreciation. We will be investing in innovation, additional CapEx and sustainability programs. So we will have an incremental depreciation level, which will hopefully be offset with some older programs, which will see their depreciation level reduced. And we have also included some placeholders in our projections in order to sustain our journey towards growth. This will include typically a higher level of R&D spend and also a significant investment in terms of digitalization. So the improved profitability will be on the back of a series of catalysts. So with the Rubber Reinforcement, it will be to continue leveraging on our global presence. It will be relying on solid pricing discipline and reducing cost. In Steel Wire Solutions, the additional volume will fuel additional profitability and the combination of cost measures plus mix improvement will also allow us to step up the performance. On Specialty Business, the strong profit growth projected will rely on leveraging on some footprint savings, on cash cost optimization and also on shifting to higher-margin segments. Last but not least, BBRG, we will continue with our successful profit restoration programs. We will continue with our footprint optimizations. We will keep the focus on the cost optimization. We will look carefully at how we can further optimize our plants occupation. And we will continue focusing on pricing discipline, on segmentation and also product and service innovation offering. Moving to the balance sheet. I think that it's fair to start by saying that the burden of our debt leverage is now behind us, and we are initiating a new cycle. So the disciplined management of our balance sheet has allowed us to significantly deleverage our balance sheet over the last couple of years. We will not stop there, and we will continue pushing with the same intensity throughout 2021. With this in mind, we are today guiding for debt leverage below 1 for the year 2021. For our strategic plan period, we are targeting a 1.5 multiple. A slight increase, which we need to look at in the context where we might conduct tactical small M&As at the exclusion, obviously, of bold moves or major acquisition, which will be managed on a case-by-case on and if they present. And we are also projecting the context where the increased level of activity will lead us to a situation where we will need to allow for some control room of maneuver in terms of working capital. So 1.5 for us is a ceiling in the context of a normal ongoing business. So with the reimbursement of the convertible bond in June that is amounting to EUR 380 million, our record level of cash on hand will reduce. But we will have a very balanced and comfortable debt maturity program, which will not require any financing given our cash generation program. And I would like to elaborate further on that. So cash will remain king. I don't think that we have much more options. It will remain a key focus. So we want to sustain the solid cash performance through disciplined working capital management and EBITDA generation. So obviously, we have delivered on significant working capital reduction over the last 8 quarters, I would say. This will gradually be replaced by a solid EBITDA generation for the coming 5 years. So we are setting up a new guidance. It will be under the form of a free cash flow yield. That will be a new metric going forward that we will be guiding on. And we will be setting our target at 100% free cash flow year for the 5 years plan. So we will see some fluctuations in terms of cash generation, still remaining strong and very solid. As we mentioned earlier, we will have an ambitious plan in terms of investing in sustainability, in technology. So this might generate some fluctuations overall in terms of cash and free cash flow yield. But overall, the result is expected to remain very strong, leading to a cash generation in excess of EUR 500 million by the end of 2026. So key to drive this ambition and also to drive our sales growth ambition is obviously the cash generation that we will be delivering. So it's key for us to fund our ambition in terms of strategic moves, sustainability requirement and also sales growth. And our cash generation will also allow us to sustain and gradually increase our dividend distribution. So to reach this target, we rely on 2 full lead levers. So the first one is obviously the very successful working capital management that we have been able to demonstrate over the last 8 quarters. So working capital has been significantly reduced. And in 2021, even in the context of increasing activities, we have kept the traction after the record low level of working capital in the end of Q1 2020. We are further reducing it in Q1 of this year. And midterm, we want to be realistic, cautious and also ambitious, and we want to allow for room of maneuver for the business to drive its sales expectation, and we are guiding midterm at a 15% to 16% working capital percentage on sales. And this would be in the range of the record level that we have achieved back in 2020. So key to our performance is also the stringent target that we are setting for the company and our business franchises in terms of ROCE. We have implemented a strict capital allocation governance, which is relying on milestone approvals, gates validation and also very clearly defined ROCE expectations. With this and the performance of the business, we are also stepping out our ROCE performance moving to above 12% for 2021, and we are aiming to reach 20% by the end of 2026. To recap and some of the key highlights of this presentation. So consolidated sales guidance at 3% CAGR over the strategic plan. Our EBIT margin, starting with the baseline of 8% to move progressively to 10% throughout the cycle. Our free cash flow yield at 100% over the cycle and our net debt leverage to remain below 1.5 in a normal ongoing business environment. Short term, we are also restating our guidance. Our consolidated sales will position at at least EUR 4.4 billion, while we're upgrading our EBIT margin to at least 80 basis points above 2020. Our net debt leverage will be below 1. With that, thank you very much, and back to you, Oswald.

Thank you very much, Taoufiq, for this promising outlook. Thank you all for the attention. Before moving into the Q&A session with our covering analysts. I would like to briefly recap our value creation agenda, which is driven by the colleagues of the BGE and the teams as shared with you today. We are performing. We are customers interesting, and we are ambitious and committed to deliver. We are transforming into a modern, attractive and digitalized company and building a better future that is sustainable, green and caring for the next generation. And we are growing as so we are well positioned, focused and driven by innovation. Bekaert has a strong foundation and a very solid business model at present. And looking beyond, we will create more value growth in the future and develop an innovative range of sustainable high-performance solutions for our customers to make them have successful. Not only made from steel wire but also from other materials and with digital services, driven by the opportunities of megatrends. We will focus on innovation, moving from products to solutions. In sustainability, we want to be a part of the solution. And in digital, we are moving towards smart products and services. And because this is what leads us to creativity beyond steel. Thank you very much and enjoy the short video. Thank you. [Presentation]

We now invite our covering analysts for a Q&A session.

[Operator Instructions] Martijn, I invite you to take the floor.

Yes. I'm Martijn den Drijver for ABN AMRO. My first question would be with regards to the turnarounds, divestments strategy that you've mentioned. If I understand correctly, for now, you are indicating that ropes and combustion will go through a continued process of profitability improvement, whereas for song wire, you may divest it faster. How much -- can you tell us a little bit about where do these units stand in terms of EBIT margins and how where you want them to go in terms of EBIT margin? And what type of time frame will you allow for these units? to get to that level? That would be question one. And the second question is on the EBIT margin target or guidance for 2021. I know that you've said it's more of a new base level and that through the cycle, it will evolve between 8% and 10%. So it's clearly a significant step-up. But you've done 9% in the second half of 2020. You've done well over 11% in Q1 2021. There are still cost savings coming through from engineering and R&D and Pointe-Claire in North America in BBRG. So I don't understand why with these numbers an EBIT margin target of at least 8% is relevant for 2021? That would be my second question.

Okay. Martijn, Taoufiq here. So I will start with your second question, and then Oswald will take the first one. So the reason why we have this cautious outlook for 2021 is twofold. The first one has to do with the raw material evolution and the FIFO impact that we saw in our results in Q1. We do not expect to continue with the same trend in terms of raw material prices. We do expect a turnaround in Q4, which would offset some of the proceeds that we got through for noncash impact during the first half. So there is a sizable impact in Q1. It has continued in Q2, we'll probably potentially stabilize in Q3 and potentially turn around. So we want to account for this impact and we're neutralizing potential impact from FIFO. The second element has to do with the strong economical cycle that we see in Latin America and the tailwind that is -- it has generated for the business. It has driven demand. It has driven pricing. Some of it should stick. We do not expect all of it to stick. So there are different type of assumptions to be considered there. So we want to remain cautious when it comes to that. I would also add a third element. So I mean, in terms of cost, we have been performing quite well so far. I mean, there's still a lot of discretionary spend, which is not happening. We do expect the economy to rebound and travels to restart and so on. So some of the savings that we have generated might not be there. So that's basically the 3 reasons why we do still remain cautious with. The hope that if these situations are properly mitigated that we might be able to perform above and beyond 8%.

Okay then, Martijn, allow me to come back to your first question, this was about restructuring, about divestment, about turnaround. I will start with PCT. PCT was a little bit of a stepchild and We started last year to go for a turnaround because we have seen the market opportunities. It's a business of about EUR 80 million of revenues, and we have a clear plan. This is a plan about 12 steps. We are looking at. As for example, a footprint restructuring, we move from Netherlands to Romania, we close or we shift 1 production facility we have in Dakan in China to a facility where we're in. We see in the markets that when we have resolved the footprint, we need a much closer -- closeness to our customers. We have now seen -- sometimes they have been waiting a little bit too long for new innovative products. We accelerate this. We have put people in who is much -- who are much closer with the customer, and we get contracts. And these are very big companies, suppliers, our customers, they have always relied on us, and the plan is going very well. It's proceeding. It was a little bit delayed to some COVID weeks, let's put it this way, but the plan is there. We have hired the new guy last year, who is very experienced in restructuring and also to make the basics and to look also not only from the operational point of view but also from the commercial point of view. And we get a quite, I would say, a very decent feedback about the move we are going there, and it's very well appreciated by our customers. This is about burners. It's about heat exchanges. This is about the companies like [indiscernible] or electric companies like Bosch. When you go to BBRG, I can tell you we are very proud. Because this is a legacy and I have heard this is always, in many cases, have been mentioned. And under the lead of [indiscernible], our division CEO, he has done tremendous effort to even accelerate. The restructuring is always our footprint, but it's also in the commercial part. And for example, what we did is a project business. And one topic was how to do the proper pre-calculation of projects that we don't, at the end, get maybe a deviation of that what we have planned. How can you serve the customers better? There was, for example, we can serve our customers much better consolidating our Canadian activities in America, in North America and supplying the customers also partly out of Europe, getting economy of scale. And we have the bond clear restructuring went very well. I think it's today the last day the production is there, the customers are informed. And let me answer this, where is the level to go to BBRG will not dilute the threshold we have set within our company. So it has to be on the levels of how the expectation Taoufiq has indicated. And I'm very proud the team is fully dedicated, and we also see a very good feedback from the customer. And you'll see the projects where we are invited in. One further topic was on the commercial part, not only getting closer to the customer because in some areas, we are really #1 but took also to a higher value mix to offer more. The second thing is BBRG is moving into the synthetic part, where we have complementary products and has a more basket of offering to the customer, so he gets more solution out of one hand. And the last thing Juan Carlos was mentioning, we will also have a kind of digital offering when we want to really monitor what quality is the right -- what is the quality of the hopes, which are used in order to make sure that the customer has a more safety aspect by offering this digital solution. So in a summary, it's a very tough exercise. It's not an easy walk. It can be very clear, but there's a fantastic team behind and really aiming for these achievements I have indicated.

One follow-up, if I may, Oswald. You mentioned that they are not diluting the overall margin of Bekaert. But where do you want these 2 units to go in terms of the EBIT margins? And how much time will you allow for that to happen? And is that at 1 year, will that be the full medium-term target of 5 years? A bit more clarity on that. As well as you mentioned that another alluded that applies to roles within BBRG, does that also apply to combustion within specialty?

Yes. This is, I can say, compassionate. Absolutely. No business should be about thresholds we have defined indicated. But maybe, Taoufiq, you want to add.

So Martijn, we want to take the business to 10%, and we have a plan to take BBRG to 10%. So -- and when we say it's not dilutive for us. So whatever over the strat plan period is below 10% is dilutive. So BBRG will be in the average range of profitability for the company, and we have a gradual step-up of the margin generation of this business, it will move very quickly above 8% probably already this year, and it will move gradually to 10% over the strat plan period.

Perhaps to be mentioned is also project business. Sometimes you have up and downs. It's also a cyclic business. But in general, I think what Taoufiq is saying absolutely confirmed.

Thank you, Martijn. I would now invite Emmanuel Carlier.

Yes. I have one clarification question on the REBIT margin. Do you hear me?

0 Yes. Yes, we hear you, Emmanuel.

So I think in the presentation, on the one hand, you mentioned that the REBIT margin should be above 8%. On the other hand, on the last slide, I think you indicated that you target an 80 basis points improvement on the REBIT margin year-over-year. So this implies rather an 8.5% REBIT margin into this in '21. So what is now the guidance? Is it more than 8%? Or is the 8.5% the actual guidance?

It's at least 8%.

Yes. And what is the reason then on the last slide to show more than 80 basis points improvement?

While it's 80 basis point improvement versus the 7.2% from last year, so that's 8%. So -- and we're guiding for at least 8% for 2021.

Yes. Okay. Yes. Yes, I understand. Yes, I thought it was the 80 basis points on the previous guidance.

No. No, it was versus last year.

Yes. Okay. Then the second question is on free cash flow. What is the free cash flow definition that you use?

So the free cash flow, as it stands now, it's operation cash from operational cash plus minus delta working capital plus/minus CapEx movements.

All right. And just to understand the very strong free cash flow guidance, which you maybe provide a bit more guidance on CapEx evolution and maybe also cash tax rate?

Yes. So in terms of CapEx. So for this year, 2021, we will be moving between EUR 150 million to EUR 170 million. We will have, during the strat plan period, a couple of years where we will need to step up our CapEx investment effort mainly because of Vietnam and some other areas. But for the rest of the plan, the profile of our CapEx investment will change, but we can come back later on, on that. But our projections in terms of CapEx is that it will stabilize in the EUR 170 million to 190 average over the 5 years with a couple of years where it will probably peak above EUR 200 million because of the investments that we have referred to.

What could be the kind of maintenance CapEx level over that period, because this is including growth investments.

Yes, CapEx -- maintenance CapEx usually is in the range of EUR 25 million to EUR 30 million. But again, I mean, with the type of investment that we want to do, we want to step up our industrial capabilities to improve our machines to reduce the level of maintenance, which will be needed in the future and so on. So we should see as well an impact coming out of that. But to maintain our CapEx back to your question, it's EUR 25 million to EUR 30 million on a recurring basis.

Yes. And then on return on capital employed, you target more than 20%. Same question here. What is the definition. I guess, this is pretax?

This is pretax indeed.

Yes. And could you provide a bit more color on the definition used?

So on the return on -- well, I mean we will need to send you the formula, but it's really a standard formula that we're using. So it's capital employed based on the assets and the working capital that we have. But we are not using any exotic component in our ROCE calculation.

Yes. All right. And then the final question from my side, I think during the presentation, you mentioned that the sales from innovations will go up a lot. How will the margin profile of the new innovations be versus the current portfolio?

I'll take that one. Well, what we're targeting, obviously, innovations, there's a big portfolio of different -- with different profiles. But if we're targeting at least 10% EBITDA coming from these innovations. Of course, we're targeting higher than that, but at least 10% to keep increasing our average EBITDA or average profitability.

And you had a question as well on the ETR long term. So we had a target for the ETR, which was set at 27% to 28%. So we are clearly on the path to get there. So we have achieved already a 27% rate on ETR on profit-making companies, 33% on consolidated level, but the target remains to reach a 27% to 28% ETR on the long run.

And how did you realize that substantial improvements versus previous years? I guess, that's mainly driven by all the improvement actions that you have done, i.e., ending the losses in some units. Is that correct?

Yes. Well, I mean, we had a couple of tactical tax-related initiatives, which have been conducted during the year. We are further leveraging on some of our tax assets and making use of them. And obviously, the profits that we have generated did help into reducing the level of taxes that we have paid in 2020.

I would like to invite Frank Claassen now.

Yes. I've got a question more for the short term. The wire rod prices are indeed very much increasing lately. What are you doing to ensure the availability of the wire rod prices and what you're doing on the level. I remember that from Q1, there was a 5% price effect. Can we expect more higher price effects in the coming quarters? And maybe could you also elaborate on the FIFO effect because you already touched upon this, but could you give a rough idea how big the FIFO effects will be in the coming months? So that's the first question. And then secondly, on your Vietnamese plants, where are we in this process? How much of the plant has already been built How quickly do you think you can finish the construction, ramp up? How much CapEx is involved? Some elaboration on that, please.

Allow me to start with the wire road. Thank you very much for the question. indeed. It's a very exciting topic. And what we have seen over last year that was when you compare 2020 started, it came down during July and then in October, November, it increased. And then really it took off in the first -- I was the end of the year. And when we have seen in the first quarter. And it differs a little bit from country to country, how steep the incline is and how much it is to this expect. When you look on wire rod, we have a situation, where you also need to look is how this wire rod is produced, what is the base of the steel. And just coming to some ore materials, we have seen iron ore was peaking. You see the scrap was peaking. And this is also related to the topic that we have several productions, ways how we produce how the steel and the wire rod is produced. One is the electrical one. This needs more scrap and the other ones are the blast furnace one, they need more iron ore. In general, I would say is I don't see the price will go down in the quarter 2 and 3. We still see a very, I would say, strong demand situation, supply situation. We have the advantage that with our relationship, and these are most regional suppliers. And there was all the supply chain interruptions. Container, we are missing, et cetera, we could serve our customers in their regions, and this was 1 of our big advantages, not only the closeness with the customers, but we're also from the local regional point of view to serve our customers. So this was a big benefit. And of course, if you recall, the first half of 2020, no wire rod was needed. And in the second half of 2020, all wire rod was needed. And there still, of course, was the challenge to keep the inventories there. You see the supply and demand situation, of course, in the first quarter, especially, there was still a refurbishing of the stock. Yes. So there was a higher demand there. I think in China, we have somehow leveled out the increase. It will remain on a high plateau. We see in North America, Latin America and Europe, we still see also depending on the pre-raw materials, I would say, a strength of the wire rod that there will not be a sharp decline in the second or in the third quarter. Of course, there's always a cyclicity. We also see, for example, in the automotive industry, if the shortage of chip goes on, we have a lot of uncertainties how this will impact the OEMs, how will this impact also the products for steel, the automotive needs. So this is a little bit the uncertainty we see over there. About the pricing, I think in our executive team, we have done a lot to make sure that the price increases are passed on accordingly and appropriately. And I think Taoufiq will then go on this [ FIFO ] We have a mechanism in there. Sometimes it's depending how the contract is structured. Sometimes you have average prices and the fall a little bit of a time shift. But then you have also contracts where you have, I would say, negotiations for the next quarter, for the next month. We have seen, for example, that we sometimes have locked in October, price levels which we had to renegotiate and in the first quarter to make sure that the prices are passed on to the situation we are facing here.

So in terms of metric and looking at the wire rod price increases, so it had 2 impacts. So the first one is obviously on sales, where the combination of mix and passed-on wire rod prices did generate an incremental sales of roughly 5%. Most of it is driven by the wire rod increases. In terms of FIFO impact, so I mean, your question was about the future. Unfortunately, it's somehow a crystal ball guess on how things would evolve, but I can tell you what it did look like so far for the year 2021. And ballpark, it does represent 60% -- 50% to 60% basis -- well, 50 to 60 basis point impact on profitability positive for -- so far. So this might turn around. We just don't know when so very difficult for us to tell you what's the projection for the full year. But having said that, I mean we're also, I mean, carefully watching it because we know that it does turn down, you get the pluses. But at some point, you get the minus and the key lever for us to control the negative impact but is by keeping our inventory levels under very strict control and not to let them increase in the context where the prices might turn around very quickly.

Okay. And on the Vietnamese plants?

The Vietnamese plant is on schedule. We have finished the buildings. And now it's getting the machines in. It's getting the machine started. It's about sampling to the customers. So we are expecting the absolute in the plan '22, '23 to ramp up to get the homologation of the different customers and then starting to serve the customers in the areas which is foreseen. We do a lot of value engineering there. We think also about what is the best way in sustainability. The engineering here is working really hard to make, I would say, a very state-of-the-art factory there and it's in plan. We had a small hesitation of a couple of months because the demand was not sure. But when we see the projection, where this growth is coming on, it's coming out of Southeast Asia and China. And we want to be really ready. And I think our customers are aware they join in because, of course, they also want to make sure that they have the supply security. In the moment, we are sold out. Yes. And so this is always a good time to discuss how we jointly can proceed for the future demands to cover them accordingly.

And how big do you think this plant will become or in capacity, let's say, or the total?

We go in steps, yes? And I think, of course, I would say this is a kind of a modular approach, and we can go into -- we start from 10%, 35% and going up to 75%. And we are flexibly. It always -- we can breathe with the market and adapt with the customer needs.

[ Stan ] can you raise your questions?

Yes. First one is on the portfolio. An often heard observation is that Bekaert has already acquired diversified group in terms of products, technologies. And now here, you're saying that you want to enter new markets technologies, maybe adjacent ones, such as fiber. I didn't hear tangible plans on the divestment of assets. Can you be a bit more specific on potential divestments that you are targeting? Or is it too early to say that? That's my first question.

I think what we are currently looking on every stone. We look at each business, which fits in what is the strategic outlook we can provide, what is the business we can create, what is the core, what we can do in addition. And I think this is currently absolute under review. We have taken already some measures, if you have seen on the topic of the diamond, which was a long-lasting issue there. But of course, we have also areas when we look on our 5 markets, we will scan what fits in our 5 core markets in our 5 key markets we have identified what are the mega trends, which involved in make this sure that we can go beyond the core. But it's also clear that when we go for innovation, yea, new fields will come up. And I think innovation is also important. There can be also substitution. So it's also a risk mitigating topic. And we have really our set up now to consider kind of a very intensive task force to say in the next 5 years, we want to have 15% to 20% completely innovative product, which also take reference to the sustainability. And whatever the second thing is what also I mentioned in my presentation, what falls beyond the threshold of 10% EBIT and whatever has to be either fixed or has to be divested as well. But in the moment, for example, we look on the PCT on the turnaround, we see excellent opportunities in PFT. This is our fiber business. There also Juan Carlos has mentioned that we have here the opportunity for hydrolysis -- for the electrification of hydrolysis to find out there. So it's really now scanning and screening and looking where we are. This is the next, I will say, step after performing. We look now for the transformation.

Okay. Okay. Then second question is on the EUR 5.1 billion sales target by 2025. You say midterm, but I assume that it's 2025, right? So that implies a 4% CAGR from 2021. Can I ask what is the assumption on wire rod and FX in that 4% CAGR? And also what should be the impact of the Vietnamese plants in terms of building block towards that 5%? What is the assumption that you use there? Can you give a bit more clarity on these factors?

Yes. So the EUR 5.1 billion sales will -- if we translate it in volume, that's roughly 700,000 tonnes incremental. So as Oswald said, Vietnam will contribute incrementally into this additional capacity volume by a first step of 75,000 tonnes, and we will move gradually with an additional 75 tonnes depending on the market evolution. But in any case, the plant is scale up to go up to 200,000 tons plus depending on how the market evolution that we see. So in terms of the FX impact. So the projections that we're making is at constant FX So it doesn't take any major projections for the same time. We're refining it based on some additional information. But for the moment, it's on constant FX impact. And in terms of wire rod price, the assumption that we're taking is that it will be back to 2019 levels by the beginning of 2022.

What is the delta then versus 2021? Can you elaborate?

Well, it should be a delta of in terms of price per ton between 15% to 20% versus 2019 baseline.

First 2021?

Well, the baseline -- well, 2021, for us, is a year of increase, but we consider that the baseline against this increase, it's 2019. So if we look at 2022 versus 2021, it should be a decrease of roughly, yes, 15% to 20%.

Okay. Understood. And also then a negative FIFO impact next year than last?

Next year, we're expecting a negative FIFO, yes, which can probably already start in Q4 of this year.

Okay. Okay. And then a clarification. Did I hear correctly that the EUR 5.1 billion assumes 700,000 additional tonnes?

Well, if you want to translate this well, I mean, it's a figure that you -- we need to take with cautious. If you translate -- the incremental 5.1% or, yes, the 5.1 million sales I translated that 700 tonnes. But the 700 tonne will not come -- or the equivalent will not only come from existing products. I mean there will be a components of services. There will be a component of products, which will probably not even be sold by tonne like synthetics and so on. So I mean we're still computing all this. What we try to do is just to translate. I mean, if we were to go for an additional EUR 600 million to EUR 700 million of incremental sales, what it would mean in terms of tonnage in order for us to be able to build or to position the building blocks, including some of the capacity that we will need in our entire business in steel wire solution and so on. It's just a metric for reference of what this sales increase means in terms of tonnage.

Understood. And the final question of the 3, and I will put myself in the queue. On capital allocation and cash returns, yes, can you be a bit more specific there? What -- I mean, cash flow generation should be sizable in 2025, but there is no step-up in terms of cash returns? Is that something you're still considering on board level? Or is it the policy that we have now that you would just continue?

Sorry, I wasn't sure to capture your question because you were discussing about cash return?

Yes. Cash returns to shareholders, so the potential buybacks.

Okay. I'll happy to take that, [ Stan ]. We have no plans to do any buybacks in this midterm perspective. Although our dividend policy will be along the 40% payout. And with increasing earnings per share, there will be obviously potential increasing the dividend throughout the period. But we probably see that we have quite a clear strategy. And we will have clear targets also in the M&A side of the strategy. And probably we'll get a better return on those than buying back shares is the opinion at the moment.

I now invite Wim Hoste to raise your questions.

A couple of questions from my side. First, on the margin targets, you are aiming for 8% underlying EBIT margin this year and then growing to 10%. How should we look in the context of the cyclicality of Baker and the overall end markets at the 10% target? Is that in the kind of level that should also in the post 2026 period, the minimum? Or was that in the average in the 10% you're aiming for?

I can start.

Yes.

Okay. So Wim, 8%, we're saying at least 8%. So it's not, so it's at least 8%. So the 10% is actually built on the back of an assumption that our new revenue streams will be generated through proceeds, which will not be subject to the same cyclicality than those that currently have in portfolio. This is 1 of the key also strategic orientation that we want to have. And that's why we want to move beyond steel and avoid these cyclical effects. So as we said, there's a significant input or component, which is driven by new revenue streams. And therefore, the cyclical effect into our projections is rather limited for the moment. It's rather a constant growth where we project a constant demand or improvement in demand over the 5-year cycle.

Okay. That's clear. And the second question is to come back to the -- it's more clarification on the FIFO effects. The 50 to 60 basis points that you mentioned as the effect so far this year, is that a year-to-date number until the end of May or so? Or is that just a number until the end of Q1?

It's what we are assessing year-to-date.

Okay. And then I did not hear in the kind of margin targets you set forward, any kind of breakdown from further cost savings or footprint optimization projects or something like that. Can you maybe elaborate whether you consider that after also the recent announcements, for example, the point and the engineering rescheduling, et cetera? Is your footprint fully aligned with your strategic ambitions? Or is there still additional work and maybe additional one-off and restructuring costs that we expect it to get to your targets?

Wim, thank you very much for the questions. In fact, this is not a one-stop and a sequence and we start and we stop. It's a constant review. And this is what we have constantly, in our pipeline, and this is what we execute. When we talk about Zwevegem, it's not yet finished, we just started about that. And this also means, for example, that we reduced the manpower in Zwevegem, but this also includes a different part where we say we want to have in Zwevegem a very strong engineering department. We have satellites all over the world. It's not just about relieving some people. We are building and transforming, for example, also our engineering. We want to have a center of expertise, a very high profile center. We've settled it out of this. We are constantly reviewing. It's not that we say, nothing is come or it's finished or yes, we have. We are currently really executing what we have on our table.

Okay. And then one last question for me is maybe on -- yes, if you look at revenue reinforcements business and markets as a whole. And the whole COVID environment is probably a bit changing. But now that we seem to be emerging from that in most regions with China taking the leader, can you maybe elaborate on how competitive landscape is looking, is there any change who are the customers taking most market shares and certainly with respect to the Chinese market? Is it the globals? Is it the locals who are benefiting most? Any thoughts on that? And how well are you positioned both in the local and the global ones?

Yes. I think today, we can say we are sold out. So it seems to me that we can offer and serve our customers we want to be. We will always be like that. This is, for sure, not the case. This would be a dream. But I think what we have done is also -- and this was a very big help that we have really increased the productivity to the most. It was sensational. If we wouldn't have done it, we would not be able to cope with this increase in an addition. You talk about several regions. I think Europe is going very well when you think we have done in India very well. North America is still a little bit, let's say, on a not so tough surface. In China, China haven't had this rollercoaster that we have seen in the rest of the world. So they are on a quite high level. They are still there. I see there may be a little bit of a weakening. When we look back to '21, we saw and you -- I think you mentioned is the dynamic. There's a unbelievable dynamic in those markets. We saw in China that there was a price fight to get the volume, and this is declining. We did not participate in this because it's very difficult to get price levels back if they're ones done. So what we did, and we were able to do that by serving the customers, getting the wire rod and really having our cost competitive plans in place from the second half on. And it continues in the first month of the year. We were really able to have the situation where we are high utilization of our plants and be, I will say, we serve the markets wherever it is possible. And I don't see, with the exception of China, maybe they're going to be flattening out of a high level, yes? North America, we need to wait. If it comes to tell are not coming infrastructure, this will have a big influence on the truck tire business. This is what we also see in China, the truck tire business was much more, I would say, stimulated than other ones. But in Europe, India, I think we are where -- we will continue for the second and the third quarter on a very positive level.

Matthijs Van Leijenhorst, please raise your questions.

Yes. It's regarding your guidance. What I do not fully understand is that I have the impression that also given the fact that you're not willing to offer additional shareholder returns because you're looking into M&A, what I also understand from the presentation is that you're contemplating several footprint adjustments, also some disposals, et cetera. So how valid is your midterm guidance? Because I have the impression that the composition of the entire group will change over the coming years or do I miss something? And the second one is that on this 8% -- 8% to 10% EBIT margin, what I understand is that's based on the assumption that your new products portfolio will increase in the mix given that the other segments are subject to cyclical -- cyclicality. But could you give some more color on these new products? And yes, that's basically my question. How much visibility do you have?

So on -- regarding innovation, and as we said, we're looking at applications on which there's better margins and bringing innovations that will improve that mix. Now in terms of visibility as they will becoming difficult to say as there's, of course, the uncertainty of innovation. But we see that coming later in the period. Now to complement that, I think the 8% to 10% or the increase from the current base comes also from the current solutions. As Taoufiq explained around pricing, around our cost, our leverage on volumes as well, that would increase and that is increasing our profitability today as well. So it is not only coming from new innovations. It is also substantially coming from the existing business.

Yes. But you're already at 8%, right? And if you do not include any new solutions, then you're guiding for a base margin of 8%?

Of at least 8%.

Of at least 8%.

Okay. Okay. And then do you take into account any disposals M&A?

Not in the assumptions and the guidance we're providing. I mean there might be some small tactical M&As, but no big ones included in the assumption.

And as a follow-on then. If -- if it's difficult for you to find an interesting acquisition.

Yes.

Well -- and looking at your balance sheet and your free cash flow potential, at what kind of level do you think the balance sheet is inefficient?

Well, I think that with the leverage, which is consistently over time below 1, we think that we are inefficient. And we will need to do about it. But again, I mean, as we explained through our presentation, I mean we have an ambition in terms of inorganic growth. We know on which markets we want to position ourselves. Now it's a matter of identifying the right target. We are confident that we will be doing it. I mean we were somehow been caught by surprise because we managed to deleverage quicker than we initially anticipated. And going through a Board move, that take at least a couple of years. So now we're accelerating in order to be able to catch up. But there is strong assumption in our strategic plan that we will also grow through inorganic move and that we will be looking at potential M&A. But probably, Oswald.

Yes. It's not an opportunistic approach. There's something available, and there's the cash available, so we buy it. It must fit into that what we have as a framework. Yes, we are scanning the market very carefully. This is one of the current things which are ongoing. We look what fits in, what are value-adds we can get, how we can enlarge our offering to the customer. And there's, of course, 1 important topic. When you look at Bekaert, you see that in some areas, we are tier 1. You're very close to the end cluster. So in some areas, we are a little bit for the customers. And when we look on M&A, we, of course, want to come more and more to the end customers because there you can capture the whole of the value chain. It's about not doing more of the same. It's doing something more in addition, which brings us closer to the final end customer. And this is we really look at the markets what is available. And in fact, we have been a little bit caught by surprise. But nevertheless, we are clearly scanning the opportunities we see in the market. But it's not just to spend money on an M&A, which does not give us the return or would even dilute maybe what is our ambition.

I still see some hands raised with the analysts on the virtual banner. Frank, do you have a second set of questions? Or [ Stan ]?

Yes. Yes, I have, if I may.

Okay. Go ahead.

So 2 follow-ups, if I may. So the first one is, I think, Taoufiq, you said that you're aiming for 10% margin in BBRG. From my memory, it was typically said that BBRG can return to those levels than 11 historical levels. But it would need an improvement in the oil and gas segment. Is that also your assumption? Or do you think you can achieve this 10% without this market recovering? That's my first follow-up.

Yes. Well, not anymore. I don't -- we don't think that oil and gas is the key driver for the performance of BBRG. So actually, it has been lagging behind for the last, I would say, 3 to 4 quarters. And despite that, we did continue to see an improved level of performance and margin generation from BBRG on the back of what we already mentioned the segmentation, the price mix and so on. So what we do expect is that the revenue or the profitability stream from the oil and gas will be triggered or generated through additional segments where BBRG will position itself more strongly. So we mentioned some of them. Fibers would be one of them. Obviously, revenue services streams would be another one. So we are not as dependent anymore as we were from oil and gas at least when it comes to the profitability levels.

But maybe allow me to comment on this one. When you look, for example, infrastructure, when you look on breaches and how many breaches are in poor conditions, these are segments, and we see quite some projects coming up here, especially also recently in Germany. So I think this project, infrastructure projects, this will for sure support the development of BBRG.

Okay. Understood. Is the 10% in BBRG possible with the current footprint?

I think it depends a little bit on the product and service portfolio, what we provide, yes. But in the current situation, I think the big step has been made forward in the sense of [ Bekaert ]. This gives us a huge benefit over there. We have even accelerated the project initiative there. And of course, this also allows us a different offering to our customer all over the globe.

Okay. Understood. Second follow-up, and I apologize that I come back to the same topic, but it's again on wire rod. I think I heard you say, Taoufiq, that you were seeing a 50 to 60 basis point positive impact on the margin this year of the wire rod price. Did I hear that correctly?

Yes. That's right, yes.

So -- and that is on an assumption of wire rod price increase over the year of about what is your assumption here?

Versus 2020, 2020 baseline, it's 20% in average.

20% in average. And if you then guide next year for a 15% to 20% decrease versus 2020 level, is that also implying that you see the reversal of that 50 to 60 basis points next year?

Yes. It will happen next year. That's the assumption we're taking for the moment.

Okay. And what are the elements then looking towards 2022 that will offset the 50 to 60 lower -- basis point lower in terms of cost savings, et cetera. Is there some building block there that you can give?

Well, first of all, I mean, we will make sure that we minimize the impact from the [ 5-4 ] reversal by not letting go the overall inventory levels too high. So we will try to see how we can do that. But all the -- there is the assumption as well that some of the tailwinds that we have benefited from this year will stick next year as well. I think that all the efforts that we're doing in terms of pricing and mix will not reverse. We will continue gaining market share in some specific geographies. We will see an increase in our overall sales, and this will drive an incremental contribution from operational leverage. And we will see the impact of some recurring footprint adjustment that we have done still sticking throughout 2022.

Martijn den Drijver, you have more questions?

Yes, I do, 3. Taoufiq, could you share with us with regards to the footprint adjustments and self-help and restructuring elements, for example, in R&D and engineering and in BBRG North America, the effect in 2021 on the cost base? And perhaps impossible, but that would be rich split between H1 and H2. But I would already be very happy if I could get a sense of the effect of all these adjustments and restructurings and other elements on the cost base in 2021? Then the second question, when we were talking about you're, in my opinion, very cautious EBIT margin target for 2021, you mentioned that some of the effects in Latin America may not stick. Which effects may not stick and why? Why would market share reverse? Why would price/mix reverse. I'm not really understanding that element. And the third question is on ESG. You have a slight full of elements on which you're going to work to improve your ESG profile. However, if I look at the GE component, you've recently announced that you're going to propose 2 changes to your corporate governance. One is positive, which is the new composition or the proposed composition of your Board, which is more in equilibrium, providing a bit more independence. However, the second element with regards to the loyalty bonus that you are proposing to give to shareholders, which have been holding on to shares for more than 2 years, that's clearly putting control firmly back to the Bekaert family founding trust, family trust. How does that stack with all this focused on sustainability in ESG when, effectively, you're doing the reverse on the G component in ESG.

You want to start with that?

Okay. So I'll take that question. The following with the Board, we had a lot of good discussion with our anchor shareholder around this. And at the end, the proposal that we put forward now at the Extraordinary General Meeting to introduce the loyalty shares is fully supported by the Board. And the reason for that is that we think in the transformation that Bekaert now is undertaking, we need the support of a strong anchor shareholder. We also -- because it will be important as we do these changes, and we expand the business in different areas. If you have somebody that is in for the long term with us. So that was very important to have this anchor shareholder still with us. And secondly, we felt that by changing the composition of the Board, to have a Board who are independent directors, has at least 50% of to say, more or less balances this out. And -- but it still has to be approved by all our shareholders. So the anchor shareholders, they have a participation. That's around 35%, so there are 65% of other shareholders who also has to think that these loyalty shares are good. But that's a little bit the background of this -- of the decision to move forward.

Yes. But with the usual relatively low attendance of shareholders and your quorum limit of 50% and 67.5% top of my head, which is required to put this forward, there's a high likelihood that it will go -- move forward. So -- but we'll see how that develops.

Okay. So answering your question on the restructuring programs and so on, I will first answer your question from the one-off side. and the impact that it has in terms of one-off and then I will elaborate on the savings. So you might remember, last year, we had a net impact of roughly EUR 15 -- EUR 16 million in terms of one-off associated with the restructuring, which was net of also proceeds resulting from the sale of some idle sites. So for this year, for the moment, we don't have any major one-off to disclose. I mean we have conducted a couple of restructuring year-to-date, the one that we can refer to. We'll start with BBRG Canada. So this is roughly touching EUR 145 million FTEs. The negotiation is still ongoing. So I'm not in a position to disclose how much it will cost us. But I can tell you that it's a restructuring, which will have a payback of 1 year in note. The second one is the Belgium restructuring. So this one is impacting roughly EUR 150 million. The one-off cost is in the range of EUR 20, EUR 28 million, and we expect a payback of roughly 2 years. So these are the key ones that we can speak of. Then we have as well the diamond wire, which was in China, 200 FTEs. But this 1 is a minimal cost for us. So it's in the range of EUR 3 million. So we were able to replace some of the people in our other sites across China. Then your next question was about Latin America. So the reason why we're cautious about Latin America is twofold. The first one is that what we are benefiting from now is a combination of different elements. The first one is obviously the fact that we are getting closer to our clients, we can secure higher level of margins. We are providing the service that they are not getting from other suppliers. And what we see is that given the type of markets we are in Latin America, a lot of our competition are actually small competitors who could not really perform, as expected, given the shortage of supply because of the crisis and so on. So this competition not in the market currently. The second thing is that a lot of the goods that used to flow out of China into Latin America because of the logistic constraints and so on are not coming in. So we had the space to fill, and we're taking the full potential out of it. But we remain cautious because we do think that the Chinese competition will not stay idle. We do think that we have a couple of elements playing in our favor. It's mainly related to FX and the cost of transportation, which is increasing, which might probably generate a cost issue to position this product. But all in all, you see that it's mainly related to a couple of contractual reasons, which might turn around. And that's the reason why we're cautious.

I would like to give the floor now to Patrick Millecam.

Okay. I have a question on China. In the presentation, you mentioned that you want to increase the market share in China. But on the other hand, you mentioned that it's -- the Chinese market is a very price competitive market and that you also then participate in kind of price war last year. So maybe then you lost some market share. So 2 questions. First of all, what's the current market share and which market share are you aiming for? And second one, how will you achieve that increase in market share as you probably won't increase or decrease your price to gain market share. So how will you realize, yes, that's an increase in market share then?

Thank you very much for your questions. China is very special. And we have seen it in the first quarter, and we have seen it in the second quarter. It's a little bit, as I said, a rollercoaster. We did not participate in the first half of 2020 in the fights of the, I would say, finding the volume. And we kept the prices. Yes, we lost a little bit of a market share, but our market share in China after this, let's say, a small dip is about 25%. And we have an overall market share in the world, about 30% plus. Yes? What we see in China, and this is really promising that more and more are coming to us, because when the people who want to enter the tire market, they need a better steal cord as of today. And here we are, I would say, benefiting from our technology. Here, we are benefiting from our performance. And so this is why I would say, quite an intensive trigger, and I can tell you, over the last months, we had with all Chinese tire manufacturers, had a discussion how we can go there. And they're also willing to set contracts out with us. It's not just finding out what is the price level and how we can leverage them again. It's really they are looking for a partnership because they want really to make sure that they have a premium supplier, I would say, a higher value-add steel cord, because the steel cord, of course, is impacting the whole construction of the tire very much. When we -- and we are very strong in the in the tire -- in the truck tire business. And of course, there, when you think the long haul vehicles, when you see how sometimes overload, you will find them many areas. They're really willing to get to a higher performance tire cord. And this is what we can offer. And this is what we have seen. This is what we have seen in the volumes. And I think we can very open. We have to expand our capacities in China, not only in Vietnam. We are doing that. We are currently doing it. The Board has approved additional CapEx in order to make sure that we can meet these demands because the worst thing is that we have the people who say, we want to sign in and we get more and more contracts very clear. Not 1-year contract. It's a development contract. It's sizable contracts. They want to make sure that we have material. At this stage, high specific material available for them. So I'm very -- I say, looking forward is a very promising approach there. Yes, maybe you will see some smaller tire cord manufacturers. There may be a consolidation, yes. But what we can see the strong demand, strong wish from our customer to join in and cooperate with them.

And are you also looking at M&A in China? And then the 30% overall market share in the world, is that also the target for China.

Of course, but you need to see what you get. You don't want to have a very commoditized steel cord again, because the trend is for sure going to a higher specification to a higher profile. You find, I would say, a lot of normal commoditized steel cord there. And maybe this is not what we are aiming for because there's a clear trend to a higher demand, a higher specification on the tire court.

Emmanuel Carlier, if you have additional questions, please raise them.

Yes. Thank you. Yes, one on M&A. It's based on 2 parts. So during the presentation, you mentioned that you believe that you can create more value via M&A than while doing a share buyback. Could you elaborate on that? Because based on your financial targets, I think you can buy back your own stock at 14% free cash flow use on 2024. Secondly, and also related to M&A, yes, I think it's fair to say that the BBR acquisition was not really a good one. So what steps has the company made to avoid similar type of acquisitions. So yes, would be happy to hear a little bit more color on how you look at acquisitions and how you can make investors feel a bit more convinced on we are doing that. And then the third question is on Dramix. So could you provide a bit more color here on the level of sales, the penetration rate that you have today, the growth rate, profitability levels, et cetera, because it looks like this is a quite interesting product for the midterm.

Carlos, do you want to start?

Sure. Let me take your question on M&A. So how -- around how do we look at M&A and how do we assess that it is value creating. So we are, I think, as we mentioned, we're undergoing quite a deep assessment of the key markets where we want to focus. What are attractive targets within those that can complement our core but also to expand our business. And we are using very strict criteria to make sure that there's clear identified synergies or clear growth opportunities before we make an acquisition, and we make sure that it delivers value. I think difficult for me to comment on all the aspects of the BBRG acquisition as it happened some time ago. But certainly, the situation of that acquisition, we will -- my view is that we will not fall into the same -- some of the same issues that we faced in which, basically, we ended up with too much capacity in the market at a time where markets were declining. And to do that is through these clear detailed analysis of the markets but also with the discipline that we've installed in terms of commercial performance, operational performance and capital allocation. So we believe that with these steps, with this methodology, we will be able to maintain -- or to get a good return of acquisitions that we might make in the future. Now maybe, Jurgen, I pass on to you to talk about the balance between M&A versus share buybacks.

Yes. The hurdle rate that you mentioned is absolutely correct, right? So well, the acquisition has to generate more value than that. So they had to be accretive from day 1, almost, and they have to be executed very different than BBRG was executed. So the discipline and the process is very strict. And we will be careful when we do them, and we will -- And they have, because, as you said, the alternative will be to buy back shares. And we feel that with the team, the new team that we have and the new direction and the focus on these markets, that, that will allow us also to move beyond steel, these acquisitions, and we'll go more into services. We go more into other value-added activities. And they will be -- the hurdle rates for that, we will -- will be more attractive than buying back shares.

Yes. I understand your logic. I just think it's quite challenging to execute on that in the current market environment if you see all the competition from private equity, et cetera. Yes.

It's maybe -- sometimes they're also looking for a strategic partner. This is maybe different to private equity. Maybe a comment on this one. On Dramix, I'm a fan of Dramix. I never could imagine to be a fan of Dramix. But when I realized what this product is really capable of. And I think as of today, we did not really have the full, I would say, we didn't fully exploit the potential. There are reasons, for example, on the 1 side, as Jurgen mentioned at the beginning, this has an unbelievable impact on sustainability. We all know the less concrete you need, the less cement you burn, the less CO you're emitting. And you need much less concrete by using Dramix. The second thing is when you use Dramix instead of rebars, and we look on a construction and you have a crack with a rebar, you have a crack. Water comes in, it's frozen, and it breaks. With Dramix, the shape remains the same. You don't have cracks. You don't get the water in. I have to say we did not really take the full potential of this project. We are, in some niches, very well presented. We have it in various areas. We call it [ 3D, 3D 4 and 5 ] it obviously depends on the tensile strength. We are regionally very strong in Europe. We got also, because the product is very exciting, a first contract in China. We have a little bit in U.S. But I think here, we really need to, and this is what's already ongoing, to identify the market opportunities and to go to market. I think here, the challenge is to go to market. Sometimes you have regulatories with unique. You have to have it in the specification. But from the product point of view, and we have a fantastic facility we have reproduced, and this was the move from Moon to Petrovice. I'm sure you know that we a fantastic facility. They are very new state-of-the-art. So from these capabilities, we are there from the market opportunities, I'm with you. This is one of those where I am personally confident that we have much more opportunities. And this is what we are currently investigating what are the application, because you also know the concern -- the construction industry is a conservative industry. And here, we really need to understand how we can move forward to really offer this product with maybe further solutions to the market. But it's an exciting product.

But how do you look at your current sales in Dramix versus the inventory potential?

This is what I say. We are currently evaluating what is the midterm potential. I see opportunities there. The key topic is the go-to-market because you have to be -- you have to have obligations. We have to be in specifications, and you have to go with the customer. But from the application point of view, when you look at tunnels, for example, when you look at flooring, when you took a boss tensioning, the opportunities we really have absolutely on our radar to explore.

Thank you, gentlemen. With this, I believe all questions have -- no. I see an additional question coming in, Wim Hoste.

Sorry for catching Katelijn by surprise by updating question. 2 for me, please. First, you've talked about Dramix better in building products, there's also other products, Masonry, plastering road applications, et cetera. What is the kind of growth rates you were seeing there and the potential of that site of building products. Can you maybe elaborate a bit more on that as well?

This, I would say, very specific markets. And maybe to niche is exactly what we say, we have to have a broader view in which markets we would like to go in to strengthen. And maybe there are markets we are in, and we are not really where we should be in. This is also portfolio management, what we're currently looking in the construction business, Wim. It's absolutely ongoing to read as usual, the right question, and this is where we need to sort out because we cannot do everything and nowhere. I think the core of Dramix, yes, is really the one we should utilize to the utmost and maybe then some adjacent areas we need to go in. I have the feeling today, we are maybe in too many fragmented, and I would like to consolidate this one.

Okay. No. That's clear.

And to give you some additional metrics, so when you look at our overall Specialty business segment, we expect the sales to grow by 8% over the period. And if you look at Dramix specifically, we're expecting a sales growth of 5% to 6% per year.

Okay. Clear. And then a question, yes. You said also that you want to go more downstream, be closer to the customer, et cetera. Yes, how afraid are you of getting into competition with your own customers, which then might even, yes, shy away from Bekaert as you start to complete them. Is there any thoughts on that? Or do you see any risks there? Or is that limiting the kind of applications or services, et cetera, that you will look for?

No. I think there's no conflict. Yes, there may be an overlap or something. Honestly, this can happen. But when we look, for example, our offering of belts where we're not only the A course and, yes, but I think the customers appreciate our approach there and that we will find -- it's always the service and the solution you provide. And this has to be different. It has not to be 1:1. If we can offer more in the value, it's always highly appreciated. And we don't -- we are not afraid of competition.

Okay. I will give it another try. I believe all questions have been raised and answered. And therefore, I hand it back to the Chairman for the closing of the meeting. Jurgen?

Thank you, Katelijn, and thanks to all the analysts. We thank you for all the interest that you've shown in Bekaert and for this interactive Q&A session. We hope to see you back many more times and hopefully in person as well. And to all others who participated, thank you also very much for joining our Capital Markets Day. Thank you.