NV Bekaert SA (BEKB) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Bekaert's Full Year '22 Financial Results Day. Many thanks for joining. Let's first just to outline and remind that today will be operating under the usual statement on guidance. And I very much like to introduce first, Oswald Schmid, CEO, and Taoufiq Boussaid, CFO. Oswald will begin the usual introduction and highlights on operations.

Thank you, Guy, and welcome. Good morning. Welcome on behalf of Taoufiq and myself, we are delighted to present the full year results of 2022 of Bekaert. It has been presenting another year of a strong strategic products despite the many global challenges we all have faced. We continue to perform to transform and to go. [Audio Gap] Will this tipping price and we compensate in for a lower volume, as 70% higher sales and a EUR 5.7 billion. For commercial execution, footprint adjustments, and operational expense, we have slowly maintained margin, of course, to the unit. Looking at our transform pillar in addition to innovation, sustainability, and digital endpoints, we have made a significant disposal in line with our strategy, and I will come later to this one. But first discuss the softness in that in America. As we further progress, we have made strides in our target markets of energy position, pickup once construction, and ability. When we look on the financial highlights, we have record sales -- we've all maintained the margin. What we can see is the sales up 5.7% close, making with EUR 539 million, also close to EUR 20 million and the net debt per EBITDA at 0.7%. But I think it's also remarkable when you look on the year comparison of 2022 to 2019, you'll see the CAGR of 9% for consolidated sales to FY '22 increase as well, but the net debt came down by 21%. When we move on, and this is our purpose, and I think you explained it many times, our purpose is to continue to serve as the compass to everything that what we do. We continue to strengthen our core, SRS out of commodity, tactical market for energy transition and Atmel as well as still our beyond steel vision. For example, a significant focus in [ Atrogen ], and I will come back on both statement. We do this is we call to become the leading pattern. And I think this is important to mention, it's certainly moving beyond manufacturers moving beyond suing a supply of single solutions, really basing on our focus. And how do we do this? It remains unchanged. We continue to perform a transversal growth and soon can be base how to serve our customers, but also be best counted for our partners, employees, investors, and society. We continue to do this in a smart, safe and sustainable manner, and we have achieved a lot of milestones, some of which I would like to highlight in the next time. Allow me to give you an update on our answers and our new corporate purpose is established, driving further progress. Just in a little bit of allowing some examples. In some others, we are proud of, we were awarded Tire Manufacturing Innovation of the Year Award for BeCoFree, cobalt free coating. We reduce by 8.3% Scope 1 & 2 carbon emissions compared to 2019, and we were and Advanced Performer in Decarbonization Award, European Union Chamber of Commerce in China. With further digital significantly in our journey, better developing, our inspection technology, and technologies but also the nicer intelligence into our everyday processes. When we look on the mission on our side, let's say, ESG, it's really that they are onboard. And what broadly we are delighted that this has been recognized, all the efforts throughout the sustainability group, agencies by the likes of one who have selected us for the initial index of the top 20 pension missing. We are very working in create support others and provide solutions to climate change, energy manage. We are also very active internally to improve our own standing. And in 2022, our ambitious to reduction targets were formerly validated whether is SBTi. And now with this, I would like to hand over to Taoufiq.

Thank you, Oswald. Good morning, everyone, and thank you for joining this call. I will go over jump directly into it. So 2022 was in many aspects, an environment where that I referred to as a perfect stock for build-up -- and this is following the 2021, which was exceptionally strong, a year where we benefited from several tailwinds and delivered record performance when it comes to several financial KPIs. In many aspects, 2022 gave us a perfect stress-test scenario to test and validate the resilience of the assumptions and the direction and the changes that we have been implementing in the company over the last 3 years. The first element of stress test, which we have been confronted during 2022 was related to the decline of the volumes in a couple of key geographies for the company. As a headline, we saw our volume in tonnage eroding by approximately 9% during the year, which has erased roughly EUR 425 million from our top line. This volume erosion was primarily due to the subdued environment in China and the overall weak economic context in Latin America. The second stress test element was related to the overall inter-reactionary environment throughout the year during which we faced significant increases of our main input cost categories. The company has responded very effectively to this challenge by further strengthening our pricing management capabilities and execution. This has allowed the company to validate our pricing execution in a very successful way as our efforts have allowed us to generate a 10.5% sales expansion and improvement to EUR 500 million to pricing changes combined with the use we passed on wire rod price changes. Last but not least, we have further accelerated our portfolio segmentation and go-to-market executive, which has allowed us to further maximize our mix contribution, resulting in an additional top line expansion of another EUR 0.5 billion. The combination of those 2 actions have allowed us to expand our top line by almost EUR 1 billion, which combined with the sales erosion I was referring to earlier year is resulting in an organic growth of 12%. We have also benefited, as you know, on the positive currency effect on the China RMB and the USD, which have added roughly EUR 240 million to our 2022 to sales of EUR 5.7 billion. Moving to -- and I will elaborate later on the specific performance of each of the BUs, but just wanted to give you a highlight on the EBIT performance for the year. I think that when you look at this performance from a standpoint, I think that this EBIT performance for 2022 is a strong evidence, which is demonstrating that Bekaert is becoming more resilient and we can perform and sustain performance independently from the business cycles. So 2022 saw the combination of 3 major headwinds, which have affected the company profitability. The first one is a neutral wired price evolution throughout 2022, which in comparison to the previous year, generate profitability drag of EUR 124 million. Second, and I refer to that, our volumes were down roughly 9% and this has been raised from our P&L, EUR 58 million worth of margin contribution. Lastly, the combined effect of the volume under absorption plus the inflationary effects on labor, utilities, and transportation has increased our conversion costs by EUR 240 million compared to 2021. So the combination of these 3 elements have generated a drag of almost EUR 400 million versus previous year. More than 80% of this drag has been mitigated through the improvement, which has deployed within the business primarily through our ability to more efficiently drive the pricing to better segment our product offering and through various cost savings and self-help measures. With all these actions, we have been able to limit the EBITDA versus last year to approximately EUR 53 million with an EBIT of 8.1%, including the dilution effect of the inflation, which is at 0 margin on cost categories such as utilities. We have estimated the inflation effects that have generated a dilution of roughly 150 basis points. So in line with the indication we gave during our H2 guidance. And this would have responded to an estimated normalized EBIT at approximately 9.5%. So again, in line with what we stated in our H2 trading update. So now moving to the performance of our business franchises. So I will start with our Rubber Reinforcement business. 2022 turned out to be a relatively challenging year for Rubber Reinforcement. The main headwinds were related to the volume contraction of roughly 13%, which was primarily driven by China. We had also to deal with relatively stable wire rod prices, which unlike previous year didn't generate the positive inventory valuation. And lastly, we saw a very important utility inflation, especially in EMEA, but we have been successful in passing this through in compared to our end customers, and this has been translated into the sales performance, as you can see. So the business, despite all these headwinds, the business did, however, grew its top line by 7% on a full year basis, including the impact of the reclassification of our hose and conveyor belt into the specialty business. So the growth profile is primarily driven by a strong pricing tutor, a mix optimization, which has led to the revenue expansion that I have referred to, which has completely raised the volume drop that we had to deal with during the year. So RR, as you know, is significantly exposed to China. It's a big important market for us. So China didn't recover during 2022. So it's a decrease that we started printing that and discussing already in June 2021. The country was impacted by the COVID-related lockdowns, the high stocking supply chain in addition to a general weak business context. Our market share did decrease during the year, but this was a consequence of a decision that we have taken, where we have given the priority on margins versus volumes in a market, which again was quite depressed. In Q4, we did adjust our strategy, and we have been able to regain some market share. So we are back to 20%, which is an average of our market share in China for the last couple of years. Looking at other regions. So North America, volumes have not recovered yet to the pre-COVID levels. Southeast Asia was slightly lower and EMEA was down due to Russia. On the positive note, India did perform very strongly, and we continue to see very strong prospect as far as India is concerned. So profitability wise, our costs were negatively impacted by the lower volumes in China. So this has triggered some under absorption of our cost, but it suffered from the substantial cost inflation, particularly in EMEA and in particular, again, during the third quarter of 2022. But again, we were, however, able to pass on a substantial share of these utilities inflation to the customers. Moving to our Steel Wire Solution business. So the franchise is reporting a strong sales expansion of 14.5% on the back of a very strong pricing and mix effect of 10% and pass on wireless prices increased 4%. So these upsides have allowed us to significantly offset the volume contraction of roughly 13%; volume from production, which has accelerated in the second half of the year with significant decreases in the South Latin America, but also EMEA and China. The Southern Latin American market has continued to be challenging throughout most of 2022 with a weak economic condition and graded consumer cloudiness. And as the result, the key applications in those markets should see construction and agriculture have remained relatively subdued. Demand from energy and utility markets have, however, benefited from a very positive momentum, especially in North America. In terms of profitability, the lower volumes did generate an operation as deleverage with the margin on sales eroding by 4% compared to last year. It's however, important to highlight the fact that the business has structurally improved against 2020 baseline with an EBIT contribution increasing in absolute terms by more than EUR 50 million on the back of lower volumes, again, comparatively to the baseline of 2020. So that's for SWS. So moving to BBRG -- thank you. So BBRG has reported a limited volume loss, roughly 4%, but they have benefited from the strong upside from price and mix and pax do changes in wire load prices, which has allowed the business unit to post a record top line expansion of almost 22%. Oil and gas did benefit from strong demand, in particular in the U.S. Volumes in this segment were up 23% versus last year. Mining activities were also very strong with volumes approximately up by 5%. So the strong performance in these 2 segments has been partially tempered by a subdued business environment into other segments, such as grain industry and industrial structures, and fishing and Marine, which were down year-on-year. Our second segment within the business unit is our advanced cohort, which has delivered record sales on the back of a very strong performance of our Armofor products but they also benefited from the pickup of the automotive business in China and volumes in advanced ports were up 8% during the year. Profitability wise, so we can probably, at this stage, state that the profit reputable stabilization of BBRG is over. So we are now posting a debit, which is above 10%. So the profit restoration plan has yielded all the results that we were expecting from it. And again, the business unit delivered an underlying EBITU of EUR 60 million, margin of 10.3%, significant increase versus the situation where we were a couple of years than ago. Moving to Specialty business. Specialty business is reporting a record high level in terms of top line expansion, so roughly 30% -- so this is on a like-to-like basis and excluding the allocation of the hose and conveyor belt division. We did see a strong momentum across the 4 segments of the franchise, which have all delivered double-digit growth in all the key regions. So in building products, we saw a strong effect of the boost in price and mix. In Fiber Technologies, we have achieved a strong growth of 25% on the back of a very solid performance in high-end filtration, semiconductor, and hydrogen applications. Our combustion business has also delivered a very good performance on the back of successful price actions with major customers in all the regions, and we have also accelerated the move from Ascent to Romania to lower our production costs of burners. Lastly, our cores and conversion that gained strong momentum, in particular, within businesses serving OEMs and mining end markets and has also gained targeted market shares as a result of competitor BNZ from Belarus being subject to sanction. Profitability-wise, our Specialty business as a whole, the BU has delivered a record high EBIT at EUR 132 million, which corresponds to an 83% increase from previous year. The EBITU margin on sales is up 200 basis points at 16.7%. And now the division with this level of performance is accounting for 30% of the total company dividend. So a couple of words now on some key metrics of the P&L for total backup. So our EBIT after deduction of the one-off elements which were amounting to EUR 93 million and were primarily related to the restructuring of BBRG in Germany and the impairment of our Russian plant in Lipetsk. So the EBIT is standing at EUR 366 million. Our ETR continues to further improve and is now reaching 26%, down 2% versus last year as a result of the usage of the tax attributes related to the deferred tax assets on formerly loss-making entities. Our EPS stands at EUR 4.78, which translates into an underlying EPS before one-offs at EUR 6, slightly down by EUR 0.65 on a like-to-like basis compared to 2021. Moving to the balance sheet and discussing some key elements of the working capital. So the working capital in relative terms has reached a very distinct level of performance at 13.5%, so significantly down versus the position where we were when we discussed our H2 results. So very strong effort in terms of managing the balance sheet during the second half of the year. So in absolute terms, we are reporting an increase of EUR 172 million, which are primarily driven by a couple of elements on which we elaborate now. So I will start with the inventory. So our inventories at year-end have remained roughly flat compared to 2021 in absolute value with a small increase of roughly EUR 22 million, which are primarily driven by FX Importantly, our DIO has improved by 3 days versus December 2021 and is standing at 90 days of inventories by the end of December 2022. Receivables also is following a positive trend with a slight decrease in absolute terms of EUR 20 million. So the DSO as a consequence is improving by 3 days and stands at 87 days as of the end of December of 2022. The deviation that we have, so the 100 basis points increase in percentage is primarily coming from the payables. So our DPO has reached a record low level of 125 days by the end of Q4 of last year. So this is significantly down versus the level where it's in 2021, where it was at 143 days -- so the acceleration of the payment terms to suppliers has caused a no deviation in working capital, primarily coming from accounts payable by EUR 140 million. As a result of that, the consequence that we have been able to maintain and to further strengthen our balance sheet, we have decided and our Board has approved the increase of our dividend by 10%. So we will be distributing as you already know, EUR 1.65 per share. So it's a nice progression. As you can see in the graph, EBIT versus the 2019 baseline was 68% increase in our dividend. So with EUR 1.65, we are now reaching a payout ratio of 34%, and we are complementing this dividend distribution by the continuation of our share buyback program that we have initiated back in 2022. So the program will continue under the same parameter for the same quantums at EUR 120 million and 4 tranches of EUR 13 million per quarter. With that, back to you, Oswald.

Thank you very much, Taoufiq. And I would like to continue with the short operation as to review. And as a reminder, we have 4 business then optimize our core business, but we also have a leading partner beyond markets. When we talk about the core business, it's about leveraging the global footprint and local sourcing, it's about the pricing, the mix, and continuous portfolio management. And we have seen before, there's a lot of work time on innovation digitalization as an ability semis optical. But beyond markets, and we work on Bekiflex because we think we are much stronger on Bekiflex. This is really enabling the energy transition through renewable electricity, power infrastructure and hydrogen production. And further with our Dramix for example, to help the decarbonization construction, the facility organization with green and high-performance solutions. Last but not least, participating in new probability with the factory and the [indiscernible]. And we move on now, this is a very busy slide. I just would like to take some out of this relating to our 3 strategic pillars. In 2022, we are focusing again, pricing mix footprint adjustments improve the efficiency. We also developed sustainable opportunities, digital and innovative solutions. All of this, we will continue to grow in our target markets, energy transition, construction, decompensation, and new mobility solutions. In 2023, we will continue our pricing discipline and efficiency programs, but also particularly emphasized on scaling our positions in hydrogen and Ultra-Fine Wire and RDOFs and Armofor and also as well as Dramix. But you have seen we have been quite busy, and this is just a short extant we have done. And you also see that we have also partnerships in there. We have further penetrated the especially in [ Karmix ] the cleaner once solutions, and we are really, I would say, extending our offering in this new, I would say, beyond steel applications. And we go ahead and I think we are benefiting from the fast-growing and higher-margin activities, the lower side the Opus and coin core. When you look on 2019, rubber reinforcement and SWS underlying was about 78% and BBRG plus specialty business was 22% of share of the EBIT underlying. Now looking at '22, you see an established RR and SWS in 63% and 37% is already covered by BBRG and by specialty business. Looking on the growth of the 3 years CAGR, this means for BBRG and specialty business, more than 44%. And as well for rubber reinforcement and SWS, it's 13%. But also, I think more important is to see the right side of the slide because it says rubber enforcement and SWS from 2019 to 2022, grew from 6.6% to 7.6%. When we look on BBRG and specialty business, I feel it confirms our strategy because also in these new markets and these new applications because they doubled the profitability. And I think it's quite impressive in an environment where a lot of headwinds were around to get this improvement on we continue, it's -- and I come back to that, what I mentioned before. We have seen today, there was a proposal sale to Steel Wire Solutions in the businesses we have in Chile and Peru. I think that is the regional topic. We want to reduce the exposure economical markets in that way. I think it's also clear the end markets we are in for a very long time, which are getting more and more commodities, which are more low-end product portfolio where we see less scope and more volatility. This is not where our core business and our strategy is reflected. But naturally, of course, we would also like to do a reduction of our exposure in strategic and volatile markets. And I think from the strategic fit is very clear to exit this noncore. And when you can see it really is mainly the agriculture and in construction and just 60%, even 60% out of the EUR 650 million always clearly linked to newer commodity and distribution business. And I think this was absolutely important to reposition our company and to grow in higher value applications. Short look on our activities between hydrogen. When you look on the whole ecosystem coming from production, distribution, transport, and application, and you see here that our new logo and new icon, the fees, we have a significant play opportunity in those areas. On the one side, it's about the generation to having, I would say, market maker electrolyzer components. And here, we are really extremely innovative. We get excellent feedback from our customers. We join in, even in long-term contracts to make sure that we are really a leading edge. The second thing is in transport and distribution. We have our wholesale business. We have our Armofor and I think here we can have a significant play in transporting and distributing of hydrogen in the future. Last but not least, there's also an application where we have this was referring to. I think we have really an opportunity with our gas burners, they can be modified to being hydrogen burners. And this is, I think, not a lot of effort to change this technology to use instead of gas hydrogen. So what you really see, we have here in play. We are here market makers. And I would say we have a leading position in this moment we currently develop. So summary and the outlook, and I think a lot was different already from Taoufiq. Rubber reinforcement for sure, have significant pressure on pricing falling raw materials, but I would like to point out, it's not only that we are following the raw materials. It's that to us to be not only a manufacturer. We want to be a leading partner and we are cooperating with our customers' sustainability in innovation for sustainable solutions. China, currently subdue, I think as we see a little bit of, I would say, optimistic that in second half of '22, there might be growth coming up. We will capture the end momentum. This will continue. And I think Europe and North America we have a cautious outlook, but I think there will be depending on how much the imports are really inflating the market. Steel wire solution, we continue the portfolio management. We see a very promising in North America with our energy transition overhead lines and construction may be building on the weaker base, but this is linked to, I would say, a global approach. Specialty business, also in relation with Taoufiq. Total energy transition continues. We will further invest in the capacity at '23 and '24. We want to be a market leader. We want to be a market maker. And on the short time with customers, of course, it's always by when it's going to be ramping up. BBRG, extremely strong order book. And I think we never had such a big strong order book. We see on the Armofor huge opportunities. We are building up capacity ,these customers are joining in long-term supply agreements, and we see further strong demand in the moving offshore win, especially for synthetic ops. And we will continue to further consolidate and make sure that we capture efficiency gains in footwork. So now coming to the outlook, we had a good start. The Robust started in '23, but I think it's still quite early because the year just has been begun, but we are confident that we can capture after this start the further opportunities from our execution of the strategy and capturing the efficiency gains. There will be significant growth coming from our new markets, sometimes a little bit depending on the timing, and we will continue the business mix. So we have seen also and established that we really focus on high-end application and get out of more modernized low volume, low opportunities [indiscernible] very strong balance sheet, we have been able to solidify as well. And this underpins -- would say the 10% dividend increase and this continued share buyback, which was announced today and referred by Taoufiq, and I think our midmarket on sales growth and the underlying margin between 9% and 11% is unchanged. To give you a quick summary, pricing discipline, commercial execution, further innovation in all areas, also in the core business, but also going beyond. I think this is, I would say, a big opportunity, continuing the sustainability progress. I think it's clearly a business opportunity. The targets have been validated. We get a lot of good cooperation from our customers and a request to join in co-development. We have been selected for the BEL ESG index. I think it's also a responsibility to walk our talk. The robust financial position will really allow us that we put more emphasis and higher-margin markets and fast-growing markets we can capture and the profitability and the cash generation is to maintain balance sheet remains on, I think this will support the dividend payout at the EUR 120 million share buyback. With this, I think I come back to you.

Thank you so much, it. Now we'd like to open up to questions. [Operator Instructions] And Alexander, I think you're first.

Yes. Congratulations to the Bekaert team on a nice set of results. I had a couple of questions. I'll start with 3. Just looking at the wire rod prices, is it safe to assume that most of the inventory revaluations or the negative revaluation is behind us? And how much revaluation can we expect for 2023 at the current prices? Second question would be on China, which has a significant impact on the rubber reinforcement. Just wondering if China recovers completely, how much volume increase can we expect for the Rubber Reinforcement group? And then it's a bit on the guidance. Third question. You say 9% to 11% EBIT margin through the cycle. That looks like an average, considering that we are at 8.1% for 2022. Just wondering, how we should look at that for 2023? Because as you know, consensus currently stands at 7.6%. And yes, if you have to move up to the 9%, it's quite a big change, obviously. So I'll start with these questions and then leave it to my colleagues.

Alexander. I will start with the wired prices. So -- what has happened during 2022 is that we did see a significant drop of the wire rod during the year. So this is triggering the adjustment in valuation versus the previous year. So the projections that we currently have are kind of indicating that we're reaching potentially a plateau when it comes to the steel prices at least for the upcoming 4 to 5 months. So very difficult to predict what will happen after. I don't think that we will go below. I think that what we potentially anticipate is more an increase of the wire rod prices subject to the level of demand that we will be seeing in China. This will be clearly the key driver when it comes to the wire. So working assumption that we have now is that we will not see major variances in wire rod prices. So that would mean a neutral inventory valuation with potentially 6 months from now, a pickup of the prices due to the demand increasing in China, which could potentially lead to a positive inventory valuation.

I can capture China. And I think it's absolutely -- when you look at the economy as because the economy is what you have and after the lift of the COVID restriction in December, I think what they forecast is a growth and I would like to participate, it's 45%, which is very clear. But there are some risks. You're absolutely right. There is geopolitical pressures. When you see the tensions with U.S., you see still some supply chain, there's going to be chips and lithium batteries, there is within, I would say, China also a little bit of an increased cabal on the steel mills, et cetera, and there's a very much shortage. But on the other side, we have avoided that we in this environment that we participate in there red ocean competition. So yes, we have lost a little bit of volume. But on the other side, we could be much market prices than with our competitors published in the way. We also have a different mix in the areas where we go offering the utilization, but it's not only manufacturing, it's really the whole package that we offer to our customers. When we look on the outlook, I will say we are cautiously optimistic. The thought the one is might be best subdued, but we expect gradual recovery from the second, third quarter and in that business. But what we also need to look is everybody is looking at the risk and building scenarios accordingly. And I would like to extend, it's not only China. What we are looking at is Southeast Asia. This is China. This is India, and this is, we say, also including Vietnam. And also Indonesia. So I think just to look on China would be only half of the glass we look at because there are interactions. We see Chinese customers going to Southeast Asia; we will be there. We see the opportunities in India; we will be there. And in Vietnam, for example, will give us a very good platform to export them maybe to other areas like U.S., like Europe. So we already have -- we delivered the first products to our customers. What is important to see there are a lot of opportunities coming back with China on energy transition, begin momentum. We see all these offshore platforms, wind platforms, they really get, I would say, a lot of momentum. It's in the hydrogen infrastructure coming up. There's a lot of, for example, of the EMEA of Shanghai, there's a lot of interest to work together with us. And of course, electrical is 9 million shall be sold in 2023 are produced and sold. And this out-of-demand, automotive demand is improving in like to participate. Grain construction is also a big opportunity. And when we just say how can we make this happen? We have evidence. We got a big project for offshore open warming. We have the Armofor which goes very well ahead. And we get also in the Dramix area when you think about projects and metro recast sustainability it and because also the China decarbonization, we capture all this opportunity. On the rubber reinforcement, we have to have a positive look assumption in Southeast Asia, including China, Indonesia, Vietnam, and India. And I would say in the energy transition, we can capture opportunities we see in China.

Yes. So guidance. So again, we stated 9% to 11%. You are right, this is an average over the period. I think that where we stand now after months of trading, I think that it's still too premature to be able to guide you exactly on where -- or what we will be aiming at. Oswald has referred to the fact that we have started with a very decent lab of trading for the first part of the year. Whether this is sticky. I mean, we want to give us some time to look at it. We do think, however, that we are better with equipped to manage some of the potential headwinds that we might be facing during the year. So in a nutshell, we do think that the consensus where it stands now, I think that we're comfortable with it. And we will be adjusting it or guide you more precisely along the year, and we will be providing a range when it comes to our sales and profitability levels similar to 2022 in our Q3 update. Again, if the environment stabilizes, we don't have all this volatility, we might be more precise earlier during the year. But in the current context, that's really the best we can.

Very good. I'd now like to turn the line to Frank for the next question.

Frank Claassen of Banque Degroof Petercam. Three questions, please. First of all, on the sale of your activities in Latin America in Peru and Chile. Could you roughly indicate what kind of multiple you've been able to sell this activity? Then secondly, could you elaborate on the hydrogen, the electrolyzer components business? Where are we on revenues? What kind of plans do you have? I can remember that it's been quite a scale-up for the coming years? So could you elaborate on that, please? And then finally, what can we expect for CapEx in '23? And what are the main projects?

I will answer the first one, Frank. This one is pretty straightforward. So Chile and Peru businesses have been disposed of at a multiple of 6x EBITDA multiple.

Yes. I think on the hydrogen, I think maybe you can call up one slide we have here because it's going to invest in what we have here. We have seen the topic that we are in the ecosystem. And we're just looking for this one slide, the next one the one with the achievements we had. Okay, just give us a second for technical reasons. [indiscernible] What we have in 2022 is we have in production capacity. The second thing, this is, for example, expansion initiated in China and in Europe. And what we will do in '23, we will fill up the 2 gigawatt capacity in addition in China and Europe, and we're thinking about the occasion where we can have a significant of roughly about 5 gigabyte in Europe. And we'll talk about the commercial acceleration. We have seen that in the triple growth, which is absolutely investing. And what we do here is getting, I would say, closing, I would say, supplier agreements long term because today is our customers, they want to make sure that we have the capacity, then we have the product and that our technology is stable there. We have a very specialized team there and we launched a dedicated team, and we have also the claim, the team is further growing, and we launched a really dedicated. And I really want to repeat is the dedicated hydrogen lot at our R&D facilities in Belgium. This is really a core of hydrogen. We cannot do it alone. This is something where they are sometimes a bit of everything is clear, is the ramp-up in S-curves, is the land cope linear. But I think what we do to make sure that we have the technology leadership there. We do partner, for example, [ Pajaritowder ], we have done their investments. We are in a consortium have highway. We work with them with a lot of companies, and we joined the Hydrogen UBN network. And we will continue to do this because this is not an isolated business development. It is really something where with partnerships, I think we have the best progress. And with the co-creation together with the customer is the most promising rates.

Maybe sorry to interrupt. Could you maybe quantify how many -- how much revenues you currently make and what is maybe the target for the coming years?

Yes. So 2022, so our revenues were roughly between around EUR 50 million. So we're expecting a doubling in 2023. And from 2025 onwards, we should see an exponential growth of this business. So EUR 100 million around in the period, 2025, 2026 and exponential as along with the scale-up and the implementation of all the production facilities. So this will start kicking in starting 2026. But again, very, very decent level of margin and profitability for these businesses, although the share does remain relatively modest for the next couple of years before we have all of our production facilities in place.

Sounds good. And the CapEx question.

Yes. So CapEx, so for the period for 2023, we will be aiming at something between EUR 200 million and EUR 250 million. Why I'm giving you a guidance is because we want to have a stage gate approach when it comes to some of the significant investments that we will be doing in CapEx. A significant share of this investment on CapEx is allocated to our hydrogen business. So we're still looking at the different orders to build up these facilities. We haven't yet concluded whether we will go with modular solution, are we going to do some investments through leases or things like that. So this is still under assessment. So obviously, we want to make sure that we take the decision, which allows us to better optimize our cash allocation. But most of the investment in CapEx or a significant part of the CapEx investment we will be doing next year will be hydrogen and the target is to spend between EUR 200 million and EUR 250 million in 2023.

Very good. And next, Wim Hoste.

Also from my side, a couple of questions as well. Maybe first, diving into rubber reinforcements. Can you elaborate a little bit on the dynamics in the Chinese market. You started fighting a bit more aggressively for market share in the past couple of months. What is the reaction of your competitors to that? How do you see margins as a result of the equation volumes versus these pricing dynamics? Could you help us understand a little bit what the outlook there is for '23. And then the ramp-up scenario for Vietnam linked to a reinforcements? Then a second question on energy costs and general inflation. Can you maybe help us understand what kind of increase in costs are you seeing for '23 versus '22? And then last question would be on the share buyback, which, in my opinion, is not really aggressive or ambitious is that because you want to be very prudent from a balance sheet perspective? Or is it because you see, for example, M&A opportunities coming up on the horizon? Can you maybe elaborate a little bit on that as well? Those were my questions.

Okay. So I will start with the question on China. So there are 2 dynamics at play in China currently. The first one is related to the volume. The second one is related to the pricing. As we have explained throughout 2022, our strategy was not to run after the filler business because our analysis did show that focusing on the margin and targeting the premium constructions would allow us to generate a better yield versus going after the filler business. So this is what we have done throughout 2022. What has happened, but -- and obviously, again, as explained, this came at the expense of a loss of 2% market share, leading to a plant occupation, which was in the range of 92%. So roughly, yes, not completely optimized in terms of optimization. What has happened in Q4 is that this pricing pressure that we have noticed throughout the year did seem to stabilize. Probably to provide you some context, these pricing issues that we have or experience in China have been triggered primarily by 2 competitors. So it was a fight between Shingda and Daiei pushing the prices significantly down. Shingda following to some extent and Bekaert trying to stay outside of the red ocean type of environment. What has happened in Q4 is that they started realizing for Shingda and Daiei that this comes at a significant expense. It allowed them to fill up their plans, but it came at a significant drop of their profitability. So Daiei issued a profit warning and Shingda, because of this price strategy that they have decided to adopt has significantly degraded their level of performance. So what we have noticed in Q4 is that we started realizing that it was not the right approach, and they started stabilizing the price levels. And this is how we have been able to regain the market share at 20%. So with 20%, this should entirely lead us to a plant occupation above 95%. So we will see what would be the dynamics in 2023. Nevertheless, I think that there is potentially an issue of overcapacity in China. It's something that we are very well aware of. So we will need to look at how we can more dynamically manage our current footprint in China. But as far as the commercial strategy, the go-to-market, the product segmentation, I think that our strategy is the right one, a balancing between the cost-efficient product and the premium solutions on which we are still the market leaders and the focus on margin believe really rather than just for -- [indiscernible]. I don't know want if you want to add something.

I just would to take your question on Vietnam. So the situation is that we have successfully produced our centers, and we have started sending this to our growing numbers of customers. The one customer already, these trials are completely and the maturity is above. Operators are being trained. We call it the, I would say, the main tire supplier customers they have been visiting our plan in the main time and I would say we have about 10,000 tonnes at the end of the second half of the 23, I would say, billion. It's really what I said before, it's not -- it has to be in the context of Southeast Asia. And this is what we would like to say we want to capture the demand of, I would say, 90,000 tons in the coming years. This is also for one side for export and to maintain the leadership. But when we really look at it, we do a lot to have here a state-of-the-art factory. When we look on energy consumption, when you look on engineering, when we look at [ cargonomics ], it's really best read. This is what we are implementing in this building. And if you say it's going to be really a fantastic up in this area to serve the local markets because we see Chinese customers going outside of China, meeting those market demands but also having an export platform for U.S. and for Europe.

Okay. So your next question, Wim, was on the energy. So -- when we did our budget, it was at a time where prices started -- energy prices started decreasing, but they didn't reach the level where they were at the end of 2022. So we were still banking as a working assumption on prices, which were at level higher than the one that we see currently. So again, prices have significantly came down since August 2022. We do think that there is still an upside potential for the balance of 2023. So as you know, we have included in most of our contracts especially with RR hedging closes for energy's surcharges. So this has worked quite well. So we are benefiting from it in a context where prices have come down because these energy surcharges are also benefiting from 3 months the time lag. We have adjusted for the other BUs are pricing based on the energy. So we do think that anyway, we are properly covered. At some point of time, if the prices decreased beyond what we initially expected, we will need to pass on some of these benefits to our end customers or try to retain pricing as possible. But I think that our current system and our hedging mechanisms do work well. Last question is on the SBB. Well, I mean, not aggressive. I mean it again depends on when you ask the question to. So we do think that EUR 120 million in the current context is a very strong sign of confidence in the future. You might commented from the perspective that our balance sheet is strong. So we could afford this using more. Mathematically, this is correct. But again, we are business leaders and what we want to do is rebalance the way we are redistributing the value to our shareholders. Part of it is through the capital allocation. The other part of the value distribution to the shareholder is by improving the business. And by improving the business, we refer to investing in some of the core activities where we want to develop hydrogen, for instance. It's by doing inorganic growth. So this is still on top of our agenda. So again, we want to have a measured balanced way of returning the value. And that's why we do think that EUR 120 million for the time being is a very reasonable amount.

Excellent. And now I'll go to Emmanuel.

A few questions from me, and I will do them one by one. First of all, on the volumes. So the volumes dropped substantially in 2022. Could you share a little bit more of your thoughts on what you expect for 2023?

So 9% volume drop in 2022. We do not see or the working assumption so far is not to aim at a major pickup of the volumes. We will have some geographic shifts in the profile of the volume delivery in the sense that we're anticipating that North America and EMEA volumes compared to 2022, the volumes will go down. However, we are expecting a pickup starting Q2 in China, which, all in all, should bring the volumes on a consolidated perspective, roughly in line with what we have seen in 2020. So that's the working assumption in the middle, everything can happen. Having said that, it's also a decision that Oswald and I have taken willing need towards in terms of objective towards the business because we do think that operating under stretched volume assumption is a good way to accelerate the cost efficiency measures and the optimization of the cost base. So it's something which has proved be very efficient and very relevant to do in 2022. We didn't want to let the volume go dramatically in the budget assumptions from our businesses because we want them to keep putting the right level of focus in optimizing their cost base, and this is what we'll continue doing in 2023.

Maybe to add on this, Emmanuel, for example, it's a smaller part, but in BBRG intentionally, we got rid of some volumes where there was no margin. This was also how we say the portfolio management, and you now to really get more volume, and we see it in fantastic order pool in North America to go more in this with higher value CPR.

Yes. Okay. No, that's good. Then the second question is on your portfolio. So after the divestment you announced this morning, do you believe that the portfolio is now the one that you want to have in the long term? Or should we expect more divestment?

I think what you can expect is a continuous review of our portfolio. I think it's also to say when we stand to the core, I think SWS is something where we don't see a future because of several reasons; volatile markets, low cost, low margin. I think this is what we are constantly reviewing. And then I think it always has to be linked in the step, what can we do in order to, I would say, enrich our portfolio in other areas where we have an energy transition, decarbonization, electrical vehicles, it's a shift on the one side. We have a tradition with SWS -- it was a 75-year-old partnership. What we have seen, it was very successful. But we have -- we believe now that this is the time that we exited and focus on others. The review is also on the footprint on the portfolio. This is what Taoufiq and myself are doing also on a daily base. Do you want to talk? Okay.

Yes. And then on the 2023 guidance. So I think you mentioned before that you will give more detailed guidance, but when do you expect to do that? Is that only after Q3? Or did I misunderstood?

No. I mean last year, we did it in Q3. I think that if we are still dealing with the same level of volatility, you shouldn't expect a more precise guidance before Q3. Should the environment stabilize or see a significant upside of culmination of the trading trends that we're seeing so far in Q1. We confirmed that strictly we might provide a more accurate guidance already in H2.

Okay. I see. Okay. And then maybe just 2 quick questions on hydrogen and Dramix. So on Dramix first. Could you disclose how important this business is in terms of EBIT and also give an update on the current penetration rate and where you expect it to go in the coming years?

So Dramix, so this is the major part of the business within specialty business, I think it roughly represents EUR 400 million in terms of sales with a level of profitability, which is as well in the range of 15% to 16%. During 2022, the overall volumes have not increased dramatically probably in the range of a limited 2%. But what has happened is a significant work in terms of mix and focus on some more value-added type of others applications. So what we do see is constant improvement in terms of adoption with obviously differences in terms of geographic penetration. I think that as far as Europe, what we see is an acceleration of the adoption of the Dramix solutions into big infrastructure projects. And I think that we have reserved to some key landmark projects associated with that, like the new Metro Line in Paris, some also landmark projects in Latin America, in Colombia, with some key internal infrastructure in the U.S. and so on. But the key game changer for us will be the penetration and the adoption in China. And I think that what we need to wait and see is the release of the subsidies for infrastructure once the new elected authorities are in place and that the investments can be released in China. So this is the window of opportunity for us to start actively pushing for the adoption in this very, very big market, which can definitely be the key accelerator and catalyst for the growth in this business.

Yes. But I think it's not only Europe. We have in Norway. We have Mexico, we have seen in this area where we have projects. And I think it's what you say China will put investments in the big urbanization of that construction. This is the opportunity you have this time.

Okay. And then finally on hydrogen. So I would like to understand a little bit how capital intensive this business is, the kind of return on invested capital you expect to generate with it. Because I think in the past, you kind of gave an indication of the price per gigawatt. I would like to understand the cost -- the CapEx costs per gigawatt.

We will come back to me on the CapEx cost per gigawatt. We don't have really the metric in mind. We have a projection of how much we will be investing to build up the capacity. And I think it's not something which is stable. So it's following the curve because, I mean, as you know, the name of the game in the hydrogen industry is to scale up as fast as possible to bring the cost down. So the cost at year 1 is not equivalent to the one that we would see among the life cycle. We will try -- we'll see what kind of metrics we can provide you. I send it to you. All I can say is that when it comes to the returns of this business, it's significantly higher compared to anything that we have seen in the company. This is the reason why we are very optimistic. I will not say bullish yet because we want to have a cautious approach in terms of how we are allocating capital to this business, but the returns are extremely exciting.

Been a affords that we have a model approach that we really scale it up with the requirements of gigawatts required, and this allows us whenever the demand curve is there to follow this demand curve. And what we see from our customers, they come now and say, please rise those but it is, et cetera. So I think this is a little bit more stringent in the in terms of how Taoufiq say really investing.

And what is the visibility you have on this business? So you mentioned that you did EUR 50 million in sales in 2022, you expect EUR 100 million by 2023, if I understood you well? Is this kind of in the pocket, what are the kind of lead times?

I mean what we do there, and we're very firm and strict on that, is that we want long-term supply agreements signed with the customers before we start investing. This is really the prerequisite. So we have already started the campaign or finalizing the long-term supply agreements. So we have 2 of the biggest word hydrogen producers who have signed long-term supply agreements with us. There's a campaign currently going on. So as far as the volumes are concerned, these are quite solid and backed up with strong commitments. Take a pick. Yes, absolutely. Very strong commitments. So yes, we have the visibility and we're scaling up along the commitments we're getting from the end customers.

And then ability you have is then way beyond 2023…

Absolutely. Well, I mean the LTSAs are 5 years at minimum LTSAs, renewed LTSAs automatic renewal. I mean, it's a business that we're building for at least the next 10 years.

Very good. I think we've got time for one last question. I'll go over to Stijn, please.

A couple of follow-ups from my end. So the first one is the Q4 volume decline in rubber, is that mostly China? Or is it also Europe as China was already down in the fourth quarter of '21. And some peers mentioned an aggressive destock in Europe and North America in Q4. So can you bit sort of give color on the Q4 volume number in rubber?

Yes. So yes, Q4 was primarily -- I mean, China did improve throughout Q4, but not massively. But what we did see is a volume drop in Europe. And I think that it potentially has to do with the fact that the logistic costs have come down, and there might have been some inflow of goods coming potentially from China with Chinese competitors trying to see how they can bridge their capacity gaps that they have with some of the domestic market issues and profitability issues that they have domestically. So China was kind of picking up somehow in Q4. This is how we have regained our market share to 20%, but we did see a drop in Europe. Not sure whether this is going to be sticky. I do think looking at the trading environment for the first part or the first month of the year that things have stabilized in terms of volumes for Europe. So very difficult to draw a conclusion. Simple answer to your question, Q4 for the drop was primarily coming from China.

Okay. Then next one is I'm a bit puzzled by your response on Alexander's FIFO question that you see steel prices flat from here. And understand on Slide 26 for RR, where you see significant pressure on pricing with falling raw material costs. And I assume that statement is made with regards to '23. So how should I square these 2 views. Yes.

So I mean the statement that we made is that -- we have -- what we do see now is that there is a continuation of the raw material prices drop that started in 2022. It will still impact the part of 2023, but it will reach a plateau, as I said, in 4 to 5 months from now. So there's indeed a falling of the prices, a plateau 4 to 5 months from now with potentially a pickup if the Chinese condition and the market demand in China in terms of construction, steel, and things like that pickup. So again, working assumption is that it continues and plateau towards the month opportunity, question mark after what happens is the China rebound, and reopening of the pose investment that we want is it going to generate the tension on the demand of steel. That remains to be seen.

Okay. Understood. That explains. And then building further on this, when you see FIFO neutral over '23, does that mean that sort of the 124 million negative in the second half of '22 will fully reverse in the first half of '23,so a negative drag. And then...

No, no, no.

Phasing of the year-over-year effect...

I mean if you average the evolution that we are currently expecting for the raw material, you should have the 0 impact when it comes to FIFO and inventory valuation in 2023. It might slightly continue to decrease for the first 5 months. It will stabilize after and then it might pick up a little bit for the balance of the year. And when you average it, it will be a 0 FIFO impact with equivalent inventory valuation comparable to 2022.

Okay. Understood. And then -- last question I have is on energy price because that has been a drag, obviously, in the second half, but they have significantly eased in recent months. So shouldn't we see a relief from here onwards? Or how do you see sort of this evolve in '23 with regards to your bottom line?

Yes, we do see indeed the relief when it comes to the energy prices. I mean, I mean, they started decreasing as of August 2022 and the trend that does seem to continue. As far as we are concerned for the first part of 2023, it will generate a significant upside because we have, I think I have referred quickly to that, we have a 3-month time lag between the moment we charge our energy indices at the moment where we match it with the actual prices. So we're still charging the energy surcharges as per the contractual terms we have with some customers based on the prices that we had 3 months ago. We have some benefit there and after that we will not have these energy surcharges, but it will be replaced by a relief in terms of cash conversion cost with potentially a lowering of this cash conversion costs because of cheaper energy cost.

Very good. Well, that concludes the Q&A.

Okay. Thank you very much for attending, joining in, and looking forward to see you next.

Thank you very much.