NV Bekaert SA (BEKB) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Bekaert's Full Year 2023 Results Presentation. We're absolutely delighted that you could join us. Before I hand over to Yves and Taoufiq, I should do the important thing. I'm taking you through the safe harbor. So, just to reiterate as per previous periods, this presentation may contain forward-looking statements. Such statements reflect the current views of management regarding future events and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different than the future results, performance or achievements expressed or implied by such forward-looking statements. Bekaert is providing this information in this presentation as of its date and does not undertake any obligation to update any forward-looking statements contained in it in light of new information, future events or otherwise. Bekaert disclaims any liability statements made or published by third parties and does not undertake any obligation to correct inaccurate data, information, conclusions or opinions of described third parties in relation to this or any other publication issued by Bekaert. And with that important information out of the way, I'd very much like to hand over to Yves and Taoufiq.

Thanks, Guy. So, a warm welcome from my side, and good morning, and welcome to Bekaert's 2023 Full Year Results. I'm also delighted to be joined here by our Group CFO, Taoufiq, and together, we will take you through the normal package of our annual results. I will give you some first highlights and introduction. Taoufiq will take us through the overall financials, but also some perspectives by business and I will finish with an update on our strategy and the outlook of the business moving forward. So, 2023, another year of good financial performance, strong cash flow generation. We continued to drive our performance while progressing on our strategic agenda. So, let me highlight some of the highlights for 2023. But first of all, on our growth business and margin improvement business, you will see based on the explanation of Taoufiq that across the different businesses, there has been a strong focus on price/mix improvement. But more specifically, also some highlights in dedicated BU. The BBRG has really delivered a strong performance in 2023, bringing the EBIT for the business unit above 12%, finishing the journey of, let's say, profit restoration devoting towards growth for the future. In the other segments, some highlights in our construction business. We continue to have good mix improvement in 4D, 5D in Dramix, and we are also doubling in the energy transition of our current sales. In that context, and I will talk a little bit later about that as well. We could announce this morning after signing an MOU last year in December with Toshiba. We can be signed this year, the license agreement to use their technology to enhance our Currento products in the future and bringing new products to the market in 2026. On top of these growth initiatives and margin improvement, we continue to drive execution on our operations, driving efficiency gains, cost improvements, looking at our footprint. So, we rationalized footprint in AVAA by closing one plant in China and closing down an ongoing 2 small plants, operations in steel wire solution in Indonesia and India, part of the portfolio evolution. In that sense, we concluded in '23, the disposal of Chile and Peru operation with the proceeds of $136 million. So, this good performance delivered or resulted in an EBIT percentage of 9% for 2023, 80 basis points improvement year-on-year despite the lower volumes and the market uncertain situation we've been in. A very strong, robust free cash flow generation, 40% improved versus the year before, keeping on a very low leverage on the debt. And we're making a proposal on the general assembly to further increase the dividend progressively year-on-year with an increase of 9% proposal to the general assembly at EUR 1.8 per share. Now, if you look at the financial dashboard, so, consolidated sales around EUR 4.3 billion, 40% down versus last year. Taoufiq will give you more perspective on that. Main driver is the passing through of the evolution and the returning of the wire rod and raw material price increases in '22 towards normalized levels, including the energy cost. Despite this environment, we delivered a very strong EBITDA of EUR 388 million and a margin, as I mentioned, of 9%. This value creation has been complemented by a strong continuation of working capital management, resulting in a very good free cash flow of EUR 267 million. Besides the financial performance, we continue to drive our ESG agenda with the different priorities. One of them is to have our portfolio of our business evolving to a more sustainable solution that we bring to the market, achieving a 45% of our portfolio on categories under sustainable solution. There was a 65% target in 2030, while progressing also on Scope 1, Scope 2 reduction and the net zero keep. So, having said that, I hand over to Taoufiq for some more detailed financial reviews and overview by business unit.

Thank you very much, Yves, and thank you for joining our conference call today. So, again, despite a year which has been marked by considerable economic headwinds, I would like to share the narrative of resilience and strategic core side which is reflected in our annual results. If we rewind to 2022, we delivered a remarkable milestone back then with revenues which have reached an impressive EUR 5 billion. A figure which has been achieved primarily amid inflationary pressure. This achievement has set a high benchmark as we enter 2023, a year in contrast, which has stressed test our business with the challenges of input cost deflation. 2023 sales figures stand at EUR 4.3 billion. While this denotes a 14% contraction compared to last year, it's important to contextualize this within the broader economic condition and primarily the fact that we have contained our sales volume reduction to a moderate 3.7%, which I think is a proof point of our operational resilience in maintaining volumes despite market fluctuations. The deflation of the input cost prices was the main contributor to our revenue contraction in 2023. It has triggered a reversion to normative pricing following a period of high inflation, and this adjustment represents a 9% decrease in our overall volume. Yet, I think that it's also crucial to acknowledge that we have successfully retained a large part of the growth that we have achieved in the previous year, with this year's contraction at 13.5%, following a 24% growth in the year 2022. Before we continue, I'd like also to draw your attention to a significant strategic success this year which mainly lies in our deliberate adjustment in product mix and pricing, which have not only been about navigating challenges. They have also been about creating opportunities and capitalizing on that. Specifically, with the continuous focus on high-end segments, we have managed to not just depend but also enhance our market positions. And this approach has resulted in a continued improvement in our price mix by roughly EUR 100 million. This corresponds to a revenue increase of 2%, which is a clear indication of the value and the efficacy of our premium product offerings in the market. As we look forward, we will continue focusing on refining our product portfolio, enhancing our pricing strategy with the objective to further consolidate our growth trajectory. I propose now to discuss and move to the detailed performance of each division, and I will turn the focus to rubber reinforcement where we have seen a year of strategic recalibration and resilience despite a $0.143 contraction from the previous year inflation-driven growth. Our team has implemented proactive measures, which I do believe brought forth commendable results. The top line has faced headwinds, primarily due to the pass-through of fired price decreases, which have accounted for a 9% reduction. However, the silver lining was our intense focus on volume, which not only grew by 1.3% compared to last year, but also showcased our agility to respond to market share. Volume expansion is particularly notable in Asia, with China experiencing a surge by 20% and India, a steady increase of 3%. This growth has been instrumental in balancing the regional downturns that we have experienced here and there, especially the contraction that we saw in EMEA and also some challenges in North America. On pricing and mix, we have navigated through negative price effects with the 2.7% contraction, yet it's the strategic mix improvement that merit attention outsets of high-end, stronger 10-side core and enhanced recycled content, not only to highlight our commitment to sustainability, but also signate our dedication as a premium coat manufacturer. The fusion of our -- perhaps best reflected in the EBITDA margin, which has seen an uplift of 160 basis points to reach 9%, which is again a direct result of our form focus and cost efficiency and mix improvement. In a nutshell, 2023 stands for its strong cash delivery as well from the RR division, emphasizing our robust financial management and operational excellence. Looking ahead, the plan is clear for rubber reinforcement. We are ramping up ourselves in Vietnam, homologating key accounts alongside expanding our production capacity in India. And these steps are not just about growth. They're about laying down a strategic foundation for sustainable market expansion in that segment. Now, turning to Steel work solutions. So there, despite a notable contraction in sales, which is down 18%. There as well our team have adopted a proactive stance on margin improvement, which has yielded a tangible upturn in performance. The contraction in SWS was twofold, primarily in lower volumes, which accounted for 10% of the decrease and the impact of the wire rod price decreases, which have added another 10% to the decline. This is in contrast to the previous year, obviously, we show substantial gains from Baston wire rod price increase. Nevertheless, our price and mix performance has shown remarkable resilience. They have improved by 4% against last year figure. From a regional perspective, we have seen a variability in performance. The EMEA faced a contraction of 14%, predominantly in construction, agricultural consumer segments. North America and Latin America were not immune to these pressures, with a decrease of 16% and 7%, primarily in agriculture and construction. Again, despite these challenges, we have seen an improvement in margin with EBIT climbing by 70 basis points to 7.5%, which aligns with our strategic aim to enhance the profitability even in less favorable conditions. So, the focus for SWS has also been reflected in the strong cash generation, which is underpinned by the excellent working capital management in the business. To further consolidate the performance of the BU, we have undertaken rationalization and rightsizing efforts. So, the sale of the businesses in Chile and Peru was completed in November and the closure, we did the closure of 2 plants in Indonesia and India, which was announced in 2023. So, these decisions, while difficult, are necessary steps to ensure our operations are well positioned for the future. Moving on to our specialty business. So, despite downturn from the record highs of 2022, sales have remained robust at EUR 677 million, so, 12.3% down from the previous year, yet still marking a significant 15% increase from 2021. In Construction and Building Products, we've returned to a more normalized state following a spike in sales last year, although sales contracted by 11%. The silver lining lies in the continued progress in pricing and mix. Our high-end application, such as 4D 5G Dramix products now make up 48% of the total volume, which is up from 40% last year. The growth story continues with the strong performance in regional market, in particular, in North America and Oceania. We have secured new tunnel projects in India and China, and we have also heightened the adoption for industrial flooring in the U.S. Moving to fiber technologies. So, despite facing a market impacted by slower demand in certain segments and ongoing semiconductor shortages, we witnessed growth in the segment. And I think it's important to note that our ultrafine wire segment, which after an initial price erosion, which started in the beginning of 2023, this price erosion has stabilized things to the strategic shifts and the introduction of final product time meters. Our hydrogen business has made a significant headway. It's underscored by long-term supply agreement on our current brand and the initiation of landmark project in China with a major electricity generation company. We have announced yesterday, our partnership with Toshiba to expand it to membrane electrode , which also marks a strategic step into the value chain even as we navigate the short-term impact of the start-up cost on margin. However, in this business unit, everything has not been without its challenges and the challenges are primarily with combustion technologies and our growth and constant conferral. So, in combustion technologies, the segment did face a 35% sales decrease, which has been influenced by the lower demand and the regulatory shifts in the EMEA. Nonetheless, we have managed to offset some of these effects with a strategic price decrease and shifting the burner production to more cost-effective regions like Romania. In Rosen conveyor belt, we have also observed a market slowdown, but we have also seen our price increases, balancing, both counterbalancing the cost inflation, which also showcases our ability to adapt pricing strategies to maintain margin. So, indeed, 2020 for specialty business has presented the complex landscape. However, we are proud of the remarkable successes in construction, the ramp-up of our hydrogen businesses, which are counterbalancing some of the challenges that we had to deal with in other segments. Now, if we examine the performance of BBRG and there, I think that we find a narrative of robust strategic execution and remarkable resilience despite the landscape of paring demand. So, BBRG has delivered an impressive performance, particularly in its pricing and product mix, which has led to a significant margin improvement. In terms of sales, BBRG has shown stability with the positive effect of pricing and mix adjustments contributing to a 10% decrease. On the other hand, volumes have contracted by 6.6%. Drilling down into volume. So, rock saw 8% contraction with the trigger, which is mainly related to the softer demand from construction in China. Nevertheless, the demand in critical markets like mining, oil and gas have robustly compensated for the declines. So, the strategic focus in the business remains the refinement of the pricing approach, which is generating very good upsides with an average sales price per ton, which is climbing by 8% during 2022. So, despite the lower volumes, BBRG has not only achieved sales brought, but it has also significantly expanded its margin to a record high of 12.3% in 2023. And, again, it's a business which just a couple of years was still in the profit restoration mode. And I think that we can say build this level of profitability so far that this phase is behind us. On the operational front, we have made some significant adjustments, and we have entered into some strategic partnerships that position us for future growth. So, we have closed a plant in Germany, which was completed in 2023. It allows us to align efficiency and rightsizing with our rightsizing goals. And we are, in parallel, ramping up capacity for RMI to meet our anticipated demand. Last point about BBRG. The business has maintained a high order book levers throughout the year, which is also a demonstration of the sustained market demand and confidence in our product. So that's for the business unit. So, if we move back to Bekaert and I will start with the EBIT built up. So, the bridge, I think that beyond the figure illustrates the financial levers of our performance over the past year. And I think that it's a good way to showcase our reduced dependence on cyclical factors and a shift towards a more stable and predictable business model. The key highlight is related to the pricing and mix, which has delivered a significant upside of EUR 92 million. It's evident that our discipline in pricing and the strategic refinement of our product mix have not only been maintained but have become a cornerstone of our financial strength. So, this has been crucial as well in offsetting the operational deleverage, which has been caused by the decrease in the volume. Looking at the quantum for the EBIT specifically. So, for the fiscal year 2023, we stand at EUR 388 million, although this replays a 5% drop versus last year in absolute terms. The more pending figure is our EBIT margin on sales, which has increased to 9%. So, this is up 80 basis points from the previous year, which is, again, a very good performance. So, as we move forward, these principles that I have described will continue to drive our financial strategy. It will allow us to ensure that Bekaert remains robust, resilient and on the trajectory of sustainable growth. Some further details about the P&L, which, again, is another proof point of our shift towards a more stable and predictable business model with a reduction of our historical and past dependence on cyclical market performance. So, I already touched on the EBIT at 9%. So, if you look at exceptional items this year, they were largely related to the strategic decisions such as plant closures in China, the closures of the plants in Indonesia, the BBRG closures in Germany as well. So, this is a continued exercise to streamline our operation for enhanced efficiency. Our interest costs have remained broadly stable, which is reflecting our disciplined financial management. Obviously, we have the luxury of having most of our debt at fixed rate, and we are not pressured by the rate evolution. The tax rate has improved, so it's dropping to 23%. The company earnings per share have also seen a boost further enhanced by reduction in the share count from the share buyback program. And looking ahead, we are confident in our financial strategies, our operational adjustments and the overall direction of the company. So, now if we move to the balance sheet and to our capital. So, we have continued to prioritize the efficiency and financial oversight. While the working capital as a percentage of sales shows a marginal increase to 15.2% versus the figure of last year. This figure should be considered in the context of the inflated sales of 2022, which was, as you all know, due to the high input cost and the exceptionally low working capital position at the start of the year. In absolute terms, our inventories are reducing by EUR 178 million. Our inventory turns are down by 15 days to 74 days. Our receivables are roughly stable at 74 days, which is a good performance given the nature of our businesses and same level of stability for our payables. So overall, our cash conversion cycles have shortened, so it's illustrating as well our strong commitment to liquidity and the agility of our business. So, as we move forward, we will continue focusing on working capital. It's really at the heart of what we will be doing. So, in working capital management is the cornerstone of our financial strategy. Obviously, it's allowing us to remain nimble and prepared to capitalize on growth opportunities as they arise. In terms of cash flow generation, we've seen a truly commendable year with both operational cash and free cash flow. Operational cash has an increase, a rise to EUR 440 million. That's a 29% increase compared to the previous year. This has been underpinned by the improved working capital management and better EBIT margin even in the backdrop of the continued investment to support future growth, mainly through CapEx, which has increased by EUR 25 million year-on-year. And our free cash flow surged by an outstanding 40%. So, overall, a very robust free cash flow generation, fruit of all the efforts and focus that we have been putting on it from the operational and financial standpoint. We have a very solid cash position at EUR 632 million. We have reimbursed EUR 190 million of the Schuldschein loan plus an additional EUR 54 million of interest-bearing debt. So, some quite significant level of outflows during the year on top of the dividend share buyback. And despite all that, we have a very comfortable level of cash on hand. If we move to the next page. So, as we look to our commitment to shareholder returns, it's clear that Bekaert has consistently prioritized strategic capital allocation in order to balance the growth and innovation within the business with a strong shareholder teacher. So, in the past 2 years alone, we have returned EUR 400 million to shareholders. So, this includes 2 share buyback programs, which are totaling approximately EUR 240 million and a significant increase in dividends, up by 50% in '22 and an additional 10% as announced for 2022. So, we have demonstrated that we can crystallize an operational resilience. We have fortified our balance sheet. We have enhanced our cash generation capabilities, and share all the returns and the fruit of the successful strategic plan, which has been executed over the years. So, building on the solid progress that we have made, the management and the Board have decided that now, it's the opportune moment to accelerate our transformation agenda. This acceleration will enable us to seize growth opportunities that have become increasingly apparent. And to this end, we will be prioritizing investments in our business, both organic and through strategic acquisitions over the next 12 to 24 months. So, as a consequence, we have resolved to pause the share buyback program. This decision is rooted in a strategic vision to enhance Bekaert long-term growth and value creation potential. However, we still remain very committed to growing shareholder returns. And our focus on that remains unwavering. And to reflect this, the Board has approved a gross dividend of EUR 1.80 per share that will be approved or confirm during the upcoming Annual General Meeting in May '24 and at 180, this will represent roughly a 10% increase versus the previous year. So, the progressive dividend policy, which also underscores our confidence in the company direction and our dedication to deliver shareholder value, we stand firm in our belief that the strategic decisions we make today will pave the way for prospers tomorrow for our shareholders and for Bekaert. So, with that, I will pause here and, Yves, back to you.

Thanks, Taoufiq. So, let's pivot to give you some perspective on where we are in the journey. And, of course, on one hand, satisfied with the performance we are delivering on the short term while recognizing that still a lot of hard work to be done to drive our valuation agenda on the long term. I want to repeat here that we have in our, let's say, this year, the stakeholders is how do we further let's say, support our customers in the different end markets where we are active. As you know, Bekaert has been a very loyal and innovative supplier for many industries, and we want to continue to take our responsibility to be or show leadership in these end markets and support the industries in the journey ahead. Secondly, in terms of employees, a very dedicated workforce around the world, now engaged in the journey of moving forward. Of course, our shareholders, as we discussed and Taoufiq mentioned to it and then, of course, the responsibility to our society on many aspects of the ESG. So, if we have a look at our strategy remains the same. I think we can, with confidence, say that the performance we demonstrated the last couple of years, this is stable and is at a good level, which allows us to accelerate on the transformation and the growth journey. We've been taking steps already in the last couple of years on this transform and grow. But it's clearly our confidence level is and commitment from the management and the Board and we are very happy with the support of the Board to accelerate that transformation and that growth platform. So, a couple of words on the performance. I think a clear for you, we reviewed during the Capital Market Day together, but a confirmation extra data point in 2023 with a 9% EBIT and the improvement from 2019 from 5.6%, not only overall, but at sort of composition, the quality of our performance, where the core business has improved their profitability. But important that the growth platforms make up 40% of the profit today and that will further increase and enhance to more that bar at 50% over time. From an operational point of view, we continue to look at our portfolio in terms of manufacturing, rationalization, leveraging our procurement capabilities globally, where we delivered in '23, EUR 30 million saving on top of, let's say, market pricing, and we see further opportunities moving forward as well as in operational excellence where we had a more focus on everything which is about maintenance and we will continue. From a performance and mix on the 4 BUs, I will not go into detail because I think Taoufiq mentioned some of them and some additional highlights in the revenue enforcement serving the tire industry going to this higher tensile strength costs is driven also by the evolution of electrical figures. And then, on top, as mentioned, recycling and becoming an important topic, and we are a leader there to ensure recycle still is used in the tire coat and that needs to increase for the upcoming years. In the steel wire solution doing the portfolio, we continuously but also growing in new platforms like harmonious mission, with a delicate focus for the moment in energy utilities in the U.S., but also launching or scaling up new products like Ampact and the copper were coated with peak on for this data in the automotive, where we have increased interest on our products for the future. The Specialty business, as mentioned by Taoufiq, so, the fixed content and BBRG, also expanding capacity in North America for growth and then the ramping up capacity for Armofor while also moving in all these businesses also to more services and solutions business and happy to see the collaboration with ABB on monitoring of rocks in certain applications. So, let me give you some highlights on how we want to proceed on what is a focus for 2024. First of all, it's delivering on our commitments for '24, keep on serving the customer, to keep on having the financial returns and keep on improving our operations. From a strategic point of view, we want to strengthen the clarity on where we play. Let me repeat, but I think it has been mentioned before, is growing from the core, focusing on large and growing end markets. I will repeat them in a minute, but also see how we can expand in regions around the world where we see still potential for Bekaert to grow from a regional perspective. In the markets that we've chosen, we want to make sure we are very clear on our competitive position. we will reinforce the brands, the product brands and solution brands. I will share them with you in a minute, and strengthening the business model to make sure that this valuation agenda on the long term is sustainable. We want to further leverage some of the superpowers that Bekaert has is a leveraging global scale and our technology leadership and really in these end markets, having leadership position being #1 and #2 in the segments we play in. Of course, we are a realistic humble in the sense that we have strong capabilities, but we want to strengthen them further because we have a higher ambition level moving forward. And then also, from a reporting model, the high-performance organization. We think the entrepreneurship across our globe, but also in different BUs. And then of course, ensuring we have the right capital allocation to all our shareholders. And we want to, of course, continue to perform strong performance. Let me repeat quickly the focused end markets. So, first of all, of course, obviously tie reinforcement, which is EUR 7 billion market. We all roughly compete to EUR 2 billion revenue in that market being the market leader. The trends of electrification and circularity, we are a market leader and that duty gives opportunity to enhance over time our offering in that segment. Second one, the growing segment, energy transition. So, for the segments that we are focusing on is a EUR 7 billion market driven by the need for renewable energy. We have some growth platforms there. We have some platforms that we want to pivot to new businesses. So, very excited about that ecosystem. On the advanced lifting and mooring leveraging our BBRG legacy, we have potential for growth also driven by decarbonization, also there that plays a whole urbanization where everything which it has to do with our elevator elevated Belcourt gives opportunity for further growth. And then, the last is the play in construction, more specifically on the niche segment for fiber re-enforcement and convertible from steel and rebar. We think that's a EUR 2 billion market have where we play, where we see still opportunity leverage and support of our sustainability but also innovation. So, still very much excited about these end markets where we want to be part of the ecosystem and let us share a little bit further. We see, let's say, clarity on our portfolio of businesses, both externally to our customers but also to the market and internally. We have, of course, some of the established brands entirely enforcement at Bekaert and  Beat wire, the energy transition, the emerging brand of Currento, which, of course, with also the Toshiba license and the extent of our product range in the future will become an important brand. Bright and a very strong brand, very well recognized in the market in the different segments we play in within the advanced lifting and borrowing segment and then our Dramix in the Construction Decarbonization. We are working on a portfolio of smaller but upcoming brands that can be products but can also be service and solutions. So, in Rubber Reinforcement, we are looking at very dedicated products for the energy vehicles or for recycling steel or for recycling of type of recreated tires. In the energy transition, we have with Armofor Ampact, there is Bezinox and then in Advanced Lifting and Mooring with the MoorLine, which is the brand for offshore molding with synthetic growth, where we're also expanding our offering and our lineup with investment in other companies, the vision tech the monitoring of the Rock solution and Flexi Steel. And then also in construction, we have growing brands like Sigma slab, which is a combination of fitted reinforcement and fiber reinforcement on advanced high floorings, but also Falconix, which is our design offices, which are providing engineering and consulting services to the construction industry for switching from traditional reinforcement to our fiber reinforcement. So, we're excited to see these brands evolving, and you will hear more about it in the future. So, let us wrap up the results 2023. So, I think overall, a resilient financial performance despite this weaker market situation, so putting us in a good position moving forward and driving all the improvements. I will not repeat them. And let me pivot unto the outlook for 2024. So, we all know the economic uncertain situations remain, geopolitical situation, but we can say that the trading started well in our main platforms in the first month of the year for different business units. And so, for 2024, we expect a modest sales growth on the top line and at least stabilizing the margin and further improving the margin. We reconfirm our confidence in the midterm guidance given at the Capital Market Day in December in London, where from a top line growth at the mid-term, we are targeted 5% growth. As mentioned at that moment, this growth platform, we are investing, we are scaling. Some of them, of course, will not be a straight line to the top. So, in the upcoming 2 years, that's why we said '24, we see a moderate growth across the portfolio. But certainly, these growth platforms will grow above GDP and on the long-term overall 5% growth. Confirming for '26, the EBIT EU target for more than 10% with the return on capital of 20% and then also on a sustainable solution, 50% of our portfolio. So, thanks for listening to the background and more perspective and handing over to Guy for a Q&A.

We'll now move to Q&A, and I see a number of hands that are already up. Chase at Kempen. I think you were the first.

I have 3, and I'll take them one at a time if that's okay. Starting on the outlook. So, for 2024, you mentioned here that you expect some modest sales growth. And I think in the last trading update based on the outlook discussion, it sounded like the first half of the year would still be quite subdued similar to the second half that we saw in 2023. But you also mentioned in the press release that trading is still quite strong in the majority of businesses and that's going quite well so far. So do you have any sort of update on the timing of this growth throughout 2024? And what sort of developments you're seeing there?

Yes. So, we're confirming what we have said some months ago in terms of top line. So, we will still be dealing with an environment which is overall subdued. I mean, there's some different dynamics, obviously, from one region to the other. So, we will continue to see the same pace of improvement for our businesses in China. So, I mean, there is a recovery which is happening, albeit a bit at a lower pace than what most of the people were expecting, but the positive trend will remain. Europe for the foreseeable future, we don't see some major improvements. Overall, it will kind of stabilize, and we're looking forward to see what will happen in the second half. But if you consolidate all these different dynamics, the expectation we don't have great expectations when it comes to the top line for 2024, and we're aiming at an environment which would be roughly flat or moderately growing. The big change and why we're saying that the trading environment has started well, is mainly related to the continuation of some of the dynamics, positive dynamics that we have seen in 2023 regarding the pricing and mix. So, there, we do see a positive momentum, which is continuing and further consolidating. And we do see this trend to continue throughout the balance of the year or today.

And then secondly, more on capital allocation. So, obviously, you have a very strong balance sheet at the moment, EUR 0.5 million of leverage, EUR 700-plus million in cash. And I think even in the presentation now, you mentioned that have the ability to self-fund shareholder returns. But I'm just curious as to what the decision was behind basically not continuing another share buyback program, even if it's a slightly smaller one, given that you clearly have the balance sheet for it. And then maybe as a short follow-up on that, you do also mention, obviously, there are increasingly apparent opportunities for inorganic or organic growth? And maybe if you could elaborate a little bit more on what those parent opportunities are as well.

As you said rightly, I mean, it was relatively moderate share buyback. So, we did see the benefit of it. We did it for a couple of years. So, now we want to drive value in the. I think that we are gaining confidence in our ability to drive value through transformation. So, I mean we have demonstrated that we are very prudent in the way we allocate cash inorganically. We will continue to be prudent, but we do see a momentum that we want to capture in terms of accelerating the transformation of the company and driving value through other levers. So, we want to move from this perspective that we were focused from the investors community was on our capital allocation. We want to move to a solid yield company. And in order to do that, we want to accelerate our growth and accelerate the delivery of the dividends and the growth of the dividends that we want to do. It's clearly our ambition that that's how we want to approach it.

And if I can add, Chase, from a growth perspective, we are clear amount of the bitter ambition to grow based on the vote portfolio. And so as mentioned by Taoufiq, we think it is the right time to accelerate that. We've, of course, been looking at, first of all, the organic growth that we dividends that accelerate and also the inorganic with more bolt-on acquisitions, but we keep on being very diligent on the reviews and targeting the right ones. And as you know, is the timing of these type of deals is not always fully in control, but it's clear that this is a priority for us moving forward, the upcoming 12 to 10 points.

And then maybe my final question, just quickly. I think also with the CMD, you outlined that there would be some further divestments. So, the divestments were part of the broader growth strategy and the portfolio re-composition strategy. I think at the time of the CMD, there wasn't anything concrete in the pipeline. And I'm just curious if there's any updates on that. If you have any deals that you're working on that you can disclose?

So it remains the same. So, it's with active portfolio review continuously, both on the investors well on the divestments and furthermore is not in concrete cooking. But, of course, we continue to look at the opportunity to market the right timing as well. So, it's a priority for us, but there's no sense of urgency.

Frank Claassen, I think you're next.

Yes. A few questions. I'll also ask them one by one. First of all, on the wire rods, what is your, let's say, assumption bid into your guidance for wire rod? And what can we expect for the 5-4 adjustments? Are there still going to be 5-4 adjustments throughout in 2024?

Well, the assumption that we took in the guideline was that we will have a moderate upward movement throughout 2024. So, no major change expected. That's the expectation to answer your first question. I guess we'll have a follow-up on that.

And indeed, because your mode of sales growth, what does it basically mean for volume growth and pricing? I think you said in the previous answer that you expect flattish volumes and a bit of pricing. Is that the way to look at the modest sales growth for '24?

Well, pricing and mix. Pricing and mix will be improving, yes.

And volumes indeed flattish?

Overall, yes, plus some small growth, and it's different by business. So, there are businesses in our portfolio which grow with 5% to 7%, correct. There is the hydrogen business double is previous year. But for these are in the relative still in our portfolio, a relative part, correct? So, that why the overall guidance we gave is that overall, but there are pockets of more growth than the GDP growth.

And then on working capital, is this 15% of revenues? Is this a number where you feel comfortable with going forward? Or is there room for more improvement?

Historically, we have operated between 13.5% and 16%. So, that's basically the bandwidth. So, at 50%, I think that we have some opportunities to generate some improvements definitely, and we will be working hard on it. I mean, you saw that there are some significant improvements in terms of the inventory turns. So, we need to look at what is the additional potential we can drive from the receivables from the payables to some extent. So, yes, there is some potential to further improve.

And then my final question on China. You improved quite a bit this year, last year. How is the, let's say, environment there competitively? Do you still see price pressure? Or are you getting back market share? What are the dynamics in the Chinese probably enforcement market?

So, overall, what we see is that there is some last couple of months and recovery in the market amount. And combined with on our side, as you know, we closed one site. It means we consolidated our capacity, maximize the capacity in the plants we have, focusing there on mainly on mix improvement. China remains a competitive environment, as all of us know. So, our improvement are really driven by really focusing on the businesses that are juicy, where we pay plus also operationally, we continue to look at how can we improve our competitiveness. So, I think we have a stable environment in China protective of our business. And, of course, if the market environment is positive to a certain extent, we can leverage that, but we will be also limited to the capacity here.

Alexander, our next in the queue.

Just to continue on the outlook. So, you sound confident in the 5% midterm sales growth, which you provided at the CMD last year. But you aim for 1% to 2% growth in 2024, if I'm correctly interpreting the modest sales growth comment. So, this implies that you expect significantly higher growth in 2025 and 2026. But what's your level of visibility and confidence there? And how much does it depend on the macro environment? And then second question would be on the margin outlook. So, you're clearly growing in more sustainable solutions. You aim for that 50%, it implies a better mix. You also mentioned an EBIT margin underlying of 10% by 2026, highlighting that different mix. But in 2024, even though you expect that mix to continue to improve, you aim for flat margins. And I just wonder how we square this? Or is that flat margin just a conservative assumption?

So, I will take the first one and perhaps you take the second one Taoufiq. So, on the market growth side, so the background in the transformation that we are, say, in the midterm target of 5% is when all these growth platforms start to become more sizable and more kicking in. And, of course, the portfolio of growth platforms that we know due to, let's say, our projects will go in offshore window in the general in other growth platforms. There can be some fluctuation. So, on the midterm, we are confident on that one. On the short term, there could be growth driven by the market environment, yes. But the first one is our long-term priority is the growth coming from new products, new services, new markets. So, that's in our own hand in our own control. And then on top you have, of course, the opportunity of the overall market evolution. So, that's the 2 factors that you need to look at.

So, again, I think that what is important to notice is that what will be driving this growth is a combination of both macro and the combination of our product portfolio and how fast we're able to drive the mix shift. So, if we are able to accelerate the growth in our road platform, so we will have more higher level to leverage, ability to drive higher number of margin. And this is what we're aiming at. So, most of these applications, a lot of them are in ramp-up phase. So, it's very difficult to give a high level of certainty on how fast we can do it. That's why, I mean, for the moment, we see the results, we see the performance, and it's really our ability to sustain the ramp-up at the right pace, which will drive this improvement in gross margin and the 5% top line that we were referring to. Now, on your question regarding the potential conservatism around the margins for 2024. So, again, we are at the beginning of the year. We clearly stated that we're still dealing with a very volatile market. I mean, we still, unfortunately, still dependent on some input cost fluctuation, valuation and so on. I mean the steel price being one of them. So, we want to still remain cautious, as I explained earlier to Frank, we took the assumption that the wire rod will not move dramatically, but we don't know how things might evolve. I mean, regardless and independently of what macro is saying, you can have movements within the steel manufacturers who decide to reduce production and capacity, which can have an impact on the pricing or they can expand capacity and produce more and therefore, drive the prices downwards. We don't know what will happen. So, that's why, for the moment, we are cautious. I mean, we will be providing very good updates on how we see macro evolving. But for the moment, we are on a cautious mood as far as the performance for 2024 is concerned.

Maybe just a small follow-up. And maybe I'm going to be a bit not and try to pinpoint you on a number, but I imagine that the economy stays as it is in the sense that it's on track. Imagining that steel prices don't fluctuate that much, would a EUR 400 million in EBIT underlying be out of the question?

Well, I think that, as we said, if we assume top line flat and margins at least at the level where we are, we should be aiming at EUR 390 million. Then, I mean, we are also working a lot of self-help measures, footprint optimization plan, restructuring here and there. So all this can potentially if executed, deliver the additional EUR 10 million, which can take us to the EUR 400 million that you mentioned. So, simple answer, no. No, it's not out of questions, but it relies on a couple of uncertain components where the execution is still to be delivered.

Martijn, you put your hand down, but are on screen. So, I'm presuming you've still got a question.

Yes, I do. I just wanted to come back on that acceleration of the strategy. I haven't seen an upgrade in the CapEx. You mentioned still M&A sensible bolt-on. But then I don't understand the conservatism around SPBs, apart from the liquidity side of the equation because if you do a calculation on 2024, let's say, the same EBIT, higher CapEx, maybe a bit of improvement on the working capital. We just had Taoufiq say that, you're going to end up with a net debt to EBITDA of 0.3x, and that includes the higher dividend on the EUR 180 million. But if you do acquisitions of EUR 250 million cash out that net debt EBITDA moves to 0.8x. If you do EUR 500 million of cash out of investments in via M&A, you get to 1.2x, and 1.2x is still very solid. So, quite frankly, I don't really understand how you can say that you're accelerating the strategy, but you're not increasing CapEx, i.e., are you saying that you are now looking for medium-sized and larger acquisitions? Because otherwise, I can't understand the decision to postpone the SBB. That would be my first question.

So, the calculation that you have done Martijn is indeed assuming flat guidance in terms of CapEx, the no bolt-on, no major acquisition and so on. So, what we can confirm at this stage. So, I mean, we referred to an acceleration of the transformation. So, what it means in practical terms is that we want to accelerate the number of this bolt-on and tactical and strategic acquisitions that we are referring to. We do see the right momentum to do it. Many of our growth markets and markets where we want to invest are giving us the proof point that we're taking the right decision. So, we don't want during the next 12 to 24 months to delay further the ability to find the right catalysts for them to grow. So, that is what is driving this decision to post the share buybacks for the time being. CapEx at EUR 250 million. So, everything being equal, yes. But if we do see an acceleration, if the confirmation and the signature on the long-term supply agreement for Currento for instance are confirmed, we might need potentially to speed up the ramp-up to have more capacity than what we initially expected. And this is the reason why we say we want to pause and we have carefully role towards post. It's because we are in the momentum where we see higher value generation potential in organic/organic opportunities. And this is what is driving our decision. All your calculations are right. We have the right level of cash to do all of that. But at the same time, we want to stress test our ability to drive higher level of returns to the shareholders other than just doing share buybacks.

If I can give you some strategic on that one because as you mentioned, your calculation is right. There's a couple of verticles. We really want to double down. And let me repeat the energy transition. Is it in nitrogen? Is it in need pumps in other, let's say, opportunities that are out there in this energy transition? Is it in lifting a more remit offshore wind? Is it in construction and so on. And even in the tire enforce but we are looking at what is the next title. So, these are 4 verticals for, I call it 4, correct? That we want to double down on. And if you look at what's going to happen in the world in the upcoming years from now to 2030, is that some of these platforms are critical scaling up '27, '28, '29, 2030, correct? So, there is also a discussion with the Board and with the management team. There is a window of opportunity in the targeted markets where we want to potentially to expand our capabilities. Is it with bolt-on M&As? Is it technology? And it's in that context, you have to see. We think that this is the right moment. And as mentioned by Taoufiq, we post the programs, keeping it also flexible, but we want to double now on the next 12 to 24 months on exploring this. And if you have a couple of them, even if there are EUR 200 million, EUR 300 million since we are focused on a couple of targeted markets, that's how we look at it.

Got it. My second question is with regards to the margins in 2023. You have the headwind from FIFO, but you also have a bit of tailwind from hanging on to higher prices, while the wire rod price declined. It's a question for Taoufiq I guess. Is the net of those 2 positive or negative in 2023?

Well, I mean, to be put very simply, so wire rod prices throughout '23 has decreased. So, the mathematical calculation leads to a negative inventory valuation for 2023. But I mean, you do see that the net of it in terms of pricing and mix because again, we want to insist on that. I mean, just looking at FIFO at the exclusion of the impact that it has in terms of pricing is the wrong way of approaching it. So I mean you translate the inventory prices in your pricing to the end customers. So, the net has been positive when you combine it with the efforts that we have done in pricing. Inventory valuation has been negative in 2023. I did state that what we see for '24 is a flattish, slightly improving inventory prices. So, for the moment and for the short term, we are not expecting negative coming out of it, hence, comforting our pricing performance provided we continue with our strategy to push the prices up. What will further benefit to us is that, I mean, what we're selling now are based on inventories that we have acquired 3, 4 months ago in a phase where prices were falling down. So, we have cheap inventories for the next 3 months that will benefit from an environment where prices are stabilizing or slightly improving. So this should be beneficial in terms of cost of goods sold for the production that we will be putting on in the market in the next 3 to 4 months.

But is there really not a sense that you can give because that was really the question is in the net, is it negative or positive? Because I think the net between those price mix and the FIFO is actually negative, which means that underlying, you did even slightly better.

I mean, again, for us, we have been doing indeed better because we have been able to push prices at a higher level than the effects that we have seen in terms of core component acquisition price. So, the net has been positive. So, if you look at the EUR 92 million that we have in the bridge, you strip out the mix effect from it. You keep only the pricing, which is a combination of inventory valuation and fuel pricing effects, you will get to a positive.

And my third question is, you've done quite a bit on the restructuring front in RR in China, in SWS in Indonesia, India. You mentioned in the presentation that there will be from operational excellence, another EUR 10 million. Is that EUR 10 million the full effect of all these restructurings from 2023? Or is that just a part of it? In other words, can you give us a bit of more color on the total effect or savings in 2024 from the 2023 restructuring measures?

This one will be a bit difficult to calculate and to tell you how much it's driving in terms of improvement impacting the margin, but we can reasonably assume that the savings in terms of recurring cost out of this restructuring should roughly equate EUR 10 million to EUR 15 million. That would be the recurring benefit out of it that we see in the coming year. So, you see, again, we just need to be careful with some of the implications and how we read some of these results because if you look at the closures that we did in SWS, so these are more plants, which are not really material in the overall SWS that represent 4% of the total sales. So, we need to be careful to correctly assess the impact in terms of recurring sales.

And just one follow-up on that one. Then EUR 250 million comes on top of that EUR 10 million that you mentioned in the operational excellence slides in the presentation.

Well, the operational excellence, this is self-help the measures generated through process improvement efficiency, automation and things like that. So, these are separate improvements that we are aiming at.

And then my final one, a simple one. Combustion. Was it loss making at the EBIT level or profit making?

No, it's profit making. So, we all know the situation in terms of policy changing and certain the economy in the outlook of that business now, we proactively react very quickly. So we moved some of our production from the Netherlands further to Romania and rightsized the organization. So, BCP ended in the profit figures for 2023 despite a significant loss in the top line. Also, for 2024, we took the assumptions on the growth on the sales in a moderate way as well as the profit levels to continue to be in the positive.

Over to you, Wim.

From my side. A couple of questions also. And I also ask them one by one. I think that's easier. First would be on Dramix. I think the press release mentioned some orders in tunneling in Asia Pacific, also industrial flooring projects in the U.S. So, the question is how big is the order book for '24? And what kind of momentum do you expect to unfold, given that the building markets are not in great shape? So that's the first question.

Good question. So, first of all, we remain positive of the growth. And then that's also the segment that certainly a number of projects that we are doing, we have a growth plan, and we see that as well. Now, in terms of order book, it's an interesting question because the way that business works is basically how you're expecting, yes. There's not a lot of long-term firm orders, but once you're expecting into a project like a tunnel or whatever, they release it by batch and so on. So, once you're expecting, it gives you pretty good confidence on the outlook of the growth that is not for orders, yes. But we remain positive. I think what we learned with the Dramix business, certainly, since a couple of years where we are really tailoring the offering to the SIP segments are flooring, lendering. We are now working on infrastructure and renovation. So, deleting very much the offering and also in all the markets, having people dedicated to these segments. We see that when we convert and win businesses, it's like a small mobile effect, right? You get recurring businesses. And there's the case in flooring in the U.S. for battery factories, automotive factories, but also in India, where it took us long to get one tunnel and also in China. So, these are important proof points for us, and that will continue to drive the growth, as we said, it's clearly grown platforms for Dramix.

Then a question would be on RR and the recycled steel content that you're increasing the patent. Can you maybe elaborate a little bit on the ambitions you have with cycle steel? And also, what does growth of that due to your margin? Is it margin enhancing? Can you maybe elaborate a little bit on that as well?

Yes. Good point. And I don't think as an industry, we have the full answer there, but I can confirm as a leader that we will, let's say, emphasize our role in depth. And so, the entire industry in terms of the sustainability targets last couple of years that I'm coming from that industry has defined, let's say, recycled still as one of the measures to come more to circular economy for tires and recycled content. The challenge in the industry is that basically recycle still today is almost under and our suppliers, correct? Some are more advanced as to increase the ratio of cost in the products and then, of course, flowing to our wire rod and rod customers. So, a couple of data points. One is we are making sure why. We also made the releases that we are certified in the on how the flow of recycle still into wire into our products to the end product that is to is basically fully traceable and affordable. And then the increase of that amount of recycled steel to be fully worked out with the supplier base, yes. On the other hand, we already have nice ratios of recycled steel in our current offering a little bit higher in the Bit the tires, we will keep on enhancing that. Now, that should be a differentiating factor. So, your question on pricing and value. That certainly is one of the elements. Now, we know the price competition in our RF is some of our competitor player. So, it's certainly a lever that we want to double down on and be leading in.

And then the last question from my side. It's a small housekeeping question, but on Page 3 of the press release, there is a phrase mentioning that there is a capitalization of expenditure on development activities that is now being done for about EUR 7 million due to the stage of certain development projects. Can you maybe elaborate what kind of milestones you have reached on what kind of projects that allow you to account for that now? Is it new projects? Or is it some of the projects that you elaborated already on like Moor other things? So, can you be more specific on what that phrase means?

Yes. So, basically, what we're referring to here is mainly the R&D project. It's not the operational nor the commercial projects, which are into a production mode. So, basically, it's just adjusting our buying an accounting policy, which was already preexisting in the company. So, it's not something new, given the fact that we want to accelerate our product innovation and given the pipeline of all the activities that we are currently carrying out in terms of R&D. We want to make sure that we're applying the best practices when it comes to the way we treat these transactions that were mentioned at that point.

I don't see any further questions. So, with that, I will bring the proceedings to a close. Thank you very much.

Thanks, everybody, for your attendance and enjoy the rest of the day.