NV Bekaert SA (BEKB) Earnings Call Transcript & Summary

Good morning, and welcome to the Bekaert 2024 Results Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the floor over to your host, Guy Marks, VP, Investor Relations. Sir, the floor is yours.

Many thanks, and good morning from me. And delighted that you could all join us today for the 2024 full year results. I'm here with Yves Kerstens, CEO; and Seppo Parvi, CFO. And before handing over to them, let me just take you through the safe harbor. And just to remind, this presentation may contain forward-looking statements. Such statements reflect the current views of management regarding future events and involve known and unknown risks, uncertainties and other factors that may create -- cause actual results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Bekaert is providing the information in this presentation as of its date and does not undertake any obligation to update any forward-looking statements contained in it in light of new information, future events or otherwise. Bekaert also disclaims any liability for statements made or published by third parties and does not undertake any obligation to correct inaccurate data, information, conclusions or opinions published by third parties in relation to this or any other publication issued by Bekaert. With that tongue-twister out of the way, I'd like to hand over to Yves. Thank you.

Thanks, Guy. And also warm welcome from my side. So 2024 results, so another year of resilient delivery in a business environment that has been challenging with '24 with 2 phases, first half still good market demand and second half, we've seen a weaker market demand in many of our end markets. In that context, we delivered a EUR 4 billion top line and an EBITDA margin around 9%, on the higher end of our guidance. Underlying EPS and leverage broadly in line and stable with previous years. So some highlights on '24. We continued, of course, working on our mix improvement, cost structure, minimizing the impact of lower volumes, while also evolving or progressing as announced this morning on our project portfolio -- business portfolio with a further divestment of our activities in Costa Rica, Ecuador and Venezuela at attractive multiples. We've been commenting that during the last year's calls about the evolution of the growth platforms. So based on geopolitical situation and priorities in the end markets, we've seen some slowdown in some of our growth platforms. These are delays. We'll come back later on how we look into the future. On the other end, we've successfully integrated in the synthetic growth business, our acquisition of BEXCO and the Flintstone business. One of the challenges we shared in the second half -- of the first half of the year, and then, recovering in the first -- second half of the year was the operational challenges in our robust business in Europe and North America, and we have to report that the recovery plan as laid out in second half of the year has been materialized, and we brought business -- back the business in the profitability levels that was targeted. So having said that, this introduction, I hand over to Seppo, who will give you more details about our financial and operational review by segment and growth as a company.

Thank you, Yves. And let's start by looking at the group performance. And as you can see on left-hand side, sales were at EUR 4 billion level, that is down 9% compared to year before due to lower sales in weaker end markets. Main factors -- sales reduction are coming from various places, and it's mainly due to lower passed-on material and energy costs and lower volumes. Lower passed-on material and energy costs were at 3.9%, and volume was 3.5%. There's also 1.2% negative effect from price and mix effects. Currency movements had a relatively small effect, 0.7% negative, and acquisitions we made during the year increased sales about 0.8%. EBIT margin was stable at 8.8%, despite the lower volumes. That is thanks to improved mix. We also had an intensive focus on cost improvements and working on our cost structure, both on administration, SG&A costs as well as cash conversion costs. And also work done on footprint optimization in the past is also visible in the resilience of the results. Then let's move to Rubber Reinforcement, where we also see resilient performance in weaker end markets. Sales were down 9.5% and reached EUR 1.7 billion level. It's mainly also due to lower passed-on material and energy costs by about 6.2% and lower volumes, 2.2%. Price and mix effects were broadly stable, just negative 0.2%. And currency movements, negative 1.1%. We had also volume growth in Indonesia and India, that is thanks to new production capacity that has been installed there to serve increasing local demand. We had lower volumes in Europe and North America by 3% down, and lower volumes in China. But then you have to remember that 2023 was a very strong year, but there is a reduction of about 5%. EBITu, underlying EBIT margin was 8.7% compared to 9.6% a year before. We see there that the competition in the global tire market continues to intensify. And margins were mostly impacted in Europe with lower sales volumes and related occupation levels. And we have kept here as the strong focus on costs, footprint and business selection as well as on business portfolio and customer portfolio development. In Steel Wire Solutions, we also faced reduction when it comes to sales. But it's important to note this is a big part of the volume reduction of about 5.9% is coming from close of operations in India and Indonesia a year before. That's about 2/3 of the drop in the volume. We had higher volume increases in China, offset by some small volume decreases in Europe and North America. And volumes were also weaker in Colombia and Ecuador. An effect of lower passed-on material and energy costs and price and mix effect was about 2.8%. Positive thing in SWS, Steel Wire Solutions, is actually EBITu margin increase to 10.4%. That is almost 3 percentage points increase compared to 2023. That is thanks to further mix improvements towards higher-margin applications in the portfolio and also actions around footprint, cost savings and business selections have structurally improved margins and taking profitability to a new level. We had also strong cash generation in Steel Wire Solutions thanks to the good or I could say even excellent working capital management and improved profitability also helped to improve cash flow. In BBRG, our operational issues had an effect on top line as well as on profitability. Our sales went down about 6% to EUR 552 million level. There was a positive effect from price and mix of about 0.9%, but volumes were down 11.7% and currency movements at negative level of 1.1%. Acquisitions, that's mainly BEXCO that we acquired last year, had a positive impact of 5.7% on the top line. We have been solving operational issues we had and faced last year, U.S. and U.K. It's positive that we can now say that we are returning to normal production in Q4 last year, but that would not offset impact of lower performance in the steel ropes subsegment during the year. But, of course, it is a good start for the new year. Synthetics grew strongly in sales and profitability and also important to say that and notice that integration of BEXCO and Flintstone will meet our expectations. EBITu margin at 9%. This reflects lower sales and lower cost absorption due to output issues, primarily in steel ropes, like mentioned earlier and stronger Q4 in steel ropes lifted the margin up from first half of the year 7.4% to 10.5% now in the second half, which shows that we are on the right track. We are working and continue to work in optimizing production footprint, and we have recently announced closure of a plant in Scotland following our footprint review. Then moving to Specialty Businesses, where we are navigating short-term challenges in the end markets. The sustainable construction volumes were up 1% compared to 2023, and we had volume growth in all regions except North America. Volumes increased primarily in India, Latin America, Turkey and the Middle East markets. Also positive is that over 50% of the volumes are from 4D and 5D Dramix. And also important steps have been taken in sustainable construction, as we have first projects on Sigmaslab elevated floors Central America, first project on seamless flooring in China and prestigious tunnel project in Saudi Arabia, just to name 3 good examples. In Hydrogen Business, our sales went up 36% compared to year before. But project cancellations and policy uncertainty has slowed down the expected progress in the business. Our production ramp-up has been carefully phased to align cost base with demand, and we continue with our modular approach here when it comes to investment so that we are ready to capture the growth and invest more when the markets come back to normal growth path as we expect, and we have continued to invest in R&D in hydrogen, that is, of course, having some effect on profitability spend. In the Other businesses in Specialty, I can mention filtration and fiber markets have been stable, but the demand for ultra fine wires was lower in the second half of 2024, following a technology transition. And Hose and Conveyor Belt and Combustion technologies faced lower demand during the year. Maybe if you look at the EBIT bridge, and there we can see that margins have been protected despite lower volumes through cost control and mix improvement that we have worked on. And if you look at the EBIT percentage, it came down from 9% to 8.8%, which is, I think, a good achievement taking into account the top line decline that we have faced. And as you can see on the bridge also, it's very much relating when it comes to euro wise to volume and cash conversion, cost absorption because of the volumes that has been driving the EBIT in EBIT wise -- in euro-wise the EBIT is down. Then moving to our joint ventures, and I want to highlight the performance there as it is not included in our EBITDA or EBIT figures, but reported below. So good performance from joint ventures has continued, also positive margin development if you look at profitability, how that has developed. Also it has created positive cash flow through solid dividend flow as you can see over the years. And last year, we received EUR 51 million dividends from our joint ventures and the profitability was at EUR 49 million, so quite significant contribution that [indiscernible] as a company. Then on this one-off costs that we have in the result, it's at EUR 52 million level, at the same level with last year, and this was another year of restructuring for the future health of the Bekaert Group. Big part of the restructuring charges, about EUR 44 million related to changes at the sites in China, Belgium and U.K. Those are footprint changes and optimizations that we have done. And there is some EUR 8 million relating to the environmental remediation and our ongoing investments in M&A. These actions that we are taking and the costs that we are taking upfront make us more resilient that we have also seen in the result development last year that the margins have been quite steady despite the lower top line. And of course, all the time, making us more cost competitive as we are taking out costs and improving occupancy rates at our remaining plants and that is making us more cost competitive. Then let's move forward and look at the income statement sort of below EBIT where you can see a reduction of the interest costs, net income and expenses and banking charges. One thing to pay attention is also brought in with flat tax rates and taxes paid during the year. And this positive still has led that EPS figure is down only 4% for the period compared to sales decline of 9%. Working capital is one focus area for us during the year that has started. Overall, working capital was up about EUR 12 million in '24 versus '23. This is mainly linked to acquisitions and currency impact. And we are working on reducing working capital to improve our cash flow. We are targeting to bring it down to approximately 15% level when it comes to working capital ratio to sales. We were at 16.5% at the end of last year. But our cash flow generation has been robust, as you can see, despite lower sales and lower EBITDA level in euros. So free cash flow was at EUR 193 million for '24. CapEx in '25 will be flat compared to '24, and we have done a very good job there when it comes to managing the CapEx levels going forward also with the modular capacity ramp-up to avoid overspend as well as potential capacity -- overcapacity impacting our margins. And we will continue this strategy also going forward and potentially increase capital expenditure once we see that the expected growth is coming back. Then finally, about shareholder returns. We have consistently generated strong cash flows, and that has also continued last year. Alongside growing the business, this has also enabled us to give excellent returns to our shareholders. We continue this also now with the continuing of our progressive dividend policy with a proposed dividend of EUR 1.9 per share. That is an increase of 6% year-on-year. This return, about EUR 100 million, is on top and alongside the share buyback program that we are currently undertaking, as announced earlier in November, EUR 200 million over 2 years. And now I hand back to you, Yves, to go through operational and strategy review.

Thanks, Seppo. Let's have a look at the progress we are making at our strategic priorities. So we identified 5 -- 4 priorities. First of all is to become more market driven to these end markets, and I will give you an update of creating business units or self-sufficient from strategy to resources, from strategy to execution. Secondly is to transform our business portfolio to capture more growth opportunities in the future, drive more innovation in end markets with global brands, and in the meantime, strengthening our fundamentals. If you look how we are progressing type of self-assessment, from a performance point of view, as management has mentioned, stable performance in a difficult market environment, to be used above the 10% margin level and robust cash generation. On the transformation side, making progress on some smaller acquisitions, successfully integrating them, adding value to Bekaert, but also on the divestment side, further disposal of more commoditized businesses at interesting multiples for our company. We continue to work on the portfolio rationalization, but also on our footprint rationalization in the upcoming years. And the M&A pipeline is increasing, so we increased the review of potential investments to diversify, but also focus our portfolio in the end markets. The area where we are less progressing and less satisfied is with the growth area. So due to market environment, changing in sustainability priorities and divestment or delays of investments, we've seen a delay in our growth platforms. However, we are confident, and I'll come back to that, that we are positioned to capture the growth in the future. The areas where we see growth like India and Southeast Asia, we keep on expanding our capabilities and capacities there, mainly in the area of Rubber Reinforcements. And for the growth platforms on the long term, we still aim at 5% growth in this end market. Having a look at the priority markets that our business units are serving, so the EUR 7 billion tire reinforcement markets in terms of addressable markets; Steel Wire Solutions focusing on transmission and performance wires. There you will see that these figures have been updated versus the previous communication in that sense that we were looking at '28, now we are looking at 2030 end markets. And we updated also the estimated potential markets for performance wires in this segment. We confirm the market addressability in our ropes business, both steel as well as synthetic ropes as well as advanced cords. Specialty business, EUR 7 billion, in which EUR 4.5 billion in the hydrogen play 2030 reconfirmed. And then the last one, Sustainable Construction, we went from EUR 2 billion to EUR 3 billion by including the potential of conversion in the tunnel segment from traditional reinforcements to the fiber reinforcements. So having some quick words on how we are progressing in these end markets and some recent developments. So first in the tire reinforcement business. We continue to focus and capture opportunities with the trends of electrification and sustainability. In the recent developments that we've seen in '24 is a weaker end market demand, mainly in Europe and in China and an increased competition in the global tire market. On the other hand, we've been successfully renewing long-term agreements with our main customers and intensifying our collaboration with the strategic partners, both on technical and customer proximity. Looking in '25, beginning of the year, we see this, let's say, cyclicality in the tire markets holding on in the first half with a recovery in the second half. And, of course, we have to monitor how the tariffs, geopolitical uncertainty will play out in this industry. We expect volume growth still in the same regions like India and Southeast Asia. We see some opportunities in the U.S., and we continue to drive our mix improvement. If you look at the next segment, transmission and performance wires, so a EUR 3 billion addressable market, we are continuing to capture opportunities from grid connection and rising electricity, data -- and data demand, mainly in markets like U.S., but also more and more in Europe. We've seen '24, a very strong automotive business for us in China, of course, linked to the strong automotive, and we have business in China, both locally, but also export for them. We've seen a very strong or solid demand in transmission, and we've seen weaker demand in Europe and China in the construction and consumer business. Moving into '25, we see a solid order book, mainly in the segment from energy and utilities end markets. The automotive market continues to be strong in China, but less so in Europe. And we see, of course, local opportunities in this business based on the new tariffs. Moving to Advanced Lifting and Mooring, so 5 billion end markets. We will continue to work on strengthening our offering here. We've seen strong demand in synthetics, both in oil, gas as well as offshore wind. We see softer markets in specific segments like coal mining and crane and industrial. And for '25, we see more uncertain market outlook in Europe, while a better outlook for North and South America and the mining in Australia. The recovery in this segment in construction is still hesitant. Pivoting to energy transition. As mentioned, the electrification renewable, of course, we've seen recently the delays in investments and policy changes, which lead to postponement of projects. On the other hand, we've seen an increase of the final investment decisions up to 20 gigawatts for the upcoming years in terms of electrolysis installments. We see consolidation play in the electrolysis equipment manufacturers reprioritizing investments, but we are confident that we are connected with the winners of the future in this industry, and we are happy to see the continuous interest of the customers in our products, our PTLs, but also in a more innovative solution of MEA and that we are progressing on securing, being qualified, but also getting new LTSA even in this segment. So clearly, '25 will continue to see these delays, also amping in the supply chain in this segment, but long term remains a potential for us, and we are ready to scale up in this business. Also to remind you that Bekaert received -- was eligible for subsidies from the green hydrogen from the European investment innovation front up to more than EUR 20 million, EUR 25 million to further deploy our solutions in hydrogen, both manufacturing as well as innovation. The other segment -- smaller segment in Energy Transition, Filtration and Hose Wire and Conveyor Belt remained pretty stable, and we expect them also to '25 to be stable performance. Moving to Sustainable Construction to conclude here, so a EUR 3 billion dump. We've seen in the last 2 years, '22, '23, a normalization of the high pricing in this segment, which were pretty high in the last 2 years, so '24 normalized pricing and lower activity in the sector in Europe. We are serving 2 end segments, the building and infrastructure. So first of all, we see an increased potential in Infrastructure segment with investments from governments in the infrastructure, while also a healthy pipeline in tunneling and flooring projects with certainly enough size in the U.S. over time with the strengthening of the local production, which is leading to additional manufacturing warehousing investments in U.S. So from a portfolio point of view, we announced this morning the sale of our business in Costa Rica, Ecuador and Venezuela. Enterprise value of EUR 73 million with the proceeds of net of EUR 37 million, so multiples around EUR 6.3 million, in line with the divestments in Chile and Peru. This decision is driven by the focus on rationalizing our portfolio, having businesses which are less commoditized and less cyclical and positioning ourselves for focused businesses in the future. Happy to have our operations and our teams landing in a family holding Grupo AG, which give them a very nice home for the future. Now topic over the last couple of weeks, months is the evolution of the imports tariffs and the potential impact on global flows. We have mitigation actually in place, like in the past, Bekaert has a global footprint around the world with a strong presence in the U.S. for local production, but also local supply of wire rods, complemented by imports from Latin America, but also from Europe and China. So we will monitor closely how import duties will play out, not only for the half products, but also for the final products that are driving this demand in the markets. So if we look a little bit back in terms of our performance, happy to report out another year of resilient performance in terms of profitability despite a volatile market environment. And we are reiterating our ambition on the midterm to drive to a 10% business from a profitability point of view. Having some words on the outlook for '25. We see the weaker business environments in second half continuing. Now second half, Q3 and Q4 had a slightly different image. Q3 was really weak. Q4 was stabilizing, and we see a continuation of that stable demand going into '24 into the first half of this year. So on overall full year, we expect flat to slightly improving revenues and at least stable margins from a profitability point of view. With the seasonality, which is more half-half, equally split between the first half and the second half, that has to do with the business profile and the businesses we are in. So thanks for listening to our explanation. And I think, Guy, we hand over for you for the Q&A.

Yes. Actually, back to the operator.

[Operator Instructions] Our first question is coming from Wim Hoste with KBC Securities.

I have a couple of questions. I'll ask them one by one, if I can. First would be on the general cost outlook for '25, things like energy, wire rods, other raw materials, freight to name a few. If you can just elaborate a little bit on that, how you see the outlook evolving, also salaries, for example, if you can just talk a little bit around that subject? That's the first question, please.

Well, I think it's fair to say in general that inflation is and has been coming down and has stabilized. So in that sense, I think it's quite a change compared to past couple of years. So no bigger pressure there. Of course, salaries typically follow inflation rates in various countries. I think the biggest question is around the logistics, how that will be affected, the supply chain because of the tariffs and disturbances, that kind of high quality on the supply chain and freight costs globally. But other than that, no bigger...

Yes. What I can add, Wim, to Seppo's comments is if you look at the wire rods, we see pretty stability. Now we see increase in wired rod in the U.S. already. That's, I think, the region where we've seen movements, and of course, further -- to be further monitored based on the import duties and the flows there.

Okay. Understood. And then my second question would be on capital allocation in general. You have the share buyback program. But can you maybe talk also on M&A? What kind of size of potential M&A targets are you looking at? You said the pipeline is filling up. But how much transactions can we expect? I presume still in the growth areas, mainly. Also, if you can talk on other parts of the capital allocation discussion? CapEx, how much CapEx are you foreseeing for '25? And also, can you then maybe elaborate a little bit on the projects that you would spend money on? Back to you.

Good. Okay. Let me start with M&A, and then, Seppo can fill in on the CapEx side. So on M&A, as you said correctly, we continue to look at a couple of segments and targets. Some of the targets we are looking at are adjacency, complementary to some of our growth areas to consolidate some of these offerings or strengthen them. So that's one area. We are looking also at new segments for Bekaert, right, where our capabilities, as we said, in terms of scaling business globally and in segments where we think we can play a role. So I think that gradually over time is a second segment we're looking at. And then we are constantly also looking at all our businesses where we say where are they in the maturity curve and which type of next, let's say, stage we need, is it in innovation, is it consolidation play. So gradually, over time, in terms of the portfolio evolution, these are the 3 dimensions we are looking at into our M&A. From the CapEx, I will hand over to Seppo.

Yes. Thanks, Yves. And like mentioned, we foresee that the capital expenditure for 2025 will be more or less at the same level as 2024, so about EUR 190 million. But like I said, that if and when we see growth coming back when it comes to our growth platforms and bring in new growth opportunities, we are willing and able to increase that from EUR 190 million level.

So if I can add, in previous years, we had a slightly higher capital allocation to the CapEx, mainly in the growth areas. And I think we are now well positioned with the capacity capabilities we have. So that's why you see slightly lower levels than what we planned for '24. Also pivoting to taking the opportunity to further strengthen in the operations of basically performance improvements, which will help us on productivity and also making sure our assets are equipped for the future.

And on top of that, our capital allocation, as you know, about EUR 100 million is the dividend that we have proposed and then another EUR 100 million roughly this year for the share buyback that we announced in November, EUR 100 million plus EUR 100 million in over 2 years.

Our next question is coming from Frank Claassen with Degroof Petercam.

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

Good question, Frank. In terms of -- because of our different segments have been through because this is, of course, some of all our segments, I would say it is good, pretty flattish, I would say, on the volume and on the pricing side. Of course, we now have to see with the latest evolution of the targets we see in some regions, certainly price increases and certainly in the U.S., which is that we will see there more price opportunities, correct, but I would say across the businesses in both dimensions.

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

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

Perhaps an additional point is that we also position some stock strategically.

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

So, of course, we are happy with the performance of our SWS division. And I think it was a strong performance, driven by good business energy and utilities in the U.S., but also good operations in China, a strong automotive pool, right, and then also in Europe, which is also. I think we're pretty happy and pleased. We need to be realistic in the Steel Wire Solutions business, correct? From a portfolio point of view, we did some evolutions by producing some more commoditized products, like I said, in India, Indonesia. This helps with the margins. So it's a mix on one hand focusing on certain businesses with better margins, and then, let's say, not divesting but stopping some of the segments. And then, of course, comes now the further divestments of the 3 countries in Latin America. So I think we need to remain realistic with this business segment. Of course, if the group ambition is to be above 10%, a segment like SWS and the focus areas over time should get close to that 10% in a consistent way over the years.

Our next question is coming from Alexander Craeymeersch with Kepler Cheuvreux.

Alexander from Kepler Cheuvreux here. 4 questions from my side. So in 2023, at the CMD, we got to put out some sharp targets for the midterm, and that was at that stage 2026. You now mentioned again, midterm, but does for the 10% EBIT margin target. But does this still mean 2026? Or does the cautious outlook on 2025 also imply that your 2026 EBITDA targets are on hold until you get some more visibility there? Then -- I'll ask them all at once. So then the second question would be the addressable markets seem everywhere the same in 2030 versus the previous communication on the 2028 addressable markets except for the sustainable construction. Where does this, yes, basically no growth in -- from '28 to 2030 come from? Is that just a delay in the orders? Then the third question would be on the outlook. You state at least stable margins. So you seem to have some confidence that we are at the trough on the margins. I'm just wondering where the confidence comes from, and what could drive the margins higher. And the fourth question, the last one, just a small one. The divestment in LatAm that's planned for Q3, is that the -- is that just the full LatAm North business?

All right. Good. I hope we'll capture your questions I feel. But Let me start with the first 2, and then, on the outlook, Seppo can jump in, and I would take back the divestments. And so first of all, on the midterm guidance of it in the CMD, 2 components, one is how do we drive performance and profitability and how do we drive growth? And I simplify it a little bit. So by '26, we set the profitability target of 10%. This was driven by the performance improvement, and then, gradually getting the growth platforms kicking in. So what we are saying here is that we're still targeting the 10% in '26. So we are hovering around 9%. So our assessment based on the evolution of the portfolio and the performance improvements we are doing that this will be in reach. So we will repeat our 10% profitability for '26. The element, which is on that side, B2B or is less favorable is the contribution of the growth platforms and to that profitability target in '26. On the other hand, we are making good progress on some of the core businesses as well. So I would say we need to look at it as they are little bit balancing out, and what we see for the moment, we are targeting. Of course, we still have to see how the global economy will evolve in '25, how the whole geopolitical situation will play out, how all the tariffs will play out. So I think that's a big uncertainty that I think we all of us have. On the growth side, what we communicated is that over the long term, midterm, the growth ambition is as big as 5%, and that was clearly linked to, of course, the change in portfolio and the kicking in of this growth platforms. So certainly, on the growth side, we didn't specify a timing because it was linked to these platforms. On LatAms, so you're right, so we didn't want to, let's say, go behind the comma. But if you look at tire industry, yes, you have some growth, 1% to 3%, some region more, some less. So we -- for that point of view, it's okay, it doesn't fundamentally change the addressable market, the same for the ropes business. Now when we change -- updated, it was on the lifting and the mooring, as I said, because we look more at the scope of it and the sustainable construction also because we increased the addressable marketing tunneling. And I would like to mention there, so we look at the steel reinforced concrete in a different application, and we'll make an assessment which part can be converted to fibers. Then in energy transition, it's mainly a delay. So that clearly if you would look at the time of '28 would be down, which we estimated that with the 2 years delay, we were looking at the same addressable market. And, of course, there is -- out of this EUR 7 billion is EUR 4.5 billion with our offering in PTL and MEA. And of course, we have to see how that industry will further evolve, but that's our latest updates. So I think by that I give some highlights, and tell me Alex if I didn't fully clarify your question, but let's go to the auto -- perhaps let me first take divestments on LatAm -- LatAm North. So if you look at our operations, the operations in Colombia will remain under the joint venture structure and with a bigger than our joint venture partner. And so that's basically the operation that remains, what we call, LatAm North-South versus, of course, what we still have our joint venture in Brazil. So Colombia will remain under our joint venture partnership moving forward. So handing over to you.

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

Our next question is coming from Chase Coughlan with Van Lanschot Kempen.

I'll go back to the former trend of taking them one at a time, please. Maybe starting with the Rubber Reinforcement margins in the second half of the year. Obviously, it saw some pressure. I believe that's, of course, due to the declining environment. But you also commented on intensifying competition in the tire market there, and I'm curious on what exactly you're seeing. Is that -- how much is that affecting prices? And how do you plan on protecting from this intensifying competition from a sort of innovation standpoint or perhaps cost standpoint as well? That's my first question.

So it is on the direct industry market, so -- but we see from a global market perspective, of course, and that's normal when you have most stagnating market environment and limited growth. The whole automotive or the 2 segments, automotive and then now more the B2B sort of business and automotive business. But if you look at automotive, the competitive landscape of the OEMs and then linking to the tire supply. Of course, you have the aftermarket as well. But we see between, let's say, the more established players and then the newcomers in the industry, an increased competition there. Now the good news is we are serving all customers globally, right? So the Chinese OEMs or tire makers, the Indian, the European, the American and Japanese, who have a strong position across the board. And so we are monitoring closely how the share of the different players will evolve this more competitive landscape. I think there's also, if you look at the press release, the results of some of the players that indicate some volume drops and some intensified competitive landscape. But for us, it's important to understand how that will play out, and we are monitoring that carefully. I think from the tire cord competitive landscape, not a lot is changing, in that sense, the competition, as you know, has been there, is there and will be there in '25.

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

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

All right. Great. And then 1 final question regarding divestments. Of course, you've just mentioned that the divestment this morning was sort of the last portion from the LatAm divestment pipeline that you had. I'm curious on sort of how many more divestments do you still believe you have to do if you want to achieve this 10% EBIT margin. Or what are the sort of areas of the business are you looking at to potentially divest? Could you provide any more color on that?

Yes. So you have to see it in the context of the long-term evolution of the portfolio. As mentioned before, on one hand, we are pretty happy with the very wide portfolio that Bekaert has both in geographical and product segments because that gives you a sort of automatic hedging. On the other end, it's a challenge on the equity story. It's a challenge on the capital allocation and the resource allocation. And as mentioned, we are devoting over the years to have more focused capital allocation and resource allocation to areas where there is more growth potential in the future. So you have to see that in that context. And 2 things need to happen. One is continue to scrutinize segments that are because of cyclicality or margins or where they are in the maturity curve or also of size are candidates for divestments, and we've been very diligent to make sure we find the right partners at the right value for these businesses. And on the other side of the spectrum, where we hope to make also more progress is on the acquisition side by adding acquisitions that help us to position in these end markets a stronger player with more being #1 in 20 segments, perhaps also playing more a consolidation play as a leader like we did in our previous decades in core businesses where we've been playing -- building up a leadership position. So that's also on the investment side. So I think, yes, on both sides, you can expect things to come, not only in '25, but this is a journey we are in for the upcoming years.

Our next question is coming from Stijn Demeester with ING Financial Markets.

I also have 4. I will ask them one by one. The first one is on Specialty. I might have missed it in the call, but can you provide some color on the sharp profitability drop in H2 in Specialty Businesses to a level that we have actually not seen since 2020? So are there specific structural elements that are driving this decline? And also, yes, what should we expect for the units going forward because the declining trend has been now visible for some semesters now?

Right. No. And so let me give some color to that, a different component, the Specialty Business is a group of businesses serving different segments. So one on construction, we discussed ramping, that's one. And there we -- performance is stable, profitability is good at only the growth area, that's where we want to get more success. If you look at the Other business and the Specialty Business with regard to [indiscernible] serving the energy transition market there, a colorful businesses. So first of all, you have the filtration business, the fiber business, and there we see stable performance with margins. You have then the Hydrogen Business. As you know, we've been now growing at 30%, 40%, not doubling the revenue like foreseen, correct? And in that segment, of course, we invested in R&D development capability organization for the future. And what you will see -- what you see happening in '24, impact on the P&L, also referred by Seppo, is, of course, these R&D costs are impacting our P&L of this segment. Positively, this segment is profitable, correct? So despite all the investments we are doing -- we've done and we are doing for the future, this segment is still profitable. But, of course, the profitability level is also impacted by the R&D investments we do and the scaling up of the factories. So we doubled -- we had one in China. We have now one in Wetteren. And the one in Wetteren is really -- it's producing, but it's not at full capacity. So these things, they have a short-term impact on the profitability. The other segment in there is Ultra Fine Wire, which we communicated, I think, in mid of last year, is a smaller segment serving 2 end markets. Core wire for a solar wafer based cutting, but also for the semiconductor business. Semiconductor business is going still very good. As mentioned on the solar wafering cutting, there was a disruption from the products we are delivering with the new material tungsten, and that means that it was a small business, but nice profitability. And that's what you see, of course, H1 was today, H2 in 24, not anymore. And that will be one of the variances going into '25 as well versus an H1 comparable of 2024. So that's where you still see the impact of a very high profitable business, small revenue with profit contribution, cash contribution. And then the last segment is the HCB, hose wire and conveyor belt. I think there, we could say, we are in a stable environment, stable -- but not strong demand. But basically, not the main drivers of profit -- on the positive side. And then we have the last segment, the combustion technology and which was disrupted by the change in Germany about policies about gas. Now these things are pivoting back. We've been restructuring that segment by moving all the production to Romania. So there we are back at healthy margin levels there. But, of course, there's a lower size of the business. We see some small growth, some small businesses coming back there, but too early to make any big comment on that. So Specialty is the big back, and you know that the 2 factors for us in the future is, of course, the construction play and in the energy there's just hydrogen filtration, clean tech solutions. That's our priority.

Understood. Any chance to quantify the margin in this Ultra Fine Wire segment or the importance of it in the first half results? And is there any chance for a recovery going...

Any further question?

I have, but I've been muted, I think. Can you hear me?

Yes, sir, I can hear you, sir.

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

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

I can hear. Can everybody hear me?

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

Okay, sir. Can you hear me now?

I can hear you.

And Yves...

Am I back in the call?

Yves, can you hear me? One moment, sir, I will remove it in the queue and if you just rejoined, okay? Can you hear me, folks? There seems to have been a technical issue there. And I'm going to play Stijn back into the queue for questions, okay, sir? So I'm going to promote him now, and he can go back and ask his question. Sorry, Stijn, your line is live again, sir.

Okay. So you can all hear me again?

Yes, yes.

Perfect. Perfect. Yes, the follow-up on the first answer on the Ultra Fine Wire segment, how important was this in the first half? And is there any chance for recovering this business? Or is this just going like we've seen in the past, for example, soldering wire?

Yes. So as mentioned, from a revenue and not material, from a profit contribution material for the Specialty Business. And that business is -- we phase out that business in the second half. So that will not come back in '25.

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

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

Yes. And then maybe the question is how will import duties play out? If you look at some of the segments, we see still our products basically having import duties, but not a final product. Now that it can evolve, in other cases, it's protected. So I think that's from a business perspective, it will be plus and minuses from the sell-out measures. But if you see for '25, it's mainly also continue strategically to have an organization and our resources in the BUs right close to the markets, increasing our, what we call, frontline, optimizing further our back-office administration, right? So I would not call it self-help measures, but it's more strategically evolving further. And that's just addressed in our pipeline for '25. We will continue to look at the most supply balances, if needed, factory adjustments, consolidation, but also ramping up. So I hope that we also -- one day, we'll be discussing upside opportunities in the market, and then, we will react as well to the upside as well as to how we react to the downside.

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

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

Yes. So based on, I think, what's on the valuation of the business or the -- probably moderated value. You know 6x -- around 6x multiples of EBITDA can give you a feeling about the performance of that business.

So you can see it is up 9%.

Understood. Yes, I can make an assumption on EBIT margin then.

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

Thanks, moderator, and thanks for all the questions. So thanks for attending. We had a good review of '24. We're already 2 months into '25, right? So I wish you all a good continuation of the day and a good weekend, and then, let's see for next -- in the next occasion. Thank you very much.

Thank you.

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