Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NV Bekaert SA (BEKAY, Financial) reported a resilient financial performance with a stable EBIT margin around 10%, despite lower sales volumes.
- The company successfully integrated the acquisition of BEXCO, enhancing its capabilities in offshore energy solutions.
- Strong performance in the Specialty Businesses segment, with an EBIT margin of 15.5%, driven by cost management and operational efficiency.
- NV Bekaert SA (BEKAY) maintained a healthy balance sheet with a reduction in debt and stable free cash flow.
- Recognition for sustainability efforts, with Times Magazine and Statista nominating the company as one of the top five out of 5,000 companies for sustainability progress.
Negative Points
- Sales contracted by 11% year-over-year, primarily due to normalization of past on-cost inflation and subdued market conditions.
- Operational performance challenges in the steel ropes businesses in the UK and US negatively impacted the BBRG segment's top line and profitability.
- The hydrogen segment faced contract delays due to uncertainties in incentive schemes and rising capital costs.
- The rubber reinforcement segment reported a 13.2% decline in sales, with significant volume drops in China and EMEA.
- The company experienced a negative price mix impact in several regions, contributing to a 1.5% decrease in overall sales.
Q & A Highlights
Q: Did FIFO and wire rod have any impact in the first half? What is your working assumption for wire rod and FIFO for the full year?
A: During the first half of last year, we had a negative FIFO of roughly EUR32 million. This year, during the first half of '24, it's a minor positive EUR5 million. We expect FIFO to remain roughly flat throughout 2024.
Q: What can we expect for the full year working capital? What is your target for working capital as a percentage of revenues?
A: We systematically have a pattern where the first half involves inventory buildup, and the second half sees a reduction. We aim to keep working capital at a similar level to last year, despite the lower sales and the impact of the pass-through inflation.
Q: Could you quantify the impact of the BBRG operational issues? Would you have had a double-digit margin without these issues?
A: Without the operational issues, BBRG would have been projected to be above 10% profitability. Last year, it ended at 12%, and we aim to return to above 10% after resolving the issues.
Q: Can you provide more clarity on the situation in China for rubber reinforcements? How is the pricing environment and the filler business?
A: We see a positive momentum in China with a near full occupation in H1 '24. The mix is improving with over 50% of our total mix now being ST and UT volumes. Despite a competitive market, our portfolio's strength and focus on premium solutions have kept our margins above 10%.
Q: How filled is the M&A pipeline for H2, and what are the key priorities?
A: Our M&A priorities remain in growth segments like BBRG synthetic ropes, construction, and energy transition. We have a good pipeline and are looking at both divestments and investments to strengthen our platforms.
Q: Why is CapEx for the full year lower than initially projected, and how does this align with growth expectations in areas like Dramix and Bezinox?
A: We are modularizing and variabilizing our CapEx spend to match returns closely with topline growth. For example, in Vietnam, we are increasing capacity from 10 kilotons to 25 kilotons this year. We have sufficient capacity to absorb growth in the next 6 to 12 months, and mid-term plans include further capacity expansion.
Q: Is Bezinox the main driver for the strong growth in North America and Europe in steel wire solutions?
A: The growth in North America is driven by overhead cables, while in Europe, it includes various segments. We see good demand and pull from the market, particularly in reinforcing the grid and data transmission.
Q: What needs to go right for BBRG to achieve its EBIT margin targets of 15% to 20% by 2026?
A: The target is driven by a mix of portfolio segments, including steel ropes, synthetic ropes, Armorfor, and advanced cores. The focus is on extending the life of ropes, providing servicing, and monitoring, which aligns with our sustainability goals.
Q: Can you confirm there are no one-offs or phasing effects in the SWS margin of 11.4%?
A: There is a positive FIFO effect of EUR6 million in H1, which will be passed back through pricing in H2. Other than that, there are no exceptional items. However, we expect some seasonality impacts in the second half.
Q: What does a modest sales decline for the full year mean in terms of percentage?
A: We expect a 3% to 4% deviation, considering the phasing of projects in Dramix and BBRG, and the growth in hydrogen and construction.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
