BEKAY - NV Bekaert SA (BEKSF) Q2 2023 Earnings Call Transcript

2023-07-28 15:17:10 ET

NV Bekaert SA (BEKSF)

Q2 2023 Earnings Conference Call

July 28, 2023, 04:00 AM ET

Company Participants

Guy Marks - IR

Oswald Schmid - CEO

Taoufiq Boussaid - CFO

Yves Kerstens - Acting CEO

Conference Call Participants

Wim Hoste - KBC Securities

Frank Claassen - Degroof Petercam

Martijn den Drijver - ABN AMRO Bank N.V.

Stijn Demeester - ING Financial Markets

Alexander Craeymeersch - Kepler Cheuvreux

Presentation

Oswald Schmid

So good morning. Many thanks to you all for joining today's conference call for the Half One results in 2023. Before Taoufiq and myself get into the details of what has been another over spirit of the company, I wanted to update you on the days announcement I'm sure maybe I've seen it already about my position.

I've been really delighted and honored to be part of Bekaert since 2019 and to play a role in the company's transformation. In this period, the group has made significant develop its financial strength, resilience, profitability and growth potential. But however, the time has come and by looking at my certificate of growth, it's someone else to take the reigns and continue the progress. And so I'm really delighted that Yves Kerstens will take over for me.

He is a divisional CEO for the Specialty Business. He knows Bekaert and its culture incredibly well. And he has been a critical part of one of the Gulf engines where [indiscernible] He joined us here today, and I'm sure he will be happy to answer any of your questions at the end of the session. I will stay until September to ensure an orderly handover of course, wish if all the very best in his new role as is absolutely the best, I would say, success I can imagine to continue what we have started.

But with that, I will get back to the presentation of the first half results for 2023. So if we move on the next slide -- sorry, I think Guy, you have.

Taoufiq Boussaid

Guy, are you there?

Guy Marks

Good morning, everyone. It's Guy Marks here. I think we've got everyone now joined in the call. Welcome all, and thank you for joining today's presentation on the first half results for 2023. Before I hand over to the team, I just wanted to remind of the fact that this presentation will be made under the traditional safe harbor rules. And if you'll -- forgive me, I'm going to read out the safe harbor wording to make sure all is clear.

So this presentation may contain forward-looking statements. Such statements reflect the current views of the management regarding future events and involve known and unknown risks, uncertainties and other factors that may 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 on this presentation as of its date and does not undertake any obligation to update any forward-looking statements contained in it in light of the new information, future events or otherwise. Bekaert declaims it's 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.

And with that, I'd very much like to hand over to Oswald, please.

Oswald Schmid

Yes. Thank you very much. I will start with some introduction highlights what we have in the first half year of 2023. Taoufiq will continue on this financial review, and I will have a little bit together with Taoufiq on some operations as well in the outlook. And of course, if at the end in the Q&A questions to our colleague, Yves Kerstens, I think we are very happy to answer this one.

But now let's get started. And if we will need to summarize this, what happens in the first half of 2023, I think it's another period of both strategic growth as the one side in financial delivery. And this is in an environment which was not so easy when you look at the market conditions. What we think is what we have really done, we have been able to continue to improve our businesses, its strength and resilience, and this translate into final progress, which is about 9.7% EBIT underlying margin, strong free cash flow and ROCE 20.5%.

What it shows is that our execution and the reality improvements we see in our portfolio, and it was more sustainable solutions and what we have demonstrated is really anticipating and tactical responsiveness where we see the market -- difficult market conditions.

Just a few examples on our strategy there a simple perform transform of, the strategy continues. And some highlights are there. And I'm very proud on the perform but you see a record BBRG performance. When we look on the transform part, I just take one example, this is the further penetration of Dramix 4D and 5D higher-end application.

But we also didn't leave of the growth part of it we launch of new products such as Ampact which is for the electric vehicles, be really technology breakthrough. And this would help really to charge the electric vehicles as fast as we have longer reach. So I think this is not a technology which will be seen in the future as well. And of course, there was a further ramp-up of our products in the nation hydrogen industry. And I think [indiscernible] has here a fantastic job. But we have also continued to build our financial track record, and I will go into more detail on the next slide.

In a summary, and Taoufiq will go much more the details where I think we have delivered really strong results in a difficult market environment, as mentioned on the back of lower volumes. And against the strong comparative when we look on edge on 2022, it is a strong comparative. It's really especially also linked with the significant higher than it was.

But we have a maintenance of 9% EBIT, we have a maintenance of plus 20% in ROCE. And we see this is a little bit different to the last year, a very strong cash flow already in the beginning and the working capital performance, I think, was also in the right direction. The low leverage, I think this allows us and creates financial flexibility for the future.

Let me talk a little bit about the strategic execution, which hasn't changed. We performed to extend all our current business activities. We're paying digital solution, innovation, sustainability to support the transformation of our feets of play and how we work. We grow organically with acquisitions and we go ourselves to a.

Just to share a few examples of strategic actions. We have received that this is what I appreciated very much because this reflects the attractiveness of Bekaert in our markets. We have received a number of customer boards Performance Excellence technique collaboration also for sustainability overall service and quality in our tire and energy and utility markets.

Our solar farm, for example, in [indiscernible] was connected to the plant this month and is delivering already 15% of our energy requirements of our plant in Spain. The majority of our main tire accounts were supplied with the first are still as we called. It means recycling. The steel manufacturers take a higher portion of scrap. And I think this is really when we talk about the sustainability, circularity, a big step forward.

Dramix, my favorite product and also for Yves have achieved landmark wins in the flooring segment in U.S., also namely for the battery plants and warehouses. And finally, as a this, we continue the expansion in Scotland to serve the floating offshore Winterman. ESG is in the art and ESG is not cost, ESG is for us the business opportunity. And as per the previous slide, sustainability remains central to how do we business, and H1 has continued progress from an ESG perspective.

We continue to be recognized by the rating agency steadily see and support the progress and acknowledge that. We are on track for our carbon reduction targets that we have proved last year, as you might remember, whether SBTI, Science Based Target Initiatives. And then we are spending a lot of time with our supply chain to ensure not always as component and -- but also our suppliers are compliant and operating fashion consistent with our values.

We are pleased to be the leading the comfort and hyper initiative in Belgium, looking at hydrogen transmission networks for which we have also been able to secure. And again, I would like to turn out spot out the dynamics concrete reinforcement which are really allowing to decarbonize the construction industry. And this has been also quite well-known solar impose foundation and recognized as an earlier as green, I would say, a solution for construction.

I think Taoufiq is now your turn to go a little bit more in depth of this quite robust financials.

Taoufiq Boussaid

Thank you very much, Oswald, and good morning, everyone. So I will take you through the usual highlights. But just before going into the discussion around the sales, just would like us to rewind a little bit to last year.

So last year, you might remember that our top line has expanded quite significantly. So we expanded our top line by 17% that was primarily, and you might remember as well on the back of the cost push inflation that has been reflected in our sales. So we did know that a part of it was not sticky. So I think that the sales contraction that we see this year needs to be also interpreted in that context in the sense that we see it as also a positive in the sense that out of the 17% top line expansion we had last year, we're losing only 8% in a sequence where we do see a normalization of most of the input prices primarily related to the raw material.

So when we speak about the top line, we do see indeed some volume contraction, I will further elaborate on that. But the main driver of the top line contraction is related to the passed-on wire rod price decreases. So we do see since the beginning of the year, a decrease of the prices of the wire rod. It will hopefully stabilize for the second half.

We still expect some additional decrease in Q3. But again, I think it's important that we don't put the sales contraction only on the back of the volume and that we also correlated with the significant boost from last year, which a part of it was not really sticky. So 8.2%, so if you go through the different components of the top line evolution, so what we see is that the wire rod price changes have generated an 8.5% contraction of the top line. So that's equating 215 million, then it's followed by the volume drop, which was around €109 million, 4.3% in value. But in tonnage, that's roughly 2.5%. So a decrease of the volume but rather contained for the first half of the year.

On the positive side, I think it's important to highlight that we have been able to compensate and to offset a significant part of these decreases through the leveraging and the optimization of the mix and the pricing. So this is an other proof point that we're bringing in terms of pricing power that Bekaert is establishing.

We see a higher mix towards more high-end applications. And actually, when we speak about the volume, the volume has contracted primarily in the commoditized market. And we have a strategy, as you know, where we want to put a higher focus on more high-end application. So again, a lot of this is expected, and as I said, we will elaborate a little bit more on that when we'll go through the different BUs.

So moving to the next slide, and I think it will be probably worth spending a couple of minutes on the profitability itself. You saw it in the press release. The underlying gross profit has remained very stable at €409 million.

So we have a minor decrease of 70 basis points in terms of gross profit percentage. So it's an indication that we have been able to offset the negative impact of the operational deleverage. And if you want to summarize the performance, we can say that very simplistically that the top line revenue contraction in SWS and Specialty business, has been largely counterbalanced by the improvement that we have seen in terms of profitability in RR and BBRG.

So the main -- one of the main drivers, and I think it's very striking in the bridge that we're showing here. The main driver of this performance has been mainly on the back of the further optimization that we have done in the mix. There are different components there, some structurer. There is a portion which is non-sticky and we can discuss it later on. But the price and mix has been really the key factor for keeping our performance at the right level. You see as well that we had to deal with quite a number of negatives and headwinds.

The first one is the inventory valuation. So minus €86 million on a year-on-year basis. The way you read it, you should read it is the plus €60 million, positive 54 we have reported in the first half versus a negative minus €26 million for the first half of this year. But I mean despite all that and for those of you who have been following us for many years, you might remember that when we were going through this kind of sequences, we were badly hit in terms of profitability. Now what we're demonstrating is that even in a context where the 54 is taking a negative direction, we're still able to keep our profitability at the right level.

Cash conversion costs. So this is mainly on the back of some sticky inflation impact that we have there. So it's mainly the labor inflation, which is penalizing us. We had also some underabsorption in some areas, but we have been able with the significant volume increases in China to generate some upside there as well. We are also benefiting from some decreases of some basic input cost such as energy, we will need to monitor the trend for the balance of the year. But all in all, I mean, we are able to maintain a very good and very decent level of profitability, both in absolute terms and in relative terms.

So moving now to the specifics of the BUs and starting with RR. So RR have contracted by 8.2%. Remember as well that last year for the same period, we reported a top line expansion of 12%. That was mainly on the back again of the input cost price increases generated by the inflation. Our volumes in RR are up roughly 3%, with a massive boost of the volumes in China, which are growing up by 20%. India as well is expanding by 3% which is for the region in Southeast Asia, the extended Southeast Asia, partly offsetting the lower volumes that we see in Indonesia.

On the other side of the coin, the volumes are down in Europe and the U.S., between 9% and 13%. So there is some destocking, which is still ongoing there. But again, we're very happy to see that China has picked up a bit earlier than what we’re expecting. We do see a positive momentum with the restocking going on currently. We do see it as well the mice driven resuming. And last but not least, we are also regaining market share.

So it was down from 20% to 18%. So now it's moving back again. So in terms of pricing and mix for RR, we do see a rather stable level of performance with a slight negative of 0.5% in terms of variance. So again, given the very volatile and the competitive environment, this is a very good performance. And again, the business has been really focusing on stabilizing, improving the EBIT margin with a strong focus on price, on cost management and also were to be highlight the BU has delivered a very strong cash generation during the first half of the year.

Moving to Steel Wire Solutions; so there, we are reporting a sales contraction of 13%. So this again needs to be put in the perspective of the very significant increases of the top line that we saw in H1 of last year. The top line this year has been negatively impacted by the combination of lower volumes, roughly 12% and also the impact of the passed-on wire rod price decreases for an additional 10%.

What we see is that these decreases in volume is mainly impacting the most commoditized part of the portfolio with the biggest volume losses happening in Europe which is contracting by 18%; the U.S. by 12%; LatAm in terms of volume by 7%, but we do see that the mix in all these regions has been much better with a very clear move towards energy and utilities, which are yielding a higher level of margin. So overall, the price and mix performance continues to be strong.

It's partly offsetting the volume and the wire rod price changes I have referred to earlier and the price and mix performance is contributing for a plus 9.3% top line expansion versus last year. In terms of segment, as I said, it's primarily the most commoditized applications in our portfolio. So it's typically the low-carbon applications, the agriculture and construction to some extent.

So moving on to Specialty business. Specialty business top line has contracted by 12.6% in H1. And again, it needs to be put in the perspective of the massive boost of the top line last year by 38%. So we're retaining a significant portion of the increase that we saw for the last couple of years. So in terms of subsegment within the BU, with the exception of the fiber technologies volume-wise -- all the segments and volume and sales-wise, all the segment did see a contraction of their performance. BPR, so building products, we do see a 12% decrease in sales. So it's primarily driven by the volume.

However, we have been able to hold on the very high pricing level and keep the mix. So we have improved actually the mix by 50 basis points. We are also benefiting from some marginal favorable currency movements. Our Dramix application has been slightly down as a result of some job delays and some slow hold around level of activity in Europe. So we don't see this decrease as something which is structural.

It will come back at some point of time. But I think, again, the key highlight is the fact that we have been able to maintain higher pricing, a better mix and I think very relevant information, what we do see this year in 2023 is that it's related to the shift to our higher-end type of applications that's the Dramix 4D and 5D which now represents 48% of the volume versus 30% of the volume last year.

So a very good performance and as well benefiting from some positive regional mix where we did see some higher margin markets like North America and Oceania benefiting from a good level of activity. BFT, as we said, I mean, top line is increasing by almost 6%, but we did see this first half, a steep price erosion in China mainly related to the core wire with competition, releasing some additional production capacity.

On the positive note, we do see a stabilization of the pricing towards the end of Q2 of this year. So we're hopeful that this will be more sticky for the balance of the year. Otherwise, in terms of other applications, we did see as well a slow semiconductor and lower filtration sales.

The combustion business has been impacted by the regulatory uncertainty in some of the key markets. So we did see and report lower sales to some of our key customers like Bosch. We do see lower sales of burners in China. But however, we have been able to neutralize the impacts -- part of the impacts on the margin through a successful price increases.

Last but not least, the Hose and conveyor belt, which is down roughly 19%. So there, the volumes have fall short across all the regions with the exception of China and it's primarily impacted by weaker demand. But we do believe that the fundamentals do remain strong, and we do anticipate a market recovery for the specific type of applications.

Last but not least, and moving on to BBRG. So BBRG, that's the standout performance of the first half of 2023, with most of the indicators being green, be it sales, profitability, order book, you name it. So top line sales is increasing by 16%.

It's a combination of price mix, passed-down challenges in wire rod prices, which are also positively contributing to the results. We do see as well higher volumes by 5%. And this performance is actually across the board.

So the ropes business is reporting a volume increase by 2%, with the main increase being in the oil and gas and the mining. So one might claim that we're going through the investment cycle for the oil and gas and some of it might not be sticky. But what we can say is that we do see for the balance of the year, a very strong order book.

So our order book quite full. So this is giving us confidence for the balance of the year. And last but not least, advanced cords where we also see volumes going up by 17%. I did touch on the price mix. So our average price has been increased there. So we are able to report almost €500 increase per ton for this business. And as we said earlier, the momentum that seemed to be quite good, especially in the context of the very strong demand that we see for some of our applications like Armofor, where we are operating our capacity to meet all this demand.

Moving on to just some further details about the P&L. So I touched already on the EBIT underlying at 226% €226 million. So if you exclude some of the one-offs that we had in 2022, and I'm referring particularly to some sales of land in -- that happened in of H1 of '22. Actually, our percentage of EBIT on sales is improving compared to last year, moderately but still improving by around 20 basis points, so jumping directly to the results after tax.

So you do see that despite the fact that we're maintaining our gross margin and we are roughly keeping our EBIT underlying the result before tax is showing a decrease. This is mainly related to a noncash negative effect on FX translation, mainly related to the China RMB. Other information as well to be reported. We are not seeing any major movement in terms of interest -- financial interest as such.

So you know that most of our debt is at fixed rate. So we are not penalized by the current environment when it comes to the interest rates. And the last but not least, our ETR as well has been reduced compared to last year. So we're reporting an ETR of 24.5% versus 26.7%. So this is mainly on the back of some improved profitability in some historically loss-making entities, which is allowing us to use some deferred tax assets.

Now moving to the balance sheet; so there as well, we are very happy with the performance. I mean, just before commenting on the specific working capital component. So what we are happy about for the first half of this year is the strong performance in terms of cash generation. So last year, we had a cash burn during the first six months of the year, roughly minus €80 million.

We are on the positive side with the cash generation between €80 million and €90 million in terms of OCF. So again, a very strong performance, and this was primarily on the back of the very disciplined management of our balance sheet and primarily the inventory.

So in terms of GIO, we do see an improvement of our inventories. So we're down from 96 days last year to 87 days, below the 90 days mark in 2023. So that's a quite good performance. So we didn't see the massive restocking that we saw last year, and we are better managing some long lead times going forward.

So this is significantly contributing to the improvement of our balance sheet. A slight degradation in terms of DSO for the receivables, which is going up by four days so nothing that we should be worried about. I mean it's the usual effect of seasonality and so on. And we will be tackling that all for the balance of the year. But all in all, we are up for a good start in terms of cash generation for the balance of the year. So again, we're to be mentioned in terms of cash on hand, we are as well on a very comfortable position despite the fact that we had some quite significant outflows happening during the first part of the year.

We have repaid more than €240 million of debt. So we had a couple of maturities, the main one being the €190 million repayment of the Schuldschein that we did in May. We have reported the cash outflow associated with SBB in the range of €55 million. We have also paid the dividend. So quite sizable volume of outflow. But despite that, we're maintaining a decent level of cash during the phase, the part of the year where usually the cash generation is not very strong. And Bekaert historically had a pattern where the cash was more backloaded than generated more in Q3, especially Q4.

So I guess that with that, I will pause here, and we'll take further questions, additional questions at the end, and I will pass it on back to you, Oswald.

Oswald Schmid

Thank you very much, Taoufiq. And I think just some more information on operations. And then, of course, we go together with Taoufiq on the outlook. And when we -- as a reminder for our strategy, and I think it was a very simple strategy, very clear consistency and we just deploy it and we continue to execute.

It's really about strengthening the core business. This means improving resilience to deliver nine plus margin despite legist volumes, improving the business mix but also then, of course, increased penetration, like in higher value-add orders like 4D and 5D on Dramix.

The second sector going beyond this is the launch of Ampact, which is the electrical vehicles for the starter components. We ramp up the scale of production in Currento, hydrogen growing interest we see in clean energy. This is we cover with Armofor alongside the applications, we have already for renewable energy, for example, reinforced power cables and exciting markets for floating offshore in.

But that we are really building a strong value proposition for that. We have a very nice factor of building up in Scotland, it's highly appreciated also filled by government. Another example is enhancing the service component of our portfolio, particularly for the high cost investment for all monitoring, make it more safe and reducing the total cost of ownership. But it's nothing about people.

And it's really about we say how can we support the perform part, and we are very delighted to have now with us on board. He's CEO is running a lot of procurement engineering in also partner the innovation. This is also his [indiscernible] and he is focusing on maximizing cost efficiency and also the cost of procurement in the core part. Then of course, if we want to evolve further and this is the continuation of the strategy just we had before.

Then we have Ernst Lutz now recently joining us. And he is really driving innovation across our company, setting priorities, looking that we get the value creation out of the innovation out of the money we invest there. And here is a unique way how we link innovation together with business one. These are both very experienced leaders. They are complementing our strategy, and I think they will help us further evolve in the direction we have set up.

When we give -- allow me just to give you a few more highlights, and I think Taoufiq was to kind of look on the performance of BBRG. And I remember many calls here that BBRG was a little bit of a and I'm here to give the grant to all the people in the team who have worked, I would say, especially since 2020, BBRG gets really a highlight. And I think this is what we can say on this one. And the margins now firmly established 10-plus percent.

It's really a testament to the successful execution of the profit restorage plan, but also the strategy. We focus on both selective sales, both a cost reduction. I think it's really now a new fundament for BBRG to further continue is, I would say, really excellent story. By looking forward, we are excited that the range of products that particularly can support clean energy solutions and services we -- one topic to be mentioned as before, this is Armofor that we reinforce steps.

And I think it deserves a special attention when we look on Armofor business as an example for transforming. And we have seen significant demand for Armofor, our solution for a flexible placing steel pipes, which have always the topic of commotion and high the flexible pipes are growing in a really growing market, giving the CO2 and total cost benefits versus alternative options like steel and at Bekaert, we are expanding capacity in Europe and in Asia accordingly and further investigating the potential to redesign our established Armofor solution even to go further to enable green energy application, hydrogen transmission, carbon capturing. So I think here is a business opportunity.

We really are ahead, and we would like to capture. Potential transport hydrogen is not easy because of the size and the pressure requirements, but we have a strong tech know-how and experience in the traditional markets to leverage this application. And then I would say, let me go just in the growth area where we have a highlight as mentioned before, electrical vehicles there now shifting from 400 volts to 800 volts.

And what is really the aim is to increase the efficiency and also to increase the fast charging and of course, having a higher range of driving. And in June, we had our first customer trial center delivered of our Ampact product which our people, our customers are really excited about. And as an essential component, it's 800 electric is really coming the likely future standard the 800 volt. And Ampact is a product we are the peak insulation of the high-voltage market makes really the difference.

And there's a lot of advantage with the extended drive range and savings on the TCO, savings on the assembly time, savings on the energy and there are some other valuable resources, which we can save on this one. Again, this product builds a long-standing experience in steel wire takes it out to copper wires. And the most important environment is for this application to use our coating technologies, the isolation is not the shock of electricity, this is really something I would say, a high-tech product, where we really can have a significant play in the electric, I would say, applications.

And I think all of us, when we look how the demand is going and how the applications are going, and also, the technology is improving. I think we have a very good fit for all the requirements to come. But then let's go away from product.

Let's go a little bit to the region and allow me to give you a China update. We have been in China for more than 30 years, and we have a very significant business in China and an extremely strong local management.

We have an excellent support from our customers, suppliers and regional partners, Taoufiq and myself, we have been there for a second time after COVID. We can connect with our people, with our customers and our suppliers, but also with the regional government and Bekaert Asia for me was really impressive and unbelievable positive reputation.

When we look on the recent dynamics, China has been a particular area of the focus for the executive team and being very close with the teams, I think it's really that we can strive in the right directions and developments we need in these markets. China also means potential even if the environment is not so easy, but especially for our key focus areas like the electrical vehicles and the renewable energy.

The potential to create opportunities in both in China and even beyond because some of this Chinese customers, they also go into South Asia, what we would like to cover. And here, for example, we are also very fortunate for Vietnam and India plants, we will be able what we may be missed to a certain extent in China, but to count the balance in our businesses across the whole region of Southeast Asia.

So I think with this, I would like to come to a short outlook on the segments a couple of words on this 1 before I hand over to Taoufiq for the ramp-up and the outlook. When we look at our rubber reinforcement division, continues to position a strong cash generator for. The team is really actively working on serving the customers' interest in premium, sustainable solution, but also make sure that we can capture growth opportunities, I mentioned before, in India and Southeast Asia, and this will partially offset for soft demand somewhere else we see in some of these nations.

Our specialty business will be challenged in some segments, given also regulatory changes like on the gas installation, et cetera, or some a little bit softer markets in production, but it is very well aligned with critical sustainability agendas. And this will drive further progress for some of our key brands like Dramix and in Currento in the hydrogen.

Within steel wire solution here, energy and utilities in the U.S. continues to benefit for federal funding and on the other hand, we see subdued demand in EMEA, LatAm and Asia. But clearly, of course, we continue optimizing both portfolio and cost. Finally, BBRG has a strong order book and a robust market outlook for Armofor we expect to compensate for maybe some lower volumes you would we see in hoisting for the elevators. So I think it's here to say really thanks to the teams for their efforts, and we will continue also in the hands of it to move forward strategically in this period is another proof of the point of our track record.

So Taoufiq, I will ask you to cover may be the next chapter.

Taoufiq Boussaid

So again, I went through the first notes which have been issued this morning and some of them are referring to the lack of hard guidance which has been given in the -- or not given in our press release. And this is primarily on the pack that, again, I mean, it will be naive from our side to think that the volatility that we're dealing with will stabilize. I think that we kind of touched on some of the dynamics which have been going on for the first half, there will be other dynamics going on in the second half.

And at this stage, it will be very difficult to factor this into a very firm projection. What we do see, however, is that we're comfortable with the consensus as it stands now in terms of the dynamics that we still need to assess going forward.

It's mainly related to the volume. So I did refer to the fact that we had minor volume decrease of 2.5% during the first half. This might be a different picture for the second half, barring the fact that China is going well, and this is meant to continue. We need to see how the situation in Latin America will evolve. I did refer to the fact that our top line has been primarily impacted by the [indiscernible] of the wire rod prices. This will continue for Q3 before probably plateauing towards the end of the year. So we need to see how this will turn out.

And on top of that, we have the usual seasonality. So H2 is lower in terms of number of days of production. And this is the reason why, for the moment, we want to stick to the guidance that we have given. We are reiterating the fact that we're comfortable with the consensus as it stands and we will be monitoring the situation and do our best as we have been doing it the first half to mitigate all these adverse factors that I have referred to.

Just an important information, we are happy to confirm the date of our Capital Market Day for the ones who have not been informed yet. So the Capital Market Day will take place on the seventh of December and further details on the logistics will be shared with you in the coming weeks.

And I guess that with that, it's time to open it up for Q&As.

Oswald Schmid

But maybe allow me to take a second from your time. I would like also to thank colleagues here in our call for their interest in Bekaert. I learned a lot over the last years from our -- from your questions, we talked about talking about a lot of things. And I really appreciate this cause and some of you I could meet personally, and I enjoyed our conversations.

So it's now time for me to say also a big thank you. And I wish you all the best, stay safe and health, we have a gratification. And I hope that you continue to have this trust and confidence in our Bekaert. And I'm very happy that I can give the reigns to my colleague Yves Kerstens. So all the best from my side and about how we should go to the Q&A. I see a lot of hands has been raised.

Guy Marks

Yes. Thank you for that, Oswald. [Operator Instructions] And Wim, I think you were first. So if you can unmute your line, and please go ahead.

Question-and-Answer Session

Q - Wim Hoste

A couple of questions. Maybe first on rubber reinforcement in China, if I may dive a little bit deeper into that subject. Can you say how far restocking has evolved now versus inventory as a supply chain almost fully restocked now?

And also, yes, what's your take on the underlying demand for H2 in light of that and also maybe commenting a little bit more on the pricing conditions in China. Do you still are in a downward trajectory with regards to accepting lower prices there? So that's the first bucket of questions, I would say, around rubber reinforcement in China.

A second one would be on your outlook and guidance. Can you maybe elaborate a little bit more on what assumption of inventory valuation effect is baked into that guidance? I heard Taoufiq mentioned that there might be some additional negative wire rod price pressure in Q3 and then plateau in Q4.

But can you maybe elaborate a little bit more what is baked into the guidance with regards to wire rod and inventory valuations. And then the last question for me would be on the CapEx guidance. Can you maybe update the full year CapEx budget you have and also elaborate a little bit more on the various buckets and maybe quantify that as well. So those would be my questions.

Oswald Schmid

Taoufiq do you want to take the first question?

Taoufiq Boussaid

Yes. And I'll complement it as well. Go ahead please.

Oswald Schmid

You asked me how we see the climate in China and what we have seen a good return on the demand, yes, it was not exclusive, but it's somehow modest come back. Customers start to restocking a little bit, the is assuming and we regain some market share. And what we did not participate in, there were some price wars in previous quarter, and we stood out of that, and this is we have made quite diligently.

I think the economic movement, the outlook if this remains somewhat of -- we all know this is uncertain. And of course, there's competition around. But what we see is we really were working heavily on being competitiveness, having the right products. We go into the areas of high sensor strengths. And I think this is rewarding.

China remains for us a significant business. We have a long history there. Even if the market maybe is not growing that big than what we have, but I think this is a huge market in absolute terms. And we see also that the demand is also in line with our good reputation with the partners and government, what I mentioned before, they're really giving us the support. But then what you see is the immense potential for electric vehicles, renewable energies and clean and construction. And you know once China has decided to go, they do it.

They execute very nicely on this one. And this is, for example, in the electric vehicles, they might need a difference wire style construction of steel. We are responding to this one. When you look on energy transition and momentum is now coming up on offshore impacts and hydrogen infrastructure and also what we see on already claim construction for the investments and regulations is already embedded in. For us in RR because this was your specific questions, we have since February, our utilization occupation was around 90%. And I think this is very good. And the sales volumes is also coming back.

So we are almost running at full occupation in this very moment, but the uncertainty is also giving. So this is why we are really closely monitoring, and we always are very swift in demand is the -- I would say, the changes are coming up positively or negatively. But I think what we have to see China eyes also the context what I mentioned, not only in China, but see it also as a whole Southeast Asia. Now we can balance and benefit from the different production locations we have and also to optimize the global footprint.

Taoufiq Boussaid

Okay. And on your additional questions, Wim, we'll start with the CapEx with the simplest one. So our guidance for the balance of the year will be between €200 million and €210 million for CapEx. And I mean it has a tendency as well to be backloaded. So most of the CapEx spend will happen towards the end of the year.

On your question regarding the inventory valuation, raw material and things like that, just to rewind a little bit. So the decreases in the prices have been somehow stronger than what we initially expected. And this is explaining the €86 million inventory valuation that you saw in the bridge, but there are different dynamics depending on the region. So I mean, it will be very difficult to average it out and say, okay, this is what it will look like. What we see is that the dynamic, for instance, in China and India and Europe are very, very, very dynamic.

So in China, what we do think is that the prices for the wire rod are going to slightly increase because we do sense an improved demand compared to other regions. In India as well, they will increase after the summer. Question remains what will happen with Europe and the U.S. So we are still baking in some assumption of some further decreases of the wire rod prices and a negative impact in our results for Q3. We hope that it will plateau and stabilize in Q4. But obviously, we are carefully watching how the GDP and the demand prospects are improving because we do see a very close correlation with those indicators.

Wim Hoste

Okay. That's very clear. And also, I would like to thank Oswald for the very engaging interactions over the past few years and all the best to you.

Oswald Schmid

Thank you, Wim. Appreciate it.

Guy Marks

Frank, I think you are next. Please unmute your line.

Frank Claassen

Also three questions. First of all, in the press release, you say that you see a positive impact. Price mix includes temporary effects from lower input costs. So what is this? And could you quantify it? Does it have to do with energy hedges? So -- and what do you expect for that say going forward? So that's the first question.

Yes, the temporary effects in the input costs. And secondly, you do flag, let's say, some additional volume declines possibly in the second half. What's -- and what areas and what regions do you anticipate this? And then thirdly, could you give us an update on the hydrogen. If I recall well, you wanted to double revenues from €15 million to €30 million this year. Is that still feasible? And what are your plans here for the future?

Taoufiq Boussaid

Okay. So Frank, Oswald and Yves propose to take question one and two on the price volume, and you can take the hydrogen.

Oswald Schmid

Yes, perfect. I think it would be good if you will take it, you would last -- it's a perfect interval

Taoufiq Boussaid

So go ahead, Yves probably.

Yves Kerstens

Yes. No, on hydrogen, so we are progressing according to plan. So for this year, we're still looking at doubling the revenue. So we have a positive momentum also on the incoming requests for offers for a different type of customers worldwide. So simply confirming the trend this year and also the plans moving forward in continuing scaling up this business. So fully on track.

Frank Claassen

And if I recall, well, we've heard a number of €100 million, '25, '26, is that correct? Okay.

Yves Kerstens

We can confirm that direction, yes.

Taoufiq Boussaid

Okay. Thanks, Yves. So on the pricing, so you might remember, last year, we touched on that, that in the context of the soaring energy prices. We have been actively driving our hedging strategy, whether through technical hedges or through commercial hedges, and we have introduced in some areas of the business, what we refer to energy surcharges coverage.

So this is mainly impacting RR and it's primarily impacting RR in Europe and to some minor extent as well in the U.S. So this is the part that we think will phase out over time. So obviously, there is a phasing and a timing and a delay between the moment you adjust the prices and you align them with the market prices.

So we will still benefit from it some point of time. But we do think that now that we go into the sequence of normalization of energy prices, these surcharges will be phasing up. However, there is one uncertainty is what will happen with the energy prices during the winter season. We might again go through tensions in the energy markets with the events in Ukraine.

This might again also boost the energy prices, which might allow us again to keep this energy surcharges for some time. So for the moment, very hard to read the situation. We will be able to understand it a bit better when we approach the winter season. But the main element that we were referring to was mainly related to the energy surcharges. Then on to the...

Frank Claassen

Sorry to interrupt, but could you also maybe quantify it? Is it like €10 million, €20 million or could you give us some few?

Taoufiq Boussaid

Yes. Well, it's difficult to quantify it. I mean it's a sensitive information. It's commercially driven. I think it's like that. So we want to refrain from disclosing the figure on what it represents. But to give you some order -- I mean for you to help you assess what it would represent, so if we say it's primarily Europe and the U.S. So that's roughly the half of our business. So it's a surcharge which can reasonably be considered on roughly €1 billion of sales out of the €4.6 billion, €4.5 billion for total Bekaert.

Okay. So on the volume decline. So there as well, we will be dealing with different regional and market type of applications dynamics. I think that we are off on a good start in China. The volumes have picked up and we do see this pick up to continue. You referred to the question around the restocking and things like that.

We are not completely at the end of the restocking. It will still continue for some time. The mileage will further compound the stabilization of the volume growth, the level of OEM being produced in China will also have. So China is not really the area where we see a volume decline. What we will see is a further decline in some of our most commoditized applications. So we might reasonably assume that Latin America, for instance, will not pick up significantly.

So LatAm North, which is primarily construction an agriculture to some extent, it's not an area where we do see the volumes picking up. Europe and the U.S. for RR, I mean, we did see a decrease towards the end of Q2. It will continue for part of H2 as well. Let's see with the latest GDP indicators. I did see France releasing its growth prospects for the first half, which is positive, let's keep all these compounds, and it leads to a stabilization the demand in these key regions.

Construction, we don't think, as I said, earlier that this is structured. So it will be moving hopefully upwards towards the end of the year. So in a nutshell and to summarize, yes, volume declined, yes, primarily targeting specific regions in the most commoditized part of the portfolio.

Frank Claassen

Okay. Thank you very much. And Oswald, good luck with your future endeavors. Thank you for the co-operation and performance of the last three years.

Oswald Schmid

Very Kind, Thank you.

Guy Marks

Martijn, you're next.

Martijn den Drijver

I have a number of questions. I'm going to take Frank's question, but slightly different. In the first half, you've had tailwind from hanging on to higher prices, while the wire rod ramp down. And you've had the benefit of energy prices coming down. Do you think that you will have some sort of benefits in the second half as well given that wire rods are still declining at least in Q3, and energy prices are still lower, especially relative to the second half of 2022? That would be question one. I'll do them one-by-one, please.

Taoufiq Boussaid

Okay. So we'll take this one. So wire rod, definitely, yes for a very simple reason. So I mean, when we look at the impact that it has, that the wire rod has on top line, on five, four and so on, we kind of forget that it has also a significant impact on the cash conversion cost. So what will happen is that, declines that we're seeing now, once we have consumed our older inventories, these wire rods that we have bought at a cheaper price will start entering into production, and it will reduce our [indiscernible].

So we always have these delays. So we take a hit with the 54, but we will recover at some point of time, the benefit from it through the cash conversion costs. And to answer simply your question, Martin, yes, we will some benefit from it.

On energy, as I said, this is limited done with a specific part of the business, which is primarily RR. So we have these energy surcharges which are done in full transparency with our customers. We agree on percentages and things like that, this will fade out and this is also the reason why one of the components, which is driving our prudent outlook for the balance of the year.

Again, it's not covering all the business of Bekaert. It's, as I said, roughly €1 billion of sales. So this will fade out. The only uncertainty is what will happen during the winter season. If the prices again pick up, we will be keeping some of these energy surcharges. If they decline nor we will be raising.

Martijn den Drijver

Okay. Got it. Moving on to the second question. You mentioned difficult markets for RR in North America, Europe destocking. Can you share with us what your assumptions are or what you have determined in terms of market shares that you've gained? Have they turned out to be sticky? Or have they -- have market shares in North America or Europe shifted a little bit?

Taoufiq Boussaid

No. Market shares have been rather stable. We don't see a decline impacting us specifically. So we are still at 30% market share overall. In China, as I said, I mean, we're regaining roughly the 2% market share that we have lost in the peak. So overall, we're stable market share-wise.

Martijn den Drijver

Got it. Now my third question actually relates to that China. You've gained market share. You mentioned that prices are lower. Now I seem to recall that we've had multiple discussions on price discipline -- or market discipline in China.

Now it seems though the strategy was always we will forego market share to maintain margins. Now you've gained market share and the market prices are lower. So I'm a little bit confused. Is there a change in your strategy?

Taoufiq Boussaid

Well, it's an ongoing exercise that you need to do. And I think that it's a calculation. It's a basic calculation where you try to understand how your pricing elasticity will allow you to offset your underabsorption. So now we're moving to a phase where the gains are much higher when we are occupied that where we are fully occupied and the China is currently almost at full occupation above 90%.

And the leverage we're getting from that is higher than pushing the prices with the risk of being under tension in terms of pricing elasticity and market share. So there are different dynamics which are in place currently which is pushing us to readjust our strategy in terms of pricing.

Martijn den Drijver

Okay. Then moving on to BBRG. If we assume that a quarter, it's roughly at 18%, 19%, perhaps even 20% EBIT margins. Then rod did approximately 9%, 10%, 11% EBIT margins in the first half, an astonishing margin for this unit, you pointed it out in your presentation as well.

But I'm wondering, is this a sustainable level now? Or is there some sort of incidental elements, the sales mix and margins are higher in oil and gas than they are in certain other markets. So is this a sustainable level going forward? Or is there some incidental element?

Taoufiq Boussaid

Can I give it to try Oswald and you complement?

Oswald Schmid

You can give it to try, but I can give you an answer. I think -- Please go ahead.

Taoufiq Boussaid

So Martin, you remember that BBRG was going into a turnaround exercise. So it's a turnaround, which has lasted two -- more than two years. And the objective of this turnaround was to structurally improve the performance of this business. So we have a significant portion of this performance which is driven by the turnarounds that we have implemented. So I mean you remember very well. I mean we closed many sites over the last 24 months.

We closed Canada. We closed a couple of 19 in the U.S. We are transferring production from U.K. to the U.S. So our cost base has significantly improved in this market. Then there is a part, I mean, to be completely transparent, which is not sticky. I mean we're benefiting from the good environment around oil and gas.

It's an industry which is going through the investment cycle. How long is it going to last? Hard to say. What we can say is that it will definitely last throughout 2023, potentially the first part of '24. But then after that, it will need to be replaced by something else. Then crane and industries might come back, mining might be more longer and more sticky. And we're fortunate to have these exposures to all these different sectors, which are following different type of cycles and it allows us to balance it out.

So now I mean, again, we are more relying on the structural improvements that we're putting. We continue to improve our operations. We are ramping up -- almost finalizing the ramp-up in the U.S., and this will allow us to stabilize the level of profitability at the level that we see today. There is nothing which makes us suspect a fall or a major deviation against the performance we see today.

And as you said rightly, advanced cord is a business by nature, which performs at a very high level of profitability. And there, the name of the game is mainly about increasing the volumes and increasing them in construction in lifting and so on. Oswald, do you want to complement?

Oswald Schmid

Yes. Maybe just one sentence. I think the opportunities we have in Armofor are not yet explored fully. Today, we have it more in noncell applications, but in the oil and gas industry, there's another topic. These are the same applications where you need different ways of thermoplastics reinforce. And the combination to reinforce thermoplastics, I think this has a huge potential. The other topic I will just say, real estate, as we all know, in China, if we were -- it's not at the highest peak.

I think also those will come back. And here we have also solutions where we also we get requests from customers out of Japan, we get requests of customers out of, I would say, Germany and U.S. where we are testing different types of hoisting materials. This is not the belt. This can be what they call it polybolbs etcetera.

There's a lot of innovation in the pipeline. Even if we are smart enough to go beyond and the top is more the time of the succession ones. And I'm very confident in the next 18 months, there will be a source of more innovative products, which are really then again, leading in the market and allowing then some price quality.

Martijn den Drijver

Got it. Two more small questions. There's other income in the P&L of €29 million. So this is a question for Taoufiq. Is there any nonrecurring elements in the underlying EBIT as you've reported it that we see on the other income line in the IFRS based P&L.

Taoufiq Boussaid

To my knowledge, no in the other income, what we have is the usual contribution from joint ventures, royalties and things like that. So there is nothing which is nonrecurring. It fluctuates as part of the usual business performance, but there is nothing which is nonrecurring in the underlying part of the result.

Martijn den Drijver

My final question is for Oswald. Oswald, you're 64. You're running a successful company. We have great potential. But why are you leaving? Your Board term hasn't ended.

Oswald Schmid

No. But what I can tell you, I found a better successor.

Martijn den Drijver

All jokes aside, it is a serious question because share price is down.

Oswald Schmid

It was always, I think, that the term I have considered and also agreed with the Board and it's maybe for how the communication was a little bit, I would say, in due course, but it was a period where Taoufiq and I, together with the Board, have been developing that. And it's -- I think the time the last four years, almost four years, was a very intense time, to be very honest.

And I feel good now because maybe that's also -- we can step up. We can go for the new chapter. The series, I can say. And I feel very confident when you give something is a little bit, I call it, this is a little bit for human and personnel. I know that this is not the time that it goes for the next, I would say, journey.

Martijn den Drijver

So it is really about the next phase for Bekaert. There is no dispute or anything else. I want to make that absolute picture.

Oswald Schmid

No, no, no, no. I'm not a guy sitting on the chair and be included and not -- I think you know it's 64, you have some things also let it go. Yes, and at the right time, I don't want to be carried out with 69 or whatever. This is not way. And I think this...

Martijn den Drijver

I want to retire at 61, never mind. Thank you very much gentlemen. All the best.

Oswald Schmid

Thank you very much for your question.

Taoufiq Boussaid

Thanks, Martijn.

Guy Marks

Very good. And now handing over to Alexander, please go ahead.

Unidentified Analyst

Also from me too was well as well. And congratulations to Yves on the new promotion. Yes, just starting off some questions on the Dramix. So basically, I think a year or two ago, you mentioned that Dramix was having some tailwinds from steel rebar that was becoming more expensive at that moment because energy prices are going up.

Now that the steel rebar prices are lowering, just wondering why the demand appears to be increasingly sticky of Dramix. And can we now consider this move to be structural in the development of buildings and projects? And maybe in that extension on Dramix as well, so how are your main competitors behaving in these markets?

Second question would be related to Chile and Peru. Just wondering if there are any other hurdles to be taken into account next to the regulatory improvements and how that is going at the moment? And then the last question would be just in terms of working capital, how much can we still aim there? So I think right now, it was at 16.1% of sales. Just what's your aim there in the future?

Oswald Schmid

Yves, do you want to take the two first questions -- sorry, first question on Dramix?

Yves Kerstens

Yes. So Alexander, in terms of strategic focus, I think we started on top of the growth trajectory for Dramix also to target more specific segments and also tailor our offering to these segments, talking about precast, tunneling high-end floorings. And so what you see happening is that, that value proposition is very appealing. That's why we're winning nice projects like mentioned by Taoufiq, on the battery factories in U.S., but also in Australia and New Zealand, some nice tunnel projects in also the first one in India and other continents.

So basically, since the -- we are selling much more our applications, our solution to the end-markets' needs, it remains more sticky and it's helping also on the pricing and the mix. To your question -- and so that will remain and we will continue to focus on that strategy and if needed, leaving the more low-end 3D fibers competing with some of our competitors, perhaps less focus on that segment.

In terms of competitors, I think we are clearly ahead in terms of our offerings. And we are also working on product innovation. So we will be launching new Dramix with additional performance functionality every two years, which should really make us and remain the market leader in the market.

Taoufiq Boussaid

Oswald, do you want to take Chile and Peru?

Oswald Schmid

Sorry, I missed this one.

Taoufiq Boussaid

Yes, if there are any hurdles on the transaction for Chile and Peru.

Oswald Schmid

No, no, it goes exactly in the poses indicated, but there are some antitrust topics, which the next time they invested we go to market, I think we are very well on track. There's one. No surprises until now. But of course, this efficiency take their time as they need. You cannot push them. But I think the input they got from us very well prepared are lowest that they had in regulatory contract and both parties, and this is important, a very interested to finalize it this year, no deviations.

Taoufiq Boussaid

Okay. And your last question, Alexander, was on the working capital. So I mean you know the pattern that we have in working capital. So usually, I mean, when we publish H1, we see a percentage, which is 200 to 300 basis points above the ending position. So there is no reason why this should change. So I mean, we will have, I mean, the usual pattern for 2023. And versus the 16.7% that we have in H1, we should be reasonable if we state that we will be closing at 14% or lower.

Guy Marks

Thanks, Alexander. Stijn, you are next.

Stijn Demeester

I've also a number of questions. I would like to ask them one-by-one, if that's okay. First one is on the SWS divestment. Can you remind us the cash in that is expected and sort of with that new balance sheet flexibility, could this advance your M&A ambitions where you had sort of a more cautious stance so far?

Taoufiq Boussaid

Well, so we're expecting a net inflow of €136 million from this transaction. In terms of balance sheet, so obviously, I mean, this will even further consolidate our position. We will continue with our strategy in terms of capital allocation, which is a mix of growth, both organically investing in new technologies in innovation, new applications and so on.

We will potentially consider bolt-on tactical acquisitions to complement our portfolio for our technologies. We will not go for a major massive M&A. And then, I mean, nothing has been decided for what's next, but we will continue with our share buyback and we will continue with our dividend distribution policy aiming at being progressively improved.

Stijn Demeester

Okay. Understood. Helpful. Then secondly, I was intrigued by the slide on China. Would you say you are forever committed to the region as it's probably the key factor that is driving the cyclical perception of Bekaert? So could you perhaps contemplate in the future JV structure like you have in Latin America?

Oswald Schmid

Now of course, there are some consideration. Maybe it's a little too early. I mean, we want to strengthen our competitiveness there, let me answer this in this way. And I think the market may be go for consolidation. But the market is still thinking if there's even a slow I would say, a slow growth, it's still sufficient when you look on the overall quantity that we have. But it's maybe too early to have here a final answer this one.

But I'm not only looking on China, for me it's whole Southeast Asia about that because many of the Chinese customers they go to Thailand, they go to Indonesia, they go to Vietnam. And here, we got an excellent feedback in collaboration, also outlook in demand situation because they are building tier factories. And then in combination with India, where we have really, I would say, a substantial market share, in this way. When we look at this one and also the relationship with our customers, there are always options we are continuously monitoring.

Stijn Demeester

Okay. That's interesting. But perhaps there are more links to your European markets in Southeast Asia than with China. So is it not fair to say that...

Oswald Schmid

It's a mix, it's a mix. There's a mix on Southeast Asia where you have customers, which are originally, let's say, in the western world, but there are customers which are also in the Chinese world. And this is what gives me, I would say, quite a confidence on the factory we built there. We are also now enlarging our product capabilities in India because we have a clear demand and we want to keep our market share and we are really seeing that as a leading partner also from the technology point of view.

Also, India is going in sustainability. We get a lot of requests recycling of all these things, footprint reductions, CO2. And the customers, they are maybe more the big four. They're really joining very heavily. And I have met them a couple of weeks ago, and I was also impressed by reputation we have there.

Stijn Demeester

Okay. Good. Another question to you as well. Can you evoke the analysis you made when you arrived here Bekaert? And I could also ask you where you feel the company has improved the most, but I'm more interested in where you think there is still room for improvement for your successor?

Oswald Schmid

I think this is not -- it's our strategy. It's the strategy of PGE, it is the strategy of the Board that we are aligned with that is the strategy of each of the PGE member. I think where we have mostly involved that we have clarity on the spare front transform growth, I think the biggest step was really done on the performance to have a sustainable results having clear strategy, but then walk to Taoufiq, I think this is what we see.

And we said, when you talk about digital innovation, sustainability, we said we have to offer the market smart, sustainable and safe solutions because a lot of our products are linked to safety as well. Steel coating is reinforcing, a tire without steel coating is nothing, it's just a rubber bunch. Let's be very honest, hopes where we are really leading in these sectors. And in the markets where we are in, we want to have a clear click. We want to be a market leader. We don't want to be beyond three in the market size.

So I think in the perform part, we have been doing very well. In the transform part, this was about portfolio management, digitization, innovation, sustainability, but also people, I think we make a huge focus, where we still, I think we have and here if I think this is why I say it's really absolutely the right guide here on the growth part, yes? Because when you talk about M&A, this is that doesn't just fall off that.

You have to work on. You have to look at the step where you have a right to play and ability to win. So when we talk -- and this is the one part, transform further, growth further and keep performance at the level it is. Go beyond steel, I think we strengthen the core. This is what you see, but also go beyond another application. So I think the strategy is very clear. And I think the growth aspects, the profitable growth respects I'm sure with the passion, if has will be the focus of him and fully support it better.

Yves Kerstens

Thank you. Let me take the opportunity to confirm what Oswald mentioned. So we've been working, of course, all as BG and with the board on the valuation agenda. And one of the fundamentals that under the [indiscernible] was put in place is this solid performance, consistent performance, even with the market environment, which was very dynamic. While also starting to embark on some of the transformations like digital innovation, that should be leading basically to also organic or new or inorganic place.

And I think that's one of my priorities moving forward, correct? How do we gradually continue to strengthen the core we are having in terms of performance, allowing us to transform the portfolio over time. So I can only echo what Oswald said and also what you're having here in the call, thanking Oswald for the nice collaboration we had also in the last couple of years, the transition now, and we'll still continue. We'll continue to work together the upcoming months to do a healthy transition. But of course, it's nice to have a foundation that was established under his leadership.

Oswald Schmid

Thank you. But I think when you look on our debt leverage in '19 or '20, we couldn't think about to call. And in the meantime, we have looked also in the market. We have the opportunities, which sectors we're going to serve, where we do cover in the market trends, yes? And I feel so comfortable on this journey. I can tell you about this so -- and of course, I have shares that I want to also make sure that the shares -- the appreciation of the shares is also there.

Stijn Demeester

Okay. Do you understand correctly, you need to find new BU leaders for both specialty and BBRG now? Or there has already been....

Oswald Schmid

Yes, this is there, but I think this is one of the next step of the organization development. There's a clear plan behind. The Voice, of course, is the CEO. And then I think in the near future coming up, we also have, I would say, the content to communicate.

Guy Marks

One more question from Chase [ph], I think you are next.

Unidentified Analyst

Yes. Just some quick ones for me, and I'll take them one at a time if that's okay. First off, I understand that there's still some destocking in RR in both the U.S. and in Europe. I just want to know sort of how you see that developing over the second half and when you expect that destocking to be over? Or in other words, when do you expect there to be something of a normalized operating environment for RR?

Taoufiq Boussaid

Oswald, do you want to start, and I will complete...

Oswald Schmid

Yes, destocking, it's a little bit unpredictable. Your question was when you think that the destocking is over. This is what you're saying? What we see is it depends a little bit on the different regions we are in, we see in China, the demand coming up. I think for Europe and America, it maybe takes a couple of, I don't know, weeks and months.

I think it's a little bit a cautious outlook we see at this very moment. But yes, I cannot give you, I would say, a date. But I think we are observing it very, I would say, intense, what's coming up. We see the slowdown. So there can be some, I would say, delay in the pickup. But overall, I see this more as a small deviation and then getting more normalized again. But it's a little bit, I think after summer, we see a little bit more.

Taoufiq Boussaid

Okay. That's clear. And just to go back to something that you mentioned on Dramix earlier. You -- I believe, Taoufiq, you mentioned that the 4D and 5D iterations, they're now 48% of the volumes at this point. It was -- just to clarify, was that volume or revenue for Dramix?

Oswald Schmid

That's primarily the volume, which is picking up and turning it to 48%.

Taoufiq Boussaid

Okay. Okay. That's clear. And maybe my last question, just on the CMD announcement. Could you maybe go into a bit more color on what exactly you could wish to communicate to investors in terms of sort of what areas you're looking at? What exactly is the rationale behind the CMD? What do you wish you can communicate at this point?

Taoufiq Boussaid

I will start and Oswald, feel free to jump in. I think that the last CMD we did was more than two years ago. And I think that with a new CEO on board, it's the right time to have a discussion about our strategy and where we are progressing versus what we have initially stated, a lot has happened.

And I think that it will be the right time to update with more detail and going into more granularity about our different segments portfolio application markets on where we're heading to strategy-wise. So it will be a discussion primarily focusing on our strategy, our midterm outlook and how all the things that we have done so far does fit into this overall plan.

Unidentified Analyst

Okay. Great. That's very clear. That's all the questions for me. And also to wish you the best. Congratulations.

Guy Marks

We've got one more from Alexander.

Alexander Craeymeersch

Just a quick one, actually, it's a bit also what Chase just asked. It's a bit -- it's not relating to the CMD specifically, but maybe on the hydrogen specifically. Is there a plan to provide some more details? It's a question that we get from investors quite often to provide more details on the Hyrogen segment. How you -- how that is progressing? What are the margin potentials there? And how do your order books developing? It's -- or do 1-day plan to represent it as a separate segment in the nearby future.

Oswald Schmid

Yves you go or I can comment on it?

Yves Kerstens

Yes, good. No. Clearly, I think it's -- we're all excited about these, let's say, opportunities that the energy transition gives for not only for a company, but also for our society, to decarbonize and contribute to a better sustainable world. So it's clear that we're all working on how to scale it, how to be successful. And basically, as mentioned, we are progressing according to our plans.

We are strategizing further in terms of product offerings and what could be our play in the future, with size of the market, which segments of these markets getting specified in the global customers are they're winning. So there's a lot of positive momentum. On the other side, you all know it's a business that's in early stage of scaling. That means the supply chain for all the components is often the driver for the execution of the projects.

And that's where we need to monitor very careful how the market demand will be scaling. So certainly, we think it over time can become, let's say, certainly a big business unit, correct? From a size point of view and contribution to Bekaert. Of course, we need to remain diligent on the timing and scalability, not on the potential, but more on the timing of the scalability, but we will certainly take the opportunity of the market cap day to share a little bit more of our plans, our strategies, correct? So that all of you can have a good image of indication of what the play for Bekaert could be in the future.

Guy Marks

Very good. Well, I'll hand back to Oswald.

Oswald Schmid

I think it's really just as I said a big thank you. I wish you well, stay safe and healthy. As I said, we see a lot of success, and I'm happy now the next you have with Yves. I think we have an exciting story. And I think the Capital Market Day will be really a big opportunity to say what was the journey, where are we and what is there. And it's not only about some visions or whatever, it's really about that a lot of has been achieved and having a more clearer picture.

And as Yves was saying, on the word, this is very clear, but maybe the timing, scalability, and maybe all the other innovations, I think innovation will be also a part of the CMD, there's a lot in the pipeline, yes, not sure when it's going to be mature. But I think we really work on this. And this is the spirit of [indiscernible] it was always linked to pioneering.

And we want to continue this pioneering with this creativity beyond steel. And I think you're going to be maybe a little bit surprised what's coming on, correct? So thank you very much for joining and maybe some of you have been on vacation. I hope you have enjoyed rest and all the best.

Guy Marks

Thank you.

Yves Kerstens

Thank you, everybody.

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NV Bekaert SA (BEKSF) Q2 2023 Earnings Call Transcript