NV Bekaert SA (BEKB) Earnings Call Transcript

Hello, everybody, and welcome to this webcast. Thank you very much for attending and your interest in Bekaert. Taoufiq and I have the pleasure of sharing with you the Bekaert results of the first half of the year. And the current circumstances still do not allow us to organize live meetings and conferences. Therefore, Taoufiq and I will do webcast from our respective home office as maybe you do as well, and you are calling from there. Over the last weeks and months, we have learned to work in a different way and to deal with uncertainty. Today, we know that this crisis, which is not just a health crisis, but also in economic and social crisis, will leave its marks in how we live and how we will work in the future. And it will definitely leave its mark on businesses and economies. I'm convinced the 2 characteristics of this crisis will remain in the new normal, and this is unpredictability and ambiguity for the time to come. But before going to the [ raw ] results, I would like to thank you for your interest and attendance, but also thank our customers for the great cooperation and trust in this difficult environment in our company, and especially express my gratitude to all the 28,000 team members of Bekaert around the world. They have been demonstrating in an unbelievable way the true meaning of better together over the past months. Their engagement and resilience have made us strong as a team and as a company, and the impact of their efforts is visible in the results that we announce today. So let me walk you through the highlights. The title of the press release shows that we are -- we currently stand with Bekaert. Bekaert has countered a significant impact from COVID-19 for effective mitigating measures and performance improvements. And what is really remarkable the turnaround of the Steel Wire Solutions and also of the Bridon-Bekaert Ropes Group and further effectiveness, employing the actions, they have moderated the impact of COVID-19, the Rubber Reinforcement business was suffering from the automotive development. So let's have a look at the impact of COVID-19 in our market, on our sales. And how did we deal with this? How was our response to that? When we look at the different markets, I think everybody knows, has seen over the time that the demand from tire and automotive markets were very hit, first in China and quickly followed in the rest of the world. We have seen OEMs closing factories as well as the tire makers did too. And there was almost no miles driven because all of us were working from home and didn't use the cars. Global car truck production dropped up to minus 30% over the first half, and the global tire demand by minus 40% in average of Q2. And the lowest point, which was [ mainly ] one of the worst months we have seen, was in April. When we look on the construction infrastructure markets, in comparison, they held up relatively well in the first quarter of 2020, but were constrained by lockdowns in quarter 2 and leading to a demand of reduction up to minus 20% for the quarter, and it was depending on the regions where you look at. On the other side, we have seen, especially in China, stimulus programs started -- have helped to boost the infrastructure investments there. The first segment where we are doing business in was the agricultural utility and the mining markets. And here as well, in contradiction to the deep drop and hard hit in automotive, we found the remaining [ red ] solid throughout the first half year and only up to minus 10% impact. And so this seem to be currently less affected by the COVID-19 pandemic. And this was also caused by the fact that they are generally considered sometimes as essential industries. So we see different dynamics in the different sectors and regions. But how this translated in our sales, along with a slide on the next page. When we look here, we see that the overall sales in comparison to the first half year of 2019, where the revenues were EUR 2.2 billion, dropping to EUR 1.77 billion. It's a significant decline of minus 20%. The Rubber Reinforcement business was most affected. Sales were EUR 300 million lower than in the first half, or 30% versus the last year. Steel Wire Solutions reported a sales decrease of minus 15%. And part of this was driven as well by our own decisions to close some of these loss-making plants. Specialty Business (sic) [ Specialty Businesses ] saw softer demand in the second quarter and resulted into a minus 9% revenue decrease. Finally, BBRG recorded a sales decline of minus 6%, and that most of this was a result of reducing our presence in lower-margin applications, altogether resulting in top line decrease of 20%. And you also see the distribution of our business with the different business units: Rubber Reinforcement, always most online-only has listed 40% revenue shares; 36% is covered by the Steel Wire Solutions; 10% by Specialty Business (sic) [ Specialty Businesses ]; and the 13% are remaining with the BBRG. So how did we response to scope of sales decline? We were focusing on 5 areas. Of course, the highest priority went to [indiscernible] was health and safety. How can we make sure that our people are safe at their work when they come in the morning and they leave also safe and healthy in the evening? We took rigorous measures to limit the infection risks. We provided masks, sanitizers. We asked for social distancing in plants and offices. We created a lot of awareness among the team members and their families. And as all of you know, we started quite early with working in a different way, working from home as much as possible. And I would like also to thank you because this deployment of all the health and safety measures would not have been possible if we do not have the unity of efforts as a global base to make sure that our people are safe. The second focus was, of course, on customers. In turbulent times -- and also the customers are facing all these problems. It was very important that we stand close to them, that we understand their needs. They also were facing, of course, all these unpredictability, all these uncertainties. And this a close communication, and they are not making sure that they're not suffering from any supply interruption without [ the key ] priority on this one. We use further digital tools and practices like portals to keep on having the contact with the customer in these times. The next focus, liquidity and cost. And Taoufiq will go much more into detail in this one. But it was really [ different]. The necessity to have a strict control on the working capital and make sure that we don't have bad debts, that we get the cash collection done, we've got stringent working on the CapEx and cost control and flexing of fixed costs, and making sure that we have a positive cash flow and a strong liquidity. And you will see much more details, as mentioned, with Taoufiq. I think a great job has been done here as well. When we look on the fourth focus we see, we covered the profit restoration. And here, the turnaround and the acceleration of the turnaround of SWS and BBRG were the highest. They did not only accelerate the turnaround, but they also made possible that there's a robust improvement in the business mix and its margin. And further in addition, they really implemented very powerful and impactful all-mitigation actions to support this turnaround. Last but not least, supply chain, of course, of crucial importance. On the one side to make sure that there's no interruption, that we have all the critical products as well. And we're able [ affordable ] even if the production was limited, but everything was there in order to serve the customers. On the other side, it was also necessary to work very closely with the sales when the market is declining, the demand is getting less, but we are not getting overstock to make a really good [ SNOP ] planning. Further, we have established a virtual supplier campaign in order to renegotiate with our suppliers some of the products we are buying. So overall, we started very early to have a quite effective governance and coordination in aligning our decisions and managing active the crisis. Communication was important and I have had the luck to participate in many of our [ PLF ] calls, in calls across the region, but also, for example, from their commercial departments. The final topic is what we are working on is to emerge stronger from the crisis. And I have seen very good examples where we could capture opportunities from the competitor in order to strengthen our business and also anticipate the risk that they have, but not forgetting to get the opportunities in. So huge efforts from everywhere. We learned how to work in a different way. And I think I would like now to say what is the result? And I'm very proud of that, what I can announce now. And allow me is early to give you now the highlights. But the impact of our measures are showing in the numbers. In spite of a revenue decrease of minus 20%, we could deliver solid underlying EBIT margin of 5.2%. In comparison to last year, it was 5.7% for the first half year. We were able to achieve a robust performance improvement, as mentioned before, in the turnaround and acceleration of the turnaround for SWS and BBRG. We continue to have strong results in the Specialty Business. But of course, what we have seen, depending on the automotive market, RR was significantly affected in less revenues. But we were very successful in reducing the costs and working capital and acted very swiftly to offset the part of the impact of the pandemic. At the same time, we were able, in many areas, to make the business mix stronger. And finally, we reached a very high level of liquidity, up to the EUR 834 million cash on hand, and this is a doubling of what was at the levels of June 30 last year. The debt leverage was 2.5x underlying EBITDA, slightly below the first half year of 2019, which were 2.6x. By summarizing, it was really clear the sharp sales drop by minus 20% still delivering a result of an underlying EBIT of 5.2%, keeping strong measures in place regarding cost, CapEx and working capital, further increasing the stronger business mix and ensuring the liquidity. This is where we could somehow affect the second -- the first half of this year. And now I would like to hand over to Taoufiq, who will go much more in details to provide you with much more insight. Please, Taoufiq.

Thank you, Oswald. Hello, everyone. I'll start by talking [ of ] KPIs [ positive thing ] and then I'll [ talk over some ] performance -- financial performance. When we look at the key highlights with some measure of the performance delivered, I think that what is striking is something that Oswald has already mentioned. It's the significant drop that we got in terms of sales. So 20% down and this obviously has a direct impact on all the other KPIs. So when we look at the sales specifically, a 20% drop. Overall, 80% is organic growth, which is resulting from the slowdown of the key market and segment. And the balance is made of the wire rod price, which has been passed on to the customers and also to the improvements done -- the improvements which have been delivered in terms of pricing and mix. From a market perspective, what we have seen is that the tire demand was down 25% in China, 30% in EMEA and 40% in North America. So as you can see, very sizable drop in terms of demand. Oswald has already touched on that, but the construction was mostly impacted by the project hibernation and the lockdowns, except in China. The agriculture and utility and mining were, to some extent, less affected segments. When you look at the EBITDA and the EBIT-U, so obviously, you see a drop in absolute value. This is consistent with the drop of volume that we have suffered from. But we also see an improvement in terms of percentage for the -- each one of these KPIs. So just to give you an example, the gross profit has improved by 40 basis point versus last year at 14.3%, which is a quite solid performance. We see that the EBIT-U is stabilizing at 5.2%, down versus last year. But considering the massive drop that we have suffered from, we still view this level of performance as a very solid one. And when you look at the EBITDA-U, we see an improvement of [ 20 ] basis points, which is actually a translation of all the good efforts that we have delivered in order to stabilize our level of performance. So this didn't come by magic. It was the result of many actions that Oswald has referred to. I will try to quantify some of them. But just to put it into perspective, we have managed to deliver EUR 100 million of effective measures in order to offset the crisis. So it's a mix of cost savings and also the progress in terms of turning around some of our businesses like BBRG and Steel Wire Solutions. This has delivered a [ EUR 13 million ] positive impact. We have also referred to the improvement done in terms of pricing and mix. That's another contribution of EUR 17 million. And we have also mentioned all the actions that have been implemented in terms of mitigating the impact of the crisis. And this is another EUR 50 million plus improvement to our bottom line. We look at the consolidated income and the key figures there. So I have already explained where we stand in terms of sales for a 20% decrease. I will not elaborate more on that. We move directly to the gross profit and how we have delivered this level of performance. So what we see is that the gross profit has decreased roughly by EUR 57 million, so that's an 18.3% drop versus the same period of last year. That's a direct impact of the adverse cost of sales and margin impact from the significant decrease in volume. But again, we see an improvement in terms of percentage, 40 basis points. And this improvement in percentage is a very encouraging sign and a confirmation that we took the right measures in order to mitigate the crisis. And it's really the work of -- a great work team across many areas of the business. So we already refer to the -- through the mix delivered by our commercial teams. The robust progress in terms of turning around our business and going ahead with our profit restoration plan, which is the leadership and all the teams in all the BUs affected by that. And also the mitigating actions for the COVID-19, which is really a collective effort across the company. Moving to the further details into the income statement. So I think that when you look at the breakdown of the different categories of expenses, what we see is that the overhead have decreased by roughly EUR 26 million. So this is the result of the full impact of the restructuring and the structural saving actions, which have been implemented in the second half in 2019. This is roughly amounting to -- [ for EUR 8 million ]. And then you have, on top of that, the mitigating actions taken in response of the COVID-19, which added or which adds up another EUR 18 million. The underlying EBIT is decreasing EUR 34.5 million to EUR 91.5 million. The underlying EBIT margin on sales at 5.2%. So a relatively slight decrease. That's a 50 basis point decrease to put in perspective, again, with the 20% lower sales that we had throughout the first half. And again, we see this level of performance as an encouraging result. Last but not least, the EBITDA margin, which is improving by 20 basis points at 11%. Moving to the bridges. And I think that this bridge gives somehow the story of the crisis that we had to deal with, the impact that it had on us and how we have managed to address the different impact. So what we see is that the overall drop in volumes has impacted us with a negative impact of EUR 138 million. So without doing nothing, this would have completely absorbed the level of EBIT that we have generated comparatively to last year. So sizeable impact coming off the drop of the volume. The way we have managed to address this is through what we have already referred to. A set of mitigating actions, which delivered EUR 52 million, broken down into positive impact in terms of cost of sales and positive impact in terms of reducing our overheads. We have already made the reference to the good result in terms of commercial and all the progress made in terms of pricing and mix, that's a EUR 17 million contribution. And finally, we see a EUR 30 million impact coming as a result of the restructuring and the saving programs, which have been implemented. So a confirmation that the decisions that we have taken in the back end of last year and also in the beginning of this year were the right one because they had allowed us to give us additional margin of maneuver, and have allowed us significantly mitigate the crisis through an additional capacity to show resilience in the company. So all in all, a sizable volume of actions. Unfortunately, not enough to absorb the massive impact of the crisis, which was amounting to EUR 138 million. The next slide does present the same analysis, but you take from the BU perspective. So what we see, obviously, is the significant impact of the crisis on the Rubber Reinforcement business. So I think that it's important to mention there that we had the lowest point in April and during this lowest point in April, because of the government-mandated lockdowns, we had to shut down plants for our -- in Italy, Turkey, Romania, Spain, India. And in the U.S., we simply didn't have demand because a significant number of our customers had to shut down their own plants. What you can see as well in this graph is the strong performance delivered by Steel Wire Solutions and BBRG. They have significantly managed ramping up their profit performance, and we see that the specialty business is about stable, but it's stable versus an already very strong performance delivered last year and this despite the volume drop that they had to suffer from. Moving into some more details of the financials for each 1 of our 4 BUs, and I will start with the Rubber Reinforcement. This is the most affected BU from a -- impacted by the COVID-19 pandemic. The consolidated sales have contracted by 30%. That's translated into a EUR 300 million drop versus last year. The volumes have decreased by 25%, to be put in perspective with a drop of 36% in Q2 only. So we had to suffer as well from the usual impact resulting from the passed-on wire rod prices changes and the other price/mix effect, which has, to some extent, compensated this part. The volume contraction was the result of the demand collapse in the tire and automotive market. Again, driven by several number of lockdowns and customer shutdowns across the globe. And the demand was badly impacted. And as I mentioned, we saw its lowest point in April with less than half of the sales of the same month last year. And I think that helps you put things into perspective. The gross profit was down 56% against the half 1 of last year. So the business unit have implemented significant and extensive number of measures to flex part of our fixed cost but unfortunately, this was not really sufficient to offset such a steep volume decline. The underlying EBIT has decreased by EUR 66 million. This has resulted in a margin on sales of 3.9% while we were trading above the 9% mark just a few months ago. As a result of that, the underlying margin was down at 11.1% compared to 15.3% last year, still in the double-digit bracket, but down compared to last year. Moving on to the Steel Wire Solutions. So the Steel Wire Solutions business unit has reported a drop in the consolidated sales of 15%. This is resulting from the volume decline of 11%. The usual, again, passed-on wire rod price changes and the other price/mix effects, which have marginally contributed into this result for a minus 1%. And we had to suffer as well from some unfavorable currency movements of minus 3%. The demand was strong in EMEA and China. It was also strong in agriculture and utility market in the U.S. This was, to some extent, more than offset by the impact of the government-mandated lockdowns in India and Latin America, and the weak demand from automotive and the oil and gas market. Part of the sales decrease was the result of our decision to close the loss-making plants in Shelbyville and Ipoh in Malaysia. So difficult decisions that we took in the back end of last year, but the right decisions when we look at the results that we have managed to deliver from these actions. The gross profit significantly increasing in the range of 13%, moving to EUR 93 million in absolute value. This is the result of the improved business mix, the footprint improvement that -- and optimizations that we have implemented, but also stringent cost control and the impact on the mitigating actions associated with the COVID-19. The underlying EBIT increased by 44%. This is allowing us to deliver solid margin on sales of 6% and underlying EBITDA, which is improving accordingly to a double-digit margin of more than 10%. Moving to the Specialty business (sic) [ Specialty Businesses ]. So Specialty business reported a decrease of 8.5% in sales. This is driven by the lower demand in the second quarter. Both in products -- Building Products and Fiber Technologies, we had to report a decline in terms of sales of 10%. The Combustion Technologies did report a moderate decrease, and the sales in the Sawing Wire activities remained rather limited. The demand from the construction market was still strong in the first quarter of the year. Softened, to some extent, in India, Latin America and Turkey. And it was also impacted by the overall weakening economic condition. In the Fiber Technology, the demand in filtration, shielding, conductive fiber markets did offset a part of the sales volume -- percent declines, sorry, in automotive, aviation and the aerospace market. So despite this impact, the business unit improved its underlying EBIT margin by almost 100 basis points to 12.9%. And the underlying EBITDA margin did increase accordingly to a very robust 17% roughly, 16.6% exactly. So again, there, again, we have implemented several measures and also footprint improvements, the stringent cost control, the mitigating actions in several subsegments, and also we could -- we get a very good benefit from the business mix improvement. In the Building Products just to give you an example, the mix was strengthened by increasing the demand for the high end range of the Dramix steel fibers for concrete reinforcement and for innovative masonry reinforcement solutions. So a very good job performed by the teams in Specialty Business in terms of improving their commercial performance. Moving on to the last BU of our group, so BBRG. So a sales decline of 5.6%, so relatively lower compared to the other business units. So a significant part of this decrease was actually the result of the BU to reduce its presence in lower-margin applications, and this has resulted in some very good performance and results as we can see it in some of the KPIs. So looking at it by segment within BBRG. So ropes market was less affected by the impact of the COVID-19. The demand has remained at good levels in mining, offshore oil and gas, fishing and marine. On the advanced cords, we saw a continued low demand from automotive market but we achieved solid growth in elevator and timing belt markets, except in North America. The business unit delivered an underlying EBIT of EUR 24 million. That's 4x the results of the same period last year, and this is reaching an underlying in EBIT margin on sales of 10.3% versus 2.6% in the same period last year. So a very significant improvement overall in terms of performance. The underlying EBITDA reached an exceptionally strong margin of 17.2%, and so again, as a result of all the good decisions which have been taken within this business unit. So I think that the turnaround, which has started maybe some months ago, of BBRG is driven by an exceptionally strong product mix, a good project business, the perfect execution of the turnaround plan during the first half. We have also benefited from some one-offs. So we were able to release some provisions, which have also contributed to the bottom line. And like all the other BUs, the BBRG was also in a position to successfully implement all the actions associated with the COVID mitigation plan. So this concludes the part on the financial analysis for the BUs. Just to provide you some additional color on some of the details of our financials, so looking at the net interest expenses, so we see a decrease. So it's a continuation of the trend that we already had in the back end of last year. So -- and this is resulting from the lower net debt position and the lower interest charges from the recent financing, refinancing programs. The other financial result, which is where we had a degradation compared to last year and where we had to report a charge of negative EUR 15 million, this is mainly the result of the FX translation result on some realized and unrealized transactions. The income tax expense stood at EUR 9 million below half 1 2019. But the ETR, the effective tax rate, was quite high at 53%. This is an automatic impact of the COVID-19 situation on the profit before tax on many entities. And we had also to deal with some onetime effects following some changes on the legislation, which has also impacted our effective tax rate. Moving to the next slide. So the key message here is that the share [ in the ] results of the joint ventures and associates was stable. We saw a slightly better performance in the steel wire activities, to some extent offset by the lower result in the Rubber Reinforcement activities. And in Brazil, similar to other areas of the world, the tire and the automotive market has been significantly affected by the crisis. The results attributable to the noncontrolling interest for this part has remained neutralized. Now moving to the cash flow. Oswald has mentioned the key highlight when it comes to the cash flow, we have doubled the level of liquidity available for the company. So we are recording a level of cash on hand at EUR 834 million. So again, double of the amount same period last year. So when we look at the different components, which are leading us to these results, so what we see is that the cash flow from operating activities was roughly down EUR 23 million. This is the result of the decrease in the EBIT. We have also a lower level of spend and outflows from the investment activities, mainly as a result of the lower cash out in terms of capital expenditure. We see a significant increase in the cash flow from the financing activities. This is mainly resulting from the drawdown on the committed credit facilities and the refinancing of some local loans. So this is leading to an overall cash on hand of EUR 834 million. So I think that it's important to highlight that even after neutralizing the committed, the drawdown on the committed credit facilities, we still see an improvement on the cash equivalent balances by EUR 80 million compared to the year-end 2019 coming from the different improvements in the business and also the good performance in terms of stabilizing our level of working capital. And this brings me actually to the detail on the working capital and the key figures associated with that area. So what we see is that compared to the half 1 2019, we had decreased the overall working capital by EUR 236 million. So that's a very good performance. Important to mention as well that since the close of 2019, we have further decreased the working capital with the EUR 21 million. This might seem rather modest in comparison of the EUR 236 million gross compared to last year, but I think it's important also to put it in a perspective of a situation where we're dealing with the crisis and all the impact that you can have in terms of inventories, receivables and so on. And speaking of which, when we look at the inventories, we see a decrease of EUR 26 million from year-end. So we didn't release really the pressure on our team to continue with the strict control on inventory levels, so we are still focusing very strongly on that area. And as you can see, this is giving very good results for the company. The accounts receivables have decreased by EUR 94 million versus the close of 2019. This was mainly the result of the sales decrease and automatic impact of the drop in sales. And we have also benefited from some favorable FX translation effects. Worth to be mentioned, we have reduced the usage of the off-balance sheet factoring instruments. So we had a reduction of roughly EUR 32 million compared to the same period of last year and EUR 39 million reduction compared to the close of 2019. The account payable, a decrease of EUR 142 million. This was mainly due to the lower level of purchasing activities. All in all, the average working capital on sales is standing at 21 -- 20.1% to be compared with 20.6% for the half 1 2019. So a bit above the level of performance that we have delivered at year-end 2019, which was in the range of 18.2%. Moving to the consolidated balance sheet very quickly. So what we see is that the noncurrent assets have decreased [ due to the ] FX translation effect, so that was an impact of the EUR 35 million and the limited level of Capex. We see an increase in the current assets, which is mainly due to the extra cash position, partially offset by lower working capital assets. The changes in the noncurrent liabilities and current liabilities is mainly related to the transfer of the convertible bond to the current portion of the liabilities because now it is due within a period of 1 year. The key ratios. So here, you can see an overview of the key ratios. So I think that I have already covered most of them. Just a couple of words on the EBITDA, the net debt on EBITDA and the leverage. It's slightly decreasing compared to the half 1 2019 at 2.5. So again, in the context where we're dealing with the crisis, this is a very good performance. The year-end 2019 was at 2.1%. So we're increasing slightly against this level of performance. But again, this is the automatic impact of the lower EBITDA in absolute value as a result of the sales scope. The key figures per share. So you can see the key metrics. So I think that the key indicator is that as a result of the situation, we have to deal with, the EPS is down to slightly below EUR 0.60 compared to EUR 1.03 in the half 1 2019. So -- and this concludes this part of the financials. And with that, I hand it back to you, Oswald.

Taoufiq, thank you very much for your comprehensive overview and deep inside the financials. I would like now to provide the audience some more information, which might be of interest. The first one is when we look on our CapEx in terms of capital investments, our CapEx in the PP&E was about EUR 37 million in the first half of 2020. This is EUR 11 million below the level in the half year of last year. And it's strictly limit to that what has been absolutely necessary, of course, not neglecting any safety and health compliance orders. There's one further topic I would like to lay out, and this is regarding real estate. In the past months, we reached the final agreement with the buyers on the sale of some properties in Belgium. There's the first one, the sale of a plot of land Hemiksem, which will have a net cash impact of EUR 23 million and will contribute to 20 -- EUR 36 million in positive one-offs to our income statement of the second half. The second one, the sale of Dramix building in Moen and some small factory building in Zwevegem, will have a net impact on cash, about EUR 10 million, also in the second half of 2020. Now let me go to the outlook, and I think it would be very good to have a crystal ball. But we have to confess, on the one side, we see maybe a project, the capital recovery in the Italian markets as a kind of catch-up for the remainder of the year. But it's also sure the demand evolution or the markets and other businesses are much more difficult to project in the current economic environment when you have just read this morning about the GDP perspective in several countries, I think this would confirm that. But what we can influence is, of course, internally to continue to implement all the mitigation actions we have in place and to improve further the business measures we have on the plan. We also expect to continue the impact on the focus made to strengthen our resilience to face this crisis. The current evolutions and potential second wave risk of the COVID-19 pandemic continue to create, for sure, a high level of uncertainty. And I said at the beginning, in the new normal, we will continue to be confronted with a high level of unpredictability and ambiguity. In this context, we have only limited visibility on the full year impact in our markets and our businesses. But once again, let me summarize the effectiveness of the measures we have implemented. It has made us strong and more resilient to cope with severe challenges as evidenced in our financial results of the first half of the year. And by closing here, I would like now to open the call for Q&A. Thank you.

Okay. Good afternoon, everybody. We now invite our analysts to ask the questions they may have. [Operator Instructions]

Katelijn, do you hear me?

Yes, Wim.

It's Wim Hoste. Yes. Can I ask the question?

Yes, go ahead.

Okay. A couple of questions from my side. Maybe first on the underlying trends in the Rubber Reinforcement market and especially in China, we saw a rebound of car production amongst other elements that turned quite positively in the last few weeks and months even. So the question is what is -- what are the underlying trends you are seeing in the Rubber Reinforcement market globally but also certainly in China? Also maybe with regards to the technology differences, the higher tensile cords, et cetera, do you see competition trying to catch up with your position in that field? So any additional clarity on that would be helpful. So that's the first question. And the second question I would like to ask is maybe an update on the cost savings. You gave some numbers in the press release and the EBIT bridge. EUR 30 million was mentioned as a structural savings number. I think a number of the initiatives you've undertaken have not fully shown their fruits or benefits in the first half. So can you maybe provide us with your expectation on the -- of the run rates of all the structural savings measures and not the temporary ones of COVID-19 but structural measures and by when do you expect to see this fully coming in? These are the questions.

So allow me to take this question. Thank you very much for the [ juice ]. The first question you had was the underlying trend in China and about the high tensile, wasn't it? So to answer this, we have seen the hit -- what we got in the automotive was starting in February, in order -- if you recall, there was the Chinese New Year, and even this one was extended. So China was the first one to go into the pandemic and was maybe also the first one to leave the pandemic as well. And I think this is why you see a catch-up in the area over the last weeks and months to this extent. Yes, of course, so I think this is going to continue, especially when you see stimulus packages coming up for instruction -- for construction infrastructure. And this also leads to an improvement where truck tires are needed, and in truck tires, there's also more steel cord needed there. So there is a kind of a recovery side. What is in China missing still yet, this is the export, yes? It is domestic. The domestic demand is helping, let's say, a positive outlook, but the export still is suffering to the -- in other Asian market, and this is where I will say not the full potential in China is yet there. The second thing is you talked about high tensile. And I think this is a normal market involvement. When you're a market leader, everybody tries to come in the areas where you are in. But I think from the technology point of view, we are already always a step ahead. Yes, competition is there. But I think this is a normal, and it's not a scary one, and I think we will be able to stand any competition like we did in the past. So this is not, obviously, what scares us, really. Developments are there. We are going more and more [ or if ] the customers, what we said, very closed link to work on future projects on the high tensile and many other ones. This is not the only one that we got, right? The higher the [ inches gait of the rims ], I would say, the more tensile is needed, but also more [ sequence ] is needed to this effect. If this answers your first question, I would like maybe hand over to Taoufiq. You were asking about the impact of the run rate of the EUR 30 million. But please, you have another comment?

Yes. So when you look at our bridge, basically, we have, in the overall bucket of the cost savings, 2 major components. What we look at as mainly tactical and punctual actions associated with the mitigating actions for EUR 52 million; and then what we see as more structure, which is -- all the savings resulting from the restructuring and activities like that. So it's a total amount of EUR 30 million. EUR 10 million out of this EUR 30 million is on savings, maybe overheads out of the depreciation. So there's a EUR 20 million, really, which is coming from the different restructuring actions. What we have communicated is that the initiatives that we took and that we are expecting to generate recurring savings are mainly the ones related to the Belgium restructuring, including part with the closure of Moen. And we estimate the recurring impact on a full year basis of around EUR 20 million. Then we had also the closure and the restructuring in the U.S., Malaysia, [ Ron Rogers ] as well. And BBRG, which are also estimated to EUR 20 million. So EUR 40 million recurring expected saving on a full year basis out of this EUR 40 million, we have already delivered EUR 20 million. So we still have another EUR 20 million to deliver for the next 6 months. So based on that, we consider that we are on track with the expected savings that we were initially aiming at.

Yes. [indiscernible] Can you hear me?

Sound is not great, but I think we will manage with that.

Okay. With regards to the COVID-19 mitigation actions, the cost savings of EUR 52 million, should we view all of those costs as temporary? And if so, how should we think of the cost and the savings of those costs coming back in the second half and into 2021? That would be my first question. The second question is how much government supports furlough, [ food ] sites support have you received in the first half. And maybe additionally, if you could split that between the 4 divisions. And the third question is on working capital, twofold, basically. Your DSO was rather solid. And is this a sustainable level going forward? And can you elaborate a little bit on that on why then? And with regard to factoring, you previously communicated a soft target of factoring of around 20% of accounts receivables. It's much lower in the first half of this year. What has caused that change of heart?

Yes. Okay. So I will start with the mitigating actions and try to bring you some perspective on that. So overall, when you look at what we had in the bridge, so we have reported the mitigating action associated with COVID of EUR 52 million. So when you look at the breakdown, so this is a mixed bag of different things. There is a part which is mainly related to the cost control. So you have the operational cost. You have also a lot of discretionary costs, [ G&A and] consultancy. You have some cost which, automatically because you have less travels, less activity, so you see this going down. And when it comes to the government tab, so this was done through different levers. So you have typically what we see in the 4 low regimes. The subsidies for the temporary unemployment in general. And in the overall pocket of EUR 52 million, the labor is the biggest part. So when you break it down, so there's a EUR 26 million, which is the overhead; and another EUR 18 million, which is COVID-related different type of [ subsidies ] and so on. Looking at the specific contribution from the government, we saw different type of contribution. So it's ranging everywhere from compensating the loss of income for our employees, to the direct payment to Bekaert, to waiver of some taxes in some areas of the world, some delays in terms of paying, well, some of the taxes. So it's a very, very diverse type of contribution that we got there. It will be very difficult right now to give you a breakdown by BU. I think that what -- the indicator that you need to look at is that since these measures and costs were mainly addressing the labor part and, more particularly, the blue-collar part, you would expect that this would go mainly through the BUs, which have the biggest operational footprint and the biggest [ bits ]. So that's what I can say about the mitigating actions. Then if we move to the factoring. Actually, for a long time, I mean we have used factoring as an opportunistic measure. I mean it's not something that we are starving for. We're doing it on a very opportunistic approach when and if it makes sense. The other thing that needs to be put in perspective is that with the level of liquidity that we have, we're not desperate to go blindly after factoring. So when we look at the overall usage of factoring in the company, we are currently at 13%, 1-3, of our receivables. I think that we can go up to 20%, but we really want to do it on an opportunistic basis. We did have, indeed, a slight decrease this year simply again because, back to what I just said, we didn't run for it desperately. And then also because you have an automatic reduction of your overdues because you have lower level of sales because of lower activity. So that also explains the reduction that we're reporting in the financial instruments.

And just coming back on your answer on the COVID-19 mitigation actions. I'm not really sure whether I really got a sense of -- what element of those costs are now temporary? And when will they come back? I appreciate the explanation of the EUR 52 million, but they will come back at some certain point in time.

Yes. I mean, again, when you look at the EUR 52 million, it's a mix of cost savings and also a portion of inflows that we have received from government. So as the business will pick up, as more and more plants will be become operational, you will see an automatic drop within these kinds of things. The other levers that, for instance, we have used internal -- from the operational side to deliver on these activities, it's some buckets of operational costs. So typically, when you're not using your factory, you have less maintenance spend on that. So you would expect these categories of cost, which are the true main buckets making up the EUR 52 million, to come back, and there's no surprise about that. Having said that, I mean we have also learned from the crisis how to live with a higher level of frugality. So I mean within these costs, we have also spent less in consulting. We have adjusted our way of working in order to be able to spend less in traveling. And we are not yet expecting this to come back. We will still continue applying the same kind of discipline on the part of these mitigation controls, which are controllable.

Okay. And then on the DSO, I had a question on the accounts receivables and the sustainability of that relatively good level.

Yes. So the -- as I said, I mean when you look at the good level of the DSO, so this was driven by the fact that we had lower level of receivables. But what we have seen as well is the -- we had the stronger result with the collection efforts that we have implemented. So we are expecting this DSO to slightly increase between now and year-end, but we want to set a benchmark or target for us internally, at least for 2020. And we're really aiming to keep it in that level. So we will see if we need to apply some additional factoring on top of it. We will not do just for the sake of improving our DSO. I mean we will see if it brings other benefits for the company. But for the moment, we need to -- and this is where the uncertainty comes in place. I mean we don't know to with which volume the business will pick up and how it will impact our receivables. But we have a clear target to maintain the overall working capital at the level that you have seen now. You saw that overall, I mean, when you combine the different working capital elements, and we saw it in the result delivered in year-end 2019, we can reach an average of 18 -- above 18%, below 19%. This is still the internal target that we have. We will take into account some potential increases coming from the fact that the activities across the globe might resume and pick up, but we have set a clear target in the range of what we see currently and as an average for the first half in terms of working capital.

Next?

Emmanuel Carlier from Kempen. Three questions. The first one is on your outlook. So just looking at consensus, looking at the consensus, looking at underlying [ EBIT ] in the second half of the year [ half over half ] in that we guide for a gradual recovery in Rubber Reinforcement. So this seems quite prudent. I understand that we don't have a lot of visibility on [ for us ]. [ And those ] will be so much more difficult. On the other hand, cost savings will remain quite high. So the question is how do you look at consensus estimates? And what are the main moving parts at the perspective to the [ key to ] 2020 underlying EBIT? That's the first question. Second question is just on the footprint. How do you look at your footprint, taking into account the new market reality? Should we expect additional closures? And the third question is how is the current prices impacting some of your competitors and future potential benefits in some -- by [ patients ] from companies [ going bust ]?

Maybe I'll take the first part on the outlook, and I think I said it's a little bit the topic of the crystal ball. And I would agree. We see some [ maybe it’s ] recoveries. I would even say it's a kind of a catch-up for the third quarter and when we look on the inventories maybe of tire makers, et cetera. And -- but the key question is will this continue into quarter 4. We see different signs all over the globe. This is certainly, and we hope see -- I've seen that April was really one of the most difficult ones but May-June coming back. And for the first quarter, I think that we see a positive trend on catching up again, of course, being far away from that, what we have seen in 2019. But I think this is RR. When we look on SWS, we have always the seasonality. We have a hurricane season. And in Americas, we're still facing a lot of uncertainties. When we look now on the specialty business, I think we see a little bit of a continuation of the level we have today. There are stimulus package out. We are very well established in the markets with our products. So I think we can be somehow -- yes, we have a better visibility. But of course, it's not full potential. We are still in a depressed market. We see some signs also in the fiber business for the automotives that might go back. The same seasonality effect, and this is not only the seasonality effect for BBRG, it's also project which are there. And of course, we are watching very carefully the outlook, let's say, the pipeline we have or the funnel of fleets we have for the projects to come. But all in all, we have to be really prudent to say we do see some signs for the first quarter. And our -- we understand there's seasonality what we have in SWS and BBRG. And the project business always it depends -- on the tendering. And then finally, orders are taken on this one, yes? Now Taoufiq, would you like to answer the part of the question, the outlook of the financials?

Could I maybe first add-on a question? So related to your guidance, quite important driver was also mix effects in H1. Is that something that will continue into the second half?

Yes, of course, we strive for this positive mix effect, absolutely. And I think this was also a part of the strategy to go out of applications where we have low margin, we can go in higher margin. But of course, the customer has to accept it, yes? And that customer, we have to sell the value for the customer. And this has happened quite well in the first half.

Yes. So just to add up on that, I think that when you look at the historical performance in Bekaert and all things being equal, we always see that the second half tends to trend lower than the first half. So in the case of last year, we were in the range of EUR 10 million below in the second half compared to the second half. And when we do the same analysis over a longer period, you see a gap of 20 -- up to EUR 20 million between one quarter to the other. So this is something that needs to be factored in. What makes it a bit complicated is how do you factor in also the potential rebound that we're seeing in some of the segments compared to the first half of next year. How sustainable is it? And how long would it last? So that's the reason we have this -- the guidance, which is somehow a bit difficult to make. We understand that the consensus is in the range of EUR 175 million. We needed to understand now whether we're taking into account the definite -- the different elements that I referred to and maybe the seasonality of some of our businesses, like Oswald has mentioned.

I would go to your second question, if it's okay for you. This was about the public footprint, yes? And you have seen we are constantly evaluating, let's say, the health and future potential of our activities, and COVID-19 is not only the trigger for that. We have heard about Shelbyville. We have heard about Ipoh in Malaysia. We just have mentioned the savings was in [ 2009 ] on Hemiksem. I think this is a continuous topic you address to this one, yes? And of course, this always has to fit to the customer needs. This has also to be the closeness of the customers. But this is independent, of course, from the, I would say, from COVID-only diseases. This is a general topic we will always do, yes? This is very clear.

Yes. What surprised me just a little bit is that with end markets being massively under pressure, it's the first 6-month period, I think, that you don't really do a lot of restructuring. That's why...

It was happening to what extent?

Well, I mean footprint optimization. Typically, the last 2 years, you have done a lot in terms of footprint optimizations. But yes, with corona having a quite severe impact on your business, I would have expected, and I think consensus as well, if you look at the one-off costs that people are expecting, I think most people expect quite some [indiscernible]. I just want to check if it was anything in the pipeline without really disclosing what it is, of course.

Yes. At least we will continue to check on that to prove our footprint. And of course, when you have a change of demand, but this is also a little bit linked to the footprint discussions of the customer. Also, there is something going on. And as you might imagine, we have quite capital-intensive factories. So it's not like opening and closing. So this has a little bit of, I would say, a midterm strategy. But footprint discussions are ongoing, of course, also in this environment. This is very clear. And you have seen that we have also, in June, we have a small plant close in Texas. We have shifted Dramix to a [ PPIG ] plant. So I think this is already continuing. This is nothing special. But of course, you're absolutely right. It's reinforced of that what the COVID needs but it's also a little bit linked to the outlook, what's coming up. Yes. And this is -- this was an interruption. But what you also see is if the demand is coming back, and you somewhat get caught on the wrong leg, it's maybe also not so helpful. So it's really a good discussion with our customer where they see also the need, and we look very closely with them where we can be locally as well.

And then the third question...

About competition?

Yes.

When -- especially, I think our business is very, how we say, transparent. And here, we're watching very carefully how the financial behaviors is, how close -- know we are close to the customers. We have seen in areas of WS, which is a more fragmented market. Here, we have also been watching how the competitors are doing. And we have seen that we got sometimes orders from customers which have not been with us, but they [ joined us in ]. Taoufiq, do you have a comment as well on the competition?

No, I just wanted to come back quickly on the outlook and how we view that. I think it's important to highlight that, I mean, when we look at the different improvements that we have delivered, and typically, the pricing and mix being one of them, I think it's important to clearly insist on the fact that this is not a one-off. I mean it's something that we will still see for the balance of the year. So I think that we had some improvements, which have been delivered. We know better how to manage the situation with self-help measures. I think that we can also benefit from the good improvements that we're doing from the commercial front. We're seeing also some improvement coming from the demand, which is progressively picking up. So I mean, all of these put in perspective does give us some level of comfort that the second half will not be -- I'm not saying easy, right? But I think that we know what are the challenges, and whatever we have to do, we are implementing these measures to make sure that we still deliver a strong performance in the second half. And to come back on the restructuring. I mean this is typically the kind of things that, I mean, you were referring that what we have done in the previous periods and the fact that we have been relatively quiet on that front. I mean it's not something which is planned to happen progressively throughout the year. I mean we are very opportunistic, as I already mentioned to some of you, in the way we want to tackle our footprint optimizations. It's an exercise which does take time. I mean we need to understand the impacts for our business. All I can tell you is that we're looking at all the different fronts in terms of what are the actions that we can take and that we should take. And when the moment is right to announce that, we will do an announcement associated with it.

Yes. The reason I was asking is that to get to the 7% underlying EBIT margin, you probably have the footprint optimization.

Well -- not absolutely. I can only agree with you, and that's the reason why I'm insisting on the fact that the assessment of our footprint is really an ongoing exercise. We are bound, as you can imagine, by obligations and by the analysis and work that we need to do internally before coming up to the conclusions. But we are not leaving any stone unturned to make sure that we can optimize our footprint to get as soon as possible to this 7%.

Yes. And really final question from my end. So on competition, do you see in some segments competitors post the bankruptcy?

You want to take this one, Oswald?

Yes. We are tracking it very carefully. There are some companies struggling, yes. But I -- and we're watching this very carefully all over the globe. We see competitors, what I said before. We get orders from some customers, which they have been with competition. We appreciate them, and we appreciate that they will stay longer with us. I haven't heard anything, but I think this is very transparent in the market if some bankruptcies -- there are always rumors around. This is true. But we focus on our relationship to the customers, and we see that we can gain additional offers on the one side but also orders from the other side, yes? And here, we see that maybe some customers are cautious with [ room to grow ].

This is Frank Claassen of Degroof Petercam. I've got a question under your CapEx for this year. What is your latest view on the CapEx numbers? And do you only expect maintenance CapEx? Or are there still growth projects in there? And what kind of projects?

Yes. I can start maybe here, and Taoufiq, do you want to go in on this one? So on CapEx, we have a threefold CapEx approach. The first one is always safety and healthy. [ And I keep it right here. We want to be ] compliant with all what we need to do and want to do. We want to keep our people safe. We have [indiscernible] programs. We have gathering of machines. This is continuing. It's a little bit delayed because there were some plants, somehow, they were, of course, shut down on a low level. This is -- normally delays a little bit the programs, but here we go ahead. The second part of what we have is about maintenance and improvement. This is also normal processes where we improve when, I would say, the utilization of a machine where we had better energy usage out of this one. And the first bucket is for growth projects. And when you see, we are trusting [ Berto Covice ] on the BPR, on our Building Product, on our Dramix plant. We have 2 investments. We also took currently the investments for the Vietnam projects. And if you want to have somehow, let's say, a guidance in the last year, we have about EUR 100 million here. And I will say this is always an indication where we might go in [ future as well ] in the current base. But it's important to understand that this is a threefolded bucket, where we're coming from safety and health improvements and maintenance. And of course, some of the maintenance project, because the factories and the plants were down, didn't need this maintenance to the extent that maybe [ when you have a full-ramp factory ], but the growth projects are covered as well.

Yes. It's [ Stan ] [indiscernible] ING here. Can you hear me?

Yes, [ Dan ]. Go ahead.

Okay. Good. Three questions from my part. First one is on Brazil. A few of your peers have actually reported a fairly strong second quarter in Brazil with the full impact of COVID-19 only to be fully felt in the third quarter. Is it something you recognize? It doesn't align with minus 60% of volumes in Rubber Reinforcement in your Brazilian joint venture, but potentially other end markets such as construction have performed differently. So that's my first question.

Taoufiq, you want to take that Brazil up?

Yes. So what we saw in Brazil is that the Rubber Reinforcement business did suffer in the area. So we did see and did notice an overall slowdown on the Rubber Reinforcement in Brazil. The order activities did also got marginally impacted, mainly in the construction business because of some sites -- construction sites which were stopped. Unfortunately, I mean as it stands now, for the second half, we didn't see a major improvement or stabilization coming out of Brazil.

Okay. That's still trending lower.

Yes.

Okay. Another question is on CapEx. So did I -- on Frank's question, did I understand that you see EUR 100 million of CapEx as a decent run rate number? Because it's such a quite -- it's such a difference with the previous levels. And then related to that, can you give an update on the Rubber Reinforcement expansion in Vietnam and what's the status there?

Yes. I will take the first part of the question. The EUR 100 million is definitely not the run rate. So the EUR 100 million is something that we have -- we are considering in the context that we did wait. I mean, as you know, I mean a lot of plants were not operational. We're completely mindful and fully mindful that this is the main lever for the growth, and this will be reassessed for the next year. Having said that, we don't see CapEx now as a lever to optimize our level of [ liquidity ]. And as you see, we are rather on the comfort zone on the liquidity. So that's why we want also to remain very opportunistic. Oswald and I, we still get many requests for investments in new machines and things like that. So we're trying to have a very opportunistic approach when it comes to that. And we see how the situation evolve in order to release or to relax a little bit the discipline that we have implemented with that. So I mean with the current climate, we don't want to rush into a major investment. And just again, to confirm, EUR 100 million will not be the run rate.