NV Bekaert SA (BEKB) Earnings Call Transcript

Good morning, and welcome to the Bekaert Third Quarter 2025 Trading Update Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the floor over to your host, Mr. Dries Van Hamme, Director of Investor Relations. Sir, the floor is yours.

So welcome, everyone, to the analyst call on our Q3 trading update. As usual, I'll read out the safe harbor statement before passing on to Seppo Parvi, CFO, who will take us through the sales update and then to Yves Kerstens, CEO, who will conclude and give an outlook before we take it into Q&A. So this presentation may contain forward-looking statements. Such statements reflect the current views of management regarding future events, and involve known and unknown risks, uncertainties and other factors, that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Bekaert is providing the information in this presentation as of its date and does not take any obligation to update any forward-looking statements contained in it, in light of new information, future events or otherwise, and we do not disclaim any liability for statements made or published by third parties and we do 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 I now hand over to Seppo.

Okay. Thank you, Dries. And let's start by looking at the top line development. First of all, if I would describe shortly, third quarter. It's fair to say that we had an experienced stable sales in the third quarter in difficult markets, and we have continued to focus very much on cash flow generation. Like-for-like sales in the third quarter were brought in line with last year. We saw some volume growth in core markets. But like I said, we are very much also focused on cash flow and further cost improvements. If you look at the reported sales, we saw 3.8% decline due to the foreign exchange that is a translation related. It relates to operations in U.S. and China. Both currencies have weakened during the year and obviously then converting to euro, our base currency, we see drop on the sales line. Adjusting for M&A as well as some capacity closures, that's another EUR 30 million reduction on the reported sales bringing at EUR 890 million like-for-like base from -- in Q3 last year, so 1% reduction there. Some volume -- positive volume improvement and development as well as the price mix reduction may be pass-through of the lower raw material costs. Looking at key drivers and 3% volume growth that we saw during the quarter. We had growth in energy and utilities sector in Steel Wire Solutions, that is transmission wires, especially on the U.S. market. We had also volume growth in China for Rubber Reinforcement and happy to report that we were running our plants fully over there. U.S. flooring business was improving in the third quarter for Sustainable Construction business. However, we still saw some effects of the tariffs, but especially the number of tenders increasing in data center business, but also in industrial and warehouse related flooring projects were picking up, but not at the same level as we have been in the previous year. And in the steel ropes business we saw weaker demand, both in Europe and North America. Then moving to 9-month sales bridge where we are year-to-date. Our like-for-like sales decline was mainly driven by lower raw material costs. If you look at the reported 9 months sales, we had about 2% negative effect from the FX and the M&A closures had the effect of EUR 26 million. So like-for-like, '24 sales were EUR 2,931 million compared to EUR 2,833 million this year. Then let's look at various business units and business behind, let's start with Rubber Reinforcement, well, like I said earlier, we saw volume growth both in China and North America. Now the picture was a bit mixed across regions. So in addition to volume growth in China, where we saw strong domestic markets, we had volume growth also in North America, but lower volumes in Europe as well as in India, where we saw some increased competition from imports to the market. We have worked on optimizing our plant utilization, especially in China, that has helped us to support profitability and overhead coverage as well as cash flow in the region. Also happy to report and tell about the award recognition for our reinforcement innovation work done, we have received Green Point China - Sustainable Case Award for advancing low carbon tire manufacturing in Ultra and Mega Tensile solutions. And then let's not forget our sales in Brazil, joint venture in Rubber Reinforcement business had sales of EUR 33 million in the third quarter. And these are not included in our consolidated sales, I'm sure you are aware. Then moving to Steel Wire Solutions, where we had strong volume growth in energy and utilities business, I'm happy to report that we have actually like-for-like basis, 6% increase in the sales. We had strong volume growth and higher volumes also in China, supported by strong automotive end market, in addition to energy and utilities market, like I mentioned earlier. You have to remember, if you look at the reported sales that there's an effect of about 30, 3-0, EUR 30 million from divestment in LatAm, Costa Rica, Ecuador and Venezuela businesses that were finalized end of the first half of this year. And sales in Brazil joint venture, EUR 166 million in the third quarter. And again, to remind that those are not included in the consolidated sales. And before moving to next, just to remind and comment also that we are expanding production capacity in U.S. to EUR 1 billion as the grid investments are supporting demand for transmission wires, one of our key businesses over there. And that is help and we are leveraging on our local U.S. footprint to enforce our position there. Then in BBRG, our ropes business, synthetics business is performing well. Other than steel ropes, we have seen a bit softer market conditions. We have seen weak demand in North America partly due to tariff uncertainties, but also in Europe from lower mining activity, and we expect soft demand to continue also through the rest of the year. Synthetic business is performing well, strong performance from the newly acquired BEXCO and Flintstone also integration of those businesses has been done well. We continue to optimize our production footprint with traditional site closer now in Scotland, and we are now consolidating our activities to Belgium. In A-Cords business, we were impacted by lower hoisting demand especially lower elevated demand in China and Europe has reflected subdued construction environment. New long-term sales agreement was signed for elevator hoisting belts with a key OEM that is sort of also a bit taking our position because earlier we were focusing more on core side. In Specialties, where we saw some positive signals in North American flooring market in the third quarter after the slow first half of the year. Positive momentum in India and Middle East has also continued, and we see nice growth opportunities there going forward. Weak demand in Europe has impacted volumes and in prices, due to the subdued construction market that was also visible already during the earlier part of the year. And on the tunneling side, we have won some new projects during the recent months and weeks, and that provides us greater visibility for future volumes. If you look at the other segments in specialties, in hydrogen, weak demand has continued, and that is also a reason why we have decided to pause production in Wetteren to address demand slowdown. However, I want to remind that we do continue our hydrogen-related production in China and Japan. And we continue our development work with the key electrolyzer OEMs to continue our progress in the area and also to strengthen our position for the growth when that comes. This hydrogen, we have seen weak demand in filtration and fiber-end markets. In combustion technologies, that business has been resilient in North America and China, while there has been challenges in Europe. And in hose and conveyor belts, we saw some volume growth in the third quarter. Now handing over to you, Yves, on summary and outlook.

Yes. Thanks, Seppo. So if you look at quarter 3 of this year. I would say, a good stable sales satisfied with the sales in a very challenging market environment, where we see some volume growth in some business and in some regions, some country geographical mix evolution. And so we've been very well navigating the challenges of the potential headwinds of the tariffs. We continue to focus on what we can control. And of course, that's cost optimization, that's balance sheet management, is cash flow generation. Let me give some comments on the footprint changes we've announced. First of all, the consolidation of the synthetic ropes production in BEXCO. So as mentioned by Seppo, the business development performance, but also a pipeline of projects for the synthetic ropes is developing very well. And so we concentrated all the production into the BEXCO operations into Belgium. On the other side, more driven by market delay. As mentioned, we had the opportunity to put on hold the production site in Wetteren and focus supply from China and Japan for the business for the upcoming 2, 3 years. We keep on focusing very much on good cost evolution, both into SG&A, but also in our footprint evolution over the upcoming years to really be competitive in a global market, and we expect also very good cash flow generation for 2025. We continue to scrutinize the CapEx spending. And since growth platform are well invested, there's no additional CapEx needed there. We continue with the share buyback where we are almost half -- half of the program of EUR 200 million. So EUR 100 million has been completed year-to-date. From a full year outlook point of view, we are targeting a sales of EUR 3.7 billion and an EBITu margin of 8%. Having said that, I hand over for Dries for the Q&A.

Yes, who will we take first in the queue for questions.

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

I have a couple of questions around Rubber Reinforcements and then a follow-up on CapEX. So first, on Rubber Reinforcements, China is fully utilizing capacity. Can you maybe give some or shed some light on the capacity utilization levels in the other regions? And then I'm also very interested in the current profitability breakdown per region, if you can shed some light on that, yes, how is China doing versus the rest is basically the question. And then also, is there any impact from Zenith or from competitive pressures on pricing in China? If you can also elaborate on that? So that's on Rubber Reinforcement and then a follow-up on CapEx is, can you update us on given the investments you're starting in the U.S. or you're undertaking in the U.S.? How much is the full year CapEx budget would then be and maybe also shed already a light on 2026 regarding CapEx. Those were the questions. Thank you.

Thank you for the questions. I propose I start with the RR on the capacity utilization and also on the competitive landscape. And then Seppo, you can give some perspective on what that means in terms of profitability by region. So basically, as mentioned, strong demand in all automotive sector in China, and with a pull-through to tire core. So plants are fully loaded between 95%, 100%, full utilization. We continue to work, of course, to optimize the output of the existing footprint we have over there. In terms of competitive landscape, the overcapacity, as mentioned before, has been there before the last couple of years, correct? So no drastic change there, except that they need further scaling up. But you see that we are holding a very good position in China and a good balance of market share and profitability. But then I would say then in terms of the regional mix, I think, Europe and the question around -- Europe and U.S. So from a figures point of view, top of my mind, I think we'll be around 60%, 65% of utilization in the -- in Europe and U.S., so close to 70%, yes.

When it comes to regional profitability. This is, of course, a trading update, so we don't go into profits and loss more in detail, but a more higher level. So I think the challenge, of course, is that when looking at profitability in some regions. And as the volumes are shifting more and more to China and Chinese market, but more the production in China is, of course, how you manage your business portfolio. And there, our team is working very much is on focusing on customers who appreciate quality service, innovative product performance and there we are able to, of course, get better margins than on those customers who are only interested in the volume and that could offer volumes. So I think there our team has been doing a good job. But if you look at the year to-date figures we reported for the first half in RR, I think it's a proof point that we have been able to keep profitability on a good lever in RR despite the pressures on profitability-related pricing of some of the competitors. Then your question on capital expenditure. As Yves mentioned, we have EUR 145 million for this year, as expected, CapEx, we are well invested in our growth platforms, EUR 145 million is a reasonable figure, keeping in mind our maintenance needs, which is roughly half of that EUR 145 million, and that leaves us still with CapEx that we can spend on some growth projects as well as improvement projects. As well as for instance energy efficiency improvements that we are working on various parts. When it comes to next year CapEx, we will come with more detailed guidance related to next year in connection to our full year report in February and then they can share it with you more outlook there.

If I'm right, you had also a question on CapEx in the U.S. Is that correct?

No, it was more general CapEx given that you announced some investments in the U.S., but I think the question has been answered.

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

Two questions, please. First of all, on your margin guidance, you've lowered it, let's say, from the range, 8.5% to the lower end, 8%, where do you see the gap, let's say, the difference between that -- those margins versus a couple of months ago? Why have you lowered that to the lower end? Let's put it this way. That's my first question. And secondly, on the import tariffs in the U.S., have we now seen -- have you been able to pass it on all now? Or is there still some to come? And how is the local demand environment reacting? Do you see impact of these tariffs, or yes, some words on that, please.

I'll start with the last one on the tariffs in the U.S. and situation on the economic activity and our volumes there. So I think we can say that we are now in a stable situation, correct, where the import tariffs are clear, translated also in terms of agreements with our customers, what it means in terms of pricing. So we've seen, of course, a local uptick in the wire price in the U.S. as an input material, and that means also for us translating that to the -- our customers and that has been done. Secondly, we see a slightly better local demand, but not yet I would say, to the expected benefit of the import duties, which is to promote local production. So I think it's too early to see that. But certainly, we see a slight increase in that amount for local production.

Then when it comes to 8% EBITu margin that we are guiding now for a full year. First of all, like you said, it is -- we think that the guidance rates we are giving earlier from 8% to 8.5%, but at the lower end of the range. If you look at the businesses and also like commented, I think we are seeing positive momentum continue in SWS, as an example, but also like I mentioned in the report, we have seen the soft market to continue on steel ropes as an example. And we see still quite a lot of uncertainties when it comes to year end in many other business like construction, we saw some improvement in the volumes in Q3 but winter months are always a bit shaky construction business, and typically, they slow down. And in some of the business as well. I think it's very much still around the uncertainties that we have seen and continue to see partly because of the tariffs and partly because of the economical situation, which is not really picking up currently compared to past.

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

So on Steel Wire Solutions and BBRG, I think last quarter, there were delays in American energy and utility sector that was attributed to the tariff uncertainty. And now this quarter, I see that this is somewhat resolved, they reflected in the order book. However, in BBRG that uncertainty persists. So could you maybe elaborate on the uncertainties or the differences in the underlying dynamics between the 2 segments and maybe explain why the uncertainty has been alleviated for one and not the other? And then second question, if you care to give an update on the midterm guidance because I think there is a midterm guidance of higher than 10% EBIT margins. Do you now expect that to be like 27% or 28%. I know you have never been down a date, but it would be handy to know. And then third question would be probably a quick one. It's basically on the steel tariffs in Europe, I think as of next year, I think steel tariffs are going to be implemented. So would you consider that a net positive or a net negative for Bekaert in the current state that the tariffs are going to be implemented?

All right, Alexander. Good. Okay, let me take them one by one, and please Seppo, fill me in to complement. So your first question was about the difference about the business opportunity or challenge for SWS and BBRG in the U.S. based on the tariffs. So what we see SWS, so there we -- the main business we do in energy and utilities is basically the reinforcement cable for overhead conductors. And so the initial situation in the U.S. was that, let's say, the import duties on the steel components, but not on the finished conductors. That has been through the local, let's say, local businesses and ecosystem players clarified, correct? And there is a more competitive situation again now for local production. So I think it was a time to, let's say, I would say, settle down the tariff set up for the full value chain. And so we saw that in Q3 and also for the rest of the year, a good continuation of that business. while that value chain or supply chain setup for ops is different, correct, the local production, the export to Canada. There's not a competitive landscape than in SWS where there are a couple of competitors for this finished or the reinforcement cables for conductors, well, of course, the competitive landscape of ropes is different. So there's a really clear driver why that is slightly improving. Then on the midterm guidance, as communicated, I think, in the mid of the year, correct? So in the Capital Market Day, based on the situation, the plans and the outlook on the sustainability agenda that we saw in '23, we were predicting a 10% EBIT levels from 2026 onwards, we already updated in the last update that perception of -- projection, I have to say, based on the delay in the growth platforms and driven by a different sustainability agenda on hydrogen and also some other segments like the floating offshore wind. And so we moved that target to a midterm target without specific date and it will mainly dependent on the program of further scaling up growth platforms, new growth platforms and also economic situation. The good thing is that with all the actions we've been taking, we will create a lot of operational leverage which means that with an economic uptick, that should certainly be a lever to work towards that 10% EBIT. I think then the last question, if my memory is good, was about Europe, correct?

Steel tariffs.

Steel tariffs in Europe. Yes, good. So I think we are still in the middle of the deployment of the policies of the European Commission, correct, which were the protect, let's say, safeguard the steel industry in Europe with the reduction of the quota on the tariff-free import and also a doubling on the import duties, correct? So this is mid of next year. if I'm right, will be the implementation date. So that's in full preparation, still need to be voted in the European Parliament. So we'll have to see. So we are monitoring the same like we did for the U.S. in terms of our supply chain, our flows, our competitive situation, what it means for the different businesses and the different flows. Coming back to the intention and to protect the steel industry, but it's not only to protect the upstream, but it's also to make sure that the whole steel industry in Europe is having fair competition with imports. So I think this discussion are, if I'm rightly informed, still ongoing on the European level to make sure how the full value chain in the steel will have a fair playing field. So a little bit too early to say how concrete, but we can confirm that we are clearly close to it and monitoring what opportunities and challenges this gives and we'll adopt accordingly.

And of course, key is that like in the case of U.S. tariffs, we will monitor the situation and then react fast if we see that the steel prices are increasing to pass through the raw material price changes, as always, the logic, but that remains to be seen what is the effect and when.

Great example and if you look at from the intention of the Metal and Steel Act for Europe is to make the whole steel industry more competitive and that should not lead to price increases normally but should lead into more local production, quite more competitiveness for the whole industry.

Our next question is coming from Martijn den Drijver with ABN AMRO.

A number of questions. I'll do them one by one. Yves, coming back to the European import duties. I understand that -- if I understood correctly, that in the U.S., the local wire rod prices have gone up after the import duties. We don't know the outcome yet of the European vote, but let's assume that Europe votes for these import duties. Wouldn't it be fair to assume that prices in Europe would also go up? And if so, given the price pressure that we've seen lately for various reasons, how would you deal with that in that situation? That would be question one.

So first of all, let's see, Martijn, what's going to happen. It's correct that you see that the first impact in U.S. was wire rod price up, but the normal intended of the measure is that there would be more local steel production, right, which the utilization of the mills in Europe -- in U.S. and Europe are low. That's also why these protective measures are taken. And economically, people should expect price reduction and efficiency to make the whole downstream industry more competitive. So I think we need to monitor and see how it plays out first in the U.S. but then also, and you're right, the next step is here in Europe. So if it's, let's say, 2 scenarios, if it would lead to wire rod prices increase in Europe, there are a couple of levers we have. is how much we source wire rod locally here in Europe and how much we import, including the 3 quarters that they are, correct, to have a competitive offering. Secondly is on some of the product segments, depending on the competitive landscape, do we compete with local competitors, do we compete with import products. We will pass through, right, these increases like we've been doing in the U.S. And so there could be third segments where the competitive landscape is strengthening or where we would, on the other hand more competitive also being local. So I think your assessment is right and we have to see what's going to happen.

Okay. That's fair. Then on RR, forgetting about Q4, can you tell us a little bit what's your clients are saying, when they talk about 2026 in the truck bus segment and also in the PCR light commercial vehicle segment. What are they telling you in terms of, well, RFPs, RFQs, just a general sense of how they're thinking about 2026, please?

Of course, it's a little bit early. We're in the discussions with our contracts, with our customers. You know that we make with most of them pretty long-term agreements for the upcoming years and have long-term relationship and so we're in the midst of discussing the volumes, the shares. I think in general, I would say, without disclosing specifics, but overall, I think we need to -- the tire demand is a pretty mature business, correct, in terms of global demand with some left and right some growth, but also let's assume on average table of plus 1% to 2% growth. So moderate growth in the whole tire industry. Then you have the evolution of the competitive landscape of the tire makers, the competitive landscape between the Indian, Asian, European, U.S. players. And there we need to see -- there are actions, correct. So we've seen evolutions in market share of some players. And of course, these players are not standing still, and they are taking actions to recover market share. And that's what we expect for next year, again, I want to repeat, we are in a good position that we are supplying all of them, and we are present in all regions. But that's the dynamic I see playing out next year.

Good. And then moving on to BBRG and specifically, A-Cords, A-Cords volume was down in 2024 by roughly 1% year-to-date, minus 7%, that's mainly elevator driven. Can you talk a little bit about what you're seeing specifically in the elevator business, not so much the region. So that's specified in the press release. But talk a little bit about competition, perhaps also touching a little bit on the demand side, non-resi Europe is not going to improve materially. China has plans, but they've had plans before. What are your thoughts on the elevator market going forward?