NV Bekaert SA (BEKB) Earnings Call Transcript

Good morning, and welcome to the Bekaert H1 2026 Results Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the floor over to your host, Mr. Dries van Hamme, Director of Investor Relations. The floor is yours.

Good morning, everyone, and welcome to Bekaert's H1 2026 Results Presentation. Thank you for joining us today. Before we begin, as usual, let me draw your attention to the safe harbor statement. This presentation that we will run through today contains forward-looking statements. These statements reflect 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 provides the information in this presentation as of its date and does not undertake any obligation to update these forward-looking statements contained in it in light of new information, future events or otherwise. We also do not claim any liability for statements made or published by third parties and Bekaert will not undertake any obligation to correct such data published by third parties in relation to this or any other publication issued by the company. With this, I now hand over to Olivier Biebuyck, our new CEO.

Thank you, Dries. Good morning, everyone, and thank you for joining us. As many of you know, this is my first earnings call as CEO of Bekaert, and I'm pleased to have the opportunity to engage with our investors and analysts for the first time. I look forward to building an open and constructive dialogue with all of you. So, I will start with a few reflections from my first 2 months at Bekaert and the key highlights from the first half. Seppo, our CFO, will then take you through the financials and operational review in more details. After that, I will come back to discuss how we are building on the stronger foundation created in recent years, and we will then close with the full-year outlook before opening the call for questions. So before turning to our first half results, I would like to share a few reflections from my first months with the company. What attracted me to Bekaert was a combination of strong fundamentals and untapped potential. This is a company with a long history of innovation, deep engineering expertise and global leadership positions. At the same time, I believe the business is at an important moment in shaping its next phase of development. What I found in my first month is a company that has delivered strong results in a period characterized by low industrial growth and external geopolitical shocks. The company sustained its profitability at higher level, strengthened its balance sheet, generated strong cash flows and improved returns. Bekaert also took some preliminary steps to simplify its portfolio, including divesting some commoditized businesses at attractive multiples. Footprint and cost-saving actions made the company leaner, creating a strong foundation for the future. What is clear to me is that the next chapter should increasingly be focused on organic and inorganic growth, preferably on engineered solutions for our key customers rather than just engineered products. Since joining Bekaert, I'm meeting employees, customers and other key stakeholders across our businesses and regions to understand Bekaert's strengths and improvement needs and more importantly, to understand where opportunities exist to create differentiated value. This process helps me and the Board to assess how our portfolio should evolve in order to simplify the company over time and further strengthen it. Bekaert has improved itself in recent years into a stronger and more resilient company. We have unique engineering capabilities, strong customer relationships and many differentiated positions in markets supported by long-term trends. My mandate and my ambition is to build on this foundation and accelerate our transformation journey towards profitable growth and a higher value enterprise. My objective is also to ensure that the quality of this company, the strength of its capabilities and the potential of its portfolio are fully reflected in how Bekaert is understood by the market. This will require key strategic choices, strong execution and a more focused direction of where Bekaert is heading towards and how it creates long-term shareholder value. I'm excited about the opportunity ahead, and I look forward to working with our teams to shape the company's next phase in its long successful history. With that, let us turn to our first half performance. In the first half of 2026, Bekaert demonstrated agility in a volatile environment. The Middle East conflict led to inflationary pressure and supply chain disruptions, but our teams reacted quickly through commercial discipline, regional sourcing and by staying close to our customers. While inflation pass-through mechanisms come with a time lag and some temporary margin pressure, they continue to protect profitability. At the same time, we captured attractive growth in some of our key markets. We secured new data center projects in sustainable construction. We increased our share of wallet with key customers in power and data transmission, and we renewed long-term supply agreements with major elevator manufacturers. We were also capable of capturing the strong demand from Asian tire manufacturer in tire cords. Despite the challenging backdrop, we maintained an EBITu margin above 8%, demonstrating the resilience of our business model. Finally, our balance sheet remains strong with a leverage of just 0.8x. These financial strengths support our disciplined capital allocation approach, including the EUR 1.90 dividend paid in May and the ongoing EUR 200 million share buyback program. Overall, our H1 results demonstrate both the agility of our business and our ability to capture growth opportunities. Seppo will now take you through the H1 2026 results in more detail.

Thank you, Olivier. Looking at the first half '26 sales bridge now first. On a like-for-like basis, which excludes portfolio changes and foreign exchange impacts, we delivered actually 4% volume growth, driven by capturing volumes from Asian tire manufacturers, continued strong momentum in power and data transmission and growth in high value-added applications in sustainable construction. This was offset by unfavorable regional and product mix impacts. In RR, Rubber Reinforcement, the demand shift towards Asia from Europe is weighing on mix and prices. In SWS, some high-end European transmission projects were delayed, but the team was able to capture other transmission projects, however, for more mature applications. And in ropes business in BBRG, customer project delays and some operational challenges affected our deliveries. Also part of price and mix effects are inflation pass-through mechanism related in the regions where it is relevant, but that comes with the time lag and some temporary margin pressure. Overall, the solid volume growth enabled us to fully offset these headwinds and deliver stable like-for-like sales performance in the first half. Now, turning to profitability. EBITu margin remained resilient at 8.3% despite the inflationary pressure from the Middle East conflict and some operational issues in BBRG. The main headwind was the unfavorable price mix as already discussed and mentioned in the sales bridge, reflecting the regional shift in RR, project delays and mix effects in SWS and the time lag in passing through higher input and logistics costs. These effects were broadly offset, thanks to volume growth of 4%, improved cost absorption, thanks to high plant utilization in RR across Asia and continued overhead discipline. The operational challenges in BBRG have impacted both sales and conversion cash costs in the business. Let me now go through the business units, and I start with Rubber Reinforcement. Rubber Reinforcement delivered solid volume growth with 6% higher volumes, confirming our strong market position. Demand was particularly strong from tire manufacturers in China, India and Southeast Asia. We captured strong demand from Chinese tire makers and there is good traction with Chinese tire makers in Ultra-Tensile tire cords because these products are meeting customer needs on performance and durability, especially for EV vehicles and not just for EV passenger cars, but also for EV buses and trucks. It is increasing business process in China. At the same time, the regional demand shift had a margin impact. Volumes were strong in Asia, while Europe and North America were softer and competitive pricing pressure remained. The margin decline was partly mitigated by high-plant utilization in Asia, including cost absorption. Our joint venture in Brazil in Rubber Reinforcement delivered EUR 65 million sales, which, as a reminder, are not included in our consolidated sales figures. Next, moving to our Steel Wire Solutions, where we delivered 3% like-for-like sales growth, supported by higher volumes, primarily in power and data transmission. The increased share of wallet with key customers in North America, confirming the strength of our customer relationships and product offering. Margins were impacted by the time lag of pass-through mechanisms and its dilutive effect as it increases sales, but not the absolute margin in euros and a less favorable sales mix in Europe in the first half. In Europe, some higher-end European transmission projects were delayed and replaced by other transmission projects, powerful for more mature applications. Order books for armoring cables in power and data transmission remain strong, especially in North America, providing a good basis for the second half. Our joint venture in SWS in Brazil delivered EUR 315 million sales, which, as a reminder, also are not included in our consolidated sales. Next, let me cover our ropes business, BBRG. They had a challenging first half. Geopolitical uncertainty continued to pressure steel ropes demand where the order book was low at the start of the year. In synthetic ropes, there were delays in deep-water mooring projects. We also continue to face operational challenges in steel ropes in the U.S. and U.K. Turnaround actions are being deployed in the plants to improve. Order intake improved during the first half, and the order book supports higher deliveries in the second half, both in steel ropes and synthetic ropes. Advanced cords performed strongly in BBRG, supported by increased hoisting cord demand and timing. Finally, let me cover Specialty Businesses. Specialty Businesses delivered a strong profitability improvement with EBIT (sic) [ EBITu ] up 77% compared with first half of '25, the margin increasing to 12.6%. Sustainable construction captured strong growth in U.S. data center projects and improved product mix across regions. The data center wins demonstrate the value of Dramix, helping faster construction while using less steel and concrete. For this data center application using our Dramix steel fibers enables contractors to complete building construction 3 to 6 weeks faster versus traditional reinforcement. Other specialty segments also improved profitability through pricing discipline, footprint optimization and cost savings actions while maintaining product leadership in areas such as porous transport layers for green hydrogen. I will now move to income statement. Looking at the income statement, sales were EUR 1.86 billion and underlying EBIT was EUR 155 million. The reduction in underlying EBIT reflects the price and mix impact, pass-through timing and operational effects we had discussed earlier. Reported EBIT increased from EUR 115 million to EUR 135 million, supported by lower level of one-off items compared with the first half of last year. Tax rate was 31%. However, in midterm, our effective tax rate should be closer to 25%. Result for the period to shareholders increased to EUR 94 million and basic EPS earnings per share increased to EUR 1.93, while underlying EPS was EUR 2.33. Key message is that underlying operational performance remained resilient, while reported profitability benefited from lower one-off charges. Let me next turn to working capital and cash flow. Operating working capital increased to EUR 656 million. The increase versus end of 2025 reflects higher inventory and receivables from a low year-end base, partly offset by higher trade payables. Some of the increase in inventories has been driven to mitigate risks related to the inflationary and supply chain pressures from the Middle East conflict. Compared to first half of '25, working capital increase was due to the Bridgestone plant's acquisition and currency effects. On a like-for-like basis, the working capital decreased slightly versus first half of '25 and reflects the typical working capital seasonality. And also, I want to remind that actually our working capital was record low end of last year, which obviously has an effect on the free cash flow that I will comment next. Free cash flow was EUR 55 million, impacted by the mentioned working capital increase versus end of '25. We still target and continue to work on working capital to end the year at the level closer to the end of 2025 level. We reduced capital expenditure in the first half and we'll continue to apply strict capital discipline in the second half. Net debt was EUR 367 million, with the leverage at 0.8x. The increase in leverage versus end of '25 is linked to the effects of acquisitions, share buybacks and higher working capital. With this, I will hand back to you, Olivier, please.

Thank you, Seppo. So, I will now explain why I believe Bekaert has a stronger foundation today and how we can build from this foundation towards the next phase. The starting point is the work that has been done in the recent years. Bekaert has already taken important actions to strengthen its performance, including, as I said earlier, footprint optimization, overhead cost reductions, operational efficiency improvements and first steps in portfolio reshaping through exits from more commoditized activities in steel wire solutions at attractive multiples. These actions have reduced the cost base, improved operating leverage, sharpened customer focus and made the company more agile when external shocks like the ones that we are going through occur. It was visible during the tariff shocks and again in H1 with the Middle East crisis. The point is not that external environment has become easier. It has not. The point is that Bekaert has become better equipped to respond to it. The operational resilience is also visible in the financial profile. Financial profile has improved materially. Compared with the pre-COVID period, average free cash flow improved significantly and leverage reduced materially. This reflects the cumulative effect of stronger execution, operational discipline and portfolio actions. This matters because a strong balance sheet gives us strategic flexibility, flexibility to invest in the business, flexibility to support shareholder returns and flexibility to pursue disciplined growth opportunities where they meet our strategic and financial criteria. We will continue to be disciplined. Growth matters, but value creation comes first. Let me now give a few examples of where we see some attractive opportunities for growth. We have attractive growth opportunities across mission-critical applications where Bekaert's expertise in material transformation, coatings and engineering creates differentiation. In construction, we are successfully capturing growth in data centers. The customer value proposition here is very tangible; faster construction, reduced material intensity, improved durability and lower CO2 emissions. In power and data transmission, we are increasing share of wallet with key customers in markets supported by electrification and connectivity needs. This market is growing strongly, especially in North America, where there is significant investment in grid expansion and modernization. We also have strong process expertise and engineering and innovation capabilities to develop advanced materials and solutions. We are looking at opportunities in markets where technical differentiation supports profitable growth. To summarize, solid operational excellence work was done, which made the business more resilient and the financial position offers opportunities to invest. Operational excellence remains fundamental. We will continue to keep costs under control. We will continue to further optimize the footprint and to manage the working capital. The next phase is to redirect the portfolio towards growth. So based on my first impressions, I have a few hypotheses that I'm testing. First, I think we can better partner with some of our very exciting existing customers. We have strong engineering and technical capabilities. We offer to them some products that are actually a piece of their puzzle. And I do believe that some of them would welcome us leveraging our application expertise and engineering capabilities to solve some of their pain points and become a stronger partner to their final solutions. Secondly, we are looking at those, as I said, we have a vast portfolio. We are looking at the areas where we believe there will be momentum, whether it's by capturing share of wallet of the customer or by secular trends and figure out how we can accelerate some of our efforts to double down on those secular trends and customer relationship. And third, we will look at compounding those efforts, compounding that organic growth through targeted acquisitions in structurally attractive end markets where that combination of Bekaert expertise and the one of the acquired business can unlock new growth potential and value creation. So the key message is that we want to reshape the portfolio towards a more valuable enterprise. The groundwork is fully ongoing as we speak. And in the coming months, we will clarify progressively the road map. So the transformation journey has started. Let me now close with our full-year outlook and key messages for the rest of the year. So in summary, Bekaert delivered disciplined H1 performance. The Middle East-related inflation and logistics disruptions created obviously pressure that we did not anticipate going into the year. But pass-through mechanism, local manufacturing and commercial discipline helped protect our profitability. We managed to capture volume growth in attractive areas. RR grew volumes in Asia, which proves the attractiveness of their technologies. SWS grew in power and data transmission and sustainable construction really captured distinctiveness in data centers opportunities. Profitability remained robust with EBITu margin above 8% despite unfavorable mix, pass-through timing effects and some operational challenges in BBRG. For full-year 2026 amid continued geopolitical uncertainty, we expect like-for-like sales to be similar to full-year 2025 and EBITu margins to be slightly below full-year 2025, broadly consistent with our previous outlook when the impact of pass-through on the margin is taking into account. H2 2026, we expect continued recovery in sustainable construction, higher deliveries in rope and power and data transmission wires. We don't expect to see major changes in Rubber Reinforcement and non-transmission wires. In short, we remain focused on disciplined execution, cost control, portfolio focus and profitable growth. We definitely have still a lot of work to do, particularly on growth and portfolio, but the foundation is solid and the ambition is clear. So, thank you very much for your attention, and we will now be open for questions.

[Operator Instructions] And your first question this morning is coming from Wim Hoste from KBC Securities.

I have a couple of questions. First one would be on Rubber Reinforcement. If I can clarify the market situation there, there has been additional competition in the form of Zenith that entered the market. Can you maybe just elaborate a little bit on how you're tackling that? What kind of pressure it's putting on prices? How much filler volumes you still have in that business? And then overall, the capacity utilization in both Asia and the other regions in Rubber Reinforcement. So, a bit more clarity on that would be my first question. And the second one would be on BBRG. Can you maybe clarify a little bit the operational challenges that you mentioned and also whether that is going to provide any drag in the remainder of the year? Those are the questions.

Okay. Seppo, let me give it a try and keep me honest. So, on your first question on Rubber Reinforcement, it's a little bit of a mixed situation. So if you look at some of our customers in Europe, which are our traditional key customers, we can see they are under pressure. So, some of them, I think, have officially reported and you can see that the market has not been as strong as they expected. As we are their privileged partner, obviously, their condition impacts us. And so we didn't see a lot of growth in our core European market. So, that's the challenge that we face. It's really not us. It's more them, but our futures are a little bit linked. And therefore, what we did successfully is balance that with capturing some growth opportunities in Asia. And I think it's a little bit of a good news because, as you said, we have some fierce competitor emerging in Asia, but we are able to win in their regions, which is an encouraging sign. It shows that our technologies and value proposition and what we bring to the market still has a differentiation and attractive value to them. Having said that, though, there is actually a big difference in cost of factors between Europe today and Asia on the steel price of raw materials, and that affects basically our industry and puts some pressure, let's say, in Europe in RR for sure, but I would say in steel products, generally speaking. But if you take those dynamics and if you definitely consider what you said, which is, let's say, that new competitor emerging and then you look at what we are able to do, I think it gives me some confidence that we have distinctiveness and technologies and that we can fight some good fights.

And I would add that you have to remember that we are present in China ourselves. We have a strong footprint in China. So, we can also benefit from lower wire rod prices in China, lower energy costs, lower labor costs. And that, of course, helps us to compete against the Chinese companies. And on top of that, we are focused and continue to focus on innovation, customer product segmentation, quality and supply reliability that gives us competitive advantage compared to our competition. We are a go-to supplier when it comes to high-performing products. And of course, our strategy to keep plants running full speed in Asia, especially in China, bring fixed cost absorption benefits that also helps us to mitigate against the margin pressure.

And then your second question on BBRG. I think it was actually disappointing, to be honest. So we have more than 60 plants. The good news is that actually the majority of the footprint is very strong and doing very well, which you can imagine, it's not that easy, but prove also that Bekaert has strong operational excellence. BBRG has not delivered to our expectations. So, there is definitely a lot of attention and focus on getting there. The other thing I want to add on BBRG is that when we started the year, so going into H1, the order book was depleted. So, what you see in the results is a combination not just of the operational challenges also on the fact that in H1, basically, the order book was slow. And the good news is that the order book is filling up, and that gives us at least more momentum going into H2 for that business. But we still have some homework to do. I won't hide it. We have some homework to do on the operational side. And obviously, I do believe that because it's contained to a few locations by mobilizing the right way, we'll get it where it needs to be.

Your next question is coming from Frank Claassen from Degroof Petercam.

First of all, coming back on the operational issues at BBRG because try to push a bit further, could you quantify this effect? And let's say, when do you think it will be solved? Could you come back on that? And then secondly, more general question on the competitive environment given, let's say, the increased logistical costs. Do you already see that some Asian competitors are struggling more with the higher logistical costs? And how are you dealing with this yourself?

Can I take the second one and give you the first one?

Yes. Sure.

So, on your second question on the freight cost, yes, it's not a black and white exactly as you described. So on the negative, obviously, we have inflation and it impacts us, and we need to pass it along. And so that requires, obviously, mobilization on our side and some efforts with our customers. On the positive, if I may call it that way, CBAM and some of the trade, tariffs and so forth should give us a little bit of -- I don't want to call it advantage. It's maybe too strong of a word, but that shouldn't be negative for us because we have very strong regional footprint. And obviously, we are very strong in Europe as well. So, that gives us a little bit of reminding our key customers that we are actually a solid partner in their core geographies that we are actually the -- probably the only company that has got all those local manufacturing abilities and therefore, they can rely on us and the resilience of our supply chain in time of crisis like we go -- where we are under. And so I think that actually some of our key customers realize that. We obviously are reminding them that we are resilient and local and can manage through. And so that's why it's kind of a little bit of a black and white situation where there are definitely challenges we have to address ourselves, but the strength of our footprint is understood as being a strength.

Relating to operational issues in the ropes business in BBRG, this is, of course, something that has been going on for some time. And like Olivier said, it's very disappointing that we have not been able to fix the issues over the time. And now we have set up a team to look into it and working on the turnaround projects that have been deployed to fix the problems and issues. To put it into perspective and if you look at the volume reduction, volumes were down some 7% in BBRG year-on-year. It's partly because of the project delays of the customers due to various reasons, which is typical for the project business as we know, unfortunately, and then our operational issues. And sort of roughly, I would say it's roughly 50-50 between those 2 when it comes to operational issues and customer project delays.

And when do you think it could be solved? Is this a matter of months or quarters? Can you elaborate on that?

Yes. We have been working already for some time fixing the issues and every once in a while, they pop up. Like I said that we have now deployed very, very strong approach there with turnaround projects as we talk. And of course, we do our best to fix the issues ASAP because we have strong order books. And that's the key now for the result delivery in the second half that we are able to run machinery smoothly and deliver the volumes that we have in the order book. And we are confident we can fix it, but time will show and we do the best we can to be able to now deliver the better order books that we have.

I mean, the short answer, my expectation is that by end of the year, we will have a step change improvement. I mean, I think it takes a few months. But now we have all hands-on deck. I think we have deployed our best people. Some of those issues are being resolved as we speak. So it's always hard in manufacturing to say exactly a precise date because we don't know what we don't know. But from my experience, I would say, end of the year, majority should be behind us.

Your next question is coming from Alexander Craeymeersch from Kepler Cheuvreux.

So, first question would be on the specialty business. Obviously, the margins improved quite nicely there from 7.1% to 12.6% in the first half. So is it fair to assume that it's mainly on the back of the data centers, the flooring and data centers, considering that the remainder doesn't really seem like a fundamental change? That would be my first question. And the second question would be on Rubber Reinforcement again. I mean, in China, volumes are up on exports, and there's an increased mix tilt towards the premium tires, yet the margins are somewhat under pressure. We read in the financial newspaper that Chinese players are taking sort of part of the tariffs on their P&L. So isn't part of the margin pressure an absorption of the tariffs on your exports? Because I wouldn't understand why Bekaert would be immune to this trend if the competition is, as you say, increasing.

Okay. So, let me try to answer, but Seppo might need to jump in. So on your first question on sustainable construction, if you look at it, so there is definitely a big EBIT improvement. It's not only the data center on the EBIT. Frankly, there, the team has really worked on several levers across their footprint to improve a few things. But the growth, the volume and revenue growth, the top line growth is majority -- not exclusively, but in majority coming from really very strong wins in data centers in the U.S. And we are actually quite excited about it. Not that it will last forever, but we are excited about it because we were qualified by one of the hyperscaler and then actually the word spread out, so to speak, in the industry. And now we are actually becoming more and more of a reference in the industry, which it is exciting. And the main reason is that the product really helps them to accelerate their project. The data center in the U.S. has a particularity to be flat. So they basically -- in the U.S., they have plenty of space, so they don't need to go in different floor. They just put a big flooring and Dramix really helps them to go not only faster, which is their key advantage, but also to have one big slab without the drones and have a much better flooring. So, we are expecting, and we can see that we are gaining traction. And therefore, we expect to continue to benefit from that. In Europe, it's a little bit different because the data centers are actually built by general contractors, and it's much more fragmented. So, obviously, we are trying to leverage the good things that we have done in the U.S. So in Europe, it could be a key advantage as well, but it's more fragmented. So, you need to work through many more hoops and talk to many more general contractors, architects and so forth to be considered. But I do believe there is something there. So, that's how we see sustainable construction. So, maybe Seppo can give you more details on the EBIT improvement. But my take is that the majority of the very nice top line is coming from an acceleration on Dramix, in particular, in the U.S. that gives us also a little bit of confidence in case reference or case success stories to bring to the rest of the world. And then the EBIT is really worked not only in flooring, but there is also good things going on in tunneling and other parts of the portfolio in sustainable construction. So overall, actually, the team did very well. And by the way, if they are listening, I want to thank them again because they were definitely part of our success, and I know that they are fired up to continue to perform. On your second question, yes...

If I may add on specialties, also, let's not forget the energy transition where also we have a clear profitability improvement, thanks to the restructuring that we did last year. We consolidated our hydrogen business footprint. So, production from Belgium was moved to China and that is also paying off, especially if you look at the profitability line. Profitability improvement is, I would say, roughly 50-50 coming from construction and energy transition mainly, mainly hydrogen business. So it's pretty widely coming from various parts of the specialty business.

Yes. Good point. And thank you also to our energy transition team because they actually did a great job.

Before we switch to the next question, maybe can I do a small follow-up. I was just wondering, it seems to me like you did a large project in H1 on the Dramix side. Is it like a similar project lined up for H2 or 2027? Just to know like sort of the time line of these orders?

There's good momentum that continues in data center business, especially in the U.S. It's booming, and we are increasing our market share there. So, I think it's fair to say that we see pretty rather positive prospects there.

It was not one project.

Yes. Exactly. That's a good point. Actually, data center projects by size are typically smaller than big industrial flooring projects like in automobile industry. So actually, it's a good point. It's several projects.

Okay. Then the second question was on RR. I'm not sure I completely...

The competition.