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Edited Transcript of BEKB.BR earnings conference call or presentation 26-Jul-19 12:00pm GMT

Half Year 2019 NV Bekaert SA Earnings Call

Brussels Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of NV Bekaert SA earnings conference call or presentation Friday, July 26, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Frank Vromant

NV Bekaert SA - EVP

* Matthew Taylor

NV Bekaert SA - CEO & Director

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Conference Call Participants

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* Emmanuel Carlier

Kempen & Co. N.V., Research Division - Research Analyst

* Kris Hermie;Value Square;Senior Portfolio Manager

* Stefaan Genoe

Banque Degroof Petercam S.A., Research Division - Head of Equity Research

* Wim Hoste

KBC Securities NV, Research Division - Executive Director Research

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Presentation

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Matthew Taylor, NV Bekaert SA - CEO & Director [1]

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All right. Hi, everybody, and welcome to this briefing on our first half results for 2019. Welcome to the people who are online as well. Let me start for those here in the room with a quick safety briefing because if there is an alarm or an incident, to evacuate the building you go out of the door, right beside you there through the 2 double doors and turn immediately right and you're outside the building. And the meeting point is at the front of the building, you just walk around the building.

Okay. Good. We care about you. When you write nice things about us. Okay. Let me talk about our results for the first half of the year, and I'll start off with the highlights and Frank will help you through it. Actually, whilst mentioning Frank there, you will notice that we don't have Taoufiq here with us today, our new CFO. Unfortunately, because he hadn't yet been ingrained in the Bekaert safety standards. The day before he joined us when he was moving house, he had an accident on the stairs and has damaged his leg quite badly, and is hopefully lying in bed with his leg up in his home and recovering quickly so he gets back to us soon. So let me get into the results.

Firstly, on the highlights. It's been a fairly challenging first half of the year although conditions in the marketplace have been quite challenging. Despite that, we've seen a good improvement in our financial performance so far this year. We have achieved growth of 3%, particularly driven by the tire and construction business. We've realized a lot of cost savings, both fixed cost and operating cost in our business.

We've improved our pricing capability, and we've driven product mix quite significantly through the business to improve things. And that's been particularly noticeable within BBRG, which I'll touch on later. And we've done a lot of work as well on our overall cash management and capital situation. So we significantly improved the average working capital on sales so far this year. And that's allowed us to help deleverage the debt-to-EBITDA ratio. And we also did a very successful refinancing of part of our debt with a short time.

Our underlying profitability, our underlying EBIT reached EUR 126 million for the first half. That was up 14% on the same period last year and represented a margin of about 5.7%. In EBITDA terms, that then went to EUR 239 million of EBITDA, which was up 12% and reflected a margin of 10.8%.

Underlying return on capital improved from 8.1% to 9.3% and net debt on underlying EBITDA, as I just mentioned, improved and went from 3.1 as at the same point last year to 2.6 on the 30th of June this year.

As I mentioned, the conditions have been quite challenging during the first half of the year. Some markets were quite solid, so the tire market remained pretty solid, and I'll come back to how we did within that shortly, but we did see a slow off in some areas at the end of the second quarter, particularly in June. Demand for steel fibers and concrete reinforcement has been strong throughout the first half and expectations are they will continue strong. I think a lot of that also driven by stronger penetration of our product into the reinforcement market.

The highly competitive steel wire solutions business, which is really across a lot of different applications and where the competition is very heavy, that has been suffering from very weak demand in an awful lot of those sectors. BBRG has been improving its mix, focusing on more specifically on high-value segments, to us oil and gas and mining, in particular, moving out of more of the filler business and that's allowed us to drive up the results of BBRG on lower volumes.

We have had, as I've said, there's a quite a few headwinds during the first half, driven, in particular, by uncertainty caused by trade tensions and policy changes, market -- cyclical declines in markets, exacerbated by some of those trade tensions as well. The adverse inventory valuation, so what we call FIFO, the reduction in our industry valuation from raw material price decreases has been quite significant in the first half of the year compared to quite positive in the first half of last year.

And the impact from social actions in Belgium has also, following the enhancements we made at the end of March about restructuring has also impacted our results. With the change of our organization that we announced in -- at the beginning of March, we're also changing our reporting. And so as you'll have seen, we're now reporting through the 4 business units rather than the regions. This page just gives you a photograph of what businesses each of those business units primarily operates within. Unsurprisingly, the rubber reinforcement business is mainly driven by automotive. And so you see they're 94% of it, but it's also into equipment, things like conveyor belts and hose reinforcement wire as well.

On the steel wire solutions, they're the biggest market, and in particular, driven by South America where this is particularly strong. Construction is the biggest part of the business. But then you also have relatively equal amounts in agriculture and in consumer goods. And between those 3, almost 3/4 of the total business.

In the specialty businesses, the strength of our building products business and the Dramix business means that this sector is dominated by the construction business. The construction is also the main end market for the Bekaert Combustion Technology business so that also reinforces the number on construction, but you've also got energy, in particular energy from the sawing wire business and then automotive as well as other big markets.

And then finally, BBRG, this is one that you will have seen before where a big part of the business is equipment followed by basic materials and then the energy sectors between them representing over 3/4 of the total. When you bring that all together, in terms of the mix of the business, you see that tire and automotive is by far the largest part of our business with nearly 50% of the business now in tire and automotive, but 20% is construction, so between those 2, it's 2/3 of our business in total.

With that, I'll hand over to Frank to take you through the first part of the numbers.

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Frank Vromant, NV Bekaert SA - EVP [2]

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Okay. So let's start with sales. So you see that we were again able to increase our top line into EUR 2.2 billion for the first half. There was some effect of FX. This was mainly dollar-related. But you will also notice, based on the new segment reporting that we use, that there are quite some difference between the segments. So we had a nice increase in rubber reinforcement, organic growth of 5%. Steel wire solutions to the country dropped 3%. Then specialty business also dropped, but to some extent is partly due to the decline in the sawing wire business here.

And then BBRG went up 6% and Matthew will give some more information on this and when we talk more in detail about the segments. It's also the first time that you see the relative importance of each segment, so consolidated, you see that rubber is 46%; steel wire solutions, 34%; specialty business, 9%; and BBRG 11%. And when we look at the combined sales, which is including Brazil, rubber goes down a little bit and wire -- the steel wire solution goes up because, of course, of the important wire business we have in Brazil and that explains for that.

So let's now make the link towards the P&L. And well, again, starting with sales here. It is important to mention that we had a 2% -- 2.7% impact of prices. So prices are still somewhat higher than first half last year, that's because also wire rod prices still somewhat higher, and so there were no real fluctuations as such on this one.

More importantly here is that we saw an organic volume decline of 1.1%. Remember that in the February, we said look, we foresee stable sales volume for the year. Now we are 1% behind last year. But here, again, you see important differences between the segments. And so rubber went up nicely with 4.3%, steel wire solutions went down 6.3%. And when we talk volume for our specialty business where we look to building products went up 1%, and then BBRG went down 9.9%, but I would say this is part of the strategy that we are following.

We have an increase in sales. We expected also an increase in gross profit, but unfortunately, this stayed stable -- stable gross profit, is we don't take into account the divestment here of Solaronics. And here, again, you see the differences. So rubber went up along with the increase and sales went up nicely and gross profit. You see BBRG, and that's where needs some more explanation despite the fact that went down with almost 10% in volume.

So an increase of their gross profit was EUR 7 million. Then the specialty business went up EUR 4 million and the building products were the main contributor to that. But then on the other hand, and that was I would say the negative element here in the gross profit was a sharp decline in our gross profit for steel wire solutions with EUR 15 million.

Then if I go to the overhead, you remember that we really had in our plan to look at our overhead structure. We said look, it's maybe too high, we need to downsize, we need to be more efficient. We really want to go back to 7% and 8% margin, but you see here that we did already a big effort in reducing the overheads with almost EUR 18 million, which brings our overheads as a percentage on sales to 8.6%, which is more than 1% lower than what we had at the same moment last year when it was 9.7%.

These lower overheads came from a lot of different actions. In the first place, we restructured. We already took measures in '18, so we had lower personnel cost, and of course, then we also have lower-related personnel expenses. We dropped in marketing expenses. We were more strict on spending in consultancy. And also in R&D, we were more focused on what another project we need to do versus, which are the ones that are not necessarily bringing the added value that we aspire for and that we stopped.

Then if I look at EBIT margin, so we are at 5.7%. EBIT went up, as Matt already mentioned, by EUR 15 million. The margin went up to 5.7%, so up to our target of 7% as we said before. One technical element here on the EBITDA, you see it went up EUR 25 million, but EUR 12 million out of those EUR 25 million is due to the change in the way that we account for leases now that are being capitalized and then depreciated and that explains why EBITDA went up somewhat more than EBIT here. And then on this page, you also see the difference between the EBIT underlying and the EBIT reported, which are the one-offs, so which is about EUR 11 million. In the first place when we announce a restructuring, the subsequent cost are taken into one-offs. And this is the example, here for Figline and Costa Rica. So we consider once we have announced the EBIT underlying for the plant to be 0 and all subsequent cost are taking as one-off. And this has been agreed with auditors that this is the practice, which we have now also applied for the announcement of Moen and because we don't produce anymore, so there is no production. So all the subsequent cost we still have in Moen are put as a one-off.

For the rest on Belgium, in our restructuring, we already took an impairment on the assets for Moen. But what we did not do, and this has made the major part, we did not take a provision for the social plan. So the negotiations are still ongoing. We don't know where it will end. We hope to finish it soon, to come to a deal late August, beginning September. But the fact that it was very difficult to make a reliable estimate, we decided not to put anything in the half year numbers.

What we did is that we -- as a consequence of the announcement, we get some losses in the other plants in Zwevegem, and we took some in the one-offs here because there was a real slow-motion action ongoing. The output was only 50% so we had a lot of activity losses, we had a lot of productivity losses, and we took those into one-offs as well.

Then we had a layoff expenses also in the first half for EUR 2 million, and then we had some positive reverses on impairments in BBRG U.K. and in Malaysia. And all this totals to EUR 11 million for the first half.

Matthew, back to you for the segment reporting.

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Matthew Taylor, NV Bekaert SA - CEO & Director [3]

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Thank you, Frank. Let me talk about the 4 different business units that we have and start off with rubber reinforcement. Here you'll see a significant improvement in underlying EBIT from EUR 84 million to EUR 94 million, taking the margin up to 9.1%. That's driven primarily by volume, by growth. So volume growth, but also price mix effect on the growth as well and some favorable currency movements.

The growth was particularly strong in China. That's been the key driver of it. And that was driven by the market remaining reasonably robust, not growing too strongly, but by higher market share for us, particularly driven by an increased share of super tensile and ultra-tensile products in the market where we do have a significant advantage over competitors. And that's been increasing its mix in the industry.

So those have all come together to drive a significant improvement in the EBIT performance of the business in China. In Europe, we saw the volumes go down a little bit and that's primarily driven by weakness in the automotive industry. It's mainly passenger cars, trucks has been reasonably robust within that. But we've also seen the weak hose market or hose reinforcement market for equipment. And we continue to have some operational issues in our plant in Slatina as we ramp up production on our new line there.

In U.S., the U.S. manufacturing business was hit quite heavily by negative inventory adjustments because of lowering wire rod prices, but also because of issues on wire rod supply as we try to import from different sources to try and minimize the impact of some of the tariff moments on wire rod imports there.

And so we ended up slightly overstocked as a result of that as well, which is why the negative inventory adjustments hit us hard as they did. The underlying EBIT, however, in the U.S. was improved by a strong import business as we bought more product, more finished goods in from both China and Indonesia.

In India, despite a very turbulent automotive market, we have seen stable volumes there and improving profitability year-on-year. And really it's about the truck market, which has been a little bit more stable. Passenger cars are down significantly, were down almost 25% in June.

In Indonesia, we saw a slight decline as China did more of the business of the Chinese manufacturers in Southeast Asia. If I look at steel wire solutions. This has really been where we've suffered some of the biggest challenges in the market. You see a volume contraction here in the business, and we did offset some of that through price mix.

And there was some FX benefit. But really the volume decline has been driven by weak markets, in particular, in Europe, the automotive market and the flex pipe business, so the oil and gas business there. And that volume decline has hit us hard in terms of the ability to absorb our fixed cost structure.

It's also, as Frank mentioned, been impacted by the results of social actions here in Belgium, following the restructuring plan we announced in March. In North America, we've seen very weak business conditions, particularly within the agricultural sector, but really right across the board on utilities, construction and automotive markets have been weak.

In Latin America, the economic climate remains turbulent and weak in some countries, particularly Ecuador, where we've seen a real drop-off in activity. And then we've seen some sectors like construction fall away in countries like Chile.

The business in Southeast Asia has had better results than last year, primarily because of the downsizing of the business that we did in Malaysia at the back end of last year. And the result in China continues to improve. As we've told you before, we have been driving a turnaround at our Qingdao operation in China. We got to breakeven at the middle of last year and then we've continued to improve from there as well. So that's performing quite well.

From our specialty businesses, 4 different businesses here and quite different dynamics going on. The overall specialty businesses, you see an improvement in underlying EBIT performance from EUR 18 million to EUR 25 million. That is pretty much all driven by our building products business. So building products was better on volumes and better on profitability because of better pricing and better mix as well as we move more into 4 and 5D. The fibers business saw a small revenue decrease, but margins was -- or the profitability was pretty stable compared to last year and that's even despite some lower demand for diesel particulate filters in Europe and also lower activity in -- here in Belgium due to solidarity actions between the different plants in Zwevegem.

For combustion business, this is our heat exchangers. Here we did have a disappointing result compared to last year in the first half and due to really very weak demand in both Europe and China. We have seen a tick up as we've come to the end of June and into July from the Chinese market. A lot more project business coming through, so we're optimistic that, that could improve as we go through the balance of the year.

And in sawing wire, our technology and capability has moved forward and our cost has become more competitive. That's allowed us to take a better position in the diamond wire business and reach breakeven EBITDA. We're now building pretty much to the capacity of the equipment that we installed last year and that should allow us to be at an EBIT breakeven level for the rest of the year as we look at what the investment needs to be to take it further forward.

And then finally, the BBRG, the Bridon-Bekaert Ropes Group, as I mentioned before, what we've seen here is a decline in volume of about 10% in the business, but a significant improvement in bottom line performance and a significant overall revenue growth of nearly 7%, driven by much better pricing and a much better mix. So we moved out of filler type business where we were just trying to drive volume and moved into the products that we know we can differentiate ourselves on and drive better margins there.

And that's given us a strong platform to build our EBIT, and you see the EBIT performance improved. Obviously, still a long way short of where we want to be, but it's good to see that it's now moving in the right direction. The advanced cord business continues to perform well and is performing at more or less the same levels as we saw last year. And even though there's a mix between which markets are doing well or not so well there, overall, the business is pretty stable.

With that, let me hand it back to Frank to take you through the EBIT-U bridge.

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Frank Vromant, NV Bekaert SA - EVP [4]

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Okay. Thank you, Matthew. So if you look at the bridge, well, there was not a lot of big impact at the EBIT level. Then volume you see a positive here despite the fact that we are telling that our volume went down in total has all to do with the mix effect, the fact that we are increasing our volume in the better margin products, RR and building products versus the lower margin products that went down in steel wire solutions, explains here why you see in the financial terms, in many items a positive impact than in the pure terms that we normally talk.

Pricing mix. Inventory valuation is in the first place in the red because of FIFOs. So the wire rod prices went down drastically, which means that we have to bring our inventory values down. It was not always fully recuperated in the prices and better margins. So that explains here why you see a negative element in that bridge.

And then 2 important positive elements. In the first place, cost impact plus 14, several we see, it's on footprint changes that we did. Think about closing Figline, closing Costa Rica Dramix and producing it in lower-cost entities. Second, we continue our manufacturing excellence program rollout, and we continue generating the savings out of that program. And then thirdly, there is also kind of a country mix impact, the fact that we are producing more in low labor cost countries versus high labor cost countries. Think about for instance, rubber wear, we have increased our volume drastically in China versus elsewhere in the world also plays a positive impact on this.

I already talked about the overheads, so I don't need to repeat this one that you see the big positive element. And then in other, it's a bit of all the rest I would say, which is in the first place the difference in depreciation. It's a lower result in engineering. So you will notice that our CapEx was much, much lower than last year, which means that the activity levels in our engineering department were quite low, well below last year. And so also the result of engineering was much lower than last year, and this is reflected here in that other. And then the third element is that some businesses where volume does not really make sense like the combustion, like sawing wire, like the fibers reported a difference in result also in other here.

And mainly in combustion, we had an adverse effect here because the result was lower than last year. So these are the 3 components here that are the majority of that red number.

Then let me take you from EBIT to net profit. First of all, interest. You will see so much lower interest expense than last year. The simple reason is that in the first half of last year, we still had a very expensive loan for BBRG than in the second half of the year. We refinanced that with a bridge loan when we took the 100% over. So we are now much cheaper financed for that and that explains the difference here in interest expense.

On taxes. I would say not much to say in line with previous years. We have a higher result before taxes. So income tax are higher as well. Our effective tax rate, if you only look at our profit-making entities, is about 20%, which is not too bad. The fact that our effective tax rate is 40% has all to do with that we have a few or a number of loss-making entities, for which we believe it will be difficult to recover the losses and, hence we cannot split up a deferred tax asset and that explains then why our effective tax rate is higher than that 20%.

Sharing the result of the joint ventures. This is Brazil in the first place where the majority of this is Brazil. We did quite well. In the wire side, the volumes were below last year, little bit in line with what we saw in the whole Latin America, but we had better margins. So that had driving the results for the wire business. And we saw a strong tire business across the whole first half of '19. And this explains why the results here, and this is our share in the net profit of the Brazilian entities, this EUR 13 million.

Finally, the noncontrolling interest. You see a negative number last year, a positive one this year. So just to make sure everybody is on the same page here. What it means? It means that this is the share that we have to give to the partners and that -- for the companies that we consolidate. So last year, we had a big loss in BBRG, so we gave part of that loss to our partner in BBRG. That explains the EUR 10 million. This year we don't have that because BBRG is 100% for Bekaert. The EUR 4 million is the share that we have to give to the partners in Latin America, Chile, for instance and also to some extent in China.

And all this together brings our net profit to EUR 58 million compared to EUR 54 million last year. That was P&L. Let's now talk about cash, which was another very important target that we, as management, got from our Board.

We had to improve really the cash positions so we spend a lot of time and effort and actions on looking at the cash flow-driven elements. And the first one to draw your attention on the cash flow from operations. Last year was EUR 17 million negative, this year is EUR 134 million positive. Yes. The explanation for that is that we have higher EBITDA, that's one element. But the more important element is that the strict control of working capital. So normally because you compare here with the end of last year and normally in the first half of the year, your working capital goes up. Normally our working capital is always at the lowest level at year-end, normally it goes up. Last year, it went up with about EUR 140 million, EUR 145 million, and this had the negative impact, of course, here on cash flow from operations.

This year it went only up to EUR 65 million, so we really had a much stricter and better control on our working capital. And you will see on the next slide the details of the working capital. The investment activities that was the second element that we targeted to have a better control on cash. So we said we're going to really have a strict control on capital expenditures. We only spent EUR 55 million in the first half compared to EUR 95 million in last year, the first half last year. When you see the numbers for first half '18 and first half '19 on investment activities are the same, has only to do with the fact that last year we had a cash in from selling land and buildings in China and Malaysia linked to the closure of those plants there, which we didn't have this year, of course.

And then on financing activities. Again, here the only thing that we want to mention is that we started the refinancing of the bridge loan, which expires next year but wanted already to do big thing this year. So when we got EUR 320 million from the Schuldschein that we then used to repay the bridge loan, or at least to the biggest extent.

So working capital. If you look at the numbers, inventories did not change that much. Again, the wire prices are in general, a little bit higher still than last year. So I saw then in volumes, our wire rod went down, the volumes went down. In values, it's still a little higher, and it's still an area for attention and for action that we need to look at.

Accounts receivables went down drastically compared to the first half '18. This is the result of a huge program that we did on factoring that we started in the second half of last year. So you see here in the notes that we had EUR 114 million that we had factored into that we sold our receivables to the banks. But also there was a much better collection of our outstanding receivables.

And then accounts payables went down. Has a lot to do with our efforts to lower inventory, so we brought down wire rod, we purchased less wire rod. But definitely you also have less payables when you purchase less. We believe that this will smoothen out again, and that will become more in line with the inventory values over time now in the second half.

Now all in all, our working capital improved to 20.6% on sales. And this is the lowest number in -- Matthew is telling me in 10 years' time or more. So our working capital on sales is now really very, very good. We still believe that we can do more. So it's not like that we would get complacent that we will not do anything more. But if we compare it with our peers, with other industrial companies, it's really already a very, very good number here.

On the balance sheet. Not much to mention here. The only thing and these are technical things I would say, is the fact that we capitalize leases. So in noncurrent assets, and we have the liability and noncurrent liabilities. And that when we repay the bridge loan with the Schuldschein, that Schuldschein is a noncurrent liability, whereas the bridge loan was a current liability. And that explains the swing from current to noncurrent.

For your information, this the maturity table of our debt. So you see on the left-hand side that green, which is EUR 410 million, which was the bridge loan that we used to finance BBRG but also to repay a retail bond. The EUR 410 million so now has been dropped to EUR 90 million because we raised EUR 320 million Schuldschein, the EUR 320 million, you can see that on the right-hand side to be repaid and paid back in '20, '23, '25 and '27. So we have a much, much better spread of our maturities now with the Schuldschein than we had before.

And finally, on ratios. I will not repeat all the elements that Matthew already mentioned on the top of this chart. I would really rather focus here on the financial debt. So it's at EUR 1.25 billion. It includes the leases of EUR 85 million. And so if you want to compare apples-to-apples, and we deduct the EUR 85 million from the EUR 1.25 billion, then if you compare to where we were 1 year ago, then we improved our debt with EUR 171 million, which is a huge effort that happened in the last year, I would say, which also brings our leverage to 2.6.

We always said we will really do whatever we can to bring it down to 2.5 and even below at year-end. I would say we are on the right track, and we really believe that we can get there by year-end as well.

Matthew, I'll give it back to you now for the outlook.

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Matthew Taylor, NV Bekaert SA - CEO & Director [5]

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Okay. Thank you very much, Frank. In terms of how do we see the rest of this year, we do see some lower -- trending lower in some of the sectors that we compete in and particularly as a result of the uncertainty, thus driven by some of the issues we talked about before in terms of trade tensions, policy revisions and so on.

In specific industries, we don't think we're going to see much of a rebound in agriculture in the balance of the year. Automotive OEM, we see as staying relatively weak in the balance of the year and industrial markets in general as well in the near future. We do think the tire market is going to hold up reasonably well. We did see a deterioration in June on demand, but we do think that was mainly stock adjustments in the markets that we're operating in.

And we think that the concrete reinforcement market will stay quite strong for us as well. Obviously, all with the normal seasonality that you'd expect in the second half of the year. So despite these headwinds, we think that we can continue to offset a lot of the impact of those headwinds with a very strong focus on cost actions through the business as well as enhancing our operating performance, both from a point of view of the operating efficiency as well as our ability to price and secure market share in different businesses.

So if you add those factors together, so despite the seasonality and the softening demand in various sectors, we're very focused on continuing to build in the same way as we have the first half, to build our EBITDA, our EBIT margin year-on-year in a very positive way as we progressively move towards a 7% medium-term target that we've given ourselves and allow ourselves to then go beyond that.

And we'll continue to work very closely on our balance sheet. So the focus on cash management and on working capital will be very strong within the business, and our goal is very clearly to reduce our leverage to below 2.5 by the end of the year as well. And we think we're on good track do that. So that's how we see the outlook for the rest of the year. And with that, I think that's it unless you got anything to add Frank. If not, we'll open it up to questions.

We'll start here in the room on questions, and then we'll open it up to questions online as well. Yes.

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Questions and Answers

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Wim Hoste, KBC Securities NV, Research Division - Executive Director Research [1]

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Wim Hoste, KBC Securities. I have a couple of questions. I'll start off with 2. First one is on the tire core business. Can you elaborate a little bit further on how you see markets dynamics evolve, also with regards to what you mentioned about the super-tensile, ultra-tensile business. You see that's gaining further market share. Are there new competitors or new, yes, players capable of doing that and threatening your position there? So a little bit, yes, more information on that would be helpful. And the second question I have is on the whole wire rod availability, tariffs issue, imports in the U.S. from Brazil, for example. How much availability is assumed the quota system, is there any threats? And how are you responding maybe with adjustments of footprints and more importation from Indonesia or other countries? If you can elaborate a little bit on that as well.

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Matthew Taylor, NV Bekaert SA - CEO & Director [2]

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Okay. If I start on the tire cord market. There are different dynamics depending on both regions and different sectors. So and part of that is due to protectionism in different sectors. But overall, what we see as a passenger car OE market is down. So therefore, the tire market for passenger car OE is also down. The truck market globally is more stable, has stayed reasonably robust in Europe for us and in the Asian countries. So in that sense and given our business is more geared towards the truck sector, that's also being slightly better for us and if we were more exposed to the passenger car sector.

We have been gaining share, particularly in China with ST/UT. Other manufacturers can make ST/UT. It's not that they can't make it. In China, it's a question of at what cost can they make it, and therefore, whether it's attractive for them to sell it given the cost that it may incur for them to make it. And certainly, we're seeing that the equation for ST/UT is proving quite strong value proposition in the marketplace in China. And that's enabled us to drive some growth there as well.

So even though market dynamics are quite mixed, I think, it is -- we continue to be good on product, and we continue to drive through our service capability and relationships with the customers. And we'd expect to be able to continue to do a fair bit of that as we go through the second half. It does look like automotive, and particularly passenger car markets will continue to be difficult in the second half of the year. But given the -- we are more even in passenger cars, we're more focused on replacement tires. That's more of a driver of our volumes than new car tires are. So yes, we think we may feel some tensions, particularly in the short term as we see some stock adjustments, but overall, we think we can continue to push quite hard in the tire cord business over the second half of the year.

And hopefully not see the same levels of inventory -- downward inventory revaluations that we also saw in the first half of the year. In terms of the wire rod availability in the U.S. market as a whole, we've actually been very successful through the first half of the year at gaining exemptions on most of the categories of wire rod that we needed for our business in North America. So we're now in a position where we can order across a slightly broader array of different suppliers than we were able to do at the back end of last year. We were very dependent on Brazilian exports at the back end of last year. One of the reasons why our inventory valuations got hit quite hard is we probably overstocked to compensate for lack of forward visibility of where things would hit. Then we actually found that we got limited availability, so we got the worst of both worlds in terms of having too much stock to start with and getting hit by the inventory revaluation, then not having enough stock to really drive the business forward. But now we're in a position where we've got a much -- a little bit more fluid flow of wire rod coming out of different sources, so we see that we can manage that situation fairly well. Notwithstanding, just the fact that the end of the day even without -- even with the exemptions that we've got, the mere fact that you're importing wire rod from overseas means that it's more costly, and even without these tariffs, there are other duties on those imports of wire rod. And it does mean that making the product in the U.S. is still much more expensive than it is in other parts of the world. And so we continue to look at how we can import product from other parts of the world. And both China and Indonesia have seen growth in exports to the U.S. in the first half the year.

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Wim Hoste, KBC Securities NV, Research Division - Executive Director Research [3]

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The quota system in Brazil, how much room is there still to benefit from...

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Matthew Taylor, NV Bekaert SA - CEO & Director [4]

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It's very difficult for me to say that because we're not the only customer for it. So it's a total quota. There are various different suppliers and they supply different sectors. So at any one point, how much room in there -- in it is there is a bit difficult for us to say. We look at what we order specifically and their availability to deliver it. And at the moment, the balance between Brazil and other sources is okay for us. So I think we can start back there and come back to Stefaan. Yes?

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Emmanuel Carlier, Kempen & Co. N.V., Research Division - Research Analyst [5]

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Emmanuel Carlier, Kempen. First question is on the inventory valuations. So you had a negative effect in H1, would you quantify that? Secondly, a couple of questions on tire cord. So you mentioned that June was quite weak, could you maybe give a little bit more color how weak it was? And how you expect that segment to evolve into second half of the year? Do you believe volumes will remain positive? And related to that, China was very strong in H1. Do you see that as a one-off? Or do you believe this business can continue to grow in second half with also the years to come?

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Matthew Taylor, NV Bekaert SA - CEO & Director [6]

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Well, I think firstly, on the tire cord, I think I've answered that already. I mean I've been very clear on what I see as the strengths and weaknesses around different markets. So I think that we do see some areas of weakening, but not overly significant at this point in time. On FIFOs or the inventory revaluations, it's really difficult to accumulate a number because once the -- you've revalued it, your ability to sell at different prices also changes, and therefore, your margin changes. So summing it up over a 6-month period is not easy.

In some markets, it may make more sense than others when you look at that because for example, in the U.S. where most of our competitors in the wire industries are vertically integrated there because they're supplying wire rod and the wire at the same time. As soon as they drop the wire rod prices, they drop their wire prices and that takes the market down. So pretty much that's a straight flow-through. And actually, it's probably higher in the U.S. than anywhere else, our industry revaluations. But I suppose in total terms, I would -- I don't know, I'd place the impact to somewhere around EUR 10 million negative. And I think, again, it's again partly the -- related to the positive side last year. So it's a -- the swing of it is difficult. But again, on the positive side, when you get the positive reevaluation, your margin gets driven down, and that hits you in the following months. So accumulating those industry revaluations is not a good thing to do. You can look at it in a very short period of time, but not over a long period of time. But they were -- the impact, however, were significant in individual months.

And then in China, as I said, I think the market has remained buoyant for us in China. It's not been big growth in the China tire market. And in the -- again, the passenger car market is down significantly. And it's still not a material replacement market. So when OE comes down, you do see a drop in demand. The truck tire market has remained okay and stable to slight growth. But as I said, we've driven market share growth. And I continue to believe we can focus on market share growth through the balance of the year to hold quite a strong performance in China. But we monitor very carefully for any specific movement that may happen. Volumes were down in June, but not even 5%, I would say, but compared to the earlier parts of the year when the volumes had been up, it obviously was more of a swing. But I still see that probably more as a stock adjustment than an underlying big concern.

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Emmanuel Carlier, Kempen & Co. N.V., Research Division - Research Analyst [7]

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5%, is that then the whole tire cord business?

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Matthew Taylor, NV Bekaert SA - CEO & Director [8]

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In total right across the world. I'm saying 5%, but I think, it's probably...

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Frank Vromant, NV Bekaert SA - EVP [9]

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I don't know the right number, but it was significant lower. But again, as Matthew was saying, this was -- this is not a signal that it will now be 5% lower for the remainder of the year.

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Matthew Taylor, NV Bekaert SA - CEO & Director [10]

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It is 5% down against May. So it wasn't 5% down year-on-year.

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Frank Vromant, NV Bekaert SA - EVP [11]

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No.

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Matthew Taylor, NV Bekaert SA - CEO & Director [12]

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It was just against the previous month. And so again, year-on-year, it was probably flat or...

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Frank Vromant, NV Bekaert SA - EVP [13]

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And May was the best month we had, so.

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Matthew Taylor, NV Bekaert SA - CEO & Director [14]

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Yes.

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Emmanuel Carlier, Kempen & Co. N.V., Research Division - Research Analyst [15]

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Yes. Okay. And then one final question from my end is on working capital. So working capital improved quite a bit already, but it's also driven by the factoring that you have done. Could you maybe elaborate a little bit on the kind of sustainable improvements that you still see on working capital?

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Matthew Taylor, NV Bekaert SA - CEO & Director [16]

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I mean we're at a low level of working capital. If you look at our business over the last 5 years, we've gone down from about 27% to 28% working capital, down to now 20.6% of sales is working capital. If the market grows in China, specifically that drives your receivables up fairly significantly because payment terms in the Chinese market are longer with the customer bases that we have there. Despite that, we're significantly lower than all of our competitors in China on -- within the Chinese market and continue to control that very aggressively. Factoring has been one part of the improvement, not the only part of the improvement, so our average days of receivables is also down. We continue to push on payables. At the end of the first half, the payables number was down quite a lot, which normally you would look for payables to be offsetting as much as possible inventory. And if you look back first half last year and end of last year, there was minimal gap between payables and inventory. As we were driving down inventory through the year now, we reduced what we were buying. And so that also limited the payables. So actually you see about EUR 100 million gap between payables and inventory in -- at the end of June, which means there's quite a bit opportunity as that's gets more balanced through the rest of the year to bring our overall working capital further down. So I think that this is still very sustainable. And it's still our goal to keep this low level or improve it.

Stefaan?

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Stefaan Genoe, Banque Degroof Petercam S.A., Research Division - Head of Equity Research [17]

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Stefaan, Degroof Petercam. Two questions. First, I think the 2.5x net debt to EBITDA target was set before the factoring, so if you do the factoring, do you still believe that if -- do you believe to reach this target without factoring? Second question, on the margin improvement, you indicate you expect margin improvement year-on-year. Does this -- because you will have the cost savings much more impact -- actually, more impact in the second half of the year versus the first half of the year. Do you also expect margin to improve H2 versus H1? Although, H2 is traditionally -- has got some lower volumes. And then I had a third question. On the steel wire business in the U.S. If I understand well what you're saying, I think your loss-making in that part of -- in that business or your profitability is fairly low [at this point]?

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Matthew Taylor, NV Bekaert SA - CEO & Director [18]

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In which business, sorry?

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Stefaan Genoe, Banque Degroof Petercam S.A., Research Division - Head of Equity Research [19]

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In steel wire U.S. Isn't it -- you need some drastic actions there? What's in the pipeline there to restore profitability?

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Matthew Taylor, NV Bekaert SA - CEO & Director [20]

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On the factoring side, we set the 2.5 target at the end of last year as well as we talked about it for this year. We were already doing a significant level of factoring then. So that's not a new element within our overall structure of working capital. And at the end of the day, as you -- as I talked about, we would look to use the balance between inventory and payables and continue to reduce our overall receivables. So I don't look at it as net of factoring or not net of factoring. We will continue to drive our leverage down. At the end of the day, those are our receivables, it's our money, the bank are taking those on. That's income to us. So at the end of the day it's I think still where our overall net debt is. In terms of margin improvement, bit difficult to make that judgment call exactly because whilst I am very optimistic about the improvements that we'll make from a point of view of sort of underlying costs and some of the overhead costs, and so you will see more flow-through during the second half, and there are other things that we hope we don't repeat in the second half of the year. But there are some costs that we saved last year, for example, on variable incentives. That was the same we had last year, which I would hope we don't have to repeat this year. And so we got some ups and down coming through. But I would still believe that if volumes remained stable, certainly I would expect us to see continued improvement in margin also a bit difficult is to see if the volumes get hit further, particularly I would say within the SWS, the steel wire solutions business. That will continue to have an impact on margin as well because you can't take the costs out fast enough. Within that, North America is an area of concern for us. And there are various things we're working on, and I won't go into detail.

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Stefaan Genoe, Banque Degroof Petercam S.A., Research Division - Head of Equity Research [21]

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Okay. It's clear.

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Matthew Taylor, NV Bekaert SA - CEO & Director [22]

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Yes. We'll take one more in the room and then we'll go to the questions online. Yes?

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Unidentified Analyst, [23]

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(inaudible). I have 2 questions. The first on BBRG. So internally some things have been done. It's evolving into a good direction. What can you say about the customers, in fact, are they indeed increasing their investments, so you're able to sell more products with higher value, so probably those customers are also in a better shape? And on the inventory correction or adjustments at the site -- at the level of your customers, is it going smooth or have there been some aggressive move where some customers stop ordering in order to severely decrease the inventories or more -- is it smooth -- going smoothly or more aggressive like you've seen in other sectors?

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Matthew Taylor, NV Bekaert SA - CEO & Director [24]

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On the BBRG customers, again, it's mainly about our focus rather than necessarily bigger investment from customers. Some sectors have been much better, mining, in particular. So mining investments have been stronger and that's driven better business. So train sector has been pretty strong as well. Oil and gas was better during the first half, but we've that tail off as we've gone through the half. So it's a bit mixed. But most of it is by the team's ability to focus more strongly on what products they are offering into that sector and gain more business. As you know, a lot of the roads business is project-based, and we're getting better at winning those projects as well. So I don't think it's necessarily fundamental changes in investment, it is about improving our capability at the same time.

On the inventory side, on customer inventory reductions, very, very varied behavior between different sectors. In China, the reason I say I think it's not only a bit of inventory reduction is as they come up anyway to a holiday periods, what they look at is how's their stock going into that period and then extend the period for which they're going to shut down operations and reduce that to reduce their stocks quite significantly.

So but then we -- so we saw that, for example, we saw that in February very, very clearly and quite -- I would say, if you want to say aggressive, quite aggressively in February. So around Chinese New Year, we saw a lot of destocking and that hit our numbers in February quite significantly. Came back in March in record volumes. So it's not necessarily a bad signal, it's then making sure they're clean and also seeing how the market comes back in the post-holiday period. And I suspect there's a little bit of that in China at the moment.

In Europe, I would say, it's more a progressive, and this is not so much tire cord, but in the wire businesses. I think there, people are trying to clean out their supply chain as much as possible. One of the dynamics we see and probably see this more in Europe than we do anywhere else on our SWS businesses, customers do quite often speculate on wire rod price movements. So they'll either buy more in the short term when they wire rod prices are about to go up because they want to buy at the lower prices before those -- they get flow-through. And sometimes they buy a lot less if they think the wire rod prices are going down. Dynamics in the marketplace at the moment are that wire rod prices are going down. And so we may also be seeing a little bit of that, they'll wash through their stocks whilst they wait to see the wire rod price goes down and then they buy cheaper. So there are dynamics in there. Can we read them all exactly? No, not at all, which is why I would say our outlook -- I was asked this morning if it's a very pessimistic outlook. I said no, it's not pessimistic, it's cautious, it's -- because I think it's right for us to be cautious, right for us to be able to focus on the actions that we're taking and then be able to act accordingly when the market moves. Okay. Maybe now we can take a question online.

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Operator [25]

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The question is from the line of (inaudible).

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Unidentified Analyst, [26]

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Can you hear me?

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Matthew Taylor, NV Bekaert SA - CEO & Director [27]

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Yes. We can hear you.

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Unidentified Analyst, [28]

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Okay. So I think it's better to ask my questions one by one. So first one is on the steel wire business. So the new segment reporting gives a very clear view on the underlying profitability of this business. So this begs the question, what is next for this business? Do you see any room for improvement there given the current very weak market position? And how drastic are the measures you're planning there to sort of turnaround the current situation?

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Matthew Taylor, NV Bekaert SA - CEO & Director [29]

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Okay. Let me talk to that one. Yes, we do see opportunities to improve. Sometimes you do have to take drastic actions. Last year we did close operations in Malaysia partly to support that. We've done a lot of turnaround activity in China. But it is a marketplace, which, generally speaking, has a lower EBIT margin, but probably normally a better return on capital. It's a lower capital intensity set of businesses, particularly the industrial steel wire side of it, specialty steel wire, a little bit less so.

But we do have long-term views, and we've spoken a little bit about this before when we've talked about our winning business portfolio, which looks at more how do we move away from having the fairly unique singular position that we sit out in the value chain today, squeeze a little bit between the raw material supplier and a solution provider who is our customer, is there an opportunity for us to have a broader footprint within that value chain, move into some of the higher-margin areas of that value chain, but also be less susceptible to that squeeze that we sit in at the moment. So yes, there are drastic actions. We have some very clear views of how we fundamentally improve this business over time. But they take time to establish, and particularly given our drive to make sure that we have the right capital structure for the business in the short term. That has to take precedence over some of the other things that we might want to invest in, in that short to medium term.

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Unidentified Analyst, [30]

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Okay. A bit of the same questions on diamond wire. In the press release you said that you're analyzing different opportunities for this business. So what could be that here? Is the business up for sale?

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Matthew Taylor, NV Bekaert SA - CEO & Director [31]

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No. The business is not up for sale. We see opportunities, we think it need investment. What we're working through is how best to deliver that investments, whether just ourselves or with partners or how we do it. We think the market has stabilized a little bit, not hugely, but certainly at the lower diameters. There seems to be more stability in it. We're pretty much sold out on the capacity that we have installed. And we think that, that's enough to allow us to be at least within EBIT breakeven level and gives us time to make the right decisions on how we move forward in terms of the capacity that, that business may need and how best to establish that.

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Unidentified Analyst, [32]

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Okay. Perfect, great. Then on the factoring, are you happy with the current level? Or do you see a scope for further increases? Because it's -- it went from EUR 75 million.

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Matthew Taylor, NV Bekaert SA - CEO & Director [33]

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Yes. I don't think you'll see the factoring go up much. But I do think you will see the continued focus on how we manage our receivables in total across the business, continued focus on how we manage bad debt as well, which is a chunk of it in the overdues. But I think you'll also see good focus on inventory. We did get caught out a bit at the beginning of this year and has taken a while to work our way through that inventory because the markets did start off slower, particularly in North and South America. We got caught with too much inventory. We've washed a lot of that through. I think you'll see us continue to lower the level of inventory. I think you'll see the level of payables go up as well. Hopefully, the 2 will match each other or even payables exceed the inventory levels and that will help bring down our overall working capital significantly.

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Unidentified Analyst, [34]

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Okay. A final question then on group costs or other EBIT. It was approximately EUR 27 million, that implies an annualized number between EUR 55 million and EUR 60 million. Is this the same parameter as previously? Last year it was around EUR 50 million. So what is the number that we should be looking for in the second half?

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Matthew Taylor, NV Bekaert SA - CEO & Director [35]

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I lost what the EUR 27 million was. I'm...

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Unidentified Analyst, [36]

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The other EBIT.

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Matthew Taylor, NV Bekaert SA - CEO & Director [37]

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Oh, other EBIT. Maybe I'll ask Frank because -- what's in the other EBIT. It was EUR 13 million on the bridge. You're referring to the bridge?

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Unidentified Analyst, [38]

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No. If you add up all EBIT levels.

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Frank Vromant, NV Bekaert SA - EVP [39]

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Okay. Yes.

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Matthew Taylor, NV Bekaert SA - CEO & Director [40]

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Okay. Sorry. Frank will take it.

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Frank Vromant, NV Bekaert SA - EVP [41]

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Yes. These are in the first place the non-allocated overheads, which are about EUR 30 million to EUR 35 million. So these are corporate overheads because we are a corporation. So we have defined clearly what do we allocate to the businesses versus what we do not allocate. So everything that's related to be a corporation, be it the Board, be it the CEO, be it the group finance and so on, that this is not being allocated, but then other corporate functions, such as our commercial excellence, such as our manufacturing excellence are being allocated. So there is a bucket of EUR 30 million to EUR 35 million that is not being allocated, group overheads. And again, of course, you have as well next to that, so what is not in the business unit as well is the result on our engineering activities. This can be positive in years that we had nice activity and CapEx. It can be negative in years that we have a low activity, which is what we have this time. And then third one, we also have a portion, what we call central technology, which is more the research part of technology that is not being allocated to the business units.

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Unidentified Analyst, [42]

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Okay. And has the parameter there changed versus the previous reporting?

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Frank Vromant, NV Bekaert SA - EVP [43]

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Versus the previous report. We have restated '18 numbers based on those guidance. So again, the corporate overheads, we are doing efforts to bring them down. Engineering, again, can be up and down. So this year engineering is much lower than last year. Let's be very clear on that. So the technology -- to be honest, I don't have the numbers here with me, which is -- we are -- because now we are also allocating part of technology to the business units, and is within the business unit result. But the research part of it, the core research of our technology will not be allocated in the future.

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Unidentified Analyst, [44]

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Okay. And should we then be looking for about same number in the second half?

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Frank Vromant, NV Bekaert SA - EVP [45]

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I believe that, yes. I was just thinking on the corporate overheads. Yes, on engineer and I don't see that we're going to change a lot in engineering. Because we've had not seen a lot of impact on the restructuring plan that we have announced, and that is not in place yet because we don't have a deal yet, so this should help. But it's not in place yet and the research is for this year.

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Matthew Taylor, NV Bekaert SA - CEO & Director [46]

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Okay. Let's take a look if there's any more online first, okay? Yes.

No. That's okay, let's move in here.

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Wim Hoste, KBC Securities NV, Research Division - Executive Director Research [47]

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Okay. Another question to come back on sawing wire. Can you elaborate a little bit on what the market structure is looking like today. Is it -- is MetronSteel gaining share? They say there is some consolidation or some dropouts of the smaller competitors? So that's the first question.

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Matthew Taylor, NV Bekaert SA - CEO & Director [48]

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There certainly have been dropouts, and not just not the smaller competitors, a bit of major ones. But Metron or [Mei Chang] have actually reduced from about 55% market share to 35%. So there's been a bit of a customer backlash against them at the moment. And they are pushing on price. But like everybody, it's starting to get much harder to make the smaller diameter products. And so what we're seeing is more price stability on the smaller diameter products and the pressure really coming on now more commoditized larger diameter products.

And yes, so the market is evolving. There is probably less players. But still very competitive, still very ferocious. But the reason why we are sort of still there and still looking to look at the next level of investment and how we do that is mainly driven by the fact that we see some more stability as the diameters go lower because technically they're much harder to achieve. And so we feel that as long as we can achieve those, the prices won't decrease as rapidly as they did before. But this is an extremely uncertain environment. That's why we're not just jumping in and making those investments right now. We want to make sure the product is right, we want to make sure the cost is right. And if we see that stability in pricing, then it will give us a view how and when we should make the investment.

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Wim Hoste, KBC Securities NV, Research Division - Executive Director Research [49]

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Okay. And then another question, it's obviously you've now changed segmentation, we don't have a kind of historic overview of what margins in the various divisions were. If we look towards the targets you have, go back to at least 7% underlying EBIT margin. Where does that mainly have to come from? Is that steel wire solutions that is far below, so the average is -- yes.

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Matthew Taylor, NV Bekaert SA - CEO & Director [50]

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It comes -- it will and has to come across the board. It's not a single business that drives it or doesn't drive it. We have been a 7% EBIT in the SWS business before. And so we will aim to get it back up there. And it probably requires different dynamics now than it has done in previous times, but that's what we're working on, as I mentioned before. But we will aim to improve across our businesses. And it's a combination of improvements that will drive up the margin performance. Yes?

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Unidentified Analyst, [51]

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On the specialty business, so you had a quite good profitability there. I think it's partly driven also by Dramix that is performing quite well. Is that the business that has good growth, let's say, on the long-term 5% top line growth with positive mix effects on the margins as well? Or do you...

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Matthew Taylor, NV Bekaert SA - CEO & Director [52]

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I think the Dramix business will grow over time. I think it's a very mature business. But I still would expect it to grow driven by a couple of factors. One is increased penetration into the concrete reinforcement market and the other is the geographical penetration. So the biggest construction market in the world is China by a very, very large margin. And we sell maybe 10,000 tons a year in China. In Europe, a smaller construction market in total, and we sell 110,000, something like that. So the opportunities are huge. If we can get the product acceptance level right within certain businesses. So we're very focused on both -- on driving and increasing penetration geographically and an increasing penetration in core concrete reinforcement and establishing it as a real standard in the industry. So I do see it as having an ability to grow over time. But all of the businesses in this sector right now, apart from the sawing wire, are good profit businesses. And some suffering a little bit more than others at this point in time. Heating has been a business which has grown very well over recent years. It sort of seems to have walked into a brick wall this year, but we -- as we look at the second half, that does seem to be improving again. And we think that's a good business, and underlying long-term growth potential of it. And it's a reasonable margin business with, I think, long-term growth potential. It's maybe a little bit more distant from the rest of our businesses than -- because it's not a core wire business as such, but we do see this having good long-term potential. Fibers is, I'd say at this point, nicely profitable, very stable business. However, we've just changed a little bit how we want to look at that business going forward and given it some fairly significant long-term growth targets. It's not something that happens quickly and overnight. But we invest more in terms of couple of areas. One is R&D to drive different applications for a technology which has some very, very unique characteristics that enables it to be used in solutions for different requirements around the world.

But also we want to make sure that people who might have those requirements know who we are. So we're investing more in -- I suppose marketing is the best word for it so that people know about the capability and confidence that we have and we bring them to us. We've probably been over reliant at the past on people coming to us who knew what we did, and we had no idea what their needs were. So we're trying to find a way of improving that balance. And we believe that if we can do that, not in the short term because these things take a long time to get through approval and so on. We think there is big growth opportunities in the fibers business.

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Unidentified Analyst, [53]

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And then the other question is on CapEx. So CapEx, you guided for EUR 130 million to EUR 150 million, but it looks you're quite low in the first half of the year. Could you be a bit more specific there?

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Matthew Taylor, NV Bekaert SA - CEO & Director [54]

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Yes. We'll be quite a lot lower than that EUR 130 million to EUR 150 million. We'll be more in the range of I think EUR 110 million to EUR 120 million -- sorry, EUR 100 million to EUR 120 million.

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Unidentified Analyst, [55]

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Yes. And then it will jump back up thereafter because of...

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Matthew Taylor, NV Bekaert SA - CEO & Director [56]

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It will probably -- it will go up, whether how much it will jump back up, I don't know, but it will go back up.

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Unidentified Analyst, [57]

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And why don't you try to phase maybe a little bit, the CapEx because...

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Matthew Taylor, NV Bekaert SA - CEO & Director [58]

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Because right now we want to make sure that we are in control of our cash and our net debt leverage.

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Unidentified Analyst, [59]

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But I think one of the difficulties with Bekaert as well what is the kind of maintenance CapEx. If you would ask many inventors, I think everyone would give a different answer and with a very big gap, which is quite crucial in the valuation, of course. So yes, how would you answer on maintenance CapEx?

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Matthew Taylor, NV Bekaert SA - CEO & Director [60]

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We will do the maintenance CapEx that we require as a business.

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Unidentified Analyst, [61]

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Yes. But what level is the maintenance CapEx on?

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Matthew Taylor, NV Bekaert SA - CEO & Director [62]

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It's not a number that we'll give. We will do the maintenance CapEx that we require. It varies over time. You can manage that as a process quite well and quite effectively. We have a massive variety of equipment out there. We can do a lot of the maintenance without huge CapEx, so it's a question of when you choose to do different things. And you do when you're able to afford to do them. We spent a lot of in CapEx over last few years, and that's enabled us to get to a much better, more robust state and given us an opportunity to bring things down without having a major impact on the business. We can't maintain that for many years, but we can bring it down and still continue the strong capability and not lose any capability throughout the business.

If I look at what we're very clearly protecting this year, it's all compliance CapEx. So everything to do with safety in the organization. That is prioritized, and at the same time, some of the core projects. So the increase of capacity of Dramix in Czechoslovakia -- or Czech Republic, sorry, and India has been a core priority for us as has been the establishing of the Vietnam plant for our rubber reinforcement business. And those continue to be funded.

Another question coming online?

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Operator [63]

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Yes. We have a question from the line of Kris Hermie of Value Square.

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Kris Hermie;Value Square;Senior Portfolio Manager, [64]

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So I'd just like to maybe go back to the tire cord business in China. If you could add some color onto the 12% volume growth. Just trying to understand the kind of market share you have now in China? And how much of that translated into EBIT or profitability contribution because now you don't have any visibility on the geographic contribution or the geographic margins?

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Matthew Taylor, NV Bekaert SA - CEO & Director [65]

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No. And we're not going to give it to you either. Our tire cord business in China I think has probably grown up to about -- from about 22% to about 24%, maybe a little bit better than that percent market share. So it is quite a significant improvement. And because that's being driven by strong mix, as I've mentioned before, it is accountable -- it is an accounting for a very significant part of the profitability improvement.

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Kris Hermie;Value Square;Senior Portfolio Manager, [66]

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Okay. And going forward, I mean what strategy are you sort of seeing similar improvements in other geographies, specifically for rubber reinforcement business?

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Matthew Taylor, NV Bekaert SA - CEO & Director [67]

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No. It's a -- they're different dynamics. The reason we can do this in China is because it's a less material market on products like ST/UT, and so there was a very clear opportunity to bring that about there. The other generations of products that we're able to use to help us increase market share as we go forward, things like TAWI product, or our cobalt coated tire cord to enable tire makers to remove cobalt from their compounds. Those I think offer very good prospects of growth in all different parts of the world as people move their operations to have that cobalt-free capability. That takes a lot longer. ST/UT, you can make in current operations without any significant change. So our customers just use a different tire cord, process is the same. Using TAWI requires significant change in some of their processes as well.

So we do expect to see continued product-driven growth across the world by leading on technology, which we do, and leading on that technology where it makes an impact in different markets. So if we see opportunities like the ST/UT in China or TAWI in -- all across the world or other technologies that we're developing, we will continue to push to see market share growth. Our market share has grown significantly over the last 5 years. Some of that through acquisition with the Pirelli tire cord or steel cord business, but a lot of it through organic market share growth.

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Kris Hermie;Value Square;Senior Portfolio Manager, [68]

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Great. And just lastly, maybe on the midterm outlook. I was wondering if you could sort of help us with some sort of a timeline that you had targets on EBIT level for individual segments. And now, if you could share something or some color on that, that will be quite helpful.

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Matthew Taylor, NV Bekaert SA - CEO & Director [69]

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No. I'm not going to go into the individual targets by business. As I said before, all businesses are targeted to improve from where they are at the moment. And as we've said in March, we're looking at getting to that 7% over effectively a 3-year period. Like any business, you'll have cycles which may help or hinder that movement, but our goal is to drive continuous improvement in the margin over the next few years to get up to that level of 7%.

Any other questions? Doesn't look like we have any in the room. Any more online? No?

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Operator [70]

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There are no further telephone questions.

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Matthew Taylor, NV Bekaert SA - CEO & Director [71]

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Okay. With that, we'll wrap it up there then. Thank you all very much for joining us on this conference. As I said, it's been a fairly challenging first half to the year. And we think that we've done a good job in improving underlying dynamics within that. And we'll continue to work on those regardless of what the markets do around us in the second half. And if they favor us, that will be good. If they don't, we'll be more ready for it. Thank you.

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Frank Vromant, NV Bekaert SA - EVP [72]

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Thanks.