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Good morning, and welcome to the Bekaert 2024 results call. At this time, all participants are in a listen-only mode, and we will open the floor for your questions after the presentation. If you require assistance, you may press star zero on your keypad at any time, and an operator will assist you. If you wish to join the queue to ask a question at any time, you may press star one. And should you wish to remove yourself from the queue, press star two. As a reminder, this conference is being recorded. It is now my pleasure to turn the floor over to your host, Guy Marks, VP Investor Relations. Sir, the floor is yours.
Super. Many thanks, and good morning for me. Delighted that you could all join us today for the 2024 full year r esults. I'm here with Yves Kerstens, CEO, and Seppo Parvi, CFO. And before handing over to them, let me just take you through the safe harbor. And just to remind, this presentation may contain forward-looking statements. Such 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 is providing the information in this presentation as of its date and does not undertake any obligation to update any forward-looking statements contained in it in light of new information, future events, or otherwise.
Bekaert also disclaims any liability for statements made or published by third parties and does not undertake any obligation to correct inaccurate data, information, conclusions, or opinions published by third parties in relation to this or any other published publication issued by Bekaert. With that tongue twister out of the way, I'd like to hand over to the [inaudible]
Thanks, Guy, and also a warm welcome from my side. So 2024 results. So another year of resilient delivery in a business environment that has been challenging, with 2024 with two phases. First half, still good market demand, and second half, we've seen a weaker market demand in many of our end markets. In that context, we deliver a $4 billion top line and an EBIT-U margin around 9% on the higher end of our guidance. Underlying EPS and leverage broadly in line and stable with previous years. So some highlights on 2024. We continued, of course, working on our mix improvement, cost structure, minimizing the impact of lower volumes, while also evolving or progressing, as announced this morning, on our portfolio, business portfolio, with the further divestment of our activities in Costa Rica, Ecuador, and Venezuela at attractive multiples.
We've commented during last year's calls about the evolution of the growth platforms. Based on the geopolitical situation and priorities in the end markets, we've seen some slowdown in some of our growth platforms. These are delays. We will come back later to how we look into the future. On the other hand, we've successfully integrated in the synthetic growth business our acquisition of BEXCO and the Flintstone business. One of the challenges we shared in the first half of the year and then recovering in the second half of the year was the operational challenges in our growth business in Europe and North America. We're happy to report that the recovery plan, as laid out in the second half of the year, has materialized, and we brought back the business in the profitability levels that was targeted.
So having said that, as an introduction, I hand over to Seppo, who will give you more details about our financial and operational review by segment and growth as a company.
Thank you, Yves. Let's start by looking at the group performance. As you can see on the graph, on the left-hand side, sales at EUR 4 billion level. That is down 9% compared to the year before due to lower sales in bigger end markets. Main factors behind the sales reductions are coming from various places, and it's mainly due to lower passed-on material costs and lower volumes. Lower passed-on material costs were 3.9%, and volumes 3.5%. There's also a 1.2% negative effect on price and mixed effects. Currency movements had a relatively small effect, 0.7% negative, and acquisitions we made during the year increased sales about 0.8%. EBIT margin was stable at 8.8% despite the lower volumes. That is thanks to improved mix.
We also have had intensive focus on cost improvements and working on our cost structure, both on administration SG&A costs as well as cash conversion costs. And also work done on footprint optimization in the past is also visible in the resilience of the result. Then let's move to rubber reinforcement, where we also see resilient performance in bigger end markets. Sales were down 9.5% and reached € 1.7 billion level. It's mainly also due to lower passed-on material and energy costs by about 6.2% and lower volumes 2.2%. Price and mix effects were broadly stable, about just negative 0.2%, and currency movements negative 1.1%. We had also volume growth in Indonesia and India. That is thanks to new production capacity that has been installed there to serve increasing local demand. We had lower volumes in and North America, about 3% down, and lower volumes in China.
But then we had to remember that 2023 was a very strong year, and then we saw a reduction of about 5%. Underlying EBIT margin was 8.7% compared to 9.6% the year before. We see there that the competition in the global tire market continues to intensify. And margins were mostly impacted in Europe with lower sales volumes and related utilization levels. And we have kept here as well strong focus on costs, footprint, and business selection, as well as on business portfolio and customer portfolio development. In Steel Wire Solutions, we also faced a reduction when it comes to sales. But the important thing to note is that a big part of the volume reduction, about 5.9%, is coming from closure of operations in India and Indonesia the year before. That's about 2/3 of the drop in the volume.
We had higher volume increases in China, offset by some small volume decreases in Europe and North America. Volumes were also bigger in Colombia and Ecuador. An effect of lower passed-on material and energy costs and price and mix effect was about 2.8%. A positive thing in SWS Steel Wire Solutions [inaudible] was underlying EBIT margin increased to 10.4%. That is almost 3 percentage points increase compared to 2023. That is thanks to further mix improvements towards higher margin applications in the portfolio. Also actions around footprint, cost savings, and business selections have structurally improved margins and taken profitability to a new level. We had also strong cash generation in steel wire solutions thanks to good, or I could say even excellent working capital management and improved profitability also helped to improve cash flow. In BBRG, our operational issues had an effect on top line as well as on profitability.
Our sales went down about 6% to EUR 552 million level. There was a positive effect from price and mix of about 0.9%, but volumes were down 11.7%. And currency movements at negative levels of 1.1%. Acquisitions, that's mainly BEXCO that we acquired last year, had a positive impact of 5.7% on the top line. We have been solving operational issues we had and faced last year in the U.S. and U.K. It's positive that we can now say that we are returning to normal production in Q4 last year. But that would not offset the impact of lower performance in the steel rope subsegment during the year. But of course, it is a good start for the new year. Synthetics grew strongly in sales and profitability. And also important to tell and notice that integration of Bekaert Flintstone has gone well and meets our expectations. EBIT-U margin at 9%.
That is a reflection of lower sales and lower cost absorption due to output issues, primarily in steel ropes, like mentioned earlier, and stronger Q4 in steel ropes lifted the margin up from first half of the year 7.4% to 10.5% now in the second half. It shows that we are on the right track. We are working and continue to work on optimizing production footprint, and we have recently announced closure of a [inaudible] in Scotland following our footprint review, then moving to specific businesses, where we are navigating short-term challenges in the end markets. In sustainable construction, volumes were up 1% compared to 2023, and we had volume growth in all regions except North America. Volumes increased primarily in India, Latin America, Turkey, and the Middle East markets. Also positive is that over 50% of volumes are from body and [inaudible] Dramix .
And also important steps have been taken in sustainable constructions. We have first projects on Sigma Slab, elevated floors in Central America, first project on seamless flooring in China, and prestigious tunneling project in Saudi Arabia, just to name three good examples. In Hydrogen business, our sales went up 36% compared to the year before, but project cancellations and policy uncertainty have slowed down expected progress in the business. But production ramp-up has been carefully phased to align cost-based demand, and we continue with our modular approach here when it comes to investment so that we are ready to capture the growth and invest more when the markets come back to normal growth path as we expect. And we have continued to invest on R&D in Hydrogen. That is, of course, having some effect on profitability as well.
In the other businesses in specialty, I can mention filtration and fiber end- markets have been stable, but the demand for ultra-fine wires was lower in the second half of 2024 following the technology crisis, and [inaudible] Bekaert Combustion Technology faced lower demand during the year, then we could look at the EBITDA bridge, and there we can see that margins have been well protected despite lower volumes through cost control and mixed improvement that we have worked on, and if you look at the EBIT %, it's gone down from 9% to 8.8%, which is, I think, a good achievement taking into account the top line decline that we have faced.
And as you can see on the bridge, also it's very much relating when it comes to EUR wise to volume and cash conversion for absorption because of the volumes that have been driving the EBIT wise in EUR wise to EBIT down. Then moving to our joint ventures, and I want to highlight the performance there as it is not included in our EBITDA or EBITDA figures, but reported below. So good performance from joint ventures has continued. Also positive margin development if you look at the profitability how that has developed. Also it has created positive cash flow through solid dividend flow as you can see over the years. And last year we received EUR 51 million dividends from our joint ventures, and their profitability was at EUR 49 million. So quite significant contributor to the backlog as a company.
Then a couple of words on our one-off costs that we have in the result. It's at EUR 52 million level at the same level with last year. And this was another year of restructuring for the future health of the Bekaert Group. Big part of the restructuring charges is about EUR 44 million related to changes at the sites in China, Belgium, and U.K. Those are footprint changes and optimization that we have done. And there's some EUR 8 million relating to environmental remediation and our ongoing investment in M&A. These actions that we are taking and the costs that we are taking upfront make us more resilient. That we are also seeing in the result development last year that the margins have been quite steady despite the lower top line.
Of course, over time making us more cost competitive as we are taking out costs and improving occupancy rates at our remaining plants. And that way making us more cost competitive. Then let's move forward and look at the income statement sort of below EBIT. There you can see a reduction on the interest costs, net income, and expenses, and banking charges. One thing to pay attention to is also relatively flat tax rates and taxes paid during the year. And this positive sale has led that the EPS figure is down only 4% for the period compared to sales decline of 9%. Working capital is one focus area for us during the year that has started. Overall, working capital was up about EUR 12 million in 2024 versus 2023. This is mainly linked to acquisitions and currency impact.
We are working on reducing working capital to improve our cash flow. We are targeting to bring it down to maximum 15% level when it comes to working capital ratio to sales. We were at 16.5% at the end of last year. Our cash flow generation has been quite robust as you can see despite the lower sales and lower EBITDA level in EURs. Cash flow was at EUR 193 million for 2024. CapEx in 2025 will be flat compared to 2024. We have done a very good job there when it comes to managing the CapEx levels going forward also with the modular capacity ramp-up to avoid overspend as well as potential capacity overcapacity impacting our margins. We will continue this strategy also going forward and potentially increase capital expenditure once we see that the expected growth is coming back. Finally, about shareholder returns.
We have consistently generated strong cash flows, and that has also continued last year. Alongside growing the business, this has also enabled us to give excellent returns to our shareholders. We continue this also now with the continuing of our progressive dividend policy with the proposed dividend of EUR 1.9 per share. That is an increase of 6% year on year. This return, about EUR 100 million, is on top and alongside the share buyback program that we are currently undertaking, as announced earlier in November, EUR 200 million over two years. And now I hand back to you, Yves, to go through operational and strategy review. So please take it.
Let's have a look at the progress we are making at our strategic priorities. So we identified four priorities. First of all, is to become more market-driven to these end markets, and I will give you an update.
And creating business units or self-sufficient from strategy to resources, from strategy to execution. Secondly, is to transform our business portfolio to capture more growth opportunities in the future, drive more innovation in these end markets, and build a global brand. And in the meantime, strengthening our fundamentals. If you look at how we are progressing, type of self-assessment from a performance point of view, as management has mentioned, stable performance in a difficult market environment, to be used above the 10% margin level and robust cash generation. On the transformation side, making progress on some smaller acquisitions, successfully integrating them, adding value to Bekaert. But also on the divestment side, further disposal of more commoditized businesses at interesting multiples for our company. We continue to work on the portfolio rationalization, but also on our footprint rationalization in the upcoming years.
The M&A pipeline is increasing, so we increase the review of potential investments to diversify, but also focus our portfolio in these end markets. The area where we are less progressing and less satisfied is with the growth area. Due to market environments, changing in sustainability priorities, and divestment or delays of investments, we've seen a delay in our growth platforms. However, we are confident, and I'll come back to that, that we are positioned to capture the growth in the future. The areas where we see growth, like India and Southeast Asia, we keep on expanding our capabilities and capacity there, mainly in the area of reinforcements. For the growth platforms on the long term, we still aim at 5% growth in these end markets. Having a look at the priority markets that our business units are serving.
So, the EUR 7 billion tire reinforcement market in terms of addressable markets, Steel Wire Solutions focusing on transmission and performance wires. There you will see that these figures have been updated versus the previous communication in that sense that we were looking at 2028, now we are looking at 2030 end markets. And we updated also the estimated potential markets for performance wires in this segment. We confirmed the market addressability in our ropes business, both steel as well as synthetic ropes as well as advanced cords. Specialty business EUR 7 billion, in which EUR 4.5 billion is the Hydrogen play 2030 reconfirmed. And then the last one, sustainable construction, who went from EUR 2 billion to EUR 3 billion by including the potential of conversion in the tunnel segment from traditional reinforcements to the fiber reinforcements.
So having some quick words on how we are progressing in these end markets and some recent developments. So first, in the tire reinforcement business, we continue to focus on capture opportunities with the trends of electrification and sustainability. In the recent developments, what we've seen in 2024 is a weaker end market demand, mainly in Europe and in China, and an increased competition in the global tire market. On the other end, we've been successfully renewing long-term agreements with our main customers and intensifying our collaboration with the strategic partners, both on technical as customer proximity. Looking in 2025, beginning of the year, we see this, let's say, cyclicality in the tire markets holding on in the first half with a recovery in the second half. And of course, we have to monitor how the various geopolitical uncertainties will play out in this industry.
We expect volume growth still in the same regions like India and Southeast Asia. We see some opportunities in the US, and we continue to drive our mixed improvement. If you look at the next segments, transmission and performance wires, so a EUR 3 billion addressable market. We are continuing to capture opportunities from grid connection and rising electricity data demand and data demands, mainly in markets like the U.S, but also more and more in Europe. We've seen 2024 a very strong automotive business for us in China, of course, linked to the strong automotive OEM business in China, both locally but also export for them. We've seen a very strong or solid demand in transmission, and we've seen weaker demand in Europe and China in the construction and consumer business. Moving into 2025, we see a solid order book, mainly in the segment for energy and utilities end markets.
The automotive market continues to be strong in China, but less so in Europe. And we see, of course, local opportunities in this business based on the new tariffs. Moving to advanced Lifting and Mooring, so EUR 5 billion end markets. We will continue to work on strengthening our offering here. We've seen strong demand in synthetics, both in oil and gas, as well as offshore wind. We see softer markets in specific segments like coal mining and chain in the industrial. And for 2025, we see more uncertain market outlook in Europe, while a better outlook for North and South America and the mining in Australia. The recovery in this segment in construction is still hesitant. Pivoting to energy transition. As mentioned, the electrification renewable. Of course, we've seen recently the delays in investment and policy changes, which lead to postponement of projects.
On the other hand, we've seen an increase of the final investment decisions up to 20 GW for the upcoming years in terms of electrolyzers installments. We see a consolidation play in the electrolyzers equipment manufacturers, reprioritizing investments, but we are confident that we are connected with the winners of the future in this industry, and we are happy to see the continued interest of the customers in our products, our PTLs, but also in the more innovative solution of MEA, and that we are progressing on securing, being qualified, but also getting new LTSAs in this segment, so clearly, 2025, we will continue to see these delays, also emptying the supply chain in this segment, but long-term remains a potential for us, and we are ready to scale up in this business.
Also to remind you that Bekaert received or was eligible for subsidies from the Green Hydrogen, from the new European Investment Innovation Fund, up to more than EUR 20, EUR 25 million to further deploy our solutions in hydrogen, both manufacturing as well as innovation. The other segments, smaller segments in energy transition, filtration, and hose wire and conveyor belt remain pretty stable, and we expect them also for 2025 to be stable performance. Moving to sustainable construction to conclude here. So a EUR 3 billion slump. We've seen in the last two years, 2022, 2023, a normalization of the high pricing in this segment, which were pretty high in the last two years. So 2024 normalized pricing and lower activity in the sector in Europe. We are serving two end segments, the building and the infrastructure.
So first of all, we see an increased potential in the infrastructure segment with investments from governments in the infrastructure, while also healthy pipeline in tunneling and flooring projects, with certainly an upside in the U.S. over time with the strengthening of the local production, which is leading to additional manufacturing warehousing investments in the U.S. So from a portfolio point of view, we announced this morning the sale of our business in Costa Rica, Ecuador, and Venezuela, enterprise value of € 73 million with a proceeds of net of EUR 37. So multiples around EUR 6.3 million in line with the divestments in Chile and Peru. This decision is driven by the focus on rationalizing our portfolio, having businesses which are less commoditized and less cyclical, and positioning ourselves for focused businesses in the future.
Happy to have our operations and our teams landing in a family holding a group of [inaudible], which gives them a very nice home for the future. The hot topic of the last couple of weeks, months, is the evolution of the import tariffs and the potential impact on global flows. We have mitigation acts in place like in the past. Bekaert has a global footprint around the world with a strong presence in the U.S. for local production, but also local supply of wire rope, complemented by imports from Latin America, but also from Europe and China, so we will monitor closely how import duties will play out, not only for the hard products, but also for the final products that are driving the demand in the markets.
So if we look a little bit back in terms of our performance, happy to report out another year of resilient performance in terms of profitability despite a volatile market environment. And we are reiterating our ambition on the midterm to drive to a 10% business from a profitability point of view. Having some words on the outlook for 2025. We see the weaker business environment in the second half continuing. Now, second half, Q3 and Q4 had a slightly different image. Q3 was really weak. Q4 was stabilizing, and we see a continuation of that stable demand going into from Q4 into the first half of this year. So on the overall full year, we expect flat to slightly improving revenues and at least stable margins from a profitability point of view. With the seasonality, which is more half-half, equally split between the first half and the second half.
This has to do with the business profile and the businesses we are in. So thanks for listening to our explanation, and I think, Guy, we are handover for you for the Q&A.
Yeah, actually back to the operator.
Thank you. Ladies and gentlemen, the floor is now open for questions. If you wish to join the queue to ask a question at this time, please press star one. We do ask if listening on speakerphone today, please pick up your handset while asking your question to provide optimum sound quality. Once again, please press star one on your phone at this time to join the queue to ask a question. Please hold a moment while we pull for questions. Thank you. Our first question is coming from Wim Hoste with KBC Securities. Your line is live.
Thank you. Good morning. I have a couple of questions. I'll ask them one by one if I can. First would be on the general cost outlook for 2025, things like energy, wire ropes, other raw materials, freight, to name a few. If you can just elaborate a little bit on that, how you see the outlook evolving, also salaries, for example. If you can just walk a little bit around that subject, that's the first question, please.
I think it's fair to say in general that inflation is and has been coming down and has stabilized. So in that sense, I think it's quite the change compared to the past couple of years. So there's no bigger pressure there. Of course, salaries typically follow inflation rates in various countries.
I think the biggest question is around logistics, how that will be affected the supply chain because of the tariffs and disturbances that can have caused on the supply chains and freight costs globally. But other than that, no bigger question.
Yeah, if I can add to Wim's and Seppo's comments, if you look at the wire ropes, we see pretty stability. Now we see increasing wire ropes in the U.S. already. That's, I think, the region where we've seen movements. And of course, to be further monitored based on the import duties and the flows.
Okay, understood. And then my second question would be on, yeah, capital allocation in general. You have the share buyback program, but can you maybe talk also on, yeah, M&A? What kind of size of potential M&A targets are you looking at?
You said the pipeline is filling up, but yeah, how much transactions can we expect? I presume still in the growth areas mainly. Also, if you can talk on other parts of the capital allocation discussion, CapEx, how much CapEx are you foreseeing for 2025? And also, can you then maybe elaborate a little bit on the projects that you would spend money on b ack to.
Good. Yeah, let me start with M&A and then Seppo for filling in on the CapEx insight. So on M&A, as you said correctly, we continue to look at a couple of segments and targets. Some of the targets we are looking at are adjacently complementary to some of our growth areas to consolidate some of these offerings or strengthen them. So that's one area.
We are looking also at new segments for Bekaert, right, where our capabilities, as we said, in terms of scaling business globally and in segments where we think we can play a role. So I think that gradually over time is a second segment we're looking at. And then we are constantly also looking at all our businesses where we say, where are they in the maturity curve and which type of next, let's say, stage we need? Is it an innovation? Is it a consolidation play? So gradually over time in terms of the portfolio evolution, these are the three dimensions we are looking at into our M&A. From the CapEx, I will hand over to Seppo.
Yeah, thanks, Yves. And as mentioned, we foresee that the capital expenditure for 2025 will be more or less at the same level as 2024, so about EUR 190 million.
But like I said, that if and when we see growth coming back when it comes to our growth platforms and bringing new growth opportunities, we are willing and able to increase that from this EUR 190 million level. If I can add, in the previous years, we had a slightly higher capital allocation to the CapEx, mainly in the growth areas. And I think we are now well positioned with the capacity capabilities we have. So that's why you see slightly lower levels than what we planned for 2024. Also pivoting to taking the opportunity to further strengthen in the operations of patient performance improvements, which will help us on productivity and also making sure our assets are equipped for the future.
And on top of that, our capital allocation, as you know, about EUR 100 million is the dividend that we have proposed. And then another EUR 100 roughly this year for the share buyback that we announced in November, EUR 100 plus EUR 100 in over two years.
Okay, understood. Yeah, those were my questions. Thank you very much.
Thank you. Our next question is coming from Frank Claassen with Degroof Petercam. Your line is live.
Yes, good morning all. I'll also ask my questions one by one. First of all, on your guidance of flat revenues, can you roughly break it down? What are your assumptions for, let's say, pricing and what are your assumptions for volumes? Is it both flattish or maybe pricing a bit up, volumes a bit down, or what are your thoughts on that?
Good question. In terms of, because of our different segments have been through, because this is, of course, the sum of all our segments, I would say it's both pretty flattish, I would say, on the volume and on the pricing side. Of course, we now have to see with the latest evolution of the tariffs we see in some regions, certainly price increases, certainly in the U.S., we see that we will see there are more price opportunities, right? But I would say across the businesses, it's both dimensions.
Okay, thanks. And then on working capital, indeed, it increased a bit versus last year. Yeah, and you still have the target of 15%. Can you elaborate why was this? Is this a temporary thing? What are you doing to improve the ratio? Can you elaborate on that, please?
Yeah, thank you. It's a good question. I fully agree with you that it's rather at the high end of the range where we want to be, and we have set the target to be at 15% or below. I think if you look at the drivers for higher working capital and also in relative terms, it's driven by several various things. One relates to the inventories, which are a bit at the high end because of the slowdown of the business and volumes, so we need to continue to manage the inventory levels and adjust production better to the demand. Second area that we faced, and that was visible at the end of the year, was that some of the customers were delaying their payments over the new year. That is correcting at the moment, and that is in part a reflection of probably the hard business environment out there.
We don't see that. I don't see that as a credit risk when it comes to our customer portfolio. It was rather a behavior-related thing over the new year. That was one thing. But obviously, it puts also our focus more and more on the customer receivable collections to ensure that we are getting our money on time. And we have actually started to look at the various places there, and we are focusing on, like I mentioned already, collections to improve the collections of the overdue receivables. Also, of course, working on payment terms, both on the customer side and on the supplier side, because that is, of course, one of the key things when it comes to working capital management.
When it comes to inventory, it's of course a lot about production planning, sales forecasting, improving our sales and operations planning in order to ensure that our production plan is matching to the expected demand and delivery schedule so that we don't build too high inventories. There also comes a question of consignment stock arrangements that we provide to our customers, how those are managed, do we have, and what kind of consignment stock arrangements from our own suppliers, as well as what the spot stocks that we keep and carry, that how to optimize those. That also links to supply sales and operations planning as well. We are working on many fronts there, and that way we are confident that this is a temporary increase in the working capital.
That's an additional point is that we also position some stocks strategically.
Yeah. Okay, that's helpful. One final question on the SWS. Yeah, the margin improved quite a bit from 6% to 10% last year. Is the 10%, is that the new normal, or can it increase even a bit further? And yeah, can you spend a few words on that, please?
No, of course, we are happy with the performance of our SWS division, and I think it was a strong performance driven by good business energy and utilities in the U.S., but also good operations in China, strong automotive pull, correct? And then also in Europe with results. So I think we're pretty happy and pleased. We need to be realistic in the steel wire solution business, correct? So from a portfolio point of view, we did some evolutions by reducing some of the commoditized products. And like I said, in Indonesia, this helps with the margins.
So it's a mix on one hand, focusing on certain businesses with better margins, and then, let's say, not divesting, but stopping some of the segments. And then, of course, comes now the further divestments of the three countries in Latin America. So I think we need to be really realistic with this business segment. Of course, if the group ambition is to be above 10%, a segment like SWS and the focus areas over time should get close to that 10% in a consistent way over the years.
Okay, thank you very much.
Thank you. Our next question is coming from Alexander Craeymeersch with Kepler Cheuvreux. Your line is live.
Hey, Alexander from Kepler Cheuvreux here. Four questions from my side. So in 2023, as a CMD, Bekaert put out some sharp targets for the midterm, and that was at that stage 2026.
You now mentioned again mid-term, but for the 10% EBIT margin target but does this still mean 2026, or does the cautious outlook on 2025 also imply that your 2026 EBIT targets are on hold until you get some more visibility there? Then I'll ask them all at once, so then the second question would be, the addressable markets seem everywhere the same in 2030 versus the previous communication on the 2028 addressable markets, except for the sustainable construction. Where does this, yeah, basically no growth from 2028 to 2030 come from? Is it just a delay in the orders, then the third question would be on the outlook. You state at least stable margins, so you seem to have some confidence that we are at a trough on the margins. I'm just wondering where the confidence comes from and what could drive the margins higher.
The fourth question, the last one, just a small one, the divestment in LATAM that's planned for Q3, is that just the full LATAM North business? Thank you.
All right. I hope you all captured your questions. Let's see what's out there. But let me start with the first two, and then on the outlook, Seppo can jump in, and I will take back the divestments. First of all, on the midterm guidance, the CMD, two components. One is how do we drive performance and profitability, and how do we drive growth? I simplify it a little bit. By 2026, we set the profitability targets of 10%. These were driven by the performance improvement and then gradually getting the growth platforms kicking in. What we are saying here is that we're still targeting the 10% in 2026. We are hovering around 9%.
Our assessment based on the evolution of the portfolio, the performance improvement we are doing, that this should be in reach. We repeat our 10% profitability for 2026. The element which is on that side needs to be or is less favorable is the contribution of the growth platforms to that profitability target in 2026. On the other hand, we are making good progress on some of the core businesses as well. I would say you need to look at it as this little bit balancing out and what we see for the moment we are targeting. Of course, we still have to see how the global economy will evolve in 2025, how the whole geopolitical situation will play out, how all the tariffs will play out. I think that's a big uncertainty that I think we all of us have.
On the growth side, what we communicate is that on the long term, midterm, the growth ambition is above 5%, and that was clearly linked to, of course, a change in portfolio and the kicking in of these growth platforms. So certainly on the growth side, we didn't specify a timing because it was linked to these platforms. On the tires, so you're right, so we didn't want to, let's say, go behind the comma, but if you look at the entire industry, yes, you have some growth, 1% to 3%, some region more, some less. So from that point of view, we said, okay, this doesn't fundamentally change the addressable market. The same for the ropes business.
Now, where we updated it was on the Lifting and the Mooring, as I said, because we looked more at the scope of it and the sustainable construction, also because we increased the addressable marketing tunneling. And I would like to mention there, so we look at the steel reinforced concrete in a different application, and we make an assessment which part can be converted to fibers. Then in energy transition, it's mainly a delay. So that's clearly if you would look at the [inaudible] of 28, it would be down. But we estimated that with the two-year delay, we were looking at the same addressable markets. And of course, there is out of the 7 billion, it's 4.5 billion with our offering in PTL and MEA. And of course, we have to see how that industry will further evolve, but that's our latest update.
So, I think by that I give some highlights, and tell me, Alex, if I didn't fully clarify your question, but let's go to the outlook of perhaps that means first thing divestment is perhaps easier on LATAM North. So if you look at our operations, the operations in Colombia will remain under the joint venture structure with a bigger joint venture partner. And so that's basically the operation that remains what we call LATAM North-South versus, of course, what we still have our joint venture in Brazil. So Colombia will remain under our joint venture partnership moving forward. So any other overview?
Yeah, thanks. On the outlook and our statement on at least stable margins, that relates to the fact that we already in the second half of last year started actions to work on the cost base to adjust to the lower top line as well as to improve our cost competitiveness, so that gives us a better starting point for this year. We also continue focusing on our SG&A structure, looking at that, using our SG&A costs further this year as well as cash conversion costs, so we have put a lot of focus on cost improvements going forward, and that is the key. Also, you have to remember we have done quite a lot of footprint optimization in the past that is also improving our margins and our cost competitiveness over time.
So it's not only cost reduction actions, but also the footprint improvements that we have done and improving that way our capacity or occupancy rates in the plants, and also our sourcing is working on several fronts when it comes to sourcing of various raw materials and other things, and that way improving our position when it comes to costs of input materials.
Okay, thank you very much for that.
Thank you. Our next question is coming from Chase Coughlan with Van Lanschot Kempen. Your line is live.
Hi, good morning all. Thank you for taking my questions. I'll go back to the former trend of taking them one at a time, please. Maybe starting with the rubber reinforcement margin in the second half of the year. Obviously, it saw some pressure. I believe that's, of course, due to the declining environment.
But you also comment on intensifying competition in the tire market there. And I'm curious on, yeah, what exactly you're seeing. Is that how much is that affecting prices? And how do you plan on, yeah, protecting from this intensifying competition from a sort of innovation standpoint or perhaps a cost standpoint as well? That's my first question.
Good. So it is on the tire industry market. So what we see from a global market perspective, of course, and that's normal when you have a more stagnating market environment and limited growth. The whole automotive, so the two segments, automotive and then more the B2B truck business and off-the-road business. But if you look at automotive, the competitive landscape of the OEMs and then linking to the tire supply, of course, you have the aftermarket as well.
But we see between, let's say, the more established players and then the newcomers in the industry and increased competition there. Now, the good news is we are serving our customers globally, correct? So the Chinese OEMs or tire makers, the Indian, the European, the American, the Japanese, who have a strong position across the board. And so we are monitoring closely how the share of the different players will evolve in this more competitive landscape. I think there's also, if you look at the press releases or the results of some of the players, they indicate some volume drops and some intensified competitive landscape. And for us, it's important to understand how that will play out. And we are monitoring that carefully.
I think from the tire cord competitive landscape, not a lot is changing in that sense that the competition, as you know, has been there, is there, and will be there in 2025.
Okay. Okay, clear. Then my second question would be regarding Dramix. Of course, you've spoken to some volume growth for that division this year. However, you also commented on the, yeah, normalization of pricing there, obviously some pricing declines. But I'm curious on also the competitive aspect there. I think in a previous press release, you spoke to some increased competition in Europe, specifically for the 3D business. So I'm curious on how that's developing and if you're seeing any increased competitive pressures on the 4D or 5D ranges there.
No, remains. I think the most competitive forces are on the 3D and not on 4D, 5D, where you're more expecting in with more complex construction.
So it remains. So no further, certainly not on innovative products. So we've been growing innovative products as well year on year. That's our focus. That results in a higher mix of 4D, 5D. Of course, it's not about this product mix, but it's going big expecting into applications that will create recurring businesses. Also further first steps in precast. So I think we are happy with how we strategically are progressing, where perhaps the disappointment is we don't realize close to double-digit growth in a business like that. But we need to be realistic in a market environment where construction in Europe is down, China is down. And so, yeah, so that's the competitive situation.
All right. Great. And then one final question regarding, yeah, divestments. Of course, you've just mentioned that the divestment this morning was sort of the last portion from the LATAM divestment pipeline that you had. And I'm curious on sort of how many more divestments do you still believe you have to do if you want to achieve this 10% EBIT margin, or what other sort of areas of the business are you looking at to potentially divest? Could you provide any more color on that?
Yeah. So you have to see it in the context of the long-term evolution of the portfolio. As mentioned before, on one hand, we are pretty happy with the very wide portfolio that they can have both in geographical as product segments because that gives you a sort of automatic hedging. On the other hand, it's a challenge on the equity story. It's a challenge on the capital allocation and the resource allocation.
As mentioned, we are pivoting over the years to have more focused capital allocation and resource allocation to areas where there is more growth potential in the future. You have to see that in that context. Two things need to happen. One is continue to scrutinize segments that, or because of cyclicality, or margins already on the maturity curve, or also of size, are candidates for divestments. We’ve been very diligent to make sure we find the right partners at the right value for these businesses.
And on the other side of the spectrum, where we hope to make also more progress, is on the acquisition side by adding acquisitions that help us to position in these end markets as stronger players, more being number one and two in these segments, perhaps also playing more a consolidation player as a leader like we did in our previous decades in core businesses where we've been building up a leadership position. So that's also on the investment side. So I think, yes, on both sides, you can expect things to come not only 25, but this is a journey we're in for the upcoming years.
Okay. Seppo, thank you very much. I'll jump back.
Thank you. Our next question is coming from Stijn Demeester with ING Financial Markets. Your line is live.
Yes. Good morning. Thanks for taking my question. I will also have four. We'll ask them one by one. The first one is on specialty. I might have missed it in the call, but can you provide some color on the sharp profitability drop in H2 in Specialty Businesses to a level that we have actually not seen since 2020? So are there specific structural elements that are driving this decline? And also, yeah, what should we expect for the units going forward? Because the declining trend has been visible for some semesters now.
Right. No. So let me give some color to that. A different component, the Specialty Businesses is a group of businesses in several different segments. So one non-construction, we discussed Dramix, that's one. And there the performance is stable, profitability is good. Only the growth area, that's where we want to get more success.
If you look at the other business and the specialty business, which we categorize more serving the energy transition market, there are a couple of businesses. First of all, you have the filtration business, the fiber business, and there we see stable performance with margins. You have then the hydrogen business. As you know, we've been now growing 30%-40%, not doubling the revenue like for steel, correct? And in that segment, of course, we invested in R&D development capability organization for the future. And what you will see happening in 2024 impact on the P&L also referred by Seppo is, of course, these R&D costs are impacting our P&L of this segment. Positively, this segment is profitable, correct? So despite all the investments we are doing, we've done and we are doing for the future, this segment is still profitable.
Of course, the profitability level is also impacted by the R&D investments we do and the scaling up of the factories, so we doubled. We had one in China. We have now one in Wetteren, and the one in Wetteren is ready, is producing, but it's not at full capacity, so these things, they have a short-term impact on the profitability. The other segment in there is ultra-fine wire, which we communicated, I think, in mid of last year. It's a smaller segment serving two end markets, core wire for solar wafer cutting, but also for the semiconductors. Semiconductor business is going still very good. As mentioned on the solar wafer cutting, there was a disruption from the products we were delivering with the new material tungsten, and that means that was a small business, but nice profitability, and that's what you see, of course. H1 was still there.
H2 in 2024, not anymore. That will be one of the variances going into 2025 as well versus an H1 comparable of 2024. That's where you still see the impact of a very high profitable business, small revenue, but good profit contribution, cash contribution. Then the last segment is HCB, Hose and Conveyor Belt. I think there we could say we are in a stable environment, stable, but not strong demand, but basically not the main driver for profit erosion.
Now. You've been muted. To unmute yourself, press star, six.
On the positive side. Then we have the last segment, the Combustion Technology, which was disrupted by the change in Germany about policies about gas. Now these things are pivoting back. We've been restructuring that segment by moving all the production to Romania.
So there we are back at healthy margin levels, but of course, at a lower size of the business. We see some small growth, some small businesses coming back there that were able to make any big comment on that one. So specialty is big back. And you know that the two factors for us in the future is, of course, the construction play and in energy transition, hydrogen filtration, clean tech solutions. That's our priority areas.
Understood. Any chance to quantify the margin in this ultrafine wire segment or the importance of it in the first half results? And is there any chance for recovery going forward for this?
[inaudible] questions.
I have, but I've been muted, I think. Can you hear me?
Yes, sir. I can hear you, sir.
But I'm muted in the call, so they cannot hear me.
Can you hear us, operator, or was the line cut?
I can hear you. Can everybody hear me?
Yes, I can hear you. We can hear you, but they cannot hear me. So can you unmute yourself?
Okay, sir. One moment. Let me see.
Okay, sir. Can you hear me now?
I can hear you.
And Yves? Am I back in the call? Yves, can you hear me?
One moment, sir. I will remove him from the queue and if you just rejoin.
Operator is also gone.
Okay. Can you hear me, folks? Can you hear me, folks?
You are no longer muted.
Hello?
Yes?
Hello, sir. There seemed to have been a technical issue there. I'm going to place Stijn back into the queue for questions, okay, sir? So I'm going to promote him now and he can go back and ask his question.
Sorry, Stijn, your line is live again, sir.
Okay. So you can all hear me again?
Yes, yes, yes.
Thanks. Perfect. Perfect. Yeah. The follow-up on the first answer on the ultrafine wire segment, how important was this in the first half? And is there any chance for recovering this business or is this gone like we've seen in the past with, for example, sawing wire?
Yeah. So as mentioned, from a revenue, not material, from a profit contribution, material for the specialty business. And that business, we phased out that business in the second half, so that will not come back in 2025.
Understood. Understood. Then a second question I have is on the impact of self-help that is baked in your 2025 guidance or the EBIT guidance.
Since this is positive, what are the negatives you expect for next year if you would have to draw an EBIT bridge for 2025? [inaudible]
Yeah. I think biggest risks, negatives, I think it's more around uncertainties in the global economy. What does it mean when these tariffs are implemented? How does that affect business volumes, costs, etc.? Of course, having said that, it's also like Yves mentioned earlier, I think we are pretty well prepared. It can also be an opportunity, but I think that is one of the biggest question marks. Yeah. The question is, how will input duties play out? If you look at some of the segments, we see steel, our products, basically having input duties, but not the final product. Now that can evolve. In other cases, it's protected.
So, I think that's from a business perspective. It will be pluses and minuses. From the self-help measures, what we've received for 2025 is mainly also continue strategically to have an organization and our resources in the fields correct, close to the markets, increasing our, what we call, front line, optimizing further our back office administration, correct? So, I would not call it self-help measures, but it's more strategically evolving further. And that's what we have in our paragraph for 2025. We will continue to look at the mass supply balances, if needed, factory adjustments, consolidation, but also ramping up. So, I hope that we also one day will be discussing upside opportunities in the market, and then we will react as well to the upside as well as to how we react to the downside.
Understood. Understood. And a final question, more of a housekeeping question.
Can you share what EBIT was generated in 2024 in the divested SWS business, and to what extent the guidance for flat sales and at least stable profitability already takes into account the divestment? Has it now been classified as out for sale, or is it still included in the guidance scope?
It is still included in the figures. And of course, we have now signed the contract, and we have to wait for closing, and that can take, like I mentioned, until Q3 this year. Then [inaudible]
Yeah. So based on, I think it was on the valuation of the business or the profit margin. Yeah. You know six times, around six times multiples of EBITDA, and gives you a feeling about the performance of that business.
So you can see it's sub 9%.
Yeah. Understood. Yeah. I can make an assumption on EBIT margin then. Okay. That's it for me. Thank you.
Thank you. As we have no further questions on the line at this time, I'd like to hand it back over to our CEO, Yves Kerstens, for any closing remark.
Thanks, Moderator, and thanks for all the questions. So thanks for attending. We had a good review of 2024. We are already two months into 2025, correct? So wish you all a good continuation of the day and a good weekend. And then let's see you in the next occasion. Thank you very much.
Thank you. Thank you.
This does conclude today's call. You may disconnect your lines at this time and have a wonderful day. And we thank you for your participation.