Morning, and welcome to the Bekaert H1 2025 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, Vice President, Investor Relations. Sir, the floor is yours.
Many thanks, and thank you to you all for joining today at what I know is a very, very busy morning. As per usual, I'll just quickly run you through the Safe Harbor statement and then hand over to Yves and Seppo. This presentation may contain forward-looking statements. Such statements reflect the current views of management regarding future events and involve known and unknown risks, uncertainties, and other factors. They 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 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 publication issued by Bekaert. With that tongue-twister out of the way, I'd like to hand over to Yves. Thanks.
Thanks, guys. A warm welcome from my side and Seppo's side. If you look at the first half of 2025 at Bekaert, we delivered a resilient financial performance in the current challenging end markets. You can all see the benefits of our long-term strategy, which has been focusing on the portfolio rationalization, good pricing discipline, and having further cost efficiency in the organization. Certainly, the first half of the year has been busy with managing the impacts of the tariffs. The first wave of 25% import duties on steel and aluminum, we were pretty successful in passing them through to our customer base, as you know, like we did in the past during COVID times, energy surcharges or wild fluctuations. The second wave in June, bringing the import duties to 50%, as you can understand, was more difficult to pass fully to the customers.
We were successful, but we are more and more concerned about the second half's impact on the overall demands of the market economy. We continue to execute our strategy. We disposed and concluded the disposal of LATAM North. It's fully completed by the end of June. We keep on an intense focus on our cost optimization. During the first half of the year, we reduced overhead costs by $21 million compared to last year, and we will continue working on these topics. A strong working capital improvement, reduced by $135 million versus the first half of last year, creating good, nice cash flow generation for the first half. We keep on scrutinizing the CapEx investment. While investing in good maintenance, good sustainability, we are seeing how to invest in the growth segments.
Having said that, we delivered a robust financial performance of 8.8% of EBIT in a very difficult market situation, strong free cash flow, under $28 million, and keeping a very low leverage of the balance sheet, continuing our share buyback of $200 million. Let me hand over to Seppo, who will give you a little bit more details by business segment and overall.
Thanks, Yves. Now, let's start by looking at the sales briefs and sales development this year, first half versus last year. I would describe in general results and figures that they are showing resilient results despite the challenges on the markets. Like for like sales, excluding portfolio changes and foreign exchange movements, was down 4.3% versus the first half last year. Foreign exchange rates had a negative effect of 1.1% for EUR 24 million, mainly due to the effect from U.S. dollar and [RMB development], weaker currencies in that sense versus euro. Portfolio change quite flat, small 0.2% effect. That is a net from acquisition of Pexco last year and capacity closures in SWS in Indonesia and India. Price mix and raw material impact was negative 2.2%. That is a reflection of lower raw material costs globally in different geographies, with the exception of the U.S.
where steel tariffs and markets have been driving up the raw material costs. Net volume effect was - 2%, and that is excluding discontinued SWS, Indonesia, and India entities that were closed last year. What we have seen is especially volume down in Europe as well as in the U.S., partly because of the tariffs, as well as a positive effect of volumes in China, but not fully opposite in the negative development in other geographies. Moving to EBIT, Yves, briefs and how the development has been there between the two years. I would say the margins are well protected despite lower volumes through strict cost control and mix improvements that we have been working on. Especially, I can mention higher plant utilization in China, leading to better fixed costs absorption there, offsetting the negatives in Europe and partly in the U.S.
We have worked hard to reduce overheads, and that work also continues in the second half. The demonstration of that is, as you can see on the briefs, also EUR 21 million reduction year- on- year on overhead. That is something important we continue to do in order to protect our margins and cash flow. I would say that we are more cost-competitive than ever before. When the volume growth returns, we are confident that operational leverage will support higher profitability levels relatively fast compared to past. Let's move to our PUs, reporting segments, and I start by looking at the rapid reinforcements. We are strong in China. Volumes have been offsetting lower volumes in Europe and North America, like already mentioned.
They have managed tariff challenges well thanks to local sourcing and production, as well as global footprint and capability to pass through quite strongly to tariff effect to our customers. Volumes were down 1.5% versus the first half of last year, but actually 1% up versus the second half of last year. We have to remember the second half of last year was getting rather weak. Weaker demand in truck tires has been seen across all geographies, but resilient margins through cost reduction and high plant utilization levels, especially in China where volume development has been positive, compensating for lower volumes in Europe. Just as a reminder that outside our reported figures, we have our Brazilian joint venture in the rapid reinforcement business where we have sales of EUR 84 million, down 1% year- on- year despite 14% FX impact, negative impact.
That shows positive underlying development that continues there on the Brazilian market. The FX impact has been offset by higher volumes and better pricing, so margins have improved versus a year ago. Steel Wire Solutions, like for like, volume growth has been positive or at least stable, and we have been able to keep double-digit margins despite market headwinds. Steel Wire Solutions delivers another set of robust results. Excluding the impact of SW closures in Indonesia and India, like I said, we had stable sales for the first half of last year. Especially, I want to highlight positive volume development both in North America as well as in China, where we see volumes up more than 10% versus the first half of last year. In North America, thanks to strong agri and energy and utility markets, and in China, strong auto and agri markets.
Volumes have decreased in Europe, driven by lower auto and energy and utility market-related sales. During the quarter, we also completed SWS units, entities disposal in LATAM North. Those have been still fully consolidated during the first half, but will not be included in the second half figures. That is just as a reminder. Moving to our ropes business, BBRG, we have been able to have sustained profitability improvement, as also indicated at the end of last year, although the market has been getting weaker, and outlook has been getting weaker as well. We continue to sustain operational profitability improvements that we implemented towards the end of last year, but the uncertain trade environment has caused some delays when it comes to customer projects and orders. Sales were up 2.4% versus the first half of last year. That is thanks to the Pexco acquisition mainly.
Steel ropes in the U.K. and the U.S. have maintained output improvements, but we have suffered from slower demand, especially in the U.S. during the second quarter. That has limited somewhat the profitability improvement potential that we would have seen otherwise. The positive thing is that profitability is now almost back to the double-digit level that we are targeting. We are on a positive trend, but we still work on to deliver more. Moving to specialties, challenging end markets continue, especially in sustainable construction in the U.S., but it has also been challenging in the energy transition market, especially in the hydrogen part. The flooring business in the U.S. has been mostly impacted by tariffs and geopolitical uncertainties that have continued. Let's see now, after the deals are coming out between the U.S. and other different countries, how that will stabilize the situation.
At least it has been reducing uncertainty recently. We have also been facing increased competition in the EU and Oceania in the flooring business. On a positive note, volumes have increased in the tunneling and mining business, and our penetration in the Middle East has increased. It's still a relatively small business, but on a positive trend, and we believe that there's a lot of potential to grow further thanks to a lot of projects in the pipeline that we are able to now look into. Reduction in sales volumes related to under-absorption of fixed costs had a material impact on margins that we have also been mitigating in the construction business by working on our cost structure successfully.
In hydrogen, we continue to maintain good market share, excellent customer engagement with the key players and customers in the market, but growth is not expected to return in the near future. I think that it's fair to say that we are in a good position when the market growth comes back. Policy uncertainty has continued to weigh on demand in the hydrogen business. Now, look at the consolidated income statement and some key figures. First of all, I want to highlight strict cost control that has become now visible when it comes to forecasting administrative expenses that are down from EUR157 million last year to EUR 139 million first half of this year.
I also want to notify and remind that interval of reported EBIT significantly has been impacted by non-cash EUR 56 million, one-off impact from settling to historical currency devaluations in Venezuela that was booked now through profit and loss as part of the closure of the Latin American entities' divestment. This is neutral on equity, and this is more IFRS technical topic, as I trust and know that most of you are aware anyway. Moving to another focus area that we have been focusing on during the first half and continue, cash flow, working capital management, where I think that we are very proud of the achievement by our teams, clear improvement on working capital level, EUR 135 million improvement versus the first half last year, and this has given a nice boost to our cash flow. Like I said, this has been and continues to be one of the focus areas.
We have been working on all the parts of the working capital, especially on inventory management, working on improvement of overdue collections, good success there in different geographies. Especially, I want to comment and mention China, China team doing good work there, and of course, working on payment terms, both on receivables and payables, customers and suppliers. We are targeting 15% level when it comes to working capital to net sales. We are at 16.3%, so there is more potential, and we, of course, want to push it even further to a clear positive and clear improvement, two percentage points down year- on- year, compared to 18.4% a year ago and 16.3% now. That has helped us to reach strong cash generation despite the lower volumes and profitability. EUR 80 million improvement year on year reached EUR 123 million free cash flow this year.
That is, of course, partly also thanks to lower CapEx, as we have well-invested growth platforms, so we have been able to reduce growth CapEx for the time being. Of course, we are ready to invest more on growth-related businesses once we see that growth is coming back. We have been keeping strict control on the CapEx and continue to do the same for the rest of the year. That is, of course, one way to safeguard our cash flow. Now, back to you, Yves, to give a view on strategy and operations.
Thanks, Seppo. While we are keeping on focusing on delivering on our performance, we keep on focusing on the five verticals which are our end markets that we are serving. Let me give you some comments of the first half and how we look into the future. On tire reinforcement, we keep on driving innovation. We got some nice awards at the Tire Tech Expo 2025. We launched our Elita brand, which is combining all the solutions we have in Ultei, make a tensile reinforcement solution and deploying them with our key customers. From a market perspective, I think the competitive landscape remains the same as before. Our tire customers, both China, Europe, U.S., Indian players, of course, evolving in their competitive play. If you look at transmission and performance wires segment, pretty stable volumes and margins there.
We keep on looking at the portfolio, pruning the portfolio, and looking forward, we see a stronger second half on energy utilities for the second half, U.S., and also some aspects in Europe. On advanced lifting and mooring, happy with the integration of BEXCO, the performance of BEXCO, and also the operational challenges we had in the past in our U.S. and U.K. operations are stabilized and are positioning ourselves to recover, let's say, the market shares and the growth with some uncertainty temporary in the U.S., also with the tariffs to Canada. We see on the other side globally an improved outlook on mining and carrying in industrial. On the energy transition, you know the offerings we have in the filtration business, in the host wire business, in the heating business, but also in the hydrogen business. Some words on the hydrogen business.
On one hand, good news that in the U.S., the 45B Act has been confirmed to be in place until January 2028. That means subsidies for producing green hydrogen. Secondly, in Europe, where the RED III, which is targets about renewable energy, are under deployment. As mentioned by Seppo, we expect there is a much more stable outlook the upcoming two years, and we keep on positioning hydrogen as an emerging offering and technology for the future. On sustainable construction, we discussed also the end of last year, a difficult second half for us. If you look at the industry last year, the first half continued. Now we see a stabilization.
What we see is that the whole construction industry has been down, and for us, especially in the flooring segment, as explained last time, where we are mainly in the automotive factory and batteries, which we are now pivoting into other segments. We see a recovery from now in the middle of the year, also with some nice growth in the Middle East, India, and also some new projects in China and a recovery in the U.S. As mentioned, we continue to innovate, and I want to highlight, spend a minute time on the acquisitions we did in construction play. We launched the Dramix loop, which is using the recycled tire cords from used tires into reinforcement of concrete. A mix of Dramix plus recycled fibers.
We acquired two companies in the first half of this year, one company, TwinCon, which is specialized in how to bring these products to the market, so go-to-market, plus construction of industrial floors with a mix of new fibers and recycled fibers, and as well Flexo Fibers, which is a technology which is innovating the way you take used tire cord into fibers to recycle or to reinforce concrete. Happy with this innovation in our Dramix business, continuing a journey of bringing the total cost down as well as sustainability and circularity. If you move then to the strategic execution of the different levers we have. First of all, on the transformation, we continue to spoon our portfolio, and we continue to make our business units more autonomous and more focused on the end markets. Cost focus was mentioned. Happy on the reduction of the overhead.
We will continue doing that this year. We also are right-sizing footprint. We did the right-sizing in Belgium as well as in Scotland on the synthetic fibers, consolidating production and lowering, let's say, the fixed cost, which will give us an opportunity when volumes come back to further get margin improvement going directly to the bottom line. On cash flows, very good work on inventory management, collection overdues, payment terms, and we continue our strict capital expenditure discipline also for the second half of the year. A word further on the import tariffs. After a volatile first half with uncertainty, I think we see now that we get hopefully in a more stable policy environment so that all companies and the supply chain can adopt to the new reality.
For us, that means 50% import duties on steel in the two phases, correct, which we, most of them, passed through the customers. The last increase from 25%- 50%, we're also working on with our customer to pass that also through to the end markets. Of course, the concern we all have is the uncertainty on the end market demand in the different end segments and how the end products, which are having steel as content, how that price increase in the end market will evolve. Coming to the outlook, first of all, for the full year outlook of 2025, we expect a slightly lower sales on a comparable base, like for like base. Correct the 2024 with the disposals, the changes in exchange rate, and the planned closures. We expect a slightly slower sale than the top line 2024.
From an EBIT margin, we expect a margin between 8% and 8.5% for the full year. Moving to the mid-term and long-term outlook, we communicated in our capital market day our ambition level, which remains the same. 5% growth on the long and mid-term, driven by the growth platforms that are now delayed. The timing of this growth will be postponed. On the profitability side, we projected an ambition of a 10% profit by 2026. Based on the recent events of the market outlook and the evolution of the growth platforms, that will not be likely to be achieved in 2026. However, we remain confident that we can achieve 10% profit levels. As mentioned by Seppo, we're bringing down our cost structure, more flexing our cost structure.
With a recovery of some of the volumes, even in the core businesses, and then also some growth, the 10% ambition is in reach. Let me conclude based on the summary pages. Pretty robust in a very difficult market environment about the performance. Focusing on what we can control, which is basically cost, cash flow, winning the businesses, client relationships, plus keeping our position ourselves for the future, working in parallel on the portfolio of the company and also on future emerging products and offerings that can help to transform the portfolio of Bekaert. Having said that, let me hand over, Guy, to you for the Q&A session.
Very good. Thank you, Yves. Let's go back to the uprights, please. Question.
Thank you. 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 poll for questions. Thank you. Our first question is coming from Frank Claassen with Degroof Petercam. Your line is live.
Yes, good morning, gentlemen. Two questions, please. On your outlook of the like for like slightly reduced sales, can you elaborate how much you think will be volume and how much will be price driven? That's my first question. The second question, on the gross margin, I noticed that it declined quite a bit from 18.4%- 16.6%. Can you elaborate what are the main drivers? What is the main reason for the declining gross margin? Is this a mix effect or are there more factors playing a role? Thank you.
If I take first the question on the outlook, like for like, I think if you look at the key drivers and look at the guidance that we have given, slightly down. It's that if you look at the main effects, it is foreign exchange that is having an effect when it comes to consolidation of non-Euro profit and loss to Euro, our reporting currency. Secondly, the changes in the footprint and taking into account the acquisitions and divestments, that is Pexco acquisition. For the rest of the year, divestment of Latin American entities, as well as the capacity closures that we did last year. Those are the key drivers, when coming to like for like. Maybe then you can comment on the gross margin.
On the gross margin. Frank, there are a couple of drivers. First of all, if you go business by business, in the rubber reinforcement business, most of the changes are coming from a region customer mix. In the rubber reinforcement business, the business in China, as mentioned by Seppo, has been pretty strong in the first half of the year, like we planned and budgeted for with good demand and good absorption of the fixed cost. However, less demand in the U.S. and in Europe is impacting the margins of that business. Secondly, there is the impact, of course, of margin erosion in the specialty business. Two drivers there. One is on the Dramix business, mainly a country mix. We have less business in the U.S. and in Australia, which are higher margin business.
Because the effect of the volume drop due to the market demand is having some impact on cost absorptions, we are taking the necessary actions to right-size that. Also, in the energy transition play in hydrogen, there is nothing on pricing margin, but more on the cost absorption where we've been versus last year. Basically, the startup of the factory in Belgium was capitalized, and this year, the impact of the operation of this factory is fully into the P&L with lower volumes. These are the main drivers of the margin differences, first half 2024, 2025. To remind everybody, in first half 2024, we still had good margin on the ultrafine wire, certainly in the first quarter, which also played a role. In the second half of the year, we focused on semicon for ultrafine wire and not anymore on the other segments.
Okay, thanks. To come back on the guidance, do you expect pricing to be negative for the rest of the year or still a slight positive, maybe by passing on the tariffs? What can we expect from pricing?
Like we have said, we have been already quite actively and well achieving the price increases needed to compensate for the tariffs. The main effect, look at the sales line, is more coming from FX and the footprint changes in acquisitions divestments.
Okay. Okay, thank you very much.
Thank you. Our next question is coming from Alexander Craeymeersch with Kepler Cheuvreux. Your line is live.
Hey, good morning. A couple of questions from my side. The first one would be that in Steel Wire Solutions, you showed good results and you also mentioned a good order book. Yet in the outlook, you seem to warn for uncertainty and challenges. Could you clarify which sentiment we need to follow now? Do we expect stability in the second half on the back of that good order book, or do we read more into lower sales into the second half? Second question would be on the decline in working capital. It's very nice to see that decline further to 16.3% on sales, but I also see that there's a significant part on inventory. I was just wondering if this is mostly explained by lower finished goods or rather lower raw materials. The third question would be on BBRG.
This margin is now around 10% with the U.K. and U.S. production problems being solved. Is this now a sustainable margin going to the second half, or do you think there's even more room for improvement? Thank you for that.
Perhaps I start with the question, Alex, on SWS. For SWS, basically, we see for the second half a good outlook in the energy utility segments with some more deliveries in the second half. That's on the positive side. Automotive markets in China are strong, but less in Europe. We see a little bit of a mixed bag depending on the region. I think you could say that our sentiment is a stable environment with left and right some changes.
Yeah. On your question on inventory and working capital, like I said, a lot of work has been done on the working capital improvements across the different items. If you look at the inventory specifically, we have been working on many, many areas. I would say that the main effort is coming from the fact that we have been reviewing consignment stock arrangements, reviewing safety stocks, and improving production planning. That way, we can manage our inventory levels better. That is where we see that the future potential is also supposed to come. Of course, if you look at the working capital specifically, there is about EUR 16 million, EUR 17 million reduction coming from the divested units that we have now divested in Latin America. Over to you on BBRG.
Yeah, good. No, good. Happy with the progress we made on the operation improvement and the business development. Actually, we'll continue our journey targeting the 10% for that business. No reason not to believe that.
That is more a question of the volume. If we saw some softening of the volumes, without that, we probably could be already at a higher level.
Okay. Thank you.
Thank you. Our next question is coming from Martijn D en Drijver with ABN AMRO . Your line is live.
No, thank you, operator. Good morning, gentlemen. I have a number of questions. I'll take them one by one, if I may. On rubber reinforcement, you mentioned tactical capacity management. Does that point to short temporary work, or is it something more permanent? If not, are more permanent capacity reductions still on the table?
Take one moment. There is no, for the moment, Martijn, no plans on any right-sizing of capacity in China.
This tactical capacity management relates more to this kind of you can always have more filler volumes or less. In order to manage capacity utilization rates, occupancy rates, the strategy has been to get some of that filler volume to run fills with full speed. That way, you can achieve better cost absorption and improve your total profitability. I think the ratio between filler, sorry, just the ratio between filler business and sort of our core business is quite healthy. In that sense, no, I don't foresee any issues with that as such.
Just coming back to Yves' statements, no plans in China, but what about the other regions, which is where the volumes were dropping and have been dropping for quite some time now?
From a long-term perspective, of course, you need to look at how the demand is evolving and the region, correct? We'll do the necessary adjustments in terms of right-sizing, let's say, capacities at different levels. First of all, within the operational means of flexing the volumes. We also do mixed sourcing, correct? Delivering our customer in Europe from local Europe, but also from Asia. There we have some flexibility to work with. On the long-term structure, structurally, we have to see how the demand will evolve.
Got it. Got it. A follow-up on RE. You mentioned, Yves, no real change in the competitive environment. Could you specify that that's currently, but what are your expectations going forward, specifically in China with Zenith now coming to the market?
We all know that, and that's not new, that there has been an overcapacity in the tire cord business and mainly in China. That remains stable, correct? That situation. You have Zenith coming online, focusing on certain segments of the business, correct? We understand as well, okay, that for them to penetrate the customer, that will take time. They need to demonstrate as well to work at the quality and performance levels of the leaders in the market. We keep on monitoring how the competitive landscape is evolving. That's why I said that today we see no further changes versus what we mentioned last year.
Got it. Moving on to specialty, you mentioned in your comments right-sizing, specifically with sustainable construction. What measures are you thinking about? When will those take effect? How much should we pencil in in terms of savings? Is there anything you can add to that, a bit more color?
Yeah, no, happy to do that. Basically, what we've seen is different markets, different stages. In Europe, you have the high penetration of the fiber reinforcement. There we've been, first half, now taking actions to move resources more to the growth markets, from Europe into the Middle East, India, supporting the U.S. It's rebalancing our investments in terms of SG&A to more growth regions. Secondly, continue on the high mix. You know, 45D was already high. We keep on doing that. Now with the new recycled fibers on top, we have an extra weapon, correct, to work on the high end. Secondly, it's more on the manufacturing side, capacity adjustments. Basically, there we are taking in terms of productivity, leaner, and so on. Still, if you look back, the Dramix business has been a growth business over the last couple of years, last decades, correct?
If you look at the added value created, that's a CAGR of 7%- 8% over the years. Yes, second half and first half were tough. If you look from that business, from a, let's say, a 10-year perspective, this has been a very healthy business. Even the performance of this year is much better than what we did in the past. Of course, our ambition is higher to grow higher, and we'll continue to invest in that business.
Got it. Another question on sustainable construction. I read that Sika is now also planning to enter this market in a more substantial manner. Has that been visible already, or is that not visible yet?
No, not. They were already, correct, active to a certain extent. There are also areas where there is collaboration between the companies on how to go to market, correct, and bring the offerings to the market. We are working on that.
Okay. That's not really something, not really a concern. Moving on to SWS, I asked that question, I know, also in Q1, but now it is mentioned again, that strong performance in agricultural markets. It wasn't mentioned last year. Is this really a factor to take into account? In Q4, I think you mentioned it wasn't modest. Is it modest? If not, is it structural, or is it just a seasonal effect due to good commodity prices for farmers in the U.S.?
There is today's situation, I would say, on the favorable side for that business, correct? Also, with the import duties and the competitive landscape for that business, we can capture a pretty good business in the U.S., correct? Also, I think, was your question related to China or U.S., Martijn?
All of them, basically, because you mentioned them in multiple geographies.
Yeah, maybe to add on accurate, it's, of course, a seasonal business compared to many other businesses. This year, especially, I would say that we managed the season better than previously. For instance, being able to produce some in advance so that we were not having so much capacity bottleneck, so that we could meet the demand quite well. I think planning-wise also quite successful and helping to increase the sales in the segment.
Okay, that's helpful. My final question, would it be possible to just disclose the 2024 sales level, excluding M&A, planned closures, and foreign exchange? Could you just give us the number, please?
I think on rough terms, I would say that net net, it's about $60 million difference, right, Guy? The net net of the 2024 like-for-like is about EUR 3.8 billion. That's deducting about EUR 150, EUR 160, from memory, of which about EUR 90 is FX and EUR 60 is lost revenues from the disposed business.
That's very helpful. Thank you very much.
Thank you. As a reminder, ladies and gentlemen, if you have any questions, please press star one on your telephone keypad. Our next question is coming from Wim Hoste with KBC Securities. Your line is live.
Yes, thank you, and good morning. A couple of questions from my end as well. Can you maybe give us an updated CapEx budget for the year and also your thinking on CapEx budgets going into next year, given the market conditions where they are and also given the, certainly, on the hydrogen front, which will probably not require any additional investment soon. The CapEx budgets for 2025 and 2026. Another question would be on the steel tariffs. To what extent you said that you made good progress in passing that through, although the second leg was probably more difficult. Is it also impacting consumer or customer behavior in terms of where they are producing or maybe it's increasing imports from other regions where you were not used to?
Can you maybe be a bit more specific about fallout effects from the whole steel tariff discussion and how you might have to adjust to that? If you can also elaborate on that, those were my questions. Thank you.
Yeah. Perhaps I can start with the last one, Wim. On the tariff side, I think everybody is looking at more stable policies, which are hopefully we're getting there, correct, and to adjust to supply chains. We don't see our customers changing their policies on where to source and where to produce. Not yet, to be seen in the future. What we've been doing is, since we have, of course, almost 70% of our production is locally, we've been in the last couple of six months changing some flows towards the U.S., correct, from more Europe, U.S., India, Southeast Asia, U.S., to optimize within the constraints and the opportunities we have. To answer your question, we don't see structural changes yet. Of course, logically, we would expect that with the policies and the ambition of Trump, obviously, to have more local production, that there would be some changes in the future.
On capital expenditure, we previously, in connection to the first quarter, Guy did EUR 150 million, EUR 160 million region. What we see now is that looking at the current business conditions, where are we with the growth platforms? They remain well invested. The growth is, correct, it's going to take time before it comes back. We see now that we would be heading below EUR 150 million, maybe towards EUR 140 million. Some further reduction that we can foresee there. It doesn't mean that we would not be investing in growth and improvement projects. Roughly half of that, in general terms, is sort of maintenance, health and safety related, and then the rest is still for the business development. When it comes to 2026, it's a bit too early to comment. You have to remember that, like I said, that already this EUR 140 million, EUR 150 million level includes CapEx for growth and development.
As soon as we see the market conditions change, we are ready and we have a balance sheet to increase CapEx even significantly. I think previously, a year before, we were somewhere at EUR 190 million, even plans to go beyond EUR 200 million. That we can do when we see that the growth is there. We are not in a situation that we would be cutting CapEx because of balance sheet. It's more to adjust to the growth that we have visibility to today.
Okay. That's great. Maybe if I can then just follow up on the, yeah, the kind of cash or cash flow conservation or consideration you have. Is there any concern or restraint on doing additional acquisitions at the moment because of the, yeah, the preference for having good cash flow generation? Do you still have a decent pipeline of M&A projects, or are you still going fully for that? If you can also elaborate on that, please.
If I start about the balance sheet, and as you see from the leverage figures, we continue to have a strong balance sheet. I would say rather the contrary, that thanks to focus on cash flow operationally, it makes us stronger, and our balance sheet can take quite substantial amounts when it comes to potential acquisitions. This kind of war chest is quite big in that sense. Maybe then I hand over to you.
Maybe I can confirm that besides the performance delivery, the transformation of the company is a priority. We keep on working on the M&A agenda, the organic play in the investment thesis that we shared in the past. It's about where can we consolidate the industry, where can we go into more sustainable construction, off-grid, and the energy transition. In energy transition, also looking more at the whole electrification play, right? We see the investment flows, the development on electrification continue. We see the slowdown on the hydrogen, but there's a lot of still the energy transition anyhow will take place, correct? We keep on looking at targets, and we have a separate set of good healthy positions to do the necessary moves.
Okay, very clear. Thank you.
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. Just one for me. Sorry to repeat on this theme, but can I probe once more into your volume and price mix expectations for the second half? If I understand correctly, your guidance of slightly lower sales versus a base of $3.8 billion seems to suggest a rather stable, even potentially positive organic revenue growth drivers for H2 despite your twist release, which breeds uncertainty, etc. Can you be a bit more articulate in what you expect for the second half in terms of organic growth? Thank you.
I think it's, like I said, if you compare the first half and second half, the main driver is on FX and our footprint changes, acquisitions, divestments. A lot, and I think what we were trying to highlight in the outlook and guidance was still the remaining uncertainties around volume and end customer demand because of the tariff situation. The tariff situation is becoming more clear now. We have been able to mitigate direct effects, I would say, extremely well. What remains to be seen is the consumer behavior—can U.S., especially U.S. consumers, absorb the additional costs that are coming through because of the tariffs? What does it mean in general economy in Europe or China or elsewhere as a reflection of the development in the U.S.? As such, we don't expect huge, as in our base case, huge changes in the mix or volume development as such.
If I can add to that, what Seppo said is that what we hear from some of our customers is that their cost increase passed through to the end customers is taking in steps. It's a 5% per month evolution. I think what we want to monitor clearly is saying, okay, how is that potential price increase, inflation impacting the demand in the market and overall market sentiment?
Understood. Still not very clear. If you say we expect stable, is that versus the first half of this year or versus the second half of last year?
It's rather related to this year. You have to remember last year, especially Q3, was rather weak if you look at the development, then improving towards the end of the year. If you look at the development as such, it's more reflecting first half, second half this year.
Of course, again, repeating, excluding the scope changes, like-for-like exchange rate, because exchange rate second half, if they continue at that level, from a consolidation perspective, will impact the top line, correct? I think.
Okay, thank you.
Thank you. As we have no further questions on the lines at this time, I'd like to hand it back to management for any closing remarks.
So, thanks for joining the call. Thanks for your insightful questions. From our perspective, I think we know all the market environment, and we basically are, as a management and a board, appreciating the performance of the first half in a very difficult market context, volatile and uncertain. The teams delivered on a pretty resilient performance while we continue to work on preparing the group for the future. More to come for the ones who still have holidays ahead of you. Enjoy it. For the ones who had already holiday, I'm sure you're back with renewed energy. Thanks for joining. Have a nice day.
Thank you.
Thank you. This does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation.