NV BEKAERT SA

Rating Action and Rationale

• EthiFinance Ratings affirms NV Bekaert SA’s long-term rating at BBB, but changes the outlook from Stable to Positive.
• Our positive outlook results from the expected improvement in credit metrics, some already visible. Bekaert maintains a robust financial profile with an A+ rating, backed by solid credit metrics (NFD/EBITDA < 1.5x; EBITDA/Interest >15.0x; Equity/Debt>120%) driven by the company’s resilient profitability margins, and a prudent financial policy. Notably, there has been a consistent reduction in net debt, with a decrease of €286m vs FY22, and €357m vs FY20. This is despite the cash impact of a €400m payout to shareholders in FY22 and FY23, through dividends and buybacks. Overall, the net adjusted leverage improved from 1.7x in FY22 to 1.2x in FY23, and we expect it to improve further during our forecast period (2024-26), to reach 0.5x by FY26, driven by stable EBITDA generation. The group’s profitability is also supported by significant results generated through Bekaert’s steel wire JVs in Brazil, which accounted for 9% of EBITDA on average in the last 5 years. Should credit metrics evolve in line with our expectations for the next 15 months, our assessment of Bekaert’s financial policy and management quality could be upgraded, thereby removing the existing cap on the overall rating.
• Bekaert operates in a capital-intensive industry requiring significant CapEx, in order to build-up plants, along with the advanced technical expertise critical for managing long-term infrastructure projects. With an improved geographic mix, advanced R&D and technical expertise, Bekaert is a renowned market leader in the Steel Fiber Reinforced Concrete (SFRC) industry, holding a 40% market share.
• In addition to the existing capping, our rating is constrained by the company’s size (BB+) due to a decline in sales, which amounted to 13.5% in FY23, and continued into 1H24 with another decrease of 11.1% compared to 1H23. This downward trend is due to lower volumes (-3.8%) and raw materials and energy inflation (-5.1%). According to management guidance and our forecasts, we expect this decline to persist into the 2nd half of the year. Nonetheless, this doesn’t compromise future profitability margins, which are expected to remain stable throughout the current year, thanks partially to cost saving programs. Another constraint on our rating is the company’s exposure to cyclical market fluctuations, particularly in its major end-markets such as agriculture (c. 16% of FY23 sales), and construction (20%). While management aims to reduce this exposure in the mid-term, it remains unfavorable for a stable and predictable business model.  
• In accordance with our methodology, the capital goods industry has a medium-to-high ESG risks (sector heatmap between 3.5 and 4), due to its environmental impact. Consequently, the sector’s ESG rating is downgraded by one notch due to these industry-specific ESG concerns. Heavy industries inherently consume substantial quantities of raw materials, leading to environmental degredation from extraction and transportation. Additionally, the production processes in this industry often result in significant waste generation. While greenhouse gas emissions are a primary concern, the sectors also face challenges in advancing recycling technologies and processes.
• We note that Bekaert has stepped up its ESG ambitions, aiming to reduce scope 1 and 2 CO2 emissions by 46% by 2030, using 2019 as the baseline year, and to achieve net zero emissions by 2050. In pursuit of this goal, the company has already reduced these emissions by 15% in FY23 compared to 2019. The company’s ESG score is ranging between 1 and 1.5, which is considered as advanced and positively counts in our financial assessment, thereby counterbalancing the negative impact from the industry assessment.

Issuer Description

NV Bekaert SA is a Belgian company founded in 1880 and specializing in steel wire transformation and coating technologies. The company operates on a global scale, and is organized into four main segments: Rubber Reinforcement, Steel Wire Solutions, Specialty Businesses, and Bridon-Bekaert Ropes Group (BBRG). These segments offer a range of products and services to various industries, including auto components (Tire manufacturers), construction, energy, and agriculture​. It employs 21,044 employees across 69 production facilities, and 10 research/engineering sites in 23 different countries covering multiple regions: EMEA, North America, Latin America and Asia-Pacific.

As of end-2023, Bekaert reported revenues of €4.3bn, for adjusted EBITDA of €572m, and an adjusted net leverage ratio of 1.2x. The company is publicly listed and on the Euronext Brussels under the ticker symbol BEKB. As of 3 October 2024, it had a market capitalization of c. €1.87 billion. 

Liquidity

We assess the liquidity profile of NV Bekaert SA as “Good” reflecting its strong refinancing profile, and its high level of liquidity. 

Main Financial Figures & Forecasts  

Credit Rating

Rating Sensitivity

• List of ratings:
  • LT Rating: BBB

Factors that may (individually or collectively) impact the rating:

• Positive factors (↑)

As reflected by the positive outlook, we could consider upgrading our LT rating should the company improve its credit metrics in line with our expectations. As outlined in the rationale, such an evolution would entail the removal of the capping mechanism. A potential trigger for this would be achieving and maintaining a net adjusted leverage ratio of 0.9x; coupled with either (i) an interest coverage ratio of 17.0x or higher, or (ii) a company ESG score ranging from 0 to 1. Moreover, a rating upgrade would also be subject to a recovery in sales volume, and to a more predictable outlook for some of the company’s business segments.

• Negative factors (↓)

We could downgrade our LT rating should the company’s credit metrics deteriorate, contrary to our expectations. A potential trigger for such a downgrade would be a net adjusted leverage ratio of 2.0x or higher; coupled with either (i) an interest coverage ratio of 9.0x or lower, or (ii) an ESG score ranging from 1.5 to 5. Such a deterioration in credit metrics could result from a continuous decline in sales combined with higher costs, which would further impact profitability margins.