Summary of financial review

Sales and financial review

Sales

Bekaert achieved € 3.2 billion consolidated sales and € 4.0 billion combined sales in 2014, remaining stable over last year. The organic consolidated sales growth (+2.8%) was cancelled out in Bekaert’s top line by the effect of adverse currency movements, the Chilean peso in particular.

 At the combined sales level, currency effects were highly negative due to the average depreciation of the Brazilian real for the full year 2014.

Dividend

The Board of Directors will propose that the General Meeting of Shareholders on 13 May 2015 approve the distribution of a gross dividend of € 0.85 per share. The dividend will, upon approval by the General Meeting of Shareholders, become payable as of 19 May 2015.

Financial results

Bekaert achieved an operating result before non-recurring items (REBIT) of € 164 million (versus € 166 million in 2013). This equates to a REBIT margin on sales of 5.1%. Non-recurring items amounted to € 7 million (compared with € -29 million last year), mainly related to the recognition of a negative goodwill on business combinations and the gains on the sale of property. Including non-recurring items, EBIT was € 171 million, representing an EBIT margin on sales of 5.3% (versus 4.3%). EBITDA reached € 342 million, representing an EBITDA margin on sales of 10.6% (versus 9.3%).

Selling and administrative expenses increased by € 12 million to € 265 million as a result of the significant reversal of bad debt provisions in 2013 and expenses incurred in 2014 in relation to the acquisition transactions. Research and development expenses decreased by € 3 million to € 59 million as a result of efficiency gains.

Interest income and expenses amounted to € -63 million (versus € -64 million) due to an average lower interest rate on the gross debt. Other financial income and expenses amounted to € -4 million (versus € -20 million), mainly due to currency movements.

Taxation on profit was € 42 million versus € 48 million last year.
The share in the result of joint ventures and associated companies decreased from € 30 million to € 25 million due to a difficult economic environment in Brazil.
The result for the period thus totaled € 88 million, compared with € 36 million in 2013. The result attributable to non-controlling interests was limited to € 0.4 million due to the losses and impairments on businesses in South East Asia. After non-controlling interests, the result for the period attributable to the Group was € 87 million, compared with € 25 million last year. Earnings per share amounted to € 1.51, up from € 0.42 in 2013.

Balance sheet

As at 31 December 2014, shareholders’ equity represented 39.6% of total assets. The gearing ratio (net debt to equity) was 54.5% (versus 38.2%).

Cash flow statement

Cash from operating activities amounted to € 187 million (2013: € 306 million). Operating working capital increased by € 55 million. Cash flow attributable to investing activities amounted to € -225 million, of which € -133 million related to capital expenditure (PP&E) and € -110 million on new business combinations. Cash flows from financing activities totaled € 88 million (versus € -192 million in 2013) and were, among other elements, driven by € 194 million spent on interests, dividend and treasury shares and the issuance of the convertible bond (€ 300 million).

Investment update and other information

On 6 February 2015, Bekaert and Pirelli successfully closed the acquisition by Bekaert of the Pirelli steel cord plant in Izmit, Turkey. The deal closing in Turkey followed the ownership transfer of the steel cord plants in Figline (Italy), Slatina (Romania), and Sumaré (Brazil) as announced on 18 December 2014. The agreement between Bekaert and Pirelli also includes Pirelli's steel cord activities in Yanzhou (China). The closing of the acquisition of the steel cord entity in Yanzhou, China, will occur when the respective regulatory approvals are obtained. The financial results of the entities in Italy, Romania and Brazil are included in the consolidated statements of Bekaert as from 1 January 2015. The results of the plant in Turkey will be integrated as from 1 February 2015.

Bekaert announced, on 5 February 2015, the acquisition of the wire rope business of Arrium Ltd in Newcastle, Australia. The integration of the Australian ropes activities will enhance Bekaert's growth strategy in steel wire ropes in general and will enable the Group to take a leading global market position in mining ropes in particular. The transaction is estimated to add € 40 million to Bekaert's consolidated sales on an annual basis and has an enterprise value of approximately € 60 million. Bekaert and Arrium anticipate a deal closing in the course of the first quarter of 2015. Upon deal closure, the Australian ropes activities will be integrated in the Bekaert Rope Group. In this newly established Group, Bekaert and their Chilean partners, through Matco Cables SpA, now hold 65% and 35% respectively of all ropes entities in Canada, Chile, Peru, Brazil and the US.

In addition to the 1 652 677 treasury shares held as of 31 December 2013, Bekaert purchased 2 622 333own shares in the course of 2014. None of those shares were disposed of in connection with stock option plans or cancelled in 2014. As a result, the company held an aggregate 4 275 010 treasury shares at the end of 2014.

Net debt increased from € 574 million to € 853 million as a result of capital expenditure and acquisitions. The acquisition impact of the Pirelli steel cord plants accounted for € 207 million of the increase. Net debt on EBITDA was 2.5. Excluding the Pirelli impact, net debt on EBITDA was 1.9, unchanged from last year.

Segment reports

EMEA

Demand from European markets was strong throughout 2014 across most sectors. Automotive demand, in particular, boosted volume growth for tire cord and other steel wire applications in the region.

Our activities in EMEA delivered solid results driven through increased volumes and a favorable product mix. Bekaert realized 30% REBIT increase in the region and lifted profit margins to a record high, making this segment the largest contributor to the Group’s consolidated profit for the year 2014.

Non-recurring items amounted to € +2 million and mainly related to the gain on the sale of property in Belgium, partly offset by impairments.

Capital expenditure (PP&E) amounted to € 33 million and mainly related to capacity expansions in Slovakia and Belgium.

Bekaert anticipates continued solid demand and performance in most European markets. Europe will become even a bigger contributor to the Group’s consolidated figures as a result of the integration of the steel cord entities acquired from Pirelli in Romania, Italy and Turkey.

North America

Improved demand from automotive markets could not compensate for our demand decline in other North American industrial, construction and agriculture markets in 2014.

Bekaert’s activities recorded higher volumes in comparison with a weak 2013. The segment, however, continued to underperform in terms of profitability due to underutilized production capacity and price pressure from import flows. On top of the usual seasonality effects at year-end, Bekaert was hit by a fire which caused structural damage to parts of the Rome (Georgia) production plant.

Non-recurring items amounted to € +8 million and mainly related to a recognition of the insurance revenue related to the Rome fire, while further expenses associated with the plant reconstruction will be incurred in 2015.
Capital expenditure (PP&E) amounted to € 26 million and related mainly to ropes, tire cord and bead wire activities.

Bekaert anticipates a slight improvement in most markets in 2015, but does not project a major turnaround in profitability due to persistent price pressure and increased transportation expenses as well as partial volume losses caused by the fire in Rome.

Latin-America

Latin American markets have become very competitive due to increased Asian imports. Reduced government budgets and public spending, driven by the price declines for copper, oil and other commodities have led to a downturn in mining and public infrastructure markets. Fiscal reforms and elections added to the uncertainty in various countries and sectors. The economy in Venezuela came to a standstill as a result of the political and monetary instability.

Excluding the impact of acquisitions and of Venezuela where volumes dropped more than 40% as a result of forced shutdowns due to raw material shortages, Bekaert’s activities in Latin America achieved stable volumes over last year. The segment’s top line increased significantly in the second half of 2014 (+15% year-on-year), thanks to a better price-mix and a much lower impact of adverse currency effects as accounted for in the first half of 2014. Profit margins picked up slightly in the second half of 2014 but remained at a low level due to competition with imports and the integration and start-up costs in Costa Rica.

The non-recurring items mainly related to pension plan adjustments, the acquisition in Costa Rica, and the purchase of the remaining shares of the ropes activity in Brazil.

Bekaert invested € 32 million in property, plant and equipment, including the Dramix® greenfield in Costa Rica.

The significant impact of currency movements on combined sales was due to the volatility of the Brazilian real. While picking up toward year-end the total average year-on-year effect of the real was € -71 million on sales.

Bekaert anticipates a relatively stable demand for its consolidated businesses in the first quarter of 2015. The integration of the steel cord entity acquired from Pirelli in Brazil will add to Bekaert’s financial statements as of 1 January 2015.
Bekaert projects weakening business conditions in Brazil, in line with the evolutions impacting the Brazilian economy.

Asia Pacific

Bekaert’s activities in Asia Pacific achieved 6% volume growth year-on-year. This was the result of strong sales across Asia in the first nine months of the year, followed by a weak fourth quarter driven by the overall demand slowdown in Chinese tire markets. Price erosion, currency effects and passed-on lower wire rod prices tempered the top line growth rate in the region to 1.3% year-on-year.

Bekaert held on to stable price levels in China during the weak final quarter of 2014, and lost some market share in truck tire markets.

Bekaert’s tire cord activities in India recorded solid growth. The company also retained its leadership position at a constant share in the growing solar markets in China. The resulting positive effects were, however, compensated by continued weak performance in the recently acquired entities in South-East Asia.
The non-recurring items mainly related to asset impairments on activities in South-East Asia.

Bekaert continued to invest significantly across the region and recorded a total of € 51 million investments in PP&E in 2014.

Bekaert projects continued difficult market conditions in China in the first quarter of 2015. The company is implementing actions to improve the cost-efficiency of operations and to turn around the underperformance of the Malaysian businesses.