Annual Report 2014 - Latin America

Latin America

Combined sales: € 1 422 million
Consolidated sales
€ 631 million
Capital expenditures (PP&E): (*) € 32 million
Total assets: (*) € 620 million
Employees: 8 300
(*) consolidated entities

Economic environment in 2014

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 and other commodities, have led to a downturn in mining and public infrastructure markets. The weakening growth rate in China was at the origin of the declining commodity prices and illustrated the global reach of changes in China’s economy. Fiscal reforms and elections added to the uncertainty in various Latin American countries and sectors. The economy in Venezuela came to a standstill in 2014 as a result of their political and monetary instability.

The headwinds that the region faced in 2014 are expected to persist in 2015. Commodity prices are expected to be lower on average in 2015 than in 2014, due to sluggish global demand and a strengthening US$. Moreover, the collapse of oil prices is expected to take a toll on Latin America’s largest oil producing countries.

The impact of currency movements was significant in 2014. While picking up toward year-end, the total average year-on-year effect on consolidated sales was about € -50 million, mainly due to the Chilean peso versus the euro. The effect was even larger on the combined sales level (including the Brazilian joint ventures) due to the volatility of the Brazilian real which affected 2014 sales by circa € -70 million.

While the weak currencies had a positive effect on the competitiveness of domestic industrial activities versus imports, some countries installed trade barriers that negatively impacted the competitive power of our operations, such as the import duties imposed on raw materials in Colombia.
Salvaguardia in Colombia
In Colombia, heavy import duties (21%) were imposed on imported raw materials such as wire rod. This measure which was installed as a protective measure against imports, had a major effect on the competitiveness of Bekaert’s activities in the country since the import duties do not apply to finished products. Domestic wire rod supplies are no option as the local supply capacity is insufficient to serve all steel wire producers’ needs. As a result, competition with imported finished goods has become extremely difficult. Bekaert has been forced to restructure its operations in Colombia in line with the changed market conditions.

In Latin America, Bekaert manufactures an extensive product portfolio to serve construction, mining, agriculture and a wide range of industrial and consumer markets across the region. Bekaert has wholly owned and majority owned subsidiaries in Costa Rica, Ecuador, Colombia, Venezuela, Peru, Chile and Brazil and also runs joint ventures in Brazil in a 45/55 partnership with ArcelorMittal. 
Demand in the region slowed in the first half of 2014 in line with the GDP trend in most countries. Our activities maintained their solid market shares though, and saw demand pick up starting in the second half of the year in most countries. In Brazil, market conditions remained subdued throughout the year.

Our activity performance

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.

Investing in future growth
Bekaert invested € 32 million in property, plant and equipment, including the Dramix® greenfield in Costa Rica. 
Inauguration of new Dramix® plant in Costa Rica
Bekaert Costa Rica SA manufactures Dramix® steel fibers for the construction sector. Dramix® is a Bekaert designed and patented steel fiber for the reinforcement of concrete in industrial flooring and building projects, as well as in infrastructure applications such as tunnels and mine shafts. Bekaert took the decision to invest in a Dramix® manufacturing platform in Costa Rica to serve infrastructure and construction markets in the Americas.

Bekaert acquired, through its Bekaert Ideal Holding, the majority of the shares (73%) of the ArcelorMittal steel wire plant in Costa Rica (renamed BIA Alambres Costa Rica SA) and established the same shareholding structure in the new Dramix® plant in Costa Rica (Bekaert Costa Rica SA) and in Bekaert’s steel wire entity in Ecuador (Ideal Alambrec SA). Bekaert also acquired the remaining shares of the Cimaf ropes plant which was renamed Bekaert Cimaf Cabos.

The objective is to serve customers from various sectors in the region better with a broader steel wire product portfolio in the construction, mining, oil & gas, agricultural, fencing and industrial markets. The deal builds on Bekaert’s existing partnerships in the region with ArcelorMittal and with the Kohn family.

Bekaert’s activities in Latin America go back to 1950. Today, they represent 35% of combined sales. They include partnerships with ArcelorMittal, with the Ecuadorian partners (represented by members of the Kohn family) and those within the partnership in Chile and Peru (represented by members of the families Matetic, Conrads and Gallofré). At the end of 2014, Bekaert employed over 8000 people in the region.

The integration of the wholly owned steel cord entity acquired from Pirelli in Sumaré, Brazil will be added to Bekaert’s financial statements as of 1 January 2015.

Bekaert Prodac, Peru, celebrated its 20th anniversary in the presence of Her Royal Highness Princess Astrid of Belgium.

Prodac, the Bekaert Group’s leading steel wire company in Peru, celebrated today its 20th anniversary in the presence of HRH Princess Astrid of Belgium who presided over the Belgian Economic Mission to Peru and Colombia. 

During its 20 years of history, Prodac has developed into a leading steel wire company serving domestic and export markets. Based in Callao, Peru, Bekaert Prodac employs 778 people. Prodac provides steel wire solutions to many sectors, including construction, agriculture, mining, infrastructure and industry, with a broad range of products such as gabions, welded mesh, barbed wire, nails and galvanized wire. The company was established in 1994 by Industrias Cassadó SA (Peru) and the Bekaert Group, via its Chilean and Ecuadorian partners.

Belgo Bekaert Arames provided complete fencing solutions for all stadiums of the 2014 FIFA World Cup. Securing the contracts for these stadiums presented a great challenge, since the construction involved unique and new demands. Belgo Bekaert Arames came out the winner after an extensive bidding process and succeeded in installing the security fences and gates of all sports stadiums on time.