Sales and financial review - Bekaert Annual Report 2010

Summary of financial review

Sales and financial review


Bekaert achieved consolidated sales of € 3.3 billion and combined sales of € 4.5 billion, an increase of 34% compared with 2009. 1 2

Strong volumes drove an organic consolidated sales growth of 31.5%. The net movement in acquisitions and divestments contributed 1.4%, while currency effects added 1.0%. 3

The combined sales’ increase was 26.4% from organic growth and 1.0% from the net movement in acquisitions and divestments. The currency effect was larger (+6.3%) at the combined sales level due to the strong Brazilian Real and Chilean Peso.

Financial review

70% dividend increase

In light of Bekaert’s strong performance in 2010 the Board of Directors will propose that the General Meeting of Shareholders approve the distribution of a gross dividend of € 1 per share. This will bring the total gross dividend (including the intermediate dividend of € 0.667 4 distributed as from 15 October 2010) to
€ 1.667, compared with € 0.980 last year. The dividend of € 1, which is subject to approval by the General Meeting of Shareholders on 11 May 2011, equals a net dividend per share of  € 0.750 (€ 0.850 on shares with VVPR strip, entitling the holder to reduced withholding tax of 15%) and becomes payable as from 18 May 2011.

Excellent results

Bekaert achieved an operating result before non-recurring items (REBIT) of € 562.5 million. This equates to a REBIT margin on sales of 17.2%. Non-recurring expenses amounted to
€ 28.2 million and mainly related to a partial impairment of the Vicson plant assets in Venezuela (€ 12.4 million) and provisions for the reconversion projects of closed down factories and environmental liabilities (€ 10.9 million). Including non-recurring items, EBIT was € 534.3 million, representing an EBIT margin on sales of 16.4%. EBITDA reached € 724.7 million, representing an EBITDA margin on sales of 22.2%.

Selling and administrative expenses increased as a result of the business growth, but decreased to a lower ratio on sales (8.1% compared with 8.9% in 2009). Research and development expenses grew by 25% in line with Bekaert's continuous innovation strategy.

Interest expenses amounted to € 59.4 million (versus
€ 62.9 million). Other financial income and expenses turned positive (€ 17.7 million versus € -8.9 million), mainly due to foreign exchange gains in Venezuela (versus losses in 2009) and on dividends from China.

Taxation on profit amounted to € 139.5 million, largely exceeding the taxation in previous years (€ 33.9 million in 2009), and driven by higher profits and an increased overall tax rate as a result of expired tax holidays in China as well as updated assumptions on tax positions. Bekaert expects a comparable effective tax rate in 2011.

The share in the result of joint ventures and associated companies amounted to € 36.1 million, which is slightly below the
€ 37.8 million of 2009.

The result for the period thus reached € 398.5 million. After non-controlling interests (€ 30.9 million), the result for the period attributable to the Group was € 367.6 million, compared with
€ 151.8 million in 2009. Earnings per share rose to € 6.21 from       € 2.56 in 2009.

1 All comparisons are made relative to the financial year 2009.
2 Combined sales are sales of consolidated companies plus 100% of sales of joint ventures and associates after intercompany elimination.

3 The generally positive effects of most currency movements versus the Euro were almost entirely compensated by the weak applicable exchange rate of the Venezuelan Bolivar.

4 All indicators per share (EPS, dividend) are stock split-adjusted (three-for-one) to enable comparison with 2010 figures.

Healthy balance sheet

As at 31 December 2010, shareholders’ equity represented 46.2% of total assets. Net debt increased to € 521.9 million, mainly due to a working capital increase as a result of the growing business. Average working capital on sales was brought down to 20.9%. The gearing ratio (net debt to equity) was 30.8% compared with 28.8% as at 31 December 2009.

Cash flow statement

Cash from operating activities amounted to € 342.5 million (2009: € 497.4 million). Operating working capital increased by
€ 276.9 million due to the growing business. Cash flow attributable to investing activities amounted to € 210.5 million: € 230.3 million related to expenditure from investments in, amongst others, Asia Pacific, Slovakia, Russia and Belgium and € 29.7 million from the acquisition of the two former Bridgestone steel cord plants. Dividends received from joint ventures represented a positive cash flow of € 40.4 million.

Investment update

Bekaert further accelerated its high investments in research and development, totaling € 79.3 million in 2010, an increase of 25%. These R&D expenses mainly applied to the activities of the international technology centers in Deerlijk (Belgium) and Jiangyin (China). In March 2010, Bekaert opened a new technical center in Ranjangaon (India) to support the local customers with dedicated development services. The engineering department, which is the main supplier of proprietary machinery for the company's investment programs, operated at a high activity level throughout the year, supporting the many capacity expansion programs.

Several expansion projects came into effect to support the growth in the emerging markets. Capital expenditure amounted to
€ 247.6 million in 2010 (of which € 230.3 million in property, plant and equipment) and is expected to attain at least the same level in 2011. Investments in China, Indonesia, Slovakia and Russia are in the course of implementation. In India, Bekaert is accelerating its expansion investments with a 75% tire cord capacity increase of its existing plant in Ranjangaon, as well as the purchase of land to build a new steel cord production plant in Thervoy Kandigai (Chennai, located in South East India), to cater for the growing demand from tire makers based in Chennai.

In order to support its worldwide growth, Bekaert has recruited almost 5 000 employees in 2010 and currently employs over
27 000 people worldwide.

The complex transaction process of the intended shareholding in the spring wire and overhead conductor business of Xinyu Iron & Steel Co., Ltd in Xinyu, Jiangxi Province, China, is taking more time than anticipated. Bekaert expects progress in the course of 2011.

On 22 December 2010 Bekaert signed the final agreement for the takeover by Arisawa of Bekaert's Progressive Composites plants in Vista, California and in Munguía, Spain. Bekaert herewith divested its activity platform of pressure vessels, which accounted for less than 1% of the Group's consolidated sales.

Bekaert implemented a three-for-one share split on 10 November 2010. All share-related figures in this press release are split-adjusted.

Bekaert bought back 965 700 shares in 2010 at an average price of € 61.84. The total number of shares booked as treasury shares as at 31 December 2010 amounts to 963 700.

Sales by segment

Sales by segment


Sustained recovery and further change and improvement in product mix resulted in higher sales and profits across all activity platforms in EMEA, with the exception of building products. Both in Western and in Central Europe, Bekaert's manufacturing platforms operated at high capacity utilization levels driven by increased demand. Normal seasonality is reflected in the activity levels of the second half of the year.

The price evolution of steel-based raw materials added to the segment's revenues and profit mainly in the first half of the year, after a long period of steep decline until halfway through 2009.

Bekaert's constantly renewing product portfolio and continued efforts to enhance its operational excellence, as well as the company's timely implemented restructuring measures in Europe, also contributed to the strong earnings growth.

North America

In North America, market demand in the automotive sector picked up strongly in 2010, while the industrial and agricultural applications continued to perform well. Profitability increased as a result of better capacity utilization driven by higher volumes in most activities, while highly competitive market circumstances put margins under pressure.

Continued weak performance of Bekaert's Progressive Composites plant in Vista, California, negatively impacted the segment's profitability and led to the divestiture of the activities in December 2010.

Latin America

In Venezuela, sales and profits have been negatively affected since the beginning of the year as a result of supply restrictions and the applicable exchange rate of the Bolivar. Top line sales were hit drastically as a result of the foreign exchange effect
(€ -117 million). Due to the uncertain economic environment in the country, Bekaert also booked an impairment loss of € 12 million on the Vicson assets in the first half of the year. While circumstances continue to be difficult, the operational activities remain at acceptable levels.

Bekaert's subsidiaries in Ecuador, Colombia and Peru delivered robust sales growth in 2010.

Combined revenues were up 23.6% in Latin America. Bekaert's joint ventures in Brazil and Chile reported increased sales in a highly competitive environment which was caused by the strong local currencies.

Asia Pacific

Compared to 2009, the sales and profit growth in Asia Pacific reflects a solid demand driven by strong industrial development across the region. This applies to most product groups and respective markets, with the automotive and solar energy related sectors as fast developing markets. Sales and profit growth from increased volumes largely offset the impact of somewhat eroding margins toward the end of the year.

Depreciation, amortization and impairment losses increased by more than 50% mainly due to the higher depreciation costs on plant assets, reflecting the many expansion programs that came into effect in the region.

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