Summary of financial review

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Financial review

Sales

Bekaert achieved € 3.5 billion consolidated sales and € 4.4 billion combined sales in the year 2012.The company successfully defended its market position in all regions and realized stable year-on-year sales volumes. Consolidated sales increased by 3.6% in comparison with 2011. Both the net impact of acquisitions and divestments (+9.6%) and currency movements (+4.9%) contributed to the sales growth. Organic sales decreased by 10.8%, with sawing wire accounting for 80% of this decline.
At the combined level, sales were 4.6% lower than in 2011. The organic sales decline (-7.0%) and the net effect of acquisitions and divestments (-0.9%) were partly tempered by favorable exchange rate movements (+3.4%).

Dividend

The Board of Directors will propose that the General Meeting of Shareholders on 8 May 2013 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 15 May 2013.

Financial results

Bekaert achieved an operating result before non-recurring items (REBIT) of € 118 million. This equates to a REBIT margin on sales of 3.4%. Non-recurring items amounted to € -167 million and consisted of € 202 million non-recurring costs and € 35 million non-recurring gains. Including non-recurring items, EBIT was € -49 million, representing an EBIT margin on sales of -1.4%. EBITDA reached € 275 million, representing an EBITDA margin on sales of 7.9%.

Selling and administrative expenses increased slightly to € 292 million. The impact of the new business additions (mainly from integrating the entities within the Chilean partnership into Bekaert’s consolidated perimeter) and unfavorable exchange rates were almost completely offset by cost savings and by lower bad debt provisions compared with 2011. Research and development expenses decreased significantly as a result of the restructuring of the sawing wire related activities.

Interest income and expenses amounted to € -79 million (versus € -66 million) due to a higher average debt. Other financial income and expenses amounted to € -3 million (versus € 26 million) due to currency movements.

Taxation on profit amounted to € 68 million, the same as in 2011. The significant income tax was due to the taxes paid by profit generating entities and the fact that no deferred tax asset can be set up in loss-making entities for the non-recurring costs related to the restructuring.

The share in the result of joint ventures and associated companies amounted to € 10 million, down from € 25 million in 2011, as a result of the shift of the entities within the Chilean partnership to Bekaert’s consolidated perimeter.

The result for the period thus totaled € -189 million. After non-controlling interests (€ 6 million), the result for the period attributable to the Group was € -195 million, compared with € 193 million in 2011. Earnings per share amounted to € -3.30 (down from € 3.27 in 2011).

Non-recurring impact

The net amount of non-recurring items was € -167 million which is composed of € 202 million non-recurring costs and € 35 million non-recurring gains.

The non-recurring costs amounted to € 202 million and were the result of restructuring measures, asset impairments, and other one-off valuation elements.

Of the € 202 million non-recurring costs,

€ 117 million related to sawing wire and € 85 million to other business realignment measures.
€ 93 million related to restructuring and impairments in Belgium and € 109 million in the rest of the world.
€ 84 million reflected a cash-out and € 118 million are non-cash items such as impairments, depreciations and other write-offs.

The non-recurring gains amounted to € 35 million. This included:

The gain on the consolidation transaction of the entities within the Chilean partnership: € 17 million;
The gain on the sale of the industrial coatings platform (Belgium, China, US): € 12 million;
Other non-recurring gains: € 6 million.

Balance sheet and investment update

Balance sheet

As at 31 December 2012, shareholders’ equity represented 43.7% of total assets. Net debt was reduced from € 856 million to € 700 million, as a result of effective actions to lower the working capital level. Average working capital on sales (27.9%) was about stable. The impact of most actions came into full effect in the last quarter of 2012. The gearing ratio (net debt to equity) was 43.7%, and net debt on REBITDA was 2.1.

Cash flow statement

Cash from operating activities amounted to € 439 million (2011: € 106 million). Operating working capital decreased by € 227 million as a result of effective cash collection and inventory reduction. Cash flow attributable to investing activities amounted to € -81 million, of which € -123 million related to capital expenditure and € 23 million to proceeds from divestments (mainly the industrial coatings activities).

Investment update

Capital expenditures amounted to € 127 million of which € 123 million in property, plant and equipment.
Bekaert’s investments in research and development totaled € 69 million in 2012. These R&D expenses related mainly to the activities of the international technology centers in Deerlijk (Belgium) and Jiangyin (China). The 23% decrease versus 2011 is a result of the global measures to adapt the business footprint in sawing wire, by which Bekaert adjusted its resources and development priorities in the respective technologies.

Net debt was reduced from € 866 million as at 30 June 2012 (about stable compared with year-end 2011) to € 700 million as at 31 December 2012. Net debt was cut significantly, despite the increase from acquisitions and currency movements, as Bekaert implemented effective measures to reduce working capital substantially.

In view of the changing situation in Venezuela, Bekaert will apply hyper-inflation accounting and the corresponding economic exchange rate, beginning in 2013. As a result, the share contributed by the Venezuelan business will decline significantly. The impact on sales is estimated at € 100 million while the impact on REBIT is expected to be € 12 million.

Bekaert employed 27 200 employees as of year-end 2012, a reduction of 1 300 year-on-year. 3 200 people were affected by the restructuring programs. The acquisitions in Malaysia and China and the expansions in India, Peru and other countries added 1 900 people.

No purchases or cancellations of shares took place in 2012. The total number of shares booked as treasury shares as of 31 December 2012 amounted to 939 700.

Segment reports

EMEA

The sales decrease in the EMEA region was due to an unfavorable product mix caused by weak demand in southern European automotive markets and for stainless steel wire products, as well as by the collapse of the sawing wire market. Other segments performed well and contributed to keeping total sales volumes stable in the region.

The price decline of steel-based raw materials negatively impacted the segment's revenues and results in 2012.

The non-recurring items apply mainly to the Belgian manufacturing platforms and reflect costs and provisions for the restructuring and asset impairments (€ -85 million) and the positive impact of the gains on the sale of the industrial coatings activities and of land (€ +10 million).

North America

The market demand in automotive and other industrial sectors was affected by a continued difficult economic environment in the US. The domestic tire industry was unable to leverage the automotive rebound in the US due to a demand delay in tire replacement, particularly in truck markets, and increased tire imports from Asian countries.

Agricultural and construction markets also remained depressed, while energy and utilities markets related to power grid investments and to oil and gas extraction continued to perform well.
The inclusion of the strongly performing Canadian ropes activities in consolidated sales and favorable exchange rate movements offset the impact of the divested specialty films and industrial coatings activities in North America.

The non-recurring items (€ -14 million) mainly reflect goodwill and asset impairments in the steel wire plant in Canada.

Latin America

Consolidated sales were up 118% in Latin America due to the consolidation of the entities within the Chilean partnership in which Bekaert now holds a majority stake, favorable currency effects, and an overall solid performance, especially in Peru. The lack of stable wire rod supply in Vicson, Venezuela led to activity losses and temporary production shutdowns in the last quarter of 2012. Vicson’s sales increase, driven by an overvalued currency, was only partly offset by lower volumes.

The non-recurring items (€ +16 million) include a non-cash gain on the Chilean consolidation transaction.
Combined sales increased by 3% in Latin America. The weaker Brazilian Real tempered the segment’s top-line growth at the combined level, while the Brazilian joint ventures delivered stable volumes and results.

Asia Pacific

Sales and results were substantially lower as a result of the solar business collapse, which materially impacted the sawing wire activities in China. Sawing wire prices declined by a further 30% in the year 2012. Comparing the average price level of 2012 with the average of 2011, prices dropped 60%. The rubber reinforcement activities recorded solid sales volumes, but operated in an increasingly competitive environment as a result of the slowdown in domestic truck tire demand as well as reduced export activity for our Asian customers. Price decreases in tire cord were however largely offset by the impact of the implemented cost savings. The segment’s margins were impacted by the integration costs of the recently acquired activities in Malaysia and China.

Bekaert started initiatives to rightsize its sawing wire manufacturing footprint in China at the end of 2011.
In 2012, the company continued implementing measures and booked non-recurring items for the respective restructuring costs and asset impairments. Asset impairments (non-cash) made up for the majority of the € 70 million non-recurring costs. While the company raised its bad debt reserve for sawing wire customers in China by € 14 million, effective measures were taken to strengthen credit control and collection, and hence to substantially reduce working capital, which can be seen from the solid cash flow for the period.