Summary of financial review

Sales and financial review

Sales
Bekaert achieved consolidated sales of € 3.7 billion and combined sales of € 4.4 billion, an increase of 14% and 9% respectively, compared with last year.

Acquisitive growth boosted consolidated sales by 9% and currency effects accounted for +8%. The organic sales growth of +2% was the result of positive price-mix effects (+4%), a slight volume decline (-1%) and minor price erosion (-1%). Top line growth was tempered by the significantly lower raw material prices (-5%), passed on to our customers. As opposed to the final quarter of last year, sales and profits did not drop below the anticipated effects of year-end seasonality.

Combined sales ⁽¹⁾ increased by 9%. The weak Brazilian real tempered the translation effect of exchange rate movements at the combined level (+4%) and the net impact of acquisitions and divestments accounted for +7%. The organic growth (+2%) was more than offset by lower raw material prices (-4%).
^{(1) Combined sales are sales of consolidated companies plus 100% of sales of joint ventures and associates after intercompany elimination.}
Dividend
The Board of Directors confirms its confidence in the strategy and future perspectives of the company and will propose that the General Meeting of Shareholders on 11 May 2016 approve the distribution of a gross dividend of € 0.90 per share, compared with € 0.85 per share last year. The dividend will, upon approval by the General Meeting of Shareholders, become payable as of 17 May 2016.

Summary financial review

Financial results

Bekaert achieved an operating result before non-recurring items (REBIT) of € 223 million (versus € 164 million in 2014). This equates to a REBIT margin on sales of 6.1% (versus 5.1% in 2014). Non-recurring items amounted to € -3 million (€ +7 million in 2014). Impairments, step acquisition losses and restructuring expenses were almost entirely compensated by the final proceeds of the insurance settlement of the Rome (US) fire and by the gain on the disposal of the carding solutions divestment. Including non-recurring items, EBIT was € 220 million, representing an EBIT margin on sales of 6.0% (versus 5.3%). EBITDA reached € 441 million, representing an EBITDA margin on sales of 12.0% (versus 10.6%).

Selling and administrative expenses increased by € 41 million to € 306 million, mainly due to: the translation impact of currency movements (€ 16 million); the net effect of acquisitions and divestments (€ 3 million); consultancy fees related to the manufacturing excellence program and the high M&A activity (€ 14 million); and an increase of the bad debt reserve by € 5 million. Research and development expenses increased by € 5 million to € 65 million, mainly due to the integration of the Pirelli tire cord R&D team.

Interest income and expenses amounted to € -62 million, unchanged from last year (€ -63 million).

Other financial income and expenses amounted to € -34 million (versus € -4 million) and included a stamp duty on the acquisition in Australia, a reserve to cover for potential exchange issues in Venezuela, as well as realized and unrealized exchange movements.

Taxation on profit was € 36 million versus € 42 million last year. The positive impact was from a reversal of a deferred tax allowance related to the carve-out of the advanced cords activities in Belgium.

The share in the result of joint ventures and associated companies decreased from € 25 million to € 18 million due to the weak economic environment in Brazil and the loss-generating entities in Xinyu, China (deconsolidated at year-end 2015).

The result for the period thus totaled € 106 million, compared with € 88 million in 2014. The result attributable to non-controlling interests increased to € 4 million. After non-controlling interests, the result for the period attributable to the Group was € 102 million, compared with € 87 million last year. Earnings per share amounted to € 1.83, up from € 1.51 in 2014.

Balance sheet

As at 31 December 2015, shareholders’ equity represented 39.1% of total assets, down from 39.6% in 2014. The gearing ratio (net debt to equity) was 54.9% (versus 54.5%).

Net debt was € 832 million, down from € 853 million as at year-end 2014 and € 1 023 million as at 30 June 2015. The significant reduction was primarily driven by strong cash generation and strict working capital control.

Cash flow statement

Cash from operating activities amounted to € 584 million, a significant increase from € 187 million in 2014 thanks to higher cash generation and a major reduction of working capital.

Cash flow attributable to investing activities amounted to € -363 million (versus € -225 million): € -171 million related to capital expenditure (PP&E) and € -209 million to the net impact of acquisitions and divestments.
Cash flows from financing activities totaled € -268 million (versus € 88 million in 2014) driven by repayment of interest-bearing debt, by dividend payments and interest expenses.

Investment update and other information

Notwithstanding the significant impact of M&A and investments, Bekaert reduced net debt to € 832 million from € 853 million as at year-end 2014 and down from € 1 023 million as at 30 June 2015. Net debt on EBITDA was 1.9, compared with 2.5 on 31 December 2014. The significant reduction was primarily driven by strong cash generation and strict working capital control.

On 7 December 2015, Bekaert and Ontario Teachers’ Pension Plan announced the intended merger of the global ropes and advanced cords businesses of Bekaert and Bridon. The definitive merger agreement is subject to customary closing conditions including regulatory approvals. Upon closing, a new joint venture will be established in which Bekaert will hold a majority stake of 67% and Ontario Teachers’ will hold 33%. Until closing, both businesses will operate separately and continue to serve their customers autonomously.

Alongside this intended transaction, Bekaert has purchased the remaining 35% shareholding held by Matco Cables SpA in Bekaert's ropes entities.

On 29 December 2015, Bekaert acquired the remaining 18% of the shares in Bekaert Jiangyin Wire Products Co Ltd from Fasten Group, to become the full owner of the steel wire plant in Jiangyin, China.

On 31 December 2015, Bekaert deconsolidated the Bekaert Xinyu Metal Products Co Ltd and Bekaert Xinyu New Materials Co Ltd due to a change in control and the ongoing negotiations to exit this business in China. Both entities have been reclassified from associates to investments held for sale. Equipment recuperated from the entities was written down.

A total of 26 300 stock options were exercised in 2015 under the management Share Option Plan 2010-2014 and 26 300 treasury shares were used for that purpose. In the course of 2015 Bekaert did not cancel or purchase treasury shares. As a result, the Company held an aggregate 4 248 710 treasury shares at year-end 2015.

Segment reports

EMEA

Demand from European markets was strong throughout 2015 across most sectors. Automotive demand, in particular, boosted volume growth for tire cord and other steel wire applications in the region.

Bekaert’s activities in EMEA delivered excellent results driven by strong volume growth and a favorable product mix. The successful integration of the steel cord plants acquired from Pirelli in Italy, Romania and Turkey accounted for 14% growth and strengthened EMEA’s solid, double digit profit base. The company’s building products platform achieved firm growth and most other industrial steel wire activities performed at the strong level of 2014. Bekaert achieved 22% REBIT increase for the region and lifted profit margins to a record high of 11.3%.

Non-recurring items amounted to € +6 million and mainly related to the gain on the disposal of the European activities of the divested Carding Solutions business, partially offset by restructuring costs.

Capital expenditure (PP&E) amounted to € 48 million and included capacity expansions and equipment upgrades, particularly in Slovakia and Belgium.

Bekaert anticipates continued solid demand and performance in most European markets, but has limited visibility on evolutions in the oil and gas sector where demand has started to slow down over the past months.

North America

Bekaert’s activities in North America recorded a top line growth of 7%. Currency effects drove up sales by 16% while volumes declined by 9% due to the volume loss from the plant closure in Surrey, Canada (end of first quarter 2014) and the fire damage in Rome, Georgia (US) (November 2014). Moreover, weaknesses in agricultural and industrial steel wire markets continued to weigh on the segment’s performance. The impact of lower wire rod prices, passed on to our customers, was offset by a better product-mix. Profit margins have not yet reached the desired levels due to a low volume base and competitive price pressure from imports.

The non-recurring items (€ +14 million) mainly reflect the final insurance settlement proceeds from the Rome fire.

Capital expenditure (PP&E) amounted to € 55 million and related mainly to the reconstruction of the Rome plant and investments in the ropes and tire cord activities.

Bekaert projects a better performance in 2016 as we start to see improvements from actions put in place to raise our competitiveness in target markets.

Latin America

Bekaert’s consolidated sales in Latin America increased by +21% thanks to the significant impact from acquisitions (+15%) and favorable currency effects (+7%). An improved price-mix (+4%) fully offset the impact of passed-on lower raw material prices (-4%). Acquisitive growth included: the addition of the former Pirelli tire cord plant in Sumaré, Brazil (from the start of 2015 onwards); the consolidation of the Bekaert Cimaf ropes plant in Brazil; and the wire business acquisition from ArcelorMittal in Costa Rica (both at the end of April 2014).

The impact of acquisitions, an improved price-mix and the effects of cost savings drove up profitability and cash generation in the region. REBIT and EBITDA increased by more than 75% in comparison with 2014. The EBITDA margin accelerated during the year, reaching 10% on sales in the second half of 2015.

Bekaert invested € 24 million in property, plant and equipment across the region.

Bekaert’s combined sales growth was limited due to the significant devaluation of the Brazilian real. The actual performance of our joint ventures in Brazil outperformed the weak economic conditions in the country.

Bekaert perceives increased instability in the whole region with a weakening business climate in Brazil, Peru and Ecuador. In Venezuela, we have been forced to shut down operations in February 2016 due to raw material shortage. Based on prudence principles, Bekaert impaired its Venezuelan assets already in 2010 and has applied inflation accounting and valuation at the corresponding economic exchange rate since 2013 onwards. Notwithstanding the economic evolutions in Latin America, Bekaert expects to maintain the benefits from its strong market positions, sustained cost savings and improved business portfolio.

Asia Pacific

Bekaert achieved 12% sales growth in Asia Pacific. This was the result of favorable exchange rate movements (+14%) and the net effect of acquisitions and divestments (+6%), partly offset by lower volumes (-3%) from the weak start of the year and by lower raw material prices (-5%). The impact of price erosion was neutralized by a better product mix.

Bekaert’s activities in Asia Pacific delivered strong margin growth thanks to cost control and a significantly improved business portfolio, which was the result of: firm tire cord sales growth in India and Indonesia; a growing share of high value-adding products in our sales portfolio; divestments and acquisitions; and the first effects of a turnaround in our steel wire businesses in South East Asia.

Bekaert improved its portfolio by growing the share of high-value adding tire cord and sawing wire products in China. We regained market share in the Chinese tire cord market and kept pace with growing demand in the solar sector. Sawing wire accounted for more than 10% of Bekaert’s sales in Asia Pacific in 2015.

Divestments included the Asian activities of the carding solutions business (China, India) and the exit from stainless steel wire activities (India). At year-end 2015, Bekaert also deconsolidated the loss-generating entities in Xinyu (China) to reflect the change in control and the ongoing negotiations to exit the business. The positive REBIT impact from the deconsolidation will be visible in Bekaert’s 2016 financial statements.

Bekaert acquired over the course of 2015 the former Pirelli steel cord plant in China, the former Arrium ropes plant in Australia, and the remaining shares held by business partners in the Dramix® plant in Shanghai, the Jiangyin-based steel wire plant in China, the Dramix® sales and distribution activity in Australia/New Zealand, and the Malaysian steel wire and rope activities.

These actions and achievements drove profit levels significantly up in Asia Pacific. EBITDA increased by 25% to€ 200 million in 2015, with an EBITDA margin of almost 20% on sales in the second half of the year.

The non-recurring items (€ -11 million) mainly related to restructuring costs and asset impairments, partially offset by gains on disposals in carding solutions and the deconsolidation of the Xinyu activities.

Bekaert invested significantly across the region and recorded a total of € 50 million investments in PP&E in 2015, among which tire cord expansion investments in India and Indonesia.

Bekaert anticipates continued highly competitive market conditions in the region. We project our ongoing efforts to enhance the product portfolio and manufacturing cost base in the region, to add revenue and profitability in 2016.