Bekaert’s activities in EMEA achieved 11% sales growth in 2017, driven by robust organic volume growth (+7%) and the aggregate effect of passed-on wire rod price increases and price mix (+4%). Strong automotive, construction and other industrial markets boosted sales volumes throughout the year, while demand for specialty steel wires was flat compared with 2016.
Bekaert EMEA delivered solid results in 2017. We repeated the record € 141 million underlying EBIT of last year in absolute numbers. The margin performance was lower due to some delay in passing on wire rod price increases to our customers - particularly in the highly competitive construction markets - and because of additional costs of hiring and training personnel needed for the ongoing expansion programs in Central and Eastern Europe.
The one-offs amounted to € +3 million and were mainly related to the reversal of impairment losses.
Compared with last year, capital expenditure (PP&E) more than doubled to € 115 million and included, amongst others, major capacity expansions in Romania, Slovakia and Russia.
Bekaert anticipates continued good demand from most markets and increased benefits from the ongoing expansion programs. The steadily increasing oil prices may induce some investment activity in oil markets in the near future.
Bekaert’s activities in North America achieved almost 8% sales growth and a significant improvement in profitability. Passed-on higher wire rod prices and price-mix effects combined with more than 3% volume increase boosted an organic growth of almost 10%.
Automotive, industrial and specialty steel wire markets performed well in 2017. As anticipated, sales volumes were lower in the last quarter of the year due to the normal seasonality impacts. The adverse effects of a weaker USD in the second half of the year had a significant impact on both sales and profitability, year-on-year.
The transformation programs put in place in the region have had a material impact on the 2017 performance. The combined approach in implementing manufacturing, supply chain and commercial excellence have led to a stronger organization, better segmentation, and increased cost competitiveness. The underlying EBIT increased by 28% to € 33 million at a margin of 6%. The segment also reported a significant increase in EBITDA and ROCE margins compared with the previous reporting periods.
Capital expenditure (PP&E) was € 13 million in North America.
In Latin America, consolidated sales were down 1% from last year. The divestment of the Sumaré entity accounted for -5.5% and the overall weak economic environment in the region drove demand for our products down, resulting in a volume loss of -5.6% for the year. These effects were almost completely compensated at the top-line by the impact of passed-on higher wire rod prices and slightly positive currency effects.
The segment’s profitability was affected by the deterioration of the business climate in 2017. Underlying EBIT decreased by 18% due to weak market conditions and cost inflation, amongst other due to protective measures against wire rod imports in various countries. The cancellation of the obligations under an onerous supply contract offset the divestment impact of the high-margin Sumaré entity. The underlying EBIT margin reached 8.2% for the full year.
EBIT increased by more than 20% to € 80 million as a result of the gain on the sale of 55.5% of the shares of the Sumaré plant in Brazil which has been integrated into the BMB (Belgo Mineira Bekaert Artefatos de Arame Ltda) joint venture partnership with ArcelorMittal.
Bekaert invested € 22 million in property, plant and equipment across the region, particularly in Chile and Peru.
Bekaert’s combined sales increase reflects the translation impact of a stronger average Brazilian real compared with last year and passed on higher raw material prices. The share in the results of joint ventures increased by 5.5% due to the integration of the Sumaré entity within the joint venture partnership in Brazil.
Bekaert delivered 12% organic sales growth in Asia Pacific, driven by good volume growth and a positive aggregate effect of passed-on wire rod price increases and price-mix. Bekaert’s rubber reinforcement activities reported firm growth across the region.
Several developments hindered us from repeating the outstanding margin performance of last year:
- The continuous price increases of raw materials hampered an immediate effective pricing response in the fierce competitive environment in China. The impact on our margins was at its most severe during the middle part of the year. In the fourth quarter, we were better able to pass on wire rod prices without adversely affecting our sales volumes.
- The demand for loose abrasive sawing wire declined sharply due to an acceleration of the technology shift to new generation products.
- The ongoing expansion programs in the region generated additional costs related to hiring and training personnel.
These elements had an adverse effect on the overall profitability for the region in 2017. Underlying EBIT decreased to € 107 million at a margin of 9.3%, below our 2016 performance.
We have taken actions to upgrade our sawing wire offering so we can play a part in the ongoing technology shift. Bekaert has successfully developed in the course of 2017 a fixed abrasive sawing wire. All key customers have tested and approved the samples and we are investing in production capacity to start serving our customers as of mid-2018.
In anticipation of continued growth perspectives, Bekaert invested € 122 million in PP&E in the region in 2017, more than doubling the investment pace of 2016 and including expansion investments in China, India and Indonesia. In order to better leverage scale, the company also closed two entities that did not have the potential to generate value-creating growth: the Shah Alam plant in Malaysia and the small tire cord plant in Huizhou (China).
We expect the high run rate in our tire markets to continue into 2018. We project improved margin performance in our ongoing businesses by progressively regaining pricing power. We take into account continued low demand for loose abrasive sawing wire in the first half of 2018 and a positive contribution from the launch of fixed abrasive sawing wire as from the second half onwards.
Bridon-Bekaert Ropes Group
Bridon-Bekaert Ropes Group (BBRG) achieved 42% sales growth. The integration of the Bridon activities since the end of June 2016, accounted for an increase of 38%. The former Bekaert activities within BBRG delivered 5% organic growth reflecting almost 4% volume increase stemming from double-digit growth in the advanced cords business and a modest volume increase in ropes.
The advanced cords business activities have performed strongly throughout the year. The steel ropes activities in North America, Australia and Chile gradually reported higher sales volumes on the wave of increased demand in the mining sector. The European and Brazilian entities, which are heavily dependent on oil, reported very weak sales and results throughout the year.
Underlying EBIT was € 15 million at a margin of 3.3%, reflecting the difficult conditions in oil & gas markets and the margin impact of continuous wire rod price increases. The projected recovery of Bridon-Bekaert Ropes Group is taking longer than anticipated due to the absence of a rebound in offshore oil & gas activities and the slow reconversion and entry process into more diversified market segments. While the order books are modestly growing, they have an extended delivery window with limited immediate growth effects.
BBRG invested € 15 million in PP&E in 2017, half of which in advanced cords and the other half in steel ropes manufacturing sites worldwide.
The management of Bridon-Bekaert Ropes Group is implementing actions to strengthen its market positions and to gradually leverage the benefits of its increased scale. Bridon-Bekaert Ropes Group is putting into practice the same transformation tools that have been implemented successfully within Bekaert. These programs will help create a turnaround in cost effectiveness, sales growth and margin capability and should progressively improve the performance of the segment over the coming years.