Summary of financial review

Sales and financial review

Sales

Bekaert achieved € 3.2 billion consolidated sales and € 4.1 billion combined sales in the year 2013, a decrease of 7.9% and 6.3% respectively in comparison with 2012. The company maintained its leading market positions and realized 4.0% volume growth, mostly from acquisitions.
The impact of the changes in consolidation accounting for the activities in Venezuela was -3.2% on consolidated sales. The fluctuations of other currencies additionally affected revenue by -2.4%. The net effect of acquisitions and divestments (+0.9%) was limited, while organic sales were down 3.3%, mainly due to passed-on lower raw materials prices.

Dividend

The Board of Directors will propose that the General Meeting of Shareholders on 14 May 2014 approve the distribution of a gross dividend of € 0.85 per share. The dividend will, upon approval become payable as of 21 May 2014.

Financial results

Bekaert achieved an operating result before non-recurring items (REBIT) of € 166 million (versus € 117 million in 2012). This equates to a REBIT margin on sales of 5.2%. Non-recurring items amounted to
€ -29 million (compared with € -167 million last year). Including non-recurring items, EBIT was € 137 million, representing an EBIT margin on sales of 4.3% (versus -1.4%). EBITDA reached € 297 million, representing an EBITDA margin on sales of 9.3% (versus 7.9%).

Selling and administrative expenses decreased by € 40 million to € 253 million as a result of reversed bad debt provisions and implemented cost savings, partly offset by cost inflation. Research and development expenses decreased by € 7 million to € 62 million as a result of cost savings actions.
Interest income and expenses amounted to € -64 million (versus € -80 million) due to a lower average debt. Other financial income and expenses amounted to € -20 million (versus € -3 million), mainly due to currency movements.

Taxation on profit was € 48 million versus € 68 million last year.

The share in the result of joint ventures and associated companies increased from € 10 million to € 30 million, reflecting the vigorous performance of the Brazilian joint ventures.

The result for the period thus totaled € 36 million, compared with € -191 million in 2012. After non-controlling interests (€ 11 million), the result for the period attributable to the Group was € 25 million, compared with € -197 million last year. Earnings per share amounted to € 0.42 (up from € -3.33 in 2012).

Balance sheet

As at 31 December 2013, shareholders’ equity represented 44.5% of total assets. Net debt was reduced from € 700 million to € 574 million, as a result of effective actions to lower the working capital level. Average working capital on sales (26.5%) was below 2012 (27.9%). The gearing ratio (net debt to equity) was 38.2% (versus 43.7%), and net debt on EBITDA was 1.9 (versus 2.6).

Cash flow statement

Cash from operating activities amounted to € 306 million (2012: € 439 million). Operating working capital decreased by € 78 million. Cash flow attributable to investing activities amounted to € -72 million, of which
€ -95 million related to capital expenditure (PP&E) and € +14 million to dividends received. Cash flows from financing activities totaled € -192 million (versus € -272 million in 2012) and were, among other elements, driven by the share buy-back program (€ 15 million), the bond repayment of February 2013 (€ 100 million), and dividend payments (€ 58 million).

Investment update and other information

Capital expenditure amounted to € 97 million of which € 95 million was in property, plant and equipment. While lower than in 2012, several expansion investments were initiated in late 2013, with a capital expenditure impact spread over 2013 and 2014. Bekaert’s investments in research and development totaled € 62 million in 2013. These R&D expenses related mainly to the activities of the international technology centers in Deerlijk (Belgium) and Jiangyin (China). The decrease versus 2012 (€ 69 million) is a result of the implementation of cost savings.

Net debt was reduced from € 770 million as at 30 June 2013 (€ 700 million as at year-end 2012) to € 574 million as at 31 December 2013. Net debt was cut significantly as Bekaert implemented effective measures to continue to reduce the working capital.

In addition to the 939 700 treasury shares held as of 31 December 2012, Bekaert purchased 712 977 own shares in the course of 2013. None of those shares were disposed of in connection with stock option plans or cancelled in 2013. As a result, the company held an aggregate 1 652 677 treasury shares at the end of 2013.

Segment reports

EMEA

Bekaert’s activities in EMEA recorded a solid performance in 2013.The implementation of significant cost savings and the 2012 restructuring measures considerably improved the segment’s profitability. At stable sales, the company realized a 40% REBIT increase in the region and restored its profitability to an EBIT margin of 8.2%.

EBITDA almost doubled in comparison with 2012, when the cash flow generation was substantially affected by the loss generating sawing wire activities and the related restructuring impact. Non-recurring items were limited in 2013 and mainly related to an additional impact from the 2012 restructuring in Belgium and non-recurring expenses from a realignment of the production platform in the UK.

North America

Low demand in domestic industrial markets, investment delays in energy and construction markets, and increased competition from Asian imports drove sales down in North America. The demand drop caused by investment delays in the US power grid infrastructure, for example, affected Bekaert’s activities serving customers in power transmission and distribution markets. The segment’s turnover was also impacted by passed-on lower raw materials prices and by the adverse currency translation effects as a result of a stronger euro.

The Canadian wire rope activities in Pointe-Claire continued to perform well and achieved robust volume growth in 2013.

Bekaert decided to cease its steel wire operations in Surrey, Canada, because of the structural downward business trend in the steel wire market in the Northwest of North America. The company intends to serve its customers in the region from its other North American manufacturing sites. The non-recurring items in this segment report mainly relate to the closure of the Surrey plant.
Notwithstanding the current market conditions and the underperformance of the segment in terms of profitability, Bekaert reconfirms its belief in the potential of its manufacturing and supply platforms in North America. Actions to restore profitability are being implemented.

Latin America

Bekaert’s activities in Latin America delivered solid volume growth. This growth was, however, more than offset by an unfavorable product-mix and by the passed-on lower raw materials prices obtained through changed sourcing policies. Excluding currency effects, the Latin American activities recorded a sales decline of 3.5%.

In addition, the segment’s top line dropped substantially as a result of the impact of Venezuela (-13.6%) and
of other currency movements (-3.6%). In order to avoid overvalued financial statements at the official currency rate of the Venezuelan bolivar, Bekaert has, since the beginning of 2013, translated the bolivar-denominated financial statements of its Venezuelan operations at the economic exchange rate. The drastic depreciation of the bolivar had an impact of €-110 million on revenues and €-16 million on EBIT in 2013.

At the end of 2013 Bekaert announced its plans to expand in Central and South America, including the start-up of a Dramix® plant in Costa Rica, the acquisition of 73% of the shares of the ArcelorMittal steel wire plant in Costa Rica, and raising its share from 45% to 100% in the Cimaf ropes plant in Brazil. Both the finalization of the acquisition deal and the start-up of the Dramix® plant are scheduled for the second quarter of 2014.

At the combined level, Bekaert’s joint ventures in Brazil delivered robust sales growth in 2013. The overall strong performance of the Brazilian entities led to a much higher profitability. The substantial depreciation of the Brazilian real, particularly in the second half of the year, had an adverse translation effect. This currency correction, however, raised the competitive power of our activities versus imports.

Asia Pacific

Bekaert’s activities in Asia Pacific achieved significant organic volume growth (+8%) as a result of increased demand in the Chinese tire sector and of growth generated by a further broadened product portfolio in other markets. The integration of the Malaysian activities added 4% to consolidated sales.

The growth was, however, offset by the impact on sales of decreased wire rod prices (-2%), adverse currency effects (-3%) and a negative price-mix (-6%).

In spite of the price erosion in China and overall weak demand in India, Bekaert more than doubled its profitability in the region in comparison with 2012. Margins increased mainly as a result of the 2012 restructuring of the sawing wire platform, the implementation of cost savings and a reversal of bad debt reserves in 2013. Effective measures to substantially strengthen credit control and collection and a modest demand increase in solar markets enabled us to recover in China, part of the written off receivables from sawing wire customers.
The integration of the recently acquired entities in Asia is ongoing and is bringing their performance into line with the Bekaert standards and profit objectives. This integration process is taking more time than anticipated and is continuing to weigh on profitability.

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