BEKAERT ANNUAL REPORT 1995

FINANCIAL ANALYSIS

OPERATIONS

Sales

Consolidated sales increased by 2.2 % to BEF 60 669 million in 1995. After an encouraging first half year followed by a slowing down in most Wire markets during the second half of 1995, total volume increased by 1.8 %, including six months sales of Ršsler.
Sales value increased by 3.8 % due to the higher volume sold and the impact from Rösler sales. A further 5 % increase was due to the movement in selling prices and product mix. However, both positive effects were almost totally offset by the adverse effect of exchange rates which reduced sales by 6.6 % expressed in Belgian francs. The fluctuation of the average exchange rates against the Belgian franc over 1994, was as follows :
US dollar - 13 %
Pound sterling - 9 %
Spanish peseta - 6 %
Italian lira - 12 %

The volume of Steel Cord increased by 11.3 %, while the corresponding sales value rose by only 4.4 % to BEF 21 568 million because of the effect of exchange rate movements resulting in a 7.3 % decrease when expressed in Belgian francs. Tyre Cord activity grew by 17 %, accounting for 80 % of the growth in Steel Cord. This growth was achieved in all geographical markets and included the effect of China Bekaert Steel Cord Co., Ltd (China) started up in 1995.

Wire and wire product sales value increased by 1 % to BEF 35 906 million. Despite a 2.8 % increase from Ršsler, sales value was adversely affected by the lower volume by 0.4 %. Higher average selling prices and change in product mix increased sales by 8.2 %. However, currency fluctuations decreased the sales expressed in BEF by 6.8 %. Volume decreased in most product groups and markets with the exception of Merchant Products in Europe, which grew due to the acquisition of Ršsler, and Special Steel Wire in North America.

Operating profit

As a percentage of sales, gross profit decreased from 18.5 % to 18.1 % in 1995 and operating profit decreased from 6.8 % to 6.4 %. At 1994 exchange rates, operating profit as a percentage of sales in 1995 would have been 7.6 %, reflecting the better performance of the Group. Other factors adversely affecting profitability were a delayed recovery of wire rod price increases and the consolidation of Ršsler, which incurred an operating loss of BEF 240 million including BEF 25 million amortisation of goodwill by the parent company.
Selling and administrative expenses were kept in line with the previous year. Research and Development expenses increased to BEF 1 067 million, reflecting increased technological research in all business units and more specifically in new fibre processing technology.

Financial results

Net interest costs, defined as interest and other debt charges less revenue from current assets, were BEF 380 million in 1995, a decrease of 19.5 % compared to 1994.
This was due firstly to a reduction in the average net debt position, secondly to a translation gain on the interest costs of Bekaert Corporation (USA) and Twil Ltd (UK) expressed in Belgian francs, and finally to a general reduction in short term borrowing rates, especially in BEF.

Other financial revenue declined by 32 % to BEF 320 million, due to lower exchange rate gains.

Extraordinary results

Extraordinary revenue amounted to BEF 148 million compared to BEF 4 070 million the preceeding year. In 1994, a BEF 3 914 million gain on disposal of fixed assets was included of which BEF 3 700 million arose on the sale of 12.1 million shares of Bridgestone - Metalpha Corporation (Japan).

Income taxes

The decrease in income taxes from BEF 955 million to BEF 732 million related mainly to deferred taxes. In previous years, an allowance had been made for uncertain recovery of tax losses at Bekaert Corporation (USA). Given the company's sustained profitability, this allowance of BEF 279 million has been reversed.

Results of companies accounted for under the equity method

The Group's share in the results of companies accounted for under the equity method increased to BEF 922 million from BEF 569 million. The results were particularly good in Brazil and Chile.

FINANCING

Cash generated by operations rose by 3 % to BEF 7 256 million while capital expenditure increased by 17 % to BEF 4 813 million. As a result, operational cash flow decreased by 30 % to BEF 1 657 million. This lead to a reduction in cash and cash deposits of BEF 2 145 million.

Investment activities in 1995 absorbed BEF 180 million in cash, whilst they generated BEF 6 324 million in the previous year, primarily from the sale of part of the Bridgestone-Metalpha (Japan) shares.

In 1995, BEF 510 million was required to finance the acquisition of Rösler and to subscribe new capital contributions in companies accounted for under the equity method.

Cash used for financing activities amounted to BEF 2 506 million and related primarily to the payment of financing charges (BEF 705 million) and the dividend (BEF 1 507 million). Repayment of long-term debt (BEF 3 997 million) was mainly refinanced by new long-term loans and by short-term borrowing.

FINANCIAL POSITION

Formation expenses

Formation expenses amounted to BEF 73 million at December 31, 1995 compared to BEF 85 million in 1994 and related to operating costs incurred in new plants prior to the start of production. In 1995, the Group capitalised BEF 34 million additional expenses, primarily relating to the start-up of China Bekaert Steel Cord.

Intangible fixed assets

In 1994, BEF 116 million was paid to obtain the right to use the land on which the production facilities of China Bekaert Steel Cord are built. This amount was reclassified in 1995 and transferred from tangible fixed assets to intangible fixed assets, explaining the increase in the outstanding balance from BEF 148 million to BEF 257 million.

Goodwill

Goodwill at December 31, 1995 amounted to BEF 940 million compared to BEF 613 million at December 31, 1994. BEF 490 million goodwill was recorded on the purchase of Rösler.

Tangible fixed assets

The 2.9 % increase in tangible fixed assets to BEF 30 588 million is explained as follows :

Increase due to
- capital expenditure of BEF 4 813 million
- consolidation of Rösler : BEF 867 million

Decrease due to
- depreciation charges of BEF 3 607 million
- translation losses of BEF 856 million primarily on the USD and GBP assets
- sales of BEF 229 million
- reclassification of BEF 116 million

The 8.6 % increase in land and buildings to BEF 7 338 million and the BEF 240 million decline in assets under construction are largely explained by the completion of the new Steel Cord plant in China.
Of the BEF 4 813 million capital expenditure, 43 % was invested in Wire, 44 % in Steel Cord, 8 % in New Activities and 5 % in Engineering and other activities. The main increase in capital expenditure was in Wire due to the restructuring and modernisation programme in Twil, the expansion of merchant products in Metallurgica Adriatica and specialty steel wire activities in Belgium.

Major capital expenditure in Wire, Steel Cord and New Activities was as follows :

(in BEF MILLIONS)	1995	1994
WIRE
N.V. Bekaert S.A., Belgium	894	661
TWIL Group, England	717	507
Bekaert Corporation, USA	199	182
Metallurgica Adriatica S.p.A., Italy	149	56
STEEL CORD
Bekaert Corporation, USA	771	558
N.V. Bekaert S.A., Belgium	480	513
China Bekaert Steel Cord Co., Ltd, China	395	1 236
Beksa Celik Kord Sanayi ve Ticaret A.S., Turkey	315	58
Industrias del Ubierna, S.A., Spain	307	206
NEW ACTIVITIES
N.V. Bekaert S.A., Belgium	271	20
Innovative Sputtering Technology, Belgium	85	40
Bekintex, Belgium	18	53

Capital expenditure incurred by companies accounted for under the equity method increased by 22 % to BEF 2 145 million, due primarily to higher capital expenditure in the Steel Cord joint ventures in Australia and Japan.

Group capital expenditure in the last five years was as follows :

(in BEF MILLIONS)	1995	1994	1993	1992	1991
Consolidated companies	4 813	4 123	3 579	3 754	4 521
Companies accounted for under the equity method	2 145	1 755	2 747	2 247	1 619
total	6 958	5 878	6 326	6 001	6 140

Financial fixed assets

Financial fixed assets, primarily consisting of investments in companies accounted for under the equity method amounted to BEF 8 566 million, an increase of 2.8 %.

The change was the result of the following transactions :
- an increase of BEF 922 million from the Group's share in the results of these companies;
- capital contributions of BEF 233 million;
- dividend payments of BEF 397 million;
- translation losses of BEF 562 million specifically on the Japanese equity investment.

Deferred income tax

Deferred tax assets increased to BEF 671 million, due to the initial consolidation of Rösler which included a net deferred tax asset of BEF 495 million.
Deferred tax liabilities increased to BEF 3 384 million due to use of tax losses carried forward by the parent company and increased capital expenditure.

Working capital

Net working capital, defined as inventories and trade receivables less trade payables and remuneration and social security payables, rose 9.6 % to BEF 12 182 million, due to increased sales and higher inventory levels.

Equity

At December 31, 1995, the share capital of N.V. Bekaert S.A. consisted of :

(At December 31, 1995)	Capital in BEF thousands	Number of shares
Issued	6 750 000	2 245 732
Authorised, not issued	6 750 000
Classes
Ordinary shares without par value	5 682 663	1 890 628
Shares without par value with reduced withholding tax	1 067 337	355 104

Of the total shares issued, 38 796 are registered shares and 2 206 936 are bearer shares.

After dividend payments by the parent company, equity rose 1.8 % to BEF 32 910 million.
The increase resulting from profitability was partly offset by a higher negative cumulative translation adjustment of BEF 1 053 million, primarily due to the lower USD, GBP and JPY exchange rates at the end of 1995.

Reserves and retained earnings of BEF 29 234 million included BEF 25 627 million, relating to fully consolidated companies and BEF 3 607 million to companies accounted for under the equity method.

Minority interest

Minority interest in the equity of fully consolidated companies decreased from BEF 2 790 million to BEF 2 695 million. Major minority interests are in Twil Ltd (40 %) and in Beksa (50 %). The decrease was mainly caused by exchange rate effects.

Provisions

The provisions for pensions and similar rights relate to future payments for early retirement, pensions and post retirement health care costs. The provision for other liabilities and charges include primarily future restructuring costs.

Despite a decrease in the pension provisions for N.V. Bekaert S.A. of BEF 274 million and in restructuring provisions for Twil of BEF 216 million, the total provisions increased to BEF 4 362 million, due to the initial consolidation of Ršsler.

Other amounts payable

Subject to approval by the General Assembly of Shareholders of N.V. Bekaert S.A., a gross dividend of BEF 1 347 million will be declared. The related liability is included in the other amounts payable within one year.