2009-07-31

July 30, 2009 - Regulated information: Bekaert: Asia counters global slowdown

Half year results 2009

• strong performance in Asia Pacific
• low demand in mature markets
• € 40 million margin impact from decreasing steel prices
• 7.2% EBIT margin on sales before non-recurring items 

Bekaert maintains solid performance in emerging markets…
In the first half of 2009, Bekaert achieved organic sales in emerging markets comparable to the very strong first half of 2008, while acquisitions and favorable currency movements boosted consolidated revenues there by more than 30%.

Bekaert was ideally positioned to capitalize on the rebound of China's economy following the Chinese New year and was ready to seize opportunities immediately. Favorable currency movements also contributed to the 15% top-line growth in Asia Pacific.

While organic sales remained relatively stable, Bekaert almost doubled its consolidated revenue in Latin America, driven by the integration of Ideal Alambrec (Ecuador) and Prodac (Peru) within the consolidation perimeter. Bekaert remains poised for an expected upturn of Latin American economies.

… while experiencing volume and price pressure in mature markets
Persistent weak demand in mature markets led to a decline in most activities in EMEA and North America, especially in the automotive and construction markets. Sales as well as profits decreased as
a result of a major drop in volume. Bekaert introduced further cost-saving measures and drove up volumes of some basic products to increase capacity utilization.

The overall price decreases in steel-based raw materials witnessed since the end of 2008 affected both Bekaert's revenues and profits. In the first half of 2009, the related margin impact amounted to € 40 million.

Bekaert continues to report a strong balance sheet
Bekaert was able to reduce working capital and restructure and lower net debt, so that even in difficult times, a strong balance sheet has been maintained.

Sales

Compared with an exceptional first half of 2008, Bekaert's consolidated sales were only down 7.9%, with major differences between regions. Weak market demand, notably in the mature markets, drove an organic sales decline of 20.6%. This was partly compensated by the integration of Prodac (Peru) and Ideal Alambrec (Ecuador) in Latin America, which added 5.8%, and the positive effect of currency movements, which contributed 6.9%.
Combined sales  decreased 18.1% in comparison with the first half of last year. This was a result of lower market demand reflected in an organic decline of 20.7%, which was slightly tempered by favorable exchange-rate differences of 2.6%.

Market developments per sector
Bekaert is active in a very wide range of sectors. The largest markets for Bekaert's products are the automotive, construction and energy sectors. In the automotive sector, sales are largely driven by the replacement market which is less sensitive to economic downturns than the original equipment market. Bekaert's automotive-related sales figures nevertheless dropped significantly within mature markets due to heavy destocking throughout the value chain. The economic crisis also affected sales in the construction sector. Bekaert continued to perform well on a global basis across many different applications in the energy-related markets, including petroleum extraction, solar and other renewable energy and energy transportation.

Consolidated and combined sales by segment
First half 2009 consolidated sales in millions of €

First half 2009 c ombined sales in millions of €

Segment reports  

EMEA

Low economic activity and stock depletion by customers resulted in a 30% drop in sales volumes
across most EMEA activity platforms. The negative operating result mainly reflects the impact of declining raw material prices on profit margins. From the second quarter onwards, Bekaert entered
the market with additional volumes of some basic products, to secure and drive up capacity utilization. 

NORTH AMERICA

In North America, nominal sales decreased by almost 20% as a result of a weaker product mix and declining volumes corresponding to low economic activity. This impact was felt particularly strongly in platforms that serve the automotive and construction markets. On a currency-adjusted basis, the revenue decline was limited to 9%. Comparable actions as in EMEA were taken from the second quarter onwards to increase capacity utilization.

Latin America

Latin America's consolidated sales growth was the result of the integration of Ideal Alambrec (Ecuador) and Prodac (Peru). Also in this region, volume decline and wire rod price fluctuations impacted the profit margins. After a severe slowdown in the first quarter of 2009 and the significant negative currency impact of the Brazilian real, Bekaert's joint ventures in Brazil saw a gradual recovery in demand from the second quarter onwards.

Asia Pacific

Bekaert China's platforms started off slowly in the first months of the year. During those months, Bekaert offered extensive training in different components of Bekaert's Operational Excellence programs to its temporarily redundant employees. Consequently, Bekaert was ideally positioned to capitalize on the upturn as the company did not lay off its personnel during the economic standstill that occurred around the turn of the year. Bekaert achieved record volumes and sales from April onwards, operating at very high capacity utilization levels. Sales were further boosted by a favorable product mix and positive exchange-rate movements. The entities in India and Indonesia recorded moderate growth.

OTHER ACTIVITIES

Bekaert further increased its investments in research and development, totaling € 35 million in the first half of 2009 (up 6.7% versus the same period of last year). These R&D expenses applied to the activities of the international technology centers in Deerlijk (Belgium) and Jiangyin (China). The Engineering department, which is the company's main supplier of proprietary machinery, adjusted to the changed market circumstances and the subsequent investment planning.
 
FINANCIAL REVIEW

Financial results

Bekaert achieved an operating result (EBIT) before non-recurring items of € 85.8 million. This equates to an EBIT margin on sales before non-recurring items of 7.2%. Including non-recurring items, EBIT was € 78.7 million, representing an EBIT margin on sales of 6.6%. EBITDA amounted to € 145 million, representing an EBITDA margin on sales of 12.1%.

Bekaert implemented stringent cost saving measures, both at the level of its manufacturing organization as well as in selling and administrative expenses. While expenses increased firstly as a result of the integration of Ideal Alambrec and Prodac (selling and administrative expenses: increase of € 6 million) and secondly due to currency fluctuations (impact of € 3.8 million), the company managed to keep total costs under control. Research and development expenses grew by 6.7% in line with Bekaert's continuous innovation strategy.

The increase in interest expenses (up € 9.7 million) was mainly due to increased interest rates and a higher year-on-year net debt position incurred to finance major capital expenditures. Taxation on profit amounted to € 13.3 million.

The transfer of Ideal Alambrec and Prodac to the consolidated perimeter and lower profits in the Brazilian and Chilean activities reduced the share in the results of joint ventures and associated companies to € 17.4 million.

The result for the period thus reached € 52.4 million. After third-party minority interests (€ 8.2 million), the result for the period attributable to the Group was € 44.2 million.

Strong balance sheet

As at 30 June 2009, shareholders’ equity represented 43.2% of total assets. Net debt (€ 621.8 million) was brought back below the level of year-end 2008, mainly as a result of a reduction of the working capital, which was partly offset by the integration of Ideal Alambrec and Prodac. The gearing ratio (net debt to equity) was 50.7%.

Cash flow statement

Cash from operating activities amounted to € 226.3 million and reflected the major efforts to reduce working capital. As per 30 June 2009, operating working capital amounted to € 610.8 million. The purchase of property, plant and equipment (€ 86.2 million) was in line with the company's investment program.
Cash flow attributable to the Group amounted to € 110.4 million.

NV Bekaert SA (statutory accounts)

The Belgium-based parent entity’s sales amounted to € 176.7 million. Operating loss for the period was € 45.6 million. Stringent cost-control measures could not compensate for the margin loss caused by extreme low activity levels and declining wire rod prices. Net loss amounted to € 37.8 million.
 
Investment update

Bekaert issued two bonds on 17 March 2009, which were fully subscribed for the total maximum amount of € 300 million at the date of the issue. The three-year and five-year bonds were each subscribed for an amount of € 150 million. The bond issue fits in with a debt-restructuring plan that aims to provide a better balance between short- and long-term debts.

OUTLOOK

In line with earlier guidance market visibility remains limited, especially in the mature markets.
At present, raw material price indices point towards stabilization, meaning no further negative margin impact is expected in the coming months. Obviously, the substantially lower raw material prices year-on-year will have a corresponding impact on Bekaert's sales for the second half of 2009.
Notwithstanding the economic circumstances, Bekaert is confident that its broad geographical coverage with a strong presence in emerging markets, as well as its growing portfolio of product innovations and strong balance sheet, will continue to be of strategic importance.

Financial calendar
Third quarter trading update 2009                 13 November 2009
2009 results                                                      26 February 2010
2009 annual report available on the internet 31 March 2010
First quarter trading update 2010                  12 May 2010
General Meeting of Shareholders                  12 May 2010
Dividend payable (coupon nr. 11)                  19 May 2010
2010 half year results                                       30 July 2010

Statement from the responsible persons
The undersigned persons state that, to the best of their knowledge:
- the condensed financial statements of NV Bekaert SA and its subsidiaries as of 30 June 2009 have been prepared
in accordance with the International Financial Reporting Standards, and give a true and fair view of the assets and
liabilities, financial position and results of the whole of the companies included in the consolidation; and
- the interim management report gives a fair overview of the information required to be included therein.
Bruno Humblet                                    Bert De Graeve
Chief Financial Officer                       Chief Executive Officer

Profile
Bekaert (www.bekaert.com) is a global technological leader in its two core competences: advanced metal transformation and advanced materials and coatings, and a market leader in drawn wire products and applications. Bekaert (Euronext Brussels: BEKB) is a global company with headquarters in Belgium, employing 23 000 people worldwide. Serving customers in 120 countries, Bekaert pursues sustainable profitable growth in all its activities and generates annual combined sales of € 4 billion.
 
Annex 1: Press release 31 July 2009

Consolidated income statement

Annex 2: Press release 31 July 2009

Consolidated statement of comprehensive income

Annex 3: Press release 31 July 2009

Consolidated balance sheet

Annex 4: Press release 31 July 2009

Consolidated statement of changes in equity

Annex 5: Press release 31 July 2009

Consolidated cash flow statement

Annex 6: Press release 31 July 2009

Additional key figures