While underlying volume demand in automotive and industrial steel wire markets remains strong, the adverse margin effect from a number of factors that have weighed on our profitability since the second half of 2017 seem to be more impactful and longer lasting than we projected. As reported before, these factors include:
- Continued volatility of wire rod prices
- The impact of changes to trade policies
- The slow recovery of Bridon-Bekaert Ropes Group
- Continued low demand for loose abrasive sawing wire
- Continued low demand in oil and gas markets due to delayed investment activity
- Inflationary costs in general
- The difficult business climate in Latin America
- The divestment of Sumaré in Brazil
The 2018 half year results will be disclosed - as planned - on 27 July 2018. From today's perspective, which is based on incomplete and preliminary financial statements, we estimate that our underlying EBIT for the first half will be about 20% below analyst expectations (as published on our website).
Moreover, the upside effects from our actions to progressively improve profitability over the course of 2018 may be mitigated or delayed due to various recent developments:
- The launch of fixed abrasive (diamond) sawing wire has been postponed as a result of recently enacted environmental regulations and audits in China. We continue to ramp up production capacity and anticipate a business start-up beginning of September 2018, two months behind schedule.
- The benefits from ongoing expansion investments in EMEA and Asia Pacific will be visible in our volumes and sales. The margin upside of the expansions will be mitigated in the 2018 results due to higher than anticipated start-up costs.
- Turning around the profitability of weaker performing businesses and other restructuring actions include measures that take time. The related business plans are in development (eg, Bridon-Bekaert Ropes Group turn-around) or in implementation (eg, Bekaert Figline Valdarno plant closure).
- Strong competitive price pressure in most markets continues to make it difficult to pass on raw material price increases without delay.
From today's perspective, we therefore believe we will not be able to achieve the same profitability level of last year for FY2018.