Vesalius Porter's Five Forces for The Company Bekaert

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Ntbal1380

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Vesalius College Brussels

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I need an analysis of the five forces of Bekaert using all the material available online. Each force should have its own paragraph, where I need to discuss how does Bekaert does in each of the five forces.

Then i need the definition of the sixth force of the model (threats of complement) and relate it to Bekaert.


i'll attach my started work and the rules for the assignments below.

if you want to correct what I have already done feel free do do it but it's not required, i'm just struggling to find the information i need to complete the second part of the assignment.


btw the teacher hates bullet points, graphs and images. He only wants text and he advised us to use the annual report of 2018 (also linked below) and the information the company provided on itself on its website.

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ANNUAL REPORT 2018 TABLE OF CONTENTS STRATEGY AND LEADERSHIP 05 07 09 10 4 Message from the Chief Executive Officer and the Chairman Board of Directors Bekaert Group Executive Our strategy STRATEGY AND LEADERSHIP INDUSTRY OFFERINGS 25 Products and applications 24 INDUSTRY OFFERINGS SEGMENT PERFORMANCE 27 29 31 33 35 26 SEGMENT PERFORMANCE EMEA North America Latin America Asia Pacific Bridon-Bekaert Ropes Group REPORT OF THE BOARD OF DIRECTORS EX ARTICLE 119 OF THE BELGIAN COMPANIES CODE 39 Key figures 41 Key figures per segment 42 Summary of financial review 47 Corporate Governance Statement 47 Board of Directors and Executive Management 53 Remuneration Report 60 Shares 64 Control and ERM 69 Sustainability 80 References OF THE BOARD 38 REPORT OF DIRECTORS FINANCIAL REVIEW 84 Consolidated financial statements 91 Notes to the consolidated financial statements 193 Parent company information 194 Auditor’s report 81 FINANCIAL REVIEW STRATEGY LEADERSHIP AND Annual Report Bekaert 2018 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER AND THE CHAIRMAN Dear Reader, From a financial performance perspective, 2018 was deeply disappointing. The results we posted in 2018 dropped far beyond our goals and reversed our successful margin improvement trend of the past years. The share price has been under continuous stress amid the long series of profit warnings by sector players in our industries and reflects both the weaker Bekaert financial performance in 2018 and rising global economic uncertainty. Despite softening GDP growth in 2018, induced by trade tensions and other political and economic uncertainties, we achieved 5% consolidated sales growth and our combined sales exceeded the € 5 billion mark for the first time in history. We haven’t been able, though, to translate this growth into incremental profit. Underlying EBIT reached € 210 million, representing a margin on sales of 4.9%, and reported EBIT was € 147 million at a margin of 3.4%, far below the levels of previous years. Some of the negatives of 2018 have been resolved or related to one-time corrections and are not expected to affect our margins in 2019. The performance of BridonBekaert Ropes Group should improve according to the profit restoration plan that has been put in place. We are resolving the start-up issues related to various major expansion programs and our results should no longer be affected by the losses generated in our sawing wire activities or by those incurred in the plants that we have closed in the course of 2018. We regret that our actions to improve our performance included decisions that affected jobs, but they were necessary to help turn the tide from here onwards. Bekaert has a strong track record of success and we want to return our business performance as quickly as possible to the positive growth path that we set out in our strategy and that we have been achieving until recently. Matthew Taylor CEO As we enter 2019, the business conditions in various sectors have begun to trend somewhat lower as a result of tighter markets and postponed investments. Given the market evolutions and the anticipated continued price pressure, we will implement improvement actions that will reduce our cost structure significantly, helping to enhance our competitiveness and improve our financial performance sustainably. We designed and implemented a new organizational structure in early March 2019. We are making those organizational changes to upgrade our capability and to take out complexity from the organization. This will enable faster decision making, more agility to respond to change, and enhanced ownership to drive performance and customer centricity. We are confident that our accelerated transformation drive and the improvement actions we are taking, will help us rebuild the underlying EBIT margin to above 7% over the medium term. We will also continue to put in place cash generation actions to reduce our net debt leverage and we intend to bring net debt on underlying EBITDA below 2.5 by the end of 2019. Bert De Graeve Chairman 5 6 Annual Report Bekaert 2018 2018 has not delivered the results you expected from us, nor the goals we set ourselves. The Board of Directors will propose to the Annual General Meeting of Shareholders of 8 May 2019, a gross dividend of 70 eurocent. In line with the company’s dividend policy, the proposed temporary dividend cut reflects the lower earnings and high debt leverage of the company. We want to thank our customers, partners and shareholders for their continued trust. And we want to thank our employees for their commitment and drive to take on the new challenges and realize our goals. After 17 years with Bekaert, of which five years in the Chair of the Board, my term will expire at the close of the Annual General Meeting of Shareholders of 8 May 2019. I would like to take this opportunity to wish the new Chairman, the entire Board of Directors, and Matthew Taylor and his team success in getting the company back on the value-driving growth path where it belongs. Matthew Taylor Chief Executive Officer Bert De Graeve Chairman of the Board of Directors Annual Report Bekaert 2018 BOARD OF DIRECTORS The main tasks of the Board of Directors are to determine the company’s general policy, to approve the strategy and to supervise activities. The Board of Directors is the company’s supreme decision-making body in all matters, other than those for which decision-making powers are reserved for the General Meeting of Shareholders by law or by the articles of association. The Board of Directors currently has 15 members. Their professional profiles cover different areas of expertise, such as law, business, industrial operations, banking & investment banking, marketing & sales, HR and consultancy. Bert De Graeve Matthew Taylor Celia Baxter Leon Bekaert Gregory Dalle Charles de Liedekerke Christophe Jacobs van Merlen Hubert Jacobs van Merlen Maxime Jadot Pamela Knapp Martina Merz Colin Smith Emilie van de Walle de Ghelcke Henri Jean Velge Mei Ye Composition of the Board Directors Bert De Graeve, Chairman Matthew Taylor, CEO Celia Baxter (1) Leon Bekaert Gregory Dalle (1) Charles de Liedekerke Christophe Jacobs van Merlen Hubert Jacobs van Merlen Maxime Jadot Pamela Knapp (1) Martina Merz (1) Colin Smith (1) Emilie van de Walle de Ghelcke Henri Jean Velge Mei Ye (1) Independent Directors Changes during 2018 On 9 May 2018, the Annual Meeting of Shareholders approved the nomination of Colin Smith for appointment as independent Director on the Board. Mr Smith replaced Alan Begg whose term of office expired and who was not seeking re-election. 7 8 Annual Report Bekaert 2018 The composition of the Board of Directors will change in 2019 The Board of Directors of NV Bekaert SA has announced, on 1 March 2019, the succession plans of its Chairman and Directors of the Board. »» Jürgen Tinggren has been nominated as next Chairman. His nomination for appointment as independent Director of the Board is subject to approval by the Annual General Meeting of Shareholders of 8 May 2019 and will, upon approval, take effect at the close of the Meeting. »» Caroline Storme has been nominated as member of the Board of Directors. Her nomination, too, is subject to approval by the Annual General meeting of Shareholders of 8 May 2019. The term of office of the Chairman of the Board, Bert De Graeve, will expire at the close of the Annual General Meeting of Shareholders of 8 May 2019. After 5 years in the Chair of the Board, Bert De Graeve seeks no re-election for a new term of 4 years. The terms of office of the Directors Leon Bekaert, Gregory Dalle, Charles de Liedekerke, Hubert Jacobs van Merlen and Maxime Jadot will also expire at the close of the Annual General Meeting of Shareholders of 8 May 2019. Gregory Dalle, Charles de Liedekerke and Hubert Jacobs van Merlen are candidates for re-election. Maxime Jadot and Leon Bekaert, both having served 25 years on the Board of Bekaert, seek no re-election. Martina Merz, independent Director of the Board, will resign on 8 May 2019, given her recent appointment as Chair of thyssenkrupp AG in addition to other mandates. The new composition of the Board will reduce from 15 to 13 members. The responsibilities and composition of the Committees of the Board will be determined and announced when the abovementioned nominations become effective. Annual Report Bekaert 2018 BEKAERT GROUP EXECUTIVE The Bekaert Group Executive assumes the operational responsibility for the company’s activities and acts under the supervision of the Board of Directors. The executive management team is chaired by Matthew Taylor, Chief Executive Officer. The composition of the Bekaert Group Executive has changed in 2018 On 1 March 2018, Jun Liao became a member of the Bekaert Group Executive and was appointed Executive Vice President – Regional Operations North Asia. On 15 November 2018, Bekaert announced the departure of Beatriz García-Cos Muntañola, Executive Vice President and Chief Financial Officer. Frank Vromant, Executive Vice-President Bekaert Americas, was appointed Chief Financial Officer ad interim with immediate effect, in addition to his executive responsibilities for the Regional Operations Latin America. After 36 years with Bekaert, and a lifelong career built on business and technology expertise, Geert Van Haver, Chief Technology Officer retired on 31 December 2018. The responsibilities of Geert Van Haver have since then been coordinated internally, with a direct reporting line to the Chief Executive Officer and since 1 March conform the new organizational structure. At the end of 2018, the Bekaert Group Executive consisted of 8 members: »» Matthew Taylor, CEO »» Rajita D’Souza, Chief HR Officer »» Lieven Larmuseau, Executive Vice President — Rubber Reinforcement »» Jun Liao, Executive Vice President — North Asia »» Curd Vandekerckhove, Executive Vice President — Global Operations »» Stijn Vanneste, Executive Vice President — EMEA, South Asia and South East Asia »» Piet Van Riet, Executive Vice President — Industrial & Specialty Products »» Frank Vromant, Chief Financial Officer and Executive Vice President — Latin America The composition of the BGE will significantly change in 2019* As announced on 1 March 2019, the composition of the Bekaert Group Executive will change according to the new organizational structure which consists of four Business Units and four Global Functional Domains. The team, led by Matthew Taylor, CEO, will focus on value growth and higher-level performance. Business Units: »» The Business Unit Rubber Reinforcement (serving industries that use tire cord, bead wire, hose reinforcement wire and conveyor belt reinforcement), will be led ad interim by Lieven Larmuseau, until the appointment of a Divisional CEO Rubber Reinforcement. »» The Business Unit Steel Wire Solutions (serving industrial, agricultural, consumer and construction markets with a broad range of steel wire products and solutions), is led by Stijn Vanneste, Divisional CEO Steel Wire Solutions. »» The Business Unit Specialty Businesses (including building products, fiber technologies, combustion technology and sawing wire) is led by Jun Liao, Divisional CEO Specialty Businesses. »» Bridon-Bekaert Ropes Group (BBRG, including the ropes and advanced cords businesses) is led by Brett Simpson, CEO of BBRG. The business units will have global P&L accountability for strategy and delivery in their distinct areas and therefore have dedicated production facilities and commercial and technology teams within their respective organization. This will help them develop a customer-centric approach aligned with the specific needs and dynamics of their markets. Global Functions: »» Frank Vromant will continue as CFO ad interim, until the new incumbent joins the company. »» Rajita D’Souza remains Chief Human Resources Officer. »» The appointment of an externally recruited Chief Strategy Officer will be announced shortly. »» Curd Vandekerckhove has been appointed Chief Operations Officer. The functions will take a role as strategic business partners, accountable for providing specific expertise and services across the Group, and ensuring the business has the right capability to deliver on short and long term goals. * More information on the BGE composition is available in the Corporate Governance Chapter. 9 10 Annual Report Bekaert 2018 OUR STRATEGY Who we are Bekaert is a world market and technology leader in steel wire transformation and coating technologies. We pursue to be the preferred supplier for our steel wire products and solutions by continuously delivering superior value to our customers worldwide. Bekaert (Euronext Brussels: BEKB) was established in 1880 and is a global company with almost 30 000 employees worldwide, headquarters in Belgium and € 5 billion in combined revenue. What we do We seek to be the best in understanding the applications for which our customers use steel wire. Knowing how our steel wire products function within our customers’ production processes and products helps us to develop and deliver the solutions that best meet their requirements and, through that, we create value for our customers. Transforming steel wire and applying unique coating technologies form our core business. Depending on our customers’ requirements, we draw wire in different diameters and strengths, even as thin as ultrafine fibers of one micron. We group the wires into cords, ropes and strands, weave or knit them into fabric, or process them into an end product. The coatings we apply reduce friction, improve corrosion resistance, or enhance adhesion with other materials. How we work better together sums up the unique cooperation within Bekaert and between Bekaert and its business partners. We create value for our customers by cocreating and delivering a quality portfolio of steel wire solutions and by offering customized services on all continents. We believe in lasting relationships with our customers, suppliers and other stakeholders, and are committed to delivering long-term value to all of them. We are convinced that the trust, integrity and irrepressibility that bring our employees worldwide together as one team also create the fundamentals of successful partnerships wherever we do business. Our strategy Continuously driving value creation for our shareholders by cost effectively creating superior value for customers is our strategy. Our vision and core strategies form the foundation of a transformation of our business towards higher level performance. Annual Report Bekaert 2018 Our Vision - Our Field of Play Consistent with our better together aspiration, we relentlessly pursue to be the preferred supplier for our steel wire products and solutions, by continuously delivering superior value to our customers around the world. Goal Statement for the Heart Goal Statement for the Head Drive value creation through a One Bekaert Team with the passion to win, operating in a no-harm-to-anyone working environment Increase: Revenue Profit ROCE Our Long Term Core Strategies Our Immediate Must Win Battles 1. 2. 3. 4. 1. 2. 3. 4. 5. Drive the customer into the heart of our business Value driven growth Technology leadership and speed Leverage scale, reduce complexity and reach lowest total cost Engage and empower people Fit for Growth Build a winning business portfolio Install manufacturing excellence Build the future for Bekaert in North America 5. Drive customer excellence Our Values We act with integrity - We earn trust - We are irrepressible! Our Vision Consistent with our better together aspiration, we relentlessly pursue being the preferred supplier for our steel wire products and solutions by continuously delivering superior value to our customers around the world. With this Vision statement, Bekaert has explicitly determined its ‘field of play’: it describes what we want to be, where we want to compete and invest, and how we want to differentiate ourselves. Our Long-term Core Strategies Our five core strategies form the basis of Bekaert’s priorities and decision-making process towards driving value and growth. These strategies put the company’s vision into practice and reflect the direction and priorities over the longer term: 1. 2. 3. 4. 5. Drive the customer into the heart of our business Value-driven growth Technology leadership and speed Leverage scale, reduce complexity and reach lowest total cost Engage and empower people To give our core strategies a much more immediate focus with dedicated resources and close progress monitoring, we also define our Must Win Battles. Must Win Battles receive a special level of attention from the entire organization and, as a result, enable the deployment of the five core strategies across teams worldwide. 11 12 Annual Report Bekaert 2018 Progress on the core strategies 1) Drive the customer into the heart of our business Bekaert has always believed in customer collaboration and co-creation as drivers of sustainable partnerships and customer satisfaction. However, we want to do better and become a truly customer-centric organization. This strategy is about gaining insight into what value means to our customers and acting on it. It is about continuously prioritizing our customers in whatever we do, at all levels and wherever in the world. In 2018, we continued to improve our customer service models. It is one of the tangible impacts of the Bekaert Customer Excellence (BCE) transformation program and helps us to obtain better customer insight and to use more enhanced tools. NPS Bekaert completed a Net Promotor Score (NPS) Survey across all businesses and on a global scale. In 2017, the first customer group covered 50% of Bekaert’s Top 80% revenue customers. In May 2018, the remaining 50% were asked to participate. It was the first time that Bekaert organized a global, full scope NPS survey. The combined score from both phases was 49, much higher than the average for international B2B manufacturing companies. The survey gauged the loyalty of customer relationships by measuring the likelihood that customers would recommend Bekaert to other companies, colleagues or business partners. ICMA Group, an independent market research agency, handled the coordination and analysis of the survey. The Net Promotor Scores for international B2B manufacturing companies usually average 20 to 30. Bekaert was very pleased with the score of 49. Furthermore, the 28% response rate, compared to a typical benchmark of 10 to 15% for online surveys, reflects the high level of commitment of our customers to work closely together as business partners. The more important results for Bekaert are those for each business activity and region, from which we can learn to better understand and improve customer relations and excellence. A new NPS survey is planned in 2019. Customer week Growing customer insight is not only relevant to our marketing & sales or business development teams. Bekaert organizes a Customer Week every year in various locations around the world. Through information sessions, workshops and customer visits, employees from all departments learned about who our customers are and how we can best serve them. In 2018 we further expanded the concept geographically. Bekaert Wire Indonesia, for instance, organized the event for the first time. Four key customers came to display the products they manufacture with Bekaert steel wire and shared information on what they find important in terms of quality and service. Meeting customers in person and learning more about their processes, products and markets, made the event a true eye-opener to our employees. 0 49 NPS -50 -100 50 100 Annual Report Bekaert 2018 Customer-centricity during the quota and tariff turmoil Continuously changing trade policy and ever higher trade barriers in 2018 have pushed the limits of what we can offer in terms of the best supply solutions for our customers in the US. As a truly global player, Bekaert worked out alternative sourcing options to serve customers in the best way possible. US tire customers in particular, appreciated the flexibility and transparency Bekaert offered in helping to reduce the impact on their business performance and continuity. Our customers also engaged in our efforts to file for exclusions on quotas and tariffs. After a process of about one year, the US Government decided, in early February 2019, to grant quarterly exclusions for steel wire rod types that are not available in the US and for which we are bound to import from suppliers abroad. This doesn’t solve the supply chain issues caused by the continuous changes in trade policy, but it offers a wider range of supply options, made possible by the efforts of an irrepressible team with the right customer-centric mindset. CANADA USA 25 % 25 RUSSIA EUROPE TURKEY 25 % 25 % % 10 % 5 % to ECUADOR 40 % INDIA CHILE 29 to 38 % % Countries relevant to Bekaert that have installed global or bilateral trade barriers against imports of steel wire rod or half products, impacting price levels and/or sourcing decisions – or with protection measures creating a rather isolated domestic supply chain (Russia). Organizational changes driving the customer into the heart of our business The new organizational set-up, as announced on 1 March 2019, will enable our teams to live a more customer-centric and performance-driven culture. With global accountability for strategy and delivery in their distinct areas, the four Bekaert Business Units will develop approaches aligned with the specific needs of their respective customers and with the dynamics and trends within their markets. The revised structure will enable faster decision-making and technology and innovation development, as well as enhanced agility to respond to change, which should benefit our customers. Bekaert India received two out of the four awards presented by Parker Hannifin India to rubber reinforcement suppliers. Bekaert won the awards ‘Outstanding Performance in Continuous Improvement’ and ‘Outstanding Performance in Delivery’. We also received a certificate of appreciation for ‘Excellence in Customer Satisfaction’. In addition, Bekaert India won, for the third consecutive year, the ‘Company of the year’ award at the TRiLA Awards (Tyre & Rubber Industry Leadership Acknowledgement), in the category ‘Reinforcement Products’. 13 14 Annual Report Bekaert 2018 2) Value driven growth In implementing this strategy, Bekaert is making a clear statement about where we want to grow and how we can provide superior value to differentiate ourselves from the competition. We have not been successful in turning our organic volume growth into incremental profit in 2018. Various factors have been weighing on our profitability, whilst the actions we undertook to offset their impact were not sufficient. We did make progress in a number of domains and will see more benefits from the actions we undertook in the years to come: »» In the past two years, we have made significant investments to expand the manufacturing capacity of our rubber reinforcement activities in EMEA and Asia Pacific. The expansion programs generated extra costs related to the hiring and training of personnel and to extensive approval procedures, with tire customers inducing quality test runs for new technologies and raw material sources. The benefits from these expansion investments in Slovakia, Romania, Russia, China and India have therefore been restricted at the profit level. We project more value creation from our investments in 2019. »» A number of loss generating and weaker performing activities have cast a shadow on the margin improvement of others. We have therefore implemented measures, in 2018, to start turning around the profitability of those businesses that have the potential to generate profitable growth, and have closed those entities without margin recovery potential. These actions include measures that will take time to deliver, but which we are convinced will improve our business portfolio. In 2019, our results will no longer be affected by the loss generation and one-off closure impacts related to the plants that have been closed in Italy and Costa Rica. »» Our actions to further increase the market penetration of more advanced products, which lower the total cost in the value chain and are more value creating for our customers and for our business, gained traction during the course of the second half of the year. This particularly applies to the ever stronger and lighter tire cord constructions that allow tire makers to produce tires with a lower weight, thinner plies, and lower rolling resistance. Ultra-tensile steel cord is less expensive than the conventional steel cord it replaces when the total cost of ownership is taken into consideration because it drastically reduces the steel cord weight and the amount of rubber required for the thinner plies. »» To enable value-driven growth, we have defined several target markets with a long-term value growth potential. We have the intention to expand our presence in these target sectors, both in existing and into new markets, and are considering partnerships that will leverage complementary technologies, combined product solutions, and extended sales channels. The goal is simple: we want to take a leading position in the winning markets of tomorrow. Value-driven growth: our strategy to shape a long-term perspective Annual Report Bekaert 2018 Examples of partnership forms »» In developing a new generation hybrid rope for special hoisting solutions, Bridon-Bekaert Ropes Group teamed up with leading producers of high modulus fibers. After successful field trials in mines all over the world, a high-strength, low-weight hybrid rope was launched at IMARC Australia in October 2018. »» IdealAlambrec, Bekaert’s subsidiary in Ecuador, has established a 50/50 joint venture with AGF Group of Canada, specialized in reinforcing steel, post-tensioning, and scaffolding & access, to combine and grow the cut and bend and installation rebar business for construction works. »» Bekaert has worked together with two leading finite element software companies to integrate the post-crack behavior of Dramix® steel fiber concrete in their software packages. Designers using the latest SCIA and ADAPT engineering and building software packages, can now integrate Dramix® steel fiber in their structural designs, giving Dramix® steel fibers more exposure as a reference solution in concrete design. »» We team up with customers and suppliers around the globe to develop, implement, upgrade and protect both current and future technologies. Listening closely to our customers and understanding how our products function within their production lines and products is key to developing value-creating solutions. Co-creation is therefore one of the most impactful partnership forms explored by Bekaert and its customers. »» Our customers in several key markets have clear ambitions in terms of improving their sustainability performance and are setting high demands across the value chain, which involves suppliers being transparent and ambitious with regards to their own sustainability performance. Bekaert too, has set clear ambitions and targets in relation to the progress we want to achieve in this domain and has made further steps in improving its own performance, as well as in engaging more suppliers in its endeavors, hereby expanding the scope thereof within our total value chain. In 2018, Bekaert received, for the second year in a row, a gold label from EcoVadis, scoring high (99th percentile) in our industry. Our GRI-based monitoring and reporting also enabled us to score above industry average in CDPs Supply Chain listing. Steadily improving our sustainability performance is one key element in helping us to attain preferred supplier status with our customers. Bekaert receives Michelin Supplier Award 2018 In November 2018, Michelin honored Bekaert with a Supplier Award, praising our commitment to building a partnership with the Michelin Group that drives greater shared benefits for the future. This award is the result of years of cooperation, continuous improvements in many areas like quality, on-time delivery, project development, innovation, strategic alignment, and the allocation of dedicated resources. It demonstrates our successful approach of bringing value to Michelin and helping them achieve success. Bekaert showcases steel wire product offering at Wire Düsseldorf Germany The Bekaert sales team met with customers and prospects from all over the world during Wire Düsseldorf 2018. Our booth showcased product designs for various sector applications, with special emphasis on the value creating properties of product innovations such as high-tensile strength products for the construction, energy, offshore and automotive industries. 15 16 Annual Report Bekaert 2018 »» In 2018, in our endeavor to create more value-driven growth, Bekaert developed a new Enterprise Performance Management (EPM) model. EPM is a set of processes and tools that will enable us to create more fact-based transparency with regards to the drivers of value creation and the root causes of performance gaps. In practice, EPM will help us be more ambitious in our target setting, and provide the tools to better understand the impact of planned and implemented improvement scenarios. EPM has been implemented in the planning process for 2019 and the longer-term strategic planning process of the Group. 3) Technology leadership and speed Our third core strategy is about accelerating Bekaert’s technology leadership and speed in alignment with our strategy to drive value-creating growth. Co-creation is one of the leading principles: we help our customers differentiate themselves in their markets. R&D in 2018 1000 cyclic corrosion tests 65 million € R&D budget 24 research partnerships 1 700 patents and patent applications Acknowledgement We wish to thank the Flemish government’s Flanders Innovation & Entrepreneurship (VLAIO) agency, as well as the Belgian federal government. Their subsidies and incentives for R&D projects involving highly educated scientific staff and researchers in Flanders are essential for maintaining a foothold for R&D activities in Belgium. Innovation in practice: continuously redeploying our core competencies In order to sustain and strengthen our technological leadership, we continue to explore new possibilities in steel wire transformation and coating technologies. Through the combination of these competencies, we influence the properties of steel such as strength, ductility, fatigue, shape, adhesion, and corrosion resistance. 54 000 fatigue tests Annual Report Bekaert 2018 Even with almost 140 years of expertise, there is still much to be discovered in our search for the optimal bulk and surface properties of steel wire. By maximizing the synergies between the competencies of our technologists and those of our research and business partners, we can make a real difference and draw infinite possibilities. Mordica Memorial Award Senior Technology Manager Walther Van Raemdonck has won the 2019 Mordica Memorial Award organized by the Wire Association International (WAI), which is seen as the wire and cable industry’s most prestigious award. The Mordica Memorial Award is presented to an individual to honor their contributions to the wire industry’s base through research, development, innovation, or other technical pursuits. The Wire Association International, Inc. is a worldwide technical society for wire and cable industry professionals that collects and shares technical, manufacturing and general business information. Intellectual Property The Intellectual Property department of Bekaert takes care of patents, designs, trademarks, domain names and trade secrets for the whole Bekaert Group, including the Bridon-Bekaert Ropes Group and the joint ventures in Brazil, through its teams in Belgium and China. It also advises on IP clauses in various agreements such as joint development agreements and licenses. Reliable IP protection policies have made Bekaert a trusted partner of customers and suppliers around the world. In 2018, we filed 31 first patent applications. At the end of 2018, the Bekaert Group had a portfolio of more than 1 700 patents and patent applications. Co-creation and open innovation Bekaert actively seeks opportunities for cooperation with strategic customers, suppliers and academic research institutes and universities. The academic partnerships particularly focus on physical metallurgy, metallic coatings and modeling. Two partnerships were added in 2018: University of Eindhoven (The Netherlands) and University of Prague (Czech Republic). University of Eindhoven (Netherlands) University of Cambridge (UK) University College Dublin (Ireland) Bekaert University Technology Centre (Ireland) University of Antwerp (Belgium) University of Leuven (Belgium) University of Ghent (Belgium) University of Brussels (Belgium) OCAS (Gent, Belgium) Flanders Make (Lommel & Leuven, Belgium) Von Karman Institute (Sint-Genesius-Rode, Belgium) CRM Group (Liège, Belgium) Fraunhofer Gesellschaft (München, Duitsland) Imperial College London (UK) University of Prague (Czech Republic) University of Lille (France) Colorado School of Mines (Golden, CO, US) CEIT (Centro de Estudios Investigaciones Técnicas, Navarra, Spain) Cenim, the National Center for Metallurgical Research (Madrid, Spain) Tsinghua University (China) University of Trnava (Slovakia) University of Zagreb (Croatia) Qingdao University of Science and Technology (China) Nanjing University (China) 17 18 Annual Report Bekaert 2018 Innovation & Venturing Bekaert’s Innovation & Venturing department discovers and transforms ideas into opportunities that bring value to our customers. The team supports the technology department and business platforms in their search for new products and solutions. In 2018, polymer & composite reinforcement and digital business models joined the existing focus areas of superconductivity and additive manufacturing. True to its name, the Innovation & Venturing department uses different operating modes to explore these areas, such as investing in venture capital, organizing innovation campaigns within the company, or participating in trials. While we have very close ongoing collaboration programs with our key customers, and display technology leadership in various domains, we haven’t been as successful as we wanted to be in speeding up the go-to-market process. We are convinced that the new organizational structure, implemented in March 2019, will enable shorter development cycles and drive faster results from new developments. Technology is a strategic differentiator for Bekaert and plays an important role in both our short- and long-term value proposition. »» In order to drive our near-term technology leadership and speed, Bekaert intends to integrate the business-relevant technological development and testing activities within the respective Business Units. This set-up would bring new technologies into the market faster because the Business Units will work with dedicated teams and will be able to set clear priorities for technology development based on the deep knowledge of their customer segments. »» Ensuring Bekaert drives evolution in its technology leadership for years to come, a central research and innovation center of expertise would remain accountable for activities that span the enterprise. This team’s main role is to safeguard consistency in driving Bekaert’s cross-unit core technology competencies, as well as to drive innovation in relevant solutions that we do not currently have in our business unit portfolios. Equipped for Excellence Bekaert’s in-house engineering department plays a key role in the optimization and standardization of our production processes and machinery. In addition to designing, manufacturing and integrating available engineering solutions, this department installs and services the critical equipment in our production plants worldwide. It co-operates with other Bekaert departments, such as technology and manufacturing excellence, and with external partners. Newly designed equipment always combines innovative solutions for performance improvements in various areas, including product quality, production excellence and flexibility, and cost efficiency. Other key elements in new machine design are safety, ergonomics and energy efficiency. The Bekaert engineering teams are located in Belgium, China, India, Slovakia, USA and Brazil. The Belgian and Chinese teams focus on the conceptual design of new equipment. The teams in China, India, Slovakia, USA and Brazil provide on-site services to the Bekaert plants worldwide. Digital business models Bekaert looks at start-up companies that offer unique solutions for challenges faced by our customers. In 2018, Bridon-Bekaert Ropes Group invested in VisionTek Engineering Srl., specialized in rope performance monitoring based on 3D measurements of ropes. By collecting and analyzing the data of installed ropes, customers will receive on-site and online recommendations related to the preventive maintenance of the rope. The aim is that they will no longer need to replace the ropes according to pre-set times, but based on a complete rope integrity and asset management model. Annual Report Bekaert 2018 Bekaert Engineering Field of Play Equipment Supplier Spare Parts Advanced Service Turn Key Solutions Engineering Solutions Bekaert’s engineering team is constantly looking for internal and external opportunities for total cost reduction. It also looks for disruptive innovative engineering solutions for new products and processes. Furthermore, Bekaert Engineering ensures assembly, installation and maintenance services, and coordinates global spare parts management. 4) Leverage scale, reduce complexity and reach lowest total cost This core strategy is designed to leverage our scale to greater effect, by reducing complexity and focusing on our opportunities and strengths with more standardization at best-in-class levels. We also want to ensure that in the process of providing the best value-creating solutions to our customers, we organize ourselves in a very cost-effective way and provide a total cost reduction through effective process and product innovations. The Bekaert Manufacturing System (BMS) helps us to make progress on this strategy. BMS is a program designed to ensure manufacturing excellence in all our processes and locations worldwide. BMS brings together the collective effort of all Bekaert plants to drive the lowest total cost offering to our customers. BMS was launched at the end of 2014 and has now been implemented in nearly all plants worldwide. Enabled by the BMS methodology and tools, our plants have identified and implemented projects to increase safety, quality and efficiency, and to reduce cost. Bekaert’s joint ventures with ArcelorMittal in Brazil and the plants belonging to the Bridon-Bekaert Ropes Group are included in the BMS implementation roadmap to enable similar benefits in their operations. 19 20 Annual Report Bekaert 2018 Bekintex team members recognize value of BMS way of working One of the final locations to implement BMS was Bekintex (Wetteren, Belgium), the facility that converts thin steel fibers into yarns and fabric. All employees were invited to a kick-off event during which the basics and benefits of the BMS methodology were explained. Operators and supervisors already noticed the value of the new way of working: “It’s easier to follow up the quality and productivity thanks to the new information tools because we all get the correct information at the same time. Teams also work better together because each member is more involved.” BMS as a catalyst for continuous performance improvement The project progress and objectives defined within BMS have now also been integrated into the yearly planning cycle of the plants, so that the continued focus and improvement remain ensured. In 2017, to keep the transformation impact of past BMS implementations sustainable, Bekaert established the Bekaert Manufacturing Academy. This program enables us to keep building our capabilities and to improve and share our standards and best practices, so that we keep evolving our way of working. In 2018, the Academy’s focus was on increasing plant productivity, standardization and adoption of 5S and on the preparation of an international group of Bekaert trainers responsible for bringing best practices to the shop floor. Tina Tang leads international BMS workshops Throughout 2018, operations managers from all over the world – including the US, Brazil, Slovakia, India and China – travelled to Belgium to attend workshops on BMS. Tina Tang, global program leader of the Bekaert Manufacturing Academy, led several of these workshops. As a Chinese national regularly commuting to Belgium and other locations, Tina is an example of Bekaert’s international career path potential. After starting as a process engineer in Belgium, she moved on to other technical and quality-related functions around the world, before becoming HR Learning & Development Manager and Global Bekaert Manufacturing System Leader based out of China. Tina’s international career has also been noticed by the magazine Engineeringnet, which included Tina’s and other expats’ stories in an article dedicated to Bekaert’s international leadership strategy. In 2018, BMS launched a new set of tools that particularly focus on quality, called ABC (Always Committed, Best Quality, Customer Delight). In addition to our continued focus on quality processes, such as effective quality controls and programs to reduce rejects and scrap, ABC targets quality improvements that will directly and visibly benefit our customers. The explicit focus on the customer brings manufacturing excellence (BMS) and customer excellence (BCE) together on the shop floor. With ABC we want to achieve a breakthrough in quality performance, durable problem solving and elimination, and a true customercentric mindset throughout our operations worldwide. In 2018, as the next step in our BMS journey, we developed a digital framework to improve shop floor excellence. Based on this framework and a pilot project, plants will be equipped from 2019 onwards with new digital tools to improve our safety, quality, cost and delivery performance. ABC Always committed Best quality Customer delight Annual Report Bekaert 2018 5) Engage and empower people The engagement and empowerment of people have been key success factors all along our transformation journey. We empower our teams with responsibility, authority and accountability, and count on the engagement of every Bekaert employee to drive a higher-level of performance. Along with the development and implementation of Bekaert’s new Enterprise Performance Management (EPM) model, Bekaert has developed a People Performance Management (PPM) program. PPM replaces the company’s Personal Development Review of the past and is our new way of looking at people performance and how we can better achieve our goals in the future. As such, PPM is part of a larger effort to become a much more performance-driven organization. Enablers for the new people performance management practice are: a clear alignment of team and individual goals with business priorities; frequent performance steering and coaching; fair recognition in line with the achieved performance; and better supporting tools that allow employees to keep track of their performance and ‘feedforward’ actions throughout the year. The program, the tools and the training materials were developed and announced in 2018, in preparation of the launch at the start of 2019. After the extended organization-wide employee survey of 2017, Bekaert conducted a follow-up survey to gauge the current employee engagement levels. The 2018 results show that sustainable engagement has further improved at Bekaert. Our employees particularly appreciated the efforts made to implement the actions defined after the initial survey. In 2019, too, there will be a company-wide employee survey. Team Venezuale: the most engaged worldwide Teams around the world stepped up their efforts to engage employees following 2017’s employee survey. Among the many initiatives, Bekaert in Venezuela introduced a recognition program and award event for the team to reward value-adding projects developed and implemented at Vicson. The results not only spoke to the head, but also to the heart. Despite the dire political situation and economic and humanitarian crisis in Venezuela, the pride and engagement of our Vicson team was clearly visible in the 2018 pulse survey results. The exceptionally high engagement score (98%) shows that employees feel respected and listened to. Moreover, they highlight the sense of personal accomplishment they gain from working at Bekaert. In fact, all questions in the survey received top scores, marking our team in Venezuela as most engaged of all Bekaert locations worldwide! PPM People Performance Management 21 22 Annual Report Bekaert 2018 Prodalam and Inchalam win Chilean industry awards The Training Management Group (OTIC) of Chile’s Association of Metallurgic and Metalworking Industries (ASIMET) has awarded two of Bekaert’s Chilean entities: Prodalam with the ‘Commitment to Employees award’ and Inchalam with the ‘Commitment to Training’ award. Prodalam was given the award for the training initiatives that took place during 2018. They include the creation of training curriculums for each job family and the alliance with one of the most recognized providers of online training in the country. This ensured that all 648 employees distributed along the 4 300 kilometres of Chile have the same opportunity of receiving high quality education to improve their performance and grow within the local organization and within Bekaert. Inchalam received the award for its commitment to continuous development through training skills and competencies, completing a total of 22 929 hours of effective training during 2018. This made Inchalam a great reference in relation to people management practices in the region. In addition to the Commitment with Employees and Training awards, Inchalam won the Best Innovation Management trophy, rewarding the company for its continuous search for excellence through innovation management and the participation of its members in initiatives of transformation in innovation. As a Corporate Socially Responsible company, engagement is the keyword when it comes to Sustainability. A summary of our 2018-2019 sustainability report is included in the Report of the Board of Directors. Our sustainability efforts and activities are focused in such a way that balanced consideration is given to the interests of all respective stakeholders, including employees, customers, shareholders, partners, local governments and communities. To underscore our engagement and commitment to drive progress in this field, we have defined an ambition and a set of clear short- and long-term targets for each of the key pillars of sustainability. better together, the movie At Bekaert, we believe in working together to achieve better performance. Our teams show the way! All actors in the better together video are Bekaert colleagues. This video, which was produced in 2018, involves team members of eight nationalities from our manufacturing locations in Chile, Slovakia, China and Belgium. Annual Report Bekaert 2018 23 INDUSTRY OFFERINGS Annual Report Bekaert 2018 Bekaert has a strong presence in diverse sectors. This makes us less sensitive to sector-specific trends and it also benefits our customers, because solutions we develop for customers in one sector often form the basis of innovations in others. Bekaert serves customers across a multitude of sectors with a unique portfolio of drawn steel wire products, coated to optimally suit the application needs. Bekaert steel wire is used in cars and trucks, in elevators and mines, in tunnels and bridges, at home and in the office, and in machines and offshore. If it drives, ascends, hoists, filters, reinforces, fences or fastens, there is a good chance Bekaert is inside. 6% 45 AUTOMOTIVE 21 CONSTRUCTION % 6% 7% % 45% 8% 7% 21% More information on bekaert.com 8% AGRICULTURE 7% ENERGY & UTILITIES 7% CONSUMER GOODS 6% BASIC MATERIALS 6% EQUIPMENT 25 SEGMENT PERFORMANCE Annual Report Bekaert 2018 EMEA Economic Environment in 2018 After enjoying a period of strong economic growth, economic activity in Europe slowed in the second half of 2018. Lingering concerns about the impact of Brexit and the slow nature of the process, disruptions to car production due to changes in emission test norms, social unrest in various countries and global trade policy uncertainty were the main causes of this. For the whole of 2018, this resulted in GDP growth of 1.8% in the Euro Area, significantly lower than last year’s 2.4%. Growth in Central and Eastern Europe remained strong, but nonetheless decreased compared to 2017. EMEA 2018 Combined sales by industry 9% 5% 23% 10% Following four years of sales growth, the car industry faced a downturn in 2018, mainly due to the introduction of a new testing procedure, WLTP, and postponed or cancelled investments amid Brexit uncertainty. In contrast, the construction markets posted healthy growth throughout the year, both in the residential and non-residential markets in Western Europe and due to civil infrastructure projects in Central Europe. Bekaert has a presence in both the Western European and Central & Eastern European markets. In Europe, we offer a quality portfolio of steel wire products for sectors that are in search of innovative, high-end products and solutions. Our Activity performance Bekaert’s activities in EMEA achieved almost 5% sales growth in 2018, driven by the aggregate effect of passed-on wire rod price increases and price mix (+6.8%), a small organic volume decline (-0.9%) and the divestment effect of the Solaronics business (-0.9%). Demand from the automotive and construction markets was strong throughout the year, while demand for industrial, specialty, and stainless products softened in the second half of the year. Underlying EBIT was € 114 million at a margin of 8.5%. The margin performance was lower due to higher than anticipated start-up costs in plants with major expansion programs in Central Europe, and increased price pressure in several markets, particularly those where we compete with integrated players. Reported EBIT dropped to 5.5% as a result of the one-off impact of the closure of the Figline plant in Italy (€ -40 million), thereby reflecting the operational losses incurred since the announcement of the closure, the impairment losses of the site’s assets and the expenses accrued for the closure. Capital expenditure (PP&E) amounted to € 67 million and included, amongst other things, capacity expansions in Romania, Slovakia and Russia. 53% Automotive Energy & Utilities Construction Consumer goods Other Combined sales € 1 322 million Capital expenditures (PP&E) € 67 million Total assets € 973 million Employees 7 895 27 28 Annual Report Bekaert 2018 Getting prepared for Brexit One of the first and tangible effects of an eventual Brexit will be the logistical and administrative impact at the borders. In 2018, we investigated the potential impact of a No Deal Brexit on our business and customer service relations. The scope of inbound and outbound transport flows between the EU and UK is relatively limited for us (less than 4% of consolidated sales). Nevertheless, we have worked closely together with customers and suppliers to determine and take various proactive measures for contingencies, including consignment stocks, the timely application for customs licenses and the certificate of Authorized Economic Operator, and the consideration of alternative transport routes in case of long delays at the currently most used border crossing points. Drying business becomes part of Argynnis Group AB Bekaert reached an agreement with Argynnis Group AB of Sweden regarding the sale of all shares in Solaronics SA. The transaction covers the production facility in Armentières (France) and an international sales & services network. An in-depth analysis showed that the further growth potential of the drying business of Bekaert Combustion Technologies would be best secured by entrusting its future potential to an organization that combines the competences of two complementary industry players. People management in Slovakia Slovakia has witnessed significant economic growth over recent years, driven by intensive investments by automotive companies in the west and central region of the country. As a result, the unemployment rate in the Trnava/Nitra region (where both Bekaert plants are located) has dropped below 2%. Bekaert, too, invested in capacity expansions and in recruiting and training new colleagues. The HR team focused intensively on finding the right people in an extremely tight labor market, while not losing sight of retaining and further engaging our current workforce. Thanks to these efforts, Bekaert performed better than many other companies in the region who struggled with people turnover rates of more than 25%. It has been very difficult, though, to fully benefit from our hiring and training efforts, as the people turnover rates are still particularly high during the first year of employment. In the summer of 2018, the HR team decided to take a new approach to find more stable solutions. Alongside local recruitment, Bekaert now works with specialized agencies to hire from abroad. Over the last months, we have hired and trained more than 100 Serbian and more than 20 Ukrainian employees to complement our Slovak work force and we are actively taking care of creating a cultural blend that benefits the spirit in the plants. So far, the integration efforts have been successful and the people retention rate has become more stable than before. Our recruitment and engagement actions continue as they are critical in leveraging the benefits of our investments and training activities so we can achieve our goals and continued growth ambitions. Annual Report Bekaert 2018 NORTH AMERICA Economic Environment in 2018 The US economy grew about +3% in 2018, reflecting the positive impact of tax reforms and continued strong demand. The unemployment rate fell to its lowest level since 1969. New protectionist policies that have raised tariffs and disrupted the established manufacturing supply chains started to progressively impact consumer prices and investment decisions during the course of the year. While the US car market showed little more than flat growth in 2018, domestic tire production rebounded firmly. The replacement market for car tires, for instance, increased by more than 3%. The massive damage to the power infrastructure due to the many wildfires, hurricanes, and floods in the US in 2018, led to more activity and demand in energy related markets. Demand from the agricultural markets, on the other hand, has been weak for the second consecutive year. North America 2018 Combined sales by industry 10% 18% 8% 13% 51% Our Activity performance In 2018, Bekaert’s activities in North America achieved +12% sales growth. The organic sales growth accounted for +16.4% and stemmed from improved volumes (+5.7%) and passed-on higher wire rod prices and other price-mix effects (+10.6%). The adverse currency impact for the year tempered to -4.4% due to the appreciation of the US$ in the last quarter of 2018. Automotive demand remained strong throughout the year. The industrial steel wire and agricultural fencing markets were affected by increased price pressure and by the usual seasonal effects in the second half of the year. Bekaert’s rubber reinforcement activities in the US recorded solid growth. The margins were, however, affected by supply chain issues caused by the continuous changes in trade policy, including quota restrictions and tariffs. The rubber reinforcement activities in the US use imported wire rod because the qualities needed to produce the related products are not available in the country. After reaching the volume quota limit on imports from Brazil at the end of July, the cost of imported wire rod increased by 50% as from August onwards. This cost increase reflected the aggregate impact of import duties and anti-dumping tariffs as well as wire rod price evolutions and additional logistics costs related to the imports from other continents. Efforts were made to pass on the steep wire rod price increases to our customers and to create a more balanced offering of domestically produced and imported tire cord from our manufacturing plants abroad. In other steel wire markets, the average price of domestic wire rod increased about 30% compared with last year. Passing on the full price impact to our customers was not possible as we compete with import flows and integrated players (downstream integrated steel mills) there. The margins were, moreover, affected by continued weak demand in agricultural markets. Automotive Agriculture Construction Energy & Utilities Other Combined sales € 618 million Capital expenditures (PP&E) € 18 million Total assets € 367 million Employees 1 411 29 30 Annual Report Bekaert 2018 Both the underlying and reported EBIT amounted to € 25 million at a margin of 4%. Capital expenditure (PP&E) was € 18 million in North America. Bekaert Shelbyville adds glued Dramix® fibers to the mix In response to US policy encouraging federal agencies to buy American-made products, Bekaert has started producing glued Dramix® steel fibers for concrete reinforcement in Shelbyville (Kentucky, US). Customer quality improvement program kicks off in the US The ABC Quality module of the Bekaert Manufacturing System (BMS) program focuses on quality efforts and the role everybody can play in ensuring and providing the highest level of quality and service to our customers. ABC (Always Committed, Best Quality, Customer Delight) wants to achieve a breakthrough in quality performance, durable problem solving and elimination, and a true customer-centric mindset throughout our operations worldwide. The kick-off of ABC in the US took place in the Van Buren plant in Arkansas and was soon followed by an intensive session with the enthusiastic team of the Orrville plant in Ohio. ABC requires the engagement and commitment of all plant team members and is being deployed worldwide with the help of experienced change agents, effective tools, and highly interactive training sessions. Annual Report Bekaert 2018 31 LATIN AMERICA Economic Environment in 2018 Latin America’s bumpy economic recovery has continued to deliver limited growth in 2018, overall. Weaker global trade, an intensive election cycle across the continent, tighter global financial conditions, the continued impact of widespread corruption cases on infrastructure spending, and volatile commodity prices caused the recovery to flounder. Argentina’s economy deteriorated significantly in August amid a renewed currency crisis and deepening recession. In Brazil, the economic sentiment continued its upward trend, but the recovery is still fragile. In Latin America, Bekaert manufactures an extensive product portfolio to serve construction, mining, agriculture and a wide range of industrial and consumer markets across the region. Bekaert has wholly owned and majority owned subsidiaries in Ecuador, Colombia, Costa Rica, Venezuela, Peru, and Chile, and runs joint ventures in Brazil in a 45/55 partnership with ArcelorMittal. Latin America 2018 Combined sales by industry 17% 34% 16% 11% Bekaert’s activities in Latin America go back to 1950. Today, they represent almost 30% of combined sales. 22% Automotive Agriculture Construction Consumer goods Our Activity performance Other In Latin America, consolidated sales were up +2.7% from last year. Passed-on higher wire rod prices and other price-mix enhancements contributed +14.3% to the organic revenue growth. An overall weak economic environment in the region drove demand for our products down, resulting in an organic volume loss of -1.8% for the year. Consolidated sales were adversely impacted by the disposal effect (-6.1%) of the Sumaré integration within the JV partnership with ArcelorMittal since 1 July 2017, and by adverse currency movements (-3.7%). Excluding currency effects, royalties from Brazilian joint ventures, and one-time elements, the underlying EBIT of our operations in Latin America slightly improved compared with last year. Including all elements, underlying EBIT decreased. This is mainly due to the lower positive net effect of one-time items in 2018 compared with 2017. Last year’s records included the effect of the cancellation of the obligations under an onerous supply contract (€ +10 million) and the disposal effect of Sumaré (€ +12 million). The one-time element in 2018 regarded a change in a long-term benefit plan in Ecuador (€ +3.7 million). Royalties from the Brazilian joint ventures were higher in 2018, compared with last year (€ +5.4 million), while currency effects on underlying EBIT were € -1.9 million negative, year-on-year. Including all elements, underlying EBIT decreased to € 43 million, reflecting a margin of 6.2%. Reported EBIT was significantly lower than last year: in 2017 the gain on the sale of 55.5% of the shares in the Sumaré plant in Brazil was included whereas in 2018 we incurred one-off expenses related to the closure of the Dramix® plant in Costa Rica. Combined sales € 1 474 million Consolidated sales € 692 million Capital expenditures Total assets Employees (*) (*) € 18 million € 477 million 6 595 (*) Consolidated entries 32 Annual Report Bekaert 2018 Bekaert invested almost € 18 million in property, plant and equipment across the region, particularly in Chile. Bekaert’s combined sales increase in Latin America (+5.7%) was from strong organic growth (+15.7%), largely offset by the translation impact of currency movements (-9.9%) which was mainly driven by the depreciation of the Brazilian Real compared with last year (-19.4% compared with the average rate of 2017). Poised to seize opportunities in Perus The largest corruption investigation in Latin America’s history — revolving partly around bribes paid by the Brazilian construction giant Odebrecht to secure government contracts — has, over the past few years, spread across the region. After Brazil, no other country has felt the stinging impact of the scandal more than Peru. All major construction projects in the country have been put on hold for years because several decision makers in the highest ranks of the country’s political class have been implicated. Prodac, Bekaert’s steel wire plant in Peru, has been working hard to offset the negative impact of decreased volumes in construction markets. It is doing so, not only by rightsizing its operations to the new reality, but also by developing and implementing concrete lines of actions to grow positions in existing and target markets. With the help of BCE (Bekaert Customer Excellence) knowledge and tools, Prodac’s satellites Prodimin (mining markets) and Prodicom (wholesale activity) have each set out a distinct market approach to grow their business potential. A number of public infrastructure projects have been reactivated recently in the country, and Prodac is seizing the opportunities that those create. These include, among others, the construction works related to the preparations for the Pan American Games in Lima in 2019, the construction of the new international airport in Lima, and the Pisco port expansion. Metro project in Ecuador In July 2019, the first metro line in Quito will be put into operation. Construction of the metro line began in January 2016 and was long delayed due to archaeological remains found in the neighborhood of the historic center, a UNESCO World Heritage Site. The line extends over a distance of 22 kilometers and will connect Quitumbe (south Quito) with El Labrador (north Quito). Ideal Alambrec, Bekaert’s entity in Ecuador, supplied Dramix® steel fibers for concrete reinforcement in cooperation with Bekaert-Maccaferri Underground Solutions, and provided technical sales support to the contractors. Annual Report Bekaert 2018 ASIA PACIFIC Economic Environment in 2018 China’s economy grew at the slowest rate since 1990, coming in at 6.6%. Trade tensions with the US weighed on export opportunities and industrial output growth. The tire market in China grew about 2% in 2018 but tailed off towards the end of the year. India confirmed its strong growth potential with an estimated GDP growth of 7.3%, compared to 6.7% in 2017, nearly closing the gap on the UK to become the world’s fifth-biggest economy. Asia Pacific 2018 Combined sales by industry 7% 4% 4% 5% Indonesia’s economy, the largest in Southeast Asia, continued to grow at a stable rate by reaching an estimated 5%. Investments in Indonesia, however, slowed down somewhat during the course of the year. Bekaert is present in Asia with manufacturing sites and development centers in China, India, Indonesia, Malaysia and Japan. Bekaert will start a greenfield investment in Quang Ngai Province in the central coastal area of Vietnam. The construction works will start during the course of the second quarter of 2019. The plant will produce rubber reinforcement products and serve customers worldwide. 80% Automotive Energy & Utilities Construction Equipment Our Activity performance Bekaert delivered +7.7% organic sales growth in Asia Pacific, driven by good volume growth (+5.7%) and the positive aggregate effect of passed-on wire rod price increases and price-mix (+2%). The robust growth of rubber reinforcement activities across the region was partly offset by weaker volumes in other sectors, among which the sawing wire activities in China and the steel wire activities in Malaysia. Adverse currency effects (-3.1%) drove top line growth down to +4.6%. Underlying EBIT decreased to € 86 million at a margin of 7.2%. The margin decrease was the result of loss-making sawing wire activities (€ -9 million compared with € +21 million last year), the weak performance of our activities in Malaysia, and high start-up costs related to the expansion program in India. The rubber reinforcement business progressively improved the margin performance in the second half of the year, particularly in China and in India. This trend is visible in the segment’s underlying EBIT for the second half. Reported EBIT dropped to € 54 million due to the impairment of tangible and intangible assets related to sawing wire in China and the restructuring costs in Ipoh (Malaysia), which were partly offset by gains from the sale of land and buildings following the closures of the plants in Huizhou (China) and Shah Alam (Malaysia). In anticipation of continued growth perspectives, Bekaert invested € 85 million in PP&E in the region in 2018, including expansion investments in China, India and Indonesia. Other Combined sales € 1 197 million Capital expenditures (PP&E) € 85 million Total assets € 1 175 million Employees 10 912 33 34 Annual Report Bekaert 2018 The 2018 edition of the Global Tire Tech Forum organized by the China Tire Industry Association (CRIA) was held in Hefei City, Anhui Province. More than 260 international and Chinese representatives from all players in the tire supply chain participated in the event. Bekaert was invited to give a key note speech on super tensile/ultra tensile steel cord developments supporting the reduction of tire weight and rolling resistance. The event was a perfect opportunity to meet up with industry peers and customers interested in value creating solutions for the tire industry. Bert De Graeve meets Chinese Premier Li Keqiang in Brussels In October 2018, Bert De Graeve, Chairman of Bekaert, and a select group of business and political leaders met Chinese Premier Li Keqiang during the Asia-Europe meeting in Brussels (Belgium). Gearing up for growth in India India has become the world’s fourth largest automobile market and continues to grow at a fast pace: the Indian tire industry expanded by 6% compared with 2017, mainly driven by increased radialization (up 10% in commercial vehicle markets). As the only domestic steel cord producer in the country, Bekaert anticipated the current and future growth and therefore invested significantly in the course of 2017-2018. We invested in both half-product capacity (previously sourced from Bekaert China) and end-product capacity to accommodate the increasing demand from tire customers in the country. Having a fully integrated production process enhances business continuity in times of trade uncertainties between countries. It also puts us in a position to offer speed and flexibility in supporting the evolving needs of the customers. Our team in India had to deal with new challenges such as consistent quality and supply reliability of local wire rod because the Indian steel mills were not used to producing the grades or volumes needed. It took some time to ensure stability in the supply process. The team is currently working very closely with the suppliers to co-create a supply excellence model that will benefit the entire supply chain. We are growing in other sectors as well, with more Dramix® capacity to serve local and export construction markets, and newly added products to the portfolio to serve the agricultural markets in India. Steel Cord 3+9+15x0.22+1 Dramix® 3D Fibre Fixed Knot Fence Clutch Spring Wire Thin Fibres 35 Annual Report Bekaert 2018 BRIDON-BEKAERT ROPES GROUP Economic Environment in 2018 2018 saw continued challenging market dynamics in BBRG’s core ropes sectors. While the oil price showed signs of recovery in 2018, the main oil extraction companies remained in balance sheet repair mode, which impacted both the volume and margin opportunity. Mining markets showed an upward trajectory, though still limited, with a small number of greenfield and brownfield developments. Industrial markets saw low single-digit growth in an increasingly challenging competitive environment. The advanced cords business, serving various sectors including the automotive, construction, and equipment markets, continued to benefit from solid demand and market positions. Bridon-Bekaert Ropes Group 2018 Bridon-Bekaert Group 2018 Combined sales byRopes industry Combined sales by industry 14% 19% 9% 27% 32% Our Activity performance Bridon-Bekaert Ropes Group (BBRG) achieved 5.5% organic sales growth, part of which was compensated by the impact of adverse currency movements (-3.7%) on the topline. Organic growth accelerated in the second half of 2018 (+8.4%) compared with the limited growth in the first half of the year (+2.7%) and was mainly driven by a positive price-mix evolution. Underlying EBIT was € -6.9 million for the year due to significant one-time adjustments without cash impact (including pension plan adjustments and obsolete stock write-offs) totaling € -13.7 million. Excluding these adjustments, underlying EBIT would have reached € 6.8 million (€ +1.8 million in the first half of 2018 and € +5 million in the second half). Reported EBIT was € -20 million and included the impacts of one-off elements related to the restructuring in Brazil (€ -7 million) and other measures to turn around the business (€ -6 million). In 2018, BBRG invested € 19 million in PP&E, about half of which in support of growing the advanced cords facilities in Belgium and China, and the other half in the ropes manufacturing sites worldwide. Brett Simpson, Chief Executive Officer of Bridon-Bekaert Ropes Group, joined the company in September 2018 to take over the helm and lead the business forward. Brett Simpson, Australian, has significant business experience and expertise in leading and improving international businesses. In October 2018 Bekaert completed the refinancing of the outstanding debt incurred by Bridon-Bekaert Ropes Group (BBRG) and the transaction related to the acquisition of the 33% equity share previously held by Ontario Teachers’ in BBRG. Taking full control of BBRG will allow the business to accelerate the turnaround efforts and achieve its full potential. Equipment Energy & Utilities Construction Basic Materials Other Combined sales € 463 million Capital expenditures (PP&E) € 19 million Total assets € 561 million Employees 2 593 36 Annual Report Bekaert 2018 Bridon-Bekaert and Applied Fiber bring terminated synthetic rope solutions to market Bridon-Bekaert Ropes Group (BBRG) and Applied Fiber have agreed in 2018 to combine their expertise to develop and bring to market advanced solutions that improve efficiency and safety in heavy industrial operations. Applied Fiber is a global leader for terminated synthetic fiber tension systems. By providing terminated fiber rope solutions for high impact and performance-driven applications, BBRG complements its existing steel, synthetic and hybrid rope solutions. BBRG launches A-Cords at World Elevator Expo in Shanghai (China) BBRG successfully introduced its premium brand A-Cords during the World Elevator Expo in Shanghai (China). To show the effectiveness of its products, all showcases were suspended with Flexisteel® cords. The exhibit illustrated BBRG range of expertise, going from traditional elevator ropes, over high tensile steel wire Flexisteel® for roomless elevators, to fine cords for belts. A virtual 360° tour brought the customers into the heart of our manufacturing and technology facilities. Annual Report Bekaert 2018 In line with the organizational changes implemented on 1 March 2019, Bekaert’s segment reporting will be changed in 2019. The new segmentation will drive transparency into the business dynamics of each reporting unit and replace the previous geographic segmentation, to which Bridon-Bekaert Ropes Group had been added as a separate reporting segment. The Group’s business units (BU) are characterized by BU-specific product and market profiles, industry trends, cost drivers, and technology needs tailored to specific industry requirements. The new reporting segments will be: - Rubber Reinforcement This Business Unit serves industries that use tire cord, bead wire, hose reinforcement wire and conveyor belt reinforcement. - Steel Wire Solutions This Business Unit serves industrial, agricultural, consumer and construction markets with a broad range of steel wire products and solutions. - Specialty Businesses This Business Unit includes building products, fiber technologies, combustion technology and sawing wire. - Bridon-Bekaert Ropes Group (BBRG) BBRG includes the ropes and advanced cords businesses. 37 REPORT THE BOARD OF Annual Report Bekaert 2018 KEY FIGURES Consolidated sales in millions of € 5 000 4 000 3 000 4 808 298 29 313 5 074 226 29 406 +5.5% -24.2% +0.3% 2 000 1 000 0 Consolidated financial statements in millions of € 2017 2018 Delta 4 098 318 301 -93 -69 27 183 185 -2 497 192 - 4 305 147 210 -111 -58 25 3 40 -37 426 197 42 5.1% -53.8% -30.2% 18.6% -15.6% -7.4% -98.5% -78.5% -14.3% 2.9% - 4 305 Delta 4 098 2018 3 715 Sales Capital expenditure (PP&E) Employees as at 31 December 2017 3 671 in millions of € 3 216 Combined key figures 2014 2015 2016 2017 2018 Income statement Sales EBIT EBIT-underlying Interests and other financial results Income taxes Group share joint ventures Result for the period attributable to equity holders of Bekaert attributable to non-controlling interests EBITDA-underlying Depreciation PP&E Amortization and impairment EBIT on sales in % 10 6.3 6 Balance sheet Equity Non-current assets Capital expenditure (PP&E) Balance sheet total Net debt Capital employed Working capital Employees as at 31 December 1 583 2 124 273 4 445 1 151 2 664 888 25 784 1 516 2 050 198 4 449 1 153 2 598 875 25 915 12.4% 12.1% 7.8% 7.3% 4.0 11.2% 11.5% 35.6% 72.7% 2.3 9.0% 9.9% 3.4% 4.9% 1.8 8.0% 0.2% 34.1% 76.0% 3.0 -4.2% -3.5% -27.3% 0.1% 0.2% -2.5% -1.5% 0.5% 5.3 7.8 7.3 7.0 4.9 6.0 5.1 4 3.4 2 0 2014 Ratios EBITDA on sales Underlying EBITDA on sales EBIT on sales Underlying EBIT on sales EBIT interest coverage ROCE underlying ROE Financial autonomy Gearing (net debt on equity) Net debt on EBITDA 8.2 8 2015 2016 2017 Reported 2018 Underlying Gross dividend(1) in € 1.50 Joint ventures and associates 769 84 66 28 18 3 491 25 154 8.3% 26.3% -7.3% 8.7% -8.3% -1.1% -7.4% -7.1% 1.00 0.50 0 (1) 0.70 710 66 71 26 20 3 529 27 165 1.10 Delta 1.10 2018 0.90 Sales Operating result Net result Capital expenditure (PP&E) Depreciation Employees as at 31 December Group's share net result Group's share equity 2017 0.85 in millions of € 2014 2015 2016 2017 2018 The dividend is subject to approval by the General Meeting of Shareholders 2019 39 40 Annual Report Bekaert 2018 Key figures per share NV Bekaert SA Consolidated sales by segment 2017 2018 Delta Number of shares as at 31 December 60 373 841 60 408 441 Market capitalization as at 31 December (in millions of €) 2 200 1 272 +0.1% -42.2% Per share in € 2017 2018 Delta EPS 3.26 1.10 0.77 0.70 0.70 0.49 -78.4% -36.4% -36.4% 2017 2018 Delta 36.45 42.05 21.06 28.21 -42.2% -32.9% Gross dividend* Net dividend** Valorization in € Price as at 31 December Price (average) * Subject to approval by the General Meeting of Shareholders 2019 ** Subject to the applicable tax legislation 11% 31% 14% 16% 28% EMEA Asia Pacific Latin America North America BBRG Annual Report Bekaert 2018 SALES KEY FIGURES PER SEGMENT in millions of € 1 200 North America 12% 1 335 150 Latijns-Amerika omzet 2014 2015 2016 2017 2018 0 in miljoen € 1600 782 721 400 692 Asia Pacific sales 673 29% 800 638 6.2% 8.7% 12.9% 682 8.2% 11.1% 14.8% 1 200 688 2018 712 2017 2014 2015 2016 2017 2018 0 in millions of € Geconsolideerd BBRG 400 BBRG omzet 500 Underlying 2017 2018 EBIT on sales EBITDA on sales ROCE 3.3% 9.0% 3.1% -1.5% 4.8% -1.5% 9% 2014 2015 2016 2017 2018 in miljoen € 0 1 197 24% 800 Consolidated companies Joint ventures and associates 375 250 125 0 463 7.2% 15.3% 8.7% 1 144 9.3% 17.1% 10.9% ondernemingen 454 2018 1 052 2017 Joint ventures en geassocieerde 49 48 1200 Asia Pacific € 1 197 million Combined sales Bridon-Bekaert Ropes Group € 463 million Combined sales 300 618 4.0% 6.2% 10.8% 552 6.0% 8.5% 14.9% 450 320 EBIT on sales EBITDA on sales ROCE 2018 512 2018 Asia Pacific Underlying 2017 1 019 Latin America € 1 474 million Combined sales 2016 528 2017 Latin America EBIT on sales EBITDA on sales ROCE 2015 600 North America € 618 million Combined sales Underlying 2014 0 in miljoen € 239 EBIT on sales EBITDA on sales ROCE Noord-Amerika sales 555 Underlying 400 1 273 26% 800 1 148 8.5% 13.7% 16.8% 1 174 11.1% 15.9% 20.8% 791 EMEA € 1 322 million Combined sales 2018 631 EBIT on sales EBITDA on sales ROCE 2017 966 Underlying 1 064 EMEA 2015 2016 2017 2018 Consolidated companies Joint ventures and associates 41 42 Annual Report Bekaert 2018 SUMMARY OF FINANCIAL REVIEW Notes Besides IFRS accounts, Bekaert also presents the key underlying business performance parameters of profitability and cash generation, to provide a more consistent and comparable view on the Group’s financial performance. These underlying business performance indicators adjust the IFRS figures for the one-off accounting impacts of restructuring costs, provisions for environmental sanitization programs, asset impairments, M&A related fees, and other such non-recurring items that would distort the analysis of the Group’s underlying Business performance. ‘REBIT’ and ‘REBITDA’ - reflecting the ‘recurring’ or ‘underlying’ business performance - are now named(1) EBIT-Underlying and EBITDA-Underlying respectively. EBIT and EBITDA according to IFRS are referred-to as such or as EBIT-reported and EBITDA-reported when specification adds clarity. Underlying EBIT bridge Bekaert’s underlying EBIT was € 210 million, reflecting a margin of 4.9%. The main factors preventing us from turning improved volumes (contributing € +33 million to underlying EBIT) into incremental profitability were the adverse effect of the sawing wire business decline (decrease of € -30 million versus last year), significant one-time BBRG (€ -14 million) clarifying most of the earnings decline of the segment (down € -22 million from last year), and an aggregate € -36 million reflecting the pass-through effectiveness of increased wire rod prices, inventory valuation effects, and price erosion. The incremental cost savings from transformation programs could not offset the overall cost increases from high start-up costs in plants with expansion programs and inflation. The net effect of divestments (€ -15 million) and adverse currency effects (€ -6 million) added to the underlying EBIT decrease year-on-year. Sales and financial review Sales Bekaert achieved consolidated sales of € 4.3 billion in 2018, an increase of +5.1% compared with last year. The organic volume growth (+2.2%) and the aggregate effect of passed-on higher wire rod prices and price-mix (+6.6%) accounted for an organic sales growth of +8.9%. This was partially offset by the effect of divestments (-1.3%) and adverse currency movements 1 Definitions of financial parameters are described in the Financial Review of this Annual Report. (-2.5%). Combined sales totaled € 5.1 billion for the year, up +5.5% from 2017 as a result of strong organic sales growth (+10.3%), adverse currency movements (-4.5%) and a limited effect of divestments (-0.2%). Dividend The Board of Directors will propose to the Annual General Meeting of Shareholders of 8 May 2019, a gross dividend of 70 eurocent. In line with the company’s dividend policy, the proposed temporary dividend cut is reflecting the lower earnings and high debt leverage of the company. The dividend will, upon approval by the General Meeting of Shareholders, become payable as of 13 May 2019. Financial results Bekaert achieved an operating result (EBIT-Underlying) of € 210 million (versus € 301 million in 2017). This equates to a margin on sales of 4.9% (versus 7.3% in 2017). The one-offs amounted to € -63 million (€ +17 million in 2017) and included impairment and lay-off costs related to various restructuring programs and plant closures as well as to other asset impairments and write-offs. Including these one-offs, EBIT was € 147 million, representing an EBIT margin on sales of 3.4% (versus € 318 million or 7.8%). Underlying EBITDA was € 426 million (9.9% margin) compared with € 497 million (12.1%) and EBITDA reached € 387 million, or an EBITDA margin on sales of 9.0% (versus 12.4%). Overhead expenses (underlying) decreased by € -13 million to 9.1% as a percentage of sales (versus 9.9% in 2017). Selling expenses were stable. The administrative expenses decreased by € -13 million (underlying) due to a lower variable remuneration and favorable currency effects. The reported administrative expenses included € -18 million one-off elements related to the closure of the plant in Figline (Italy), other lay-off expenses and various corrective actions in BBRG. The research and development expenses amounted to € 65 million, about stable from last year. Underlying other operating revenues and expenses (€ +16 million versus € +1 million last year) mainly reflected an increase of royalty payments received from the Brazilian joint ventures and the positive impact from pension plan adjustments in Latin America. Reported other operating revenues and expenses (€ +33 million) included the gain on the sale of land and buildings related to the plants closed in Huizhou (China) and Shah Alam (Malaysia). Annual Report Bekaert 2018 Interest income and expenses amounted to € -85 million, slightly lower than last year (€ -87 million). The lower interest expenses from the debt refinancing of BBRG were largely offset by increased interests from a higher average gross debt. Other financial income and expenses amounted to € -26 million (versus € -6 million last year) due to the amortized cost impact of the BBRG debt refinancing (including bank charges and fees on the repayment of the previous loans) and fees related to the buy-out of OTPP. Income taxes decreased from € -69 million to € -58 million due to lower profitability in various tax paying entities. As the combination of loss making entities only provided an immaterial tax offset to the tax expense incurred by the combination of profit making entities, the overall effective tax rate was 161%. The share in the result of joint ventures and associated companies was € +25 million (versus € +27 million last year) due to the significantly weaker Brazilian real (-19.4% compared with the average rate of 2017). The result for the period thus totaled € 3 million, compared with € 183 million in 2017. The result attributable to non-controlling interests was € -37 million (versus € -2 million) and mainly reflected the net loss representation of BBRG as non-controlling interest until the end of October of 2018. After non-controlling interests, the result for the period attributable to equity holders of Bekaert was € +40 million, compared with € +185 million last year. Earnings per share amounted to € 0.70, down from € +3.26 in 2017. Balance sheet As at 31 December 2018, shareholders’ equity represented 34.1% of total assets, down from 35.6% in 2017. The gearing ratio (net debt to equity) was 76.0% (versus 72.7%). Net debt was € 1 153 million, down from € 1 339 million as at 30 June 2018 and unchanged from € 1 151 million as at yearend 2017. Net debt on underlying EBITDA was 2.7, compared with 2.3 on 31 December 2017. Cash flow statement Cash from operating activities amounted to € 244 million, unchanged from € 244 million in 2017, as the lower cash generation was offset by a reduction in cash-outs to fund working capital. Cash flow attributable to investing activities amounted to € -102 million (versus € -209 million): € -185 million related to substantially lower capital expenditure (intangibles and PP&E) while the net impact of acquisitions and divestments dropped from € 38 million to € 3 million. Proceeds from disposal of property from closed plants in China and Malaysia amounted to € 55 million. Cash flows from financing activities totaled € -157 million (versus € +30 million in 2017). The major cash-ins from gross financial debt in 2018 as well as the repayments are mainly related to the debt restructuring of BBRG and the refinancing of a € 100 million bond. Investment update and other information Net debt was € 1 153 million at year-end 2018, unchanged from € 1 151 million last year but significantly down from € 1 339 million as at 30 June 2018. Net debt on underlying EBITDA was 2.7, compared with 2.3 last year and 3.1 as at 30 June 2018. The company implemented a series of actions in the second half of 2018 to bring net debt down by € -186 million. The working capital decreased by € -156 million (versus 30 June 2018), mainly driven by successful cash collection actions, the impact of off-balance sheet factoring (€ 73 million of accounts receivable), and more standardized supplier payment terms. The average working capital on sales decreased to 20.4%. In October 2018, Bekaert completed the refinancing of the outstanding debt incurred by Bridon-Bekaert Ropes Group (BBRG). This included: (1) the temporary refinancing through a financial covenant-free bridge loan with a group of banks for a maximum maturity of two years, preceding a permanent long-term funding decision; (2) the repayment of € 294 million to the BBRG lenders’ syndicate; (3) the release of all related security interests; (4) the elimination of the related ring-fenced debt structure; and (5) significantly lower interest charges on the refinanced BBRG debt. The debt of BBRG had been consolidated in Bekaert’s consolidated statements since the establishment of Bridon-Bekaert Ropes Group. As a result of this refinancing, all debt of the Bekaert Group is covenant-free. Bekaert is investing in all continents to expand and upgrade the production capacity to the levels needed. Investments in property, plant and equipment amounted to € 198 million in 2018 and included major tire cord expansion programs in EMEA and Asia Pacific. Bekaert will start a greenfield investment in Quang Ngai Province in the central coastal area of Vietnam. The construction works will start in the course of the 2nd quarter of 2019. The plant will produce rubber reinforcement products and serve customers worldwide. In addition to the 3 636 280 treasury shares held as of 31 December 2017, Bekaert purchased 352 000 own shares in the course of 2018. A total of 51 200 stock options were exercised in 2018 under Stock Option Plan 2010-2014 and Stock Option Plan 2. 51 200 treasury shares were used for that purpose. 35 048 treasury shares were transferred in the context of the Personal Shareholding Requirement Plan. As a result, Bekaert held an aggregate 3 902 032 treasury shares as of 31 December 2018. Segment reports EMEA Bekaert’s activities in EMEA achieved +4.8% sales growth in 2018, driven by the aggregate effect of passed-on wire rod price increases and price mix (+6.8%), a small organic volume decline (-0.9%) and the divestment effect of the Solaronics business (-0.9%). Demand from automotive and construction markets was strong throughout the year, while demand for industrial, specialty, and stainless products softened in the second half of the year. 43 44 Annual Report Bekaert 2018 The underlying EBIT was € 114 million at a margin of 8.5%. The margin performance was lower due to higher than anticipated start-up costs in plants with major expansion programs in Central Europe, and increased price pressure in various markets, particularly those where we compete with integrated players. were adversely impacted by the disposal effect (-6.1%) of the Sumaré integration within the JV partnership with ArcelorMittal since 1 July 2017, and by adverse currency movements (-3.7%). North America Excluding the effects of currency, royalties from Brazilian joint ventures, and one-time elements, the underlying EBIT of our operations in Latin America slightly improved, compared with last year. Including all elements, underlying EBIT decreased, mainly because of a lower positive net effect of one-time items in 2018 compared with 2017. Last year’s records included the effect of the cancellation of the obligations under an onerous supply contract (€ +10 million) and the disposal effect of Sumaré (€ +12 million). The one-time element in 2018 regarded a change in a long-term benefit plan in Ecuador (€ +3.7 million). Royalties from the Brazilian joint ventures were higher in 2018, compared with last year (€ +5.4 million), while currency effects on underlying EBIT were € -1.9 million negative, yearon-year. Bekaert’s activities in North America achieved +12% sales growth. The organic sales growth accounted for +16.4% and stemmed from improved volumes (+5.7%) and passed-on higher wire rod prices and other price-mix effects (+10.6%). The adverse currency impact for the year tempered to -4.4% due to the appreciation of the US$ in the last quarter. Including all elements, underlying EBIT decreased to € 43 million, reflecting a margin of 6.2%. Reported EBIT was significantly lower than last year: in 2017 the gain on the sale of 55.5% of the shares of the Sumaré plant in Brazil was included whereas in 2018 we have incurred one-off expenses related to the closure of the Dramix® plant in Costa Rica. Automotive demand remained strong throughout the year. Industrial steel wire and agricultural fencing markets were affected by increased price pressure and by the usual seasonality effects of the second half of the year. Bekaert invested almost € 18 million in property, plant and equipment across the region, particularly in Chile. Reported EBIT dropped to 5.5% as a result of the one-off impact of the closure of the Figline plant in Italy (€-40 million) reflecting the operational losses incurred since the announcement of the closure, the impairment losses of the site’s assets and the expenses accrued for the closure. Capital expenditure (PP&E) amounted to € 67 million and included, amongst others, capacity expansions in Romania, Slovakia and Russia. Bekaert’s rubber reinforcement activities in the US recorded solid growth. The margins were, however, affected by supply chain issues caused by the continuous changes in trade policy, including quota restrictions and tariffs. In other steel wire markets, the average price of domestic wire rod increased about 30% compared with last year. Passing on the full price impact to our customers was not possible as we compete with import flows and integrated players (downstream integrated steel mills) there. The margins were, moreover, affected by continued weak demand in agricultural markets. Both the underlying and reported EBIT amounted to € 25 million at a margin of 4%. Bekaert’s combined sales increase in Latin America (+5.7%) was from strong organic growth (+15.7%), largely offset by the translation impact of currency movements (-9.9%) which was mainly driven by the depreciation of the Brazilian real compared with last year (-19.4% compared with the average rate of 2017). Asia Pacific Bekaert delivered +7.7% organic sales growth in Asia Pacific, driven by good volume growth (+5.7%) and a positive aggregate effect of passed-on wire rod price increases and pricemix (+2%). The robust growth of rubber reinforcement activities across the region was partly offset by weaker volumes in other sectors, among which the sawing wire activities in China and the steel wire activities in Malaysia. Adverse currency effects (-3.1%) drove top line growth down to +4.6%. Capital expenditure (PP&E) was € 18 million in North America.. Latin America In Latin America, consolidated sales were up +2.7% from last year. Passed-on higher wire rod prices and other price-mix enhancements contributed +14.3% to the organic revenue growth. An overall weak economic environment in the region drove demand for our products down, resulting in an organic volume loss of -1.8% for the year. Consolidated sales Underlying EBIT decreased to € 86 million at a margin of 7.2%. The margin decrease was a result of loss-making sawing wire activities (€ -9 million compared with € +21 million last year), the weak performance of our activities in Malaysia, and high start-up costs related to the expansion program in India. The rubber reinforcement business progressively improved the margin performance in the second half of the year, particularly in China and in India. This trend is visible in the segment’s underlying EBIT of the second half. Reported EBIT dropped to € 54 million due to the impairment of tangible and intangible assets related to sawing wire Annual Report Bekaert 2018 in China and the restructuring costs in Ipoh (Malaysia), partly offset by the gain on the sale of land and buildings following the closing of the plants in Huizhou (China) and Shah Alam (Malaysia). In anticipation of continued growth perspectives, Bekaert invested € 85 million in PP&E in the region in 2018, including expansion investments in China, India and Indonesia. Bridon-Bekaert Ropes Group Bridon-Bekaert Ropes Group (BBRG) achieved 5.5% organic sales growth, part of which was compensated by the adverse currency movements (-3.7%) impacting the topline. The organic growth accelerated in the second half of 2018 (+8.4%) compared with limited growth in the first half of the year (+2.7%) and was mainly driven by a positive price-mix evolution. Underlying EBIT was € -6.9 million for the year due to significant one-time adjustments without cash impact (including pension plan adjustments and obsolete stock write-offs) totaling € -13.7 million. Excluding these adjustments, underlying EBIT would have reached € 6.8 million (€ +1.8 million in the first half of 2018 and € +5 million in the second half). Reported EBIT was € -20 million and included the impacts of one-off elements related to the restructuring in Brazil (€ -7 million) and other measures to turn around the business (€ -6 million). BBRG invested € 19 million in PP&E in 2018, about half of which in support of growing the advanced cords facilities in Belgium and China, and the other half in the ropes manufacturing sites worldwide. 45 46 Annual Report Bekaert 2018 ALTERNATIVE PERFORMANCE MEASURES: definitions and reasons for use Capital employed (CE) Working capital + net intangible assets + net goodwill + net property, plant and equipment. The weighted average CE is weighted by the number of periods that an entity has contributed to the consolidated result. Capital employed consists of the main balance sheet items that operating management can actively and effectively control to optimize its financial performance, and serves as the denominator of ROCE. Capital ratio (financial autonomy) Equity relative to total assets. This ratio provides a measure of the extent to which the Group is equity-financed. Combined figures Sum of consolidated companies + 100% of joint ventures and associates after elimination of intercompany transactions (if any). Examples: sales, capital expenditure, number of employees. In addition to Consolidated figures, which only comprise controlled companies, combined figures provide useful insights of the actual size and performance of the Group including its joint ventures and associates. EBIT Operating result (earnings before interest and taxation). EBIT consists of the main income statement items that operating management can actively and effectively control to optimize its profitability, and a.o. serves as the numerator of ROCE and EBIT interest coverage. EBIT – underlying EBIT before operating income and expenses that are related to restructuring programs, impairment losses, business combinations, business disposals, environmental provisions or other events and transactions that have a material one-off effect that is not inherent to the business. EBIT – underlying is presented to enhance the reader’s understanding of the operating profitability before one-off items, as it provides a better basis for comparison and extrapolation. EBITDA Operating result (EBIT) + depreciation, amortization and impairment of assets + negative goodwill. EBITDA provides a measure of operating profitability before non-cash effects of past investment decisions. EBITDA – underlying EBITDA before operating income and ...
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Explanation & Answer

Attached.

OUTLINE
Introduction


Over the years, Bekaert and its refined steel have become highly demanded in various
sectors. From the automotive sector to the construction sector, Bekaert’s steel can prove
to be very useful and thus is subject to a high and growing demand.



. In addition to all this, the fact that the company operates in different sectors benefits the
customers since what Bekaert discovers in its automotive industry could be used in other
industries.

Body


In steel and wire industry, Bekaert faces stiff competition of bigger companies in
America and other parts of the world.



The main raw material for the manufacture of steel wire is wire rod. From the 2018
annual report, this raw material is procured from different parts of the world.

Conclusion


Bekaert company refined steel products are highly demanded all over the world from
automotive to construction fields.

OUTLINE
References

Porter, M.E. (2008). The Five Competitive Forces That Shape Strategy. Harvard Business
Retrieved from: http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/

Bekaert (2019). Annual Report 2018. Retrieved from https://annualreport.bekaert.com//media/Brands2017/AR2018/PDF_ENG/Annual-Report_EN_2018_FULL.pdf.


Running Head: Analysis of Bekaert

Analysis of Bekaert

Charles Kelder

Author Note
Vesalius College - Strategic Management (Professor Jean Bellemans)

Analysis of Bekaert
Introduction
Bekaert when it was founded what does it do, how does it do it and what are the results?

Definition of the industry
Over the years, Bekaert and its refined steel have become highly demanded in various
sectors. From the automotive sector to the construction sector, Bekeart’s steel can prove to be
very useful and thus is subject to a high and growing demand. On top of this, the company
has managed to gather a strong presence and become a dominant company in each of the
industry it operates into, which means that Bekaert is not dependent on these fields. In other
words, if the automotive industry discovers a substitute for Bekaert streel, the company isn’t
going to go bankrupt, since it also provides its product to many other buyers from different
industries. In addition to all this, the fact that the company operates in different sectors
benefits the customers since what Bekaert discovers in its automotive industry could be used
in other industries. Furthermore, Bekaert operates worldwide but segments its operation to
Europe and Africa, North America, Latin America, and the Asia Pacific zones. However, for
this research, we’ll focus on Bekaert’s activities in the EMEA zone (Europe and Africa).
If we’re talking in numbers, according to the 2018 annual report of the company, 45%
of what the company was selling worldwide went to the automotive in...


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