July 29 (Bloomberg) -- Bekaert NV, the world’s largest maker of steel cord used in tires, fell the most in 12 years in Brussels after profit declined for the first time in two years on lower demand for cord in China and solar panels in Europe.
Bekaert dropped 12 percent to 42.44 euros at the 5:40 p.m. close of trading on Euronext Brussels, the biggest retreat since September 1998. First-half net income fell 20 percent to 144.3 million euros ($206.2 million), the Zwevegem, Belgium-based company said today in a statement. Analysts projected a 3 percent increase to 186.5 million euros, the average of four estimates compiled by Bloomberg.
“Bekaert lowered prices faster than we anticipated in both sawing wire and tire cord in order to face competition,” Filip De Pauw, an analyst at ING Groep NV in Brussels, wrote in an investor note. “Knowing that seasonally the second half of the year is weaker, consensus estimates downgrades should not be helpful.”
China’s campaign to tame consumer and property prices, with five interest-rate increases since mid-October and record reserve requirements for lenders, curbed demand for Bekaert’s steel cord and some of its customers in the country are facing payment arrears. Earnings from sawing wire, which is used to slice silicon ingots into wafers for solar cells, declined as the sovereign-debt crisis in Europe led some governments to scrap subsidies for solar energy and as Bekaert lowered prices to defend against competing manufacturers.
Bekaert derived about 44 percent of operating profit before special items from sawing wire and an additional 27 percent from steel cord last year, according to Ben Defay, an analyst at JPMorgan Chase & Co. in London. His recommendations on Bekaert have returned almost 28 percent in the past year, the most among seven analysts, according to Bloomberg data.
First-half operating profit before one-time items increased in North America and Latin America and was unchanged in Europe, Middle East and Africa. Earnings fell 10 percent in the Asia-Pacific region, which remains Bekaert’s most profitable, even as sales rose 16 percent.
The steel-cord maker is facing increased competition in China from Xingda International Holdings Ltd., which began mass production of sawing wire in December. Bekaert also set aside 21 million euros to cover potential credit losses in China in the first half.
Net debt climbed to 815.9 million euros on June 30 from 521.9 million euros at the end of last year, as Bekaert’s working capital ballooned by 307 million euros to 1.1 billion euros.
Before today, Bekaert shares had fallen 42 percent since the company said on May 11 that Chinese demand began to slow and it would cut prices to defend against local competition.
Bekaert said it will continue to lower prices, mainly in China. It also said early signs of a “slight” improvement in demand indicate that the solar-market downturn “might have bottomed out.”
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