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Bekaert Drops as Recovery Will Take Three Years: Brussels Mover

Feb. 24 (Bloomberg) -- Bekaert NV, the world’s largest maker of steel cord used in tires, fell to an eight-week low in Brussels after saying planned cost cuts won’t restore profit margins before 2014 after a collapse in sawing-wire prices.

Bekaert declined 2.35 euros, or 8.7 percent, to 24.72 euros at the 5:40 p.m. close of trading on Euronext Brussels, for the biggest drop on the Stoxx Europe 600 Index and the lowest closing value since Dec. 29. The shares have fallen 72 percent from their peak of 87.43 euros in January 2011.

An expansion of sawing-wire capacity in China amid slowing global demand growth for solar panels led to a collapse of prices for the material used to slice silicon ingots into wafers and that was Bekaert’s most profitable product. Bekaert now faces expenses to eliminate 1,850 positions amid cutbacks in sawing-wire production and its tire-cord margins are at risk as manufacturers refit their sawing-wire plants to make steel cord at a time when demand for reinforced tires in China stagnates.

“When you have a three-to-one supply-to-demand situation, you cannot have a stable market,” Chief Financial Officer Bruno Humblet said on a conference call today. “China has in many aspects become a mature market,” Chief Executive Officer Bert De Graeve said.

Bekaert derived about 44 percent of 2010 operating profit before one-time items from sawing wire and an additional 27 percent from steel cord, according to Ben Defay, an analyst at JPMorgan Chase & Co. in London. Bekaert doesn’t give a breakdown of sales or profitability by product.

Long-Term Target

After halting losses by shuttering sawing-wire plants in China, Spain and Belgium this year, Bekaert said on Feb. 2 it will seek an additional 100 million euros of savings to reach its long-term target for earnings before interest and tax of at least 7 percent of sales.

That won’t happen before 2014, Bekaert said today. Its Ebit margin fell to 2.3 percent in the second half from 13 percent in the preceding six-month period. Bekaert forecast mature markets will remain “weak” this year and expects continued price pressure in most markets, especially in China. The steel-cord maker will focus capital spending in the region on India and Indonesia, De Graeve said.

Bekaert had to pass on declining wire-rod prices from swollen inventories made from higher-priced raw materials in the second half, which cut profit in that period by 10 million euros ($13.5 million) to 15 million euros, according to Humblet. Production cutbacks amid extended holiday breaks at customers in Europe and North America also affected earnings in the final quarter.

Dividend Cut

Net income for the six months through December fell 74 percent to 48.3 million euros, the Zwevegem, Belgium-based company said in a statement. Analysts had projected profit of 36.4 million euros, according to the average of eight estimates compiled by Bloomberg.

Bekaert cut its final dividend by half to 50 cents a share and De Graeve said the company won’t propose an interim dividend when reporting first-half earnings on July 27.

Net debt climbed to 860.5 million euros, or 1.8 times earnings before interest, tax, depreciation and amortization, last year as operating working capital ballooned to 1.03 billion euros amid a buildup of inventories and accounts receivable.

Finance chief Humblet declined to give a target for reducing working capital this year, saying much depends on an easing of monetary policies by Chinese authorities.

To contact the reporter on this story: John Martens in Brussels at

To contact the editor responsible for this story: Jerrold Colten at

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