Latin America: strong recovery in key growth markets
Bekaert in Latin America
|
| Consolidated sales: |
€ 327 million |
| Combined sales: |
€ 1 237 million |
Capital expenditures:
(Property, plant and equipment) |
€ 9 million |
| Total assets: |
€ 179 million |
| Employees: |
6 600 |
| Number of manufacturing sites: |
18 |
The overall economically robust Latin American countries are key growth markets for Bekaert. We further consolidated our activities in the region by establishing the holding company Bekaert Ideal, which includes the subsidiaries in Venezuela, Ecuador and Colombia and part of Bekaert’s shareholding in Peru. Bekaert owns 80% of the stakes in this new holding company. Consolidated sales growth in Latin America was the result of integrating our operations in Ecuador and Peru (the latter indirectly became a subsidiary of Bekaert when the holding company was established).
The effect of the economic slowdown on our wire business has been felt since late 2008, when the prices of steel collapsed. After bottoming out in the second quarter of 2009, Latin America showed strong signs of recovery, with Brazil taking the lead.
In Brazil, a crucial market for Bekaert, the results from Bekaert’s joint ventures were subject to a negative currency translation impact in the Group figures, while the weakening USD fueled competition from imports in Brazil. The Brazilian government launched programs such as a reduction in taxes on locally manufactured products, which favored the automobile, home appliance and construction materials industries. As of May the domestic market started recovering.
In Latin America, volume decline and wire rod price fluctuations impacted the profit margins in the first half of 2009. However, recovery in demand improved profitability in the second year half.
To offset the decrease in sales volume in the first year-half for its Brazilian operations, Bekaert launched several measures aimed at reducing fixed costs while improving processes and product quality at the same time. Increased synergy was a focal point at the three plants in Contagem and Sabará. By reassigning production orders between the plants and by optimizing all galvanization lines we were able to greatly reduce energy, labor and maintenance costs. In the long term, Bekaert will continue to benefit from this increased synergy. In 2009 several actions were implemented to intensify personalized customer service. By doing so we regained market share and showed signs of recovery more quickly.
To support its business in Brazil, Bekaert also established a development department aimed at managing product and service optimization projects, using tools such as the Bekaert Innovation Process and creating a database for access to related technical information.
As for Chile the positive impact of the economic recovery instigated by the stimulus plan implemented by the Chilean government was felt from the second half of 2009 onwards. At Prodinsa, our rope manufacturing plant in Santiago, we completed and started operation of a new state-of-the-art strander, which was completely in-house engineered and locally built. Prodalam, our distribution arm, relocated its headquarters to Renca where the main warehousing and logistics center has been based since 2008. Inchalam started the production and commercialization of colored wires, and approved investments for producing Bezinal® wires in 2010. In mining the acceptance of our high-carbon supporting mesh for tunnels has continued to gain acceptance and is fast becoming the preferred solution of the industry.
Although slow in the first year half, Peru’s economic performance, over the full year, was among the best in the Andina region. At Prodac, the Bekaert subsidiary in Peru, the market demand and financial performance improved considerably in the second half. The entity succeeded in creating a more cost-competitive structure and in lowering raw material inventory, bringing down working capital levels drastically.
In October, The Federation of Enterprises in Belgium organized a business forum on the occasion of the state visit to Belgium of Brazilian President Lula da Silva. Bekaert was invited to present its business case at the event. CEO Bert De Graeve and Chairman Baron Buysse shared their insights with president Lula.
Bekaert’s operations in Ecuador performed well in 2009, despite the fact that the economy was severely impacted by the global recession, in which lower oil prices and a slowdown of the remesas (remittances) sent to the country by Ecuadorian nationals living abroad played a major part.
In Colombia, Proalco broadened its product portfolio in 2009 by adding hexagonal nettings to its range while also expanding its mesh production. Bekaert enlarged its main production facility in Muña to house additional equipment, including new drawing equipment for both low and high-carbon activities. Economic activity in Colombia is negatively impacted by the reduction in trade with Venezuela.
In Venezuela we started up a new galvanizing line for fine wires which resulted in additional drawing capacity. Despite challenging economic circumstances, especially during the first half of the year, local demand was reasonably strong. These economic difficulties combined with severe energy shortages are impacting the country. Continued inflation drove the country into hyperinflation (100% inflation over a period of three year) in the fourth quarter. As a result we adjusted our accounts applying free market exchange rates (we refer you to Note Critical judgments in applying the entity's accounting policies in the Financial Review)
The outlook for economic performance in Latin America, overall, is favorable. The prospects of Brazil, for example, are good not only for 2010 but also beyond, driven by major development programs, including the Olympic games of 2016. The view on the future for Chile is positive as copper and other mining commodities will pull up activity in that sector. Investments in power generation are expected to continue at a good level.
For a huge hydro-electric project in Colombia, generating electricity from the river Porce, our Dramix® steel fibers were used to reinforce the concrete in the tunnel and dam. Ingetec S.A., one of the most important engineering consulting companies in Colombia, particularly appreciated the easy handling of the Dramix® steel fibers, resulting in considerable time-savings