Automotive markets weakened in 2019 and led to a clear drop in new vehicle production volumes globally. OEM vehicle demand is, however, not the main growth indicator for the tire and tire cord business.
The global radial tire production counted 1.8 billion units in 2019, stable from last year and composed of 12% truck radial tires and 88% passenger radial tires. The CAGR over the past 10 years (including the flat growth of 2019) was +2.7% and the future annual growth rate is projected to remain in the range of 2-3%, over the coming years.
Based on available market data, we estimate that the share of replacement tire sales was close to 80% of the total tire sales in 2019 (versus 75% in normalized OEM market circumstances). This was partly driven by lower OEM sales and partly because of a trade-off effect toward higher replacement tire sales, which comes with an ageing vehicle fleet.
The main growth drivers in tire markets are the total mileage driven (for passenger vehicle tires) and freight transport indicators (for truck tires). The increasing tire rim size and the environmentally driven shift to ever thinner and stronger tire cord constructions are additional growth drivers for Bekaert’s steel cord products.
Bekaert’s Rubber Reinforcement business achieved 2.4% sales growth, driven by higher volumes. The business unit achieved 10% volume growth in China as a result of increased market share and strong demand, particularly in the first half of the year. Sales were about stable in EMEA and North America but fell short in Indonesia and India.
Significant wire rod price decreases led to inventory valuation corrections at year-end and drove underlying EBIT below the level of 2018 to € 172 million, at a margin of 8.7%. The profitability improved significantly in Asia, but declined in EMEA and in the US.
Reported EBIT was € 155 million, slightly above last year. EBIT was impacted by one-off elements in both 2018 (€ -25 million – mainly related to the closure of the Figline plant in Italy) and 2019 (€ -18 million – mainly due to the footprint change in the US).
Underlying EBITDA was € 295 million with a margin on sales of 14.8%. ROCE improved from 12.9% to 13.2% as a result of actions to reduce the capital employed.
Capital expenditure (PP&E) amounted to € 42 million and included investments in all continents. The purchase of land use rights in Vietnam amounted to € 13 million.
Bekaert has implemented actions to resolve the start-up issues and inefficiencies encountered in production plants with significant expansion programs in recent years. This particularly applied to the Rubber Reinforcement plants in Slovakia, Romania and India. The implemented actions started to show results in the course of 2019 and are expected to deliver more benefits in 2020 and beyond.
Tire makers are advancing innovation in tire design to set or follow new demand and technology trends. These include: tire diversification in line with the increasing range of vehicle variants; the constant improvements in grip, rolling and wear resistance; the search for renewable and recycled raw materials; and game-changing innovations like smart tires and futuristic design concepts.
Bekaert develops tire cord solutions that help tire makers develop their new tire designs. All new trends, including tires for electric and autonomous vehicles, sustainable materials, and airless tire concepts, use steel tire cord. Bekaert spearheads innovation with ever lighter and stronger rubber reinforcement products and with coating technologies that make the addition of cobalt to the rubber compounds redundant.
Bekaert is building a new rubber reinforcement plant in Vietnam to serve both regional and export markets. The production start-up is scheduled at the beginning of 2021.
Post-balance sheet date, Bekaert acquired the (20%) shares previously held by Continental Global Holding Netherlands BV in Bekaert Slatina in Romania.