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.