Matthew Taylor - CEO Bruno Humblet - CFO

Wouter Vanderhaeghen - KBC Filip De Pauw - ING Stefaan Genoe - Petercam Akash Gupta - JPMorgan Patrick Millecam - Value Square [Starts Abruptly]

On EBITDA however, there you do see I think again some of the underlying performance 11.2% margin has gone up to 11.5% margin. And we’ve gone from €180 million to €219 million EBITDA.

Net debt just over €1 billion is up significantly year-on-year. That’s really down to acquisitions and share buyback but again Bruno will take you through the details of that shortly.

Turning to the economic environment, if your memories are good, you’ll remember this slide from February because we’ve hardly changed it at all. Because actually the environment in which we’re operating has not really changed, it’s continued to evolve, but fundamentally it’s the same.

So we do see a mix of different dynamics happening between emerging markets and our more mature markets in terms of North America and Europe. We still see the impact of the slowdown in China driving a lot of over-capacity in many different sectors but particularly in the steel sector.

That over-capacity is driving producers to look for other markets to sell-into and that’s creating more price pressure around particularly Southeast Asia and Latin America, that we sell their target export markets. There is also the impact of lower commodity prices and lower oil prices on a global basis, but in particular that hits the economies in Latin America quite hard.

And we’ll talk a little bit about that later on as well. However there are offsets to that and probably why we’re doing so well in Europe.

The weaker Euro here, obviously we get a translation benefit but we also get the benefit of actually Europe as a whole exporting more. And so we export more ourselves out of Europe but we also supply people whose export sales, are going up and that increases our opportunities in Europe.

And we are seeing the lower oil prices are driving a stronger automotive industry particularly in Europe and in North America as well, and that’s beneficial to us. If I look at it then, a little bit by very high-level headlines at a regional level.

In Europe, the market is being relatively stable for us. But stable at a strong level, so, still a strong market.

And that’s driven primarily by automotive, also by construction industry. The oil and gas sector is weak, that has an impact on our industrial wire type businesses in particular on our rope wire business.

We’ve seen a lot of success really from the incubation of the Pirelli businesses into Bekaert so that integration process itself is going very smoothly. And we’re seeing very few interruptions and hiccups.

And also the business itself is probably performing at a better level than we would have expected during this first half. And we continue to have a very strong focus on cost control and also on looking at our product portfolio which we’ll come back to maybe later on as well.

But looking at our product portfolio to optimize that and minimize complexity. In North America, the market is strong in relation to automotive.

We’ve been able to capitalize on that. So we got tire cord business and it’s also helped us specialty fasten shape wire business in the U.S.

but we’ve obviously not been able to follow that growth in the way that we would have liked to in bead wire because of the fire last year in the Rome plant, and the fact they haven’t yet got fully back into production and us getting back into as customers. We’ve offset some of it by importing bead wire into the U.S.

but it has had quite a big impact on the business. On the other side, the industrial wire segment is weak again in North America as well.

The Agri markets are relatively weak and again over capacity in the marketplace. And the level of competition strictly from the vertically integrated businesses in North America, it does mean that prices are very low.

And that’s limiting our ability to try and grow the business there. The oil and gas market, which we were making very good progress in the U.S.

particularly with our ropes business has also slowed down dramatically in the first half of the year. Moving over to Latin America, there even though we have seen a weakening of the economic environment in Latin America through the first half of the year, actually our performance has been very strong.

And a lot of that is down to us really driving on market share. So in a few of the markets we’ve been out to increase market share and others hold it strongly.

We’ve also pushed quite hard on pricing despite in local currency on pricing despite some quite strong pressure from imports from China as well. Brazil, growing quite contrary to our expectations, this remained strong through the first half of the year.

But we did see a very significant drop-off in June. So, we’ve been anticipating that for a while, the strength that come across really quite a lot of different sectors in Brazil.

We’ve also done particularly well on export out of Brazil and that would help. But we sort of slowed down in June, and we expect that be a bit of a story of what happens in the second half in Brazil as well.

But we’ve taken a lot of actions on cost and that’s helped the business stay quite strong there. Venezuela has not been a problem for us in the first half of the year because we’ve actually had some availability in wire rods, so we’ve been able to keep going there, but as always we don’t know how long that’s going to last.

And so we will always caution that Venezuela remains fairly uncertain for us. In Asia-Pacific, the slowdown in China there is a big story, and obviously what is the ongoing -- what’s going to be the ongoing impact in terms of consumer confidence from the volatility in the stock market.

We don’t think that is a major impact on the markets. We just think the overall general slowdown is going to be the underlying impact on the markets there.

We saw a very weak start to the year in China, and that was primarily a result in tire industry of a combination of a couple of requirements they had. One was the increase in tariffs in the U.S., for imported passenger car tires.

And that had an impact as getting the industry to be a bit of self reflective. And they’ve decided that they needed to take quite a lot of stock out as well.

And that hit us very hard in the periods, sort of November through to February. And we saw very low volumes coming through in the first two months of the year we’ll check obviously our profitability then as well.

However in March, it really bounced back. And what we’ve seen is daily steady progression at a stable level since March.

And so we do see that that sort of bounced to much more normalized business. Our EBITDA continues to remain pretty positive and strong in the Asia region, so solid cash generation.

But at the same time, because of the underlying economic issues, we are ensuring that we approach potential bad debt with a fairly prudent perspective on how we would preserve to that as we go forward as well. And again, Bruno will touch on that.

We told before about loss-making facilities in our Asia Pacific region. And we’ve done a lot of work on those and they’ve made quite a lot of progress particularly in Malaysia, Indonesia, which we’ve gone through this year.

We still have a long way to go on those and in China as well but actually I think we’re tackling those issues fairly seriously and making progress there. In terms of sales by segment, because of the big jump up in certain countries, you see this starting to shift around a little bit.

EMEA with no FX benefit was up 16%. North America was up 11% but FX was almost double of that as Bruno will take you through shortly.

Latin America up a very big 36% year-on-year, that 36% jump is a combination of FX gains, some acquisition gains but also some pricing mix gain in the region as well, so, very strong performance across the board. And Asia-Pacific, up 13%, FX has been quite a lot more than that on its own, less on the acquisitive gain side.

But obviously because of the very weak start in January-February for tire cord, the organic side has come back what’s there. If we look at it just by, on a global basis, as a result of those levels of growth, you see EMEA continuing to grow in terms of this contribution proportion of the business as a whole.

And Latin America as well, they were the ones that grew more strongly. So, EMEA put 28% to the business in total.

Latin America increasing up to 34% for the business, but you see Asia Pacific and North America slipping back a little bit 24% and 14% for the business respectively. With that, I will hand over to Bruno to get into a little bit more detail on the numbers, and then I’ll come back and talk about the outlook again.

Okay. Thank you, Matthew.

So, those on the phone, I’ll start on slide number 11, to analyze a bit the sales growth of 18%, 10% relate to the acquisitions and of course a large part of that is the Pirelli tire cord integration. Also the ropes entity in Australia which is in there for four months and so we’ll have a bit more full-year effect benefits in the second half of the year on that.

Exchange rates, is helping us on the top-line with about 11%, mainly of course the Euro getting weaker versus dollar and the Chinese currency. A portion to note here as well is that the cheaper steel prices have a negative impact on our top-line for about 4% which means that steel prices year-on-year are down depending on the region between 10% and 15% given that we, this is significant part of our overall cost structure, and between 30% to 35% of sales there, you see the 4% impact on our top-line.

Organic volume declined. We still have some decline mainly in North America and Asia, while the other regions are stable to increasing volume actually.

But we do have a positive mix which is adding about 4% to our top-line. We were able to keep our gross margins stable in spite of what we have seen as price erosion mainly in our tire cord business in China.

But also the cost inflation all over the world, energy but also labor cost in a lot of the emerging markets increasing rather significantly as well as a slightly lower volume. All of those negative effects have been offset completely by the cost reduction program which we continue to drive combined with the positive mix impact which we have.

So 16% gross margin. If we then move to the indirect costs or slide number 12, there you will see that as a percentage of sales, our SG&A remains stable at about 10%.

In absolute terms, given that our sales is increasing, we see an increase of €26 million but again the big drivers there are the currency movements as well as the new entity switch we added on. Those represent about €18 million out of the €26 million leaving, if you want a real €8 million increase.

Now that increase is mainly due to one-off items. We have for about €6 million debt reserves.

And here I have to be very specific. This is potential bad debt.

We still hope that we will be able to recuperate the outstanding receivables for some of these customers. But given that we always apply a rather prudent, we have accounting for that if we have too long of reduce, we do reserve, the total receivables of some specific customers.

And that is driving that reserve which we have in there. That’s the main reason for the increase at selling expense line where we reflect that number.

If you then look at the admin line, in there, there is about €7 million for the consulting fee which we paid to people who are helping us in real worldwide program that we talked to you about in February to optimize our overall cost structure, the operational cost reduction in total of our defense production facilities. We are now through the first steps with that.

We had more support from the consultants. We will do more and more of that, ourselves by rolling it out globally.

But a lot of the costs are sitting in the first half of the year. Actually excluding those one-off effects, you’ll see that the admin costs, having an admin cost actually even in absolute terms start to go down reflecting the cost reduction programs which we continue to implement also in the indirect costs.

All of that then gives us a REBIT of about €112 million, nearly 6% of sales. Loan recurring here slightly negative, again last year we had a lot of one-off positive elements.

So year-on-year is a big difference but of course this number normally or mostly is negative. What we see in here, this year though is some positive offsets related the disposal of the carding business which we announced in the second quarter.

The negatives, and I’ll get to some of that later on relate to the fire in Rome as well as the implementation of some of the cost reduction programs which carry with them some one-off costs. Very healthy cash generation, with €217 million EBITDA, over 11% of sales, and we continue to focus very strongly on making sure that we can get the healthy cash generation to continue to support the growth which we want to drive for.

I will then go a bit deeper into the different segments starting with our business in Europe. The sales increase of 16% which we see there, 14% is due to the inclusion of the Pirelli tire cord sites.

There are three sites in Europe there so that’s an important of course additional contribution on the top line as well as on the EBIT line because those facilities help also to add to your REBIT increase which we’ve seen. The volume increase is really in the second quarter, in the first quarter we still saw small decrease of volume.

Total half year though, this turned into a positive indicating that in our second quarter, we had about 7% volume growth compared to the same quarter last year. So Europe already flopped from a strong base and this is next to the acquisitions of course.

But organically we saw again from a strong base a good growth. We have a negative impact in Europe from wire prices for about 3% but that has been fully offset by better mix which we’ve seen.

So, the further increase in the REBIT margin is really reflecting very high capacity utilization definitely in the second quarter, where most of our plants run at full capacity combined with the focus and sustained focus on reducing our cost moving forward. The non-recurring as I indicated is related to the disposal of the carding solution business.

If we then move to North America, there we see a different picture. While sales is up 11%, this is due to the weaker Euro for 19%.

And we’ve seen as we already warned and saw in the first quarter as well, negative volumes. The volume there relates to the fire in Rome so the bead wire business which is -- the plant is not producing.

We now start producing diverse samples to be able to be approved for next year. And we hope that as of the second quarter we start seeing some better volumes coming out of that as well.

What we also here is a positive mix which is offsetting the lower prices of wires also to about of about 3% what we see there. The non-recurring maybe a bit of background here is this is to do with fire in Rome, where we received some invoices, mainly because of shipping products all over the world as well as some clean-up costs where invoices were hitting our P&L.

We are working with insurance companies in settling the total deal. And the moment we do that, that will get into our non-recurring as a positive in the second half of the year.

We do expect that all of the cost you see there will be covered by insurance so that completely will reverse in the second half of the year, okay. Still, low margins and driven by the low volume base and we of course cannot decrease with these types of margins so a lot of focus is going on, on how we can turn this around further in North America.

And also here, for the balance of the year, we do expect automotive to remain strong and hopefully by quarter four we do expect to see, start to see some benefits from the start-up of our Rome facility. If we then move to Latin America, this is the region on a consolidated basis where we saw the biggest jump with 36%.

The inclusion of the tire cord plants in Brazil is very important as part of the acquisitions. We also saw some positive exchange rate impacts this is mainly related to the countries where the currency is packed to the dollar or countries like Ecuador which is using the dollars.

So there we saw most of the exchange rate impacts in total of about 12%. What we’ve seen in Latin America is that depending on the countries there, overall economies are, it’s pretty hard by the low commodity prices or by the low oil prices.

But we’ve been able to sustain our market share in some cases even grow our market share. In the countries where the business momentum was more positive, we actually were able to fashion all of the price decreases which we’ve seen in dollars within local currency, we were able to increase our prices so much so that helps to improve also our total product mix.

In countries where demand was low because of the economic slowdown, we were very, very agile in reacting and cutting into the organization to ensure that we kept real competitive cost base. All that resulted in a doubling of our REBITs, we now have the REBIT margin of 5.5%.

And also the cash generation mainly doubled so we’re now at close to 9% EBITDA. If we then move to Asia, here in Asia you’ll see that we have the sales increase which is of course driven by the exchange rate impact.

Acquisitions play to a lesser extent here because the tire cord’s business of Pirelli in China is relatively small compared to the total tire cord business which we have out there. And the ropes facility is only in there for four months, so we’ll have a more positive impact moving forward in the second half of the year.

We did see some positive mix effects partly offsetting the lower volume, lower volume of about 6% in the first quarter. This was mainly due to the tire cord business.

Second quarter this was mainly into industrial steel wires in Southeast Asia and to a lesser extent in China reflecting a bit the overall slowdown of the economy over there. Price erosion plays mainly again on tire cord but also, we also see lower sales because of lower wire ropes prices.

In China they went down actually slightly more than in the rest of the world, so there the impact is more like 5% of our sales. The EBITDA margin though remains very solid and that also explains why there continues to be a very strong price competition because most of our Chinese competitors are focusing on cash.

And we still have a very healthy cash generation even with the price erosion which we already have seen. So, we’ll need to stay very agile and focus on our cost structure to ensure that we can add these types of cash generation levels for better moving forward.

If I then move back to the financial part, looking at the interests, interest is up about 10% while our net debt is of about 50%, and that basically indicates that we have been restructuring our debt more long-term debt at lower costs as well as also a bit shorter term debt, so our average interest cost reduced significantly. We have an important impact in order, increment expense, extremely difficult to forecast.

There is one element in there related, stamp duty related to the acquisition of the facility in Australia for about €4 that we knew that would be in there. But the rest realized and unrealized exchange gains, losses are things which can turn in each direction depending a bit on how the currency exposure are moving across the months.

So that number forecast versus time for us is zero, we had a bit hit now. We had a few years where we had gains to at least the same, of the same magnitude.

Given then on the next page, on slide 19, I just want to highlight there the sharing the joint venture which is mainly reflecting the result of our business in Brazil. So, while the overall economic environment in Brazil over the last six months was already very tough, our business continues to perform very well.

First quarter also the beginning of the second quarter, we did see a bit of tailing off in June. But hope that it’s a bit of a temporary bounce back or slowdown and that we will bounce back better in the second half of the year.

But what is true is that the overall economic environment in Brazil is very difficult. Of course to some extent this helps by the currency devaluation where in the beginning we were seeing imports into Brazil, while now Brazil for us is an exporting market into other countries in Latin America.

All of that then gives the result for the group at €62 million. On the cash flow, I don’t think there is anything specific there.

The reason why our cash from operations similar to our gross cash last year that was not the case because we had an important negative working capital, I’m on slide number 20 now. And then basically the activity from the investments reflect CapEx, we increased our CapEx versus the same period last year.

This year for the first half we had the CapEx spending of about €80 million compared to slightly below €60 million last year. And of course the balance there is the acquisitions we’re still at about €100 million to pay for Pirelli acquisition.

And then about €60 million related to the acquisition in Australia. Looking at the working capital, we have put quite a lot of focus on working capital.

You’ll see that our working capital increased to over €1 billion, nearly €1.1 billion. But if we compare it to the same period last year, and it’s better to do it like that given that we have quite some seasonality in our working capital.

You’ll see that over €100 million of that increase is due to exchange change rate movements. Also more than €100 million is due to the M&A activity.

And if you take those out then you’ll see that there is actually an apples-to-apples organic decrease in working capital of over €50 million. So, the focus which we put on there starts to bear fruits, we’re not pleased with the level yet, we will continue to focus in trying to drive our working capital down.

But already compared to same period last year, there is about 5% decrease in absolute terms if you compare apples-to-apples. On the balance sheet, I don’t think anything specific there.

It mainly reflects the inclusion of the acquisitions on all of the different elements of the balance sheet. And then maybe taking a few words on the net debts, of course there is a very significant increase in net debt of about €350 million versus the same period last year.

€330 million of that is due to the acquisitions, about €50 million due to share buyback which we’ve done and on top of that there is a negative related to the exchange rates, translating our debt given that we’ve got that debt in dollars, in R&D and so on. The offsetting part there is the improvement of working capital.

Also, versus the end of last year, the main reason for the increase here has to do with the acquisitions which we were able to complete in the first half of this year. And that then brings me to the different ratios.

And I think we went to most, all of that. And with that, I would like to hand it back to you Matthew.

Okay. Thank you very much Bruno.

Just now moving on to the outlook as we see it, and so, this is really the same as we put into the press statements and nothing new for you here. But we do see that the automotive industry remains strong off the back at lower prices, particularly in Europe and North America, construction in those markets also remained reasonably buoyant in driving that.

But the oil and gas pricing issue does mean that we see demand driven by back sectors being quite subdued on a global basis. Tire cord market, we think that that will remain relatively stable in China, the level is more or less of the second quarter with a bit of normal seasonality at the back end of the year but at the moment we see that relatively stable.

For Latin America, the commodity pricing challenges that are, there together with the oil prices I think will keep the very challenging economic environment that is good enough said. There is a lot there that we’re doing to offset that as well.

We are doing actions around the world but we touched on it before in terms of our manufacturing cost base program, our manufacturing expense program that we’re rolling out progressively around the world. We’re into to, just starting up the second wave of that.

The first wave has been in one of our operations in China and one of our operations here in Belgium. We now opened it up to another factory in Europe and Slovakia, in South America, in Ecuador and also into the U.S.

with our tire plant and to two more plants in China on the tire cord side. And that we know is successful in driving both an improvement in our capability, improvement in our quality, safety and efficiency but also in driving cost out for the business as well.

We continue to look at our overall product portfolio both on a broad basis, so we look at product categories that we -- whether we want to be in or not. And that’s why we solved the carding solutions business for example.

Business we also look at individual products in individuals regions of the world to make sure that they fit and are delivering the sort of results that we want. And if they’re not then we want to either look at a program which gets back to where they need to be or to exit some of those products.

We continue to invest quite strongly in R&D, so that we can drive demand through new products and new processes to drive down cost as well, as well as looking at the capacity that we need and where we need it and on which product lines to support the growth that we want to achieve going forward. In terms of specifically the second half of this year, we do expect to see benefits coming from the acquisitions that we’ve made but also the investments that we’ve been making over recent years really.

And we think that they’re going to come into more effect in the second half of this year. And therefore these benefits that we see from those categories will help to partially offset but we would see is the normal seasonality of the second half.

And with that, that’s the end of what we wanted to present. And from here, we will open it up to your questions.

Thanks.

Left or right, from right to left.

Okay. Wouter Vanderhaeghen, KBC.

Maybe as a first question, Michelin reported these numbers this week as well. We’re quite negative on the cord tire market is in China.

And even using the words so that market collapsed in the second quarter, how does that resonate with what you are seeing in the markets?

It doesn’t particularly resonate with us. I mean, we have seen a decline in the truck industry as a whole.

Michelin of more involved in OE supply in the truck industry in China. There are relatively, they have a relatively small share of the overall truck tire industry in China, very small share of it.

And their share is primarily OE. We obviously cover those OEMS, and replacement tires.

And we’ve seen it pretty strong. I mean, it is affected by the fact that the truck sector declined particularly in June declined quite a lot in terms of new truck registrations.

And we also saw the car market decline in June only, it’s been going, it’s been up year-on-year but we saw a decline in June. But we again see that as something that will recover a little bit in the second half of the year, we don’t expect it to be a declining car market.

We don’t expect the tire cord market to grow year-on-year, it’s already down year-on-year but some of that is down to the first two months of the year. And our view is probably the first two months of the year watch through, and that we will expect to see a tire cord market in China broadly in line with where it was last year as a whole year.

Okay. And then as a second third question, I will restrict myself to these two in order to begin with.

On the price evolution, can you give an indication where prices were first have ’15 compared to second half ’14 and first half ’14, so as an average? And can you also give some indication where prices were end of June versus end of December, and then end of June last year?

There is a lot of points in there. Two elements in the overall price erosion, one is the reflection of the global steel prices.

And as I indicated on the total region, steel prices in Asia when down even last year some cases then in some other, so some of that price erosion is really also reflecting lower steel prices. So, one should take that into account as well.

I think excluding that one, if you want to look at real price erosion or which then would translate into margin erosion is no other elements like mix or cost improvement can be used. I think we can say that we have seen over the years, rather constant decline.

And year-to-year, the decline is in the tune of depending on the mix between 4% and 6% I would say, over and above the reduction which we’ve seen in the steel prices. What is true is that in some areas, for some specific construction, those decreases have been much more significant.

But this is where we also are looking at improving our overall product mix to fight some of that. So, we are not just looking at the price erosion.

What we are trying to do is see how we can further improve our product mix. It goes always in a bit of off-steps, for instance when we had the real slowdown in November-December, this is the time when we stepped a bit out of the market or were less aggressive because we saw prices going down much-much faster.

While, now when the market is a bit better prices are stabilizing somewhat but there is and will be expected a continuous price erosion up sometimes camouflaged by the fact it is really a steel price erosion but also an overall price erosions still should be expected I would say.

Okay, thank you.

I think I would just add to that as well. That, in terms of strategically how we look at China now and in terms of both the product mix and we aim to go after the value proposition that we put in front of the customers is about moving us away from some of that and to the market where we’ve struggled to be competitive on price or not wanted to be competitive on price because they’re just too long.

So, we are getting to a better mix again, as better product where we do stand apart and create the value proposition for the customer. And at the same time, it’s why we kicked off our manufacturing excellence program in China.

We do see a very strong drive to continue to take quite a lot of cost out of our China business. That’s been accelerating and I think we’ll continue to see the impact of that as we go forward as well.

Should we maybe, is there, we’ll try on the phone and then we’ll get back to in the room.

Yes, good afternoon. A couple of questions, if I hear you correctly about China, you’re pretty confident that your truck markets will stabilize going forward or in H2.

How did you get to that specific point because looking at China you see the economy slowing down, and I do not expect to see any improvements anytime soon? So that’s the first question.

The second one is also in China. In addressing an issue we’re saying that in H1 2014 you received government grants.

Can you give me a number how much positive impact this was gone EBIT level? And thirdly, if I look at your payables, these have account tables, these have come -- a few receivables have come up quite a lot in your first half of 2015.

Can you give some color on that as well?

I would comment the markets -- actually China continues to grow as an economy, it’s not shrinking, it’s not going backwards. It continues to grow as an economy.

And so, we do, and we have seen a fairly stable market from our perspective in terms of supply into the tire industry doing the last four months. So, as we said there was a big adjustment in last two months of last year and the first two months of this year.

But since then it has actually been stable. We don’t see that the situation is changed dramatically.

On that we do expect it to be a bit tougher and we maybe see some shift between truck tire and passenger car tire. But overall we actually believe that the volumes will remain relatively stable on tire cord.

Maybe talking about the grants, these were grants which were due in China related to investments which we did, actually some of them a few years before. And they were at about €5 million helping us in the first half of 2014.

On the receivables if you look at the overall receivables, the real reason for increase there is driven by the increased 18% to 20% sales growth, which is reflecting of course the business increases we outlined. Currency plays there, of course and the new acquisitions new business that’s the main reason for the increase.

Some other fluctuations between the different regions play to a lesser extent. But overall we don’t see a dramatic increase as a percent of sales compared to what we’ve seen before.

Can I ask additional question?

Please do.

What were the main drivers regarding the strong EBIT in Europe. And how do we look at it as we’re going forward, are you able to keep these high level of margins also taking into account that the Pirelli acquisition should lower margins?

I think here in Europe what we have seen in the first half and this is the region where we will have most of the seasonality so that’s something which we do need to take into account as we can indicate that in the outlook formula, global basis, we expect to offset most of the seasonality in the second half of the year. But on a region by region basis, the seasonality is the biggest in Europe.

And therefore we do expect that to be reflected more in that region than what you see in another region. Related to the acquisitions which we added some of those acquisitions actually came with very solid margins and we are as indicated really working hard to continuously improving also our product mix as part of that to ensure that we can try to keep the margins which we have in Europe.

But you’re absolutely right in saying that an EBIT margin of 12% in our type of business in a region like Europe is a very, very solid margin. I mean keeping that is going to be very big challenge.

And as I indicated second half of the year will have seasonality so therefore one should expect some decline as we saw last year as well.

Thanks a lot

Okay, we’ll go back to the room.

Yes, good afternoon, Filip De Pauw, ING. Three questions please?

First question is, I understood that the impact from steel prices on sales was about 4%, 5% that in China. Could you give us a feeling what the impact was on EBIT in roughly number in Euro-millions?

Then the second question on China, that you took towards the increase and bad debt, bad debt results of roughly €6 million. Now, obviously as company have quite some experience in China, and I was wondering if you go back into last five, 10 years, bad debt we have taken before.

How much of that eventually got paid and how much was lost? Just had a bit of a feeling how cautious you are in doing this?

And then the third question is on a comment made by Bruno in his statements. You said Bruno that you hope that the fall back in Brazil in June was temporary and you hope to see some recovery in the second half of the year.

And I was wondering what gives you the confidence to hope that June was just a temporary blip?

Okay. The sales, so the impact of wire rods depending a bit on the region in Europe was more like 3%, on the total company about 4%, and in Asia it’s a bit more, more 5% to 6%, so yes, indeed that’s the case.

On an EBIT level there will be some negative impact but one should see that we try to minimize this. Pure mathematically it might look to be rather big, the reality is that it’s more strongly not debt significant.

We were able in most cases to hold to our prices at least a bit so we could complete, deplete our inventory and then lower the prices. In some cases we had to give in immediately so there is some negative effect but I don’t think one should take too much into account on that few million, but it’s in that tune it’s not tens of millions of the real P&L impact which we should expect of that.

The bad debt in China, we took €6 million this quarter, same period last year that was €2 million so a delta of €4 million between the two half years. Very good question I think on our policy and use this.

Over the last years we had one important customer where we basically lost the receivable which was LDK, solar customer. In most of the other cases, in 80% or 90%, we were able to over time recuperate, sometimes it took a year, sometimes it took longer than that by moving our customers to cash payment, cash on delivery and actually asking them to pay 110%, 120% and then depleting that way over a period of year or year and half.

But we had one case where we had to take it to the model life which was LDK last year. On this customer, we continue to ship on a cash basis but we’ll need to see how they come true or not come true, it is a risk and it’s -- the risk is there which is why we choose to follow our internally set prudent accounting rules to do that.

On Brazil, what I wanted to say there is that we actually saw a very strong business which was going a bit against the overall economic trends over the first six months. And we kept on shipping very well for the first 4.5 to 5 months.

June, we saw a big drop but that was most probably not active, to partly recuperating a bit the two positive trends which we saw over the second quarter or first and second quarter. We do expect that we will see a lower overall running rate in the second half of the year than we saw in the first half of the year.

But we think that what we saw in June was a bit more of a correction than anything else. But overall, we should expect a slightly lower running rate for the second half of the year than the first half of the year.

That’s helpful. Thank you.

Yes Stefaan.

Yes, thank you, Stefaan Genoe from Petercam. Follow-up on the gross margin in China.

If I understand well, so the prices of tire cord have been declining more rapidly than the prices of tire cords in the first half of the year implying a lower gross margin in China. If this is correct, could you indicate why you believe there is more price pressure on tire cord than there is on the wire rod first?

Secondly, could you quantify us the impact from the first consolidation evaluation of the inventory at Pirelli, because I understood you had to revaluate market value, the inventory switches had couple of months of lower, even no profit, some on the business in certain regions directly. So, could you quantify the FIFO impact for us?

And then, a last question, sawing wire margins if you’re ready to correct has been performing better in Q1 -- in the first half of this year as compared to tire cord in China. Does this mean is there less pressure today on sawing wire prices as opposed to tire cord prices in China?

And what could be the reason for that? Thank you.

Maybe I’ll take the first and probably the last bit of that actually. In tire cord, yes prices have come down on tire cord more than they have on tire rod.

I think the reason for that is relatively straight forward, is to stand to capacity. There is probably more excess capacity in tire cords than there is in wire rod in itself.

And people look to try and find a way to absorb any of that capacity that they can. In a sector which still has a reasonable level of EBITDA, if they feel they can generate cash they’re going to keep trying to push hard.

That said, we think they, we do believe that there is quite a chunk of the industry which is actually probably at this stage at that cash neutral point. So much further they can apply pressure and pricing, we’ll have to wait and see.

I wouldn’t make the read-through that lower all that more accelerated pricing on tire cord leads to less gross profit. I mean, it may do in certain points in time but you’re going to take into account what movement you have on cost as well.

So, I don’t think you can make a straight read-through on that and flow it through in that basis. But at that point in time, whilst you’re catching up on cost with price you will get an impact on the gross margin.

On sawing wire, the market has remained relatively buoyant, it’s certainly not where it used to be but at least it’s a market which is probably more stable than it has been but at the same time some of the players and it’s still not fully recovered from the troubles that they’ve had in the collapse of the cellular industry. That’s party why we look at making sure we got the right provision to bad debt because of the financial situation of some of those major solar panel manufacturers.

But the market is at least more stable. The growth rate is not huge but it is stable growth that we’re seeing at the moment, a changing mix of growth as well in terms of which products are actually driving that growth in terms of the balance between fix the brace of storing wires straight loose wire and straight abrasive loose wire.

We are probably performing a little bit better than the market in terms of margin retention and pricing retention because we’re much stronger in the structured part of the -- in the structured part of the market, the structured part of the market is more protected from IP. There is less competition in it and that’s probably why we’re able to hold to our pricing a little bit better.

Our assumptions are that that changes going forward. Always in China, our assumptions that the pricing comes under more pressure so we do see that coming on the pressure, we continue to look at pricing actions and cost actions ourselves to try and hold on to as much margin as possible.

But if I look at it by product, certainly the loose abrasive straight wire, their margins have been going down pretty much in line with -- pricing have been going down pretty much in line with where we would have expected. And that’s because that’s a much more competitive set, structure wise, slightly different.

So, what do you mean by the structure?

It’s a different version of, it’s still not getting into too much detail because I don’t want to give it away. But it’s just a different version of a single wire filament that’s used for cutting but it’s just a more efficient product in terms of pulling the diamond based slurry through the wafers to cut it.

So it does it in a much more efficient way which means you can charge more for it, but technically it’s a much harder product to produce.

Then, let me take the two more technical questions. One is on the inventory related to the Pirelli acquisition, indeed when you do the acquisition you need to value your inventory at the resale price, so therefore there is zero profit once sending out that inventory.

One could say that inventory is between four to six weeks on Pirelli. If you then, as we indicated, the overall REBIT on that Pirelli business is around €25 million to €30 million so take about €2 million a month if you wanted €2 million to €3 million of profits which was sitting in opening balance sheet versus normalized type of running rate I would say.

And all of that falling in this year because even though the business started in January, they had that and of course the business is just started like thirdly as of February or business in China has April, all of that have these type of impacts in there. On your FIFO, it’s a bit of question that Filip asked as well, the impact of the wire rod price.

Again, there has been a decrease but it was not a complete surprise that decrease in steel prices was there. So, therefore we tried to manage as good as possible anticipating trying to lower the inventory and try to anticipate into the pricing, deeper pricing of the bit longer.

I would say that there is a few million of negative in there in the first half of the year. But I would look, it’s not compared to 10% of steel or something like that, we were able to limit the impact that will be a few million but it’s more in that magnitude.

And again, maybe looking, just looking out a little bit on that one. What we are seeing is that scrap prices are beginning to increase now within the steel sector.

And we see in not in China, I will hasten to add that in other parts of the world we see a little bit of a bounce on wire rod prices. So whether we reached a point to the little bit more stability or not, we’ll see as the next months will confirm.

But certainly it’s a good indication that the scrap steel prices are going up. That said, iron ore prices continue to be very low.

Let’s maybe check whether we have another question on the phone.

Yes, hi, good afternoon. It’s Akash Gupta from JPMorgan.

I have three questions please. My first question is can you talk about non-tickling items as I can see it’s minus €2.5 million in hedge at group level while we had €5 million in North America, so maybe if there are any gains and what do we expect as underlying non-recurring charges for the year?

My second question is on Asia Pacific, can you talk about underlying movement in capital employed there that as I can see that it has gone up from 1076 at last year first half from 1251. I mean, I know there is quite a bit of FX there, but what the underlying movement there in capital employed?

And then my final question is on wire rod price, that if wire rod price stays at current level then what would be anticipated hit in the second half, would it be more than H1 or as well as H1? Thank you.

On the recurring so we had negative in as I expected North America is really has to do with the fire in Rome, the negative which we see there, we expect to reverse. There will be some other negatives coming into the year like we normally have a force and predictable this is why it’s non-recurring to some extent.

All-in-all, at this stage, I would say that our best estimate is that most of them will be washed out to maybe a small negatives driven on the recurring of the balance of the year but not that significant. So, we will have some positives as we had in the first half of the year to offset the normal negatives which we have survived, would expect it to be without having a real good idea of what’s a norm which are going to happen.

But that’s small negative call it between zero and €5 million or something like that. But we need to see what unexpected things happen to us.

For the working capital, I think the increase in working capital there are different elements which play into that. Again, important has been the currency movement because of course all of our inventories are held in local currencies.

Also for instance in Asia where that has an impact nearly 20% increases in your inventory, your receivables. Of course part set up by what we see in payables.

Moving forward towards the working capital, we do typically expect a reduction of working capital towards year-end. There is a seasonality impact.

We saw that last year and there will be a lot of focus in the organization to ensure that we can capture the apples-to-apples improvement which we have seen so far to also try to have that flowing down to the end of the year if not trying to do even better than that. The final point, remark I would make on that is that typically if we look at it by region, there is a very big difference in the level of working capital by region where Europe and North America and to some extent Latin America have similar levels of working capital between 15% to 20%.

We see that our Asian business and mainly the business in China is at a completely different level. There you’re talking levels of 30% and up reflecting the habit in the business of very long receivables.

And on top of those receivables then being paid by the famous bank notes the ROUs which adds on average another three to six months. You’ll see that our receivables in Asia are about six months.

If you look at some of our key competitors, you’ll find that their receivables are sometimes more in tune of 12 months per hit. Why do I just put the emphasis on that as well?

As Matthew indicated, China is and specifically China, it is getting tougher finessing this more becoming more difficult for sure for smaller companies. So, we therefore are much more prudent related to bad debt and the longer these receivables, the longer these periods are, of course the higher risk trends which we have.

So, we will be much more careful not only in solar but also in tire cords to ensure that we can ship to customers where we do expect at the end also to get paid, not just to recognize the shipments. We’ve seen some of our competitors having to pay quite a lot of bad debts, actual bad debt.

On fire customer we so far have been able to avoided being very, very prudent on them. The last one Matthew?

Wire rod?

Okay, just repeat your last question, related to wire rods.

Yes. If the wire rod price is at the current level then what would be the anticipated hit in the second half?

I mean, it’s more than H1 or it’s less than H1?

Yes, it’s going to be H1 to H2 about the same impact because wire rod prices last year already have been decreasing. So then there would not be an effect H1 to H2, but also last year wire rod prices started to decrease and they continue to decrease in the first half of this year.

Okay. And then, I have a follow-up on Brazil, and you had a very good performance there in the first half.

And we see lot of negative news and companies profit warning on weaker Brazil. So, maybe if you can highlight what’s going on there and what do we expect for second half and probably next year?

I think yes, we do see a weak economy, a lack of investment in certain sectors. The oil and gas is hit particularly hard and that’s affecting our ropes business, in Brazil in particular.

The wire businesses have remained reasonably strong and the tire cord business remained relatively strong during the first half. But we are seeing quite a significant decline in the automotive industry.

And so we expect that to have a flow-through impact into some of the tire cord business. But we are pushing quite hard on the replacement side as well and being growing our business there, maybe a little bit more than the rest of the market.

So, that’s offset some of the decline we’ve seen in the OE side of things. So, we’ve taken quite a lot of action to continue to focus on businesses which actually have remained either reasonably strong or to improve our position in businesses which have or sectors which have weakened.

At the same time, we’ve taken quite a lot of cost actions in the operations in Brazil, both in our own wholly owned operations like the ropes business we’ve taken quite a lot of cost out of that. But in the joint venture business, BBA there they have taken a lot of cost and that’s why as Bruno explained the contribution was actually up year-on-year out of Brazil rather than down from the joint venture business.

Now, will we be able to stay at that sort of level? It will take a lot of doing but in terms of year-on-year comparison, it did also go down in the second half of the year last year.

So, our goal would be to try and keep it at a year-on-year basis that carryover level of contribution to business.

Thank you.

Okay. Let’s have question more from the room here.

Yes, additional question on, now what was my question.

You like to rewrite then.

Okay, I got it. You mentioned the loss-making facility is in the Asian region, APAC could you indicate the real issues over there and also try to quantify the impact of what is material of this?

And then related to this perhaps making the exercise looking at the production facilities, what are the, I would say the factory leader the regions where you found out there could be the most improvement potential?

If I look and maybe Bruno can also the more technical side, on Malaysia some of the cost issues. But in terms of the issues that we’re facing, I think a combination of different factors about some of our uncontrollable making some which were market dynamics and tariff driven and our ability to buy wire rod at a competitive prices in the marketplace was a challenge.

So that hurt us. But the reality is it took us longer than we’ve anticipated to, get ourselves up to a running level of both volume and quality then allowed us to get the productivity levels that we wanted to and the operations from after founding the agreement to venture into play.

What we’ve done is actually we’ve taken a fairly hard look at which the businesses we want to be in Asian cities where we’ve done a lot of portfolio management. We’ve moved certain businesses out of Indonesia and Malaysia, so we’ve relocated some of the sawing wire business that we did have been relocated into China.

That gives us more singular focus on that business which we also think can help us strengthen our profitability there. It’s allowed us to concentrate more exclusively on the growth of tire cord in Indonesia which actual was a positive for us.

We’ve stopped certain product categories in Malaysia, so that we can get out to some of the more commoditized products. We didn’t really see a route to gaining value creation on them, so that can give us some of the more profitable products.

So, it’s a combination of really a huge number of different things both very nitty-gritty cost to tension to detail and so on in the factory, but also some more strategic ones about areas of focus and concentration. So, that’s driven I think the key improvements there.

Then, just to give you some additional perspective on those, we’re talking about the facilities which we acquired to joint venture in Malaysia. We are also having quite some start-ups and additional investments in our industrial steel wire business in China, where we have some of the entities.

And next to that also in India, where we still have next to tire cord business also some other wire businesses. So none of those are extremely loss makers but making a few million losses in different locations all of a sudden start to adapt quite a lot.

Last year with respect to some impairment on our assets in Malaysia, and we also as Matthew indicated stopped selling certain products as a result of those. So, we are gradually cleaning up and making the assessments first of all it’s there in the portfolio entity by entity, plan by plan to continue to clean it up and try to get all of the blinders out because as I said few million in four or five locations is a big number for a region to carry.

And just getting those numbers down and actually up into the block is important as trying to drive the profitability of some of our other entities. But it’s not that there is one enormous behavior compared to the others it’s more that we have to do a lot of work in different areas in Malaysia in our two sites which we have there, in India and in China.

Okay, thanks.

Was there another question there? Okay.

[Indiscernible]. A question regarding the U.S.

operations, 1.4% margin decline in first half is only due to the rope factory or the are there other elements of play, can you comment about that? Second, you mentioned that you expect to recover some volumes from last quarter of this year.

When do you believe that asserts the qualification I suppose? When do you believe that you could run again at full capacity, next year or after?

Third, if I remember, it was relatively old factories. And before the fire you were under pressure from newcomer on the market with state of art facilities.

If I would rebound what keeps wise something like that. So, with the new factor as you closed to date what kind of margin improvement do you expect there at full capacity?

In terms of the impact in the U.S. unfortunately it’s not only in the bead wire operation in Rome.

That obviously has had quite a big impact as we suggested both for a combination of cost absorption as a whole and lack of that bead wire contribution into the business which was at least a positive contributor. So, part of that decline in margin was bead wire, but actually we saw our margins decline in the industrial steel wire businesses.

So, more the sort of agriculture, cable armoring, strand type businesses were again over capacity in a relatively weak market, it has been putting quite a lot of price pressure on there. We really no longer have to scale in that sector to be able to respond, I think as ably as we should be able to on some of those cost pressures.

So that’s part of why we need to continue to, why we need to continue to look at how we bring cost down in the U.S. and which markets we really want to be in.

The answer to that is for example, our specialty wire business which supplies in for the automotive, there we actually have seen a fairly significant improvement in margin and also in our tire cord business. So, on those businesses, we’ve seen improvement in the margin.

So actually the net impacts of both, the bead wire and industrial wires is quite a lot more negative. So I think that gives you a bit of a picture there.

In terms of when do we expect to be up and running at the same sort of ready levels in Rome, a bit difficult to say, we need to win back business. Some of it will come back very quickly, we know that and we’ve got those double commitments, some of it, the supply is it taking it over identify it to the nail to keep hold of it.

And we know our customers do actually a lot of them want to be back to us and we were very reliable supplier to them of a quality product. But it may cost us a little bit to do that.

So, we may see an impact on what had been our previous margins and so we can then build it back up. But I would hope, I don’t think it will be back up to 100% next year, but I would hope by 2017 we’ll be back to where we want it to be.

In terms of we were under pressure, which is actually why we already had a plan to renew the operations in Rome. So, we were already actually working, we were very lucky in that some of the equipment that we already shifted over to replace the bead wire line in Rome, was not inside the area, the factory which burned down.

So, the ends of the, each ends of the line were outside in a protected by firewalls. Unfortunately therefore weren’t affected.

So we were going to replace. We had a view that putting in the same sort of operations as we have for example in China and in Slovakia into Rome was going to make us both very competitive quality and on cost and enable us to grow back the market.

So, we were under pressure, we already had a plan to address that. This has slowed that line down because we’ve had to rebuild the facility at the same time as having to put the new lines in.

So, it will be a bit delayed. And we didn’t answer the question on BMS I apologize, for the manufacturing excellence.

So I’ll just come back to that for a second. In terms of where, we see opportunities in every operation.

Obviously some are more advanced and others, and I take maybe some of the reasons for example of our margins being high in Europe is I think that the operating level of our plan particularly are wire operation in Klukovich is really at a very, very strong level now. And I think because of that I think we will struggle to get the same degree of improvement in an operation like that as we would in other parts of the world.

But actually we challenged ourselves by starting this with our most productive operation in tire cord which is our factory in Weihai in China that was our first pilot plant. We started one on tire cord and one of the wire businesses the wire business was here in Belgium in Sevingham [ph] as a very operation that we wanted to tackle and the one in Weihai we want to tackle at the same time.

And despite Weihai being our most cost competitive plant in China, we do see significant areas of improvement there. So, we think that there is opportunity pretty much everywhere in the world.

Yes, any question from the phone.

Hello, couple of questions concerning tire cord China. Could you give us, do you know what the total sales volume was in the first half of 2015?

And split it out, in between trucks and passenger cars, that was the first question. Same question, within for the replacement markets and the OE markets, and then how do you see the replacement markets evolve in China the next five years.

And the last question, on the total capacity of tire cord in China at the end of June, and the average utilization rates?

Well, maybe I’ll look at the last part of that question and Bruno will get into the first part. And but if I look at the future of tire cord, let me just try and think of that one for a second and on replacement tire industry, it’s going to grow.

I mean, as the replacement tire industry is in its infancy still in China. And the ratio is nothing like the ratios they are in the rest of the world and it’s going to grow, it’s going to grow particular in passenger car which is the one that’s been slower.

And truck, actually there is probably a much bigger replacement tire industries and there is other parts of the world because there is no rethreading at this stage in China. And so the big question mark for everybody operating within the tire industry and in tire cord is whether rethreading gets introduced into the Chinese truck market.

To do that, means that you’re going to see an introduction of much stronger fleet management because that’s what will be the driver of that change in the Chinese market. And to date we have seen absolutely no indication whatsoever that’s happening.

So, it’s still a predominantly owner driver driven truck market which means that they are looking to buy tires which they effectively run until they’re destroyed and then they replace. So there is a strong replacement tire market in trucks, we see that in the five-year horizon that you described.

We see that remaining. On the passenger car tire, we do see the replacement sector growing because at the moment the ratios of replacement to new, are significantly lower than they are in more mature markets.

So that was that. In terms of capacity utilization in China, see I’m not going to say theoretical because tire, it’s very difficult to put a number on capacity.

And then maybe I’ll give a very quick explanation as to why. If you have a machine which you say theoretically can produce let’s say 10,000 tons a year of tire cord.

If that 10,000 tons running at a normal mix, so you change the product that you’re running on it 10 times a day, and so you run 10 different products I think. Is it the capacity that you were running it on one single product?

So you have no changeover times, and you have a much faster and more efficient process. As you can imagine those two different scenarios give you remarkably different levels of capacity.

So, to my mind and we’re talking about capacity without understanding complexity is a fairly dangerous game. That’s I’ll talk about theoretical capacity and say our theoretical capacity is probably around about 0.5 million tons in China on tire cord, and we’re running it around about 80% to 85% capacity at the moment.

But it is, as I said, a theoretical exercise.

And if I just may add, I think what is also true is that in the total market, there is still a significant over capacity next to that. So, while as Matthew was indicating we are running for sure as of March back at high capacity utilizations.

The pricing pressure we see is because there are some lower end players who are still running at very low capacity utilization, so. Okay?

And my first question?

That was also on the capacity utilization for truck and passenger?

No, no, just this good -- sorry between truck and passenger cars.

For us the truck remains the most important part of our business about 70% of what we are doing is truck, 75% is truck. Passenger is actually increasing for us also because the highest commodity type of products we find in truck tires these days in North China, very different from the trends which you see in the European markets.

Because of the rethreading, the quality of the tires here is much, much higher and therefore much higher quality of tire cord. If you can make a tire which is only supposed to run 80,000 to 100,000 kilometers for a truck, then that is a much lower quality and therefore higher commodity type of products, which is why we see ourselves actually with a very strong market share and growing market share in passenger while more on the commodity in the commodity area, is truck tires.

But overall truck in the market in absolute terms remains the absolute bulk of the market 75% is truck.

And now, on what percentage you would sell to the replacement market and OE markets?

It doesn’t, we can’t say that because we sell to the tire maker, they don’t break down to us exactly what market that’s going into. In the passenger car side, it’s still going to be the majority into OE market in the truck tire, I would assume the same sort of relationship as the market size, I wouldn’t assume anything different.

Okay, thank you.

Is there another question from the phone?

Hello, [indiscernible] Amsterdam. Thank you for taking my questions.

First of all, a housekeeping question on the recurring EBIT, maybe you can breakdown the EBIT chunk in M&A currency and underlying to get a bit of a better understanding into the underlying EBIT growth. Secondly, on the optimization plan, I was wondering whether you will update us on the progress made.

And also a follow-up on these optimization plan, what sort of negative impact should we expect from the rationalization program and in the fact that you may terminate some of the less or the more commoditized products in your portfolio, so will it have a meaningful impacts on sales growth going forward? And thirdly, a lot of discussion of course on the capacity utilization and the growth of the tire cord market in China.

But what do you expect in terms of new production capacity because you’re running a relatively high utilization rate we just learned. So is there also a chance of course that you and maybe some other larger players will again add new capacity which of course puts pressure on the pricing going forward?

And final question is on the medium term, on the underlying operating margin forward. It’s noted in today’s press release but maybe you can update us on the status of that medium term plan?

Thank you.

Maybe I’ll take the one on new capacity, as I look at that. Again I actually fundamentally believe that we can increase our capacity with minimal investment in China.

I think I come back to what I was talking about theoretical capacity, earlier we look at where we expect to be in China in sort of five-year time horizon. We do need more capacity but there are different issues that play there, one is, we may build less or make less in China for export out of China so we can use some of that capacity that transfers into local -- to satisfy local markets.

So that would be no increase. But again, I think through complexity reduction and we have a situation in China where we have nine different factories now producing tire cord.

And we pretty much build all products in all factories. I think a very focused look at how we reduced the complexity to look at different products in different factories and be more specialist across the factories, actually will be most of the capacity increase in the range of sort north to 10%, it will vary by factory but north of 10% with actually without having fundamentally invest in additional capacity.

So, I think that the capacity that we have in place in terms of human and machine capacity is probably enough to see us through the next few years. And we will take a judgment call on that as we go further forward.

Medium term margin I think again, we do see continued pricing pressure. This was just on China or?

No, no, total.

Yes, we’ve given you the indication that we laid out a plan for ourselves to get to 7.5% margin or other 7% margin by 2017. And we believe we’re on track to do that.

I think Bruno can take his solid EBIT. The underlying EBIT improvements but with a lot of one-offs in the EBIT this year, we actually think so far this year we actually think our underlying performance has been positive, better underlying performance better than last year.

And I think that shows for a little bit in the EBITDA or EBITDA numbers. And we think we are moving in the right way to get to the margins that we want to, through a series of different activities in the business.

But it’s not going to happen overnight. A lot of the changes are progressive and it’s about how we focus on different products and products of the complexity is how do we look at the creation of value for the customers and delivering that value to the customers.

And it’s about how we take control of the cost structure that we have around the business and the operating cost structure that we have to deliver our products. So, we’re focused on lot of different areas.

It’s a three-year journey we’ve given ourselves to get there. And we think that we’re making progress.

Let me maybe try to answer the first question which is really very difficult question because there are quite some impacts and influences of one thing versus the other. If we just look at the contribution of the M&A activity to the EBIT in the first half, as already indicated the impact will be lower than ongoing one because not all of them are already at the full effect and also because of the opening balance sheet.

But at the same time, as we indicated there are some of them are actually, the really ones are over-delivering versus expectations. And that will mean that we are there looking at anything between €10 million to €15 million additional profits coming out of the acquisitions which we have as we indicated Pirelli on an ongoing basis €25 million to €30 million.

Half of that slightly over-performing but some of it not full year effect in there. Less affect so far still from the operations in Australia, because they’re only in there for four months.

And again, the same thing as what we indicated on the opening balance sheet. So there is limited positive impact so far.

On exchange rate, as we give as a guidance in February, every percentage change of dollar versus Euro is worth about €1 million in EBIT on a full-year basis, which if you then see what happens of the dollar versus Euro on a comparable basis, this will translate into about €10 million positive impact on REBIT into exchange. Now, if you take all of that into account, I think it’s important that you need to also look at the one-offs, which we have hitting as negatively this half year.

We talked about different things like the debt reserve like the consultancy fee, also last half year helped with grants in China. So there are quite some things which drive in this close together it’s about €20 million which we had to make up if you want, partly made up as I indicated in the text of the press release by the new acquisitions, by the exchange rate movements and all-in-all, after all that we keep a positive €12 million in spite of the one-off negatives which we had here.

Okay, so I hope that gives you a bit of building blocks on how we look at that. I missed your, what was your second question again, it was on?

The question related to the optimization plan, part of the plan has caused to rationalize your products or your assortment. So I was wondering to what extent, will those have a meaningful impact on top-line or in top-line growth organically?

Divestments for instance of the carding solution business in the second quarter, that’s of course very visible and announced. Meanwhile, we’re also looking at non-performing businesses and some of those you see in, as I talked about the second quarter that our industrial wire businesses in Asia.

So a volume decline is because we decided to stop doing certain businesses. All-in-all, you would be talking 1% or 2% on a total company basis.

So, it’s not massive but there will be elements which we need to try to offset through growth and mix improvements in other areas because we are very seriously looking at our total portfolio to ensure that we can get the non-performing or low contributing parts of our business out. And I think that for instance explains most of the volume decline which we’ve seen in Asia in the second quarter.

Thank you, very helpful.

Wouter Vanderhaeghen, just some follow-up questions from our side. First of all sawing wire, can you give us an indication or just an estimate on what that represents now of your percentage of sales in Asia Pacific?

It’s about 10% I guess.

Yes, it’s around 10% of what we have in Asia. Again, to the margin point which is most probably a follow-up question on that one.

It just know and we already repeated but I think it’s important to remember that the margins which we see there are at high-end of what we’ve seen in the tire cord. But the big difference is that EBIT and EBITDA is pretty close to each other given that a lot of these machines were impaired.

And if you look at the total margin in Asia, EBITDA margins close to 17%, it gives an indication that the EBIT margin therefore for sawing wire are in that tune for on about 10% of our business.

Okay. And you do have significant minorities that they were non-controlled interest was only zero to €4 million.

What are the joint ventures where you have been incurring quite significant losses in the first half?

Yes, it’s a good point. Because normally and we expect also for the second half of the year this number to be again a number where which you need to deduct from our results, so whether positive or negative.

So the share and the profit that we need to share regards to joint venture partners, has been depressed this time around because of different elements. One for instance, the stamp duty which I talked about in Australia is about €4 million, 35% for our joint venture partner.

We also have seen Southeast Asia where I talked about Malaysia, there 45% is owned by joint venture partners. So there they take part of these losses.

And it’s actually the combination of some of those losses and one-off costs which we had, which drove that number to zero. And it gives us an indication we would expect for the balance of the year that number to be between €5 million and €10 million most probably close to €5 million but low digit or mid-single digit to go to our joint venture partners, would be our best estimate at this stage.

Of course, if impairments happen something else happens, it might change but it’s in that magnitude that you should look at.

Maybe difficult question but for a normal year, would €10 million €15 million be a good rate?

Yes, of around €15 million we normally should look at and that’s also because there will be quite some it’s Latin America to some extent 35% of the total ropes business as Matthew indicated in some areas affected by oil and gas for the moment. But on a more normalized base that’s what you should look at yes.

Then, on capacity utilization, for the market you just said excess capacity. But where do we estimate now capacity utilization in China for the market as a whole?

When we talk to our people they still say there is about 50% over capacity. The number doesn’t change Wouter when you talk to them so maybe right now it’s 40 as of now, but it is still very significant.

And it’s, if you look at the bigger players in the market, China and ourselves, we are running at high capacity utilizations but we know that some of the smaller players are running below 50%. And that then also puts quite a lot of pressure on them.

And you see some of them who provide their results, publicly given that they’re publicly listed we see that they’re actually starting to have negative results and even cash burning. And that’s reflecting really their much lower capacity utilization which they have.

Okay. And then as a final one, you expect for the Rome plans to reach full production by 2017.

What is the same, let’s say six months ago or is it little bit pushed?

No, it’s pushed it out definitely. We were building our business pretty well on bead wire and had I think very good established contracts with our customer base in North America, primarily North America for that factory.

And so we would expect a fairly seamless transfer across into the new line. And we would have been up and running it pretty well full capacity by the end of this year.

So, it’s pushed it back definitely.

Yes, we have to win back the business. Just to clarify, the question because you can interpret this in two ways.

Without the fire and that’s I think what Matthew is responding to, we should have had a much more, smoother transition. I think if we would look now versus three or four months ago, so, after the fire there I think we are actually on track.

And we were able to speed up the approvals to ensure that when the annual contract negotiations which are going on now and in September that we have already approval. So, we are on track if not a few weeks but they can be critical weeks ahead of our schedule there which is why we hope to already start picking up something in quarter four.

But the tough part and the difficult part which is for us is for the moment difficult to predict, as how much of that business will come back in quarter one 2015 when the new contracts are there. And it won’t be unfortunately where.

Let’s say we target to have everything back but that’s the target.

Okay. Thank you.

Yes Filip.

Yes, also two follow-up questions please. First one, housekeeping question.

Do you maintain your CapEx guidance for the full year?

Yes.

That’s good.

No, I think indeed it is just to, we had about €80 million, full year we would expect it to be about €170 million. There will be some impact related to the fire in Rome.

It’s a bit technical if you want. But part of what’s happened because of the fire is that also the infrastructure was on fire, so therefore there is going to be a new physical building.

That was not in our CapEx, in our original CapEx, but will be paid by the insurance. So the total number might look a bit bigger but that would be solved by insurance from a cash point of view, no different.

So, excluding that part, yes I think the estimate which was there around €170 million, it’s difficult to predict where we’re going to be at the end of the year. But we continue to invest in the balance of the year.

Okay. Now, one question on the smaller Chinese tire cord players.

You mentioned before and I think it’s also often in the press that financing becomes more difficult in China, you have smaller players, low capacity utilization, probably burning cash. Have you already seen bankruptcies or players that stopped producing or shipping to customers or not yet?

On tire cord no, there was a bankruptcy last week, week before last in the tire industry. So one of it is in the Shandong Province when bankrupt in the last couple of weeks, I don’t remember the name of it, having cross the top of my head.

It’s a relatively small player, we didn’t have a lot of exposure to it as a company, but it’s I think a clear message that there is over-capacity. I think when we look we also have to look a little bit the tire industry capacity utilization as well.

And I think when you look interestingly with the decline that we saw in January-February, they were also seeing. And on the passenger car side of things, capacity utilization in the total tire industry in China fell to below 20% in the month of February.

So, there are some tough dynamics in both parts of it which is why as Bruno said, we need to be very prudent on our bad debt provisions and how we allow different customers to pay us and so on because with that level of capacity utilization, you are going to get victims. And I think the same is true on the tire cord side of things, it’s a question of, when is the question of Asians of investors.

It’s a question of when the bills come due. There are a lot of different things can come into play.

But I certainly would believe that over the next six months we are likely to see some of the small players go. I actually have ways in there, surviving without any cash, so I just don’t understand.

Then again, so far we have not, we are already expecting for a long-time even some of the bigger ones are now burning cash which is a very strange way of doing business. But we have not seen a tire cord type go together.

Okay?

All right. Do you see a shift in with tire producers, shift the capacity to other countries like Thailand or responding to the import duties from U.S.?

Not shifting capacity but adding capacity. So the biggest domestic player in China is Hamtu [ph] tires and I think they’re opening a new facility in Thailand.

So but I think that facility is primarily targeted at local tire supply in Southeast Asia rather than export into the U.S. So, the answer is at this stage, no, we haven’t seen much of that.

We’d seen planned activity already happening but we haven’t seen anything new.

And am I right to read from the press release, or it’s my expectation that, it seems that the worst in the tire cord landscape is over, stabilizing at the Q2 level?

In the short term, I’m only going to say in the short-term, yes. We’ve seen a recovery.

It got to very bad levels, very difficult levels in January-February, it started in November-December, it got worse in January-February. And it’s then bounced back to levels that we were seeing through last year, even a little bit better than we were seeing at times last year.

And our immediate outlook is, we had some seasonality through the summer period. But actually our outlook is recently positive at the moment.

So we’re being quite upbeat about what we see as demand through the second half of the year, because that may income January, I’ll take the same year, I don’t know, I really can’t say at this stage. And I think it probably actually ends up being subject to some of the other questions.

If more capacity comes in rather than we see existing capacity, the pressure is all increased. If the car market declines on a more continuous basis, then we anticipate that will affect it.

A lot about known’s all we can give you is the horizon as we see it, and that’s relatively being very frank about it, a relatively short-term horizon.

And regarding North America, I think among the measures to improve the profitability is to improve the product mix stores, products with higher value, products that are successful in Europe. How is that progressing?

On the specialty wire side, it’s progressing very well. And the strength of the automotive industry is helping there.

We also supply things like sort of our flex-pipe armoring product out at North America as well, now in terms of our operation in Orrville. So, that side of it is going well.

On the industrial wire side, we have sectors which, is going extremely well. So I think like our flex-pipe product for the agricultural sector for fencing is very strong.

It’s relatively small within the grand scheme of things. So, the reality is that moving to certain sectors is good for us.

In one sense in terms, it gives us at a margin on individual products. It just doesn’t have the scale to really offset the impact of not having enough volume for our base in North America.

Any more questions on the phone, nobody?

No more questions. Okay.

Well, then I would like to thank everybody also who has been online for the interest. And wish you a very good weekend.

And join us [ph] on break if you’re not having one.

Absolutely, we will. Okay Thank you.

Thank you very much.