Prysmian S.p.A. FY 2011 Results

Prysmian S.p.A. FY 2011 ResultsSales up (+11.2%); Order book climbs to €2.3 Billion (Feb. 2012) Adj Ebitda increases to €568 M. Strong cash generation (combined cash flow €209 M)Net financial position/Adj.Ebitda down to 1.8xSynergies from Draka integration in line with expectationsThe full-year 2011 results consolidate Draka for the period March-December 2011• Sales: €7,583 Million (organic change +11.2%)• Adj Ebitda : €568 Million (€387 Million in 2010)• Adj operating income : €426 Million (€309 Million in 2010)• Adj net profit : €231 Million (173 Million in 2010)• Net result: negative €145 Million after €205 Million provision for antitrustinvestigations • Net financial position: €1,064 Million (€459 Million at 31/12/10; €1,389 Million at30/9/11)The Board of Directors of Prysmian S.p.A. has approved today the Company's consolidatedfinancial statements and separate financial statements for 2011 .Technological innovation and production flexibility have enabled the Group to achieve more thansatisfactory results even in a market where signs of recovery are still weak - comments CEO ValerioBattista. Financial year 2011 has closed with a marked organic growth in sales. Profitability hasalso continued to improve, with Adjusted EBITDA coming in at the top end of the target rangeannounced to the market. The strong cash generation and the clear improvement in our key indicators&ndash; for example, net debt just above €1 billion which is less than two times Adjusted Ebitda -allowed us to enter the current year with a solid balance sheet. Lastly, the integration with Drakahas been conducted quickly and efficiently, letting us realise significant synergies in the yearjust ended".FINANCIAL RESULTSSales amounted to €7,583 million compared with €4,571 million in 2010. Assumingthe same group perimeter (excluding the Draka contribution of €2,220 million for the periodMarch-December 2011, net of €59 million in intragroup transactions) and excluding metal price andexchange rate effects, the organic change was +11.2%. Draka's sales for full year 2011 came to€2,669 million, reporting organic growth of +4.2%. Full year organic growth for the new PrysmianGroup (including Draka for the entire period) would have been 8.8%.Adjusted EBITDA amounted to €568 million, up 46.8% from €387 million in 2010,coming in at the top end of the target range announced to the market in May 2011. This increase isattributable to €32 million from organic sales growth by all businesses within the Prysmianperimeter and €149 million from the consolidation of Draka since March 2011.EBITDA amounted to €269 million. The decrease from €365 million in 2010 is fullyattributable to net non-recurring charges of €299 million, of which €205 million in provisions forrisks arising from ongoing antitrust investigations and €56 million in restructuring costs mostlyrelated to the start of integration with Draka.Adjusted operating income was €426 million, up 37.8% from €309 million in 2010.This increase is attributable to €33 million in higher profits generated by organic growth in thePrysmian perimeter and €84 million from the consolidation of Draka since March 2011 (net ofconsolidation adjustments).Operating income, including the effects of non-recurring items, fair value changesin metal derivatives and in other fair value items and asset impairment, was a positive €19 million(positive €307 million in 2010). The decrease is entirely attributable to the negative impact ofnon-recurring charges and negative fair value changes in metal derivatives.Net finance income and costs reported a negative balance of €129 million (negative€96 million in 2010). The negative change of €33 million is primarily due to the growth in net debtfollowing the Draka acquisition (€501 million cash outlay plus €357 million for the consolidationof Draka's net financial position at 28 February 2011), but also reflects changes in thecomposition of financial structure, which has been strengthened after entering a Forward StartCredit Agreement for €1,070 million in January 2010, issuing a bond for €400 million in April 2010and finalising a credit agreement for €800 million in March 2011. These new agreements havesignificantly extended average debt maturity to now about 3 years.Adjusted net profit was 33.5% higher at €231 million (€173 million in 2010); theincrease reflects the growth in adjusted operating income and the first-time consolidation ofDraka.Net result was a loss of Euro 145 million, compared with a profit of Euro 150million the previous year, reflecting the negative impact of Euro 376 million in non-recurring andextraordinary charges (of which Euro 205 million to provide against risks related to ongoingantitrust investigations).Net financial position at the end of December 2011 was €1,064 million. Theincrease from €459 million at 31 December 2010 is attributable to the following factors:cash outlay of €501 million for the acquisition of Draka;consolidation of the Draka net financial position of €357 million as at 28 February 2011;net positive cash flows from operations of €481 million, before changes in net workingcapital;reduction of €183 million in net working capital due to actions taken in the period toimprove efficiency;net operating investments of €145 million;payment of €37 million in dividends;net negative cash flows of €229 million primarily due to taxes and finance costs.INTEGRATION WITH DRAKA AND STRATEGY DEVELOPMENT• Deployment of new organisation completed, target synergies confirmed on basis ofsatisfactory results achieved in 2011. Technology and product integration improve offeringcompetitiveness.The synergy realisation plan has been completed and the initial results in terms of costreduction have been achieved, particularly in the areas of procurement and workforcerationalisation. The new organisational and management structure launched in July 2011 has alreadyled to the identification of significant efficiencies and to the appointment of approximately 300new key positions.The speed and effectiveness with which the integration process has been defined andimplemented has allowed slightly higher-than-expected synergies to be realised in 2011 (€13 millionversus €10 million originally planned), further boosting confidence in achieving the total annualrun-rate target of €150 million (by 2015).Deployment of all the operating structures has also been completed and integration isproceeding according to plan also on the technological, manufacturing, commercial and logisticalfronts.- In the business of submarine cables for offshore wind farms, the Group is now able to offerthe widest range of technologies and products, from inter-array connections between turbines tocable systems for connection to mainland grids.- In the SURF - Oil&amp;Gas business, the Group's range of technologies and products (whichalready included umbilicals and flexible pipes) has been enlarged with the addition of Draka's DHT(Downhole Technology) cables.- In the telecom cables business, the Group can now leverage on a particularly extensive andcompetitive product range. The availability of worldwide fibre production capacity also reducesproduction and logistics costs, resulting in better margins.- In the renewable energy cables business, the enlarged offer is helping improve geographicalreach, with a focus on high-growth markets.- In the T&amp;I business, current integration of the product ranges is improving the offermix with a focus on high-end products and key global customers.• Investments of some €145 million: high voltage and submarine cables, flexible pipes,optical cablesIn line with its strategy, the Group made €145 million in net operating investments during2011, mainly to develop high-tech businesses. The principal projects included completion of the newplant in Brazil for flexible offshore oil drilling pipes, and expansion of production capacity forhigh voltage cables in China and France, for submarine cables in Italy and Finland, and for opticalcables in Brazil.• Investments in high-growth-potential countries on targetAt the end of 2011, emerging and high-growth countries accounted for approximately 30% of theGroup's total sales, particularly thanks to the strategy of selective investments in high-techvalue-added businesses. In particular, in Asia Pacific the main drivers of growth were the highvoltage business, optical cables and certain industrial applications like Renewables andOil&amp;Gas; Eastern Europe reported positive results not only from high voltage and optical cablesbut also from the different industrial applications; lastly, in South America, growth was drivenboth by high voltage and optical cables, as well as by umbilicals for the offshore oil industry.ENERGY CABLES AND SYSTEMS PERFORMANCE AND RESULTS• POWER TRANSMISSION ORDER BOOK CLIMBS TO €2.3 BILLION• POSITIVE DEMAND FOR HIGH VOLTAGE UNDERGROUND CABLES THANKS TO RENEWABLES• GROWTH IN POWER DISTRIBUTION VOLUMES• T&amp;I VOLUMES STABLE• INDUSTRIAL: HIGHER SALES AND PROFITS. EXCELLENT PERFORMANCE IN OFFSHORE OGPSales to third parties by the Energy Cables and Systems segment amounted to €6,268 million(including the Draka contribution of €1,439 million for the period March-December 2011, net of €45million in intragroup transactions). Net of metal price and exchange rate effects and changes inthe group perimeter, organic growth was +10.5%, with a particularly positive performance by theUtilities business. Adjusted EBITDA amounted to €447 million, up 27.4% from €351 million in 2010.The increase reflects the contribution of €74 million by Draka (consolidated since March 2011) andan improvement of €22 million by the pre-acquisition perimeter.Draka's Energy business reported €1,758 million in sales to third parties for the entireperiod (January-December 2011), with organic growth of 1.9%. The Energy segment's overalltwelve-month organic growth (consolidating the Draka perimeter for the entire period) would havebeen +8.1%.The market trends and results of the Energy segment's different business areas are presentedbelow but only with reference to the pre-acquisition perimeter (accompanied by a few brief commentsabout the Draka perimeter).UtilitiesSales to third parties by the pre-acquisition Utilities business amounted to €2,160 million,delivering organic growth of +17.0% thanks to volume recovery by nearly all business lines even ifwith differences in timing and between geographical areas. Organic sales growth was positivelyreflected in profitability, with Adjusted EBITDA increasing by 2.5% to €250 million, despite therising cost of raw materials and the competitive pressure particularly in emerging markets.The Draka Utilities business reported €116 million in sales in 2011 (of which €101 millionconsolidated by Prysmian as from March 2011). The overall twelve-month organic growth of theUtilities business (consolidating the Draka perimeter for the entire period) would have been+17.8%.Sales by the submarine business line increased thanks not only to progress on the major powerinterconnection projects acquired by the Group (particularly, Romulo in the IberianPeninsula/Balearic Islands, Messina II in Italy, Doha Bay in Qatar and Hudson in the USA) but alsoto the contribution of smaller jobs carried out in Europe particularly in the fourth quarter. Asignificant number of contracts for offshore wind farm connections were won during the year. Thisis a market presenting significant opportunities for additional growth and in which the Group hasfurther strengthened its product and technology offering thanks to integration with Draka, whichspecialises in interarray connections between wind farm turbines. Including the Western Linkproject for a submarine connection between England and Scotland acquired at the start of 2012, theorder book provides sales visibility for over three years. With the objective of continuing tobenefit from steady projected growth in this sector, the Group has carried on investing in newmanufacturing capacity by starting up submarine cable production at the Pikkala plant in Finlandand by planning about a 25% increase in capacity at the Arco Felice plant in Italy.Sales performance by high voltage underground cables benefited from the recovery in demand,particularly coming from renewable energy projects and/or energy saving projects involving existingEuropean grids (Italy, Great Britain and France) and from projects to develop new infrastructure inemerging markets like Russia, Turkey, the Middle East, Brazil and India. With the goal of boostingmarket share in Asia Pacific and the Middle East, the Group has invested in new manufacturingcapacity for extra-high voltage cables in China. The order book provides sales visibility for aboutone year.The Power Distribution business enjoyed strong growth throughout the year, particularly inAsia Pacific and South America. Demand in Europe was primarily driven by Nordic countries, EasternEurope and Italy, while remaining stable in the rest of Southern Europe. Of particular note is themarket success of the new P-Laser technology introduced in Holland after Italy. Brazil andAustralia led the recovery outside Europe, while despite weak demand, the USA showed signs ofimproving profitability. On the whole, margins remained low despite the upswing involumes.&nbsp;</p>Trade & InstallersSales to third parties by the pre-acquisition Trade &amp; Installers business amounted to€1,621 million, posting a small organic increase (+1.2%). Adjusted EBITDA amounted to €40 million(+10.0% on 2010).The upturn in volumes occurred particularly in North America, while demand in Europecontinued to be weak, especially in Italy and Spain, although the Nordic countries gave off a fewpositive signals. Outside Europe, the Group has leveraged its large product portfolio to maintainits historic leadership of the South American market, while it has sought to increase its presencein Asia Pacific with the objective of improving the geographical mix of sales.In 2011, Draka's twelve-month sales to third parties amounted to €816 million (of which €685million consolidated by Prysmian for the period March-December 2011), with a downturn in volumes inthe last quarter of the year. The Group's overall organic growth (consolidating Draka for theentire period) would have been +0.1%IndustrialSales to third parties by the pre-acquisition Industrial cables business amounted to €919million, reflecting organic growth of +14.8% most of which achieved thanks to the positive trend inthe Oil&Gas sector. Adjusted EBITDA amounted to €72 million, reporting an increase of €11million partly thanks to a reasonable recovery in demand in various parts of the world.On the whole, the market scenario was stable or slightly better, particularly in the second half of the year, with signs of recovery in demand by the oil, mining and infrastructure sectorsespecially in high-growth regions like APAC, the Middle East and South America.Demand for oil industry cables was particularly driven by the offshore sector which contributed to a significant swelling of order books in nearly all the geographical regionsconcerned. The Group's growth in the offshore business will be driven not only from the new flexible pipes production line in Brazil but also from the integration and development ofcross-selling opportunities with Draka, which is present in North America with its DHT (Downhole Technology) cables.In the renewables segment, positive growth was achieved in the Wind business, where the Group is stepping up its presence in high-growth markets (South America, China, India and Australia),also thanks to integration with Draka. Automotive industry demand was stable in Europe but more sustained in Asia and South America. Demand for elevator cables was stable in North America buthigher in Europe and China. Lastly, in the Specialties &amp; OEM segment, growth in the order book in Asia made up for weakness in North America and Europe.In 2011, Draka's twelve-month sales to third parties amounted to €826 million (of which €698 million consolidated by Prysmian for the period March-December 2011). The Industrial business wouldhave had overall organic growth (consolidating Draka for the entire period) of +8.5%. Draka's presence in the Industrial business is particularly important in geographical markets (such asNorth America) and product segments (infrastructure and elevator cables and renewable energy solutions) that complement those of Prysmian.TELECOM CABLES AND SYSTEMS PERFORMANCE AND RESULTS• STRONG ORGANIC SALES GROWTH, ALSO CONFIRMED IN Q4• ROBUST DEMAND FOR OPTICAL CABLES, PARTICULARLY IN NORTH AMERICA, SOUTH AMERICA ANDAUSTRALIA• GRADUAL IMPROVEMENT IN PROFITABILITYSales to third parties by the Telecom Cables and Systems segment amounted to €1,315 million(including €781 million for the consolidation of Draka from 1 March 2011, net of €14 million inintragroup transactions), delivering strong organic growth (+17.4%).Adjusted EBITDA amounted to €121 million with an increase of €85 million on the equivalentperiod in 2010 (following its consolidation from 1 March 2011, Draka's contribution to this resultwas €75 million).This growth was particularly driven by a significant increase in fibre optic cable volumes innearly every geographical area, which was also accompanied by a gradual improvement in margins. InNorth America demand also benefited from government incentives for the industry, while in Europegrowth was held back by the low level of investment by incumbent operators (except for GreatBritain and Holland). In contrast, more dynamic investment policies were implemented by operatorsin South America and Australia (where the Group started work on the National Broadband Networkproject during the third quarter). The opportunities for the new Group to capitalise on new globalfibre production capacity will help reduce production and logistics costs, thus promoting furthermargin recovery.Volumes also recovered for MMS (Multimedia &amp; Specials), particularly in Germany andFrance, and for OPGW (Optical Ground Wire) in South America and Spain, while demand weakened forcopper cables where the Group is focusing on reducing production costs.The integration with Draka represents a turning point for the Telecom business, by creating aworld leader in terms of both size and the technology, products and services offered, particularlyin the optical fibre and optical cables market. In 2011, Draka's twelve-month Telecom sales tothird parties amounted to €826 million. The Telecom segment's overall twelve-month organic growth(consolidating Draka for the entire period) would have been +11.7%.BUSINESS OUTLOOKThe macroeconomic environment in the first half of 2011 confirmed the initial signs ofrecovery already seen in 2010, albeit with very low growth rates and still at levels well belowthose before the 2008 financial crisis. However, the second half of the year began to be affectedby growing concerns about Eurozone and US debt sustainability, leading to a sharp deterioration inconsumer confidence and a gradual slowing of industrial output and demand.In such an economic context, the Group expects that 2012 will see generally stable demand formedium voltage cables for Utilities, for building wires and for those products in the Industrialsector most exposed to cyclical trends. Instead, positive developments in demand are confirmed forthe high value-added businesses of power transmission, renewable energy, offshore Oil&amp;Gas andfibre optic cables for major telecom operators. Lastly, the Prysmian Group will carry on during2012 to integrate the activities of Draka in order to optimise and rationalise the new Group'sorganisational and production structure with the goal of further strengthening its presence in allareas of business and of achieving the projected cost synergies.OTHER RESOLUTIONS BY THE BOARD OF DIRECTORSPresentation of a candidate slate by the Board of Directors for board renewalIn view of the expiry of its three-year term in office and as permitted in the By-laws, theBoard of Directors has voted to present its own slate of candidates for the office of director tobe submitted to the Shareholders' Meeting being called to vote, among other things, on theappointment of the new Board of Directors.This slate will be made publicly available to the public, together with any slates submittedby eligible shareholders, at the locations and within the deadlines required by applicableregulations.Demerger of part of the assets of two directly and/or indirectly wholly-ownedcompaniesThe Board of Directors has approved two proposals of demerger in favour of Prysmian S.p.A.part of the assets of Prysmian Cavi e Sistemi S.r.l. and Prysmian Cavi e Sistemi Italia S.r.l.,both companies subject to the direction and coordination of Prysmian S.p.A..As a result of the two proposed demergers, Prysmian S.p.A. will become the direct holder ofthe investments in the share capital of the Prysmian Group's Italian companies, currently held bythe two companies undergoing hive-up. This transaction is part of a broader project to reorganise,rationalise and simplify the investments held directly or indirectly by Prysmian S.p.A. also as aresult of its acquiring control of the Dutch company Draka Holding N.V. and the latter'sinvestments, following the successful conclusion of the voluntary public mixed exchange and cashoffer for the ordinary shares of Draka Holding N.V..Notice is hereby given that, under the Company's By-laws, decisions concerning demergersshall be taken by the Board of Directors of Prysmian S.p.A. and that no new shares will be issuedby Prysmian S.p.A. as a result of the proposed transactions, nor will its share capital undergo anychange.The demerger is exempt from the application of Consob Regulation 17221/2010 (as amended)provided for in the Company's procedures for related party transactions in respect of transactionswith its subsidiaries, pursuant to art. 12 par. 3 of the above Regulation.The legally required documentation relating to these two transactions will be made availableto shareholders and the public at the locations and within the deadlines required by applicableregulations.Directors' independenceBased on statements made by the directors, the Board of Directors reports that it has carriedout the review of their independence requirements, provided for by art. 148, par. 3 of LegislativeDecree 58/1998 and by the Self-Regulatory Code for listed companies published by Borsa ItalianaS.p.A., and confirms that the directors Wesley Clark, Claudio De Conto, Giulio Del Ninno, FriedrichFröhlich and Massimo Tononi continue to satisfy such requirements.Share buy-back programmeThe Board of Directors has decided to request the next Ordinary Shareholders' Meeting,scheduled in single call for 18 April, for authorisation to start a programme for the buy-back anddisposal of treasury shares. The programme will provide the opportunity to purchase, on one or moreoccasions, a number of shares whose total cannot exceed 10% of share capital. Purchases may notexceed the amount of available reserves reported in the most recently approved annual financialstatements. The programme will last for a maximum of 18 months commencing from the date of approvalby the Shareholders' Meeting.Possible objectives of the programme are: to provide the Company with a portfolio of treasury shares, including those already held bythe Company, that can be used in any extraordinary transactions;• to use the treasury shares purchased to service the exercise of rights arising fromconvertible debt instruments or instruments exchangeable with financial instruments issued by theCompany, its subsidiaries or by third parties;• to dispose of treasury shares to satisfy stock option plans reserved for the Group'sdirectors and employees;• to allow efficient management of the Company's capital, by creating an investmentopportunity even for its available liquidity.Treasury shares will be bought back and sold in accordance with applicable laws andregulations:(i) at a minimum price no more than 10% below the stock's official price reported in thetrading session on the day before carrying out each individual transaction;(ii) at a maximum price no more than 10% above the stock's official price reported in thetrading session on the day before carrying out each individual transaction.As at the present date, the Company directly and indirectly holds 3,039,169 treasury shares.The legally required documentation will be made available to shareholders and the public atthe locations and within the deadlines required by applicable regulations.Notice of Shareholders' MeetingThe Board of Directors has given the Chairman of the Board of Directors and the Chief Executive Officer several authority to perform all the formalities to call the Shareholders' Meeting for Wednesday, 18 April 2012, in single call.Based on the results for 2011, the Board of Directors will recommend to the forthcoming Shareholders' Meeting that a dividend of €0.21 per share be declared, involving a total pay-out of approximately €44 million.If approved, the dividend will be paid out from 26 April 2012 to those shares outstanding on the ex-div date of 23 April 2012.Prysmian's Annual Report at 31 December 2011, approved by the Board of Directors today, will be available to the public within March 28, 2012 at the Company's registered office in Viale Sarca222, Milan and at Borsa Italiana S.p.A.. It will also be available on the corporate website at www.prysmian.com.The present document may contain forward-looking statements relating to future events and operating, economic and financial results of the Prysmian Group. By their nature, forward-lookingstatements involve risk and uncertainty because they depend on the occurrence of future events and circumstances. Therefore, actual future results may differ materially from what is expressed inforward-looking statements as a result of a variety of factors. The managers responsible for preparing corporate accounting documents (Carlo Soprano and Jordi Calvo), hereby declare, pursuant to art. 154-bis par. 2 of Italy's Unified Financial Act, that the accounting information contained in this press release corresponds to the underlying documents, accounting books and records.