Prysmian S.p.A. First-Half Results 2015

 

Improvement in profitability with Adj. Ebitda at €315 M (+13.3%) excl. WL (€314 M incl. WL, +54.1%)  €35 million improvement expected in Western Link results compared with forecast Net financial position down to €979 million, better than expected (€1,209 million at 30 June 2014)

 

Milan, 30/7/2015. The Board of Directors of Prysmian S.p.A. has approved today the Group's consolidated results for the first half of 2015.

 

 

 Financial results

 

Group Sales amounted to €3,737 million compared with €3,287 million in the first half of 2014, posting organic growth of +7.6%, calculated for the same group perimeter and net of metal price and exchange rate effects; excluding the impact of the Western Link project, first–half organic growth would have been 7.0%. The additional acceleration in revenue growth reported in the second quarter (+8.0%, excluding the impact of Western Link) is evidence that the recovery seen since the start of the year can be sustained. The period has seen steadily improving performances by the Group's higher value-added businesses of submarine cables and systems and optical fibre telecom cables, which both reported double–digit organic growth. Performance in the market of SURF products and services for offshore oil production was also positive, particularly for umbilical and DHT (Down Hole Technology) cables. In addition, the signs of recovery in the businesses of building wires and power distribution cables also showed consolidation. Sales of high voltage underground cables were stable at 2014 first-half levels. In the industrial cables business, positive performances by Specialties & OEM and Elevators partly made up for weak demand in Oil & Gas and the effects of strong competition in the Automotive market.

 

Adjusted EBITDA (before net non-recurring expenses of €53 million) amounted to €314 million, a major increase on €204 million in the first half of 2014 (+54.1%), with an improvement in margins (Adjusted EBITDA represented 8.4% of sales, up from 6.2%). Excluding the impact of the Western Link project, Adjusted EBITDA would have been €315 million, compared with €278 million in the corresponding period of 2014 (+13.3%). The plan initiated in response to the problems emerging in the project's performance is delivering satisfying results, allowing a faster execution schedule, having regained all the available capacity and improved the efficiency of the production process. Thanks to these actions, as well as the strengthening of contractual guarantees and longer project timing agreed with the customer, the overall result is expected to improve by €35 million (€30 million in 2015 and €5 million in 2016). Exchange rate effects benefited EBITDA to the tune of €16 million in the period.

 

EBITDA^[1]amounted to €261 million, compared with €244 million in the first half of 2014, and is stated after €53 million in net non-recurring expenses (€40 million in net non–recurring income in the first half of 2014).

 

Group Operating Income came to €173 million compared with €176 million in the first half of 2014. This decrease is mainly attributable to higher net non-recurring expenses and certain non–monetary effects such as impairment and fair value measurement of the new medium/long–term incentive plan.

 

Net Finance Costs amounted to €53 million, down from €74 million in the first half of 2014.

 

Net Profit of €78 million was in line with the €80 million reported in the same period of 2014.

 

Net Financial Position at the end of June 2015 amounted to €979 million, marking a considerable improvement from €1,209 million at 30 June 2014 (€802 million at 31 December 2014), reflecting the impact of the following factors:

 

-          generation of €251 million in cash from operating activities (before changes in net working capital);

-          negative impact of €198 million from changes in net working capital;

-          payment of €25 million in taxes;

-          receipt of €11 million in dividends from investments in equity-accounted companies;

-          net operating capital expenditure of €72 million;

-          payment of 64 million in net finance costs;

-          payment of €91 million in dividends in the period.

 

 

Energy Projects sales to third parties reached €739 million in the first half of 2015, posting organic growth of +21.7%. Profitability improved significantly with an Adjusted EBITDA of €115 million, up from €36 million in the first half of 2014 and an Adjusted EBITDA margin on sales of 15.6% versus 6.2% in the first half of 2014. Excluding the adverse impact of the Western Link project, Sales would have been €797 million, with organic growth of +17.4%, and Adjusted EBITDA would have been €116 million (€110 million in the corresponding period of 2014).

 

Sales by the Submarine Cables and Systems business grew fast, particularly thanks to the capability to execute the numerous projects currently in the Group's order book. The deepwater cable for the Western Link project is at an advanced stage of production, with installation scheduled to start in the second half of the year. The implementation of the plan in response to the problems arising in cable manufacture is delivering positive results, with an improvement in the efficiency of the production process and acceleration in the execution schedule. The market continues to be strong, driven in particular by projects for the interconnection of transmission networks in Europe. 

 

Sales by the High Voltage Underground business were essentially in line with the corresponding period of 2014. In Europe, strong performance in the United Kingdom was offset by weak demand in France, Italy and the Nordic countries. The award of the new interconnection project between France and Italy is nonetheless an encouraging sign of the real desire to create a single European electricity market. Sales in China and the Middle East also performed well, driven by sustained demand for energy infrastructure.

 

The order book for underground and submarine power transmission grew significantly, reaching a new peak of around €3.5 billion. The latest project awarded to the Group is NSN (North Sea Network), an interconnector between Britain and Norway worth more than €550 million; representing an important technological milestone as the longest HVDC link ever planned, this award confirms the Group's leadership in know-how and technology as well as its market reputation.

 

The strong sales performance by the SURF business continued to be underpinned by steady demand for umbilical cables in Brazil and by robust growth of the Down Hole Technology (DHT) market in North America.

 

 

Energy Products sales to third parties amounted to €2,420 million, posting organic growth of +2.7% on the first half of 2014, mainly due to the recovery in volumes in North America and Northern Europe and the growth in Asian countries which were partially counterbalanced by the downward sales trend in Brazil. There was also a slight but steady improvement in profitability with Adjusted EBITDA reaching €128 million (+2.9% on the first half of 2014), while the margin remaining largely stable at 5.3% of sales (5.6% in the corresponding period of 2014).

Energy & Infrastructure sales to third parties amounted to €1,468 million, reflecting organic growth of +5.3% (faster in the second quarter with +7.1%). This result is due not only to the effective commercial strategy of differentiating and improving the sales mix but also to market growth in the United States and a recovery of infrastructure investment in some European countries such as Germany and the Nordics. The South American market continued to be weak. Adjusted EBITDA for the first half of 2015 reached 63 million, up from €54 million in the corresponding period of 2014, with the margin essentially stable at 4.3% of sales versus 4.1% the year before.  

 

The 2015 first-half results for Trade & Installers reflected a consolidation of the signs of recovery emerging in the last few months of 2014, allowing moderate organic sales growth. The trend was positive in Spain, Britain and Eastern Europe, as well as in North America. The Brazilian market continued to be weak.      

 

Power Distribution enjoyed a higher-than-expected growth in sales thanks to strong performance in certain countries like Germany, the Nordics and Argentina where the Group benefited from new investments to upgrade electricity networks. Prices remained in line with previous quarters.

 

Industrial & Network Components sales to third parties amounted to €897 million, reflecting negative organic growth of -2.0% particularly attributable to the persistent weakness of investments in infrastructure. Sales performance in the Oil & Gas sector was affected by weak demand for MRO services (Maintenance, Repair & Operations), as well as by the effects of the oil price slide which is setting back drilling projects. Specialties & OEM recorded positive organic growth, with good performance in Asia Pacific and Europe (thanks to nuclear power and railway projects). Elevators posted a solid performance across all regions. Automotive results continued to be affected by growing market competition. In the Network Components business, positive performance by high voltage products in China counterbalanced weakness in Europe. Adjusted EBITDA was slightly lower at €63 million, down from €66 million in the first half of 2014.

 

 

The recovery in demand for Optical Cables and Connectivity extended to nearly every region, accompanied by a general stabilisation in prices. In Europe, in particular, growth was driven by the backhaul projects and FTTH/FTTA connections awarded to the Group by leading operators such as Telefonica in Spain, Orange and Free in France and Telecom Italia in Italy. In North America, development of the new ultra-broadband and FTTx networks led to a good increase in demand. In Asia Pacific, the NBN (National Broadband Network) project in Australia contributed to the region's growth, even if a slowdown is expected in the second half of the year. Less positive performances were recorded in South America (Brazil) where the market is failing to show significant signs of improvement. 

 

The growth in Multimedia Solutions is proving solid, particularly in Asia Pacific and Brazil. Volumes and prices stabilised in Europe. The Group maintained its strategic focus on higher value-added products and businesses, such as data centres in Europe, and on improving customer service.

 

 

The macro environment in the first few months of 2015 saw signs of stabilisation and slight improvement in Europe, supported by the quantitative easing programme launched by the European Central Bank, while remaining sturdy in the United States. The European negotiations to refinance Greek debt, a source of financial market volatility, have created turmoil in the economic environment in Europe and internationally. Persistent geopolitical tensions in the Middle East and Russia, together with the slowdown by some economies like China and Brazil, continue to raise doubts over the short and medium-term contribution of these regions to world economic growth.

In such an economic context, the Group's expectation for FY 2015 is that demand in the cyclical businesses of medium voltage cables for utilities and building wires will record a slight volume recovery on the previous year with signs of price stabilisation. In the Energy Projects segment, the Group confirms an improving trend with potential growth in the Submarine and SURF businesses, although partially offset by weak demand for High Voltage underground, a market also being penalised by growing competition in several regions. With reference to the Submarine cables business, the plan initiated in response to the problems emerging in performance of the Western Link project is proceeding better than expected, enabling a faster execution schedule having regained all the available capacity and improved the efficiency of the production process. Thanks to these actions, as well as the strengthening of contractual guarantees and longer project timing agreed with the customer, the overall result in terms of Adjusted EBITDA is expected to improve by €35 million compared with the original estimate, reducing the negative impact from €167 million originally estimated to €132 million. As far as 2015 is concerned, Western Link is forecast to have a negative impact on Adjusted EBITDA of €26 million compared with the original estimate of €56 million. In the Industrial Oil & Gas cables business, the drop in oil prices and consequent reduction in oil industry investments are likely to have a negative impact on the Group's activities, particularly from the second half of the year. The Telecom business is expected to see continued recovery in demand for optical fibre cables in the coming quarters, especially in Europe and the United States.

In addition, exchange rate effects, which had an adverse impact of about €14 million on Adjusted EBITDA in FY 2014, are forecast to have a positive impact on the FY 2015 results, assuming constancy of the rates in the first half of the year, purely as a result of translating profits expressed in other currencies into the Group’s reporting currency.

Based on the existing order book and considering the factors mentioned above, the Group is forecasting Adjusted EBITDA for FY 2015 in the range of €590–640 million (€616–666 million excluding the negative impact of the Western Link project), marking a significant improvement from the €509 million reported in 2014.

Lastly, the Prysmian Group will carry on during 2015 to integrate and rationalise activities with the objective of achieving the projected cost synergies and of further strengthening its presence in all areas of the business.

On 30 March 2015, Prysmian S.p.A. completed the placement exclusively with institutional investors of a seven-year unrated bond, for a total amount of €750 million. The bonds, with an issue price of €99.002, will pay an fixed annual coupon of 2.50%.

The settlement occurred on 9 April 2015 and the bonds have since been admitted to trading on the Luxembourg Stock Exchange.

The results at 30 June 2015 will be presented to the financial community during a conference call to be held today at 18:00 CET, a recording of which will be subsequently made available on the Group's website: www.prysmian.com.

 

The documentation used during the presentation will be available today in the Investor Relations section of the Prysmian website at www.prysmian.com.

 

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