2014 ANNUAL REPORT

Consolidated Financial Report |

DIRECTORS’ REPORT

2014 Annual Report

Prysmian Group

FINANCIAL MARKET PERFORMANCE

Prysmian S.p.A. has been listed on the Italian Stock

Exchange since 3 May 2007 and has been included since

September 2007 in the FTSE MIB index, comprising the top

40 Italian companies by capitalisation and stock liquidity.

The Prysmian stock has since entered the principal world

and sector indexes, including the Morgan Stanley Capital

International index and the Dow Jones Stoxx 600, made up

of the world’s largest companies by capitalisation, and the

FTSE ECPI Italia SRI Leaders, composed of a select basket

of stocks of Italian companies that demonstrate excellent

Environmental, Social and Governance (ESG) practice.

World economic growth in 2014 was rather limited, like in

the previous two years, reflecting persistent weakness in

the Eurozone and further slowdown by emerging market

economies, partly offset by a solid recovery in both the United

States and United Kingdom. In particular, the weakening of

emerging market economies was mainly due to the geopo-

litical problems in Russia, as well as the sharp slowdown by

the Brazilian economy, faced with high inflation, collapse of

the local currency and declining investment. In the United

States, the combination of important monetary and fiscal

expansionary policies resulted in an acceleration of growth

during the year, with a steady fall in unemployment to the

lowest levels since 2009, increased consumer confidence

and consumer spending, and new record highs for US

equity markets. In Europe, economic recovery gradually lost

momentum after the first quarter of the year, exacerbated

by the extreme rigidity of the deficit-cutting measures in

several Eurozone countries and by the limited impact of

intervention by the European Central Bank, as well as by

renewed uncertainty over the political and financial situation

in Greece. Despite the partial improvement in competi-

tiveness and gradual recovery in exports, also thanks to a

weaker Euro against the Dollar, Europe continued to display

significant structural weakness in many countries, especially

with regard to the lack of recovery in domestic demand

and continued high unemployment in countries like Spain,

Greece, Portugal and Italy.

The main world equity markets generally reflected the un-

certainties arising from wide disparities in global economic

performance, in turn also impacted by rising geopolitical

tensions in different parts of the world (Middle East, Rus-

sia-Ukraine, Hong Kong), and related consequences for oil

prices, which halved from over USD 110 a barrel in June to

USD 57 in late December. In fact, while US indexes performed

well, with rises of between 8% (Dow Jones, to new record

highs) and 13% (Nasdaq), European exchanges presented a

mixed performance: weakly positive in Germany (+3%) and

Spain (+4%), stable in Italy and negative in France (-1%) and

Britain (-3%). Asian and emerging market indexes also had

a mixed performance: sharp rebound in China (+64%) after

a negative 2013, strong progress in India (+37%), positive in

Japan (+7%) and Hong Kong (+1%), negative in Brazil (-3%)

and Korea (-5%).

In this context, the Prysmian stock lost approximately 19%

of its value over the course of the year, going from Euro

18.71 at the end of 2013 to Euro 15.15 at the end of 2014. The

stock's negative performance was almost entirely due to the

technical problems encountered in executing the Western

HVDC Link contract which, as explained later, had a negative

impact on the share price of almost Euro 3, equating to more

than Euro 600 million in capitalisation. Despite this extraor-

dinary event, the Prysmian stock nonetheless continued

to outperform its main cable industry competitors, who

were faced with stagnant demand and major restructuring

processes. The stock's performance, including dividend

pay-outs (total shareholder return), was -17% over the course

of 2014 and +17% since its listing date. Among Prysmian's

benchmark indexes, the Euro Stoxx Industrial posted a fall

of 2% over the year, confirming the general weakness of the

capital goods market in Europe, and of 11% since Prysmian's

listing date, while the FTSE MIB was stable in 2014 but down

-57% since the Company's IPO, thus confirming the stock's

good performance over the medium to long term.

In particular, the first four months of 2014 saw a general

stable Prysmian share price, in the wake of a solid set

of results for 2013 and in line with analyst expectations,

moving in a range between Euro 17.50 and Euro 19.50,

that also reflected trends in the sector indexes and the

major European markets. At the time of publishing the

first-quarter results in early May, Prysmian announced that

in the previous few days it had encountered some technical

problems in the manufacture of submarine cables for the

Western HVDC Link project in the United Kingdom. The

stock was initially affected by the uncertainty prevailing

until the company had all the facts to estimate the impact

of this technical problem more accurately and so fell by 14%

in the three days following publication of the results to a

price of Euro 15.70 per share. Subsequently, from June to

mid-October, the major international markets headed slowly

downwards, affected by continuing geopolitical tensions

and slower growth by emerging market countries. Recovery

in the Eurozone also lost momentum, abetted by fears

linked to the political and financial situation in Greece. The

The macro environment in 2014 was marked by a gradual strengthening of the US economy

but continued overall weakness in Europe, despite tentative signs of recovery, especially

in the first part of the year.