CONSOLIDATED FINANCIAL STATEMENTS >
DIRECTORS’ REPORT
64
| 2013 ANNUAL REPORT | PRYSMIAN GROUP
MARKET OVERVIEW
2013 saw growth in demand in the Chinese and Indian markets, in contrast with general
stability in Europe and a steep drop in demand in North America and Brazil.
Lower demand in North and South America was not fully offset despite major projects in the
UK, Spain and Australia, with a consequent decline in revenues.
FINANCIAL PERFORMANCE
Forecasts for the optical fibre cables market made at the start
of the year predicted that the size of the global market would
grow although with large regional differences. In fact, 2013
saw demand grow in fast-developing markets (China) and in
those with high communication infrastructure needs (India),
while markets in Europe were basically stable. Carrying on the
2012 second-half trend, 2013 saw a steep drop in demand in
North America, due to the ending of government incentives,
and in Brazil, where operators were slow to take advantage
of the investment-friendly tax measures introduced by the
government in the first half of the year.
The Access/Broadband/FTTx market grew marginally in 2013,
with demand driven by the development of optical fibre
Telecom business sales to third parties amounted to Euro
1,255 million in 2013, compared with Euro 1,466 million at 31
December 2012, posting a negative change of Euro 211 million
(-14.4%).
This change is attributable to the following factors:
• negative exchange rate effects of Euro 42 million (-2.9%);
• organic decrease of Euro 176 million (-12.0%), due to the
first-half downturn in demand for optical fibre and copper
cables;
• positive change of Euro 15 million (+1.0%) for the line-by-line
consolidation of Telcon Fios e Cabos para Telecomuniçaoes
S.A. (consolidated since 1 April 2012);
• negative change of Euro 8 million (-0.5%) in sales prices due
to fluctuations in metal prices.
The negative organic growth in 2013 primarily reflects the
downturn in demand for optical fibre cables in North and
South America. This effect more than offset positive trends
coming not only from large-scale projects, such as those
started for BT (United Kingdom), Telefonica (Spain), Orange
(France) and NBN (Australia), but also from emerging markets
communication infrastructure, although the low maturity
of these products implies different evolution in demand by
geographical area.
The copper cables market continues to slow not only because
of the economic downturn in the past two years, causing
some major operators to downsize their larger investment
projects, but also because of product maturity. The downturn
in this market was increasingly evident in 2013, with high
demand for internet access leading the major operators to
opt to renew their networks using optical fibre, rather than
perform maintenance or upgrade work on existing networks.
and channels, such as Eastern Europe and India. The sudden
slump in demand in North America, linked to the ending
of government investment incentives, triggered a more
competitive market environment. In this scenario, our major
competitors adopted particularly aggressive pricing policies,
winning market share at Prysmian Group’s expense.
In Brazil, the market awaited implementation of the
announced plan of government incentives to support
new communications infrastructure. This plan, which
aims to incentivise the development of technology and
local production, should be very beneficial for all telecom
operators. The delay meant that investments during the
year were confined to infrastructure maintenance work,
negatively affecting the manufacturers of network materials
as a result. Like in North America, the low level of activity
led to a reduction in market prices. In addition, some foreign
manufacturers started to create local production bases in
order to profit from the expected economic benefits.
In Europe, the highly competitive nature of the market,
with the presence of many small and medium-sized local
producers, put prices under strong pressure, despite growing
volumes, causing the sector’s profits to fall as a result.
In addition, the market for copper telecom cables continued
