The results for the first quarter
of 2016, approved by Prysmian’s
Board of Directors, basically
reflected an uptrend in sales
and a marked improvement in
profitability.
CEO Valerio Battista pointed out that in particular “our technological leadership and project execution capability underpin the excellent performance of the Submarine Cables and Systems business”. Battista also noted that the Telecom Operating Segment has also made a good contribution, especially towards profitability, partly thanks to the reduction in optical fibre production costs. The Oil & Gas Operating Segment has been affected by the industry crisis, but with performance nonetheless in line with expectations. “We are confident”, the CEO stated, “that the new organisation will better focus the strategies of this high valueadded business in order to reinvigorate it.” During the quarter, the Group confirmed its deep commitment to research and development, and in recent months it has introduced a number of technological innovations representing industry milestones. The new P-Laser 525 kV cable system for example, offers unique features in terms of environmental sustainability and lower energy network costs, while the Telecom Operating Segment’s Flextube® 2112F optical cable has set a new record for the number of fibres in a single optical cable. Such competitive acceleration lends added credibility to the Group’s growth strategy. Mr. Battista added that “also on this basis we are confident of being able to achieve the challenging profitability targets we set ourselves for 2016, with an Adjusted EBITDA in the range of €670- 720 million.”
Sales grew organically by 2.3% to €1,810 million, thanks to the excellent performance of +26.4% for Energy Projects and the positive trend of +3.30% for Telecom. Energy and Infrastructure remained stable while Industrial and NWC showed a slight improvement of +1.4%.
Profitability posted a marked improvement, with adjusted EBITDA up 25.4% at €150 million from €120 million one year earlier, and adjusted EBITDA margin on sales rising to 8.3% from 6.8%.
The Net Financial Position reported a solid balance of €1,038 million as of 31 March 2016 compared to €1,040 million one year earlier thanks to €531 million in net cash flow provided by operating activities in the 12 months to the end of the quarter.
Guidance for full year 2016 is for an adjusted EBITDA in the range of €670-720 million, up from €623 million in 2015.
*Org. Growth
The Submarine Business
made a major contribution
thanks to interconnectors and
offshore wind, while our HV
Underground Systems was also
positive with a stable order
book at near record-level.
Prysmian Group Energy Projects
Operating Segment reported sales of
€346 million in the first quarter, reflecting
underlying growth of 26.4%, and also
because of comparisons to slower project
phasing in the same period last year.
Profitability improved considerably with
adjusted EBITDA at €39 million, +46.9%
on €26 million in the first quarter of 2015,
while margin on sales improved to 11.2%
from 9.4%.
Sales of Submarine Cables and Systems were boosted by sustained production from the Arco Felice and Pikkala plants in Italy and Finland respectively, as well as by improved execution capabilities for the numerous projects underway.
The improvement in margins particularly reflected the focus on project management and the availability of installation assets for full operational use, such as the now refitted Cable Enterprise vessel. The main projects in progress during the period were the Western HVDC Link in Britain; the Greece-Cyclades, Italy-Montenegro and Dardanelles Strait interconnectors, and the cabling of the 50Hertz and DolWin3 offshore wind farms. The market is proving to be solid, with good tender activity in France, Britain and the Netherlands. In such a market context the Group has further strengthened its competitiveness by developing technological innovations that represent industry (the 525 kV P-laser HVDC cable, and the 66 kV cable for offshore inter-array applications), and by purchasing a new cable-laying barge, currently being upgraded.
Sales of HV Underground cables performed well, with high-quality projects implemented in France, the Netherlands, China and North America, alongside confirmation of dynamism in the Middle East, a region engaged in developing major new energy infrastructure, thanks to several orders. Demand has remained weak in Italy, Spain and Russia.
Despite the currently high pace of project execution, the Underground and
Submarine Power Transmission order book has remained stable at €3.2 billion, reflecting the Group’s ability to win new business.
The quarter saw a Technology
& Innovation improvement
in North America, Britain
and Eastern Europe. Growth
continued for Power
Distribution, while Industrial
Cables regained ground, along
with Elevators, and Specialties
& OEM.
Overall sales of the Energy Products
Operating Segment amounted to €1,110 million in the quarter, of which €143 million were from the consolidation of Oman Cables Industry starting January 1 2016. Sales grew in North America, Oceania and certain Asian countries, while remaining stable in Europe and continuing to fall in Brazil. Profitability improved, with adjusted EBITDA climbing 27.4% to €66 million (including €12 million from Oman Cables) from €53 million, while margin on sales rose to 6.0%, from 4.9%.
Energy & Infrastructure sales amounted to €754 million, of which €143 million derived from the first-time consolidation of Oman Cables. Adjusted EBITDA came in at €38 million (of which €12 million was incremental contribution from Oman Cables) up from €26 million in the first quarter of 2015.million as the downturn in The Group’s Oil & Gas division was partially offset by our other businesses.
Results for Trade & Installers showed differing trends by region with positive performances in North America, Britain, Eastern Europe and Australia weighed down by the deteriorating scenario in Brazil and Argentina. Profitability reflected the positive effects of actions taken to regain efficiency by refocusing the manufacturing footprint.
Power Distribution reported good sales, driven by strong performance in Germany and Northern Europe thanks to infrastructure investments, and a revival in Asia Pacific.
Industrial & Network Components posted a positive underlying growth of 1.4% to €333 million. The Group’s wide geographical and business diversification mitigated the effects of the general instability of infrastructure investments. Adjusted EBITDA improved to €29 million from €26 million.
Specialties & OEM recorded a generally positive trend, with good performance for crane, marine and defence applications; nuclear, railway, rolling stock and mining all recorded weak demand. In renewables, the positive trend for solar in North America contrasted with weakness for wind in China. The Elevator business enjoyed a solid performance everywhere, expanding its market share in North America and Asia.
The Oil & Gas Operating Segment suffered a decline,
in line with forecasts. The new organisation and management
are preparing to re-launch a strategic business.
The Oil & Gas Operating Segment sales came in at €82 million, down from €130 million one year earlier as the performance of the business was hit hard by the drop in oil prices, affecting investment decisions. For the core Oil & Gas cables business, the adverse market conditions led to slowing demand in both offshore and onshore projects.
In the Subsea, Umbilicals, Risers and Flowlines (SURF) business, the new framework agreement with Petrobras reflects the slowdown in offshore investments in Brazil. The Down Hole Technologies business proved to be more resilient, thanks to a wider customer base and geographical diversification. A positive contribution also came from the integration of the newly acquired Gulf Coast Down Hole Technologies.
Adjusted EBITDA for the quarter came in at €3 million, down from €13 million in the first quarter of 2015, with margin on sales down to 3.8% from 10.3%, in line with expectations.
The growth strategy for the business is now becoming more focused thanks to a new organisational model, and the arrival of Cristiano Tortelli, a long-experienced manager who joined Prysmian at the start of the year. The pillars of this new strategy are: a focus on cost reduction, technological innovation and customer service; optimisation of the supply chain and manufacturing footprint, and development of upstream synergies with suppliers and downstream with customers.
Brokers and analysts were positively surprised by the solid Q1 set of figures, and appreciated the FY 2016 guidance. Among others, Credit Suisse highlighted the solid top-line growth and margin improvement, raising its target to €23.0/ sh from €21,0/sh. Bank of America Merill Lynch affirmed that Prysmian’s mid-term growth potential is not fully reflected in current market price, upping its target to €24.0/sh from €23.0/sh. Equita, Kepler Cheuvreux, Banca IMI and Akros confirmed their positive view, adjusting their valuations to reflect better than expected results. Some brokers confirmed their neutral stance; HSBC and Barclays appreciated the sound Q1 figures but highlighted that the company’s FY guidance mid-range offers limited upside, as did Intermonte SIM.
The quarter saw a growth in demand for optical cables in
Australia and North America, while Multimedia Solutions also
grew thanks to Datacom and Multimedia impetus.
Our Telecom Operating Segment sales grew 3.3% organically in the quarter to €272 million, while profitability improved significantly, with a 49.8% leap in Adjusted EBITDA to €42 million from €28 million in the first quarter of 2015. This was due to having benefited from investments to reduce optical fibre costs, from strong growth in copper cable volumes – especially in Australia –, and from the contribution of Yangtze Optical Fibre and Cable Joint Stock Limited Company. The Adjusted EBITDA margin on sales also improved to 15.4% from 10.1% one year earlier.
In the Telecom Solutions business, lively demand for optical cables in Australia and North America was counterbalanced by market weakness in Europe and South America. Demand for copper cables in Australia and South America also proved much stronger. Growth in the Multimedia Solutions business was primarily linked to the dynamism of the European data centres market, which the Group has intercepted well by showing a customer-oriented, service-driven and responsive approach. Competitiveness in the telecom cables and systems market was further enhanced by the Telecom Operating Segment’s determination in implementing its growth strategy. Investments for improving the efficiency and effectiveness of optical fibre production are delivering impressive results and the creation of optical cable manufacturing centres of excellence is making the offer even more competitive.
The first few months of 2016
have witnessed moderate growth
in the world’s major economies,
partially eroded by the uncertain
economic environment in
some emerging countries and
by a renewed decline in key
commodity prices. Lack of
momentum in the Eurozone,
continuing strong growth in the
United States and the escalation
of the political crisis in Brazil
were the main topics of the
macroeconomic scenario.
In this context, Prysmian Group expects that in 2016 demand in the cyclical businesses of medium voltage cables for utilities and building will record a slight volume recovery with a stabilisation in prices. With the Energy Projects Operating Segment seeing a steadily stabilising market, it also expects to improve its performance in both the Submarine and High Voltage underground businesses. In the Oil & Gas Operating Segment, the drop in oil prices and consequent reduction in investments will have an adverse impact, especially in its core Oil & Gas business. The Telecom segment is expected to see continued growth in optical fibre cables, albeit at a slower pace and with some fluctuations. Exchange rate effects are forecast to have a negative impact on the Fiscal Year (FY) 2016 results as a result of translating income statements expressed in other currencies. The Group is forecasting Adjusted EBITDA for FY 2016 in the range of €670-720 million, marking a significant improvement from €623 million reported in 2015. The forecast is based on the current business parameters and takes into account the current order book and the trends in the different operating segments, while also reflecting expectations for the full consolidation of Oman Cables.
