Prysmian S.p.A., First-Quarter 2011 Results

VOLUME RECOVERY FOR ALL BUSINESSES
SALES GROWTH FOR THE FOURTH QUARTER IN A ROW: +13.9% VS 1Q 2010
IMPROVEMENT IN PROFITABILITY: ADJ EBITDA AT €101 MILLION
CEO BATTISTA: "RAPID START OF DRAKA INTEGRATION"

The first-quarter 2011 results consolidate Draka only for the month of March 2011

• SALES: €1,490 MILLION (ORGANIC CHANGE +13.9%)
• ADJ EBITDA : €101 MILLION (€75 MILLION IN 1Q 2010)
• ADJ OPERATING INCOME : €76 MILLION (€57 MILLION IN 1Q 2010)
• ADJ NET PROFIT : €36 MILLION (€31 MILLION IN 1Q 2010)
• NET FINANCIAL POSITION €1,460 MILLION (€459 MILLION AT 31/12/2010)

ADJ EBITDA FOR FY2011 ESTIMATED IN RANGE OF €530 - €580 MILLION
The Board of Directors of Prysmian S.p.A. has approved today the Company's consolidated results for the first quarter of 2011 (which are not subject to audit).

"The first few months of 2011 have confirmed the first signs of improvement in market scenario, already seen in the last quarters of 2010, reflected in a global volume recovery in the majority of businesses”, states CEO Valerio Battista. “Our focus on high-tech businesses and our ability to act flexibly and fast in the cyclical segments have allowed us to take advantage of the upturn in demand. The Group has achieved acceleration in organic growth which, as already reported in the last quarters of 2010, is starting to be reflected in an initial improvement in profitability. Lastly, the integration process with Draka has started rapidly and we expect to see the first initial effects of synergies in the second half of the year”.

FINANCIAL RESULTS

Sales amounted to €1,490 million compared with €969 million in the equivalent period of 2010. Assuming the same group perimeter (excluding the Draka contribution of €232 million just for the month of March 2011, net of intragroup transactions for €1 million) and excluding metal price and exchange rate effects, the organic change was positive at +13.9%.

Adjusted EBITDA increased by 34.7% to €101 million from €75 million in the first quarter of 2010. This increase is attributable to €9 million in benefits associated with organic sales growth by all businesses within Prysmian perimeter and €17 million from the consolidation of Draka since 1 March 2011.

EBITDA amounted to €92 million, up 27.0% from €72 million in the first quarter of 2010, net of €6 million in non-recurring expenses all of which relating to the Draka acquisition, and €16 million from the consolidation of Draka in March 2011.

Adjusted operating income amounted to €76 million, up 35.6% from €57 million in the first quarter of 2010. This increase is attributable to €8 million in higher profits generated by organic sales growth and €11 million from the consolidation of Draka in March 2011.

Operating income, including the effects of non-recurring items and fair value changes in metal derivatives, amounted to €47 million (of which €6 million from the Draka consolidation) versus €50 million in the equivalent period of 2010. The negative change of €9 million in the pre-Draka consolidation perimeter is attributable to higher non-recurring expenses and negative fair value changes in metal derivatives for a total of €17 million, which more than offset the increase of €8 million from organic sales growth.

Net finance income and cost reported a negative balance of €29 million, compared with a negative €16 million in the first quarter of 2010. The negative change of €13 million is primarily due to the growth in net debt following the Draka acquisition (€501 million cash outlay plus €357 million for the consolidation of the Draka Group's net financial position at 28 February 2011), but also reflects changes in the composition of financial structure after entering a Forward Start Credit Agreement for €1,070 million in January 2010, issuing a bond for €400 million in April 2010 and finalising a credit agreement for €800 million in March 2011. These new credit agreements have significantly extended the average maturity of the Group's debt, which is now about 4 years.

Adjusted net profit rose to €36 million, from €31 million in the first quarter of 2010 (the Draka contribution for the month of March 2011 was €7 million). The decrease of €2 million for the pre-Draka consolidation perimeter is entirely due to higher acquisition-related finance costs, as described above. Net profit amounted to €13 million (of which €4 million attributable to the consolidation of Draka in March 2011), compared with €23 million in the equivalent period of 2010.

Net financial position at the end of March 2011 increased to €1,460 million, from €459 million at 31 December 2010, mainly due to the Draka acquisition. More specifically, the increase is attributable to the following factors:
- cash outlay of €501 million for the acquisition of Draka;
- consolidation of the Draka net financial position, as at 28 February 2011, of €357 million;
- net negative cash flows of €151 million, of which €177 million due to the normal seasonal increase in net working capital, which was also negatively impacted by the steep increase in metal prices.

The Group's financial structure is particularly solid even after the Draka acquisition, thanks to credit agreements finalized in January 2010 (Forward Start Credit Agreement for €1,070 million) and in March 2011 (new credit agreement for €800 million) and the bond for €400 million issued in April 2010. In addition, in February 2011 the Group obtained from its banking syndicates a significant extension to its financial covenants relating to the Credit Agreement and Forward Start Credit Agreement. 

INTEGRATION WITH DRAKA AND STRATEGY DEVELOPMENT

• Initial synergies from Draka integration in second half of year
After successfully completing the acquisition of Draka, the integration process has been rapidly started to establish the industry's new world leader. An Integration Steering Committee has been formed and all the principal workstreams initiated, with a particular focus not only on the new group's organisation (key people assessment and new organisational structure, mission/vision, branding strategy), but also on base business protection during the transition and quick wins in the procurement area. The new organisational structure will be announced in the next few weeks. Synergies from integration are expected to deliver first benefits in the second half of the year.

• Investments in high-tech businesses: flexible pipes and submarine cables
The Group carried on investing in the first quarter of 2011 in developing its high-tech businesses, particularly concentrating on the new plant for flexible oil off-shore drilling pipes in Brazil (fully up and running starting from the end of second quarter) and on expanding production capacity for high voltage cables in China and France and for submarine cables in Italy and Finland. Total operating investments amounted to €17 million, of which €16 million relating to the pre-acquisition group perimeter (€11 million in 2010).

• Strong increase in high growth potential countries
In China, sales by the industrial cables business have doubled, particularly thanks to performance in the renewable energy sector, in which the Group is market leader. In South America, organic growth was 15.5%, with strong performances by industrial cables and fibre optic cables, following the start of major telecommunication backbone construction projects. In India, after completing the integration of the Ravin Cables joint venture, first-quarter sales significantly improved on the prior year equivalent period, also thanks to new high voltage projects awarded. In Russia, first quarter results are in line with targets and the planned investments have begun to expand the industrial cables and power transmission product ranges. 


ENERGY CABLES AND SYSTEMS PERFORMANCE AND RESULTS
• POSITIVE OUTLOOK FOR SUBMARINE CABLES: NEW PROJECTS EXPECTED IN COMING QUARTERS
• HIGH VOLTAGE UNDERGROUND CABLES: SOUND DEMAND, STRONG ORDER BOOK
• GLOBAL UPTURN IN POWER DISTRIBUTION VOLUMES
• RECOVERY IN VOLUMES AND INCREASED CAPACITY UTILISATION FOR T&I
• INDUSTRIAL: WEAK START TO THE YEAR FOR UMBILICALS AND OGP DUE TO PROJECT PHASING; GROWING ORDER BOOK

Sales to third parties by the Energy Cables and Systems segment amounted to €1,284 million (including the Draka contribution of €154 million for the month of March 2011, net of intragroup transactions for €1 million). Net of metal price and exchange rate effects and changes in the group perimeter, organic growth was a positive 13.6%, particularly thanks to an upturn in volumes.

Adjusted EBITDA amounted to €84 million, up 23.5% from €68 million in the first quarter of 2010. The increase reflects the contribution of €10 million by Draka (consolidated since March 2011) and the improvement for €6 million by the pre-acquisition perimeter.

Market trends and profitability will now be discussed for each of the Energy segment's business areas but only with reference to the pre-acquisition perimeter.

Utilities
Sales to third parties by the Utilities business amounted to €482 million, reporting organic growth of +20.2%. Overall, although with differences between business segments and geographical areas, the signs of recovery already seen in the last quarters of 2010 have been confirmed, with a sound organic growth. Organic sales growth converted into higher profitability, with adjusted EBITDA increasing to €58 million (+11.5% on €52 million in the first quarter of 2010), despite the rising cost of non-metal raw materials. Adjusted EBITDA reported a 12.1% margin on sales compared with 14.0% in the equivalent period of 2010.

In the submarine cables and systems business, the first three months of the year saw continued growth in investments in offshore wind farms and the start of major new interconnection projects. Several new submarine interconnection projects are expected to be awarded in coming months. Prysmian is well positioned not only because of its strong track record as industry leader, but also thanks to the availability of new production capacity, in Italy and Finland, from the third quarter.

Demand for high voltage underground cables has confirmed the positive signs reported in the second half of 2010 (in Europe, South America, the Middle East and China), partly driven by the need to upgrade existing grids following development of renewable energy. New interconnection projects are expected in Europe in the next quarters. Prysmian can rely on a strong order book, providing sales visibility for about a year.

The power distribution business has witnessed a general recovery in demand almost everywhere in the world. Prysmian has reported double-digit growth (albeit relative to a particularly weak first quarter of 2010), especially in Germany, Italy, Eastern Europe and South America, with positive developments expected in Asia Pacific as well. High non-metal raw materials price continue to negatively impact profitability. The introduction of new P-Laser technology on international markets is proceeding positively.

Trade & Installers
Sales to third parties by the Trade & Installers business amounted to €419 million (€312 million in the first quarter of 2010), reporting organic growth of +10.1% in confirmation of the trend already posted in the last quarters of 2010. The market is seeing the first signs of an upturn in the construction sector, with resumed demand both in Europe and North and South America. The Group is accordingly continuing to develop its strategy of focusing on large international wholesalers and of constantly improving product mix by continued concentration on higher value-added Fire Resistant and LSOH cables.
These strategies as well as actions to improve processes have allowed the Group to mitigate the negative impact on profitability due to high non-metal raw materials price, and to report an improvement in adjusted EBITDA to €8 million from €5 million. The margin on sales also improved slightly, climbing to 1.9% from 1.7% in the first quarter of 2010.

Industrial
Sales to third parties by the Industrial cables business amounted to €194 million (€159 million in the first quarter of 2010), reporting organic growth of +3.7%. The market has been stable or in slight recovery, with the main industrial sectors affected by political instability in North Africa and deficit-cutting policies by European countries. The Group has particularly focused on high growth businesses like renewable energy which, in Europe (Italy and Germany) and China, have confirmed a positive trend in investments, but it has also achieved good performance in the mining and rail infrastructure sectors.
Organic growth and profitability were affected by the phasing of projects in the umbilical cables sector in Brazil and in the oil & gas sector in general, for which the Group has reported a growing order book expected to support sales increase in the coming quarters. The start of production of flexible off-shore oil drilling pipes is in line with the targets set for 2011, with the plant in Brazil expected to be fully up and running starting from the end of the second quarter. Adjusted EBITDA amounted to €8 million compared with €11 million in the equivalent period of 2010, representing a margin on sales of 4.0%, down from 6.8% in the first quarter of 2010.

TELECOM CABLES AND SYSTEMS PERFORMANCE AND RESULTS
• SIGNIFICANT ORGANIC GROWTH IN SALES
• GLOBAL IMPROVEMENT IN DEMAND FOR FIBRE OPTIC CABLES
• RECOVERY IN PROFITABILITY

Sales to third parties by the Telecom Cables and Systems segment amounted to €206 million (including €78 million for the consolidation of Draka from 1 March 2011), reporting organic growth of +16.4%, confirming the already positive trend in the fourth quarter of 2010 when organic growth was +15.8%.

Most of the double-digit growth came from fibre optic cables thanks to growing demand in Europe, North America, Brazil and Australia. In Europe, the most significant developments were in the United Kingdom, Turkey, Spain and Eastern Europe. In North America, the Group increased its presence with medium/small size telecom operators, while in Brazil growth was driven by the start of major new backbone construction projects. In Australia, projects will start in coming months in order to develop a new national fibre optic network in which Prysmian will be heavily involved following the award of contracts by NBN (National Broadband Network) and Telstra.

Adjusted EBITDA amounted to €18 million with an increase of €11 million on the equivalent period in 2010 (following its consolidation from 1 March 2011, Draka's contribution to this result was €8 million). The margin on sales was 8.5% (6.2% in the first quarter of 2010).

BUSINESS OUTLOOK
The first three months of the year have confirmed the upward trend in demand and industrial production that started from the second quarter of 2010. The progressive upturn in global demand, coupled with a gradual improvement in consumer confidence, has been largely driven by growth in emerging markets, while recovery in Europe was weaker, partly because due to deficit-cutting policies implemented in various countries. In the United States, government stimulus packages allowed demand to start recovering during the prior year. Given this economic context, the Group expects to see continued recovery in 2011 for building wires, medium voltage cables for utilities and for those products in the Industrial sector most exposed to cyclical trends. Positive demand development is confirmed in the high value-added businesses of power transmission, renewable energy, oil & gas and fibre optic cables for major telecom operators. Based on the results achieved in the first three months, combined with the size of the current order book, adjusted EBITDA for the FY2011 is expected in the region of €530-€580 million (FY2010: €387 million). This range is related to development of demand on the reference markets in the second half of the year and includes the contribution of the Draka acquisition, consolidated from 1 March 2011.

OTHER RESOLUTIONS BY THE BOARD OF DIRECTORS
Based on statements made by the director Friedrich Fröhlich, confirmed as a director by the Shareholders' Meeting on 14 April 2011, the Board of Directors reports that it has reviewed his independence requirements, in accordance with the Self-Regulatory Code for listed companies and with art. 148 par. 3 of the Unified Financial Act.

ANTITRUST
During the first quarter, the Company has been made aware that the Brazilian antitrust authority commenced a proceeding in the business of underground high voltage cables and submarine cables. Further, during the month of April, the Company has been made aware that the Canadian antitrust authority commenced an investigation in relation to a submarine high voltage project dated 2006.
Considering that both the Japanese and New Zealand antitrust authorities have ended their investigations without any penalties for the Company, there are to date five authorities (European, United States, Brazilian, Australian and Canadian) which are known to be investigating on the above mentioned subject. The company continues to cooperate with them and to provide also the information requested.
In the event of proven breach of the relevant legislation, the financial penalties imposed by the competent authorities could be significant in relation to the economical and financial situation of the Group. It is reminded that, among others, the sanction system under the European law provides financial penalties that could reach a maximum of 10% of the turnover.

Prysmian's Third-Quarter Report 2011, approved by the Board of Directors today, will be available to the public from 12 May 2011, at the Company's registered offices in Viale Sarca 222, 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-looking statements 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 in forward-looking statements as a result of a variety of factors.
The managers responsible for preparing corporate accounting documents (Massimo Branda 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. 


Prysmian
Prysmian is world leader in the high-tech energy and telecom cables and systems industry. With sales of some €7 billion (pro-forma 2010 Prysmian/Draka) and 22,000 employees across 50 countries and 98 plants, the Prysmian Group is a truly global business. Strongly positioned in high-tech markets, Prysmian offers the widest range of products, services, technologies and know-how in all market segments: underground and submarine cables and systems for power transmission and distribution; special cables for applications in diverse industrial sectors; cables and wires for the construction industry; optical fibre, fibre optic and copper cables and connectivity systems for telecommunications and data transmission.
Prysmian's key strengths are ability to innovate products and production processes, focus on customer requirements, extensive geographical footprint and a culture of service excellence. Prysmian is listed on the Milan Stock Exchange in the Blue Chip index.