Prysmian S.p.A., nine-month 2013 results

Slight improvement in sales and profitability trend in third quarter

Positive performance by Power Transmission and Oil & Gas

Good cash generation and improved Net Financial Position

Confirmed FY 2013 Adj. EBITDA range of €600/€650 Million

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Milan, 6/11/2013. The Board of Directors of Prysmian S.p.A. has approved today the Group's consolidated results for the first nine months of 2013.

"The recovery in sales and profitability already seen in the previous quarter has continued into the third quarter of 2013," explains Valerio Battista, Prysmian Group's CEO. "The particularly negative first-quarter results are reflected in a decline in nine-month sales and earnings compared with the same period of 2012, although the first signs of a slight recovery can be seen. Our constant actions to keep costs under control and to rationalise and improve the efficiency of organisational and production processes along with synergies from the integration with Draka, have enabled the Group to defend its margins, with a slightly higher Adjusted EBITDA to sales ratio. These actions have also allowed us to limit the impact on profitability even in the businesses hardest hit by the crisis, like building wires." 

FINANCIAL RESULTS

Group Sales amounted to €5,488 million, compared with €5,930 million in the first nine months of 2012. Assuming the same group perimeter and excluding metal price and exchange rate effects, organic growth was a negative 3.9%. The recovery in sales already seen in the second quarter continued into the third quarter, with more or less stable organic growth (-1.1%) compared with the corresponding period of 2012. The businesses most affected by the difficult market conditions are stabilizing, with the Trade & Installers business (building wires) back to positive organic growth (+1.8%) in the third quarter. The sharp drop in demand for optical cables in North and South America continued to have a negative impact on nine-month sales, having not yet shown any signs of recovery. Power transmission and industrial cables, particularly for the Oil&Gas sector, have been confirmed as important drivers of growth, continuing to report positive sales performance.

Adjusted EBITDA amounted to €444 million, compared with €468 million in the corresponding period of 2012 (-5.2%), with a slightly higher margin on sales (8.1% vs 7.9%). The €24 million reduction on the previous year is entirely attributable to the Telecom business, with the Energy business recording a slight increase in Adjusted EBITDA. The nine-month result has also been adversely affected by exchange rate effects, amounting to €15 million compared with 2012, particularly due to sharp devaluations of the Brazilian real, Australian dollar, US dollar and Turkish lira. The trend towards stabilisation and improvement in performance started from the second quarter is also reflected in profitability, with third-quarter Adjusted EBITDA rising to €162 million from €160 million in the third quarter of 2012. The Group's ability to reduce its cost structure, also thanks to synergies with Draka, continues to be decisive for defending and recovering profitability.  

EBITDA[4] amounted to €410 million, compared with €402 million in the first nine months of 2012 (+2.0%), reflecting the impact of €34 million in non-recurring expenses particularly in relation to reorganisation and manufacturing efficiency projects for the integration with Draka.

Adjusted operating income amounted to €329 million, compared with €349 million in the first nine months of 2012 (-5.8%). Operating income was €265 million, compared with €295 million in the first nine months of 2012, partly due to the negative change of €12 million in the fair value of metal derivatives (versus a positive change of €30 million in the first nine months of 2012).

Net finance income and costs, including the share of income/(loss) from associates and dividends from other companies, reported a negative balance of €106 million at 30 September 2013, compared with €86 million in the corresponding prior year period. This increase of €20m is fully attributable to non-recurring and non-monetary costs connected with the partial refinancing of the Term Loan through issuing the Convertible Bond.

Adjusted net profit amounted to €180 million, compared with €193 million in the first nine months of 2012 (-6.7%); the margin on sales was basically stable at 3.3%. The Net result was a profit of €110 million, compared with €148 million in the first nine months of 2012.

Net financial position at the end of September 2013 amounted to €1,246 million, a considerable improvement on €1,446 million at 30 September 2012 (€918 million at 31 December 2012), having been particularly affected by the following factors:

• positive cash flow from operating activities (before changes in net working capital) of €359 million;
• negative impact of €435 million from changes in working capital, due to the seasonality of sales and stock levels and strong growth in working capital in the Submarine Cables business;
• payment of €48 million in taxes;   
• net operating investments of €73 million;
• receipt of €8 million in dividends;
• payment of €91 million in net finance costs;
• payment of €92 million in dividends (€45 million in 2012).

ENERGY CABLES AND SYSTEMS PERFORMANCE AND RESULTS

Sales to third parties by the Energy Cables and Systems business amounted to €4,543 million, compared with €4,801 million in the first nine months of 2012, reporting marginally negative organic growth (-1.3%); third-quarter organic growth was slightly positive (+1.4%). Adjusted EBITDA came to €353 million, up from €348 million in the first nine months of 2012.

Utilities

Sales to third parties by the Utilities business amounted to €1,650 million, recording an organic change of -0.8%. Such stability is mostly attributable to the excellent results of the submarine cables and systems business line that offset the persistent weakness in the power distribution business line. The high profitability of the Submarine Cables and Systems business has reflected positively on the overall Adjusted EBITDA of the Utilities business, which increased to €192 million from €185 million in the first nine months of 2012.

Demand for High Voltage Underground Cables was broadly in line with the corresponding period of 2012. The Group has made up for market weakness in Europe thanks to its commercial initiatives in emerging economies requiring infrastructure development and by strengthening its high-end business, with work on high-tech projects, such as the underground sections of submarine links and interconnections. The order book assures sales visibility for about one year.  

Sales performance and profitability were both excellent in the Submarine Cables and Systems business line. Technological leadership and continuous attuning of production capacity and investments to improve project execution, have allowed the Group to maintain leadership in a strategic and constantly growing market. The order book assures sales visibility for about three years, with the Group constantly engaged in intense tendering activities, particularly for power system interconnections and offshore wind farm connections.

The Power Distribution business line has shown no signs of recovery in demand, which remained weak, particularly in Europe and Asia Pacific (especially Australia). In the Americas, the Group has implemented selective sales policies in South America in defence of earnings, while the upward trend in volumes has continued in North America. On the profitability front, the Group's endeavours to rationalise industrial processes helped to limit margins deterioration triggered by price pressures.

Trade & Installers

Sales to third parties by the Trade & Installers business amounted to €1,471 million in the first nine months of 2013. Although this reflects negative organic growth of -5.1% on the corresponding prior year period, there were signs of stabilisation and recovery in the third quarter of 2013 when, for the first time in many quarters, organic growth returned to a positive figure of +1.8%. As part of the strategy of focusing on high-tech, high value-added segments, the Group has continued to secure notable contracts, like the one to supply 300 km of fire safety cables for the Isozaky Tower, a skyscraper in Milan. However, the difficult market, largely attributable to the construction industry crisis in Central European and Mediterranean countries, is stabilizing but not showing signs of reversal. A positive performance has been confirmed in South America, where the Group has increased its market share. The Group has long been implementing policies to defend its profitability, reduce costs and improve manufacturing efficiency, making it possible to report an Adjusted EBITDA of €61 million in the first nine months of 2013, broadly in line with €62 million in the corresponding period of 2012, and an Adjusted EBITDA to sales ratio of 4.1%, up from 3.7%.

Industrial

Sales to third parties by the Industrial cables business amounted to €1,340 million in the first nine months of 2013, delivering positive organic growth of 3.0% on the corresponding period of 2012, with a further improvement in the third quarter (+7.8% on third quarter 2012). The Group has managed to offset the sharp drop in demand in the renewable energy market, which, after hitting a low in the first half of the year, has started to show initial signs of recovery, at least in Europe and South America. In the OEM segment, the Group has continued to report a positive performance, particularly for cables for port infrastructure (in Asia Pacific), transport (in Europe) and shipbuilding (in Russia). The Oil&Gas sector has confirmed the positive trend for offshore, with major projects in the North Sea, Asia Pacific and South America, while onshore demand is still weak. The SURF segment (Subsea Umbilical Risers Flowlines) has made a positive contribution thanks to the execution of Umbilicals projects in Indonesia and Angola, and the renewed partnership with Petrobras, marked by the signing of the new frame agreement for umbilicals worth USD 260 million and the extension of the flexible pipes agreement for USD 95 million signed in early October 2013. The DHT (Down Hole Technology) business has continued to grow, thanks to Europe, Asia Pacific and North America. Lastly, with reference to the other fields of application, elevator cables have continued to report an excellent trend, partly thanks to commercial efforts to expand business in new markets outside the USA; sales in the Automotive segment were also generally positive, particularly in North and South America.

Adjusted EBITDA amounted to €97 million, compared with €101 million in the first nine months of 2012, while margins were stable with an Adjusted EBITDA to sales ratio of 7.2% versus 7.3%.

TELECOM CABLES AND SYSTEMS PERFORMANCE AND RESULTS

Sales to third parties by the Telecom Cables and Systems business amounted to €945 million in the first nine months of 2013. Compared with the corresponding period of 2012, sales reflect negative organic growth of 14.6%, largely due to the steep decline in optical cable demand in North and South America, reported since the start of the year, combined with a downturn in Europe in the businesses of MMS (Multimedia Solutions) and copper cables. 

The ending of incentive policies in the United States and Brazil has taken optical cable sales back to lower levels than before the incentives. Demand is expected to show signs of recovery in Europe and South America over the next few quarters. Optical cable sales have nonetheless maintained high growth rates in China and Australia.

The Multimedia Solutions business line has continued its commercial expansion in South America and Asia Pacific, Data System Centres in Europe have confirmed the signs of decreasing demand.

Demand for copper cables has continued to fall, particularly in Europe and South America.

The Group has continued to focus its strategy on constantly improving product mix and reducing costs to limit the impact of the sharp fall in volumes on profitability. Adjusted EBITDA came to €91 million, compared with €120 million in the first nine months of 2012.

BUSINESS OUTLOOK

 The macroeconomic environment in the first nine months of 2013 has seriously deteriorated compared with the slowing trend witnessed since the second half of 2011, partly in the wake of the deficit-cutting measures introduced in several Eurozone countries during 2012. This has led to a sharp slowdown in economic activity, initially in the more indebted countries and then spreading to countries in Central and Northern Europe.

In such an economic environment, the Group has forecast weak demand in 2013 for low and medium voltage cables for Utilities and for building wires; within the Industrial market, the business of onshore wind and solar power generation cables is seeing a sharp contraction, also due to non-renewal of or uncertainties about government incentives. In the Telecom sector, the weakness in demand characterising the first nine months of the year is expected to remain for the rest of 2013. Instead, positive developments in demand are confirmed for the high value-added power transmission businesses and for industrial segments like offshore Oil&Gas, elevators, railway, cranes and marine.

Despite the steady deterioration in the economic environment, the results achieved in the first nine months of the year and the size of the current order book let the Group confirm Adjusted EBITDA for FY 2013 in the range of €600 – €650 million (FY 2012: €647 million). In addition, given the further worsening in the market compared with previous years, the Prysmian Group has decided in 2013 to step up measures to rationalise and optimise its organisational and manufacturing structure, with the goal of achieving €175 million in cumulative synergies from the Draka integration by 2015 (compared with €65 million achieved at the end of 2012), representing an upward revision from the previous target of €150 million. Commercial initiatives have also been started, mainly in the Industrial and Telecom businesses, in order to strengthen the Group's presence in high value-added market segments, with the goal of achieving significant additional sales in these businesses by 2015 specifically thanks to such initiatives.

The Prysmian Group's Third Quarter Financial Report at 30 September 2013, approved by the Board of Directors today, will be available to the public as of 6 November 2013 at the Company's registered office 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 future 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 (Carlo Soprano and Andreas Bott), 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.

The results at 30 September 2013 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.