Prysmian S.p.A. FY 2012 Rresults

PRYSMIAN S.P.A. FY 2012 RESULTS

FURTHER GROWTH IN PROFITABILITY
POSITIVE CASH GENERATION AND IMPROVEMENT IN NET FINANCIAL POSITION
POWER TRANSMISSION SUPPORTS GROUP SALES
ALL TARGETS FULLY ACHIEVED DESPITE TOUGH MARKET
DRAKA INTEGRATION: 2012 SYNERGIES HIGHER THAN EXPECTED AT €65M
DIVIDEND DOUBLED TO €0.420 PER SHARE (€0.210 in 2011)

• SALES: €7,848 MILLION (€7,973 MILLION IN 2011**; ORGANIC CHANGE -1.8%)
• ADJ EBITDA^[1]: €647 MILLION (€586 MILLION IN 2011**; +10.4%)
• ADJ OPERATING INCOME^[2]: €483 MILLION (€435 MILLION IN 2011**; +11.1%)
• ADJ NET INCOME^[3]: €282 MILLION (€231 MILLION IN 2011*; +22.1%)
• NET FINANCIAL POSITION €918 MILLION VS €1,064 MILLION AL 31 DECEMBER 2011
  

 The Board of Directors of Prysmian S.p.A. has approved today the Company's consolidated financial statements and separate financial statements for 2012^[4].

"Improvement in profitability and positive cash generation. These are the principal drivers of our Group's 2012 financial statements," comments CEO Valerio Battista. "In a difficult market, particularly in Europe, Prysmian has achieved a positive performance in operating earnings mostly in its high value-added businesses. This result, combined with synergies from the integration with Draka achieved faster than expected, has allowed us to fully reach the targets announced to the market. To further strengthen our public company model, we are proposing to the Shareholders' Meeting the introduction of an Employee Stock Ownership Plan addressed to all our employees in order to increase their commitment to the Group and share future business success."

 FINANCIAL RESULTS

Group Sales amounted to €7,848 million compared with the 2011 pro-forma figure of €7,973 million. Assuming the same group perimeter and excluding metal price and exchange rate effects, the organic change was -1.8%. The Group's higher geographic diversification and exposure to high-technology businesses, more resilient to economic cycles, allowed to limit the effects of the continued market difficulties, particularly in Europe, in the power distribution and building wires markets. The Group achieved double-digit growth for large submarine, interconnection and offshore wind farm projects. Some industrial cable applications, such as offshore Oil&Gas and elevator cables, also performed well. Optical telecom cables were affected by a slowdown in the fourth quarter, mainly due to the suspension of incentives in North and South America. Sales trend by geography showed a recovery in North America and a good performance in Northern Europe. On the whole, the South American market held up well while Asia Pacific reported mixed trends in different regions.

Group Adjusted EBITDA increased to €647 million, up 10.4% from the 2011 pro-forma figure of €586 million (with the margin also improving to 8.2% on sales versus 7.3% in 2011). Despite the still negative environment, particularly in the second semester, the Group has achieved the Adjusted EBITDA target initially announced to the market in the range €600-€650 million. In terms of profitability, Submarine Cables and Systems and Industrial Cables (within the Energy Sector) and the entire Telecom Business reported an overall positive performance.
The contribution from Draka integration was important, allowing to reduce overhead costs and to achieve higher-than-expected cumulated synergies for €65 million in the two-year period 2011-2012(versus a target of €45 million).

Group EBITDA1 amounted to €546 million, an improvement on the result of €269 million in 2011 (consolidating Draka from 1 March 2011). EBITDA includes €101 million in non-recurring net expenses, compared with €299 million in 2011.

Group Adjusted operating income rose to €483 million, +11.1% on the 2011 pro-forma figure of €435 million.

Group Operating income reached €362 million (€19 million in the prior year, consolidating Draka from 1 March 2011).

Net finance income and costs, including the share of income from associates, reported a negative balance of €118 million, slightly down from the 2011 consolidated figure of €120 million.

Adjusted net income increased by 22.1% to €282 million from €231 million in 2011 (consolidating Draka from 1 March 2011). Reported net income climbed to a positive €171 million from a loss of €145 million in 2011 (consolidating Draka from 1 March 2011).

Net financial position at the end of December 2012 dropped to €918 million, an improvement from €1,064 million at 31 December 2011, thanks to the positive impact of free cash flow, which - excluding the acquisitions effects - rose to €284 million (€209 million in 2011). The net financial position as a whole benefited from the following main factors:

• positive cash flow from operating activities (before changes in Net Working Capital) of €545 million;
• positive impact of €75 million from the reduction in working capital, mainly driven by a decrease in the inventory level and by a significant reduction of working capital in the Submarine business
• payment of €74 million in taxes;
• net operating investments of €141 million;
• purchase of the remaining Draka shares under the squeeze-out procedure for €9 million;
• Acquisitions for €77 million;
• payment of €129 million in net finance costs;
• distribution of €45 million in dividends.

 INTEGRATION WITH DRAKA AND STRATEGY DEVELOPMENT

• Higher-than-expected synergies
   

The process of integration with Draka has been carried out quickly, allowing to achieve higher than expected synergies (€65 million cumulative at the end of 2012 compared with a target of €45 million). These synergies have been realized mainly in fixed costs and overheads (approximately €30 million), in procurement (approximately €30 million), as well as thanks to the first benefits from the optimization of the industrial footprint. The target for 2013 is confirmed at €100 million in cumulative synergies, mainly due to the run-rate benefits of the first stage of manufacturing footprint rationalization and of the organizational rightsizing.

The new matrix structure (by business and geographical areas) has proved its worth. The clear mix of responsibilities and managerial skills, coupled with the successful integration of the business and product ranges, have improved the competitiveness of the Group's range of products and services and strengthened its position and growth in strategic markets, in particular power transmission, Oil&Gas, optical cables and connectivity for telecommunications.

With the aim of further developing the potential of its "human capital", in 2012 the Group embarked on some important projects in the area of organisation and human resources. These included the "Build the Future" project to recruit young high potential talents, the Corporate Academy for high-level technical and managerial training, and the new system of performance management.

• Investments for organic and external growth

In line with its growth strategy, the Group has invested in both organic and external growth. On April 1st, the Group acquired non-controlling interests in the Brazilian companies of Telcon and Draka Optical Fibre, thus gaining 100% control over these companies; in November, it completed the acquisition of Global Marine Energy in UK, with the intent of expanding its installation capabilities and services for submarine cables and systems.

Approximately €88 million has been spent on investments in new production capacity for strategic businesses. In particular, in the submarine cables business, the Group has expanded production capacity at its centre of excellence in Arco Felice (Naples), Italy, and it has started production in Finland to serve the growing market of links for offshore wind farms in Northern Europe. In the high voltage underground cable business, the Group has invested to expanded production capacity in China, Russia and France. Investments have also been made in the Oil&Gas sector, in Optical Telecom business and in the development of innovative cables and services for smart grids.

ENERGY CABLES AND SYSTEMS PERFORMANCE AND RESULTS

• power transmission order book increased to €2.45 billion, mainly driven by offshore wind power generation
• power distribution: positive demand in North and South America; persistent weakness in Europe
• slight improvement in profits and margins for T&I business
• increased operating margins for the industrial business, mainly driven by Oil&Gas, specialties & oem and elevators

Sales to third parties by the Energy Cables and Systems segment amounted to €6,382 million. Net of metal price, exchange rate effects and changes in the group perimeter, the organic change on 2011 was marginally negative (-1.4%), despite the positive performance recorded by the Utilities business thanks to strong growth in submarine cables. Adjusted EBITDA amounted to €487 million, posting an increase of 6.3% on the 2011 pro-forma figure and an improvement in margin to 7.6% on sales, from 6.9%.


Utilities
Sales to third parties amounted to €2,287 million, posting a 1.1% organic increase on the 2011 pro-forma figure. Adjusted EBITDA amounted to €270 million, up 2.3% from the 2011 pro-forma figure of €264 million. The improvement in sales and profits was achieved thanks to the positive performance in submarine and high voltage underground cables, especially in the third and fourth quarters, which helped to counteract the decline in power distribution volumes.  
 
Although the lower level of demand affecting the High Voltage Underground cable business reflects the uncertain macroeconomic conditions, particularly in Europe, the Group saw signs of a recovery in sales from the third quarter, especially in North America and countries with growing infrastructure needs, such as Russia, China and the Middle East. Other projects have been carried out for European Utilities (Terna, Edf, Tennet and UK National Grid).The prospects for 2013 are supported by growing demand in the United States, Asia and Europe for the onshore part of submarine power links. The order book corresponds to about 12 months of sales.

The Group's Submarine Cables and Systems business had an excellent performance, confirming its technological and market leadership in the growing sector of offshore wind farm links and power lines. The Group is a key player in major renewable energy development programmes throughout Northern Europe, and is also involved in the development of some of the most important power lines such as the Montenegro-Italy link and the Western Link in the UK, both projects acquired in 2012. The prospects for 2013 are positive in Europe thanks to new offshore wind farm projects, planned mainly in Germany and UK. The value of the order book has reached record levels, assuring sales visibility for about three years, meaning that the Group is continuing to invest in expanding its production capacity to meet the growing demand.
The contraction in volumes in Europe for the Power Distribution business was partially offset by increases in other parts of the world, particularly North and South America. Margins enjoyed a slight recovery thanks to a rigorous policy of improving manufacturing efficiency and a better geographic mix of sales. The Group's innovations in the niche sector of applications for smart grids and applications to monitor electricity grid efficiency were well received by the market. P-Laser, the Group's innovative eco-friendly cable initially launched in Italy, is now under development in some of the prime European markets.
 

Trade & Installers
Sales to third parties amounted to €2,159 million, posting a small organic decrease (-2.6%) on the 2011 pro-forma figure. Demand continued to decline in Central and Southern Europe, while an upturn in North and South America was confirmed, as well as in Asia. In Europe, the Group has implemented a strategy of preserving market share and profitability, particularly by focusing on relations with major customers and on more innovative products. Prospects are positive in North and South America, with an increase in the Group’s market share. Product portfolio rationalisation, improvements in customer service and a focus on manufacturing efficiencies are the cornerstones of the Group's strategy aimed primarily at preserving profitability. Adjusted EBITDA amounted to €77 million, up 5.5% on the 2011 pro-forma figure, with the margin improving to 3.6% on sales from 3.3% in 2011.

Industrial
Sales to third parties amounted to €1,801 million, reflecting an organic decrease of -1.5% on the 2011 pro-forma figure. The results of the various business lines show a positive performance for Oil&Gas in the offshore market with a growing order book in Northern Europe and Asia, both markets where demand is forecast to grow further. Demand for Flexible Pipes was lower than expected, while Umbilicals and DHT reported a growth in order book. Although demand from the renewable energy sector was down in Europe, it is expected to recover in North America in the second half of 2013 thanks to the renewal of government stimulus measures. Demand remained weak in the infrastructure and transportation sector in Europe, while there were signs of greater stability in North America and Asia. The Elevator cables business delivered good sales and earnings performance in the United States with the goal of expanding its presence in Europe, South America and Asia. Lastly, the Automotive cables market was weak in Europe, while volumes grew in Asia, North and South America.
Adjusted EBITDA amounted to €139 million, reporting an increase of 20.0% on the 2011 pro-forma figure and an improvement in margin to 7.7% on sales, from 6.4%.

TELECOM CABLES AND SYSTEMS PERFORMANCE AND RESULTS

• positive demand for optical cables in Europe and Asia
• significant growth of profitability
• Growth in OPGW sales

Sales to third parties by the Telecom Cables and Systems segment amounted to €1,466 million, posting a negative organic change of 3.5% on the 2011 pro-forma figure. Margins and profitability were significantly higher due to better product mix, manufacturing efficiencies and reductions in fixed costs.
The demand for optical cables reported a second-half decline in North and South America, due to the suspension of government stimulus measures. In Brazil, the reintroduction of stimulus measures should produce a recovery in demand starting from the second half of the year.
In Europe, various countries recorded a growth in volumes, like in China, where investment relates to every type of application (backbone, metro ring and access networks). Prospects are positive in Australia due to the ramp-up of the National Broadband Network program, and sales are expected to increase in the first half of 2013.
The Group's Multimedia Solutions business confirmed the improvement in profits, mainly thanks to cost reduction. The Group aims to further extend its geographic presence by relying on its extensive product portfolio. 
Sales were up in the OPGW business in Spain, the Middle East and Africa, while demand for copper cables confirmed its gradual decline .
Adjusted EBITDA amounted to €160 million, marking a sharp 24.9% increase on the 2011 pro-forma figure equal to €128 million. The ratio of Adjusted EBITDA to sales improved to 10.9% from 8.8% in 2011.

BUSINESS OUTLOOK

During 2012, following growing concerns about Eurozone and US debt sustainability, the world economy continued the decelerating trend in progress since the second half of 2011. This has led to a gradual deterioration in consumer and business confidence, with a consequent reduction in industrial output and investments worldwide.
In such an economic context, the Group expects in 2013 that demand for medium voltage cables for Utilities, for building wires and for those products in the Industrial sector most exposed to cyclical trends will remain weak at least in the first half of the year. Instead, a positive demand is confirmed in the high value-added businesses of power transmission and offshore Oil&Gas. Market recovery is expected in the second half of the year for fibre optic cables. Lastly, the Prysmian Group will continue to integrate and rationalise the activities of the Dutch Draka Group with the goal of achieving the projected cost synergies and of further strengthening its presence in all its areas of business.


OTHER RESOLUTIONS BY THE BOARD OF DIRECTORS

By-laws amendments
The Board of Directors of Prysmian S.p.A. has amended today the By-laws for certain provisions contained in Legislative Decree 91 of 18 June 2012, in accordance with the procedures permitted by art. 2365, par. 2, of the Italian Civil Code and by art. 17, par. 3, of the By-laws.
In detail, the amendments to the By-laws have established that the single call shall represent the default mode for organising Shareholders' Meetings. As soon as the amended By-laws have been filed with the Register of Companies, they will be made available in the Corporate Governance section of the Company's website at www.prysmian.com.

Share buy-back programme
The Board of Directors has decided to request the next Ordinary Shareholders' Meeting, scheduled in single call for 16 April, for authorisation to initiate a programme for the buy-back and disposal of treasury shares, after revoking the previous resolution adopted at the Shareholders' Meeting on 18 April 2012.
The programme will provide the opportunity to purchase, on one or more occasions, a number of shares whose total cannot exceed 10% of share capital, taking account of treasury shares already purchased in execution of previous shareholder resolutions and not yet disposed of. Purchases may not exceed the amount of available reserves reported in the most recently approved annual financial statements. The programme will last for a maximum of 18 months commencing from the date of approval by the Shareholders' Meeting.
The shareholders' approval will be requested:

• to provide the Company with a portfolio of treasury shares, including those already held by the Company, that can be used in any extraordinary transactions;
• in order to use the treasury shares purchased to service the exercise of rights arising from convertible debt instruments or instruments exchangeable with financial instruments issued by the Company, its subsidiaries or by third parties;
• to dispose of treasury shares to satisfy stock option plans reserved for the Group's directors and employees;
• to allow efficient management of the Company's capital, by creating an investment opportunity even for its available liquidity.

Treasury shares will be bought back and sold in accordance with applicable laws and regulations:

(i) at a minimum price no more than 10% below the stock's official price reported in the trading session on the day before carrying out each individual transaction;
(ii) at a maximum price no more than 10% above the stock's official price reported in the trading session on the day before carrying out each individual transaction.
As at the present date, the Company directly and indirectly holds 3,039,169 treasury shares.
The legally required documentation will be made available to shareholders and the public at the locations and within the deadlines required by applicable regulations.

Employee Stock Purchasing and Ownership Plan for all Prysmian employees
Having obtained the approval of the Compensation and Nominations Committee, the Board of Directors has resolved to submit to the forthcoming Shareholders' Meeting the introduction of a new global share ownership plan (the "Plan") for all employees of the Prysmian Group with permanent employment contract who have completed their probationary period,

The reasons behind the introduction of the Plan are:

• to strengthen the sense of belonging to the Group by offering employees at all levels of the organisation an opportunity to share in its successes, through equity ownership
• to align the interests of stakeholders (the Prysmian Group, employees and shareholders), by identifying a common goal of creating long-term value
• to contribute to the integration process

The Plan will offer the opportunity to purchase Prysmian's ordinary shares on favourable terms, with a maximum discount of 25% on the value of the stock, offered in the form of treasury shares. The shares purchased will be subject to a retention period, during which they will not be available for sale. The Plan envisages three periods of purchase: 2014, 2015 and 2016.

The Plan will include the Chief Executive Officer, the Chief Financial Officer, the Chief Strategic Officer, the Executive Vice President of Energy Business and Executives with strategic responsibilities of Prysmian Group with a different discount of 1%. The Plan is to be treated as "of particular relevance" within the meaning of art. 84-bis, par. 2 of the Issuer Regulations.

It establishes an upper overall limit for the discount, quantified as 500,000 shares serving the Plan.

In the Plan's implementation phase following approval by the Shareholders' Meeting, Prysmian will define the details for the different countries, which may vary according to local laws, and reserves the right to exclude those countries where restrictions or local rules may render its implementation inappropriate or ineffective.

The proposal, which will be submitted for approval by the forthcoming Shareholders' Meeting, calls for the Board of Directors to be vested with the powers to implement the Plan.

The information memorandum relating to the plan will be published in due time.

Notice of Shareholders' Meeting
The Board of Directors has also resolved to convene the Shareholders' Meeting for 16 April 2013, in single call.
Based on the results for 2012, the Board of Directors will recommend to the forthcoming Shareholders' Meeting that a dividend of €0.42 per share be declared, involving a total pay-out of approximately €89 million.
If approved, the dividend will be paid out from 25 April 2013 to those shares outstanding on the ex-div date of 22 April 2013.

Prysmian's Annual Report at 31 December 2012, approved by the Board of Directors today, will be available to the public by 26 March 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 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 (Andreas Bott and Carlo Soprano) 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 FY 2012 results 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.

^[1] Adj EBITDA is defined as EBITDA before non-recurring income/(expenses), as reported in the table in Annex B.

^[2] Adj operating income is defined as operating income before non-recurring income/(expenses) and the fair value change in metal derivatives and in other fair value items.

^[3] Adj net profit is defined as net profit before non-recurring income and expenses, the fair value change in metal derivatives and in other fair value items, the effect of currency and interest rate derivatives, exchange rate differences and the related tax effects.

^[4] The audit of the consolidated financial statements and separate financial statements had not yet been completed as at today's date.

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