Prysmian S.p.A. first-half 2013 results

Improving second-quarter trend in sales and profitability

Growth for submarine systems and industrial cables

Building wires and renewable energy cables still under pressure in Europe

Weak optical cable demand in North and South America pending new stimulus packages

Further improvement expected in second half, €600-€650M target confirmed for FY ADJ EBITDA

Power Transmission order book climbs to record level of more than €2.8 billion  

Milan, 1/8/2013. The Board of Directors of Prysmian S.p.A. has approved today the Group's consolidated results for the first half of 2013.

 "The Group's half-year results show signs of improvement from the second quarter. In fact, in the second quarter 2013 both sales and profitability increased on the first quarter 2013, while still remaining below the same period in 2012," explains CEO Valerio Battista. "These signs acquire special relevance in a market scenario that, despite the beginnings of a stabilisation phase, remains difficult, especially because of the construction industry crisis in Europe and uncertainties over broadband stimulus programmes in North and South America. Profitability is expected to improve in the second half, particularly thanks to high voltage underground and submarine cables for Power Transmission, whose order book has risen to more than €2.8 billion. With the goal of achieving the expected full-year targets, the Group also confirms its focus on cost containment and rationalisation of organisational and production structures, as well as on the synergies with Draka, recently revised up to €175 million. Lastly, we are also expecting to see results from the commercial initiatives to leverage the product portfolio and improve customer service."

(*) The previously published prior year comparative figures have been the subject of a restatement following the introduction of IAS 19 (revised). This restatement has resulted in the recognition of Euro 1 million in additional finance costs in the first half of 2012.

Financial results

Group Sales amounted to €3,622 million compared with €3,916 million in the first half 2012. Assuming the same group perimeter and excluding metal price and exchange rate effects, the organic change was a negative 5.3%, even if sales showed some recovery in the second quarter. The positive performances reported by Power Transmission cables and by cables for higher value-added Industrial applications, have allowed the Group to limit the effects of lower volumes for building wires (sold through the Trade & Installers channel) and for industrial renewable energy cables in Europe and of the drop in demand for optical cables on the American continent. Market conditions remain generally difficult, despite signs of stabilisation that are thought could be confirmed in the second half.

Adjusted EBITDA amounted to €282 million, compared with €308 million in the corresponding period of 2012 (-8.3%), with a basically stable margin on sales (7.8% vs 7.9%). The trend towards stabilisation and improvement in performance in the second quarter were also reflected in the profitability measures, with second-quarter Adjusted EBITDA rising to €167 million from €115 million in the first quarter. Expectations of further market stabilisation and the robust Power Transmission order book, which climbed to a record level of more than 2.8 billion at the end of June 2013, allow the Group to confirm its full-year guidance, with Adjusted EBITDA forecast in the range of €600-€650 million.

EBITDA[4] amounted to €256 million, compared with €266 million in the first half 2012 (-4.0%), reflecting the impact of €26 million in non-recurring expenses particularly in relation to reorganisation and manufacturing efficiency projects.

Adjusted operating income amounted to €204 million, compared with €229 million in the first half 2012 (-10.5%). Operating income was €134 million, compared with €178 million in the first half 2012, partly due to the negative change of €37 million in the fair value of metal derivatives (versus a positive change of €1 million in the first half 2012).

Net finance income and costs, including the share of income/(loss) from associates and dividends from other companies, reported a negative balance of €76 million, compared with €51 million in the corresponding prior year period. Of this increase, €20 million is due to a number of non-recurring non-monetary costs, connected with the partial refinancing of the Term Loan by issuing the Equity-linked Bond.

Adjusted net profit amounted to €115 million, compared with €129 million in the first half 2012 (-10.9%); the margin on sales was broadly stable at 3.2%, compared with 3.3% in the corresponding period of 2012. The Net result was a profit of €41 million compared with €89 million in the first half 2012; this decline was mainly due to the negative change in the fair value of metal derivatives as well as to the non-recurring costs associated with the Term Loan's partial refinancing.  

Net financial position at the end of June 2013 amounted to €1,248 million, a significant improvement on €1,396 million at 30 June 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 €215 million;
• negative impact of €367 million from changes in working capital, due to the seasonality in stock levels and strong growth in working capital in the submarine cables business;
• payment of €28 million in taxes;
• net operating investments of €50 million;
• receipt of €8 million in dividends;
• payment of €72 million in net finance costs;
• payment of €91 million in dividends (€45 million in the first half 2012)

Energy cables and systems performance and results

Sales to third parties by the Energy Cables and Systems business amounted to €2,995 million, compared with €3,170 million in the first half 2012, reporting an organic decrease of -2.7%; second-quarter sales were broadly in line with the previous year, despite the continuing weakness of demand for building wires and industrial cables for renewable energy. Adjusted EBITDA amounted to €225 million, staying basically in line with the €229 million posted in the first half 2012.

Utilities

Sales to third parties by the Utilities business amounted to €1,071 million, recording a 0.7% organic increase. The excellent results reported by the Submarine cables business line more than offset the poor performance by the Power Distribution business line, allowing Adjusted EBITDA to increase to €121 million from €117 million in the first half 2012.

Sales for the High Voltage underground cables business line were broadly in line with the corresponding period in 2012. The current order book provides sales visibility for the whole of 2013, with signs of recovery in this sector particularly seen in Europe, the Middle East and a number of Asian countries. The more profitable mix of projects has nonetheless helped improve margins, with a further increase in profitability expected in the second half thanks to the phasing of certain important projects.

The Group's Submarine cables and systems business line reported excellent sales, confirming its market leadership for offshore wind farm connections and for large-scale grid interconnection projects. The order book has reached a record figure of more than €2.3 billion, with €600 million in new projects awarded in the period and intense tendering activities still in progress. The positive sales trend is also reflected in profitability, which has improved sharply with prospects for further growth in the second half.

Sales by the Power Distribution business line continued to be affected by continued deterioration in demand in the wider European market, despite confirmed signs of recovery in North America. It was a poor six months in South America, although volumes are expected to recover during the rest of the year. Even the Asian market was under pressure, especially in Australia. In terms of profitability, price pressures in the power distribution market caused a slight reduction in margins, despite the Group's efforts to implement manufacturing efficiencies.

Trade & Installers

Sales to third parties by the Trade & Installers business amounted to €974 million. The organic decrease of -8.5% on the first half 2012 is basically attributable to the construction industry crisis, at its most acute in Central European and Mediterranean countries. In contrast, positive performance was confirmed in South America, where the Group increased its market share and was able to maintain a premium positioning, even for prices. The first signs of stabilisation in overall demand were nonetheless seen in the second quarter of the year. In terms of profitability, appropriate actions to reduce costs and achieve manufacturing efficiencies allowed the Group to offset the impact of price competition and keep its margins stable (with Adjusted EBITDA representing 3.8% of sales). Adjusted EBITDA came to €37 million, compared with €42 million in the corresponding period of 2012.  

  Industrial

Sales to third parties by the Industrial cables business amounted to €896 million, delivering organic growth of +0.6% (+6.2% in the second quarter). The Group managed to offset the sharp drop in demand in the renewable energy market, thanks to diversification and consolidation in other high value-added businesses. The OEM segment enjoyed positive sales of cables for port crane, shipbuilding and transport. The Oil & Gas segment was affected by the phasing of certain offshore projects, although a strong second-half recovery is expected thanks to the award of a number of important contracts. Sales of Umbilicals were in line with the first half of 2012 and will receive a further boost in the second half thanks to the first deliveries for projects in Indonesia and West Africa. Still in the Oil&Gas segment, sales of Flexible Pipes continued to reflect uncertainties over investments in Brazil, the main target market, while DHT products enjoyed positive sales and earnings performances in North America. Lastly, with reference to the other segments, elevator cables 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 America and Asia.

Adjusted EBITDA amounted to €63 million, €7 million below the first half 2012, due to the steep decline by renewable energy cables.

Telecom cables and systems performance and results

Sales to third parties by the Telecom Cables and Systems business amounted to €627 million. Compared with the first half of 2012, sales reflect an organic decrease of 16.2% mainly due to the steep decline in North and South America. In fact, in the first half of 2012, the strong incentive policies adopted in the United States and Brazil had driven demand for optical cables, which declined to below-normal levels from the second half of 2012 once these incentives came to an end. The timing of any renewal or effective activation of such incentives is still uncertain. In Europe, optical cable sales volumes were stable compared with the corresponding period in 2012, with several major projects started, for example with British Telecom in the UK and in Eastern Europe. In Asia Pacific, there was growing demand in China for Fibre to the Home cabling solutions, while sales performed well in Australia thanks to the National Broadband Network Project, even though the installation phase of this project is still experiencing delays.

The Multimedia Solutions business line continued its commercial expansion in South America and Australia, while Data System Centres in Europe showed signs of slowing demand. OPGW performed well in Southern Europe, the Middle East and Africa, with growing exposure also in North America and Russia. Lastly, demand for copper cables continued to fall.

The Group has continued to focus its strategy on constantly improving product mix and reducing costs to raise profitability. Adjusted EBITDA amounted to €57 million, compared with €79 million in the first half 2012. 

Business outlook

The macroeconomic environment in the first part 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 expects in 2013 that demand will remain weak 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 significant contraction, also due to non-renewal of or uncertainties about government incentives. 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, rolling stock, cranes and marine, along with a gradual improvement in demand from the second half of the year for fibre optic cables for major telecom operators.

Based on the existing order book, profitability is expected to recover in the second half of the year with the target of achieving an Adjusted EBITDA for FY 2013 in the range of €600 – €650 million (FY 2012: €647 million). In addition, given the further deterioration in the market compared with previous years, the Prysmian Group has decided in 2013 to step up its 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.

Significant events in first half 2013

On 4 March 2013, the Board of Directors approved the placement of an equity-linked bond, referred to as "€300,000,000 1.25 per cent. Equity-Linked Bonds due 2018", maturing on 8 March 2018 and reserved for institutional investors.

The Company completed the placement of the Bonds on 8 March 2013, while their settlement took place on 15 March 2013.

Subsequently, the Shareholders' Meeting held on 16 April authorised:

• The convertibility of the equity-linked Bond;
• the proposal to increase share capital for cash, in one or more instalments with the exclusion of pre-emptive rights, by a maximum nominal amount of Euro 1,344,411.30, by issuing, in one or more instalments, up to 13,444,113 ordinary shares of the Company, with the same characteristics as ordinary shares in circulation, exclusively and irrevocably to serve the Bond’s conversion.

The initial conversion price of the Bonds into the Company's existing and/or new issue ordinary shares is Euro 22.3146 per share;

The Bonds are traded on the unregulated Third Market (MTF) of the Vienna Stock Exchange.

Other resolutions by the board of directors

Demerger of part of the assets of a direct wholly-owned company.

The Board of Directors has approved a proposal to demerge in favour of Prysmian S.p.A. part of the assets of FIBRE OTTICHE SUD – F.O.S. S.R.L., a company subject to the direction and coordination of Prysmian S.p.A..

As a result of the proposed demerger, Prysmian S.p.A. will become the direct owner of a property complex located at Viale Sarca 336, Milan, where the Prysmian Group's new head offices will be built. Notice is hereby given that, under the Company's By-laws, decisions concerning the demerger shall be taken by the Board of Directors of Prysmian S.p.A. and that no new shares will be issued by Prysmian S.p.A. as a result of the proposed transaction, nor will its share capital undergo any change.

The demerger is exempt from the application of Consob Regulation 17221/2010 (as amended) provided for in the Company's procedures for related party transactions in respect of transactions with its subsidiaries, pursuant to art. 12 par. 3 of the above Regulation. The legally required documentation relating to this transaction will be made available to shareholders and the public at the locations and within the deadlines required by applicable regulations.

The Prysmian Group's Half-Year Financial Report at 30 June 2013, approved by the Board of Directors today, will be available to the public at the Company's registered office in Viale Sarca 222, Milan and at Borsa Italiana S.p.A. by the legally-required deadline. 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 (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 first-half 2013 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.