Prysmian S.p.A. Nine-Month Results 2017

categories: Corporate  Financial Press Release 

Milan, Italy   -   07/11/2017 - 04:06 PM

  • Sales at €5,865 M (organic growth -1.1%, sequentially improving to -0.4% in Q3)

  • Positive trend for Telecom (+5.9%) and stable for Energy Products (-0.2%)

  • ADJ EBITDA climbs to €545 M (+3.3%) 

  • Major improvement in margins for strategic businesses of Energy Projects (17.2%) and Telecom (17.6%)

  • Net profit attributable to owners of the parent €196 million (+4.3%)     

  • Net financial debt at €1,052 M, after €100 M cash-out for share buyback (€1,017 M at 30/9/2016) 

  • FY 2017 guidance confirmed with ADJ EBITDA in range €710 M – €750 M

The Board of Directors of Prysmian S.p.A. has approved today the Group's consolidated results for the first nine months of 2017.

"The results for the first nine months of 2017 display an improvement in profitability despite broadly stable revenues, showing signs of some upward movement in the third quarter," commented CEO Valerio Battista. "In particular, we’re seeing significant growth in volumes and margins for Telecom, driven by rising demand for optical cables, and improving margins for Energy Projects thanks to progressive insourcing of submarine cable installation services. Cable technology is demonstrating it can make a significant contribution to digitization projects, with the development of new broadband networks, and to the use of renewable energy sources, by helping make sectors like offshore wind farms more and more competitive.

The market scenario in which we're operating therefore offers good opportunities that we intend to pursue by focusing on product and service innovation. We confirm the FY 2017 earnings guidance communicated to the market, despite the negative impact of results reported by the subsidiary Oman Cable Industries and of adverse exchange rate movements" concluded Battista.

Financial results

Group Sales amounted to €5,865 million in the first nine months of 2017, recording organic growth of -1.1% (assuming the same group perimeter and excluding metal price and exchange rate effects), with the negative gap narrowing in the third quarter (-0.4%) thanks to further revenue acceleration in Telecom's optical business and to a recovery in Trade & Installers.  

Group Adjusted EBITDA1 climbed 3.3% to €545 million (before net expenses for company reorganisation, net non-recurring expenses and other net non-operating expenses totalling €33 million), posting a margin on sales of 9.3%, stable compared with the first nine months of 2016 (9M 2016). There was a marked improvement in profitability by the strategic businesses of Telecom (Adjusted EBITDA margin of 17.6% versus 14.9% in 9M 2016), and Energy Projects (margin of 17.2% versus 14.6% in 9M 2016). This positive progress has absorbed not only the effects of less upbeat earnings performance by other business segments and the subsidiary Oman Cable Industries, but also the adverse impacts of exchange rate movements (a negative €4 million compared with the corresponding period of 2016).

Group EBITDA2 climbed to €512 million (+5.0% on 9M 2016), stated after net expenses for company reorganisation, net non-recurring expenses and other net non-operating expenses totalling €33 million (€39 million in 9M 2016). Such adjustments in the first nine months of 2017 mainly comprise costs for reorganising and improving efficiency and increases in and releases of the provisions for risks and charges relating to the remaining unsettled antitrust matters.

Group Operating Income for the first nine months of 2017 showed a year-on-year improvement of 2.4% to €341 million.

Net Finance Costs of €72 million in the first nine months of 2017 compare with €58 million in the previous year. The increase of €14 million is mainly attributable to the non-cash cost of the new convertible bond, to higher non-operating finance costs and exchange rate differences.         

Net Profit attributable to owners of the parent reached €196 million, recording an increase of +4.3% from €188 million in 9M 2016.

Net Financial Debt amounted to €1,052 million at 30 September 2017 compared with €1,017 million a year earlier, having made €100 million in share buybacks since January. The principal factors influencing Net Financial Debt in the past 12 months have been: 

  • €617 million in net cash flow provided by operating activities before changes in net working capital 

  • €99 million in cash used by increased net working capital 

  • €101 million in tax payments   

  • €239 million in net operating capital expenditure in the past 12 months, including €46 million to acquire the High Voltage assets in China 

  • €28 million in net cash inflows provided by acquisitions and disposals of investments 

  • €61 million in outflows for net finance costs  

  • €103 million in dividend payouts  

  • €100 million to buy back the Company's shares   

Net financial debt has also benefited from €48 million for the equity component of the convertible bond issued in January 2017.

1.   Adjusted EBITDA is defined as EBITDA, as described in the following note, before income and expense for business reorganisation, before non-recurring items, as presented in the consolidated income statement, and before other non-operating income and expense. The definition of this performance measure is consistent with CONSOB's adoption of the new ESMA guidelines (reference ESMA/2015/1415)

2.   EBITDA: is defined as earnings/(loss) for the period, before the fair value change in metal derivatives and in other fair value items, amortisation, depreciation, and impairment, finance costs and income, dividends from other companies and taxes.

Energy Projects

  • Negative Q3 organic growth after postponing installation milestones due to rough weather in the north sea

  • Growth in submarine business profitability

  • Third-quarter stabilisation for high voltage underground after poor start to the year

Energy Projects sales to third parties came to €1,039 million in the first nine months of 2017 (reflecting an organic trend of -6.7% on 9M 2016). Profitability improved, with Adjusted EBITDA at €179 million (+4.1% on 9M 2016) and a margin on sales of 17.2%, up from 14.6% in 9M 2016.

In the Submarine Cables and Systems business, the strategy of insourcing part of its installation activities, combined with a favourable execution mix, helped boost profitability. Business prospects are encouraging, especially in the increasingly competitive offshore wind farm segment, also thanks to advances in the technological solutions offered by the cable industry (higher voltage higher capacity cables to support larger turbines).

High Voltage Underground sales were affected by flagging demand in France, Northern Europe and the United States, only partly mitigated by growth in Asia Pacific. The business has witnessed a progressive stabilisation over the course of the year. Profitability was affected by the change in the Group's perimeter in China, only partially tempered by positive performance in Asia Pacific.   

The underground and submarine power transmission order book currently stands at €2,500 million, slightly higher than in December 2016.

Energy Products

  • Trade & Installers: improving sales in Q3 also helped by CPR

  • Negative performance in Middle-East (Oman) affected by weak regional economy

  • Industrial & Nwc: improved organic growth but business mix still weaker than previous year

Energy Products sales to third parties amounted to €3,672 million, largely in line with the corresponding period of 2016 (with organic growth of -0.2%), with the contraction in volumes in Europe and North America partly absorbed by positive performance in the Nordics and by growth in some Asian nations. Adjusted EBITDA amounted to €194 million (-10.9% on the same period of 2016), with a 5.3% margin on sales (6.4% in 9M 2016).

Energy & Infrastructure

Energy & Infrastructure sales to third parties amounted to €2,467 million, with a negative underlying change of -1.2% on 9M 2016. Adjusted EBITDA was €107 million compared with €123 million in the corresponding period of 2016 (with the margin on sales at 4.3% versus 5.4% in 2016). The decline in profitability is largely due to negative performance in the Middle East (Oman).

The 2017 nine-month results for Trade & Installers showed a recovering trend in Europe, after a weak start of the year, with much of the renewed momentum coming from business in the Netherlands, Italy, Spain and the Nordics, demonstrating how the Group is making the most of opportunities arising from implementation of the new Construction Products Regulation (CPR) which has raised the industry's quality standards. Performance was also positive in Asia Pacific, while less encouraging in the Middle East (Oman) affected by the regional economic downturn.  

Power Distribution reported a slight fall in underlying sales, essentially due to the anticipated market slowdown in Central and Eastern Europe. Positive performances were registered in the Nordics, USA and Asia Pacific. The adverse market conditions in the Middle East (Oman) have also had an impact on this business's results.

Industrial & Network Components

Industrial & Network Components sales to third parties amounted to €1,100 million, with underlying growth of +2.2%, confirming the positive trend by OEM and Automotive applications. Adjusted EBITDA came in at €88 million versus €95 million in 9M 2016 (with the margin on sales at 8.0% versus 9.3%), basically due to an unfavourable mix of applications. Specialties, OEMs & Renewables enjoyed positive organic sales growth, fuelled by APAC, North America and Turkey. Railway posted good volumes and Infrastructure turned in a solid performance, helping significantly boost the order book. Mining continued to recover while Crane, Marine and Defence were still weak after peaking in 2016. In terms of profitability, margins were squeezed due to an unfavourable mix of business. The Elevators business recorded a positive trend in Europe, but continued contraction in sales in China which, combined with the unfavourable product mix in North America, negatively impacted profitability. Automotive enjoyed further double-digit sales growth in the third quarter, thanks to the favourable market environment and the growth in market share in Asia Pacific, North America and Latin America. Profitability posted an improvement, also thanks to investments in industrial efficiency in Europe. Lastly, the Network Components business recorded a slight increase in third-quarter volumes, despite continuing signs of High Voltage slowdown in China, France and the Netherlands. Medium and low voltage performed well in Europe and the United States. Margins were affected by the unfavourable product mix.

Oil & Gas

  • Positive performance by Core Cable Oil & Gas

  • SURF still affected by soft demand in Brazil 

  • DHT sees onshore recovery, but offshore still weak

Oil & Gas sales to third parties came to €201 million in the first nine months of 2017, reflecting negative organic growth of -13.0%, a slight improvement from the -14.8% reported in the first six months of 2017. Adjusted EBITDA was €5 million in the first nine months of 2017 (€9 million in 9M 2016), with a margin on sales of 2.3% (4.1% in 9M 2016).

The Core Cable Oil & Gas business recorded a positive performance that accelerated in the third quarter, particularly driven by onshore projects in North America and the Middle East, while offshore remained weak. The recovery in volumes along with the efficiencies achieved have supported profitability. 

The SURF business (Subsea Umbilicals, Risers and Flowlines) continued to be affected by challenging market conditions in Brazil, impacting both volumes and margins.

The Downhole Technology business saw onshore volumes recover in the USA thanks to the shale oil market, contrasting with generally soft demand in the offshore and international markets.

Telecom

  • Strong upsurge in optical cable sales

  • Further leap in profitability

  • Capacity expanded in North America and Europe

Telecom sales to third parties amounted to €953 million in the first nine months of 2017, reflecting organic growth of +5.9%, with optical cables confirming their double-digit pace of growth in the third quarter (despite the challenging basis of comparison with the corresponding period of 2016) and the anticipated decline in copper tlc cables, primarily on the Australian market. Adjusted EBITDA continued to forge ahead, climbing to €167 million, +30.3% year-on-year. The Adjusted EBITDA margin on sales also improved to 17.6% from 14.9% in 9M 2016, benefiting not only from increased volumes but also from investments in optimising the manufacturing footprint, from efficiency gains in optical fibre manufacturing and from improved results by the subsidiary YOFC.

Growth in Europe has proven solid, with major projects to develop broadband networks in France (the Trés Haut Débit project) and Italy, where Prysmian has secured orders for optical fibre cables both from the TIM incumbent and for the government plan being implemented by Open Fiber. There has also been a steady growth in demand in the United States, thanks to investments to upgrade the fixed and mobile networks in preparation for 5G technology.  

The market for copper cables has been weak, while the high value-added business of optical connectivity accessories has performed well, thanks to the development of new FTTx networks (for last mile broadband access) in Europe, particularly in France and Britain.       

The Group continues to invest in boosting its production capacity for both optical cables and fibre in support of the medium-term growth prospects for this business.

Business Outlook

The global economy has steadily improved over the course of 2017, as witnessed by the rise in consumer and business confidence indices in many geographical areas and by better-than-expected GDP growth by both more developed economies (Eurozone, Japan, United States and Canada) and developing countries (Russia, China and other emerging Asian economies). After a disappointing start to the year, the US economy has reported am improvement, fuelled by domestic consumer spending, with Hurricanes Irma and Harvey having negative impact. The Chinese economy has maintained a robust pace of growth throughout the year; this has been driven by positive consumer spending and trade figures, which have more than made up for the slowdown in industrial investment and construction.

In such a context, the Prysmian Group's expectation for FY 2017 is that demand in the cyclical business of building wires will be marginally higher than in 2016, reflecting recovery in European demand as partially offset by weakness in the Middle East, while demand for medium voltage cables for utilities will be slightly down, reflecting a mixed performance between the different geographical areas. The industrial cables business is forecast to make an overall improvement thanks to growth prospects for some OEM applications and for Automotive. With the Energy Projects segment seeing a slight growth in market, the Prysmian Group anticipates consolidating its leadership in Submarine cables and systems while boosting the profitability of this business through the strategy of insourcing installation activities. High Voltage underground cables and systems are expected to record a slight downturn partly due to the change in the scope of consolidation after reorganising the manufacturing footprint in China. In the Oil & Gas segment, the stabilisation of the oil price is underpinning resumed demand for cables for Onshore projects (primarily in North America and the Middle East), while activity in the Offshore projects sector remains weak, like in the SURF business, which is being affected by the softness of demand in Brazil. The Telecom segment is forecast to record strong underlying sales growth for 2017, reflecting growing demand for optical cables in North America and Europe, tempered by a slowdown in copper cable demand in Australia, in line with expectation. 

In addition, assuming exchange rates remain at the same level as at the date of the present document, the effect of translating Group company results into the reporting currency is forecast to have a negative impact on the Group's expected operating income for 2017.               

The Group is forecasting Adjusted EBITDA for FY 2017 in the range of €710-€750 million, up from the €711 million reported in 2016. This forecast is not only based on the Company’s current business perimeter but also takes into account the existing order book.

The Prysmian Group's Quarterly Financial Report at 30 September 2017, approved by the Board of Directors today, will be available to the public from the Company's registered office in Via Chiese 6, Milan, and from Borsa Italiana S.p.A.. It will also be available on the corporate website at www.prysmian.com and in the authorised central storage mechanism used by the company at www.emarketstorage.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 for 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 nine-month results at 30 September 2017 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 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, and can be viewed on the Borsa Italiana website www.borsaitaliana.it and in the central storage mechanism for regulated information at www.emarketstorage.com.

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Maria Cristina Bifulco

Maria Cristina Bifulco

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