Prysmian S.P.A. FY 2017 Results

• Decline in SURF sales volumes continues to affect Oil & Gas

• Improved performance in Core Oil & Gas cables

• Focus on optimising manufacturing footprint and supply chain efficiency

The performance of the Oil & Gas segment continued to be penalised by the adverse performance of the SURF business, while sales in the Core Oil & Gas Cables business picked up. Sales to third parties came to €273 million, posting negative organic growth of -10.8% on 2016, with signs of improvement in the fourth quarter (4Q 2017 organic sales were -4.3% on 4Q 2016). Adjusted EBITDA amounted to €9 million, a slight improvement from €8 million in 2016, with the margin on sales at 3.4% (2.7% in 2016).

The Core Oil & Gas Cables business recorded a recovery in sales volumes thanks to resumed demand for onshore projects in the Middle East, Russia and United States. The offshore market remained weak. Profitability improved thanks to resurgence in volumes, optimisation of the manufacturing footprint and reduction in manufacturing costs (design-to-cost).

In the SURF business (Subsea, Umbilicals, Risers and Flowlines), the performance of umbilicals was affected by the deterioration in volumes and margins in the wake of low order intake in 2016 and price pressure in the Brazilian market. The market conditions in Brazil remain extremely challenging. The Downhole Technology business reported a slight downturn due to the low level of activity in international and offshore markets, only partially offset by the recovery of shale activity in the United States.

Telecom operating segment performance and results

Sales of Telecom cables and systems to third parties amounted to €1,258 million, with organic growth of +5.3% on 2016. Adjusted EBITDA climbed to €214 million, an increase of +31.1% on 2016; margins also improved with Adjusted EBITDA representing 17.0% of sales - its highest ever level - compared with 14.0% in 2016, benefiting from the investments made to improve fibre manufacturing efficiency, from the growth in volumes and the contribution of YOFC.

The optical cables business recorded double-digit organic growth in 2017. This performance was underpinned by favourable market conditions, particularly in North America and Europe (France and Italy in particular), where strong demand was supported by investment expenditure on broadband and preparations for the introduction of 5G technology.

In North America, Prysmian has signed a three-year agreement to supply optical fibre cables starting from January 2018 to Verizon, one of the major US operators, in connection with its multi-year investment plans. The Group has concurrently announced it will increase the production capacity of its North American plants to support this growth.

The weakness of the copper cable business, in line with expectations, was mainly due to conclusion of the National Broadband Network project in Australia.

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

The recent tender issued by China Mobile for the procurement of optical cables confirms the sustainability of market growth also in 2018.

Business Outlook

The global macroeconomic cycle got stronger in 2017, with all the main geographical areas improving, primarily driven by recovery of the Eurozone economies and by resumption of growth in certain emerging countries, such as Brazil and Russia. In the United States growth has become steadily stronger thanks to improvements in domestic consumption and external demand and to positive effects of the Trump administration's tax reform. China's growth was solid throughout 2017, outperforming government forecasts and analyst expectations; such expansion was supported by sectors operating in new technologies and services, which helped make up for slowing investment in traditional industries and construction. The Middle East and North Africa region was the main area of weakness in 2017, beset by its uncertain geopolitical situation and highly oil-dependent local economy.

In such a context, the Prysmian Group's expectation for FY 2018 is that demand in the cyclical businesses of building wires and industrial applications will be higher than in 2017, reflecting stronger European demand as partially tempered by weakness in the Middle East (Oman), while demand for medium voltage cables for utilities should be stable, reflecting a mixed performance between the different geographical areas. With market expansion forecast, Prysmian Group's Energy Projects segment anticipates consolidating its leadership in Submarine cables and systems while boosting the business's profitability through the strategy of insourcing installation activities. The Group expects High Voltage underground cables and systems to make a moderate recovery from 2017, with a steady improvement in results anticipated in China thanks to the new manufacturing footprint. In the Oil & Gas segment, the Group expects cable demand for Onshore projects (primarily in North America and the Middle East) to be stable thanks to the gradual rise in oil prices, while the SURF business is forecast to remain weak due to price pressures in the Brazilian market. The Telecom segment should see solid underlying sales growth in 2018, underpinned by strong growth in demand for optical cables in North America and Europe, while copper telecom cables can expect to flag further due to declining demand in Australia.

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 can be expected to have a negative impact on the Group's forecast operating income for 2018.       

Lastly, the Prysmian Group will continue in 2018 to rationalise its activities with the objective of achieving projected cost efficiencies and greater competitiveness in all areas of its business.

Other matters resolved by the Board of Directors

Notice of Annual General Meeting

The Board of Directors has given the Chairman of the Board of Directors and the Chief Executive Officer several authorities to perform all the formalities to convene the Annual General Meeting (AGM) for Thursday, 12 April 2018, in single call.

Based on the results for 2017, the Board of Directors will recommend to the forthcoming AGM that a dividend of €0.43 per share be declared, involving a total payout of approximately €96 million.

If approved, the dividend will be paid out from 25 April 2018, with record date 24 April 2018 and ex-div date 23 April 2018.

Presentation of a candidate slate by the Board of Directors for board renewal

In view of the expiry of its three-year term in office and as permitted in the By-laws, the Board of Directors has voted to present its own slate of candidates for the office of director to be submitted to the forthcoming AGM required to vote, among other things, on the appointment of the new Board of Directors. This slate will be made publicly available, together with any slates submitted by eligible shareholders, at the locations and within the deadlines required by applicable regulations.

Share buy-back programme

The Board of Directors has decided to request the forthcoming AGM for authorisation to undertake a programme for the buy-back and disposal of treasury shares, after revoking the previous resolution adopted at the AGM on 12 April 2017.

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 in AGM.

The shareholders' approval is being requested:

• to provide the Company with a portfolio of treasury shares (a so-called "stock of shares"), including those already held by the Company, that can be used for any extraordinary corporate actions (for example, mergers, demergers, purchases of equity investments);
• 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 (for example, in takeovers bids and/or stock swaps);
• to use treasury shares to satisfy share-based incentive plans or share purchase plans reserved for Prysmian Group directors and/or employees;
• to allow efficient management of the Company's capital, by creating an investment opportunity, also for its available liquidity.

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

1. 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;
2. 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 27 February 2018, Prysmian S.p.A. directly and indirectly held 6,493,329 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.

Corporate bonds

• A bond known as "Prysmian S.p.A. €500,000,000 Zero Coupon Equity Linked Bonds due 2022" was placed with institutional investors on 12 January 2017. The shareholders approved the convertibility of this bond at their meeting of 12 April 2017;
• The convertible bond, known as "€300,000,000 1.25 per cent. Equity Linked Bonds due 2018", will reach maturity on 8 March 2018.

Manager responsible for preparing corporate accounting documents

Following the appointment to a new position in the Prysmian Group of Mr. Andreas Bott, formerly Head of Planning & Controlling, as well as manager responsible for preparing corporate accounting documents together with Mr. Carlo Soprano (Head of Financial Statements & Compliance), the Board of Directors of Prysmian S.p.A. has appointed, with effect from 1 April 2018, Mr. Alessandro Brunetti, together with the previously appointed Mr. Soprano, as manager responsible for preparing corporate accounting documents, pursuant to art. 154-bis of Legislative Decree 58/1998.

This appointment has been made with the favourable opinion of the Board of Statutory Auditors and in compliance with the integrity and competence requirements established by applicable legislation and the Company's By-laws.

Sustainability Report

The Board of Directors has approved the Sustainability Report for 2017 (Consolidated Non-Financial Statement pursuant to Italian Decree 254/16, regarding the disclosure of non-financial information). The figures and information refer to the companies belonging to the Prysmian Group as at 31.12.2017 and fully consolidated within the Annual Financial Report. The Sustainability Report therefore covers all the Group's plants, to which (except for exclusions) approximately 80 indicators have been applied from the international sustainability reporting standard GRI G4 (Global Reporting Initiative), Core option (with exceptions duly indicated within the body of the Report).

As required by Decree 254/16, the Sustainability Report for 2017 (Non-Financial Statement) covers environmental, social and personnel-related aspects, respect for human rights, and the fight against active and passive corruption. The contents of the Report have also been defined through materiality assessment providing an aggregate view of the relevant aspects for the Group and its stakeholders: ethics and integrity, waste production and recycling, human and worker rights, technological development and eco-design innovation.
The Sustainability Report also reports the results of the Group with reference to 16 quantitative indicators which express Sustainability performance in Economic, Environmental and Social terms. The fourth Multi-Stakeholder Engagement event took place in Delft, in the Netherlands, as part of the process of strengthening dialogue with stakeholders on sustainability issues. Lastly, particular attention has been paid to the position in the principal international sustainability indexes and assessments, including FTSE4Good, CDP and Dow Jones Sustainability Index, in which the Group's has seen a 6-point improvement.

Capital Increase

The Board of Directors resolved to convene the Extraordinary Shareholders’ Meeting of the Company for 12 April 2018 in order to approve a capital increase for an amount of up to Euro 500,000,000.00, including any share premium, to be implemented by the Board of Directors by no later than 31 July 2019 in separable form, with the issue of new ordinary shares with regular entitlement to dividends (each, a New Share), to be offered in pre-emption to all the Company’s shareholders and to any holder of convertible bonds, pursuant to Article 2441, paragraphs 1, 2 and 3 of the Italian Civil Code (the Capital Increase), subject to the completion of the acquisition of General Cable Corporation (GCC).

Reasons for the Capital Increase

As announced on 4 December 2017, Prysmian has entered into a merger agreement with GCC pursuant to which (subject to the timely satisfaction of certain conditions precedent) Prysmian will acquire 100% of the share capital of GCC (the GCC Acquisition), a US company with shares listed on the New York Stock Exchange. The GCC Acquisition values GCC at approximately USD 3 billion, including debt and certain other GCC liabilities; the consideration per share payable by Prysmian to GCC shareholders shall be equal to USD 30.00.

The GCC Acquisition will be effected by way of the merger of Alisea Corp. (a wholly owned subsidiary of the Company incorporated under the laws of the State of Delaware) with GCC (the Merger). As specified in the press release issued on 16 February 2018 (and available on Prysmian website www.prysmian.com), the Merger was approved on that date by the shareholders’ meeting of GCC.

The Capital Increase is intended to rebalance and thus optimize the financial structure of Prysmian Group following the closing of the GCC Acquisition (the Closing), since it would allow Prysmian Group to reduce its net debt and to improve its net financial leverage ratio, as compared to the position immediately following the Closing.

Underwriting discussions

Prysmian has held preliminary discussions with primary national and international financial institutions which will act as joint global coordinators and as joint bookrunners in the context of the Capital Increase.

Private placement and shareholders willing to subscribe the new shares

Given that the Capital Increase will not exclude the pre-emptive rights of the Company’s existing shareholders, no private offering or private placement of New Shares is contemplated. No declarations of willingness to subscribe the Capital Increase have been neither sought nor received by the Company to date.

Expected period for the implementation of the Capital Increase

As indicated, the Capital Increase will be effected only upon the occurrence of the Closing.

In accordance with market practice, the Board of Directors proposed the Extraordinary Shareholders’ meeting to grant said Board of Directors appropriate powers to define, shortly before the launch of the Capital Increase offer (the Offer), the final terms of the Capital Increase, including:

• the timetable for the various phases of the Capital Increase, including the Offer;
• the final amount of the Capital Increase, subject to the maximum aggregate amount of Euro 500,000,000.00;
• the issue price (the Issue Price) of each of the New Shares and, as a consequence, the portion of the Issue Price to be allocated to the share premium reserve;
• the number of New Shares to be issued and the option ratio applicable to each of the existing shares and convertible bonds of the Company; and

the date as of which the subscription of the New Shares will be effective, taking into account the final deadline of 31 July 2019.

Group employee incentive plan and amendment of by-laws

Having obtained the approval of the Compensation, Nomination and Sustainability Committee, the Board of Directors has adopted a resolution to submit to the forthcoming AGM a new long-term incentive plan (the "Plan") for Prysmian Group Management with an upper limit of around 600 participants, including the four executive Directors of Prysmian S.p.A. and three key managers of the Group.

The Plan qualifies as "of particular relevance" within the meaning of art. 84-bis, par. 2 of the Issuer Regulations.

The Plan involves the grant of new ordinary shares obtained from a capitalisation issue through the allocation of profits or retained earnings pursuant to art. 2349 of the Italian Civil Code. 

A condition of access to the Plan, which is solely share-based, is that participants co-invest a portion of their annual bonus for 2018, 2019 and 2020, if achieved and payable, which will be conditional on achieving minimum financial performance targets in the period 2018-2020.

The Plan has the following objectives:   

• to generate strong commitment by the Group's management to achieving the targets for additional growth in profits and return on capital employed over the next three years;   
• to align the interests of management with those of shareholders by using share-based incentives, and promoting stable share ownership of the Company;   
• to ensure the long-term sustainability of the Group's annual performance through the mechanism of co-investing part of the annual bonus;      
• to support synergies and the development of a one-company identity by defining a common performance objective and introducing a retention mechanism, conditional upon completion of the acquisition of 100% of the share capital of General Cable Corporation.

The information memorandum relating to the incentive scheme and report on the amendments to the by-laws in connection with the proposed share capital increase serving the Plan, will be published within the legally required deadline. 

Group employee share purchase plan

Having obtained the approval of the Compensation, Nomination and Sustainability Committee, the Board of Directors has adopted a resolution to submit to the forthcoming AGM some additions to the Employee Share Purchase Plan (the "Plan").

The purpose of this Plan is:

• 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 strengthen employee confidence and engagement in achieving new milestones and better performance;
• to support synergies and the development of a one-company identity, conditional upon completion of the acquisition of 100% of the share capital of General Cable Corporation.

The Plan, already approved by the shareholders in their meeting of 13 April 2016, offers the opportunity to purchase Prysmian's ordinary shares on preferential terms, with a maximum discount of 25% on the stock price, given in the form of treasury shares. The shares purchased will be subject to a retention period, during which they cannot be sold. The three purchase windows of 2017, 2018 and 2019 will be extended to include 2020 and 2021.

The Plan's beneficiaries will also include the four executive Directors of Prysmian S.p.A. and key management personnel, for whom the discount will be just 1%. The Plan therefore qualifies as "of particular relevance" within the meaning of art. 84-bis, par. 2 of the Issuer Regulations. Shareholders will be requested to approve an increase in the number of treasury shares earmarked for the Plan's discount from 600,000 to 800,000.

In the Plan's implementation phase following approval by the AGM, 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 AGM, 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 within the required deadline.

The Prysmian Group's Annual Report at 31 December 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. by 22 March 2018. 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 results at 31 December 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 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, 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.