Fy 2016 results showed the Adj. Ebitda target achieved in high-end of guidance range, up 14.1% Over previous year to €711m, highest ever in the company history. Strong growth by high-tech business.
The full year results for 2016, approved by the Board of Directors of Prysmian Group, reached an all time high in terms of Adjusted EBITDA, that rose by 14.1% over the previous year to €711 million, with the target achieved in the high-end of the guidance range. “We have closed 2016 on a note of profi tability, at highest ever in the company’s history,” commented Valerio Battista, CEO of Prysmian Group. Mr. Battista noted that excellent sales performance in higher valueadded businesses has been refl ected in a signifi cant improvement in profi tability, also fostered by the company’s focus on operational effi ciency and manufacturing footprint optimisation.
The technological innovations introduced by the Energy Projects business, like the new 600 kV P-Laser cable and the 700 kV PPL cable, represented milestones for the entire industry. With a view to providing a turn-key service, signifi cant progress has also been made in developing the project engineering and execution capabilities, also thanks to expansion of the fl eet of cable-laying vessels. Driving the performance in Telecom business was the renewed competitiveness in fi bre manufacturing and the creation of manufacturing centres of excellence, that allowed the business to make the most of opportunities in a growing market.
Mr. Battista said that the outlook remains positive, both for submarine cables and systems, “where we aim to win new power interconnection and offshore wind farm projects”, and for the Telecom business, “where optical cable demand remains high”. Strong sales performance and improved profitability have helped to further strengthen the financial structure, with a better net financial position than expected.
Last year saw a strong advancement in the Group growth strategy based upon four pillars: continuous innovation and R&D investing, engaging talents in the company future, sustainability as a secular commitment, acquisition of strategic assets.
Resources employed in R&D amounted to around €84 million in 2016, confi rming Prysmian aim to position itself as an energy revolution protagonist, with the development of technologies for effi cient and sustainable electricity networks, including the launch of the new P-Laser 600 kV cable. With Fast Forward Operations, the Group launched a major project to improve the competitiveness of its industrial footprint.
Prysmian stands out for the innovative people development policies. In 2016 over 1,000 employees have passed through the doors of the Group Academy and the new Manufacturing Academy. The Graduate Program, now in its sixth year, resulted in the recruitment of 50 new high-potential resources; A new edition of the “Make it” recruitment scheme and the new “Sell It” programme were launched.
Sustainability, driver of growth. The economic value generated by the Group amounted to €1,710 million in 2016, up 8% on 2015. The Group has continued to devote ever more attention to Corporate Social Responsibility, with the adoption of global standards. The Group’s scoring in the DJSI improved to 76 points.The acquisitions of Shen Huan Cable in China and Corning copper data cables in Germany showed the willingness of pursuing an independent growth strategy. The Group also moved ahead with the integration of past acquisitions, namely Gulf Coast Downhole Technologies (GCDT) in the US and Oman Cables Industry.
Sales grew organically by 1% to €7,567 million, with the most signifi cant contribution coming from positive performances by the Energy Projects segment and by the Telecom segment.
Adjusted EBITDA was sharply up, +14.1% at €711 million, the highest on record since the company’s birth. Margins improved across all businesses, with the sole exception of Oil & Gas, with Adjusted EBITDA at 9.4% of sales, up from 8.5% in 2015.
Net Financial Position improved signifi cantly at €537 million as of end December 2016, from €750 million one year earlier. Free cash fl ow (levered) excluding acquisitions and disposals in 2016 reached €331 million.
Net Profi t posted a strong rise of 22.4% from 2015 to €262 million. the Board of Directors recommended the payment of a dividend of €0.43 per share.
FY results showed a record performance by submarine cables along with strong growth for high voltage underground. New projects expected point to a positive development in year 2017.
The Energy Projects Operating Segment reported sales at €1,634 million in 2016, posting organic growth of 18.5% on 2015. Profitability also improved significantly, with Adjusted EBITDA climbing 17.6% to €260 million, thanks to constant focus on operational efficiency and improved project execution capabilities.
Sales of Submarine Cables and Systems recorded double-digit growth, driven by progress in the completion of several projects already booked, such as Western Link, Dardanelles Strait, Greece-Cyclades, the Panay and Cebu Negros interconnections and the connections for major offshore wind farms like Dolwin3 and 50Hertz in Germany. The submarine order book stood at a strong €2,050 million as of December 31, 2016, with a positive outlook for 2017 both for interconnections and for offshore wind farm connections. In particular, the Group will be able to leverage on its upgraded installation assets, with a fleet that can now counts on 3 cable-laying vessels and on the development of more and more turnkey-oriented capabilities, from project engineering, to cable design and manufacture, and the monitoring of network operation and efficiency using technology developed by Prysmian Electronics.
Sales of High Voltage Underground transmission cables grew, reporting a slowdown only in the last quarter due to the phasing of certain projects. The biggest impetus came from North America and APAC, while the situation was less brilliant in Europe, except for France, and in Russia, due to political uncertainties. In China the Group has opted to pursue an independent growth strategy in the High Voltage sector, after divesting the stake in Baosheng HV Cable JV, and acquired the assets of Shen Huan Cable. The order book stood at €350 million as of December 31, 2016.
A favourable business mix and OCI consolidation helped profitability to increase with Adjusted EBITDA up 10.9% on 2015 to €280 million. Trade & Installers sales were down while stayed stable in Power Distribution. Among Industrials, Specialties & OEM experienced a troubled performance, with sharp drop by Renewables. Elevators and Network Components were positive.
The Energy Products Operating Segment overall sales amounted to €4,469 million, posting an organic decline of -3.6%, primarily attributable to challenging conditions on the South American market.
Sales of Energy & Infrastructure amounted to €3,016 million, of which €537 million contributed by Oman Cables Industry, while Adjusted EBITDA climbed 20.1% to €154 million, of which €37 million from the additional contribution of fully consolidating OCI, with a margin on sales improved at 5.1% from 4.6%.
Results for Trade & Installers were adversely affected by the challenging conditions on the South American market and by the slowdown in Central, Eastern and Southern Europe, while positive performances were recorded in Northern Europe and Australia. Constant attention to optimisation of the manufacturing footprint and the favourable sales mix, combined with the first-time consolidation of OCI, sustained margins during the year.
Power Distribution reported a stable underlying sales trend, with a fourth-quarter slowdown in line with expectations. Positive performances were recorded in North America and APAC, while the scenario remained weak in South America.
Industrial & Network Components sales amounted to €1,343 million, posting negative organic growth of -4.6% mainly due to the instability of investment demand in certain industrial sectors linked to the capital goods market. Profitability took a positive turn, with Adjusted EBITDA improved to €127 million from €122 million with margins rising to 9.5% from 8.1%. Specialties & OEM had a troubled performance, while Elevators enjoyed significant growth thanks to excellent sales performance in North America and EMEA. The Automotive business reported stable volumes, accompanied by a good increase in Adj.EBITDA margins, Network Components recorded a good performance for High Voltage products, offset by soft demand for Medium and Low Voltage accessories.
The impact of the drop in oil prices eased somewhat in the final part of the year while the segment continued to focus on optimising manufacturing footprint and supply chain efficiency. Consolidation of Gulf Coast supports Down Hole Technology.
The Oil & Gas Operating Segment was hit hard by the oil price trend in 2016, which affected investment decisions, despite signs of stabilisation in the fourth quarter, particularly in the Core Oil & Gas business. Sales came in at €300 million, down organically 29.3% on 2015. Adjusted EBITDA was also down to €8 million from €16 million, with a margin on sales dropped to 2.7% from 3.8% in 2015.
In the Core Oil & Gas Cables business, the collapse in demand particularly concerned drilling activities, offshore projects and the Electrical Submergible Pumps segment, albeit a stabilisation was reported in the fourth quarter. With the aim of stemming the erosion of margins, the Group remains strongly focused on optimising its manufacturing footprint and achieving cost efficiencies in the supply chain.
In the SURF business (Subsea Umbilicals Risers and Flowlines), the performance of Umbilicals was in line with expectations, reflecting the slowdown in orders from Petrobras in Brazil. The Downhole Technology business reported a slight slowdown in sales and profitability in North America, partially offset by the consolidation of Gulf Coast Downhole Technologies, acquired in the second half of 2015.
Increasing demand for optical cables and positive performance for multimedia solutions led to healthy 8.5% Organic growth of sales driven by Australia.
The Telecom Operating Segment sales amounted in 2016 to €1,164 million, with organic growth of +8.5% driven by healthy demand for optical fibre cables and by strong demand for copper cables in Australia. Adjusted EBITDA climbed to €163 million, posting an increase of +22.0% on 2015 and an improvement in margins to 14.0% from 12.1% in 2015.
In the Telecom Solutions business, the positive performance of optical cables and fibre reported another acceleration in the fourth quarter with excellent results in North America, France and Eastern Europe. Of particular note is how the Group managed to offset the decline in optical cable volumes in Brazil by repositioning its offer to OPGW cables for overhead networks. Demand for copper cables was lively in Australia, where the Group supports the technological choices of its customer National Broadband Network. The Group’s competitiveness has benefited from the investments made to improve fibre manufacturing efficiency and to create new centres of manufacturing excellence.
Multimedia Solutions posted a positive performance in Europe, also thanks to the production capacity enlargement for copper data transmission cables, with performance in South America also good. The high value–added business of optical connectivity accessories had positive results, fostered by the development of new FTTx networks in Europe, namely in France, Spain and the Netherlands.
Brokers’ comments after the release of FY 2016 results were positive, with all analysts appreciating the solid P&L statement in line with expectations and the better than expected cash generation. All broker houses confirmed their recommendations, with several increases in target price, including JP Morgan (from 25 €/share to 26.5 €/share), Mediobanca (from 23.1 €/share to 26.8 €/share) and Morgan Stanley (from 27 €/share to 27.5 €/share). Bank of America–Merrill Lynch confirmed its BUY rating and target price, highlighting positive indications on Telecom business and sound order intake expected in energy projects. JP Morgan appreciated Prysmian consistent results confirming its strong track record over the past decade. Equita confirmed its Neutral view after solid P&L and better than expected cash generation, highlighting uncertainties over the impact of production refocusing in China.
The macro environment in 2016 saw modest and mixed growth for Europe’s major economies, partially eroded by the uncertainty generated by the outcomes of referenda held in the United Kingdom in June and Italy in December. In the United States growth was moderate and less intense than in 2015. Among emerging economies, Russia experienced a progressive stabilization, while Brazil remained challenging. After a slow start, the Chinese economy benefited from the economic stimulus package and growth targets were achieved.
In such a context, the Group’s expectation for 2017 is that demand in the cyclical businesses of buildings’ and medium voltage cables for utilities will be in line, with a general stabilisation in prices.
With Energy Projects seeing a growing market, the Group expects to consolidate its market leadership and improve profitability in the Submarine business, with a slight decline in the High Voltage underground especially due to phasing of its manufacturing footprint in China. In Oil & Gas, the gradual strengthening of oil prices, if confirmed, should lead to a slight recovery in demand in the second half. In Telecoms, the underlying growth in turnover is expected to stay strong, thanks to North American and European markets, while a gradual stabilisation in volumes is expected in Australia. Prysmian Group is continuing in 2017 to rationalise its activities with the objective of achieving projected cost efficiencies and greater competitiveness in all areas of its business.