The results for the first half
of 2016, approved by Prysmian’s
Board of Directors, showed strong
impetus from strategic business
as organic growth by Energy
Projects jumped 22.7%.
The Prysmian Group’s first-half results were marked by revenue growth and a significant improvement in profitability with the biggest drivers of growth being Energy Projects and Telecom. CEO Valerio Battista explained that “the important set of technological innovations introduced between end of 2015 and 2016, involving the launch of the 600kV and 700kV cable systems, combined with greater project execution capabilities, involving the commissioning of Ulisse, the Group’s third cable vessel, mean the Group is well positioned to continue taking advantage of the opportunities offered by the market”. In the Telecom business, growth has been driven by the recovery in optical fibre competitiveness and the new optical cable manufacturing capacity in Eastern Europe. Performance by the higher valueadded businesses has contributed to a fresh upturn in profitability, with a significant improvement in margins, also thanks to actions taken to reduce fixed costs and rationalise manufacturing footprint. The newly acquired Oman Cables Industry has also provided an important contribution in this regard. Group Sales amounted to €3,785 million, posting organic growth of 1.8%. The satisfactory execution of the large number of projects currently in the order book has led to a 22.7% jump in revenue for the Energy Projects segment, a result that reflects not only positive performance by submarine cables and systems but also excellent high voltage underground sales.
Sales grew organically by 1.8% to €3,785 million as the satisfactory execution of the large number of projects led to a 22.7% jump in revenue for Energy Projects, while Energy Products (E&I and Industrial & NWC) reported a slight drop, Telecom saw the uptrend accelerating in Q2, while Oil&Gas continued declining as expected.
Adjusted EBITDA amounted to €347 million, up from €314 million in the first half of 2015 with a considerable improvement in margins: 9.2% of sales from 8.4% of H1 2015. EBITDA amounted to €322 million compared with €261 million in the first half of 2015.
Net Financial Position reported a balance of €1,031 million as of 30 June 2016 versus €979 million one year earlier. Excluding the impact of recent acquisitions it would have been €811 million. Among the principal factors over the previous 12 months that influenced net financial position were a €551 million in cash flow provided by operating activities before changes in net working capital.
The Group confirmed its forecast for an Adjusted EBITDA for FY 2016 in the range of €670-720 million, markedly up from the €623 million reported in 2015.
Strong uptrend confirmed
for Submarine Cables while
High Voltage underground
posted positive performance.
Profitability also improved.
The Energy Projects Operating Segment reported sales at €761 million in the first half of 2016, with strong organic growth of 22.7%. Profitability also improved, with Adjusted EBITDA at €111 million compared with €100 million in the first half of 2015, which benefitted from €24 million Western Link previous loss writeup, while the margin on sales was 14.6% versus 15.6% one year earlier.
Sales of Submarine Cables and Systems grew considerably, driven by progress in the execution of the important projects currently in the Group’s order book. Margins also improved markedly thanks to the focus on project management and to the enhancement of cable installation assets, making it possible to in-source more installation operations. Ulisse has entered service as the third vessel of the Group’s cable-laying fleet, which already numbers Giulio Verne and the Cable Enterprise. Ulisse is suited to shallow water operations and is a very important asset for offshore wind farm projects.
Sales of High Voltage Underground cables performed particularly well in the wake of work on the France-Italy interconnector and the execution of projects in North America and Asia Pacific.
The underground and submarine power transmission order book stands at €2.95 billion. The market scenario for submarine cables and systems remains solid, with good opportunities expected in the offshore wind sector in France, the Netherlands and Great Britain in the second half of 2016 and in 2017. High voltage underground tendering activities are also continuing at an intense pace in the Middle East.
The first half saw a gradual
improvement in margins
for Trade & Installers while
Power Distribution growth
was in line with forecast.
Within Industrial, Elevators
and Automotive were positive,
while a slowdown occurred for
Specialties & OEM.
Energy Products Operating Segment overall sales amounted to €2,298 million, of which €289 million from the line-byline consolidation of Oman Cables Industry since 1 January 2016. Oceania and certain Asian countries grew, Europe and North America were stable while a steep reduction in underlying sales was recorded in Brazil and Argentina. Adjusted EBITDA jumped 20% to €151 million almost entirely due to the first–time consolidation of Oman Cables. Margin also improved to 6.6% from 5.5%.
Sales of Energy & Infrastructure rose to €1,567 million from €1,468 million while profitability improved, with Adjusted EBITDA climbing to €87 million from €63 million and the margin on sales improving to 5.5% from 4.3%, mainly benefitting from the consolidation impact of Oman Cable Industry, contribution to additional €24 million compared to H1 2015.
The results for Trade & Installers showed
a slight decline in sales due to the focus
on a mix designed to improve profitability.
Positive performances were recorded
in Eastern and Northern Europe and
Oceania. Power Distribution confirmed a
positive sales trend, particularly driven by
North America, the Netherlands, Northern
Europe and Asia Pacific.
Power Distribution reported good sales, driven by strong performance in Germany and Northern Europe thanks to infrastructure investments, and a revival in Asia Pacific.
Industrial & Network Components sales amounted to €682 million with some weakness in certain sectors of Specialties & OEM. Adjusted EBITDA improved to €64 million from €61 million with margins rising to 9.4% from 8.2%. Specialties & OEM remained generally stable. Defence, Crane and Marine all enjoyed positive sales, while Nuclear, Railways, Mining and Renewables were weak. Elevators enjoyed a solid performance with increased market share in North America and APAC. Automotive reported good underlying increase in second-quarter sales, while Network Components improved profitability.
But the SURF business showed greater resilience thanks to
integration with GCDT. Focus on supply chain optimisation
and effective use of manufacturing footprint.
The Oil & Gas Operating Segment reported sales of €156 million with negative organic growth of 33.9% as the performance has been hit hard by the drop in oil prices that affected investment decisions in the Oil&Gas sector. Adjusted EBITDA came in at €7 million from €17 million, with margin of 4.2%.
The deterioration in performance by the core Oil & Gas business reflected adverse market conditions with slow demand for both offshore and onshore projects. In response to the steady erosion of margins, the Group will make greater use of its Asia-based manufacturing facilities while continuing to invest in making production more efficient.
In the SURF business (Subsea Umbilicals Risers and Flowlines), the performance of Umbilicals has been in line with forecast reflecting a new framework agreement in Brazil, while efforts continue to optimise the supply chain and strengthen integration with key suppliers.
The contraction in volumes in the Downhole Technology business has been partly offset by synergies from the recent acquisition of Gulf Coast Downhole Technologies LLC.
Sales posted an organic growth of 5.8% while the improvement
in profitability was achieved despite bad debt provisions in
Brazil. Continued growth for Copper Cables and Multimedia
The Telecom Operating Segment scored sales growing organically by 5.8% to €570 million, reflecting generally stable revenue from optical fibre cables and strong growth in copper cables in Australia. Profitability also improved, thanks to effective results in improving optical fibre cost competitiveness and to the expanded capacity in Eastern Europe. Adjusted EBITDA came in at €78 million (€86 million excluding €8 million in bad debt provisions in Brazil) compared with €71 million while margin on sales improved to 13.7% (15.1% excluding the impact of bad debt provisions in Brazil) from 12.2% of H1 2015.
In the Telecom solutions, sales of optical cables were largely stable with signs of accelerating in the second quarter, reflecting strong performance in Australia, in North America and in France, with the construction of backhaul links and FTTHconnections for leading operators. Other European countries as well as South America remained weak during the first six months of 2016.
Multimedia Solutions continued their upward trend thanks to growth in the European market and production capacity extension in the copper business.
The Group is resolutely moving ahead with its plans to increase competitiveness and profitability by creating manufacturing centres of excellence. In Slatina, Romania, the Group has created a new state-of-the-art production facility allowing it to serve the European market.
The first six months of 2016 have witnessed moderate growth in the world’s major economies,
partially eroded by the uncertain economic and political environment in some emerging countries.
The unexpected Brexit outcome late In June has unleashed considerable economic and political
uncertainty, translating into reaction by the exchange rates. Growth has remained stable in the US
while political uncertainty continued to impact Brazil. The economies of China and Russia showed
signs of stabilization.
In such a context, the Group’s expectation for FY 2016 is that demand in the cyclical businesses of building wires and medium voltage cables for utilities will be in line with the previous year with a general stabilisation in prices. Given the positive market environment for the Energy Projects segment, the Group expects both the Submarine and HV underground businesses to improve. In the Oil & Gas, the low oil price and consequent reduction in investments are expected to have an adverse impact especially in the core of this business. The Telecom segment is expected to see continued growth in demand for optical fibre cables in the second half of 2016 albeit at a slower pace. Assuming constancy of current rates, forex effects are forecast to have a negative impact on FY 2016 results. The Group is confirming its forecast of Adjusted EBITDA for FY 2016 in the range of €670-720 million, marking a considerable improvement from the €623 million reported in 2015. This takes into account the current order book and reflects the expectations for the full consolidation of Oman Cables. Prysmian is continuing in 2016 to rationalise its activities with the objective of achieving projected cost efficiencies and greater competitiveness in all areas.
The market appreciated the solidity of H1 2016 results and the confirmation of FY guidance, despite unexpected bad-debt provision in Brazilian Telecom business and a slight worsening FX environment following the Brexit. Worth to notice the recommendation upgrade of Mediobanca from “Neutral” to “Outperform” with target price at €23.1/ share, that defined Prysmian a name with all the cards to outperform both its reference sector and the Italian market. Credit Suisse confirmed Prysmian as the best-pick within the cable sector, as the acceleration of the Telecom business and the optimism on Energy Projects potential order intake emerged as reassuring messages from H1 2016 results and resulted in an increase of the target price to €23/share from previous €22.
Also Bank of America-Marril Lync, Equita and Kepler-Cheuvreux increased their target price after adjusting their estimates in the light of positive H1 2016 results and reassuring guidance. Intermonte, on its part, confirmed its “Neutral” view and its target price of €22.5/share, in a fulllooking valuation with limited upside, while appreciated the solid medium-long term prospective in Europe for Energy Projects and Telecom.