Prysmian Announces Results for First Half of 2011 (Italy)
The Board of Directors of Prysmian S.p.A. has approved the consolidated results for the first half of 2011.
"The first half of 2011 has confirmed the signs of recovery in demand seen from the second half of last year, resulting in a volume increase for the majority of businesses", states CEO Valerio Battista. "The half-year results report significant growth in sales and especially in profitability. The integration with Draka will further enhance the Group's competitiveness: the launch of the new organisational structure at the start of July marks a fundamentally important step forward in the integration process. The new Group has become operational and aims to achieve the first synergies as early as 2011, having also raised the annual run-rate target to €150 million. Despite continued signs of market weakness and recent turmoil on the financial front, we nonetheless confirm our targets for the year thanks to a strong order book ensuring ample sales visibility for the higher value-added businesses".
Sales amounted to €3,574 million compared with €2,148 million in the equivalent period of 2010. Assuming the same group perimeter (excluding the Draka contribution of €921 million for the period March-June 2011, net of €10 million in intragroup transactions) and excluding metal price and exchange rate effects, the organic change was +13.0%. Draka's sales for the entire six-month period January-June 2011 came to €1,322 million, reporting organic growth of 6%. Six-month organic growth for the new Prysmian Group (including Draka for the full half year) would have been 10.6%.
Adjusted EBITDA increased by 48.3% to €269 million from €181 million in the first half of 2010. This increase is attributable to €20 million from organic sales growth by all businesses within the Prysmian perimeter and €68 million from the consolidation of Draka since March 2011. In terms of business, the improvement primarily came from the Utilities business and the Telecom operating segment.
EBITDA amounted to €26 million. The decrease from €175 million in the first half of 2010 is primarily attributable to net non-recurring expenses of €243 million, of which €200 million in provisions for risks arising from ongoing antitrust investigations. In view of recent developments in the European Commission's investigation, the receipt of a notice of indictments from the same Commission and the information that it has been possible to obtain in relation to this process, Prysmian now believes that it is able to estimate the risk relating to all the jurisdictions concerned, except Brazil, and so has recognised a provision of €200 million, on top of the €5 million provided in the past.
Adjusted operating income amounted to €204 million, up 42.2% from €143 million in the first half of 2010. This increase is attributable to €20 million in higher profits generated by organic growth in the Prysmian perimeter and €41 million from the consolidation of Draka since March 2011.
Operating income, including the effects of non-recurring items and fair value changes in metal derivatives, was a negative €72 million versus a positive €115 million in the equivalent period of 2010. This change can be analysed as follows: decrease of €204 million in the pre-acquisition Prysmian Group's operating income, primarily due to non-recurring expenses as well as the negative fair value change in metal derivatives; addition of €37 million from the first-time consolidation of Draka; negative impact of €20 million for adjusting acquired assets and liabilities to fair value in accordance with IFRS 3.
Net finance income and costs reported a negative balance of €62 million, compared with a negative €52 million in the first half of 2010. The negative change of €10 million is primarily due to the growth in net debt following the Draka acquisition (€501 million cash outlay plus €357 million for the consolidation of the Draka Group's net financial position at 1 March 2011), but also reflects changes in the composition of financial structure after entering a Forward Start Credit Agreement for €1,070 million in January 2010, issuing a bond for €400 million in April 2010 and finalising a credit agreement for €800 million in March 2011. These new credit agreements have significantly extended the average maturity of the Group's debt, which is now about 3.2 years. Another reason for the increase in finance costs is the rise in leverage following the Draka acquisition to a level now between 2.0x-2.5x for the ratio of net financial position to adusted EBITDA, leading to a slight increase in the spread applied to existing bank credit.
Adjusted net profit was up 47.0% to €113 million (€77 million in the first half of 2010); the increase is due to the growth in operating income and the first-time consolidation of Draka. The Net result was affected by the provision of €200 million for risks relating to antitrust investigations, resulting in a loss of €156 million compared with a profit of €44 million in the first half of 2010.
Net financial position at the end of June 2011 was €1,378 million, down from €1.460 million at 31 March 2011. The increase from €459 million at 31 December 2010 is attributable to the following factors:
- cash outlay of €501 million for the acquisition of Draka;
- consolidation of the Draka net financial position of €357 million as at 1 March 2011;
- net positive cash flows from operations of €216 million, before changes in net working capital;
- increase of €107 million in net working capital due to seasonal factors and the increase in metal prices;
- net operative investments of €46 million;
- payment of €36 million in dividends;
- net negative cash flows of €88 million primarily due to taxes and finance costs.
INTEGRATION WITH DRAKA AND STRATEGY DEVELOPMENT
• Integration with Draka: target annual run-rate synergies revised up to €150 million
Following detailed review of the potential cost synergies from the Draka integration the annual run-rate target has been raised to €150 million (by 2015) from the previously announced figure of €100 million, while target cost synergies of €100 million by 2013 have been confirmed. Net restructuring costs to generate these synergies are expected in the region of €200 million over the integration period. The initial benefits are expected as early as the second half of the current year.
• New organisational and management structure launched
The launch of the new organisational and management structure, effective from July 2011 has marked a fundamentally important step forward in the integration process with Draka. With the aim of utilising best practice in both companies it has been decided to adopt a matrix organisational model in which the more local businesses are principally managed along geographical lines and the global businesses are managed vertically. Following a process involving and making the most of the Group's best resources, the new management team has been selected, comprising more than 300 positions worldwide. At the same time as developing the new organisation, the Group has agreed and adopted a new Mission and a new branding strategy that will allow it to utilise and make the most of both the Prysmian and Draka brands.
• Investments of some €46 million in high-tech businesses
In line with its strategy, during the first half of 2011 the Group took forward its plans for developing high-tech businesses, making some €46 million in net operating investments (of which €37 million relating to the pre-acquisition perimeter), which was €15 million more than in the first half of 2010. These investments have concentrated on completing the new plant in Brazil for flexible offshore oil drilling pipes, which started operation at the end of June with the first 2.5" and 4.0" pipes delivered to Petrobras, and on expanding production capacity for high voltage cables in China and France and for submarine cables in Italy and Finland.
• Focus on growth in high-growth-potential businesses and countries
The new Prysmian Group further fortifies the focus on high-growth-potential businesses. In the renewable energy sector, where the Group was already leader in offshore wind farm links, it now has a stronger presence in industrial cables used in the construction of wind and solar installations. Thanks to the integration with Draka, the new Group has become leader in fibre optic cables, with production facilities around the globe and a wider product portfolio.
Geographically the new Group has a wider exposure to promising Asian markets following recent acquisitions in India and Russia that have allowed it to make significant progress in the plans to develop a presence in these markets.
ENERGY CABLES AND SYSTEMS PERFORMANCE AND RESULTS
• AWARD OF HUDSON AND HELWIN II SUBMARINE PROJECTS
• UPTURN IN DEMAND FOR HIGH VOLTAGE UNDERGROUND CABLES
• CONTINUED VOLUME GROWTH FOR POWER DISTRIBUTION
• T&I: START OF THE YEAR VOLUME RECOVERY SLOWS IN SECOND QUARTER
• INDUSTRIAL: GOOD SECOND-QUARTER ORGANIC GROWTH. NEW PROJECTS SECURED IN OGP AND UMBILICALS
Sales to third parties by the Energy Cables and Systems segment amounted to €2,989 million (including the Draka contribution of €606 million for the period March-June 2011, net of €9 million in intragroup transactions). Net of metal price and exchange rate effects and changes in the group perimeter, organic growth was 12.3%, particularly thanks to an upturn in volumes and improvement in product mix. Adjusted EBITDA amounted to €215 million, up 31.1% from €164 million in the first half of 2010. The increase reflects the contribution of €37 million by Draka (consolidated since March 2011) and the improvement of €14 million by the pre-acquisition perimeter.
Draka's energy business reported €890 million in sales for the entire six-month period (January-June 2011), with organic growth of 4.3%. The Energy segment's overall six-month organic growth (including the Draka perimeter for the full half year) would have been 10%.
Market trends and profitability will now be discussed for the Energy segment's business areas but only with reference to the pre-acquisition perimeter (along with a few brief comments about the Draka perimeter).
Sales to third parties by the Utilities business amounted to €1,047 million, reporting organic growth of 19.4% due to volume recovery in all business lines even if with differences in timing and between geographical areas. Organic sales growth converted into higher profitability, with adjusted EBITDA increasing to €134 million (+11.6% on €120 million in the first half of 2010), despite the rising cost of raw materials and strong competitive pressure particularly in emerging markets.
The Draka Utilities business, comprising power distribution and submarine cables, reported €57 million in sales in the first six months of 2011 (of which €42 million consolidated within Prysmian as from March 2011). The Group's overall organic growth in the first six months of the year (including Draka for the full half year) would have been 20.2%.
Sales by the submarine business line increased on the prior year, confirming the Group's technological and market leadership in major power interconnection projects and in connections for new renewable power generation sites, such as offshore wind farms. During the first half of the year Prysmian was awarded the Hudson project for a new submarine power line into the heart of Manhattan. Furthermore, following award of the contract to link the Helwin II offshore wind farm to mainland Germany, the Group has strengthened its position as a partner in one of the world's most important programmes to develop renewable energy. Integration with Draka will allow the Group to enlarge its technological offering of medium voltage interarray submarine cabling. Thanks to investments underway in Italy and Finland, as from the third quarter the Group will have new production capacity to benefit from the growing demand. At the end of June the order book already provides sales visibility for about two and a half years.
Demand for high voltage underground cables confirmed the signs of recovery, allowing the Group to increase its sales. In Europe projects relating to renewables and improving the efficiency of existing grids were among the principal drivers of market growth. Another source of growth was development of new infrastructure in emerging countries, with new transmission grid projects secured in South America and, for the first time, in India. In North America the recovery was modest, while greater demand is expected in the second half in areas like Russia, China and the Middle East. However, profitability continues to be under pressure partly due to the upward trend in raw material prices. The order book provides sales visibility for about one year.
The power distribution business reported the first concrete signs of trend reversal, with an increase in demand thanks to the general recovery in energy consumption. North and East Europe, Brazil and Australia particularly drove the acceleration in demand, while the introduction of new P-Laser technology is proceeding positively. Overall sales reported double-digit growth (although it is worth recalling that the first half of 2010 was particularly weak), despite continued price pressure that nonetheless started to ease slightly during the second quarter.
Trade & Installers
Sales to third parties by the Trade & Installers business amounted to €835 million compared with €699 million in the first half of 2010, reporting organic growth of 3.3% although with mixed trends over the period. During the first quarter the beginnings of an upturn in the construction sector had generated signs of a recovery in cable demand, particularly in Europe. However, this trend failed to consolidate in the second quarter with demand returning to its level at the end of 2010 and renewed pressure on prices, particularly in Germany, France, Spain and Italy. North America reported a slight increase in volumes, although experiencing persistent price pressure, while South America continued to enjoy a positive trend both in volumes and prices. In terms of profitability, despite actions to improve industrial processes, adjusted EBITDA came to €19 million, largely in line with the first half of 2010.
Draka's six-month sales amounted to €422 million (of which €289 million consolidated within the Prysmian perimeter for the period March-June 2011).The Group's overall organic growth (including Draka for the full half year) would have been 2.2%.
The integration with Draka is a driver for potential improvement in the Group's T&I competitiveness, thanks to optimisation of production capacity, leaner cost structure, sharing of best practice in customer service and stronger presence in higher value-added markets.
Sales to third parties by the Industrial cables business amounted to €432 million (€344 million in the first half of 2010), reporting organic growth of 12.0%. Adjusted EBITDA amounted to €25 million, posting a minor decrease of €1 million on the equivalent period in 2010.
In the first six months of 2011 Draka reported sales of €411 million (of which €284 million consolidated within Prysmian for the period March-June 2011) and organic growth of 4.8%. The Industrial business would have had overall organic growth (including Draka for the full half year) of 8.4%. Draka's presence in the Industrial business is particularly important in geographical markets (such as North America) and product segments (infrastructure and elevator cables and renewable energy solutions) that complement those of Prysmian.
The market scenario has proved stable or slightly better. In terms of individual segments, OGP & SURF displayed an upturn in demand, particularly in APAC, North America, the Middle East and South America, where new orders for umbilicals were secured and the first flexible pipes delivered to Petrobras. In the renewables segment, wind energy drove growth in China and Australia, partly making up for weakness in Europe. The solar segment was affected in Europe by withdrawal of government subsidies, while new projects were acquired in Turkey and North America: volumes are expected to recover in the second half of the year. In the automotive segment, growth in the USA compensated for lower volumes in Japan, while Europe remained stable. Cables for the mining, transport, aerospace and nuclear sectors reported positive growth trends, while demand in the maritime sector and for dockside cranes was weak.
TELECOM CABLES AND SYSTEMS PERFORMANCE AND RESULTS
• GOOD ORGANIC SALES GROWTH
• STRONG DEMAND FOR OPTICAL CABLES IN ALL GEOGRAPHICAL MARKETS
• IMPROVEMENT IN PROFITABILITY
Sales to third parties by the Telecom Cables and Systems segment amounted to €585 million (including €315 million for the consolidation of Draka from 1 March 2011, net of €1 million in intragroup transactions), reporting organic growth of 17.6%, particularly thanks to fibre optic cable volume growth in nearly all geographical markets and a volume upturn for copper cables. In particular, demand for optical cables in more developed countries has been driven by projects to expand metropolitan area networks, while the driver of growth in emerging countries has been the construction of large backbone infrastructure.
Adjusted EBITDA amounted to €54 million with an increase of €37 million on the equivalent period in 2010 (following its consolidation from 1 March 2011, Draka's contribution to this result was €31 million).
The integration with Draka represents a significant turning point for the Telecom business, by creating a world leader in terms of size and of the technology, products and services offered, particularly in the optical fibre and optical cables market.
Draka's first-half Telecom sales amounted to €432 million, with organic growth of 9.5%. The Telecom segment's overall six-month organic growth (including Draka for the full half year) would have been 12.5%.
The first six months of the year have confirmed the upward trend in demand and industrial production that started from the second quarter of 2010. The progressive upturn in global demand has been largely driven by growth in emerging markets, while recovery in Europe was weaker, partly because of deficit-cutting policies implemented in various countries. In the United States, government stimulus packages allowed demand to start recovering during the prior year. The growing concerns about Eurozone and US debt sustainability could however be a source of uncertainty over prospects for growth in global demand.
In such an economic context, the Group expects to see a limited recovery in 2011 for building wires, medium voltage cables for utilities and for those products in the Industrial sector most exposed to cyclical trends. Positive demand development is confirmed in the high value-added businesses of power transmission, renewable energy, Oil & Gas and fibre optic cables for major telecom operators.
Based on the results achieved in the first six months, combined with the size of the current order book, adjusted EBITDA for FY 2011 is confirmed in the region of €530-€580 million (FY 2010: €387 million). This range is related to development of demand on the reference markets in the second half of the year and includes the contribution of the Draka acquisition, consolidated from 1 March 2011.
The European Commission has sent the Company a notification of indictments in relation to the investigation started in January 2009 into the high voltage underground and submarine cables market. This document contains the Commission's preliminary position on alleged anti-competitive practices and does not constitute advance notice of its final decision. Prysmian has therefore had access to the Commission's dossier and, while fully co-operating, will present its defence against the related allegations. Also considering the recent developments in the European Commission investigation, Prysmian now believes that it is able to estimate the risk relating to the antitrust investigations underway in the various jurisdictions, except for Brazil. The amount provided at 30 June 2011 amounts to Euro 200 million, on top of the Euro 5 million provided in the past.
This amount has been determined on the basis of partly subjective considerations and solely represents an estimate since the outcome of the investigations underway in the various jurisdictions is still uncertain.
Prysmian's Half-Year Financial Report at 30 June 2011, approved by the Board of Directors today, together with the independent auditors’ report, will be available to the public from 26 August 2011, at the Company's registered offices in Viale Sarca 222, Milan and at Borsa Italiana S.p.A..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 (Massimo Branda and Jordi Calvo), 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.
Prysmian Group is world leader in the energy and telecom cables and systems industry. With sales of some €7 billion (pro-forma 2010 Prysmian/Draka), 22,000 employees across 50 countries and 98 plants, the Group is strongly positioned in high-tech markets and provides the widest range of products, services, technologies and know-how. In the Energy sector, Prysmian Group operates in the business of underground and submarine power transmission cables and systems, special cables for applications in many different industrial sectors and medium and low voltage cables for the construction and infrastructure industry. In the Telecom sector, the Group manufactures cables and accessories for the voice, video and data transmission industry, offering a complete range of optical fibres, optical and copper cables and connectivity systems. Prysmian is listed on the Milan Stock Exchange in the Blue Chip index.
Source: prysmian, August 29, 2011