Strong growth in 2006 first-half results ahead of plan schedule

Strengthening of Nexans’ leadership in submarine high voltage cables with the creation of a joint venture in Japan

2006 half year results presentation (PDF)

  • Sales +12% (organic growth)
  • Operating margin +48%
  • Active management of capital employed
  • 2006 outlook in line with good first-half performance

Paris, July 25, 2006 - The Board of Directors of Nexans, which met on July 24, 2006 under the chairmanship of Gérard Hauser, reviewed the Group's consolidated financial statements for the first half-year*.

  • First-half sales** reached 3,686 million euros. At constant non-ferrous metal prices***, sales reached 2,273 million euros compared to 2,003 million euros in the first half of 2005. At constant exchange rates and on a comparable consolidation scope, based on a comparable number of working days, growth amounted to 12%.
  • The operating margin totaled 108 million euros over the period, compared to 73 million euros in the first half of 2005, a rise of 48%. Operating margin as a percentage of sales has thus increased from 3.5% to 4.8% in one year. The Group confirmed its strength in markets for infrastructure cables and cables used in construction.
  • Net income for the first half of the year totaled 211 million euros, compared to 16 million euros at June 30, 2005. In addition to the increase in operating margin, this result reflects the capital gain on the disposal of the distribution businesses in Switzerland (148 million euros), costs linked to the restructuring program in progress (36 million euros) and the positive pre-tax change in the fair value of financial instruments relating to non-ferrous metals, in application of IAS 32 and 39 (49 million euros). This last item will result in a non cash expense in a comparable amount in the second half of 2006 at constant metal prices.
  • Group net debt totaled 431 million euros at June 30, 2006 compared with 374 million euros at December 31, 2005. This increase remains moderate in view of the upward spiral in copper prices, which have risen by more than 56% since the start of 2006.

Faced with this increase, the Group has taken measures to improve its debt structure aimed at:

  • strengthening its balance sheet through the disposal of its Swiss distribution activities for 206 million euros in February and a capital increase of 117 million euros, in June, resulting from the conversion of the 2004 bonds (OCEANE);
  • extending the maturity of its residual debt through the launch, in July 2006, of a new emission of OCEANE bonds in an amount of 280 million euros due January 1st, 2013.

These measures have been reinforced by the recent launch of a plan to contain the negative impact of rising metal prices. The plan has three parts: the reduction of activities which consume large amounts of copper, the gradual modification of terms of payment with major customers, and the negotiation of supplier credit terms.

As a result of these factors and at stable non-ferrous metal prices, the level of debt at the end of 2006 should not exceed 350 million euros.

 

* Figures are published in compliance with IFRS.
** At current non-ferrous metal prices, first-half sales for 2005 totaled 2,435 million euros.
*** To neutralize the effect of variations in the purchase price of non-ferrous metals and thus measure the effective underlying sales trend, Nexans also calculates its sales using a constant price for copper and aluminum.

External growth transaction (Japan)

(see press release issued today : Creation of a production joint venture in Japan for submarine high voltage power cables)

The Group is today announcing the signature of agreements with Viscas, a Japanese company which is one of the major worldwide players in the high voltage cable business. The agreement concerns the creation of a production joint venture dedicated to the manufacturing of submarine high voltage cables. Nexans, which will hold a 66% interest in the new entity, will thus increase by a third its potential sales of submarine high voltage cable and services over the next 4 years in a fast-growing market.

"Ahead of schedule in terms of our objectives"

Commenting on the results for the first half of 2006, Gérard Hauser, Nexans Chairman and CEO, said: "The results of Nexans for the first half of 2006 are good, despite an economic climate marked by a sharp increase in raw materials prices. They bear out our constant strategy aimed at increasing our presence in geographical areas with growth opportunities, and developing high value added specialty products. The continuation of our restructuring program and the active management of our capital employed, together with the financial transactions destined to improve our balance sheet, have contributed to our results. The growth prospects of energy markets, reflected by the creation of a joint venture in Japan, mean that today we can be confident about the Group's overall performance in 2006, and can anticipate sales growth around 10% over the full year, with an operating margin of 5% or more. Halfway through our 3-year strategic plan (2005-2007), our results show we are ahead of schedule in terms of our objectives."

This outlook is based on the assumption that worldwide economic context will remain stable and that the crisis in the Middle-East and particularly in Lebanon will have no impact on the Group’s activity.

Consolidated results – first-half 2006:

in millions of euros

H1 2005*

H1 2006

Change

Sales (at constant metal prices)

2,003

2,273

+13.5%

Sales (at constant metal prices and exchange rates)

2,058

2,273

+10.4%

+12% organic

EBITDA **

(as % of sales)

122

6%

155

6.8%

+27%

Operating margin (OM)

(as % of sales)

73

3.5%

108

4.8%

+48%

Net income (Group share)

16

211

n / s

** Operating margin before depreciation

Sales and operating margin by business sector

in millions of euros

H1 2005*

H1 2006

 

Sales

(1)

Operating

margin

Sales

(1)

Operating

margin

Energy

1,371

63

1,491

97

Telecom

299

10

327

15

Electrical Wires

384

4

450

2

Other

4

(4)

5

(6)

Total

2,058

73

2,273

108

* Differences compared to the figures published in July 2005 are mainly due to the retroactive application of IFRS 5 related to discontinued activities.

(1)  Sales at constant metal prices and exchange rates

Energy: high growth in sales of infrastructure cables

Sales at constant non-ferrous metal prices totaled 1,491 million euros, reflecting a 13.9% increase on a comparable consolidation scope, at constant exchange rates and based on a comparable number of working days with the first half of 2005.

The operating margin reached 97 million euros at June 30, 2006 compared with 63 million euros for the first half of 2005.

Growth was particularly significant (organic growth of +18.1%) in the infrastructure business, supported in Europe by a number of programs (interconnection, maintenance, cable burying programs and wind turbine farm development), and in the United States by upgrading of the low and medium voltage networks.

The profitability of industrial cables increased noticeably, with the combined effect of the restructuring measures implemented in 2005 and of better positioning in higher value added markets (oil & gas, shipbuilding, automatic control).

There was high growth in low voltage cables for construction markets, with a clear improvement in profitability.

Telecom: clear rebound in operating margin

The sales of the Telecom activity totaled 327 million euros at constant non-ferrous metal prices, representing a 2.9% increase on a comparable consolidation scope, at constant exchange rates and based on a comparable number of working days.

There was a noticeable improvement in operating margin, which increased from 10 million euros in the first half of 2005 to 15 millions euros at June 30, 2006, reflecting a much more favorable product mix. Nexans was thus able to take advantage of growing data transfer needs (optical fiber cables, high capacity LAN cables) and the ongoing restructuring of its industrial facilities.

Electrical Wires: lower profitability despite higher volumes

The sales of the Electrical Wires businesses totaled 450 million euros in the first half of 2006, compared with 384 million euros at June 30, 2005. This growth stems mainly from the wirerod businesses.

Operating margin at June 30, 2006 amounted to 2 million euros, lower than the first half of 2005. This can be attributed in particular to the strong increase in energy and transport costs which is difficult to pass on to customers in an extremely competitive environment.

Analysis of sales and operating margin by geographical areas

in millions of euros

H1 2005*

H1 2006

  Sales (1)

OM

OM/sales

Sales (1)

OM

OM/sales

Europe

1,441

43.5

3%

1,542

59.6

3.9%

North America

359

14.9

4.2%

453

31.4

6.9%

Asia Pacific

122

3.2

2.6%

126

5.8

4.6%

Rest of the World

136

11.3

8.3%

152

11.3

7.4%

Total

2,058

73

3.5%

2,273

108

4.8%

* Differences compared to the figures published in July 2005 are mainly due to the retroactive application of IFRS 5 related to discontinued activities.

(1)  Sales at constant metal prices and exchange rates

Europe: strong increase in profitability

Sales totaled 1,542 million euros, representing 11% organic growth compared to 2005; the operating margin increased by 37% in the first half of 2006.

In addition to investment in energy network infrastructure and the strong demand for building cables (particularly in France and Spain), Nexans is also today reaping the benefits of its commercial initiatives taken to expand priority market segments (shipbuilding, robotics, mechanical handling, automotive, etc.).

North America: +22% organic growth

Sales totaled 453 million euros, compared with 359 million euros for the same period in 2005.

Organic growth (+22%) reflects the extremely robust trends in the industrial and residential building markets. Furthermore, demand for medium voltage cables for energy infrastructure is being supported by major network upgrading programs in the United States.

Operating margin thus increased from 14.9 million euros at June 30, 2005
to 31.4 million euros in the first half of 2006.

Asia-Pacific: selective approach in high value added segments

Subjected to strong price pressure, Nexans has adopted a selective approach to higher value added market segments such as shipbuilding, automotive, rail transport and telecommunications, particularly in China.

This explains the growth in operating margin from 2.6% at June 30, 2005 to 4.6% at June 30, 2006 on near-stable sales of 126 million euros.

Rest of the World: very encouraging outlook

Sales totaled 152 million euros in the first half of 2006 compared with 136 million euros at June 30, 2005, representing 8% organic growth. This stems from the excellent performances in their home markets by countries such as Morocco, Turkey (where the residential market has been particularly strong), Lebanon and Brazil.

Operating margin remained stable at 11.3 million euros in the first half of 2006, and should improve in the second half.


Financial calendar

  • 25 October 2006 : publication of the 2006 third quarter sales
  • 31 January 2007 : publication of 2006 estimated annual consolidated financial statements

A full set of the results presentation slides, including the results by business, a detailed presentation of the financial statements and half-year activity report, are available:

  Appendices
  1. Consolidated income statement under IFRS
  2. Consolidated balance sheet under IFRS
  3. Consolidated statement of cash flows under IFRS
  4. Information by business sector

Consolidated income statement under IFRS

in millions of euros

1st Half-year 2006

1st Half-year 2005

Net sales

3,686

2,435

Metal price effect *

(1,413)

(432)

Net sales at constant metal price *

2,273

2,003

Cost of sales

(3,364)

(2,147)

Cost of sales at constant metal price *

(1,951)

(1,715)

Gross profit

322

288

Administrative and selling expenses

(186)

(192)

R&D costs

(28)

(24)

Operating margin *

108

73

Fair value change on non ferrous metal derivatives

49

0

Gains or losses on disposal of assets

148

1

Restructuring costs

(36)

(4)

Asset impairment losses and reversal for negative goodwill

0

2

Operating income

269

72

Cost of financial debt (gross)

(25)

(13)

Income from cash and cash equivalents

8

3

Other financial expenses

(21)

(7)

Share in net income of associates

1

(0)

Income before taxes

233

55

Income taxes

(15)

(12)

Net income from continuing operations

218

43

Net income from discontinued operations

(3)

(24)

Consolidated net income

215

19

Of which Group share

211

16

Of which minority interests

4

4

     

Net income from continuing operations per share (in euros)

   

- Basic earnings per share

9.78

1.64

- Diluted earnings per share

8.35

1.62

Net income from discontinued operations (in euros)

   

- Basic earnings per share

(0.12)

(0.90)

- Diluted earnings per share

(0.10)

(0.89)

Net income, Group share (in euros)

   

- Basic earnings per share

9.66

0.74

- Diluted earnings per share

8.25

0.73

* Business management indicator used to measure the Group's operating performance 

   

Consolidated balance-sheet under IFRS

 in millions of euros

 

ASSETS

June 30, 2006

December 31, 2005

Goodwill

93

88

Intangible assets

15

14

Property, plant and equipment

968

942

Investment in associates

19

18

Other investments

52

56

Deferred tax assets

95

76

Other non-current assets

-

-

NON-CURRENT ASSETS

1,242

1,194

Inventories and work in progress

740

563

Amounts due from customers on construction contracts

52

47

Trade receivables and related accounts

1,438

1,105

Current tax receivables

85

63

Other financial current assets

198

155

Cash and cash equivalents

154

117

CURRENT ASSETS

2,667

2,049

Assets and group of assets held for sale

9

81

TOTAL ASSETS

3,918

3,324

LIABILITIES

   

Capital stock

25

24

Additional paid-in capital

1,126

1,019

Treasury stock

-

(28)

Retained earnings

42

(40)

Net income, Group share

211

108

Equity – Group share

1,404

1,083

Minority interests

76

77

TOTAL EQUITY

1,480

1,160

Accrued pension and retirement obligations

347

353

Provisions

14

14

Convertible bonds

-

117

Other long-term financial debt

8

5

Deferred tax liabilities

34

33

Other non-current payables

-

-

NON-CURRENT LIABILITIES

403

522

Provisions

100

83

Other current financial debt

577

369

Customers' deposits and advances

21

18

Amounts due to customers on construction contracts

70

70

Trade payables and related accounts

875

692

Current tax payables

99

64

Other current financial liabilities

291

308

CURRENT LIABILITIES

2,033

1,603

Liabilities related to group of assets held for sale

1

39

TOTAL LIABILITIES AND EQUITY

3,918

3,324

.
Consolidated statement of cash flows under IFRS

in millions of euros

1st Half-year 2006

1st Half-year 2005

Net income, Group share

211

16

Minority interests

4

4

Depreciation and amortization

47

47

Interest expense

16

15

Other restatements

(165)

13

Cash flow from operations before interests and taxes

113

94

Decrease (increase) in accounts receivable

(346)

(242)

Decrease (increase) in inventories

(191)

(59)

Increase (decrease) in accounts payable and accrued expenses

196

88

Other assets and liabilities

3

(6)

Income tax paid

(37)

(26)

Changes in depreciation on current assets and accrued contract costs

(3)

(6)

Net change in current assets and liabilities

(379)

(252)

Net cash from operating activities

(265)

(158)

Proceeds from disposals of tangible and intangible fixed assets

3

6

Capital expenditures

(62)

(57)

Decrease (increase) in loans

(8)

3

Cash expenditures for acquisitions of consolidated companies, net of cash acquired

(19)

(8)

Cash proceeds from sale of previously consolidated companies, net of cash sold

184

2

Net cash used from investing activities

99

(54)

Net cash flow change after investing activities

(167)

(212)

Proceeds from / (repayment of) long-term borrowings

-

4

Proceeds from / (repayment of) short-term borrowings

232

191

Proceeds from issue of shares

7

4

Financial interest paid

(16)

(13)

Dividends paid

(23)

(10)

Net cash from financing activities

200

177

Net effect of currency translation differences

1

3

Impact of change in scope of discontinued activities

3

(1)

Net increase (decrease) in cash and cash equivalents

37

(33)

Cash and cash equivalents at the beginning of period

117

121

Cash and cash equivalents at the end of period

154

88


Information by business segment

in millions of euros

Electrical wires

Energy

Telecom

Others
(or non-allocated)

Inter-business elimination *

Total Group

1st Half-year 2006

           

Net sales at current metal prices

1,936

2,056

381

4

(691)

3,686

Net sales at constant metal prices

803

1,491

327

4

(352)

2,273

Operating margin

2

97

15

(6)

-

108

1st Half-year 2005

           

Net sales at current metal prices

874

1,517

315

5

(276)

2,435

Net sales at constant metal prices

527

1,342

292

5

(163)

2,003

Net sales at constant metal prices and 2006 exchange rates

547

1,371

299

5

(164)

2,058

Operating margin

4

63

10

(4)

-

73

* Inter-business eliminations come for the most part from the upstream Electrical Wires sector

Information by geographical area

in millions of euros

France

Germany

Other Europe

North America

Asia

Rest of the world

Total Group

1st Half-year 2006

             

Net sales at current metal prices (before inter-segment eliminations)

1,529

419

1,071

938

190

233

4,380

Inter-segment sales

(470)

(24)

(173)

-

(1)

(26)

(694)

Net sales at current metal prices

1,059

395

898

938

189

207

3,686

Net sales at constant metal prices

540

284

718

453

126

152

2,273

Operating margin

12

12

34

32

6

12

108

1st Half-year 2005

             

Net sales at current metal prices (before inter-segment eliminations)

932

391

859

467

134

156

2,939

Inter-segment sales

(279)

(78)

(133)

-

(2)

(12)

(503)

Net sales at current metal prices

653

313

726

467

132

144

2,435

Net sales at constant metal prices

499

269

671

326

112

126

2,003

Net sales at constant metal prices and 2006 exchange rates

499

269

673

358

122

137

2,058

Operating margin

4

4

34

15

3

13

73

Net sales at current metal prices by geographical market

in millions of euros

France

Germany

Other Europe

North America

Asia

Rest of the world

Total Group

1st Half-year 2006

486

394

1,212

939

234

421

3,686

1st Half-year 2005

355

301

871

459

178

271

2,435

 

 

 

 

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About Nexans

Nexans is the worldwide leader in the cable industry. The Group brings an extensive range of advanced copper and optical fiber cable solutions to the infrastructure, industry and building markets. Nexans cables and cabling systems can be found in every area of people’s lives, from telecommunications and energy networks, to aerospace, automotive, railways, building, petrochemical, medical applications, etc. With an industrial presence in 29 countries and commercial activities worldwide, Nexans employs 20,000 people and had sales in 2005 of 5.4 billion euros. Nexans is listed on the Paris stock exchange. More information on www.nexans.com