First half results: Strong improvement in profitability

2005 Half Year Results - presentation

Paris, July 21, 2005 - The Board of Directors of Nexans, which met on July 20, 2005 under the chairmanship of Gérard Hauser, reviewed the Group's consolidated financial statements for the first half-year. (Figures are published in compliance with IFRS, and the income statement for the first half of 2004 adjusted for the purposes of comparison.)

  • First-half sales* reached 2,465 million euros. At constant non-ferrous metal prices**, sales reached 2,016 million euros compared to 1,959 million euros in the first half of 2004, an increase of 3% (+1.3% at constant exchange prices and on a comparable consolidation scope).
  • The operating margin totaled 72 million euros, compared to 53 million euros in the first half of 2004, a rise of 36%. Operating margin as a percentage of sales has thus increased from 2.7% to 3.6%.
  • Net income for the first half of the year totaled 16 million euros, compared to 35 million euros at June 30, 2004. Current net income (excluding exceptional items) was double the amount for the first half of 2004 (34 million euros compared to 17 million euros at June 30, 2004).
  • Group debt totaled 502 million euros at June 30, 2005. Not including the effect of IAS standards 32 and 39 (applied since January 1st, 2005), this represents an increase of 210 million euros, compared to 221 million euros for the first half of 2004. In addition to the impact of the new rise in copper prices, this change stems from the high level of investment and working capital in growth sectors, coupled with slow reduction of copper inventories in the Wirerod business. The level of debt expected at year end should not exceed 320 million euros, taking into account the proceeds of the divestitures expected to close in the second semester in the amount of 80 million euros.
  • In relation to the previously announced negotiations for the creation of a joint venture to include Nexans’ European Winding Wire business and to be controlled by Superior Essex, Nexans confirms having reached an agreement on the substantive terms and expects to sign the definitive agreements in the coming days, which would be subject only to customary closing conditions. This transaction has resulted in a reduction of 72 million euros in turnover in the June 30th accounts and follows an impairment charge against net income of 20 million euros on the assets to be transferred (described further in the accounts). The closing will result in a decrease of debt of approximately 35 million euros at year end. Nexans will hold a 40% interest in the joint venture.
  • The Group also announces the signing of an agreement for the sale of its Distribution business in Norway to Ahlsell for 45 million euros. This business had sales of 118 million euros in 2004. Capital gain from the sale (approximately 34 million euros) will be booked in the second half of 2005.

Commenting on the results, Gérard Hauser, Nexans Chairman and CEO, said: “Against a backdrop of uncertainty in the European economic climate, this strong improvement in operating margin highlights the Group’s ability to improve its productivity and to foster profitable growth by investing in products with high added value and in countries with growth opportunities. If the economic climate continues on its current course, these positive factors can be expected to bring annual growth in sales (at constant non-ferrous metal prices and exchange rates) of 1% to 2%, with an operating margin rate between 3.8% and 4.1% for the year as a whole. The divestitures, coupled with the encouraging results posted for the first half of the year, are in line with the objectives set forth in our strategic plan.”

* At current non-ferrous metal prices, first-half sales for 2004 totaled 2,307 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.

Consolidated results – first half 2005:

in millions of euros

H1 2004

H1 2005

Change

Sales (at constant metal prices)

1,959

2,016

+ 3%

Sales (at constant metal prices and exchange rates)

1,973

2,016

+ 2.2%

EBITDA

(as % of sales)

99

5%

121

6%

+ 22%

Operating margin (OM)

(as % of sales)

53

2.7%

72

3.6%

+36%

Net income (part of the Group)

35

16

 

Sales at constant non-ferrous metal prices reflect organic growth of 1.3% over the same period last year, and 4.2% excluding sales in the Electrical Wires sector, which were down 10%. There was also a fluctuation in sales between different Group locations: while sales for Asia, Europe and North America where moderate, organic growth in sales the Rest of the World totaled 16.8%.

The operating margin amounted to 72 million euros, 36% higher than in the first half of 2004, thus confirming the boost brought on by the upswing in sales.

Net income was 16 million euros after adjustment for capital loss of 20 million euros stemming from the disposal of European Winding Wires activity.

Results by business sector

in millions of euros

H1 2004

H1  2005

Sales
(1)

Operating margin

Sales
(1)

Operating margin

Energy

1,258

46

1,342

63

Telecom

273

4

292

10

Electrical Wires

437

5

377

3

Other

5

-2

5

-4

Total

1,973

53

2,016

72

(1) Sales at constant metal prices and exchange rates

Energy:

Sales rose by 6.7%, reaching 1,342 million euros. The operating margin for this business was 63 million euros, 37% higher than in the first half of 2004, strongly supported by excellent performance in the infrastructure businesses, particularly in high voltage cables and umbilical cables. In industrial cables, the upturn in profitability continued despite a lack of vitality in the European economic climate (Germany and France). In a stable market, the Building sector was able to improve profitability through price increases.

Telecom: 

The sector continued to reflect an upward trend: sales grew by 7%, while operating margin increased by a factor of 2.5. Infrastructure cables showed strong growth, driven by the success of xDSL and TriplePlay applications. Sales of cables for private Local Area Networks (LAN) continue to grow in North America despite less favorable product mix than last year. The industrial cables market suffered from the slowdown in industrial investment in Europe.

Electrical Wires:

Wirerod and Electrical Wires sales were hit by the slowdown in their target industrial markets. Residual business for Winding Wires (other than the European business units being sold) benefited from an improved profitability related to the 2004 sale of the LaGrange factory in the USA.

Analysis of sales and operating margin by geographical areas

in millions of euros

H1 2004

H1 2005

Sales (1) OM

OM/Sales

Sales (1) OM

OM/Sales

Europe

1,441

36.8

2.6%

1,458

42.9

2.9%

North America

349

10.2

2.9%

326

14.9

4.6%

Asia / Rest of the World

183

6

3.3%

232

13.9

6%

Total

1,973

53

2.7%

2,016

72

3.6%

(1) Sales at constant metal prices and exchange rates

Europe

Profitability in Europe grew by 16%, boosted by the upturn in cables and accessories for energy and telecom infrastructure, and the impact of restructuring carried out since 2001.  

North America

Sales remained virtually stable after adjustment for divestitures in 2004. The operating margin continued to reflect an upward trend (+46%) due to growth in the energy market and the sale of the unprofitable Winding Wires business.

Asia and Rest of the World

Sales growth in this area increased significantly. While profitability in Asia was still impacted by the scale of investment required to construct the Shanghai factory and strong competition in the shipbuilding cables sector in South Korea and China, profitability in the Rest of the World continued to reflect very strong growth, boosted by development of energy networks in Brazil, Turkey and Morocco, and the successful integration of the Liban Cables operations in the Middle East.

 

Financial calendar

  • October 25, 2005: publication of the 2005 third-quarter sales
  • February 2, 2006: publication of 2005 estimated annual consolidated financial statements.

A full set of the slide presentation of the results is available: 2005 Half Year Results - presentation

Appendices
  1. Consolidated income statement
  2. Consolidated balance sheet
  3. Consolidated cash flow statement
  4. Information by business sector and by geographical area

Consolidated income statement under IFRS

in millions of euros

1st Half-year 2005

1st Half-year 2004*

Full-year 2004*

Net sales

2,465

2,307

4,758

Metal price effect

(449)

(349)

(725)

Net sales at constant metal prices

2,016

1,959

4,034

Cost of sales

(1,729)

(1,697)

(3,479)

Gross profit

287

262

554

Administrative and selling expenses

(192)

(184)

(376)

R&D costs

(24)

(23)

(47)

Other operating income and expenses

0

-

-

Operating margin

72

53

131

Income from metal trading

(0)

-

-

Gains or losses on asset disposals

0

8

9

Restructuring costs

(7)

(11)

(36)

Asset impairment losses net of reversals for negative goodwill

2

2

7

Financial income

9

3

8

Financial expense

(25)

(11)

(43)

Income before taxes

50

45

76

Taxes

(12)

(9)

(19)

Share in net income of equity affiliates

(0)

(0)

(0)

Net income from operations

38

35

57

Net income from discontinued operations

(19)

4

6

Consolidated net income

19

39

63

Of which Group share

16

35

58

Of which minority interests

3

4

5

 

Net income from operations (before discontinued operations) per share, Group share (in euros)

 

- earnings per share

1.64

1.47

2.48

- diluted earnings per share

1.63

1.43

2.28

Net income from discontinued operations per share (in euros)

- earnings per share

(0.90)

0.19

0.27

- diluted earnings per share

(0.89)

0.19

0.25

Net income per share, Group share (in euros)

- earnings per share

0.74

1.67

2.75

- diluted earnings per share

0.73

1.62

2.53

 

* The financial statements of 1st Half-year 2004 and Full-year 2004 have been prepared before adoption of IAS 32 and IAS 39 related to financial instruments, applied for the first time by Nexans from January 1st, 2005.


Consolidated balance sheet under IFRS

in millions of euros

1st Half-year 2005

Full-year 2004

ASSETS

   

Goodwill

85

77

Intangible assets

13

8

Property, plant and equipment

941

928

Share in net assets of equity affiliates

1

1

Other investments and miscellaneous

28

36

Deferred tax assets

63

66

Other non-current assets

-

-

NON-CURRENT ASSETS

1,132

1,116

Inventories and work in progress

590

512

Amounts due by customers on construction contracts

48

28

Trade receivables and related accounts

1,115

713

Other current assets

81

99

Cash and cash equivalents

88

121

CURRENT ASSETS

1,922

1,473

Assets and group of assets held for sale

120

133

TOTAL ASSETS

3,174

2,722

LIABILITIES & EQUITY

Capital stock

23

23

Additional paid-in capital

1,017

1,014

Treasury stock

(28)

(28)

Retained earnings

(49)

(168)

Net income, Group share

16

58

Shareholders' equity - Group share

979

899

Minority interests

72

71

TOTAL EQUITY

1,051

970

Accrued pension and retirement obligations (non current)

339

325

Provisions (non current)

15

21

Convertible bonds

117

135

Other long-term financial debt (non current)

14

11

Deferred tax liabilities

29

32

Other non-current payables

(6)

-

NON-CURRENT LIABILITIES

508

525

Accrued pension and retirement obligations (current)

26

38

Provisions (current)

85

94

Other financial debt (current)

458

152

Customers' deposits and advances

18

16

Amounts due to customers on construction contracts

53

32

Trade payables and related accounts

544

510

Other current payables

368

324

CURRENT LIABILITIES

1,552

1,165

Debts related to group of assets held for sale

63

62

TOTAL LIABILITIES AND EQUITY

3,174

2,722

Consolidated statement of cash flows under IFRS
in millions of euros

1st Half-year 2005
(1)

Full-year 2004 
(1)

Net income, Group share

16

58

Minority interests

3

5

Depreciation and amortization

70

84

Interest expense

15

19

Other restatements

(12)

(12)

Cash flow provided by operations before interests and taxes

92

154

Decrease (increase) in accounts receivable

(233)

(58)

Decrease (increase) in inventories

(59)

(117)

Increase (decrease) in accounts payable and accrued expenses

88

75

Other assets & liabilities

(6)

(1)

Income tax paid

(26)

(25)

Changes in reserves on current assets (including accrued contract costs)

(6)

3

Net change in current assets and liabilities

(243)

(123)

Net cash provided (used) by operating activities

(151)

31

Proceeds from disposal of fixed assets

6

19

Capital expenditures

(57)

(97)

Decrease (increase) in loans

3

(0)

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

(8)

(113)

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

2

16

Net cash provided (used) by investing activities

(54)

(175)

Net cash flow after investing activities

(205)

(144)

Issuance of long-term borrowings

4

141

Repayment of long-term borrowings

-

-

Issuance/(repayment) of short-term loans

184

43

Proceeds from issuance of shares

4

1

Financial interests paid

(13)

(17)

Dividends paid

(10)

(9)

Net cash provided (used) by financing activities

170

159

Net effect of currency translation differences

3

2

Net increase (decrease) in cash

(32)

17

 

Cash and cash equivalents at beginning of period

121

104

Cash and cash equivalents at end of period (including cash from discontinued operations)

89

121

 

(1) Including cash flows from discontinued operations

Information by business sector and by geographical area

Information by business sector

in millions of euros

Electrical Wires

Energy

Telecom

Other

Total Group

           

1st Half-year 2005

         

Net sales at current metal prices

630

1,517

315

5

2,465

Net sales at constant metal prices

377

1,342

292

5

2,016

Operating margin

3

63

10

(4)

72

1st Half-year 2004

Net sales at current metal prices

654

1,357

291

5

2,307

Net sales at constant metal prices

433

1,245

275

5

1,959

Net sales at constant metal prices and 2005 exchange rates

437

1,258

273

5

1,972

Operating margin

5

46

4

(2)

53

Full-year 2004

Net sales at current metal prices

1,286

2,865

597

11

4,758

Net sales at constant metal prices

858

2,595

570

11

4,034

Net sales at constant metal prices and 2005 exchange rates

861

2,618

567

11

4,056

Operating margin

5

119

17

(10)

131

Information by geographical area

in millions of euros

France

Germany

Other Europe

North America

Asia

Rest of World

Total Group

1st Half-year 2005

             

Net sales at current metal prices

653

336

741

467

124

145

2,465

Net sales at constant metal prices

494

282

682

326

106

126

2,016

Operating margin

1

4

38

15

3

11

72

1st Half-year 2004

             

Net sales at current metal prices

638

325

676

478

109

82

2,307

Net sales at constant metal prices

514

287

635

348

98

77

1,959

Net sales at constant metal prices and 2005 exchange rates

513

286

642

348

104

79

1,972

Operating margin

(1)

12

27

10

5

1

53

Full-year 2004

             

Net sales at current metal prices

1,284

663

1,408

956

227

221

4,758

Net sales at constant metal prices

1,026

588

1,318

697

204

200

4,034

Net sales at constant metal prices and 2005 exchange rates

1,025

588

1,326

694

216

206

4,056

Operating margin

(9)

13

78

31

10

8

131

Sales at current metal prices by geographical market

in millions of euros

France

Germany

Other Europe

North America

Asia

Rest of World

Total Group

1st Half-year 2005

356

324

883

459

172

271

2,465

1st Half-year 2004

321

283

883

480

166

174

2,307

Full-year 2004

623

578

1,817

950

338

452

4,758

 

 

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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 aeronautics, aerospace, automobile, railways, building, petrochemical, medical applications, etc. With an industrial presence in 29 countries and commercial activities throughout the world, Nexans employs 20,000 people and had sales in 2004 of 4.8 billion euros. Nexans is listed on the Paris stock exchange. More information available on www.nexans.com