2008 first half-year results

  • Continued increase in organic sales growth of cable businesses*: +7.2%
  • Strong improvement in profitability with operating margin of 9.1% at constant non-ferrous metal prices (6.2% at actual non-ferrous metal prices)

 

Paris, July 24, 2008 - The Nexans Board of Directors chaired by Gérard Hauser, which met on July 23, 2008, has reviewed the Group’s consolidated financial statements for the 2008 first half-year.

  • First half-year Sales totaled 3,554 million euros, compared to 3,792 million euros at June 30, 2007.
    At constant non-ferrous metal prices**, sales reached 2,419 million euros compared to 2,451 million euros for the first half of 2007.
    The decrease in revenues corresponds to the deliberate reduction of the external sales in the electrical wires business.

    Organic growth in the cable businesses *** stood at 7.2%.
  • The operating margin for the period was 220 million euros compared to 187 million euros for the first half of 2007, an increase of almost 18%. Operating margin as a percentage of sales therefore rose from 7.6% at June 30, 2007 to 9.1% at constant non-ferrous metal prices at June 30, 2008 (from 4.9% to 6.2% at actual non-ferrous metal prices).
  • Net income (Group share) for the first half of 2008 was stable at 119 million euros, due in particular to the lesser effect of the revaluation of the copper “core exposure” and to an increase in the effective rate of tax, the company having now used up most of its tax loss carryforwards which can be absorbed in the near term.
  • Net financial debt totaled 457 million euros at June 30, 2008, down 76 million euros compared to June 30, 2007. The gearing is 25.4%.

 *  Cable businesses and associated products (accessories), excluding electrical wires
** To neutralize the effect of variations in the purchase price of non-ferrous metals and thus measure the underlying sales trend, Nexans also calculates its sales using a constant price for copper and aluminum
 *** 2007 sales based on comparable data correspond to sales at constant metal prices, taking into account the effects of variations in exchange rates and consolidation scope

A continuation of strong growth based on profitability

Commenting on the 2008 first half-year results, Nexans Chairman and CEO Gérard Hauser said: "In spite of the increased uncertainty in the economic and financial environment, the increase in profits announced today is completely in line with the objectives Nexans has set for 2009. This performance is the result of a strategic plan focused on longer-cycle growth sectors, significant targeted investments and a carefully crafted external growth strategy. These factors, combined with a strict cost monitoring policy, allow us to expect an increase in operating margin for 2008 compared with 2007, based on organic growth in sales of more than 6%.

Finally, the possible sale of our automotive cable harnesses business has been abandoned. Considering the state of the markets, the proposed valuation multiples were not in line with the Group’s or with the business's potential. Taking this into account, as well as the acquisitions of Intercond and Madeco, the Group’s net financial debt at year-end should be between 500 and 600 million euros".


Detailed analysis of business

Key figures – First half 2008

(in millions of euros)

At constant non-ferrous
metal prices

 

First half
2007

First half
2008

Sales

2,451

2,419

Sales at constant exchange rates

2,397

2,419

Operating margin (% of sales)

7.6%

9.1%

Net income (group share)

119

119

 

Sales and operating margin by business sector

 Sales

First half
2007

First half 2008

 

(in millions of euros)

At constant metal prices
(**)

On comparable data
(***)

At constant metal prices
(**)

Organic growth
(calculated on the basis of unrounded figures)

Energy sector

1,883

1,823

1,972

8.1%

Energy infrastructures

784

768

919

19.7%

Industry

510

459

482

4.8%

Building

589

596

571

-4.2%

Telecom sector

276

266

267

0.7%

Local Area networks (LANs)

147

145

149

3.2%

Telecom infrastructures

129

121

118

-2.2%

Other

5

5

5

N/A

Sub-total: Cable Businesses

2,164

2,094

2,244

7.2%

Electrical wires

287

274

175

-36.1%

Group total

2,451

2,368

2,419

2.2%

 

Operating margin

   

(in millions of euros)

First half
2007

First half
2008

Energy sector
Energy infrastructures
Industry
Building

160
56
39
65

202
106
41
55

Telecom sector
Local Area networks (LANs)
Telecom infrastructures

27
18
9

23
15
8

Other

(4)

(7)

Sub-total: Cable Businesses

183

218

Electrical wires

4

2

Group total

187

220

Energy

Sales in the Energy business in the first half of 2008 amounted to 1,972 million euros, reflecting an organic growth of 8.1%.

Operating margin increased by 26%, rising from 160 million euros at June 30, 2007 to 202 million euros at June 30, 2008.

Energy infrastructures: sharp increase in high voltage business
Sales of energy infrastructure cables reached 919 million euros representing organic growth of 19.7% compared with the first half of 2007. This accelerated growth was mainly due to the sharp increase in sales of high voltage cables in the first half of 2008, but also to the increase in sales of medium voltage infrastructure cables, particularly in Europe, thanks to the development of renewable energy and infrastructure projects starting up in Central Europe and Russia. Operating margin amounted to 106 million euros (corresponding to an operating margin as a percentage of sales of 11.4%), and almost doubled compared with the first half of 2007.

Industry: increase in sales of cables for industrial applications
Sales of special cables to major international equipment manufacturers for the first half of 2008 totaled 482 million euros, an increase of 4.8% based on comparable data. Demand is steady in high value-added sectors such as cables for automation, transport (shipbuilding, aerospace and railways) and the oil and gas industry. Sales of cables for telecom equipment manufacturers (around 10% of  sales in the Industry segment) fell sharply.
Finally, in this first half of 2008, the Group strengthened its presence in the automation segment by signing a contract for the acquisition of the Italian company Intercond, which should be completed in the third quarter of 2008.
The operating margin improved, rising from 7.7% in the first half of 2007 to 8.6% at June 30, 2008.

Building: profitability maintained despite pressure on prices in the United States
The downturn in sales of cables for building was limited to 4.2% based on comparable data. Sales totaled 571 million euros in the first half of 2008. In Europe, the decline in sales volume in Spain, the United Kingdom and Ireland has had only a limited impact on margins. The Group has adapted its production capacity to changes in the market, particularly in Ireland and Germany. In North America, sales are only slightly down under the combined effect of an increase in volumes made possible by the expansion of the product range and a lowering of prices which has had a substantial impact on the operating margin.
Overall, the Energy business has maintained a high level of profitability with an operating margin, at 55 million euros, close to 10%.

 
 
Telecom

At June 30, 2008, based on comparable data, the sales of the Telecom activity were stable compared with the first half of 2007, totaling 267 million euros.

Local area networks (LANs): increase in exports
Sales of cables for local area networks amounted to 149 million euros, reflecting 3.2% organic growth compared with the first half of 2007. In Europe (with the exception of England), volumes held steady and export sales were boosted by projects started in the Middle East. In the United States, sales increased, particularly in optical fiber cables. Business was also boosted by sales of top-of-the-range (Category 6 and 7) copper cables which have superior profitability. Operating margin as a percentage of sales remained high, still double digit.

Telecom infrastructures: extensive FTTH development in Northern Europe
Sales of telecom infrastructure cables in the first half of 2008 totaled 118 million euros, down 2.2% organically as a result of the production stoppage in Vietnam at the end of June 2007.
This trend must also be viewed in the context of the Group's decision to sell its Santander (Spain) based telecom copper cables business at the end of May 2008.
The temporary stoppage of production of telecommunications copper cables in Vietnam and the priority given to improving profitability mainly explain the decline in sales in this sector.
On the other hand, Nexans is performing well in the optical fiber cables sector, particularly in Northern Europe where numerous Fiber To The Home (FTTH) programs are underway, as well as in the accessories sector.

Electrical wires

The sales of the Electrical Wires businesses totaled 175 million euros in the first half of 2008, down 36% based on comparable data; this downward trend reflects the Group's decision to refocus only on its internal requirements.
Operating profit dropped from 4 million to 2 million euros.


 
Analysis of sales and operating margin by geographical area, excluding electrical wires

Sales

First half
2007

First half 2008

 

(in millions of euros)

At constant metal prices
(**)

On comparable data
(***)

At constant metal prices
(**)

Organic growth
(calculated on the basis of unrounded figures)

Europe

1,476

1,453

1,581

8.8%

North America

217

194

205

5.5%

Asia-Pacific

287

266

259

-2.4%

Rest of the World

184

181

199

9.9%

Sub-total: Cable Businesses

2,164

2,094

2,244

7.2%

Electrical wires

287

274

175

-36.1%

Group total

2,451

2,368

2,419

2.2%

The breakdown of “electrical wires” sales by geographic area for the first half-year 2007 was: Europe 140 million euros; North America 139 million euros, and Asia-Pacific 8 million euros. In the first half-year 2008, the breakdown by geographic area is: Europe 97 million euros and North America 78 million euros.

Operating margin

   

(in millions of euros)

First half
2007

First half
2008

Europe

108

158

North America

41

21

Asia-Pacific

23

21

Rest of the World

11

18

Sub-total: Cable Businesses

183

218

Electrical wires

4

2

Group total

187

220

Europe: steady growth and a further significant increase in profitability

Cable businesses sales in Europe in the first half of 2008 amounted to 1,581 million euros, representing 8.8% organic growth compared with the first half of 2007.

Operating margin for the cable businesses amounted to 170 million euros (before deduction of Headquarters-related costs) in the first half of 2008, compared with 108 million euros in 2007, representing an increase of more than 57% over the period.

Energy infrastructures development is the primary driver for growth in Europe and in the Group. In the industry cables business, development efforts are concentrated on the high added value segments (transport, automation and the oil and gas industry).

Conversely, sales volumes in the building sector slowed down in some countries (Spain, the United Kingdom and Ireland) but margins were maintained on the whole.

 

 

North America: performance affected by the crisis in the US real estate market

Cable businesses sales in the first half of 2008 amounted to 205 million euros, an organic growth of 5.5% compared with the first half of 2007. 

In the energy cables market, sales based on comparable data increased by more than 14% in infrastructure cables (due in part to the restarting of production in Quebec) and fell by 2.8% in the building cables sector; the difficult economic conditions prevailing in North America have led to a reduction in margins, although they remain within the Group average.
In the telecom cables market, sales of LAN cables were strong.

Operating margin of cable businesses sales in the region fell from 41 million euros at June 30, 2007 to 21 million euros for the first half of 2008.

Asia-Pacific: decline in sales in Vietnam

Sales in the Asia-Pacific region totaled 259 million euros in the first half of 2008, down 2.4% based on comparable data compared with the first half of 2007. The downturn is mainly due to the production stoppage of copper telecom infrastructure cables in Vietnam. Outside Vietnam, organic growth stands at 2.4%.

Sales to telecom equipment manufacturers are also down.
Conversely, sales of special industry cables, on which the Group is concentrating the bulk of its development efforts, are booming: Australia (up 23.2% on comparable scope and constant exchange rates) and China (up 36.3% on comparable scope and constant exchange rates).

Operating margin for this region was slightly down, 21 million euros in the first half of 2008 compared with 23 million euros at June 30, 2007.

Rest of the World: sharp increase in sales and profitability

Sales in the region totaled 199 million euros in the first half of 2008, representing organic growth of almost 10% compared with the first half of 2007. Growth was particularly high in Egypt, Lebanon and Morocco as a result of investment undertaken in 2006 and 2007.

Operating margin for the first half of 2008 amounted to 18 million euros compared with 12 million euros at June 30, 2007. 


2008 financial calendar

  • September 30, 2008: Individual shareholders’ information meeting in Nice*
  • October 2, 2008: Individual shareholders’ information meeting in Paris*
  • October 23, 2008: Publication of financial information for 2008 third-quarter
  • November 24, 2008:  Individual shareholders’ information meeting in Reims*
     (*dates given as a rough guide only)

A full set of slides for the presentation of the half-year results, including the results by business sector, is available at www.nexans.com/finance/presentationsfinancieres. A detailed presentation of the accounts, the half-year report of the company’s activities and full half-year financial statements will be available July 25 on the Nexans website at www.nexans.com

Appendices

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

Related Document

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About Nexans

With energy as the basis of its development, Nexans, the worldwide leader in the cable industry, offers an extensive range of cables and cabling systems. The Group is a global player in the infrastructure, industry, building and Local Area Network markets. Nexans addresses a series of market segments from energy, transport and telecom networks to shipbuilding, oil and gas, nuclear power, automotive, electronics, aeronautics, handling and automation. With an industrial presence in 39 countries and commercial activities worldwide, Nexans employs 22,800 people and had sales in 2007 of 7.4 billion euros. Nexans is listed on NYSE Euronext Paris, compartment A. More information on www.nexans.com