2009 Full-Year Results

Nexans demonstrates its ability to adapt to a situation of economic crisis

  • Net sales at constant metal prices 1): 4.026 billion euros
  • Organic growth in Cable businesses 2): negative 17.2%
  • 6% objective for operating margin 3) met as a result of the sharp increase in restructuring efforts
  • Net income at breakeven or 103 million euros excluding non-recurring items
  • Group net debt reduced by almost 400 million euros
  • Proposed dividend of 1euro per share 4)

Paris, February 10, 2010 – The Nexans Board of Directors chaired by Frédéric Vincent, which met on February 9, 2010, has approved the accounts for 2009.

Net sales for 2009 totaled 5.045 billion euros compared with 6.799 billion euros in 2008. At constant non-ferrous metal prices 1), the figure is 4.026 billion euros compared with 4.776 billion euros in 2008.
At constant consolidated scope and exchange rates, Cable business reported an organic drop of 17.2% 5). The second half of the year proved more difficult than the first on the building and certain industrial markets.

The operating margin totaled 241 million euros, that is, 6.0% of sales at constant non-ferrous metal prices, compared with 8.9% in 2008. The significant reduction in overheads, company restructuring operations and the priority given to the policy to protect margins rather than looking for volumes partially helped offset the impact on the Group’s profitability of volumes dropping more sharply than expected. The operating margin did, however benefit (to the extent of 37 million euros) from the non-ferrous metal inventory reduction policy implemented by the Group. This trend reflects Nexans’ commitment to continuing to improve the return on its capital employed.



The pre-tax net income totaled 51 million euros in 2009, down from 135 million euros in 2008. This line was particularly hard hit by a restructuring cost of 119 million euros. These restructuring operations resulted in some cases in the closure of manufacturing sites and involved almost 1,800 people, about 1,000 of whom had left the Group by the end of 2009.

The 2008 income had been affected by a negative copper effect to the extent of 165 million euros as a result of the way in which the weighted average price of non-ferrous metal inventory was booked. In 2009, this effect was positive by a slight 18 million euros because of the upturn in copper prices.

As a consequence, the net income (Group share) totaled 8 million euros in 2009 (compared with 82 million euros in 2008). Excluding restructuring operations, copper effect and capital gains on divestments, it was 103 million euros.

The Board of Directors will put to the General Shareholders’ Meeting, called in the first half of 2010, a proposal to pay a dividend of one euro per share for 2009, that is, a distribution of about 30% of the year’s consolidated current net income.

The consolidated net debt was 141 million euros at December 31, 2009, compared with 536 million euros a year earlier. In 2009, the Group generated 258 million euros cash from operations (including the impact of restructuring costs) compared with 453 million euros in 2008. At the same time, the Group reduced its working capital requirement by 261 million euros. Thanks to the significant commitment by the Group, this reduction was greater than that required for its activity.

Referring to the 2009 results, Frédéric Vincent, Chairman and CEO, said: “Nexans achieved its target operating margin despite an economic environment that was much more difficult than expected. The second half saw a further deterioration in activity resulting in a 17.2% organic drop for the full year, for cables alone. That the 6% margin rate was achieved reflects the strength of the group’s economic model and the strong commitment by Nexans’ teams.

“The Group remains positioned as a key actor in cables for Transmission and Distribution (T&D) networks and has developed promising positions in applications specifically for renewable energies, rail transportation and offshore oil resources, all of which are examples of the ongoing potential of the market sectors served by Nexans.

“It is for these reasons that we are confident about the future, even if early 2010 still reflects an economy struggling to recover. In this context, the level of sales in the first quarter of 2010 of the cable activity is expected to be at a similar level as the fourth quarter 2009, and less than first quarter 2009 sales. The return of sales volumes, especially in the Building market and certain industrial sectors, is a condition to an improvement in the Group’s operating margin over 2009. In 2010, the Group will continue to concentrate on its growth, the ongoing improvement of its manufacturing processes and continuing to adapt its organizational structure to its rapidly changing markets.”

2009 Key Figures

(in millions of euros)

At constant non-ferrous metal prices

 

2008

2009

Sales

 

Operating margin

Operating margin rate (% of sales)

Net income attributable to equity holders of the company

Diluted EPS (in euros)

4,776

 

427

8.9%

82

3.07

4,026

 

241

6.0% 

0.71

 
Detailed analysis by business sector

Sales breakdown by business sector

 

2008

2009

 

Absolute growth at constant exchange rates

Organic growth

(in millions of euros)

At constant non-ferrous metal prices

At constant non-ferrous metal prices

 

Energy

 

 

 

     - Infrastructure

1,917

1,798

 

-4.6%

-8.8%

     - Industry

924

746

 

-18.7%

-24.0%

     - Building

1,089

838

 

-21.9%

-26.4%

Telecoms

 

 

 

 

 

     - Infrastructure

218

185

 

-13.5%

-11.2%

     - LAN

290

221

 

-25.0%

-23.1%

Other

13

22

 

N/S

N/S

Sub-total: Cable businesses

4,451

3,810

 

-13.4%

-17.2%

Electrical wires

325

216

 

-32.7%

-42.8%

Group total

4,776

4,026

 

-14.7%

-18.9%


 

 Operating margin by business sector

(in millions of euros)

2008

2009

Energy

 

 

     - Infrastructure

223 179

     - Industry

65 6

     - Building

114 44

Telecoms

 

 

     - Infrastructure

10 16

     - LAN

31 6

Other

(13) (11)

Sub-total: Cable businesses

430 240

Electrical wires

(3) 1

Group total

427 241

ENERGY

Energy business sales totaled 3,381 million euros. At a constant exchange rate, it is down 12.7% compared with 2008.

  • Energy Infrastructures: strong resistance of the underlying basis for the Group’s results and confirmation of the good growth potential in high voltage

Sales at constant exchange rates remained high in 2009, very close to 2008’s high levels, in particular because of the contribution of the Madeco cable business acquired in South America. At constant consolidated scope and exchange rates, the business contracted by 8.8%.
For high voltage, the workload for the various plants remained high in the second half after signing numerous contracts. These will bring the order backlog for these businesses at the end of 2009 close to 18 months’ sales.
For low and medium voltage cables, sales tapered 7.8% on an unchanged basis. Growth continued in Asia and the MERA (Middle East, Russia and Africa) area where the Group was able to capitalize on the increase in investments made in the past two years (Egypt, Lebanon and Russia). At the opposite extreme, in Europe, competitive pressure was even greater at the end of the year due to the effect of tapering investments by certain network operators. In North America, demand from West Canadian customers continued to be strong while the softer residential market in the United States dampened distribution cable orders. This situation led the Group to decide to close its Quebec (Canada) plant, and so to restructure its production for the North American market.
In all, the operating margin for Energy Infrastructures business totaled 179 million euros, that is, a margin rate of 10.0%, which is close to the 2008 figure.

  • Industry: high impact of the business slowdown in certain sectors and recovery of the automotive cable market in the second half

At a constant exchange rate, Industry Cable sales fell 18.7% compared with 2008 (down 24.0% at constant consolidated scope and exchange rates).
Automotive harness business was up sharply in the second half by 15.9% compared with the first half of the year, somewhat offsetting the contraction noted at June 30, 2009
(-30.2% for the year as a whole compared with -42.4% at June 30, 2009).

The other Industry Cables businesses are down on an organic basis by 20.7%. The good performance by the transportation sector (railways, aeronautical and shipbuilding) was not sufficient to offset the lack of major onshore Oil & Gas contracts in the second half and the ongoing weakness of certain manufacturing sectors, such as robotics and industrial automation systems.

The decline in volume directly impacted on the profitability of these businesses, the operating margins of which are only slightly positive. The flow-on effect of the cost-cutting measures implemented by the various businesses has not yet been sufficient to allow the European units worst affected by the drop in volume to return to breakeven.

  • Building: further adaptive measures

The Group logged a 26.4% drop in its sales at constant consolidated scope and exchange rates.

The drop in volumes was very significant in Europe and North America, with activity declining by close to 30%.
The contraction was particularly noticeable on the Spanish, UK and German markets, where volumes declined at an even faster rate in the second half. This situation meant it was essential to continue the rationalization measures throughout 2009, resulting in the closure of the Vacha (Germany) site after the Athlone (Ireland) facility in 2008.
The Group focused its policy on protecting margins rather than volume. As a consequence, the operating margin for 2009 was 5.3%.

TELECOM

Sales of Telecom cables totaled 406 million euros in 2009, that is, an increase of 20.2% at constant exchange rates compared with 2008.

  • Telecom Infrastructures: niche market positions, investments postponed by some operators

Sales fell from 218 million euros in 2008 to 185 million euros in 2009, at constant non-ferrous metal prices. This contraction is largely attributable to the full-year impact of the sale of the copper telecom cable business in Santander (Spain).

The Group continued to invest through the joint company set up with Sumitomo Electric Industries (SEI) in 2009, which markets products and systems for the FTTH (Fiber to the Home) market in Europe.
Despite the drop in sales due to slower-paced investment decisions by Telecom operators, the operating margin climbed from 4.6% in 2008 to 8.7% in 2009, thereby underscoring the relevance of the Group’s positioning on this market sector.

  • Private Networks (LAN): market affected by the drop in real estate projects and infrastructure investment

At comparable data, LAN Cable business was down by about 23% in 2009 compared with 2008.
This trend reflects a decline in the finance sector’s investment in data networks, compounded by a drop-off in new real-estate developments requiring the installation of cabling systems.
Nonetheless, this decline masks the recovery in the second half, especially in North America, coming in the wake of distributors’ massive inventory reductions in the first half of the year. This situation led the Group to focus on the sale of high value added products and to make a significant effort to cut its overheads in this business.

The full-year operating margin was 2.9%.

ELECTRICAL WIRES: further cuts to production capacity

External sales by the Electrical Wires business totaled 216 million euros in 2009, down 42.8% compared with 2008 at constant consolidated scope and exchange rates. The Group continued with its policy to refocus on its own needs.

In response to the drop in volumes in this market hampered by excess capacity, the Group announced in September 2009 that it would close the rod mill and wire drawing plant in Chauny (France).

In North America, the Group has suspended the project to sell off its Electrical Wire business in Montreal (Canada), as the conditions precedent, especially with regard to the financing, had not been met by the purchaser.

The operating margin for the Electrical Wires business is back at breakeven in 2009, after the significant losses booked in Europe in 2008.
The closure of one rod mill means Nexans is able to regroup tonnage at its other French unit and so return this business to breakeven.

Capital increase reserved for Nexans employees

Nexans is announcing its intention to launch an employee-shareholder operation involving a capital increase reserved for Group employees who are members of a Company Savings Plan, through the emission of a maximum of 400,000 new shares. This will be the fourth employee shareholder operation carried out by the Group at the international level. Employees will be offered the possibility to subscribe to a structured “leverage effect” formula that will include a guarantee for the amount invested by the employees. Subject to the approval of the French financial market authorities, the shares will be subscribed through a Company Trust Fund at a unit price including a 20% discount to the reference share price (unless local regulations require otherwise).
In this way, Nexans is aiming to involve its employees, both in France and abroad, more closely in the Group’s development and future results.

Employees will be advised at a later date of the details of the operation called “Act 2010” and scheduled for completion before the end of the third quarter. A specific press release will also be published.

The operation’s launch will be subject to notifying or obtaining the approval of the local financial market authorities in the relevant countries, in particular the AMF in France, and completing the procedure for consulting the employee representative in accordance with applicable law. Regarding the offer to Group employees in the United States of America, the offer has not and will not be registered with the Securities and Exchange Commission. The Company reserves the right to make any changes to this offer and its calendar, and even to suspend the offer if it so deems fit.

Financial calendar

  • March 31, 2010: Individual shareholder information meeting in Bordeaux*
  • April 22nd, 2010: First-quarter 2010 financial information
  • May 25, 2010: General Shareholders’ Meeting
  • June 2, 2010: Individual shareholder information meeting in Biarritz*
  • July 28, 2010: 2010 Half Year Results
     

* Approximate date to be confirmed.

The Group’s Web site provides the full set of financial statements and the 2009 management report of the Board, which includes the risk factors and confirmation of the risk relating to the on-going antitrust investigation announced on February 3, 2009.

Appendices

  1. Consolidated income statements
  2. Consolidated statement of financial position
  3. Consolidated statement of cash flows
  4. Information by reportable segment and major geographical area

1) 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.
2) Cable related products (accessories), excluding Electrical Wires.
3) A management indicator used by the Group to measure its operating performance. The operating margin rate is expressed as a percentage of the sales at constant non-ferrous metal prices.
4) Proposed dividend that will be submitted to the 2010 General Shareholders’ Meeting for approval.
5) 2008 sales on the basis of comparable data correspond to constant non-ferrous metal sales, recalculated after adjustments for comparable scope and exchange rates. The exchange effect on sales at constant non-ferrous metal prices amounts to a negative 54 million euros, while the comparable scope effect amounts to a positive 148 million euros.

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 22,700 people and had sales in 2009 of 5 billion euros. Nexans is listed on NYSE Euronext Paris, compartment A. More information on www.nexans.com.