2014 First-Half ResultsJul 25, 2014
- In a difficult environment, positive growth of 3.2%1 on a comparable basis compared to the first half of 2013 helped by a surge in growth in submarine activities
- Roll-out and results of transformation measures in line with plan expectations, with the exception of initiatives directly dependent on market growth
- Operating margin of 77 million euros, in tangible increase on second-half 2013 (66 million euros) and stable compared to first-half 2013 as a result of the unfavorable currency effects
- 25 million euros in net income for the period, including a 48 million euro positive net impact from changes in provisions for antitrust investigations into the high-voltage business, following the European Commission's decision
Paris, July 25, 2014 – The Nexans Board of Directors meeting chaired by Frédéric Vincent on July 24, 2014, approved the Group's condensed consolidated financial statements for the first half of 2014.
Consolidated sales for the six months ended June 30, 2014 came to 3.216 billion euros compared with 3.412 billion euros for the same period of 2013. This year-on-year contraction includes a negative copper effect of 99 million euros due to the decrease in copper prices and a 182 million euro adverse currency effect compared with the first six months of 2013.
At constant non-ferrous metal prices2, sales amounted to 2.304 billion euros versus 2.351 billion euros in first-half 2013.
This decrease breaks down into an organic sales growth of 3.2% more than offset by a negative currency effect.
In the second quarter of 2014, sales were up 8% on first-quarter 2014 and 2.7% on the second quarter of 2013 on a comparable basis.
The first six months of 2014 saw the following three main trends:
- Strong activity in submarine high-voltage cables with favorable timing of projects and highly dynamic automotive harnesses business.
- A modest sales recovery in Europe in some industrial sectors and a return to growth in North America during the second quarter.
- A marked slowdown in sales in South America due to the unsettled economic environment in the region as well as in the Middle East and in Russia, as a result of geopolitical tensions.
A sales analysis shows that the Group experienced organic growth in each of its main businesses compared with first-half 2013, as follows:
- a 0.6% increase in the building market, reflecting a slight rise in sales volumes; in an environment that remains very difficult
- a 1.1% rise in the industry market, fueled by brisk sales of automotive harnesses and the Group’s position in Europe within seven segments that it has identified as strategic;
- 4.7% growth for energy infrastructure, with very mixed performances between (i) the submarine business which turned in a robust performance (particularly strong in umbilical cables), (ii) the land high-voltage business (sharp contraction), and (iii) low- and medium-voltage operations (slight sales decline).
Consolidated operating margin amounted to 77 million euros in first-half 2014 compared with 75 million euros in the equivalent prior-year period and 66 million euros in the second half of 2013. At constant exchange rates, this represents a year-on-year increase of 10%.
In a difficult market environment exacerbated by a still strong euro and by slowdowns in South America, Russia, the Middle East and the mining sector in general, growth initiatives did not yet produce the expected effects. However, ongoing strategic structural initiatives (recovery in submarine high-voltage sales, reduction of fixed costs in Europe and the Asia-Pacific area and the drive to enhance competitiveness by reducing variable costs) were the main contributors to the improved operating margin, with an estimated positive impact of 27 million euros over the period, compared with 19 million euros for the whole of 2013.
The Group reported strong results in certain specific businesses, such as umbilical cables, harnesses, and low- and medium-voltage accessories, which offset the negative impacts of difficult or deteriorated economic environments.
Overall, first-half 2014 operating margin represented 3.4% of sales at constant metal prices, versus 3.2% in the first six months of 2013.
The Group ended the first half of 2014 with operating income of 91 million euros compared with a 78 million euro operating loss in first-half 2013. This performance mainly reflects the following:
- The core exposure effect amounted to a negative 17 million euros compared with a negative 27 million euros in the first half of 2013 mainly as a result of falling copper prices.
- The recognition of other operating income and expenses representing net income of 45 million euros in first-half 2014. This amount includes net income of 48 million euros mainly corresponding to (i) the reversal of the 200 million euro provision set aside for the European Commission's antitrust investigations, (ii) the recognition of a 70.6 million euro expense corresponding to the fine imposed on the Group in relation to these investigations and (iii) a 80 million euro provision to cover the direct and indirect consequences of the European Commission's decision as well as other antitrust investigations currently under way in the same business sector. In the first half of 2013, other operating income and expenses represented a net expense of 94 million euros, corresponding to a net asset impairment loss that mainly concerned Australia.
The net cost of debt contracted to 43 million euros in first-half 2014 from 45 million euros one year earlier, notably attributable to repayments of external borrowings.
However, the Group recorded a net foreign exchange loss of 1 million euros for the period, versus a 7 million euro net foreign exchange gain for the first six months of 2013.
The Group recognized an income tax expense of 14 million euros in the first half of 2014 for 38 million euros in income before taxes. In first-half 2013 the income tax expense was 21 million euros.
The Group net income is 25 million euros for the period. It includes a 48 million euro positive net impact on provisions for antitrust investigations into the high-voltage business, following the European Commission's decision
Consolidated net debt totaled 607 million euros at June 30, 2014 compared with 820 million euros at June 30, 2013 and 337 million euros at December 31, 2013. The increase during the first half of 2014 compared with the 2013 year-end is primarily due to a seasonal effect on working capital requirement as well as 67 million euros in net purchases of property, plant and equipment and 29 million euros in cash outflows related to restructuring plans.
Commenting on the Group's first-half 2014 performance, Frédéric Vincent, Chairman and CEO, said:
"Despite an extremely mixed market environment across our various businesses and geographic areas, Nexans' first-half results for 2014 are in line with the plan we set ourselves and that we disclosed.
We believe that we will still be able to achieve an increase in operating margin in full-year 2014 compared with 2013, largely due to the results of the strategic initiatives that we have put in place. However, the extent of the increase will depend on market conditions in the second half of the year.
Meanwhile, the entire Group is continuing to put all of its efforts into successfully implementing the business transformation plan and speeding up the pace of growth."
Key figures for the first half of 2014
|(in millions of euros)||At constant non-ferrous metal prices|
|H1 2013||H1 2014|
|Operating margin rate as a % of sales||3.2%||3.4%|
|Net income/ (loss) - (Group share)||(145)||25|
|Diluted earnings/ (loss) per share (in euros)||(4.92)||0.59|
Analysis by division
Breakdown of sales by division
|H1 2013||H1 2014||
|(in millions of euros)||At constant non-ferrous metal prices||At constant non-ferrous metal prices|
|Distributors and Installers||596||565||+0.6%||-1,6%||+2.7%|
|Transmission, Distribution & Operators||993||993||+4.7%||+5.8%||+3.7%|
|Of which transmission||+17.2%||+13.4%||+20.8%|
Operating margin by division
|(in millions of euros)||H1 2013||H1 2014|
|Distributors and Installers||24||14|
|Transmission, Distribution & Operators||34||48|
Distributors and Installers
The Distributors & Installers division registered sales of 565 million euros for first-half 2014 at constant metal prices, up 0.6% on the first half of 2013 on an organic basis.
In Europe, business performance remained mixed between Scandinavia and Belgium on the one hand (which reported high growth) and France and the Netherlands on the other. Sales volumes were stable during the period and prices remained on a par with the second half of 2013.
Sales of cables for the building industry in North America experienced the contrasting effects of a recovery in the industrial construction sector in Canada and ongoing weak business levels in the US construction sector.
Sales of LAN cables were boosted by the positive effects of an upswing in business in the United States, where the benefits of the Group's partnership with Leviton are gradually beginning to feed through in a still lackluster market.
The Asia-Pacific and Middle East, Russia and Africa areas also contributed to the division's organic increase, delivering strong growth spurred by buoyant market conditions in Korea, Turkey and Morocco and, to a lesser extent, by a slight recovery in the Australian building industry.
Business volumes narrowed sharply in South America, particularly in Brazil – due to weak domestic growth – and Chile, which saw a steep falloff in mining infrastructure projects.
Operating margin for the Distributors & Installers business came to 14 million euros and corresponded to 2.5% of sales, representing a decrease compared with the first-half 2013 figure of 4.1% due to price reductions that occurred in the third quarter of 2013. However the first-half 2014 operating margin was up on the 2.2% reported for the second half of 2013, due to an improved performance by LAN cables in the United States.
Sales for the Industry business totaled 600 million euros in the first half of 2014, up 1.1% year on year on an organic basis. Performance was mixed, however, in the division's two main sub-segments:
- The energy resources segment reported a 13% contraction. Sales for the upstream Oil & Gas sector increased sharply, particularly in Korea and the United States, and observed a more moderate growth in the downstream sector, for which the Group's operations are mainly based in the Middle East, Russia and Africa area. The situation in the mining sector showed no signs of improvement during the period, particularly in South America and the Asia-Pacific area, due to financial difficulties experienced by the main mining companies and industrial unrest in South America. The renewable energy sector was also severely impacted by market conditions during the period.
- The transport segment experienced the same brisk momentum as in previous quarters. Automotive cables once again delivered double-digit growth, and the railways sector also performed well, driven mainly by the Chinese market which saw fresh capital expenditure for high-speed trains. Meanwhile, the shipbuilding sector retreated compared with the first half of 2013, which saw particularly strong sales volumes in Korea. Sales of cables to the aeronautical industry continued to trend upwards in Europe, buoyed by the Group's partnership with Airbus. In North America, however, they slowed considerably.
- In the other segments of the Industry business, the Group's strategy of focusing on high value-added sectors drove up sales of automation cables, but sales of cables for other industrial applications remained sluggish, and in some cases contracted year on year.
Lastly, the plans for the Group's restructuring in Europe are proceeding on schedule.
Operating margin for the Industry business amounted to 24 million euros, or 3.9% of sales, up by 50 basis points on the first half of 2013.
Transmission, Distribution and Operators
Sales generated by the Transmission, Distribution & Operators business totaled 993 million euros, representing organic growth of 4.7% compared with the first half of 2013.
Distribution & Operators
Sales of low- and medium-voltage cables decreased by 1.9% on an organic basis.
Sales of cables to energy operators contracted by 2.9% due to a sharp decline experienced in France and the Asia-Pacific area. In addition, the political situation in the Middle East weighed on sales in Europe which is the export base for these markets (notably Libya). In China, the Group's subsidiary Yanggu saw a temporary slowdown and Australia continued to suffer from weak domestic demand.
Sales momentum was brisk in North America but South America posted a sales contraction in Chile and Peru as a result of a slowdown in infrastructure expenditure, although this effect was temporarily offset by the delivery of overhead line projects in Brazil.
In the Middle East, Russia and Africa area, the operating environment was more difficult in Russia, growth picked up pace in Morocco and business continued to trend upward in Lebanon.
Sales to telecom operators increased once again, up 3.7% on first-half 2013, led by sales of fiber optic cables.
Land high-voltage cables
The land high-voltage business reported a 13% sales decline as a result of an ongoing challenging market context and increased use of internal subcontracting for the land-based portion of submarine projects. Restructuring measures continued to be rolled out during the period.
Submarine high-voltage cables
Sales of submarine high-voltage cables climbed by over 30% in first-half 2014, driven by high volumes for umbilical cables. In addition, the last projects affected by the operational difficulties of 2012 were delivered during the second quarter of 2014.
Operating margin for the Transmission, Distribution & Operators business as a whole came to 48million euros, or 4.8% of sales, up significantly on the 34 million euros posted in first-half 2013, with the price pressure experienced for low- and medium-voltage cables in second-half 2013 and land high-voltage cables more than offset by the strong showing from submarine cables.
Sales reported by Other Activities amounted to 146 million euros, up 14% on the first half of 2013 on an organic basis due to higher sales volumes in Canada.
As decided by the Board of Directors and announced on May 15, 2014, the duties of Chairman and Chief Executive Officer will be split with effect from October 1, 2014. Frédéric Vincent will retain his role as Chairman of the Board and Arnaud Poupart-Lafarge, currently the Chief Operating Officer, will become Chief Executive Officer. The Board of Directors’ meeting of July 24, 2014 set the terms and conditions of the Chairman of the Board and the Chief Executive Officer with effect from October 1, 2014, as published on Nexans’ website www.nexans.com in accordance with the law and the AFEP-MEDEF Corporate Governance Code.
- November 5, 2014: 2014 Third-quarter financial information
The presentation of the half-yearly results, the financial statements for the period ended June 30, 2014, approved by the Board of Directors at their July 24, 2014 meeting and the half-yearly business report are available on the Nexans website www.nexans.com.
The statutory auditors issued their summary audit report on July 24, 2014.
This press release contains forward-looking statements which are subject to various risks and uncertainties that could affect the Company's future performance. Actual results could therefore differ significantly from those currently expected or anticipated.
Readers are invited to log on to the Group's website where they can view and download (i) the 2013 Registration Document, which provides a detailed description of the Group's risk factors, (ii) the 2014 Half-Year Financial Report, which describes the uncertainties facing the Group for the second half of 2014, and (iii) the condensed consolidated financial statements for the six months ended June 30, 2014, in which Note 16 sets out the risks related to the investigations launched in 2009 on anti-competitive behavior in the submarine and underground high-voltage cables sector in various countries, which resulted in fines being imposed on the main cable industry players in Europe and Asia by the European Commission in its decision of April 2, 2014.
In addition to these risk factors, the main uncertainties for the second half of 2014 primarily relate to:
- The impacts of execution of the cost-saving plans in Europe and the Asia-Pacific area.
- Maintaining or restoring a sufficient level of demand in some segments and prices in Europe.
- The economic and political environment in certain emerging markets (notably China, Brazil, Argentina, Russia, Lebanon and Libya).
- The medium-term outlook for the above countries, as well as for Australia.
- Demand within the mining sector in general.
- Continued increases in credit risks, which in some cases cannot be insured, or can only be partially insured, in Southern Europe, North Africa and Russia and in some customer segments in China.
- Consolidated income statement
- Consolidated statement of comprehensive income
- Consolidated statement of financial position
- Consolidated statement of cash flows
- Information by reportable segment
- Information by major geographic area
- Information by major customer
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