Prysmian: Positive Results for the First Quarter of 2019

“Organic revenue growth achieved in the first quarter is proof of the competitiveness of our businesses, even in a difficult market scenario in various geographical areas,” stated Chief Executive Officer Valerio Battista. “In particular, the positive performance in North America and Latin America confirm the strategic value of the General Cable acquisition, in addition to the synergies generated. Profitability also improved, buoyed by the excellent performances reported by Telecom and Power Distribution. The synergies arising from the integration with General Cable are consistent with our targets, revised upwards, helping propel us towards the profitability targets we have set for all of 2019.”

Financial Results

Group sales amounted to €2,771 million with a +1.9% organic growth calculated on a combined basis, mainly driven by the Telecom Business (+9.8% organic growth), with a double-digit increase in optical cables and within the Multi Media Solutions segment, as well as the robust performance reported by Energy & Infrastructure, with the Power Distribution posting a +15.7% organic growth. North America contributed significantly (+5.4% organic growth). Latin America reported a +6.0% organic growth, whereas Europe remained stable (0.0%). Excluding Projects (-5.3%), Europe’s organic growth was 2.8%. Asia Pacific declined slightly (-1.0%).

¹ In line with the integration process began in the previous year, overall Group’s results are analysed as a whole (with no distinction between the two groups, Prysmian and General Cable) effective financial year 2019. The figures for the first quarter of 2019 are compared with the figures of the Consolidated Financial Statements. In addition, key operating indicators (sales and adjusted EBITDA) are compared with combined results, i.e., including General Cable’s results as if they had been consolidated as of 1 January 2018. However, it should be noted that the combined data are not to be construed as pro-forma figures, even if they were restated by applying Prysmian Group’s main accounting principles and policies.

Adjusted EBITDA grew to €231 million (up compared to €198 million for Q1 2018), including €9 million arising from the positive effect of the application of the new IFRS 16, effective 1 January 2019. EBITDA margin improved, with a ratio of adjusted EBITDA to sales at 8.3% compared to 7.2% for the first quarter of 2018. The heightened profitability was mainly the result of the good result reported by Energy & Infrastructure and the industrial efficiencies achieved. The Power Distribution's solid performance also generated a positive impact on profitability, particularly in North America, whereas the Industrial & Network Components segment remained stable. By contrast, the weak order intake recorded in 2018 negatively impacted the Projects Business. The synergies generated by the integration with General Cable had a positive effect, in line with the new targets, which were revised upwards.   

EBITDA grew to €220 million (€136 million in Q1 2018), including net expenses for company reorganisation, net non-recurring expenses and other net non-operating expenses totalling €11 million (€17 million in Q1 2018). These adjustments include General Cable's reorganisation and integration expenses amounting to €3 million.

Operating income rose to €160 million, compared to €57 million in the first quarter of 2018. The significant improvement was mainly attributable to the €43 million favourable impact of the derivative fair value on metal prices.

Net profit grew sharply to €89 million compared to €28 million for the first quarter of 2018.

Net Financial Debt amounted to €2,900 million, or €2,761 million net of the €139 million impacts due to the application of the new IFRS 16, in line with expectations and with the business’ seasonal nature.

The main factors that influenced the Net Financial Debt in the past 12 months were:

• the €2,505 million impact generated by the acquisition of General Cable, made up of the share price paid (€1,290 million) and net debt refinancing (€1,215 million);
• operating cash flows (before changes in working capital) positive at €764 million;
• an increase in net working capital amounting to €7 million;
• cash outflows totalling €240 million due to restructuring, integration and ancillary expenses associated with the acquisition of General Cable, in addition to the cash outflows related to WesternLink;
• net operating investments totalling €268 million;
• net finance costs paid in the amount of €86 million;
• taxes paid amounting to €112 million;
• a dividend pay-out of €110 million;
• net proceeds arising from capital increase totalling €496 million;
• a €147 million increase in financial liabilities following the adoption of IFRS 16;
• other increases amounting to €37 million.

Projects

Organic growth affected by the lower level of projects secured in 2018

• Submarine cable market confirmed at ~€3 billion in 2019; extensive tendering activity underway
• High Voltage Underground’s solid execution capacity, particularly in Europe and APAC

In the first quarter of 2019, sales amounted to €368 million, with an organic decrease of 5.3% compared to €389 million for the same period of 2018, calculated on a combined basis. Adjusted EBITDA was €39 million, up compared to €32 million in 2018, which was affected a €20 million negative impact due to the WesternLink project. The ratio to sales was 10.6% compared to 8.2% in 2018.

Sales of Submarine Cables and Systems suffered from the weak order intake recorded in 2018. At the beginning of the year, Prysmian secured some strategic projects, such as the first contract for cabling a floating offshore wind farm in France, the submarine energy interconnection Fundy Island in Canada and the project for developing a submarine fibre optic cable in Chile, which marks Prysmian’s return to this market.

In High Voltage Underground, the positive results already recorded in Q4 2018 were confirmed in the first quarter of 2019, thanks to the strong execution capabilities that the Group showed in Europe (France and Nordics in particular) and APAC. Worth of mention is the major project for developing Washington D.C.’s power transmission grid, awarded in early February. The procurement process for major interconnection projects in Germany (SuedLink e SuedOstLink) has been launched recently.

The (underground and submarine) power transmission order book totalled about €1,700 million, down compared to €1,900 million at the end of December 2018 (the order book does not include €200 million related to the orders for offshore wind projects secured in France in August 2018). Prysmian is currently working on an extensive tendering activity to secure new submarine projects, within a market whose value is confirmed at about €3 billion for 2019.

Energy

• T&I: slight growth. Improved profitability thanks to product and geographical mix
• Power Distribution: solid organic growth (+15.7%); rising profitability
• Overhead: weak performance reflecting the competitive market scenario of LATAM

Energy & Infrastructure

Energy & Infrastructure sales amounted to €1,310 million, with +3.4% organic growth¹ compared to 2018, (+5.4% excluding the Overhead business). Adjusted EBITDA stood at €69 million compared to €50 million in 2018. Its ratio to sales improved to 5.2% compared to 3.9% in 2018.

In Q1 2019, Trade & Installers grew steadily at global level, chiefly thanks to the positive performance reported by North America and APAC, offset by the slowdown experienced by LATAM and Europe’s flat trend. Profitability improved, mainly as a result of the favourable product and geographical mix.

Power Distribution reported a robust organic sales increase (+15.7%), particularly in North America and Europe. The Business’ profitability improved thanks to the geographical mix, increased volumes and the implementation of industrial efficiencies.

The profitability of the Overhead segment was affected by highly competitive market conditions in South America, though showing signs of recovery.

¹ 2018 results have been restated to include General Cable.

Outlook

In 2018, the global economy grew compared with the previous year, although there were signs of deterioration of the economic cycle in many developed and emerging countries. Within the Eurozone, there were signs of slowing growth in the second half of the year, due in part to temporary factors, but also to a decline in businesses’ expectations and weakening demand.

The growth rate remained robust in the United States, supported by domestic consumption and investments. Among the major emerging economies, the slowdown of economic activity in China that began in early 2018 has continued in recent months, despite the fiscal stimulus measures enacted by the government.

These trends appear to be gaining further momentum in early 2019, with expectations of deterioration in some economies. The expansion of international economic activity is being restrained by several elements of uncertainty and risk: the repercussions of a negative outcome to the current trade talks between the United States and China, the renewed flaring of financial tensions in emerging countries and the circumstances of the conclusion of the process of the departure of the United Kingdom from the European Union (Brexit has yet to be finalised).

Within this macroeconomic scenario, Prysmian Group expects that demand in the cyclical construction and industrial cable businesses will rise slightly in 2019 compared to 2018. The medium-voltage utilities cable business is also expected to enjoy a moderate recovery, with uneven performances at the level of the various geographical areas. In the submarine systems and cables business, Prysmian Group aims to consolidate its leadership in a market that is expected to recover slightly over 2018. This business’s performance will be positively influenced by the recovery of the negative effect of the Western Link provisions (€165 million). At the organic level, performance is expected to contract in 2019 due to the weak order intake in 2018. In the High Voltage Underground systems and cables business, the Group expects virtual stable results, with a gradual improvement in expected performance in China and South-East Asia thanks to the new manufacturing set-up. For the Telecom segment, the Group expects that growth will remain solid in 2019, driven by the increase in demand for optical cables in Europe and North America, whereas the Australian market is expected to slow due to a reduction in volumes, which is already undergoing, and the uncertain trend of the Chinese market.

The translation effect of converting subsidiaries’ results into the consolidated reporting currency is expected to generate a neutral impact on the Group’s operating performance.

In the light of the foregoing considerations, the Group expects to achieve an adjusted EBITDA of €950-€1,020 million, a significant improvement on the €768 million recorded in 2018 (which included the negative effect of the €165 million provision for the Western Link project). The Group also expects to generate cash flows of approximately €300 million ± 10% (FCF before acquisitions & disposals) in 2019. This figure is net of the planned outlay of €90 million relating to the restructuring and integration activities. 

Prysmian Group is continuing to optimise its organisational and production structures with the aim of achieving a level of cumulative synergies arising from the integration with General Cable of €175 million by 2021 (of which €35 million recorded at the end of 2018), an increase compared to the previous target of €150 million in 2022, and one year earlier.

This forecast is based on the Company’s current business perimeter.