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Nexans: 2016 first-half results

Today, Nexans published its financial statements for the six months ended June 30, 2016, as approved by the Board of Directors at its meeting chaired by Georges Chodron de Courcel on July 27, 2016.

During the first half of 2016, Nexans notched up a number of commercial successes in its key business areas.

For example, in the energy infrastructure sector, it won a contract worth around 245 million euros to connect the Beatrice Offshore Wind Farm to the Scottish grid. Nexans' high-voltage subsea and land cables will help meet the growing energy demands in the region as once it is fully operational the wind farm could provide the electrical needs of over 450,000 British households.

Also during the period, as part of a turnkey project worth around 75 million euros carried out for BKK Nett AS - a leading Norwegian power company - Nexans achieved two world records when it supplied and installed the world's longest and deepest 420 kV XLPE (cross-linked polyethylene) insulated submarine cable system in Western Norway.

In the natural resources sector, Nexans has been selected to supply power cables for the Umm Al Houl Water and Power Project in Qatar - an integrated power and desalination plant that will materially increase the country's power generation

Nexans is expanding the international coverage of its umbilical cables with a new project in Australia for OneSubsea. Nexans umbilical cables and connector interfaces will also be used in the development of the Greater Enfield project, an offshore oil field operation with an expected production capacity of 69 million barrels of oil equivalent.

The Group was also successful in the telecommunications sector during the first half of 2016, securing a contract to supply submarine fiber optic cables as part of Brazil's Amazônia Conectada program which aims to bring Internet to four million inhabitants in the Amazon rainforest.

A pioneer in renewable energies, Nexans is driving the transition to higher voltage wind farms with its new 72.5 kV range of power cables and accessories. The Group has also launched a new WINDLINK® solution for wind turbines that proposes low-voltage aluminum cables that are lighter and more cost effective than traditional copper cables.

All of these commercial successes and technological innovations are illustrations of the Group's overriding objective of meeting the world's growing energy and data needs.

Consolidated sales for the six months ended June 30, 2016 came to 2,951 million euros compared with 3,271 million euros for the same period of 2015. At constant metal prices[4], first-half 2016 sales amounted to 2,277 million euros.

The Group pursued its strategic initiatives as planned in the first half of 2016:

    The various restructuring plans launched in 2013 and 2015 continued to be rolled out. The Group's drive to reduce fixed costs had a positive 11 million euro impact in the first six months of 2016 which allowed offsetting the effects of inflation.
    The measures put in place to scale back variable costs led to a 25 million euro net saving during the period. The difficulties encountered in 2015 as a result of inventory shedding and negative volume effects have now been overcome and the impact of the strategic initiatives on manufacturing operations seems to have stabilized.
    Steps taken to strengthen the Group's market leadership had a 38 million euro favorable impact on operating margin. This effect was mostly due to (i) higher volumes of distribution cables sold to energy operators and (ii) increased returns from the programs put in place to selectively streamline customers and products in the Distributors & Installers and Industry businesses and the Distribution sector.

In all, after taking into account an estimated negative cost/price squeeze effect of 29 million euros and an unfavorable currency and scope effect of 5 million euros, the consolidated operating margin came to 135 million euros (representing 5.9% of sales at constant metal prices versus 4% for the first half of 2015), up 40 million euros.

EBITDA rose by 36 million euros to 203 million euros, reflecting the impacts of the strategic initiatives in terms of an improved product mix and lower fixed costs. The Group's depreciation and amortization expense edged down by 4 million euros to 68 million euros during the period.

The Group ended the first half of 2016 with operating income of 90 million euros, versus a 4 million euro operating loss in the first six months of 2015. This positive swing was mainly due to the fact that restructuring costs and provisions were 85 million euros lower than in first-half 2015 and the first-half 2016 operating income figure included a 25 million euro non-cash expense arising from the core exposure effect.

The Group recorded net income of 29 million euros in the six months ended June 30, 2016, after taking into account 30 million euros in net cost of debt (down by 8 million euros on first-half 2015) and a 17 million euro income tax expense (versus 10 million euros in first-half 2015).

Consolidated net debt totaled 373 million euros at June 30, 2016, down 158 million euros on June 30, 2015, despite a 93 million euro cash outflow for restructuring costs. This reduction reflects the improved EBITDA levels and the decrease in working capital.

Commenting on the Group's first-half 2016 performance, Arnaud Poupart-Lafarge, Nexans' Chief Executive Officer, said:

"The first half of 2016 saw a significant increase in the Group's operating margin despite globally lackluster growth, reflecting the success of the strategic initiatives we have put in place.

In spite of the unsettled operating environment in second-half 2016, we maintain our confidence in the full potential of the strategic initiatives and in the capacity of the Group to deliver the expected results."

Analysis by business

Distributors & Installers

The Distributors & Installers business posted sales of 820 million euros at current metal prices and 580 million euros at constant metal prices, representing a year-on-year organic increase of 3.9%.

These figures illustrate a return to sales growth for the division after 18 months of decline, with both of the division's segments contributing to the turnaround.

Sales of power cables for the building sector stabilized in volume terms, with an organic year-on-year increase of 0.4% versus a 7.3% decrease in the first half of 2015.

The division's European sales contracted year on year but at a slower pace than previously.

Conversely, sales were higher year on year in both South America (up 3.7%) and the Middle East, Russia and Africa Area (up 13.9%). At the same time, after several quarters of sharp declines, the division's business in the Asia-Pacific Area began to stabilize.

Sales of LAN cables and systems picked up in the second quarter, and organic growth came in at 15.8% for the first half overall compared with 5.2% for the first six months of 2015. This upward trend was seen across all of the Group's operating countries, but was particularly pronounced in China and the Americas.

Operating margin for the Distributors & Installers business amounted to 52.4 million euros, representing 9% of sales at constant metal prices (versus 22 million euros and 3.8% in first-half 2015).

This year-on-year rise was chiefly attributable to the extremely strong sales growth reported by the LAN business which helped create a favorable product mix as the division's businesses which recorded sales declines are its least profitable.

Industry

Sales for the Industry business totaled 687 million euros at current metal prices and 602 million euros at constant metal prices, representing an organic decrease of 3.8% compared with the first six months of 2015.

The Industry business sales appear to have stabilized on a period-on-period basis and the year-on-year organic decrease in the first half of 2016 was primarily due to an unfavorable basis of comparison as the contraction in sales in the Oil & Gas sector (for AmerCable and in South Korea and China) that took place in 2015 was primarily concentrated in the second half of that year.

The Transport sub-segment (which accounts for around two thirds of the Industry business' total sales) recorded a 4.6% contraction on an organic basis, reflecting slower sales in the railway segment in China and the shipbuilding segment in South Korea. The other segments of the Industry business held firm during the period, with sales to the aeronautical market increasing thanks to the new Airbus programs that are currently being rolled out. Sales of automotive harnesses climbed once again (by 3.8%), on the back of two years of double-digit growth.

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