Nexans’ First-Half Results in Line with Expectations

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 prices, 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 the submarine business which turned in a robust performance (particularly strong in umbilical cables), the land high-voltage business (sharp contraction), and 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 the reversal of the 200 million euro provision set aside for the European Commission’s antitrust investigations, the recognition of a 70.6 million euro expense corresponding to the fine imposed on the Group in relation to these investigations and 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.”

Press Release, July 25, 2014