2008 results

Improving profitability and strong positive cash flow position

  • Net sales at constant metal prices (1): 4.776 billion euros
  • Organic growth in the cable businesses (2): + 6%
  • Operating margin (3): 427 million euros (8.9% of sales at constant metal prices)
  • Solid financial base

  

Paris, February 12, 2009 – The Nexans Board of Directors chaired by Gérard Hauser, which met on February 11, 2009, has approved the accounts for 2008.

  

  • Net sales in 2008 totaled 6.799 billion euros, compared with 7.412 billion euros in 2007. At constant non-ferrous metal prices and exchange rates, sales amounted to 4.776 billion euros, compared with 4.689 billion euros in 2007.
    2008 net sales include consolidation of two recent Group acquisitions: Intercond on August 1, 2008, and cables activities of Madeco on October 1, 2008.

    Organic growth of cable businesses totaled 6%.
     
  • Operating margin totaled 427 million euros, an increase on 2007 figures despite the severe economic downturn in the fourth quarter of 2008. Operating margin also rose as a percentage of sales from 8.5% to 8.9% at constant non-ferrous metal prices, allowing the Group to see additional improvement in profitability.
  • Income before taxes stood at 135 million euros in 2008, compared with 281 million euros in 2007. This sharp drop was largely due to a write-down for a non-cash expense of 165 million euros, under IFRS guidelines, which produced a temporary gap between the cost of copper used (based on the average cost due to the fungibility of stocks) and the actual cost of copper for customer orders.
    Application of the same accounting principle led the Group to post cumulated non-cash revenue of 296 million euros at December 31, 2007, based on the increase in copper prices. Nexans’ hedging strategies neutralize any impact on operating margin (which reflects the Group’s operational performance for the period).
  • As a result, the Group’s net income totaled 82 million euros in 2008, compared with 189 million in 2007.
  • The Group’s net financial debt stood at 536 million euros at December 31, 2008, compared with 290 million euros at December 31, 2007. This growth was largely driven by the acquisitions of Madeco’s cables activities and Intercond (349 million euros). The Group’s financial ratios are solid (net debt/EBITDA*of 0.9). Nexans produced free cash flow of 291 million euros in 2008, compared with 275 million euros in 2007, buoyed by a drop in working capital requirements unrelated to the fall in the price of copper.
  • In late January 2009, the European Commission, as well as competition authorities in Spain, Japan, South Korea and the United States, launched investigations against Nexans and other cable producers relating to alleged cartel behavior in the sector of submarine and underground energy cables, and associated products and services.
    At this stage, the Group is not in a position to evaluate the possible outcome of these investigations. Nonetheless, given the level of fines imposed by American and European authorities in recent cases and the possible direct and indirect consequences of this type of investigation, it is possible that these investigations may have a material adverse effect on the results of operations and consequently the financial condition of the Group.

  

The Board of Directors will propose a dividend of 2 euros per share, matching last year’s payment. Shareholders will be asked to vote on this proposal at the General Shareholders’ Meeting to be held in the first half of 2009.

Commenting on the 2008 results, Nexans Chairman and CEO, Gérard Hauser, said: “In 2008, Nexans has steadily and successfully continued its reconfiguration despite an unfavorable economic climate through geographical redeployment by completing the integration of the cables activities of Madeco, the cable-market leader in South America, and strengthening its presence in the special cable market for industrial equipment through the acquisition of the Italian company Intercond. Finally, by signing a strategic partnership with Japanese firm Sumitomo, we have embarked on a new stage in our telecoms strategy, with a focus on Fiber To The Home (FTTH) applications."

“Nexans met its financial targets for 2008, achieving organic growth of 6% in its cable businesses with an operating margin of 8.9%, again showing a strong positive cash flow position."

“As the prospect of an economic slowdown began to emerge, we took a number of steps to improve our cash flow and keep a tight rein on costs. Since 2001, we have been working to provide a solid bedrock to allow the Group to successfully weather the storm while creating growth drivers over the medium term. Despite the current climate of uncertainty, we have chosen to concentrate all the teams’ efforts around an operating margin of 6% for 2009, based on our assessment of the situation.”

(*) Proforma, based on acquisitions of Madeco’s cables activities and Intercond over 12 months.

2008 Key Figures 

(in millions of euros)

At constant non-ferrous metal prices

 

2007

2008

Sales

Sales at constant exchange rates (2008)

Operating margin
Operating margin as % of sales

  

Net income attributable to equity holders of the company
Diluted EPS (in euros)

4,822

4,689

 

409
8.5%

 

189
6.67 

4,776

4,776

 

427
8.9%

  

82
3.07
 

    

Detailed analysis by business sector

Sales breakdown by business sector

 

2007

2008

  

Organic growth (at constant consolidated scope and exchange rates)

(in millions of euros)

At constant metal prices

At constant metal prices

Energy

       

- Infrastructure

1,643

1,917

 

19,5%

- Industry

1,005

924

 

-1.3%

- Building

1,132

1,088

 

-4.9%

Telecoms

       

- Infrastructure

247

218

 

1.5%

- LAN

282

290

 

1.0%

Other

11

14

 

N/S

Subtotal: Cable businesses

 
4,320


4,451

 


6.0%

Electrical wires

502

325

 

-36.8%

Group total

4,822

4,776

 

1.5%

     

Operating margin by business sector

(in millions of euros)

2007

2008

Energy

   

 - Infrastructure

152

223

 - Industry

87

65

 - Building

126

114

Telecoms

   

- Infrastructure

18

10

- LAN

31

31

Other

(14)

(13)

Subtotal: Cable businesses

400

430

Electrical wires

9

(3)

Group total

409

427

  

Energy: strong performance in energy infrastructure

Sales in the energy business amounted to 3,929 million euros, a 6.7% increase at constant consolidated scope and exchange rates compared with 2007.

Energy infrastructure: strong growth in sales and profitability in high-voltage cables

Full-year growth in sales totaled 19.5%, matching first-half figures. Sales of high-voltage cables reached 752 million euros, up 37.9%. Operating margin as a percentage of sales stood at around 14%. Booked business already takes the Group beyond 2009.

Medium and low voltage cables also enjoyed significant growth of 10.8%, despite a slight second-half downturn in some regions, such as Morocco, Italy, Germany and North America. Growth in the export of low high voltage cables should buoy business in 2009.

Industry: significant slowdown in cables and harnesses for the automotive industry with some sectors experiencing worsening market conditions in the fourth quarter.

Sales dropped by 1.3% from 2007 figures, hampered by both a strong second-half downturn in cables and harnesses for the automotive industry and low sales volumes in electronic cables for leading telecoms equipment manufacturers.
Key sectors in which the Group is focusing on strengthening its position—such as cables for the shipbuilding, railways, aeronautics, and oil & gas industries—continue to resist the downturn.

Building: the Group maintained profitability in 2008 despite a slowdown in business

The Group suffered a 4.9% drop in sales at constant consolidated scope and exchange rates.

In Europe, the Group experienced a decrease in full-year sales of close to 11% in 2008. The downtrend was more severe in the second half of the year in countries hit hardest by the collapse in the property market, such as the UK, Spain, Ireland and Germany. Some regions, such as France, Benelux and Scandinavia, remained on a more even keel. In North America, sales grew by 4.7% compared with 2007, largely driven by the release of a new product range and a second-half improvement in business. The Group continued to focus on margins rather than sales volumes.

Operating margin in the energy business rose from 365 to 402 million euros, reaching 10.2% in 2008 at constant metal prices, compared with 9.7% in 2007. This improvement in profitability was largely due to growth in energy infrastructure cables, which rose from 44% to 49% of sales in the energy sector.

Telecoms: resistance of the sector with a stronger position in optical fiber cables

Telecoms sales increased by 1.2% at constant consolidated scope and exchange rates compared with 2007 to reach 508 million euros.

LAN cables: the Group continued to experience growth in LAN cables in 2008 despite a second-half slowdown in systems sales.

The Group posted a 1% increase in sales in 2008 at constant consolidated scope and exchange rates. In the United States, Nexans’ largest market for LAN cable sales, business grew by 5% in relatively stable market conditions, driven by the focus on value added, high-speed copper cables. Business fell in Europe and Asia-Pacific, though Turkey enjoyed strong growth, following a number of investments in new production lines made in 2007.

Telecoms infrastructure: agreement signed with leading FTTH company.

Telecoms infrastructure sales grew by 1.5% at constant consolidated scope and exchange rates in 2008, despite the disposal of Vietnamese operations in late June 2007. Excluding the impact of this withdrawal, sales increased by 5.1% in 2008 compared with 2007.

In 2008, the Group also sold the Santander copper cables production plant in line with its decision to leave the segment and focus on optical fiber cables. In Northern Europe, there was strong growth in FTTH solutions, despite the second-half slowdown.

To better draw on market potential in this segment, on December 5, 2008, Nexans announced a joint venture with Sumitomo Electric Industries Ltd. (SEI) to provide optical fibers for European terrestrial networks. The partnership covers all FTTx applications with a focus on FTTH roll-outs.

Operating margin in the telecoms sector dropped to 41 million euros (8.0% of sales at constant metal prices) in 2008, compared with 49 million euros (9.3% of sales at constant metal prices) in 2007. The downturn was largely due to low sales volumes and the discontinuance of operations in Vietnam. Profitability remained extremely high in North America but dropped slightly in Europe.

  

Electrical wires: continued refocusing

External sales of electrical wires totaled 325 million euros in 2008, down 37% at constant consolidated scope and exchange rates compared with 2007. The Group continued to pursue its policy of refocusing solely on its own requirements.

Operating margin for electrical wires slipped from 8 million euros in 2007 to a loss of 3 million euros in 2008, largely due to the drop in orders in some industrial sectors, such as the automotive industry. In 2007, the winding-wires business—from which the Group has now withdrawn—contributed 4 million euros to this figure.

(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) Cables and related products (accessories), excluding electrical wires
(3) A management indicator used by the Group to measure its operational performance

Financial calendar

April 2, 2009: Individual shareholders’ information meeting in Toulouse*
April 22, 2009: Publication of financial information of 2009 first quarter
May 26, 2009: Annual Shareholders’ Meeting
June 11, 2009: Individual shareholders’ information meeting in Nantes*

(* dates to be confirmed)

The Group’s Web site provides the full set of financial statements and the 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 and described before.

Appendices

1. Consolidated income statements under IFRS
2. Consolidated balance sheet under IFRS
3. Consolidated statement of cash flows under IFRS
4. Segment information

Related Information

Related Document

Your Contact

Michel Gédéon Investor Relations
Phone +33 (0)1 73 23 85 31
Michel.Gedeon@nexans.com
Jean-Marc Bouleau Institutional Investors Relations
Phone + 33 (0)1 73 23 84 61
jean_marc.bouleau@nexans.com
Jean-Claude Nicolas Corporate Communication
Phone +33 (0) 1 73 23 84 51
jean-claude.nicolas@nexans.com
Pascale Strubel Corporate Communication Department
Phone + 33 (0)1 73 23 85 28
pascale.strubel@nexans.com
Angéline Afanoukoe Press relations
Phone + 33 1 73 23 84 12
Angeline.afanoukoe@nexans.com

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 23,500 people and had sales in 2008 of 6.8 billion euros. Nexans is listed on NYSE Euronext Paris, compartment A. More information on www.nexans.com