First half results: strong improvement in profitability

Paris, July 21, 2005 - The Board of Directors of Nexans, which met on July 20, 2005 under the chairmanship of Gérard Hauser, reviewed the Group's consolidated financial statements for the first half-year. (Figures are published in compliance with IFRS, and the income statement for the first half of 2004 adjusted for the purposes of comparison.)

• First-half sales* reached 2,465 million euros. At constant non-ferrous metal prices**, sales reached 2,016 million euros compared to 1,959 million euros in the first half of 2004, an increase of 3% (+1.3% at constant exchange prices and on a comparable consolidation scope).

• The operating margin totaled 72 million euros, compared to 53 million euros in the first half of 2004, a rise of 36%. Operating margin as a percentage of sales has thus increased from 2.7% to 3.6%.

• Net income for the first half of the year totaled 16 million euros, compared to 35 million euros at June 30, 2004. Current net income (excluding exceptional items) was double the amount for the first half of 2004 (34 million euros compared to 17 million euros at June 30, 2004).

• Group debt totaled 502 million euros at June 30, 2005. Not including the effect of IAS standards 32 and 39 (applied since January 1^st, 2005), this represents an increase of 210 million euros, compared to 221 million euros for the first half of 2004. In addition to the impact of the new rise in copper prices, this change stems from the high level of investment and working capital in growth sectors, coupled with slow reduction of copper inventories in the Wirerod business. The level of debt expected at year end should not exceed 320 million euros, taking into account the proceeds of the divestitures expected to close in the second semester in the amount of 80 million euros.

• In relation to the previously announced negotiations for the creation of a joint venture to include Nexans’ European Winding Wire business and to be controlled by Superior Essex, Nexans confirms having reached an agreement on the substantive terms and expects to sign the definitive agreements in the coming days, which would be subject only to customary closing conditions. This transaction has resulted in a reduction of 72 million euros in turnover in the June 30^th accounts and follows an impairment charge against net income of 20 million euros on the assets to be transferred (described further in the accounts). The closing will result in a decrease of debt of approximately 35 million euros at year end. Nexans will hold a 40% interest in the joint venture.

• The Group also announces the signing of an agreement for the sale of its Distribution business in Norway to Ahlsell for 45 million euros. This business had sales of 118 million euros in 2004. Capital gain from the sale (approximately 34 million euros) will be booked in the second half of 2005.

Commenting on the results, Gérard Hauser, Nexans Chairman and CEO, said: “Against a backdrop of uncertainty in the European economic climate, this strong improvement in operating margin highlights the Group’s ability to improve its productivity and to foster profitable growth by investing in products with high added value and in countries with growth opportunities. If the economic climate continues on its current course, these positive factors can be expected to bring annual growth in sales (at constant non-ferrous metal prices and exchange rates) of 1% to 2%, with an operating margin rate between 3.8% and 4.1% for the year as a whole. The divestitures, coupled with the encouraging results posted for the first half of the year, are in line with the objectives set forth in our strategic plan.”

* At current non-ferrous metal prices, first-half sales for 2004 totaled 2,307 million euros.

** To neutralize the effect of variations in the purchase price of non-ferrous metals and thus measure the effective underlying sales trend, Nexans also calculates its sales using a constant price for copper and aluminum.

Consolidated results – first half 2005:

Sales at constant non-ferrous metal prices reflect organic growth of 1.3% over the same period last year, and 4.2% excluding sales in the Electrical Wires sector, which were down 10%. There was also a fluctuation in sales between different Group locations: while sales for Asia, Europe and North America where moderate, organic growth in sales the Rest of the World totaled 16.8%.

The operating margin amounted to 72 million euros, 36% higher than in the first half of 2004, thus confirming the boost brought on by the upswing in sales.

Net income was 16 million euros after adjustment for capital loss of 20 million euros stemming from the disposal of European Winding Wires activity.

(1) Sales at constant metal prices and exchange rates

Energy:

Sales rose by 6.7%, reaching 1,342 million euros. The operating margin for this business was 63 million euros, 37% higher than in the first half of 2004, strongly supported by excellent performance in the infrastructure businesses, particularly in high voltage cables and umbilical cables. In industrial cables, the upturn in profitability continued despite a lack of vitality in the European economic climate (Germany and France). In a stable market, the Building sector was able to improve profitability through price increases.

Telecom: 

The sector continued to reflect an upward trend: sales grew by 7%, while operating margin increased by a factor of 2.5. Infrastructure cables showed strong growth, driven by the success of xDSL and TriplePlay applications. Sales of cables for private Local Area Networks (LAN) continue to grow in North America despite less favorable product mix than last year. The industrial cables market suffered from the slowdown in industrial investment in Europe.

Electrical Wires:

Wirerod and Electrical Wires sales were hit by the slowdown in their target industrial markets. Residual business for Winding Wires (other than the European business units being sold) benefited from an improved profitability related to the 2004 sale of the LaGrange factory in the USA.

(1) Sales at constant metal prices and exchange rates

Europe

Profitability in Europe grew by 16%, boosted by the upturn in cables and accessories for energy and telecom infrastructure, and the impact of restructuring carried out since 2001.  

North America

Sales remained virtually stable after adjustment for divestitures in 2004. The operating margin continued to reflect an upward trend (+46%) due to growth in the energy market and the sale of the unprofitable Winding Wires business.

Asia and Rest of the World

Sales growth in this area increased significantly. While profitability in Asia was still impacted by the scale of investment required to construct the Shanghai factory and strong competition in the shipbuilding cables sector in South Korea and China, profitability in the Rest of the World continued to reflect very strong growth, boosted by development of energy networks in Brazil, Turkey and Morocco, and the successful integration of the Liban Cables operations in the Middle East.

Financial calendar

• October 25, 2005: publication of the 2005 third-quarter sales
• February 2, 2006: publication of 2005 estimated annual consolidated financial statements.

A full set of the slide presentation of the results is available:

Appendices

1. Consolidated income statement
2. Consolidated balance sheet
3. Consolidated cash flow statement
4. Information by business sector and by geographical area

Information by business sector

Information by geographical area

Sales at current metal prices by geographical market