The year 2008 witnessed a steady deterioration in the market, with the first part of the year generally stable, followed by evident signs of the crisis during the third and fourth quarters. In such a context, Prysmian managed to improve its results, particularly in higher technology and value-added markets. Net of metal price effects, currency translation effects and changes in the group perimeter, overall organic growth was 4.2%, taking the Group’s sales to Euro 5,144 million. Performance was particularly positive in the Utilities business, reporting organic growth of 12.1%, driven by the high voltage underground and submarine cables segment which grew by more than 30.0%. This is a very satisfactory result, achieved in the Group’s more strategic business which significantly contributes to overall profitability.
This business will increase its strategic role thanks to its positive medium-term prospects even in a weaker market environment. In fact, the stimulus packages passed by the US and Chinese governments and by the European Union include investments in excess of USD 150 billion to upgrade power generation infrastructures and power transmission and distribution networks, particularly for renewable energy. Prysmian is world leader in this sector and also in 2008 secured new contracts such as the Doha Bay submarine connection and the Kahramaa VIII high voltage underground link in Qatar. In the renewable energy sector, Prysmian has been awarded major projects to build up power connections for Greater Gabbard and Thanet, the world’s two largest off-shore wind farms currently under construction, confirming its leadership in a rapidly developing sector which is expected to benefit of EU incentives for Euro 500 million in 2009-2010.
“Despite negative effects coming from the global economic slowdown in the second half of 2008 – explains Valerio Battista, Chief Executive Officer – the power transmission business confirmed its strength, with an orders backlog for underground cables providing strong visibility for the current year and orders for submarine cables covering all production capacity in 2009 and 2010. Our Group continues to improve industrial efficiency and keeps a strong focus on its strategy of growth, investing selectively in markets and businesses which also in a slowing environment provide interesting opportunities. Leveraging on a particularly solid balance sheet and financial position, Prysmian is well equipped to compete even in a persistent phase of market weakness.”
Adjusted EBITDA in 2008 amounted to Euro 542 million compared with Euro 529 million in 2007, with margin on sales rising from 10.3% to 10.5%. This result has been negatively impacted by the valuation of metal stocks not covered by sales orders (so-called “Free Stock”); this effect amounted to Euro 15 million and emerged entirely in the fourth quarter, as a consequence of the strong decline in the price of copper and aluminium. The Group’s strategy – focussing on more profitable businesses with long-term investment cycles – has allowed to maintain high levels of profitability, even in sharply deteriorating macroeconomic conditions. The Utilities business, in particular, achieved an adjusted EBITDA of Euro 287 million from Euro 237 million in the previous year, with margin on sales rising to 14.2% from 12.5%. Within this business, the power transmission segment (high voltage underground and submarine cables) accounts for a significant part of the business total results, showing great resiliency in the general economic downturn.
EBITDA amounted to Euro 518 million in 2008 compared with Euro 573 million in 2007, which benefited from Euro 44 million in net non-recurring income compared with Euro 24 million in net non-recurring expenses in 2008.
Adjusted operating income rose by 2.8% to Euro 477 million, up from Euro 464 million in 2007. The margin on sales also improved from 9.1% to 9.3%. Operating income amounted to Euro 448 million compared with Euro 508 million in 2007, which had benefited from Euro 44 million in net non-recurring income compared with Euro 29 million in net non-recurring expenses in 2008.
Net financial charges amounted to Euro 165 million in 2008, increasing from Euro 123 million in 2007, due to Euro 68 million of negative metals derivatives fair value effects and Euro 27 million of exchange rate and currency derivative losses. These effects mainly depend on the mark-to-market valuation of derivatives, which are nonetheless designed to hedge raw material price risk and currency risk arising in the ordinary course of business and which are substantially neutral in terms of operating profitability; net interest expense decreased, reflecting the lower average net debt in the period and the reduction in borrowing costs, resulting from the new financing agreement effective from April 2007.
Adjusted net income amounted to Euro 332 million (Euro 299 million in 2007), excluding the negative impact of non-recurring items, derivatives and exchange rate differences. In more detail:
– net non-recurring expenses of Euro 29 million, of which Euro 16 million in costs for rationalising production capacity, including the writedown of fixed assets no longer used and held for sale;
– metal derivatives negative mark-to-market of Euro 68 million and exchange rate/currency derivative losses for Euro 27 million;
– positive tax effects relating to the above charges of Euro 27 million.
After including the non-recurring items described above, net income amounted to Euro 235 million compared to Euro 302 million in 2007.
Cash generation in 2008 was extremely positive. Cash flow from operating activities (after changes in net working capital) amounted to Euro 502 million, reporting an increase of Euro 136 million (+37.2%) from the previous year. Free cash flow (before dividends, shares buy-back and other changes in equity) reported robust growth in 2008, rising to Euro 320 million from Euro 245 million in 2007, thanks to efficient management of working capital and despite larger investments in higher margin businesses; this cash flow also benefited from the fall in metal prices in the last part of the year.
At the end of 2008, the Net Financial Position amounted to Euro 577 million, representing a major improvement from Euro 716 million in 2007, with the ratio Net Financial Position/Adj EBITDA down to 1.1x (1.4x in 2007). In the current credit crunch, Prysmian’s financial strength is even more an important asset. The Group’s financial structure is based on two long-term financing agreements expiring in mid-2012; including the undrawn committed credit lines and the available cash, the Groups financial resources exceed Euro 1 billion at the end of 2008.
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