NEXANS : 2014 Full-Year Results

Press release

• Despite a difficult environment, the Group moved ahead with the transformation process and strategic initiatives, which contributed 73 million euros to the 148 million euro operating margin
• Group Net loss of 168 million euros due to the recognition of a non-recurring 197 million euro net asset impairment, notably for goodwill in Australia, North America and Brazil
• Net debt of 460 million euros at the year-end, up 123 million euros after payment of a fine for 71 million euros and restructuring costs of 77 million euros
• Acceleration and consolidation of strategic initiatives with a view to boosting the Group's competitiveness, including the launch of studies of projects having as their goals an overall savings in fixed costs of 100 million euros

Nexans remains confident in its ability to achieve its strategic initiatives. In view of the extremely volatile economic environment, Nexans will no longer provide financial guidance, and accordingly, guidance given in 2014 is obsolete.

Paris, February 13, 2015 - Today, Nexans published its financial statements for the year ended December 31, 2014, as approved on February 12, 2015 by the Board of Directors under the Chairmanship of Frédéric Vincent.

I - Overview of 2014

Commenting on the Group's performance in 2014, Arnaud Poupart-Lafarge, Nexans' Chief Executive Officer, said:
"By implementing our strategic initiatives in 2014 we were able to deliver a better performance than the previous year despite a more difficult economic environment in certain businesses and geographic regions. The Group consolidated its positions in spite of sluggish growth in its markets, while paving the way for the future by carrying out the first phase of its plan to create priority focuses in its business portfolio. Nexans has got itself back on track. The Group intends to step up the pace of its transformation in 2015, based on its capacity for technological innovation as well as a leaner and more international management team focused on performance. I know that I can also count on the commitment and confidence of the Group's employees, as demonstrated by the success of the Group's sixth share ownership plan, Act 2014; Nexans' employees now account for more than 4% of the share capital."

II - Commercial and technical successes in 2014

Despite a tougher economic context, 2014 saw numerous successes from both a commercial and technical perspective.

During the year we signed new contracts with Airbus, the shipbuilders STX and Fincantieri, SBB (Swiss rail network operator), Suzlon (a wind-turbine manufacturer), the Norwegian utility companies BKK and Statnett, NSP Maritime Link in Canada, DONG Energy, BP, and Statoil, to cite just a few. These contract wins demonstrate the trust that customers are ready to place in us in the transport, energy infrastructure and resource sectors, which are all central to the Group's business.

The Group's technological excellence and the expertise of its teams were also illustrated by innovative projects that came to fruition in 2014, such as AmpaCity, under which the utility company RWE integrated the world's longest superconductor cable - supplied by Nexans - into Essen's power grid in Germany.

III - Detailed business review for 2014

Sales for 2014 came to 6.4 billion euros at current metal prices and 4.6 billion euros at constant metal prices, representing 0.7%^[1]:
#_ftn1 organic growth compared with 2013.

Operating margin totaled 148 million euros, corresponding to 3.2% of sales, versus 141 million euros in 2013^[2]:
#_ftn2, up 10% at constant exchange rates.

2014 was marked by strong volatility in both economic and political terms:

• South America and Australia saw worsening conditions in the cable market.
• In Europe, the market for commodity products contracted whereas the industrial applications market improved.
• North America began to pick up.
• Markets in the Middle East and Russia were weighed down by political tensions.

These factors were compounded by the slump in the price of oil and other raw materials in the second half of the year, against a backdrop of large currency swings.

2014 key figures

* Excluding the non-recurring impact of pensions, which had a 30 million euro positive effect on consolidated operating margin in 2013.

Breakdown of sales by division

Operating margin by division

* Excluding the non-recurring impact of pensions, which had a 30 million euro positive effect on consolidated operating margin in 2013.

The implementation of strategic initiatives had a 73 million euro positive impact on operating margin in 2014, compared with 19 million euros in 2013. This 54 million euro incremental improvement mainly stemmed from a turnaround in the submarine high-voltage business and restructuring measures, and cost-efficiency programs also participated in the greater contribution from the Group's strategic initiatives. Conversely, the implementation of the growth and innovation measures provided for in the strategic plan was hampered by the unfavorable market environment.

Analysis of sales by division (at constant metal prices)

Transmission, Distribution & Operators

Sales generated by the Transmission, Distribution & Operators division totaled
1,978 million euros, representing an organic decrease of 0.3% compared with 2013.

Distribution & Operators

Sales to energy utility companies declined by almost 3% year on year. The contraction was particularly marked in the second half in the Asia-Pacific Area and South America.

The Asia-Pacific Area was impacted by performance in Australia, where demand for electricity continued to fall.
The operating environment deteriorated in South America due to a slowdown in infrastructure markets in Brazil and Chile and heightened competition in Peru.
In Europe, sales remained stable albeit at a weak level, as growth in the second half offset the sales decrease experienced in the first six months of the year.
In North America business volumes increased against a backdrop of strong price pressure.
Lastly, despite worsening geopolitical conditions in Lebanon, other countries in the Middle East, and Russia, sales in the MERA Area (Middle East, Russia and Africa) held firm thanks to a positive trend in Morocco.

Sales to telecom operators were down 5% on 2013. Momentum was good in all geographic areas (particularly South America and Scandinavia), apart from France where the business is being reorganized.

Land high-voltage cables

Sales generated by the land high-voltage business retreated by around 5% year on year, despite deliveries taking place in the fourth quarter for the land-based part of the Malta-Sicily contract. Against this backdrop, the Group continued its announced restructuring measures in Europe, slightly ahead of the initial schedule.

Nexans' expansion drive outside Europe continued during the year, with the approval of China-based plant Yanggu's production by an Australian customer, and the new Charleston plant in the United States, which received the necessary approvals from its key North American customers allowing it to tender for bids and take its first orders.

Submarine high-voltage cables

Sales of submarine high-voltage cables rose 9% year on year on an organic basis.

2014 saw a number of deliveries of umbilical cables under contracts signed with BP and Statoil. Momentum was also brisk in the interconnection business, with the manufacture of the Monita cable (linking Italy and Montenegro) and Skagerrak 4 (Denmark-Norway link), as well as cables for the power links between Mallorca and Ibiza and Malta and Sicily.

Operating margin for the submarine high-voltage business climbed sharply, in line with the Group's targets for 2014.

The order book represented around 1.5 billion euros at December 31, 2014, including the NordLink contract win on February 12, 2015 for approximately 0.5 billion euros.

Operating margin for the Transmission, Distribution & Operators division as a whole amounted to 98 million euros, or 5.0% of sales at constant metal prices, up 40% on 2013. This year-on-year increase was mainly due to the contribution of the submarine high-voltage business returning to its customary level.

Industry

Sales for the Industry division came to 1,213 million euros, up 2.9% on an organic basis versus 2013.

The increase was fueled by sales of automotive harnesses which rose by more than 13% year on year thanks to robust order levels both in Europe and North America. In addition, sales in China began in the second half.

The rest of the transport sector delivered a good showing for the year. Sales of cables to the aeronautics industry fared well in Europe, buoyed by the framework agreement renewed with Airbus in early 2014. The railway sector was also very dynamic, led by the relaunch of high-speed rail projects in China, strong demand for rolling stock, and network expansion in Europe.

The Oil & Gas sector held firm in 2014 thanks to vigorous activity in Korea, the Onshore Rigs business in the United States and contracts for oil platforms in Brazil. The announcement by oil companies of reductions in their capital expenditure following the slump in oil prices in the fourth quarter did not impact the sector's business in 2014 but could have a significant adverse effect on sales in 2015.
Sales in the mining sector declined, due to lower capital spending by mining companies as they felt the impact of the sharp decrease in iron, copper and coal prices.
The wind power sector was boosted by demand in the French market and reported significant overall growth which partly offset a sales contraction in the solar power sector in the United States.

The robotics sector reported growth during the year but sales of cables for other industrial applications were down, notably due to the repositioning of the Industry division's product portfolio in Europe.
The reorganization of the Industry division in Europe continued throughout the course of 2014, with the closure of the three sites for which the process was started in 2013.

Operating margin for the Industry division as a whole totaled 50 million euros, or 4.1% of sales, up on the 3.4% recorded for 2013. This improvement was attributable to the initial positive effects of the reorganization process currently under way in Europe, as well as the measures begun in 2013 to refocus the division's portfolio on sectors with higher added value.

Distributors & Installers

The Distributors & Installers division posted sales of 1,120 million euros, down 0.5% year on year.

This slight decrease reflects mixed performances across the division:

• Sales of LAN cables climbed steeply, propelled by synergies resulting from the partnership with the electrical wire manufacturer Leviton in North America and a robust showing in Asia.
• Sales of energy cables rose in the MERA Area (thanks to Morocco and Turkey), and remained stable in North America and the Asia-Pacific Area, where Australia felt the positive effect of brisk momentum in the residential construction sector. However, the operating environment worsened in South America as well as in Europe, albeit to a lesser degree.

Operating margin for the Distributors & Installers division amounted to 26 million euros, or 2.3% of sales, versus 3.2% in 2013. The decrease was mainly attributable to lower sales volumes and price pressure in South America and heightened competition in Europe.

Other Activities

The "Other Activities" segment - which essentially corresponds to external sales of copper wires - reported sales of 276 million euros for 2014, compared with 278 million euros in 2013

Operating margin came in at a negative 26 million euros, reflecting the combined impact of profit generated from sales of copper wires and certain centralized Group costs that are not allocated between the segments (such as holding company expenses). 

IV- Analysis of profit/(loss) and other income statement items

* Excluding the non-recurring impact of pensions, which had a 30 million euro positive effect on consolidated operating margin in 2013.

The Group ended 2014 with an operating loss of 35 million euros, compared with 182 million euros in 2013. The main year-on-year changes in income statement items were as follows:

The core exposure effect represented an expense of 4 million euros compared with 41 million euros in 2013. This reflects the fact that dollar-denominated copper prices fell sharply over the past two years but in 2014 this impact was offset by the depreciation of the euro against the dollar which limited the negative effect of core exposure in the consolidated income statement.

Restructuring costs came to 51 million euros in 2014 versus 180 million euros in 2013, corresponding primarily to restructuring plans in Belgium, France, Germany and the Asia-Pacific region.

Other operating income and expenses represented a net expense of 129 million euros versus a net 131 million euro expense in 2013.  The 2014 figure mainly breaks down as follows:

• 197 million euros in net asset impairment losses (versus 130 million euros in 2013);
• a 47 million euro net reversal of provisions for contingencies and anticompetitive behavior.

Nexans had to make a number of adjustments in 2014 - both from a financial perspective and in terms of its short/medium-term local strategic approach - in order to reflect the impact of market conditions during the year in some of its operating countries. Consequently, the carrying amount of certain assets was adjusted in the consolidated statement of financial position, which resulted in the recognition of an impairment loss, primarily breaking down as follows:

• Australia: 66 million euros. The residual value of goodwill is 52 million euros. 
• Brazil: 40 million euros. The residual value of goodwill is 30 million euros.
• Nexans AmerCable: 80 million euros. The residual value of goodwill is 59 million euros.

In addition the Group recognized an 11 million euro impairment loss for its operations in Russia.

In June 2011, the Group set aside a 200 million euro provision to cover the risks of a fine being imposed by the European Commission for anticompetitive behavior. Following the final notification and payment of the fine, which amounted to 70.6 million euros, just under 130 million euros of the original provision were reversed to the income statement. The Group has booked a provision for 80 million euros for the direct and indirect consequences of the decision and of the other on-going proceedings in the same sector of activity. Consequently, the overall net income of 47 million euros recognized in 2014 in relation to antitrust investigations primarily corresponded to these changes in provisions.

The Group recorded a net financial expense of 103 million euros in 2014, (compared with 109 million euros in 2013). Cost of net debt totaled 77 million euros in 2014, against 90 million euros the previous year. The year-on-year decrease reflects non-recurring financial income of 9 million euros recorded because the investor put option related to the OCEANE 2016 bonds was not exercised.

Although the Group reported a loss of 138 million euros before tax it recorded an income tax expense of 32 million euros in 2014 (versus 39 million euros in 2013).

The Group ended 2014 with a net attributable loss of 168 million euros (compared with a 333 million euro net loss in 2013).
In light of the above, the Board will not propose the payment of a dividend in respect of 2014 to the Annual Shareholders' Meeting.

Consolidated net debt amounted to 460 million euros at December 31, 2014 against 337 million euros one year earlier. The 123 million euro increase mainly reflects the following:

• the payment of the fine imposed by the European Commission (71 million euro negative impact)
• restructuring costs (77 million euro negative impact)
• an improvement in working capital (78 million euro positive impact)

Capital expenditure, net of disposals, totaled 141 million euros versus 189 million euros in 2013.

V- Outlook for 2015 and beyond

In the current context of a still highly-fragmented market, acute competition and customers moving towards larger and integrated structures, competitiveness will be a determining factor for the Group going forward.

All of our measures aimed at transforming the Group will continue to be rolled out and implemented in 2015, with the key priority of improving operating performance. This is intended to enable the Group to deal with the short-term context and create value over the long term. The strategic goals for all of the Group's divisions comprise the following objectives:

• Regaining our competitiveness through three key actions:

- turn around struggling businesses by making more use of regions where production costs are lower

- a drastic reduction in fixed and variable costs, including the launch of studies of projects having as their goals an overall savings in fixed costs of 100 million euros in the medium term

- continue to optimize working capital

• Strengthening the Group's leadership in the four key markets in which we are currently nurturing our competitive strengths, by expanding and enhancing our product and service offerings so that we can go beyond just supplying cables, notably through our innovation and R&D capabilities:

- energy transmission and distribution

- the development of fossil and renewable energies and mining

- transport

- building

• Pro-actively managing our portfolio by favoring targeted investments to accelerate growth in very profitable and high-potential businesses and implementing a strategy of transforming or selling lower-performing businesses.

Underpinned by its corporate culture transformation, the implementation of these strategic goals represents potential average annual cost savings or improvements amounting to 125 million euros for the Group, and should more than offset the impact of price erosion and cost inflation.

Arnaud Poupart-Lafarge, Nexans' Chief Executive Officer, said:
"The challenge for 2015 will be to relentlessly pursue and intensify the implementation of our strategic plan in order to speed up the Group's recovery and lay the foundations for sustainable growth in the cable market which has favorable long-term prospects."

Financial calendar

April 28, 2015 2015 First-Quarter Financial Information
May 5, 2015:               Annual Shareholders' Meeting
July 29, 2015:              2015 First-Half Results

Readers are also invited to log on to the Group's website :
http://www.nexans.com/eservice/DirectToPublication.nx?publicationId=-34241&CZ=Corporate&language=en&obsOrigin=BOOKMARKwhere they can view and download the presentation of the annual results to analysts and the 2014 financial statements.
This press release contains forward-looking statements which are subject to various risks and uncertainties that could affect the Company's future performance. Actual results could therefore differ significantly from those currently expected or anticipated.
Readers are also invited to log onto the Group's website where they can view and download the presentation of the annual results to analysts and the 2014 financial statements and Management Report, which include a description of the Group's risk factors. These risk factors notably include the risks related to investigations launched in 2009 on anticompetitive behavior in the submarine and underground high-voltage cables sector in various countries. These investigations resulted in fines being imposed on the main cable industry players in Europe and Asia by the European Commission in its decision of April 2, 2014, and an 80 million euro provision in the Group's consolidated financial statements to cover the direct and indirect consequences of the European Commission's decision and other proceedings in progress in the same sector.
In addition to these risk factors, the main uncertainties for 2015 concern the following:

1. The economic environment in Europe, which remains uncertain despite the current low interest rates and oil prices.
2. Demand from utilities companies in a context of squeezed government budgets (particularly in Europe and Australia).
3. Sharp currency volatility, especially in emerging markets, and the impact of this volatility on liquidity not only in emerging markets (particularly South America, Africa, China and Russia) but also in more mature markets (notably Switzerland and Canada).
4. Sharp volatility in commodities prices, which could affect margins in the Group businesses that use them.
5. The oil price, which could lead to an additional fall in investment by Oil & Gas companies beyond those already announced for 2015.
6. Further deterioration in the geopolitical situation in certain Middle-Eastern countries and in Russia.
7. Operating difficulties related to potential water and electricity supply shortages, especially in Brazil.

About Nexans
Nexans brings energy to life through an extensive range of cables and cabling solutions that deliver increased performance for our customers worldwide. Nexans' teams are committed to a partnership approach that supports customers in four main business areas: Power transmission and distribution (submarine and land), Energy resources (Oil & Gas, Mining and Renewables), Transportation (Road, Rail, Air, Sea) and Building (Commercial, Residential and Data Centers). Nexans' strategy is founded on continuous innovation in products, solutions and services, employee development, customer training and the introduction of safe, low-environmental-impact industrial processes.
In 2013, Nexans became the first cable player to create a Foundation to introduce sustained initiatives for access to energy for disadvantaged communities worldwide.
We have an industrial presence in 40 countries and commercial activities worldwide, employing close to 26,000 people and generating sales in 2014 of 6.4 billion euros.
Nexans is listed on NYSE Euronext Paris, compartment A.
For more information, please consult: www.nexans.com:
http://www.nexans.com

Additional information:

Appendices

1. Consolidated income statement
2. Consolidated statement of comprehensive income
3. Consolidated statement of financial position
4. Consolidated statement of cash flows
5. Information by reportable segment
6. Information by major geographical area
7. Information by major customer

Audit procedures on the consolidated financial statements have been carried out. The Statutory Auditors' report will be issued following their review of the management report

Consolidated income statement

Consolidated statement of comprehensive income

 Consolidated statement of financial position

* At December 31, 2013, assets and groups of assets held for sale and the related liabilities correspond to the net assets of International Cable Company (Egypt) and Nexans Indelqui (Argentina), for which disposal processes had been initiated at that date. International Cable Company was sold in 2014. Since June 2014, Nexans Indelqui has ceased to be classified within assets and groups of assets held for sale as the qualifying criteria are no longer fulfilled.

Consolidated statement of cash flows

Information by reportable segment

Information by major geographic area

*     Based on the location of the assets of the Group's subsidiaries.
** Including Corporate activities.
*** Countries that do not individually account for more than 10% of the Group's net sales at constant metal prices.

*     Based on the location of the assets of the Group's subsidiaries.
** Including Corporate activities.
*** Countries that do not individually account for more than 10% of the Group's net sales at constant metal prices.

Information by major customer

The Group does not have any customers that individually accounted for over 10% of its sales in 2014 or 2013.