Nexans annual results 2006
2006 Results: Boosted by solid growth and rising profits, Nexans launches a new strategic plan for 2007-2009 and enters a new phase of its development
- Sales at constant metal prices (a)(b): 4.442 billion euros (+8.2% organic growth)
- Operating margin (c): 260 million euros (+40%)
- 2005-2007 strategic plan objectives reached one year in advance
- New 3-year strategic plan operating margin objective of 7.5% for 2009
- Withdrawal from the winding wires sector
Paris, France – The Nexans Board of Directors, which met on January 30, 2007, with Gérard Hauser as Chairman, has approved the accounts for 2006.
- Sales in 2006 totaled 7.489 billion euros compared with 5.449 billion euros in 2005. Sales calculated at constant non-ferrous metal prices (b) amounted to 4.442 billion euros compared with 4.263 billion euros in 2005, and reflect organic growth of 8.2%.
- Operating margin (c) reached 260 million euros, an increase of 40% compared with 2005. The operating margin rose from 4.4% to 5.8% at constant metal prices. Operating margin was 3.5% of sales at actual metal prices.
- As a result of a change in the method of recording the core exposure for metal inventory (see financial results presentation slides referred to at the end of this release) and taking into account 48 million euros in restructuring costs and the 149 million euro gain from the sale of distribution activities in Switzerland (Electro-Matériel SA), operating profit amounted to 363 million euros compared with 291 million euros in 2005.
- Financial income was -69 million euros compared with -36 million euros in 2005, due in particular to the rise in interest charges associated with the increase in the average level of debt and the rise in interest rates as well as the payment of a 6.4 million euro adjustment to the bearers of OCEANE 2004-2009 bonds in connection with their conversion.
- Tax costs amounted to 48 million euros compared with 36 million euros in 2005, mainly due to improved results of a number of subsidiaries. Tax costs were nonetheless reduced by the recognition of deferred tax assets and the partial exemption from taxation of the gain on the sale of Electro-Matériel in Switzerland.
- The Group share of net income was 241 million euros compared with 163 million euros in 2005 (after restatement to take into account the change in accounting method in 2006).
- Net financial debt increased by 261 million euros, reaching 633 million euros at December 31, 2006. This increase is linked to the rise in copper prices (+50% in 2006) and the acquisition of Olex. Nexans continued to maintain healthy financial ratios, with a 40% net debt/ shareholders’ equity ratio at December 31, 2006.
These results led the Board of Directors to propose the payment of a dividend of 1,20 euro per share, a 20 % increase compared to 2006 (1 euro), for decision by the General Shareholders’ Meeting.
Nexans has announced the signing of a deal with Superior Essex for the sale of its winding wires activities in Canada and in China for 32 million euros. These agreements relate to the Simcoe plant in Canada and Nexans’ 80% majority interest in Nexans Tianjin Magnet Wires and Cables company.
(a) Olex, consolidated from December 31, 2006, is included in the balance sheet but not included in either the sales figures or the results
(b) 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.
(c) A management indicator used by the Group to measure its operational performance
Continued concentration on cable businesses.
Success of the 2005-2007 strategic plan and launch of a new 3-year plan
The Group has achieved the objectives set in its 2005-2007 strategic plan a year earlier than predicted. In February 2005, Nexans was aiming for organic growth of approximately 4% a year and an operating margin of approximately 5% by 2007. At the end of 2006, the average annual growth rate of the business was 6.7% over the period 2005-2006, while the operating margin at constant metal prices reached 5.8% in 2006.
The Group had also committed to increasing sales in its priority sectors such as energy and transport infrastructures, automotive, automation or shipbuilding. Two years after this plan was launched, Nexans’ sales in its priority sectors showed an increase of 30% (at current consolidation scope) and an increase of more than 40% in sales outside Europe.
Boosted by this result, Nexans is pursuing its expansion, 2007-01-31 announcing a new 3-year strategic plan for 2007-2009 which aims to make Nexans a more profitable company, less sensitive to economic cycles and focused on a smaller number of business sectors with strong synergies between them. Following on from the existing strategy, Nexans will rely on three core business sectors: energy infrastructure, OEM and construction markets.
A new phase of its development
Commenting on the 2006 results, Nexans Chairman and CEO Gérard Hauser said: "Our results are highly satisfactory since we reached our 2005-2007 objectives a year ahead of time. Despite particularly high raw material prices in 2006, the company has achieved strong growth and rising profits. We have also stepped up our presence in the developing regions and pursued our development in high added value specialty products. On the basis of these results, we are today announcing the launch of a new strategic plan for 2007-2009, the main objective of which is to make Nexans a global player in the infrastructure, OEM and construction markets with energy cables as its engine for growth. After refocusing our conductor activities on our own requirements, this plan should enable us, by 2009, to achieve sales of 5 billion euros at constant metal prices, a 7.5% operating margin, a return on capital employed (at 2006 metal prices) approaching 13% and positive net cash flow.
For 2007, we are aiming for an increase in sales at constant metal prices of approximately 4% (taking into account the decision to reduce our exposure to the electrical wires sector), an improvement in our operating margin (the level of which is always difficult to determine at the beginning of the year), and a neutral cash flow > situation".
These objectives, set on the basis of sales calculated at constant metal prices, presuppose that the worldwide economic conditions observed in 2006, particularly in the emerging countries and in the oil industry, will continue unabated through the period of our new strategic plan.
Analysis of sales(*) and operating margin by business sector
(* Sales at constant metal prices and exchange rates)
- Energy: organic growth of 11%
Sales amounted to 2,983 million euros, an increase of 11.3% (at constant exchange rates and consolidation scope) compared with 2005.
Operating margin totaled 233 million euros compared with 171 million euros in 2005. This significant increase is mainly due to the recovery of OEM cables and to the highly favorable conditions that have benefited low voltage cables for construction markets.
Growth was particularly high (+7.1% at constant exchange rates and consolidation scope) in underground infrastructure cables in both Europe and the USA, underpinned by a number of national investment programs and large contracts.
In OEM cables, growth reached 9.4% at constant exchange rates and consolidation scope, thanks in particular to the buoyancy of the shipbuilding and off-shore oil platform markets. Nexans also experienced growth in cable harnesses for both the automotive (driven by the success of the high-end automotive industry in Germany) and rail industries.
Finally, in the cables for construction markets, Nexans recorded growth of 12.6% at constant exchange rates and consolidation scope. In Europe, demand for cables for buildings remained steady. In North America, profit margins were maintained despite the decline in volumes observed in the second half of the year.
- Telecom: operating margin doubled
Telecom sales increased by 1.7% (at constant exchange rates, metal prices, and consolidation scope) to 648 million euros.
In public network cables, there was a downturn in business compared with 2005 (-2.5% at constant exchange rates and consolidation scope). Profitability increased as a result of reorientation of the plants and sustained optical fiber cable activity.
In the private network cables (LAN) sector, Nexans recorded a 1.7% increase in sales at constant consolidation scope and exchange rates. The operating margin increased as a result of industrial restructuring and the development of Category 6 and 7 cables.
Overall, the operating margin for telecommunications cables rose from 25 million euros in 2005 to 48 million euros in 2006.
- Electrical Wires
Sales in Electrical Wires activities totaled 802 million euros in 2006 increasing by 3.1% from 777 million euros in 2005, at constant exchange rates, metal prices, and consolidation scope. There was a slowdown in the second half of the year due to the combined effect of falling demand and Nexans’ decision to gradually reduce its exposure to copper, giving priority to meeting its own requirements.
There was an operating loss of 4 million euros compared with a 6 million euro profit in 2005 taking into account an exceptional reserve.
- Europe: profitability boosted by energy businesses
Sales totaled 3,021 million euros, an increase of 8.5% compared with 2005 (at constant consolidation scope, exchange rates and metal prices). The operating margin rose from 108 million euros in 2005 to 140 million euros in 2006.
In a favorable economic climate, the continued development of higher added value products, coupled with industrial rationalization and cost reduction initiatives, has led to the significant recovery of the majority of businesses in the region.
- North America: increased operating margin
Sales totaled 813 million euros, a 4.7% increase from 777 million euros in 2005 at constant exchange rates, consolidation scope and metal prices.
The operating margin reached 64 million euros compared with 42 million euros in 2005. In this area, the Group has the advantages of a strong position in strategic markets and high returns on its activities for the construction sector.
- Asia Pacific: more than 33% profitable growth in China
Sales continued to increase in 2006, reaching 277 million euros, a 6.3% increase compared to 259 million euros in 2005 at constant consolidation scope, exchange rates and metal prices.
The operating margin for the region rose significantly compared with 2005 as a result of selective marketing, giving priority to quality and a policy of stable prices.
- Rest of the World: buoyant markets and industrial reorganization
Sales in the Rest of the World rose significantly to 331 million euros in 2006, a 16.9% increase from 283 million euros in 2005 at constant exchange rates, consolidation scope and metal prices.
This increase is evidence of the buoyancy of domestic markets, particularly in Turkey and Morocco, but also of the success of converting certain production sites to serve more dynamic market segments, such as instrumentation cables for the oil industry and automotive cables.
Appendices are available on the Nexans Web site at www.nexans.com
- 1. Consolidated income statement according to IFRS standards
- 2. Consolidated balance sheet according to IFRS standards
- 3. Consolidated statement of cash flows according to IFRS standards
- 4. Information by sector
A full set of slides for the presentation of the results, including the results by business sector, as well as a detailed presentation of the accounts are available on the Nexans Web site at www.nexans.com
With energy cables as its core, Nexans, the worldwide leader in the cable industry, offers an extensive range of cables (copper, aluminum and optical fiber) and cabling systems. The Group’s strategy is focused on infrastructure, industrial and construction markets. Nexans develops solutions for industry sectors such as shipbuilding, oil and gas, nuclear, automotive, electronics, aeronautics, handling and automation and includes an offering dedicated to public and private (local area) telecommunications networks.
With an industrial presence in more than 30 countries and commercial activities worldwide, Nexans employs 21,000 people and had sales in 2006 of 7.5 billion euros. Nexans is listed on the Paris stock exchange, compartment A of the Eurolist of Euronext. More information on www.nexans.com