Company presentation Oct, 2015
Safe Harbor Forward-looking information in this presentation are based on risks and uncertainties, known and unknown to date, which may have an impact on the future performance of the Company, which may materially differ. Readers are also invited to log on to the Group's website where they can view and download the press release of the annual results 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 anti-competitive behavior in the submarine and underground high-voltage cables sector in various countries. To date, 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. The Group recorded an 80 million euros provision to cover the direct and indirect consequences of the decision of the European Commission and of the procedures underway in other countries relating to the same industry segment. In addition to the risk factors, the main uncertainties for 2015 concern: the economic environment in Europe where the outlook remains uncertain despite low interest rates and low oil prices; the demand from electrical utilities in budget constrained environment of States (Europe, Australia); the strong currency volatility, especially in emerging countries (and their impact on liquidity particularly in some of these countries: South America, Africa, China and Russia) but also in mature markets (Switzerland, Canada); the high volatility of raw material prices that can affect sales and margins in the Group businesses related to the raw materials industry segment; the price of oil, which could lead to a further decline in investment of sector actors, beyond the cuts already announced for 2015; the marked worsening of the geopolitical situation in some countries in the Middle East and Russia; operating difficulties related to potential disruptions in supplies of water and electricity, especially in Brazil. 2
1. Company overview 3
Nexans: a global cable maker 4 South America 8% Asia Pac 13% MERA 6% Europe 43% 26,000 people 40 countries 91 plants North America 14% High Voltage 16% 6.4bn sales in 2014 Building (D&I) Construction LAN Energy infrastructures (TD&O) Power distribution & Operators Specialty cables (Industry) Transmission Resources Transports Other
Nexans is a solution provider for a more efficient & sustainable future Market size (*) 5 37bn Power and data infrastructures Higher voltage & deeper submarine installations Aluminum solutions Smart grids 5.5bn Fossil & renewable resources Safer & more reliable cables resisting to harsher conditions of exploration/extraction 7.5bn Transport Aluminum solutions for lighter cables Lead free cables Hybrid cables for signaling Anti-theft solutions 21bn Building Fire resistant cables Energy efficiency programs Data cables: higher bandwidth (*) Nexans estimates
Vision of Nexans 6 Given market evolution, the company confirms its focus on 4 sectors: Power and data infrastructures Power transmission Power/data distribution Accessories % of sales at constant metal prices in 2014 40% Fossil & renewable resources Mining O&G Renewables Power plants 10% Transport Aerospace Railways, city rail Automotive Shipbuilding 14% Building Residential Commercial Data 24%
Biggest ever contract for Nexans 7 NordLink HVDC interconnector between Norway and Germany will use Nexans subsea power cables
Among commercial successes 8 A depth record setting for Chevron Safest airplanes for Airbus Deepest umbilical cables installed in Gulf of Mexico for Chevron-operated Jack and St. Malo oil and gas fields Airbus selects Nexans as main cable supplier for the next five years Biggest cruise ship ever for STX Connections of around 150 wind turbine generators installed in major wind farms for Suzlon in Brazil Nexans cables to enhance fire safety for world s largest cruise ship - STX
Fragmented landscape 9 9000 8000 7000 6000 5000 4000 3000 Top 27 companies accounted for 40% of Telecom Power LV global production in 2013 Top 5 21% Top 10 28% Top 27 40% 2000 1000 0 Source = Company published literature excluding Winding Wire
Market drivers are favorable for the long term 10 Expectations for 2030 Population growth +20% Urbanization +40% Energy x2 Transport x2 +50% +40% +60% Electricity consumption Energy consumption Energy from renewables Automotive Air passengers Sources: EIA, OECD, United Nation, IHS Automotive 2014 2030
But short term perspectives are challenging 11 Over the next 12 months: Currency and copper volatility create disruptions Spending from Power Utilities still low O&G and mining depressed Restructuring to weigh on cash flow generation Offset the increasing price/cost squeeze
2. Group Strategy 12
13 On the way to 2017: Nexans in motion Key challenges and opportunities: 2/3 of the growth to come from developing countries Europe to remain flat except niches US to show slow recovery Redesign the strategy: Strengthen market leadership Selective organic growth & CAPEX allocation Go beyond excellence in cables Regain competitiveness Fixed cost reduction Variable cost reduction Manage portfolio Optimization of capital employed Active drive of portfolio
Regain competitiveness 14 Continue fixed cost reduction Complete reorganization launched in 2013 on Land High Voltage, Industry and Support functions in Europe Study new projects in order to deliver 100M additional savings by 2017 Continue variable cost reduction Further roll out the industrial efficiency methodology: Process standardization Product redesign-to-cost Purchasing functions Offset price erosion and cost inflation Improve overall operating margin
Strengthen market leadership 15 Grow on specific businesses Highly performing businesses: submarine HV, automotive harnesses, HV accessories Promising businesses: industrial segments in Europe, China Prioritize and differentiate CAPEX allocation Outperforming businesses ROCE>15% Underperforming businesses ROCE between 5 and 15% Underperforming businesses ROCE<5% BOOST Accelerate CAPEX TRANSFORM Significantly reduce CAPEX SOLVE Redefine supply chain Leverage on low cost countries Develop commercial offers beyond cables (potential upside by 2017) Cover the full cable making process Electrical design Cable Distribution Assembly/ installation Operations Go beyond cable Services Aftermarket Accessories
Adapt portfolio to secure ROCE 16 Shift the Group s center of gravity towards the most profitable or promising businesses 1/3 capital employed generating limited return 1/3 capital employed generating return in line with Group s average 1/3 capital employed accretive to margin Active drive of portfolio Businesses current situation Promising improvement (from market and/or strategic initiatives) Deterioration or absence of perspectives BOOST TURNAROUND DISCONTINUE As needed, divest capital employed
3. Financial results HY15 17
18 Activity overview H1 15 Q2 Organic growth: -0.8% Operating Margin in M : +23% Sales at constant metal prices in M 3.2% 2,304 2,383-3.2% 4.0% 1,197 1,211 3.4% +1.8% 148 77 95 Q1 1,107 1,172 H1 14 H1 15 FY 14 H1 14 H1 15 Net Debt in M : -13% 607 460 531 Jun. 14 Dec. 14 Jun. 15
19 Profitability improves on the back of flat organic growth Organic Growth* +0.6% +4.7% +1.0% +1.1% +2.5% H1 15 +3.2% H1 14 H1 15 H1 14 H1 15 H1 14-4.8% H1 14 H1 15-0.8% *Sales organic growth year on year 4.0% Operating Margin* 3.4% 34 4.8% 48 5.4% 54 3.4% 3.9% 21 24 5.1% 33 4.1% 24 2.5% 14 3.8% 22 3.2% 3.4% 75 77 H1 13 H1 14 H1 15 H1 13 H1 14 H1 15 H1 13 H1 14 H1 15 H1 13 H1 14 H1 15 95 TD&O Industry D&I Total Group *Percentage of sales at constant metal prices
20 Distributors & Installers: Margin recovery driven by strategic initiatives and LAN performance despite volume decrease Sales (constant metal prices): 577M Yoy organic growth: -4.8% Operating margin: 22M OM on sales: 3.8% H1 14-0.2% +4.5% H1 14 H1 15 Building +5.2% LAN H1 15 2.5% 2.2% 3.8% FX -7.3% Building: decrease of demand in particular in some large contributing countries (France, Brazil, Australia, US & Canada) Turkey and Scandinavia performing well LAN: strong performance in Europe and in China H1'14 H2'14 H1'15 Positive operating levers: LAN & Cabling Systems strong performance including margin improvement Portfolio selectivity
21 Industry: Solid increase in operating margin on the back of moderate organic growth Sales (constant metal prices): 647M Yoy organic growth: +2.5% Operating margin: 33M OM on sales: 5.1% Yoy organic growth by sector: Resources +17% Others 3.9% 4.3% 5.1% +5% +6% H1 15 H1 14 H1 15 H1 14 H1 14 H1 15 Transports -11% -6% H1 14 H2 14 H1 15 (+) (-) -22% Automotive harnesses driving the growth, helped by shipbuilding and railways where tendering and delivering activity is thriving. Resources dragged down by O&G and mining, due to oil price drop since H2 14 and no restart of investment in mining sector. Booming wind activity in France and Brazil. Other diverse applications focused on some selected markets. Breakthrough in margin due to: Automotive harnesses performance Acceleration of fixed cost reduction Portfolio management Despite negative pressure in O&G and mining
22 Utilities & Operators: Improvement in EMEA in second quarter, while market remains very challenging elsewhere Yoy sales evolution in M and yoy organic growth +1% Operating margin evolution 611 Scope & FX Utilities EMEA -11% Utilities Other areas Operators -3% 603-4.2% Utilities Operators FX H1 14 H1 15 H1 14 H1 15 Utilities: Stabilization of sales at a low level in Europe and improved performance in MERA: France still decreasing but at a lower pace Signs of improvement in Belgium and Italy Dynamic export activity in Africa & Central Asia Operators: Slowdown in Europe due to sector reorganization Strong performance in South America Americas: tough environment (OHL in Brazil; Canada) APAC: weak market in Australia and China
23 Transmission: Dynamic tender activity in contrasted markets - Backlog above 2 bn Submarine high voltage: After a dynamic 2014 in umbilicals, 2015 is about interconnections Yoy organic growth: +14.7% Large contracts under production/installation: Monita, Belle Isle Vos, Kintyre Very active and successful tender activity in interconnections: NordLink: +500M NSN Link: +340M Inner Oslofjord: +50M (total contract, including Land part) Backlog: >2 years of sales Land high voltage: Backlog increase Yoy organic growth: -5.7% Sales slowdown in Q2 after a strong Q1 (renewal of Belgium State grid) Commercial successes in 2015: Europe: Land parts of submarine contracts Belgium grid North America: Blanket agreement in Canada Grand Bend project Backlog: 1 year of sales
24 Strategic initiatives progressing according to plan Operating margin evolution (M ) +56 (41) 77 +3 FX Strategic initiatives Price / Cost squeeze Op. Reserves Price/cost squeeze 95 H1 14 H1 15 Cost reduction Market leadership In H1 15, benefits from strategic initiatives have more than offset the price/cost squeeze effect Contributions from Fixed cost reduction and Market leadership are ahead of target
25 Zoom on fixed cost reduction Return on current restructuring plans delivered as expected Since 2015: - Europe project under negotiation - Other plans well under way 100M 35M Achieved Left to do Other plans including APAC Industry: Closure of Lyon (France) plant completed Closure of Trezzano (Italy) plant completed Land High Voltage: Closure of Cossonay plant completed Expected payback Europe Other plans and OPEX ~3 years >2 years Left to do Achieved Support functions: Europe Italy, France, HQ, Germany, Switzerland
26 Current status on other strategic initiatives Variable cost reduction Purchase optimization: +10M Industrial efficiency: -11M Market Leadership Growing businesses: (Automotive harnesses, submarine high voltage) +24M Mix improvement Europe: +3M Other: -4M
Key figures In M H1 14 H1 15 27 Sales At current metal prices Sales At constant metal prices 3,216 3,271 2,304 2,383 EBITDA (1) 147 167 Operating margin 77 95 Operating margin rate at constant metal prices 3.4% 4.0% Operating margin rate at current metal prices 2.4% 2.9% Restructuring (16) (98) Net income (Group share) 25 (58) Operational Cash Flow 66 79 Net debt 607 531 (1) Operating margin before depreciation
Income statement (1/3) 28 In M H1 14 H1 15 Sales At constant metal prices 2,304 2,383 Margin on variable costs 701 30.4% 732 30.7% Indirect costs (554) (565) EBITDA (1) 147 6.4% 167 7.0% Depreciation (70) (72) Operating margin 77 3.4% 95 4.0% Core exposure impact (17) (1) Restructuring (16) (98) Other operational income (expenses) (2) 45 (3) 0 Share in net income of associates 2 0 Operating income 91 (4) (1) Operating margin before depreciation (2) Including Impairment charges, change in fair value of metal derivatives, capital gain (loss) on asset divestiture, provision for antitrust investigations (3) Of which 48M of result related to the antitrust investigation
EBITDA evolution (in M ) 29
Income statement (2/3) 30 In M H1 14 H1 15 Sales At constant metal prices 2,304 2,383 Margin on variable costs 701 30.4% 732 30.7% Indirect costs (554) (565) EBITDA (1) 147 6.4% 167 7.0% Depreciation (70) (72) Operating margin 77 3.4% 95 4.0% Core exposure impact (17) (1) Restructuring (16) (98) Other operational income (expenses) (2) 45 (3) 0 Share in net income of associates 2 0 Operating income 91 (4) (1) Operating margin before depreciation (2) Including Impairment charges, change in fair value of metal derivatives, capital gain (loss) on asset divestiture, provision for antitrust investigations (3) Of which 48M of result related to the antitrust investigation
Income statement (3/3) 31 In M H1 14 H1 15 Operating income 91 (4) Cost of debt (43) (38) Other financial charges (10) (7) Income before tax 38 (49) Income tax (14) (10) Net income from operations 24 (59) Net income Group share 25 (58)
Balance Sheet 32 In M Dec 31, 2014 Jun 30, 2015 Long-term fixed assets 1,737 1,762 of which goodwill 303 313 Deferred tax assets 153 175 Non-current assets 1,890 1,937 Working Capital 803 890 Total to finance 2,693 2,827 Net financial debt 460 531 Reserves 709 769 Deferred tax liabilities 91 84 Shareholders' equity and Minority interests 1,433 1,443 Total financing 2,693 2,827
Net debt evolution (in M ) 33
4. Overview & Conclusion 34
Q3 15: activity overview 35 Sales (at current metal prices): 1.520 m Organic growth: -0.3% vs 2014 Submarine HV Automotive harnesses LAN cables Satisfactory progress on strategic initiatives Brazil Australia Oil & Gas & Mining Volumes in Europe in building Sales at constant metal prices and organic growth by division: Distributors & Installers: 275M, -3.8% Industry: 304M, +1.8% Transmission, Distribution, Operators: 474M, +0.2% Other: 71M, +1.9%
Conclusion : On the way to 2017 36 Operating margin evolution, in M Fixed cost reduction Variable cost reduction Market leadership Price/cost squeeze highly volatile Uncertainty relies on environment in 2015/2017 2014 2017 Target values of initiatives 135 90 150