PRYSMIAN SPA
Rating Action and Rationale
- EthiFinance Ratings affirms the long-term rating of Prysmian S.P.A. (Prysmian) at BBB, changing its outlook from Positive to Stable. This outlook change is a consequence of the capping mechanism, in line with our methodology, which caps the final rating at BBB due to an assessment of the business risk profile at BB+.
- This rating is mainly supported by (i) Prysmian’s large scale (#1 global market position) in the fragmented cables manufacturing market; (ii) a good geographical diversification, with a material operating presence across two continents (Europe and North America) and some presence in Latam and Apac; (iii) the strong growth drivers for cables supported by secular trends related to energy transition, electrification and digitalization; and (iv) a solid financial profile, with the group managing to considerably improve its EthiFinance Ratings-adjusted net leverage ratio, which we forecast at 1.3x at end-2023 (compared to 1.6x at YE22, 2.8x at YE21 and 3.5x at YE20) and to remain around this level over our forecast period (2024-2025e).
- However, the rating is slightly constrained by i) the tough competition and less buoyant demand in low value-added cyclical activities, such as Trade & Installers and Power Distribution incorporated in the Energy & Infrastructure business (representing 50.1% of Prysmian’s EBITDA in the last-twelve months to end-September 2023); and ii) execution risks on large high-voltage projects, as shown with several technical issues encountered a few years ago on the Western Link project. We also note that, in line with our methodology, Prysmian’s final rating is capped at BBB due to an assessment of the Business Risk Profile at BB+.
- In line with our methodology, the capital goods industry has medium-to-high ESG risks (sector heatmap score between 3.5 and 4), slightly constraining our industry assessment. Heavy industries have a high impact on climate as they are highly energy-intensive in the production process and generate high levels of GHG on all scope measures. In addition to GHG emissions, the impact on pollution is also linked to the production process, which generates high levels of waste while recycling remains limited. The capital goods sector has also a significant impact on resources, using a significant amount of raw materials. However, impact on biodiversity is medium as it can vary depending on the land use and the production process. Regarding suppliers, raw materials are increasingly problematic given geopolitical uncertainties and the sector is also affected by human rights issues.
- Our assessment of the company’s ESG policy is advanced (company ESG score of between 0 and 1), positively impacting our financial assessment, and more than offsetting the effect of our industry assessment. The company’s favorable ESG score stems from: (i) an excellent governance assessment, particularly benefiting from a very good level of board independence and the separation of the roles of chairman and CEO; and (ii) its efforts in reducing scope 1 & 2 GHG emissions (-24% in 2022 compared to 2019), water usage and waste production. Nonetheless, the social score remains low, negatively affected by the year-on-year increase in the employee turnover rate as well as the unfavorable three-year trend regarding the injury frequency rate. It is important to note that Prysmian has been the subject of multiple price cartel accusations, and has been fined €104m by the authorities since 2014. In January 2022, the German Federal Cartel Office (FCO) carried out inspections at some of Prysmian’s facilities due to “alleged coordination in setting the standard metal surcharges applied by the industry in Germany”, to which the company indicated that it was co-operating. At YE22, it had €179m of provisions for antitrust investigations, and related matters. These controversies have not impacted the rating yet.
Issuer Description
Headquartered in Italy, Prysmian Group is the world’s #1 cable and systems company. With a c. 31k workforce and 108 plants worldwide, the group designs, produces, and installs cables for the energy and telecom industries. Prysmian has a global presence and conducts business with many high-profile customers, from national power operators to telecom companies. The group operates through three divisions: 1) Projects (16.0% of revenues and 18.5% EBITDA in the twelve months to end-September 2023), including high-tech and high-value-added businesses, that service large projects such as offshore wind farms and interconnectors; 2) Energy Products (73.5% of revenues and 68.6% EBITDA), which manufactures cables for power connection, distribution, and industrial uses; and 3) Telecom (10.5% of revenues and 12.9% EBITDA), producing cable systems and connectivity products for telecom operators transmitting sound and data. Prysmian has been listed on the Milan Stock Exchange since 2007, with a free float equal to 100% of outstanding shares, and a market cap of €11.3bn (at market close on 31 January 2024).
For 2022, Prysmian generated revenues of €16.1bn (+26.2% yoy), with adj. EBITDA of €1.4bn (8.9% margin vs 7.3% in FY21), and an EthiFinance Ratings-adjusted net leverage ratio of 1.6x at YE22. For the twelve months to end-September 2023, the group reported revenues of €15.8bn, and an adjusted EBITDA of €1.5bn (9.8% margin).
Main Financial Figures
Credit Rating
Rating Sensitivity
- Long-term rating positive factors (↑)
Prysmian’s rating already incorporates what we consider to be a strong financial profile. This, we view an upgrade based on this criterion as unlikely as the improvement of the financial risk profile would have to be quite significant to overcome the rating cap. Consequently, a rating upgrade would most likely be entailed by an improvement in Prysmian’s competitive positioning. For the same financial risk profile, a slight improvement of its business risk profile to BBB- would result in the final rating no longer being capped at BBB and therefore a long-term rating upgrade to BBB+.
- Long-term rating negative factors (↓)
A rating downgrade could result from a sustained deterioration in Prysmian’s financial profile. This could be a consequence of a more aggressive financial policy, particularly in the event of a transformative debt-funded acquisition. For the same business risk profile, an increase in the group’s EthiFinance Ratings-adjusted net leverage ratio to above 2.5x, for a sustained period of time, could lead to a long-term rating downgrade to BBB-.
Sources of information
The credit rating issued in this report is unsolicited. The credit rating is based exclusively on public information, being the main sources the following:
- Annual Audit Report.
- Corporate Governance Report.
- Corporate Website.
- Information published in the Official Bulletins.
The information was thoroughly reviewed to ensure that it is valid and consistent, and is considered satisfactory. Nevertheless, EthiFinance Ratings assumes no responsibility for the accuracy of the information and the conclusions drawn from it.
Level of the rated entity participation in the rating process
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