April 27, 2011 / 6:48 AM / 9 years ago

UPDATE 2-Nexans keeps 2011 goals as quarterly sales rise

* Cable maker Q1 sales 1.129 bln euros, up 13 pct underlying

* Keeps 2011 targets, says profitability better in Q1

* Industry cables lead growth, Mideast activity drops

* Sees commodity costs rising, watchful on oil derivatives

(Adds more CFO quotes, details, share price)

By Gus Trompiz and Dominique Vidalon

PARIS, April 27 (Reuters) - French cablemaker Nexans (NEXS.PA) said robust volumes in its main businesses boosted sales and profitability in the first quarter, despite rising commodity costs and softer activity in the Middle East.

Nexans, which reiterated targets for full-year operating margin and sales on Wednesday, cited better profitability in the first quarter, including improved margins in industry cables and building.

The company, which lost the bid battle earlier this year for Dutch cablemaker Draka to Italian rival Prysmian (PRY.MI), also said it was still looking for acquisitions in the energy sector.

First-quarter sales came to 1.75 billion euros ($2.57 billion). At constant non-ferrous metal prices, sales reached 1.129 billion euros, corresponding to underlying growth of 13 percent at constant exchange rates and scope.

Nexans reiterated it expected underlying sales to rise more than 5 percent this year and its operating margin to rise to 5.5 percent of sales from 4.8 percent last year.

Chief financial officer Frederic Michelland said on a conference call that a recovery in activities like building would boost margins over the course of the year.

“There will be a ramp-up of the operating margin that will occur from one quarter to the next,” he said.

Quarterly sales were boosted by a favourable comparison base with last year when the company felt the effects of a global economic downturn, said Michelland, estimating the base effect accounted for about half of first-quarter growth.

Shares in Nexans were slightly higher in morning trade in Paris, in line with the Stoxx 600 Europe industrial goods index .SXNP, having climbed 5 percent on Tuesday on anticipation the group would post strong first-quarter sales. [ID:nLDE73P1KB]

The market consensus had called for 12.8 percent in underlying quarterly growth, according to a Paris-based analyst.

COMMODITY COSTS

The French group said quarterly sales benefited from strong demand for industry cables, including in the automotive and aeronautics sectors, and a pick-up in the building sector.

One weak spot was activity in the Middle East, where Nexans reported in its land high-voltage business a delay in the starting of contracts in Gulf countries and a halt to contract execution in Libya.

“At group level, political events in that area have weighed down organic growth by about 200 basis points,” Nexans said in its first-quarter statement.

The company, one of the world’s biggest private buyers of copper, said it expected raw material costs to continue to rise.

Higher copper prices coupled with strong sales growth led to a rise in net debt to 307 million euros at the end of March, versus 144 million on Dec. 31, although Michelland said this represented a seasonal effect.

Nexans generally passes on copper and aluminium costs in its contracts with clients, but is less able to do this for plastics. [ID:nLDE71D0MS]

High crude prices meant the cost of oil-derived products like plastics were a concern for the group, Michelland said. (Reporting by Dominique Vidalon, Gilles Guillaume and Gus Trompiz; Editing by Will Waterman)

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