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Message to Shareholders

Revenue growth, improved profitability and solidity of the financial structure have all characterised 2015, which has closed with better-than-expected results for our company. In a scenario showing signs of recovery but nonetheless dominated by uncertainty and strong competitive pressure, our ability to defend the more strategic, high value-added businesses has continued to be decisive.

The market for submarine cables and systems has rewarded our project execution capability, which has been further enhanced by investments in technological innovation, production capacity and in installation with the new cable-laying vessel "Cable Enterprise". In the Telecom business, our recovery of optical fibre competitiveness and ability to develop innovative technological solutions for broadband, have allowed us to grasp the opportunities in what has proved a solid market.

Our commitment to containing costs and reorganising manufacturing footprint has carried on like in previous years, taking the number of plants closed to 12 since initiating the integration process with Draka. Thanks to these actions, and careful financial management, the business has been able to rely on strong cash flows and achieve a considerably better net financial position than expected.

Business performance

Group sales amounted to Euro 7,361 million, posting organic growth of +5.3% assuming the same group structure and excluding metal price and exchange rate effects. Sales growth reflected our capability to execute the many important submarine cable projects in the order book. High voltage underground sales were stable, while SURF (Subsea Umbilicals Risers Flowlines) posted a positive performance, especially thanks to umbilical sales. Sales by the Energy Products segment benefited from a slight recovery by Trade & Installers and good performance by Power Distribution, while the Industrial cables business was penalised by the downturn in O&G and Automotive. Lastly, in the Telecom segment the Group benefited from the continued growth in demand for optical cables and improved competitiveness of its products.

Adjusted EBITDA (before net non-recurring expenses of Euro 1 million) reported a jump of +22.6% to Euro 623 million from Euro 509 million in 2014. Excluding the adverse impact of the Western Link project, Adjusted EBITDA would have been Euro 649 million, versus Euro 603 million in 2014. The improvement in profitability, particularly in the Energy Projects and Telecom segments, took place at a steady rate throughout the year.

Net financial position amounted to Euro 750 million at the end of December 2015 (compared with Euro 802 million at the end of 2014), marking a considerable improvement even on the initial forecasts, and would have been Euro 529 million excluding the impact of acquisitions. Cash generation from operating activities and a decrease in net working capital were among the main contributors to this result.

Industrial investments

Like in the previous year, the Group has continued to develop its growth strategy by focusing on investments in its high value-added businesses. Particular energy has been devoted not only to the process of concentrating high-tech product manufacturing in a small number of plants, with the goal of creating centres of excellence where economies of scale can be exploited, but also to the ongoing pursuit of greater manufacturing efficiency in the commodities area by maintaining a wide geographical presence to minimise distribution costs. Gross capital expenditure came to Euro 210 million in 2015, up from Euro 163 million the previous year. Among the highest impact projects were those to increase production capability at the submarine cable plants in Arco Felice (Italy) and Pikkala (Finland), to expand production at the High Voltage plant in Abbeville (USA), to regain competitiveness at the optical fibre plants in Battipaglia (Italy), Douvrin (France) and Sorocaba (Brazil), and in the optical cables area, the start of construction of a new facility in Durango (Mexico) and of work to expand the centre of excellence in Slatina (Romania).The Group has also invested in boosting its execution capability for large submarine projects, with the upgrade of the "Cable Enterprise" cable-laying ship and the purchase of a new cable-laying barge.

A total of Euro 73 million was invested in Research and Development during the year. One of the main results was the qualification of the new extruded 525 kV cable system for direct current applications (EHVDC) that will significantly increase maximum transmissible power for bipolar cable systems to over 2.6 GW. Also of note were the achievement of qualification for P-Laser 320 kV high-performance eco-friendly cable, product innovations for fire-resistant eco-friendly building wires, and new applications and qualifications in the fields of Oil&Gas, Nuclear and Renewables. The Telecom business reported the development of a new range of bend-resistant BendBrightXS optical fibres, and the enlargement of the product range for Flextube.

Acquisition-led growth

The year saw continued pursuit of externally driven growth, with two key strategic acquisitions. In the USA, the Group acquired Gulf Coast Downhole Technologies (GCDT), active in the design and supply of innovative downhole equipment for the Oil & Gas industry, while in Oman, it signed an agreement to increase its stake in Oman Cables Industry (SAOG) to approximately 51%, thereby gaining control and boosting its presence in the strategic Middle East region.

Human capital development

Numerous initiatives of note have taken place in the areas of human capital development and business organisation. The process of regionalising structures in Europe, aimed at improving commercial synergies and the supply chain in an increasingly integrated market context, has been taken forward with the creation of the two regions of Central East Europe and South Europe. In terms of promoting talent, the various programs for both employees and potential candidates have continued: about 700 employees passed through the doors of the Prysmian Group Academy over the course of the year, and the new Manufacturing Academy in Mudanya (Turkey) was inaugurated; the "Build The Future" graduate recruitment program, now in its fifth edition, has resulted in the intake of 40 new high-potential resources, while a new recruitment program targeting production engineers and technicians has been launched under the "Make It" banner. The YES employee share purchase plan has also continued, with the number of employee-shareholders climbing to 6,500, representing over 40% of those entitled.

Sustainability

The Group's activities in the area of Sustainability deserve a special mention, with a view to giving continuous attention to our stakeholders' expectations. The Group has continued to step up its commitment to Corporate Social Responsibility, in particular by analysing the impact of its activities in a more detailed fashion, by adopting additional KPIs and new policies, by improving disclosure and by implementing stakeholder engagement initiatives. Among the main achievements, I would like to mention its entry to the FTSE4Good global index, the 10-point improvement of position in the Dow Jones Sustainability Index, the certification by an accounting firm of the Sustainability Report prepared under the G4 guidelines of the Global Reporting Initiative, and participation in the Carbon Disclosure Project. Last but not least, reflecting the strategic importance we attach to this area, the Board of Directors has put the Compensation and Nominations Committee in charge of supervising issues concerning sustainability.

Value creation and shareholder remuneration

Financial year 2015 has therefore produced positive results for our shareholders, to whom we are able to confirm achievement of our profit targets and to propose a dividend in line with 2014.