Thank you for standing by, and welcome to the Prismian Group First Quarter 2021 Financial Results Conference Call. At this time, all participants are in listen only mode. There will be a presentation followed by question and answer session. I must advise you that your conference is being recorded today, Thursday, 13th May 2021. I would now like to hand over to your first speaker for today, Mr.
Valerio Batista, CEO. Please go ahead, sir.
Thank you very much, and good morning or good evening to everyone. Welcome to the Q1 2021 Financial Results of the Bismiyan Group. The year has started pretty well. We defined a solid start of the year with Very good observation for telecom and energy in construction and renewable, most of all. The telecom has surprised even us because the telecom has increased the sales by 11%, more than 11% organic growth.
Thanks to the demand with still pretty low prices, but consistent demand. We got the sole pillar that is still partly missing is the project. The project has been able to get the award of the Sofia project, Completed fully completed CREET Veloponnes interconnector. And today, we announced to the market to have hedged up with EBITDA for Meltera. So for the project, It is not so bad.
It's in line with our expectations, but it's not yet the level of activity that we expect to reach. And we expect to reach it mostly in the second half of the year. Financial numbers, Page 4. Sales reached €2,810,000,000 with an organic growth of +4.6 percent. The adjusted the rated adjusted EBITDA, EUR 213,000,000 with an EBITDA margin of 7.6%, basically stable On the same level of the Q1 last year, free cash flow, Very good, euros 553,000,000 with an ad debt that increased a little bit because of seasonality to 2.325.
So telecom grew 11.4%. That's a very good sign. It is a little bit overstated Compared to our expectations, whereas the Energy, generally speaking, both E and I and Industrial grew 3.5%. Not so bad too. The adjusted EBITDA has been driven by the volumes at the end, Reaching margins that were pre COVID level.
Obviously, we are seeing a significant increase of raw But and the transportation. But we have been able, thanks also to the Sound market to pass it to the market, to the customers. You have to consider that the results Yes. This is discounted by EUR 14,000,000 ForEx negative impact. All in all, a good first quarter.
Let's move to Page 5. Projects, the missing pillar for the time being of the business, of our Business. Organic growth, minus EUR 7.9 billion with EUR 29,000,000 first quarter versus previous year at 36%. We expect the German coal reserves to Starting to give the complete day contribution starting from July when we are going to start the production of the first of the 3 German corridors awarded to us. And in the meantime, the backlog that we have that is huge for the German corridors It's expected to increase the 4 gs offshore wind farms, too.
That's mostly in the second half. Energy. Energy is continuing to grow. Organic growth 3.5%, reaching more or less 3.4 percent in reality. This is more or less the same level of activity of 2019.
So a very good outcome, both for ENI and Industrial and Air Liquide. The organic growth in ENI and overhead has been partially compensated by a negative organic growth power distribution, more than negative A stabilized business level for PD, especially in North America, where due to the Very big jump we have seen in 2020 for the onshore wind farms Now is stabilized in term of this level of the business As expected, yes, we were expecting it. For the industrial, I have to say That we have been positively surprised by the growth, 3.5%, thanks mostly to renewable and Network Components as well as automotive and elevators. In the number of elevators, Let me remember that it's out of the organic growth. But in the numbers, obviously, EHC, considering the escalator business, We took over January is in the number now.
Telecom. Telecom, as usual, is very fast going up as well as it's very fast going down. We have seen a terrible debacle in second half 'nineteen, and we are seeing today a very sound rebound of the demand. The problem is that once in our almost commodity business, the prices have been settled at a lower level is very difficult We need much more time to recover. In the Q1, we have seen The demand very strong, but with the prices that RMB had settled last year at the end of this year.
We enjoyed a EUR 4,000,000 carryover from YOC from 2020 because as you know, YOC Close the accounts before us. And of course, that's it. Let's flip to Page 6. To Page 6, you can appreciate that the physical demand So the quantity of chemos, that is a very good indicator, that's my opinion, is growing. And it's growing well compared to 2020, of But even higher than 2019, and that's a very good sign, whereas telecoms, volume wise, is still Well below 2019, even if better than 2020.
If you look by geography, there are few remarks to be done. At the group level, it's clear, and I'm talking about energy only. At Group level, as I said, the business is growing More than 2020, but still below the level of 2020 sorry, More than 2020 with different trend because you see that APAC was very high In 2019, it was very low because of the pandemic in 2020 and now is in the middle. Overall, the energy business is recovering pretty well all over the world with different speeds. Let's go to the numbers, Page 8.
Sales, Q1 2021 at €1,400,000,000 definitely Higher than the Q1 2019 and the Q1 2020. We have to consider, by the way, that The capital and the metals, generally speaking, have been increasing the value of the sales. And that's the reason why the organic growth is high, but not so high. At the end, organically, the sales went back to the level of 2019 for ENI. For Components, we have seen a moderate reduction in 2020 compared to 2019, But the same good upside, 3.5 percent, the Q1 of 2021.
From the profitability point of view, EBITDA level, the Q1 of 2021 closes €75,000,000 compared to €68,000,000 the previous year and €69,000,000 in the Q1 of 2019, Whereas in the industrial network component, we closed it with €49,000,000 versus EUR 45,000,000 in the Q1 2020 EUR 41,000,000 in Q1 2019. I have to say that the industrial business has not collapsed last year, But has been able to recover more or less in line with the rest of Energy business, 3.5% organic growth this year. That underline a certain improvement of the business in the last months. Let's flip to the geographical situation. The geographical presence of our group is Pretty wide.
The sole difference that we see compared to the past Quarter, is that North America? The region that is not anymore able for the time being to run the show. And for the first time, we are seeing in North America An organic decline of 0.9%. That is minimal, but it's there. Europe is growing 3.9 percent.
Latin America and Asia Pacific, A very big percentage. But on the basis of limited numbers, you see Latin America, plus 28%, but starting from €172,000,000 and landing at 226,000,000. As a fact, obviously, last year was negligible because of the COVID, And this year has started to reach again a level of business that is definitely better, Significantly higher, 14%. But remember that 14% of 0 is 0, Meaning that our participation to the business in Asia Pac It's not differentiating the results of the group. Okay.
Very quickly, let's skip to Page 10 and The priorities. We have to keep protecting our profitability, especially because of the raw material cost increase, And we, one way or another, have to be able to pass to the market. Seems that the market, especially in certain markets, is Well available to discuss about the raw material cost increase. The telecom, We have to leverage the volume rebound and to be able to face with the growth of the demand, given with prices that are related to the crisis time. Overall, we confirm our outlook that we gave 8.70, 9.40 With a 9 that is more oriented to 9.40 than to the 8.70, Just to tell you the truth.
As usual, we are pretty prudent at the beginning. Once we see The business that is taking off, we have no problem at all, and we can confirm that we see The year end more in the range of, let me say, over 900,000,000 We have not yet increased the guidance for the simple reason that we wanted to wait the second quarter The free cash flow, 300 plus or minus 20 percent is seems to be the right I'll leave the floor quickly to Francesco Pacini for the details of the financial statement. Thank you.
Thank you, Valerio, and good evening to everybody. Let me start from the usual snapshot Our profit and loss statement on Page 12. Valerio explained organic growth reached 3%, including projects, which was negative organic growth and 4.6% ex project business. As explained already, the very good part is that the volume of the Energy business recovered significantly from last year, but even more importantly, are above the level of 2019. Let's keep in mind that 2019 was very partially The Q1, the COVID period because COVID affected the Q1 of 2020 only for the last part of the last few weeks of March.
And also the telecom volumes are closing the gap and getting closer and closer to the level of 2019. Adjusted EBITDA, EUR 213,000,000 plus EUR16,000,000 growth with a stable EBITDA margin at 7.6 percent considering the massive impact of the Copper price increase on revenues, which is in the region of almost €300,000,000 This actually means an improvement of EBITDA margin because, of course, the copper price is just inflating our top line And bringing not too much in terms of additional operating results. In terms of results of different business units, if you focus on the box on top right, You see that the Q1 EBITDA is overall affected by EUR 14,000,000 negative Currency translation effect, ForEx effect, which is particularly affecting the Energy and Telecom business. As Valerio anticipated, projects are slightly negative, minus €7,000,000 EBITDA versus prior year. I have to say totally in line with our expectations, and we expect a strong sequential improvement starting from the second half, Both in underground high voltage, of course, driven by the kick in of the German call it of execution, but also and even more, I would say, in terms of submarine energy results.
Energy and Telecom improved significantly, plus €13,000,000 plus €5,000,000 Again, I repeat that these plus €13,000,000 and plus €5,000,000 are negatively affected by the ForEx effect. So Clearly, the ForEx effect, the improvement would be even more material. And then we also Enjoy an improvement in our share net income for EUR 5,000,000, which is almost 100%, resulting from So called YOC carryover, meaning that YOC is closing the annual results in this 2020 annual results after the publication of our annual results. So the deviations, in this case, positive are taken The Q1. Adjustments are not very material, EUR 14,000,000 in line, by the way, With the previous year, also the non monetary special items are very neutral to our profit and loss EUR 2,000,000 where we have basically a compensation between the positive impact Of the fair value change of metal derivatives due to the rise of the copper price and on the cost side, a portion of Share based compensation.
You see a very low level of financial charges, only €13,000,000 versus €27,000,000 last year, whereas the net interest expenses are quite stable compared to the previous year, these Total amount of financial charges enjoys the positive impact related to the issuance of a non convertible bond because for the period Starting from January 1 until the formal approval of the capital increase of the AGM, we booked According to international accounting standards, we booked the option value at fair value. And this, of course, fluctuated for this limited period of time according to the share price And having the share price slightly dropped from the time we issued the bond, we enjoyed a positive impact on our profit and loss statement because this meant a decrease of the value of the conversion option. Tax rate is at 29%. That's, as usual, the best estimate that we have For tax rate of the full year and nice to report a group net income at EUR76 1,000,000 for 1 Which is more than driving compared to the previous year. I move to Page 13, Statement of financial position.
You see a very material drop of net financial debt from the equivalent period of 2020 from EUR 2,600,000,000 to EUR 2,300,000,000, so down by EUR 300 €1,000,000 And this is very evidently driven by the drop Of the operating net working capital that you see reported in the relevant year, down from almost €1,200,000,000 to €900,000,000 So down by almost €300,000,000 The main drivers of this drop of operating net working capital, which obviously boosted our free cash flow in the last 12 months, have been the project business because starting from a very high level relatively high level, say, working capital In Q1 2020, there was a very significant drop of working capital, specifically starting from the second, third quarter last year, So a very nice drop. But on top of this, I like also to mention improvements that we keep posting in terms of stock of days of inventory, for instance, and also days of receivable continuously improving the level of overview. On the negative side, the driver which Worse than our working capital level was definitely the metal price. This skyrocketed, as you well know. And just to give you an estimation, the impact on our working capital, the metal price increase between March 2020 March 2021 was in the region of €170,000,000 and of course, the metal price kept increasing So, Marques, so we think there is another €50,000,000 €60,000,000 to come in the second quarter.
Let me close with Page 14 summarizing the cash flow. Here, as usual, we report the bridge of our net financial debt between over the last 12 months. The free cash flow amounted to over the last 12 months, of course, amounted to EUR 4.41 €1,000,000 but this includes the €112,000,000 antitrust cash outs, most of them related To the penalties that we paid in mid of last year. So summing up this one off, let me say, of EUR112,000,000, We come to the free cash flow of EUR553,000,000 which was the one mentioned by Valery. Of course, as I was Same in last 12 months of free cash flow is enjoying the drop of the working capital, Very massive, EUR 255,000,000.
Going progressing over the year, We will lose most of this boost coming from drop our working capital, but we will gauge on other Drivers such as, of course, the cash flow from operations before working capital change driven by the growth of the EBITDA, The reduction of restructuring costs, which will decrease significantly on a last 12 month basis, Going progressing in this year, whereas we will certainly see a certain increase of the CapEx level to the well known level that we target of EUR 260,000,000 to EUR 270,000,000. And this will certainly let us land high up in the high part Of the guidance, so free cash flow guidance we provided of the well known EUR 300,000,000 plus half 20%. So Let's hopefully take out take the minus of the table. Let's focus on the EUR 300,000,000 plus and I hope As usual, we can deliver on the very high part of this range, also considering how the year started. I think I'm over with my presentation, and we can move with the Q and A session.
Thank We have the first question coming from the line of Max Yates from Credit Please ask your question.
Thank you. Good afternoon. Just my first question is on the telecom margins. And if I strip out the contribution for YofC, it still looks like the underlying Margins are holding up relatively well. So what I wanted to understand is, obviously, within your guidance, you're still Talking quite cautiously about the full year margins.
So is it because you see the negotiations with customers and you still expect Sort of prices on those contracts that are being rolled over to come down further? Or I'm just trying to understand sort of what was different in Q1 that will will get worse as per your guidance.
Well, Max, thank you for the question. It's clear that We have 2 different trends. On one side, we have a number of contracts that have to be renewed or under Negotiation that are probably going to decrease the margins. On the other side, the demand is very good And consequently, maybe that at least the volumes will be higher. That's the 2 opposite trends we see.
Overall, I believe that the margins we have seen in the Q1 are a little bit Overstated, but not very much.
Okay. Maybe just a quick follow-up on that. How much of your business, if we look on an annual basis, is driven by these contracts?
I leave the floor to Philippe Vanille that is much better
Hello, Max. I would say something like 20%. In these contracts, there is also A fact that is usually our customers do not really have a Completely clear view on the volumes that we'll need during the year and during the next years. So It's an estimate, what I'm giving you. It can be between 20 30.
The other element that is important That I would add to Valerio's answer is there is a mix of region effect as well. The business in North America is growing strongly globally. And in Europe, there is More uncertainty because as always, it's fragmented. And some countries grow, some others are in a decreasing mode. And the mix of these countries will make our profitability of the year.
So it's not an easy answer, But it's the best answer we can give today.
Okay. That's helpful. And maybe just a quick couple of follow ups on projects. So Valerio, I just wanted to understand on the Eurasia project. We obviously talked about that Last conference call.
Is there any update on, now that the tendering is underway, when would be a realistic Timing for the award to come through. Some of your peers, it feels like, are a bit more optimistic on that contract coming later this year. Is that a view you would agree with?
I'm reasonably optimistic in terms of projects coming. The timing is a different matter, but I believe that within this year should we see the tender awarded. Hakan, would you like to add some?
As you know, the Eurasia tender has been changed due to the voltage level And has been retendered and has been announced also by Eurasia that 2 participants have given, let's say, complete offers. And this is under the evaluation currently and is market knowledge. We are expecting that If there is no delay based on the current schedule, the decision and the evaluation is going to be finished During June, if there's going to be any delay, then it may go beyond June. But the current schedule Seems to be end of June.
And should we assume that if it's if the evaluation Finish by June, the contract awards would come shortly after or
As you know, in these projects, Usually, what is happening after the evaluation, the contract details are Hammered out. So after June, the terms and conditions discussion with the preferred Bitter from the customer side is going to be processed. So we can expect that If everything goes right in the Q3, it can be a potential that the award is going to come. But again, this is all based on everything going right and according to the customers' Feedback that we received, which is off the market note.
Okay. And maybe just one very quick final one I think it's important. Just the contract awards that you've announced, so one today, the Sofia contract, which has now been booked, Does that change at all your production schedule for 20 for the second half of twenty twenty one? And do you think that you will start producing any of these projects in the second half of the year?
These projects that we announced that came into our portfolio, The Sofia project and also Ibiza Fermentera was one of our projects that
we were
Expecting to have in our order entry this year. So we had planned them already in our budget for this year. And the execution of the production is going to start within this year. So it was already in our capacity planning for the year. This is only confirming our, let's say, expectations are being realized so far.
We have the next question coming from the line of Monica Bossier from Intesa Sanpaolo. Please ask your question.
Good afternoon, everyone, and thanks for taking my question. The first one is on the energy project. Can you give us some flavor on the energy project business prospects in USA? Are there some important tender to which premium is going to participate and EPS? If you can give us Some flavor, maybe some kind of tender like the German corridors in Europe, Just to be updated on this.
And the second is on the raw material impact. I understood that it was very tough in the Q1. It will increase by €50,000,000 in the second. Can you give us An impact on the working capital from raw material over the full year. And very last is on the efficiency measures in the telecom business.
Is there a way to quantify the amount of efficiency you achieved in the Q1? Thank you very much.
You're welcome, Monica, and thank you very much for the questions. First of all, the questions related to energy projects. Energy projects, I don't want to mention the name of the projects because every time I mention, I can find 1 month later, competitors coming to customers are looking at destroying our business. Consequently, I can tell you that there is one project specifically in USA where we are not so far From making an agreement with the customer, that is something like the Jugmark corridor, Smaller size, but very, very interesting. I hope that within the year end, we are going to be able
Okay.
More or less
like German. Sorry, Valerio. A little bit smaller than the German
Monica, similar to the German project, but on a smaller side. I would like to leave the floor to Massimo Battagini that is here with us.
Thank you, Valera, Monica. So raw material impact is Certainly significant in 2021, but definitely much more in terms of EBITDA, P and L impact than In working capital, the real impact to working capital is definitely coming from metal. I would consider the raw material impact very Very minor to net to working capital, also consider that we have also efficiency and savings in the raw material space, which are offsetting some of your material increases impact on net working capital. So I will not consider this a real Impactful number to our working capital, Monica.
Okay. So Jacques, on the EBITDA, do you expect The stabilization of the raw materials over the 2nd part of the year? Or do you believe that it could rise further?
Marga, it's difficult to predict. Every month, we think it is the last month. And then month after, we still see another increase. So I think we will see Continuation of this increase in the coming months. I would expect agree with you to see some Softening of this pricing increase in quarter 3 to quarter 4.
All I can say that this is not is a bad news in the short term, but it's a very good news for the business in midterm because we are We've proven to be very successful in passing on these cost increases to the market, especially because there is a strong demand volume demand in the market, both in telecom and in energy. So this is not really an undesirable impact, this one.
Last question of your question, Monika. The efficiency measures for the Telecom business. Just for your knowledge, today, during the Board, we have approved 2 significant investments, not extremely huge, but significant for the cost Roadmap reduction for the fibers and the capacity increase in the North American market. Consequently, we are continuously working on this market.
Okay. Thank you very much.
Thank you. You're welcome.
We have the next question coming from the line of Miguel Borrega from Exane BNP Paribas. Please ask your question.
Hi, good afternoon, everyone. I've got 2 questions, please. The first one on the projects business. Can you maybe talk about your overall capacity and maybe comment on the industry as well? You said previously there's still 20% to 30% spare capacity for this year, but after 2022, it seems that you're at full capacity.
How should we think about growth in High Voltage after 2022 and also in the context of 7,000,000,000 of tenders over the next 10 years. Is the industry able to fulfill this capacity?
Okay. Thank you very much for the question. Capacity in the project. Our capacity in the project, I. E, In the past, I said that was not totally saturated, only for the summary extruded.
20%, 30% main excess. That does not represent the total business capacity. The total business capacity is much more saturated. Now after 2022, it's clear that if The market will ramp up at €7,200,000,000 as expected. Our capacity will not be enough.
And that's the reason why we are looking at how and where we think is to increase the capacity. Most probably, I'll give you a little bit of anticipation. We have the capacity in Europe. Maybe that if we are going to reach the EUR 7,000,000,000, we have even to revise the capacity in Europe. But most of all, If the U.
S. Market is taking off as hopefully expected, we have, first of all, to develop our Presence, industrial in the U. S. And that's what we are doing.
That's great. And then my 2nd question, just following up on telecom. Can you give us a sense of the size and timing Of the contracts that you are renewing, is this going to be a one shot in 2021? Or is this going to be Sequentially renewed. And then maybe if I can push you a little bit on the margin.
If we exclude the associates, Your margin was 13.6% sequentially down. How should we think about the trajectory from here? Is this Going to converge to a certain level towards the end of this year or relatively stable? Thank you.
I leave the floor to Philippe Vanier.
Hello. Another difficult question. The contracts that we that are in negotiation at this moment are multiyear contracts. So we usually we are talking about Contracts that will be valid for 3 years typically. So what we are negotiating now And a strong price pressure is, of course, going to impact 3 years by definition.
It's part of our business and our life. What as I said earlier to the question of Max Yates, What is not easy to estimate is how much real volume will be concerned by these contracts Because we signed contracts that are not with a fixed volume. So it's not easy to answer. We are usually, In general, able to compensate a part of this price pressure, which is typically very much European at the moment by 2 things, by our actions to reduce our costs that are, as you know, a permanent Item in Prisma and also by the mix of regions That we have. Fortunately, we are also strong in North America where the pressure is a bit different.
I cannot give you A precise answer with numbers. It's too early to answer this question.
That's great.
Given the fact in particular that these negotiations are not over.
We have the next question coming from the line of Gabriela Costa from Goldman Sachs. Please ask your question.
Thank you. Good afternoon, everyone. Hope you're all well. I have two questions, one on projects and one on telecoms. But on projects, I was wondering if you could comment on the latest recent order intake throughout 2020 2021, in terms of how does the project backlog margin look?
I guess next year you're pretty fully utilized already. So This is going to be sort of a helpful thing to assess what should we be modeling for margins in projects next year. And then the second question, which is on telecoms. I was just interested in hearing your views on the latest news flow that we have had on the I think in telecoms where it sounds like the commission is taking a slightly different approach than in precedent cases in not putting the preliminary tariffs now. Do you think that there's anything to read into that?
Or sort of what are your expectations on that going Thank you.
Thank you, Daniela. First of all, the margins we see on the project business, It depends. If we look at overall, the margins are reasonably stable. We don't see a significant decline. It may depends on the mix.
If we look at the medium little sized projects For offshore wind farms, we see the margins a little bit under pressure, but I'm talking about 1% to 2%, not more. Whereas For the big interconnections, we don't see any problem. The aggressivity and the competitive of our colleagues is not so high to drop Consequently, overall, it depends on the mix of the projects we are going to get, but I see the margins mostly stable. The second question is on the telecom case, the antidumping case of telecom. And I consider appropriate to leave the floor again to Philippe because he is one of the person directly following
Yes. Thank you, Valerio. Hi, Daniela. It's the interpretation I think the only possible interpretation is that is what the European Commission told us, which is they need 6 more months To investigate. It's a long process.
I have to confess that to me, 6 more months Without protection is not good for us, for sure. But it doesn't change the date Of a definitive decision, which is still due for legally due for end of October, early November. So we will have a decision. We have no temporary decision. That's what they decided because they need more time to And by the way, I can confirm that the investigation is really ongoing because we still receive Questions from the European Commission vary regularly.
Every week, we have questions. And I guess it's the case also for our competitors. So it's clear that they are seriously investigating. That's all I can say. Decision early November.
Thank you. If I may just follow-up on the first part on projects, on the answer from Valerio there. I take it you said margins were relatively stable, but Does the higher utilization next year into 2022, wouldn't that contribute to margins being up on an EBITDA basis, why would they just be flat?
Daniela, theoretically, you're right. The problem is that in the meantime, all the players, especially some of our competitors, have already announced the increase of And they will look for filling their capacity at any cost. That's the reason why I'm not so optimistic
We have the next question coming from the line of David Barker from Bank of America. Please ask your question.
Good afternoon, everyone. I've got 2 pretty straightforward questions, a bit more strategy oriented. So the first one is on U. S. High voltage capacity.
What would the kind of lead time be to ramping up in the U. S? And are you thinking about brownfield or greenfield? So That's kind of first question. And then secondly, on telecom, we spoke a lot about volume recovery in the short term.
But are we seeing any impact From 5 gs investment, yes. And when could we start to see kind of growth ticking up from 5 gs? Thanks.
Okay. Thank you very much for the question. HP capacity in U. S, the HP capacity in U. S.
Exist. Yes. Thank you. It was unsaturated because we built 2 lines. Nexans has been, if I am not wrong, 2 lines or one lines.
I don't remember. So the capacity exists. The problem is that the capacity in U. S. That till now What's not existing was the summary in HV, except the Nexon plant.
But most probably is the capacity that is needed. I hope that we are looking for a proper solution that within the Next 1 or 2 years, we are going to be able to at least announce, not execute because there's a time lag of 3 years. The summer implant in the U. S, too. For the time being, and That's the case of Vineyard.
We are going to supply from our existing plants in Europe. Did I answer to your first question?
Yes, that's a great answer. Thank you.
Okay. The second question, the possible impact of 5 gs on the telecom demand. I give you my personal perception. 5 gs is requiring much bigger quantities of data. And that will impact partly On the existing networks, that will be much more saturated.
Some of the Companies, the utilities, have already started to reinforce their network in order to comply with the expected increase in demand. But for more details, I would like to leave the floor to Philippe Alain.
Yes. Hello, David. 5 gs is a New standard that is forcing the operators to deliver Much better signals. Essentially, it means more higher speed, but also a lower latency. And lower latency, which is the response time of the network, means that you need fiber.
So there is a clear link Between 5 gs and fiber. That's the first general question answer. Then there is a different timing To get there, depending on the kind of investment you consider, some operators, as Valerio rightly said, are going to leverage on their existing FTTH network to build the 5 gs and it's a certain way. They still have to build certain parts of their network with fiber when it's not yet fiber. And some others Like maybe in China, to be confirmed, they will build completely new networks To connect all the antennas of the 5 gs.
It's an option that is more bullish, More investment intensive, but it also can be a decision. I see the 10 players more leveraging on their existing networks. I see talks that are only talks for the moment in China Saying that they would build a specific network for 5 gs. In that case, of course, the demand in China would restart quite strongly. The next Stop for this discussion.
It's going to be the next China mobile tender that everybody is expecting in June or July. And there at this moment, we will have a clear idea of the Chinese trend, which might, as always, Influence the rest of the world in terms of market volumes and prices. That's The next clarification can come during summer this year. That's what I expect.
We have the next question coming from the line of Saul McLaughlin from HSBC. Please ask your question.
Good afternoon. Thanks for taking my questions. Just a couple. If I can come back to the comment you made on the guidance. I just want to understand Why you didn't raise the guidance given your confidence at the higher end or particularly not tighten The lower end of that range.
If you could just talk about what you see as the key risks that could keep you at the lower end of that guidance range? And the second question is around offshore wind. Specifically, you talked about confidence for the second half. You previously said that you're going to be the aggressive player in the market to get orders to fill your backlog. Just an update really on the current tendering environment that you're seeing and are your competitors in fact being less aggressive?
Okay. First of all, the guidance. Obviously, I could have Modify the guidance, removing the lowest part of the guidance. But that is not I don't see it as a serious upside. In order to give a reasonable upside I need to see the first half, how it's going to close.
And most of all, this is there are going to be other issues in the business Like the ones we faced with raw materials and orders and execution, Just in case, the German corridors, we are going to start the mass production July. Let me see that everything is running well as expected and as we are working to do it. We have run another number of lengths in order to be more confident with the process and the specs of the cable, 112, but Few kilometers on basis of our experience is good. It's a good result. But 1,000 of kilometers is another chapter.
And we have to accomplish with 1,000 of units. So that's the reason why I like to be a little bit more prudent on the guidance than to be too much bullish Getting the risk to disappoint you and the shareholders in the second part of the year. The other question, can you repeat, please? Because I didn't statement.
It was about the tendering environment for offshore wind, your confidence for second half orders and a little bit about You being more aggressive than competitors.
Yes. I didn't say I'm going to be more aggressive than competitors. I said last quarter That we are going to be a little bit more aggressive than the past Because we have seen that our competitors have become very aggressive, and I don't like it. Now obviously, there is a balance. Reducing the margins by 1% or 2% It's already aggressive for me because this is a business that we Have not to destroy.
We have not to commoditize too much because the risks are always there. You have seen even our customer I've had some problems with the strategy to split everything. I'm talking about Orsted obviously. And that's these are the execution problems into which Everyone can incur trying to be too much aggressive. I prefer to be a little bit more cautious and making a step after the other.
So we have been able to get Midsize, little sized owners without dropping too much the crisis. We don't we are not talking about Serious percentage of price reduction.
Very good. Thank you.
We have the next question coming from the line of Lucie Carrier from Morgan Stanley. Please ask your question.
Hi, good afternoon, everyone, and thanks for taking my question. The first question I have is related to the slide you have on Slide 20. I think maybe many people could be surprised to see you are expecting a larger market in interconnection versus offshore wind in the current decade. And I just wanted to understand a little bit the split of the EUR 7,200,000,000 average that you were showing, how much are you expecting of that EUR 7,200,000,000 to be subsea? And how much should be land in our view on average?
And also if the market is multiplied by 3x, I guess I'll ask this question again, but how do we think about capacity here? Or should we assume that in the previous cycle, you were only operating at 35% capacity?
Duci, I have to be honest. I didn't catch very well your question. Could you repeat it?
Yes. I'll start again. So I was referring to slide 20 and you are showing an average Market of €7,200,000,000 on average for the current decade for projects. And I was curious to know How much is subsea, whether this is interconnection and offshore? And how much is land on average out of that EUR 7,200,000,000?
And obviously, what you're also showing is a market which is multiplied by 2.5x between previous cycle and the current decade. So how do we think about capacity here? Because I don't necessarily think that the market was operating at, let's say, 40% capacity before and now would be operating at nearly 100%. So how do we think about that?
You see, the capacity, unfortunately, in the cable industry can rise Pretty easy. That's an unfortunate case, but it is what it is. And everyone is able to rise the capacity within 2, 3 years. That are usually As usual, it's the time lag between the award and the execution of a project. Consequently, There is not a problem of capacity, even if the market is in a crisis.
It will be maybe Time lag, but given the projects. Frequently, we talk about projects that are coming tomorrow morning. But at the end, if you look at the history, you see that projects have not come, Are coming a little bit later because of authorization problems, because of financing problems. We have to look at it and to be with the foot on the ground. I see that the market is growing.
I don't know if we grow really to EUR 7,000,000,000 but maybe that the market will at least double. I already told to all of you that we are looking to increase the capacity. But the problem is that our capacity in Europe is already, in fact, sufficient for our market share. What we need is to expand our capacity in other markets. And the market the target market is North America.
To do that, we need to we are looking for a site, a proper site in U. S, Having our plants, all of them far from the sea, unfortunately. And We need to find a proper location for the new submarine plant in U. S. That's what we are doing today.
Understood. And when you think about the total size of the market, I appreciate the €7,200,000,000 is a figure that you are giving today, might vary a little bit from 1 year to the other. But how do you think about the mix between Subsea and Land? So I'm not talking about interconnection versus offshore wind, but All subsea, I. E.
Interconnection plus offshore wind and then on the other side land, out of that EUR 7,200,000,000 or EUR 7,000,000,000
Time by time, the offshore wind is growing. There will be The related interconnector to the dispatch, this power to the utilization point. So I believe the interconnector will be a little bit more than the offshore wind farms The market simply because their customers need to move the power To the utilization, if you look at I used to say, look at the mother of your wife and you see your future. The same applies to Halsted. If you look at it, how much Telnet and the other have invested for the offshore wind farms in the North Sea and how much 5, 7 years later, I'm going to invest for the German That's a good proportion you can try to apply to all the regions.
Taking care of the fact that in certain markets, the overhead lines can help.
Can you make it a bit simpler for us to kind of give us the split? Are we talking 60% subsea, 40% land or are we talking fifty-fifty out of that €7,000,000,000 you are providing?
I believe that this Okay. Let me leave the floor to Akan. That seems to have a clear idea.
I mean, if you look to the EUR 7,000,000,000 that we are Foreseeing. Majority is going to be definitely subsea, including offshore and interconnect of subsea. And then the remaining That we are foreseeing for the short term is going to be land. We can say about 70 Subsea 30% land. However, this of course, this mix is going to change according to, As Valerio was saying, the deployment of the offshore and how much the land portion is going to be supportive.
For example, if you look to the North American, let's say, structure, majority of the first investments are going to be in the offshore, But the backbone is not able to support that, and therefore, it will be subsequently supported either by overhead or by underground cables. But currently looking to the pipeline in the short period of time, I can say that 70% is going to be offshore, including the interconnect offshore.
Thank you. That's very clear, very helpful. Secondly, on the cyclical businesses, I just Wanted to get your view on the sequential trends rather than year on year trends because obviously the comp is very easy as we go into April. So How does the Q1 was looking sequentially versus the 4th quarter? And how does April is looking so far is the Q1 on a sequential basis.
Hey, Lucie. Sequentially, the business is obviously improving. It's definitely improving compared to the same quarter last year. I mean, the same quarter last year was already has already started to get the impact of the pandemic. Now we see a sequential improvement that is with a peak in the second quarter because last year, the second quarter was the ones that was most affected by the pandemic, the line has to be drawn by December.
That's my opinion. I believe that 2021 will be Overall, of course, better than 'twenty one 2020, even in the last quarter, if that's understood to your question.
That's very helpful.
Which is the risk, Lucy, that today, thanks to the Reacceleration of the business. Everyone is trying to boom and to increase the demand, Creating a false demand that we have to be careful with. I wouldn't like that Within 6 months or at least 1 year, we are going to have an excess of availability of products. I'm talking about ENI.
Yes. Okay. And just lastly on the raw material situation, that was very clear the impact on your working capital. I understand from the Slide 28 you have in the presentation that overall, you cannot expect the impact To be fairly limited from raw material inflation. But just maybe at the risk of staying devil's advocate here, I noticed that the gross margin in the Q1 is down quite sharply.
So I was just curious to know if it was due to the mix and maybe the fact that the project business was down the most or maybe if it is a delay in passing prices? And also as a result, if you could remind us a little bit when we think about your raw material exposure, how much does that represent in terms of percentage of sales and also the split between the different metals and plastics, please.
Okay. The raw materials in our business have to be passed to the customers. No way. Otherwise, you are going to lose money very quickly. And that's the driver the main driver of our business.
If you consider that the metals is passed by definition, not really by definition, but is mostly passed maybe with an hysterics. The problem are the other raw materials. I mean the plastics, the oil derivatives that are not will automatically pass unless there is a specific close in the quarter. That may be positive Or negative, depends on the season. It's positive when the raw materials goes up.
It's negative when the raw materials goes down. In the past year, so with the oil prices and the drop of the oil price, We have been able to enjoy a certain advantage from the raw materials. Today, with At the same time, the oil derivatives, PVC and Polyethylene. And the price that is pretty stable for the oil, Jernay speaking. We are facing more a problem of Availability, then a problem of price increase.
The price increase, we can pass. The problem is that There is not a lot of availability of the products. That is positive, in my opinion, in our commodity business. It's the season into which prices can be placed. Did I answer to your question, Lucy?
Yes. I guess, I'm just trying to kind of make the link of that in terms of The gross margin, whether that's all the impact or whether there's another impact and how we think about that kind of for the remainder of the year. The gross margin has come down roughly 400 basis points, if I'm not mistaken.
No, I don't think so. I don't have the gross margin, Lucie, in front of me, but I'm looking at the EBITDA margin sequentially. And the Q4 is quite in line with the Q1 this year. So I exclude that the contribution margin has come down by 4%. As a total, you have a decrease of the margin in the project business.
This is totally normal, in my Because any Q1 you take is a much lower margin than the second half of the year because typically The finalization of the projects and the installation phase of the project is in the 3rd and fourth Quarter of the year. So typically, in project business, it is correct that the second half of the year is much higher. So this explains the drop between Q4 and Q1. But in the other businesses, actually, I'm seeing in The Energy business, quite an increase of the margin in Q1 compared to Q4 from 4.7% in Q4 to 6% in Q1, yes, I confirm that. And In the sorry, in the telecom business, I would say quite a stability From 16% to 15.2%.
So it's not maybe we should look Better Lucette the numbers that you are looking to mention a EUR 400,000,000,000 decrease of the GP.
We'll double check the number on the
group model. Thank you. Sorry about that.
No problem.
We have the next questions coming from the line of Akash Gupta from JPMorgan. Please ask a question.
Yes. Hi, good afternoon, everybody, and thanks for your time. My first one is on copper price, and We have seen sharp increase in copper price year to date. And one of the factors behind that, which I have come across, was anticipated Shortage against demand that we see for copper. And the question I have for you is that have you seen any bottlenecks in procuring Copper for cables and could this availability of copper could be a headwind on how much you can grow your energy business in the next 12 to 18 months.
So that's question number 1.
The cash, copper price is going up. It has reached the $10,000 And it seems not to look for a reduction. I don't see at all a problem Because the cap especially the cap of the metals, generally speaking, is really an automatic or almost automatic pass through To the customers, availability is not an issue. If there is Our material that we are not missing at all is the copper And the aluminum. I don't believe that we'll stay for a very long time unless The demand of cables and other copper components will continue to rise very, very much, But I have some doubt.
What I see is vice versa with the capital at such high level, The possibility of conversion from copper to aluminum, wherever is possible.
And my second question is on North America. I mean, in the quarter, you had flattish growth there with the telecom business being very strong, while Power distribution was down because of wind. What are your expectation for the next couple of quarters given this 100% PTC related wind boom is behind us. So is it fair to say that this North American growth could remain Little bit under pressure because of power distribution business? Or do you think that this growth in solar that you see could be able to offset this decline in wind that you see there in the U.
S?
More than a decline in wind in U. S, we are seeing a stabilization of the demand for wind. There is no business that can continue to grow every day for us, essentially. And that's the case. It was expected.
It's not worse than expected. But the point of power distribution is that customers are Diverse impact to their investments from the distribution network to the high voltage network. For Telecom, vice versa, I see a very good continuous demand. That's the reason for the investment we decided to authorize today. And I see the telecom business in North America growing pretty well And not scaling down at all.
And my final Question is on monthly trends. So on Slide number 4, you have shown monthly volume trends for January, February March. Can you comment on April like how April trends have been? Like have you seen some slowdown in growth? Or Have you seen the momentum continue to build up in April?
I'm sorry, I think that is why. Yes. My opinion is that April is in the same trend of March. Obviously, we have seen that March has been very difficult last year, April 2. And this year, vice versa, the demand is sound.
I cannot say that it's Definitely higher than 2019, but it's very
Thank you. I'll go back in queue now.
Thank you.
We have the next question coming from the line of Alessandro Tortora Sura from Mediobanca, please ask your question.
Yes. Hi. Good afternoon to everybody. I have Three questions, if I may. The first one is on you mentioned before the installation, okay, on the submarine project and, Let's say some noise in the past weeks due to some clients mentioning some, let's say, some issues related to the Long term maintenance.
Can you give us, let's say, your idea on what Prismian can do? And if This can be, let's say, an additional or an incremental business for you going forward. This is the first question. The second question is on, let's say, portfolio of assets, portfolio business portfolio of the company. You mentioned in the presentation that diversification is helping the company.
Is it a possibility for the company to Consider as not full quarter some businesses and the first thinking about, let's say, disposal In the short, medium term. And the last question is on cash flows. Let's say, cash flow Expectation sorry, my line was not fantastic, but I didn't get the forecast for copper The corporate impact okay for cash flow level? Thanks.
Okay. Alessandro, thank you very much. First of all, let's That's the point of installation. What we were mentioning before was the problem related To our public, fortunately, I can mention even
the customer.
To one of the big customer of big developer due to the problems in installation. This is public, all of you know. And in my opinion, that's due to the complex Business that once you started to slip between different players Supplying you each one a different piece of the project, the risk to make a mess is relatively Hi. The problem was related to Cable protection. No.
And this is not something related to our Business. But generally speaking, I suggest My customer not to split too much the process because that's, In my opinion, makes much, obviously, in the short term, may give some advantage in terms of prices. But you have So many different actors in the same supply chain that the risk of delay And mismatch is growing very much. That's the point. 2nd question, Dismissal of businesses.
There are businesses that are not considered core for us. Frankly speaking, there are some years That I'm trying to sell, but I've not been lucky. Maybe I'm not a good seller. I wish to my colleagues to be better than us, but it's not easy. Unless you decide to sell for free.
So I would like, But if you want, I also in other comp call, I already told the market we shall go businesses that we do not consider strategic for the Hi, Abol, could you repeat?
But there
is no way to sell At a profit base.
Okay.
I can add Valerio one point to this.
Yes, of course.
I think which is very relevant. It's, of course, as Valerie is saying, a matter of valuation. And it's a matter of valuation versus a clear fact That we have no business which is burning any cash. So of course, not having any burning out, let me simplify this, Given some business with apparently low level of growth or low level of margins, we have analyzed very deeply and we have concluded that we don't have any cash Diffraction, but over the long term, I'm not commenting 1 or 2 years. So of course, it may be non core, but We will need to get a proper valuation for that just to strengthen what Vale Kallito was saying.
Sorry, Valle.
The last question is related to cash flow, and I leave the floor to Francesco.
Thank you. Hi, Alessandro. I was mentioning an impact of the copper price increase going from March last year to March this year, so on a last 12 month base, which is EUR 170,000,000. So it's very huge. And that we are managing, I believe, Because we are managing, thanks to a decrease of working capital in these last 12 months in the project business, which was A very material one and also by improving the stock level in terms of inventory Sorry, we hear some.
And also improving the receivable overviews and the receivable outstanding days. Well, no one knows, of course, where these copper price impact will end simply because we don't know What the level of copper will be from now to year end. But if we reasonably assume that it may have reached Let me say maybe not the peak, but let's not expect a further new increase. I think that also for the full year, The total impact will be very similar because we will have a piece of the impact of the 4th quarter, which will fall out of the picture, And then the further increase of EUR 50,000,000, EUR 70,000,000 which will kick in, in the second quarter specifically. So I think that the full year of €170,000,000 for full year 2021 will remain more or less unchanged, Given the current level of copper price, of course.
If the copper price goes to USD13,000 a tonne, it's a different picture.
Okay. Probably, it will be a different picture for everyone. But so just to confirm that your, let's say, your eye on the At the end of the guidance, okay, on the free cash flow side is based on this around €170,000,000 copper effect. Is it right?
Well, that's our target. I think it's a realistic target. I think it's based on the start of the year, which has been Very positive. Of course, The order intake that we are confident to have in the project business, mainly in the second half, will play a role because, as you know, Down payments is a major driver of our cash flow. And this whereas we are confident on the order intake, Of course, we cannot always predict the fact that one project may come in Q4 or Q1 of the following year.
So let's say Potential uncertainty, but overall, I'm pretty confident that we may deliver the high part of the guidance, Which is still within the guidance.
Okay. Thanks.
Welcome, Alessandro.
We have the next question coming from the line of Vivek Meda from Citi. Please ask your question.
Hi, everyone. Thanks very much for taking my questions. I had 2, if I may, both sort of follow ups. So firstly, I just wanted to follow-up on your comments around False demand and just generally around the proving trends in Q1. We've had a few different things.
Did you see any Significant restocking effects in the Q1, which could have supported your Price strength. And secondly, touching again on the high voltage investments in the U. S. In the past, I guess, there have been some issues around things such as permitting. How optimistic are you on the sustained pickup in U.
S. Grid spending. Thanks very much.
Thank you very much to you for the question. First of all, let me address your first question, The risk of restructuring, that's really a guess. It's a guess. Why? Because we don't believe that we have not the control of the stock of our customers and the For sure, there is a raise now.
Due to the raw material price increase, the general price increase, everyone is looking to get to the materials as much in advance as possible. And that's I don't believe that anyone is making stock. And for restocking, I believe that we are thinking to
the fiber
cable. In the fiber cable, the stock can increase, but not as much as been in 2019. In 2019, We were coming from years of shortage, and that may have drive the overstocking we have And we face in the second half 'nineteen and the full year 'twenty. So I don't see a very big risk. For the energy cable, vice versa, whereas The demand is strong.
There may be a little bit of Overpurchase. That's because of the desire of everyone to restore The precedent level of activity that obviously needs of materials He's a restocking, but that's I don't know. I don't know, but We are we used to be pretty careful looking at the stock for what we can of our customers. Now there is a race to look at everything is possible to Restart even better than the past, the business level. That's your first question.
I don't know if I did answer.
That was very helpful. Thank you.
You're welcome.
We have Sorry,
the second question was on projects.
Yes, on U. S. Market.
Hakan, do you want to answer?
If I understood well about the investment timing you're talking about, am I correct, the HP investment in the U. S. Based on the permit?
Yes. Yes, permits and also I guess in the context of the Biden infrastructure plan. Thank you.
Sorry, the permit of the investments from the buyback perspective, not from the capacity perspective. Okay, I Let me say so the first permits are coming out based on the big push of Biden. As you know, he promised about 30 giga to be installed on the offshore and relative also the infrastructure, which is going to be the backbone supporting this investment. And we are hearing good news, and there were good news also this week about one of the projects, As you know, that is the first project of India, which is progressing very well. So we are thinking that the pipeline is going to be cleared from that perspective.
We feel very confident that all these plans are going to be Compared to the skeptical situation we had before. So If you are asking if the strength of the market is there regarding the permits, yes. Is there a route already defined To the market to get these permits, also, yes. So I think we are more than, Let's say positive that all this is going to be implemented.
Okay. And just following up, in terms of the transmission grids, I mean, how confident
are you on a multiyear view? Thank you.
Okay. From the transmission grid perspective, it's there are studies done Also with the request of the utilities, the transmission grid analysis or the request from Some developers are also being chased. The first is security of the offshore wind. There are some projects To connect these offshore winds with some connections in through the sea and then to the land And further transmission overhead or underground that is going to be connected to the end users to the distribution network. So these plans are currently we are hearing and we are participating to some development projects already, But these are in the engineering phase.
They are not in the tendering phase, but the engineering Phase has already started. So there is both ways, let's say, work That is being done currently, supporting the offshore wind. But it will take time, Let's say to realize all these projects.
My opinion, if I may, Once a number of offshore wind farms will be built on the East Coast, we will see some projects to transfer this capacity inside the U. S. That will be
projects
of
high voltage land, probably
We have the next questions coming from the line of Luigi Develis from Equita. Please ask your question.
Yes. Good afternoon. Two questions for me. The first one is on the Eurasia Tibernia Link project. If you may, can you give us more visibility on the technology that should be used for this project?
And if it will be divided in 2 or will be I didn't mean to always be one single award. And on the Iranian link in particular, when do you expect the potential award? The second question on the German corridors. What could go wrong to have delays from projects starting
Okay. First question, Eurasia and Ukrainian Link is in the hands of Perna, and we are discussing already with Perna About this project, it's an extremely huge project, 2,000 kilometers of connection It's going to fly. When it's going to fly? It depends, but within this year in term of award. Then who is going to get?
We will see. But the most important question is the technology The technology for titanium is expected to be MIE, Other than nothing new under the sky. Eurasia, by Seguersa, is a more complex project. It is very important, in my opinion, for the future development of the European network used. Eurasia Interconnector is a link that threatens bring power On the paper, from North Africa to Europe, in the short term, from Cyprus?
Cyprus or better, from U. S. To Cyprus. Let's see. The technology for Eurasia is not going to be OPEC.
I don't know. But we are not going to offer MI For the simple reason that the test we made with the pressure of 3,000 meter water depth It's critical. It's critical. It's more than critical. Do not elect, in our opinion, To realize the link with Mi because it's not only the problem to lay the cable.
The problem is also to be able to pull up the cable in case of Our outage and to repair you. So our opinion is that Mi It's not viable. But maybe we are wrong if someone else is confident to do with such kind of We made some tests with our in our labs. And the Mi cable we have is not able to resist to the 3,000 meter pressure. That's the reason why we are offering the XRP.
You made another question, Luigi? German corridor. Yes. Why German corridors may be delayed? Simple answer.
The problem of the permits. Seems that customers are having some delay as expected in getting all the permits Along the route of the project, and that may delay some months, maybe 1 year, The execution of the project. In the meantime, anyway, starting from July, we are going to start the production of
the fleet.
If I may add, Hakan speaking. The German corridor delay is Actually a positive delay, not we have to see it positively because the German TSOs have applied For the second, let's say, phase of the German corridors to be within the permit application. So instead of giving partial permits for the first phase, which we know the first three projects, They added also the subsequent project that is going to be tendered soon. So in this way, the permit It's going to cover the full extended German corridor. Therefore, there is a delay, but we don't see That this is going to be, let's say, from our side, a significant change in, Let's say, in our planning, apart, there is going to be some shift, for sure.
We have last questions coming from the line of Gabriel Kambarova from Banca Akroff. Please ask your question.
Yes. Thank you for taking my question. Again, on the German corridors. I mean, do you envisage any kind of Technical challenge in this case? Or I mean, the technology is absolutely Bulletproof and you don't see any problem there.
Okay. The technology, we cannot say that is bulletproof. The technology is a new technology. 525 DC There is not 1 meter of 525 DC underground XLB are excluded. Consequently, it's not without risk.
And that's the reason for our careful approach to the matter that pushed us to test many times the production and the performance of the gearbox. Within 1 or 2 years, when the German corridors will probably run, it will be Fully improved technology. But till then, I cannot consider fully improved technology.
But just to add what Valerio is saying, we are saying we are telling this from the, Let's say, preparations that we do to make sure that the project runs in perfect condition. But Definitely, we trust into the technology. We trust what has been done so far. But we are Overly cautious to make sure that the industrialization and the implementation phase goes flawless. Therefore, that I just wanted to add.
It's just fully it's a new technology, and we are taking the precautions. And we feel pretty good with the precautions that we are taking.
We have already produced Those are not kilometers in order to test the technology, the materials and process. That is what we did not properly do at the time of Western
Okay. Many thanks. And can I ask you, I didn't get this aspect? If there is any, let's say, Delay from the German authority side, the German client in getting the permits To start, let's say, the job, you will produce anyway the cable? Or you will delay the
Hakan speaking again. I would like to say that We are very much working together with the customer to have a good sound, let's say, A continuation of the project. And from that perspective, the delay Is there? There is no doubt. I mean, it's obvious.
But on the other hand, we are starting the production with agreed length for the project that will derisk the project in the future, having already prepared Some lengths ready to be installed. And we are agreeing as time goes We have agreed already for this year, and we have discussed also for the coming years how much to pre produce and to stock. And this will be only for the benefit of the project execution.
But Damian, you have to understand that If it's as it is, the reason for the delay, the ability of our customers To get the permits for the 2nd German government is welcome, is more than welcome in such developments. This means that in the meantime, we produce the first 100 kilometers. Customers are able to get the permits for tendering the 2nd German corridor run. Okay, understood. The corridor is not one shot.
That's true.
There are no further questions at this time, sir. Please continue.
Okay. Thank you very much to all of you for the participation to the 1st quarter results release of the Friedman Group and to the next quarter. Thank you, and good
Bye. Ladies and gentlemen, that does conclude our conference for today.