Ladies and gentlemen. Thank you for standing by and welcome to the Primmism Group. 9th Month 2020 Financial Results Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer I would like to advise you that your conference is being recorded today, Thursday, 29th October 2020.
I would now like to hand the conference over to your speaker today, Valerio Batista. Please go ahead, sir.
Thank you very much, and good afternoon to everyone. Thank you for connecting to this conference call. That unusually is, is from remote because due to the COVID constraints, we have taken the decision not to be in the office. But we can manage the company anyway. Okay.
Let's start with Page 2. The 9 months 2020 highlights. Organic sales excluding projects that are minus 9.4 and doesn't change very much with or without purposes. Obviously, the situation is not easy, but it's improving because in the quarter 3, the organic sales decline has dropped to 5.2%. By segment, the telecom business has suffered 16.9% drop as it was expected, really, only because don't forget that last year, the major drop has happened TNI minus 13.3 percent, so a significant drop in organic sales.
Special in C2, as you know, that C2 has been the most difficult, the current quarter. And the Q3 is showing some sign of recovery depending on the trend of the economy. In the recent, in the next weeks. Onshore wind, the renewables have shown, and I've recovered partly in the negative trends. Adjusted EBITDA, we closed at EUR 647,000,000, 8.6 percent of sales, versus the 8.9 percent of sales related to the EUR 773,000,000 in the 1st 9 months of 2019.
So the sales declined, the EBITDA margin more or less has been the same. That's thanks to a lot of actions we launched since the beginning of the year. Since the beginning of the pandemic. We have to consider also the strong effect of the ForEx exchange rate that mostly in the last, after the mean of the year has has hit us significantly with the devaluation of the dollar, most of all. Q3 margin in 2020, 9.12 percent.
So in line, let me say, with the Q3 2019, with an energy business that has proven a solid performance and a very good profitability in power distribution. Onshore Wind in North America, overheads and renewables. Projects. Projects I have been touched by the COVID in terms of inefficiencies. On Monday, Altery, and a little bit difficulties in execution of the projects itself.
Finally, telecom, telecom is still suffering. Let me remember that the 1st 6 months last year were exceptionally good as well as the second half has been bad. So, we see the telecom that has been able to stabilize the margins, but the pressure is pretty strong. Let's finish on that. We have been able to deleverage significantly, even in the 1st 9 months 2019, going to our net financial debt position of EUR 2,659,000,000.
And The free cash flow generation of the last 12 months has been the EUR670,000,000, extremely good. But it's a matter of timing, because last year, we were having an increase of working capital and this year, the opposite, consequently the $670,000,000 are particularly inflated in brackets by that event. Backlogger is good. Backlog is good at 1,000,000,000, of which, don't forget, the 1,000,000,000 comes from the journal cordless that will be in execution, productivity in the next years. Let's move to Page 4, the financial highlights.
The sales went down 10% from 8,000,006,351,000,000 to 7,000,004 88,000,000, 9 months, less than 9 months. The adjusted EBITDA, obviously, is getting down to keeping more or less the same adjusted EBITDA margin on the sales, 8.6 versus 8.9. And that's thanks mostly to the very strong actions we took since the beginning of the pandemic, foreseeing obviously a strong decline of the market. We have been particularly careful also with the working capital. Of course, the working capital money, and we have to be very, very careful with it.
We lost it with the control, September last year, with our working capital law of 14.7 percent. Now we are back up to 12.1% and is in a better shape. The net financial debt, as I already commented, we have closed at EUR 2,669,000,000 versus EUR 3,027,000,000 of 1 year ago and EUR 2,140,000,000 of year end 2019. So let's go now to look at the EBITDA by business trend. And let's start with projects.
The totals we have already seen, 1,000,000 versus the 7 73 the 1st 9 months previous year, not so bad. Obviously bad, but not so much. In a nutshell, we have lost due to the COVID issue, at 10% of sales, and more or less 12% of margins. In terms of EBITDA, the reduction is lower because we significantly cut all the expenses and fixed costs during this 1st 9 months. So projects.
Projects move it down from 1,000,000,000 to 147, almost sales. To 1,000,000,000 with an organic decline of 13.29%. Not very nice, but it is what it is. We have suffered some problem in production and installation for high voltage that is starting to recover now We have to see what's going to happen with the COVID in the Q3 and Q4 in the Q4 service. In the meantime, the tendering activity is very good in submarine especially.
And we expect to increase the backlog in the next quarter. Energy Energy moved down from 6,000,000,000 to 5,385,000,000,000 that, excluding in the last quarter, is 4.2%. So it's reducing the gap on the previous year. E and I, E and I is, one of the most affected business with minus 8.6% of the sales organic growth. And in the last quarter, it has improved brackets to minus 4.4%.
Overall, the performance of E and I has not been so bad with a EUR224,000,000 EBITDA versus EUR 238,000,000, even improving a little bit EBITDA margin. But the margin nobody can put in the banks. In that same network component, 7% organic decline, 4.1% in the last quarter. Let me say reasonably acceptable. Obviously, the first impact of the pandemic has been on the sales and on E and I.
Then it's going to move to industrial and network component. Because the investor cables are coming late. The performance for renewables and railways pretty good whereas, especially in the 1st 9 months, the 1st 3 months, automotive aviation and mining have been suffering quite a lot. Finally, telecom. Telecom is the most difficult business to date.
With an organic decline of 16.9 percent, minus 10 percent in the last quarter. Consequently, they're still very much under pressure. I have to say that the margin, the EBITDA margin, is still over 15% for the time being, but 50% of 0. Consequently, we have to be careful because if the business is not going to recover we have to suffer it a bit. The sales decline was expected, obviously, has been also impacted by COVID effect Now we are seeing the recovery in the third quarter 2020 in North American market.
So let's move to the following page, page 6. And here you can see in terms of organic growth, the trend by quarter of the various geographical regions. As you can see, the most impacted region has been in the second season. The most impacted quarter has been the second, as we know. With a global group that lost 17% of the sales, EMEA, 18% Latin America minus 27 and North America minus 14.6%.
Asia Pac, where China has an very important role, has scaled down very strongly in the first quarter. That's mostly because of China, you see 33.4 percent negative organic growth in the first quarter, but being able to recover in the second quarter to minus 10.4% and in the third quarter, extremely good with even an increase of the organic growth. Overall, it's clear that the 2nd quarter has been the most heated quarter of by the pandemic. We have to deal with it. Now the problem is if it's going to come again another another very big hit in the 4th quarter because of the situation that is worsening.
More in detail for the E and I, you can see the monthly volume resolution of the trading. And you can appreciate that whereas North America has had a limited decline. You can compare the line the dark blue line 2019, we adopted light blue line 2020. The most affected regions have been Latin America starting from April? The same for UK And South Europe whereas the Northern And CEE regions have been very resilient in term of volume for the TNI.
The math had a very significant slowdown during the summer. Whereas, Asia Pac suffered most of all in the 1st 4 months or 5 months. What's going to happen in the last quarter? It's difficult to say, but I believe that will improve, but not so much. The risk is there behind the corner.
Looking at the performance of the company by geography, EMEA. EMEA -10.3 percent organic growth with a result that the drop from $372,000,000 to $273,000,000 due mostly to the just exclusively, let me say, due to the volume, because, the margins have decreased partially. From 8.1% North America. Lazada has become today the most profitable region for the group. With EUR 293,000,000 EBITDA and an organic decline compared to the previous year of 6.1%.
Nevertheless, I have not to decrease it in absolute term. Obviously, thanks also to a better marginality. With a 12.5% versus 10.9% of the same period in 2019. The PD is going very well. We have to see what's going to happen in the last quarter for the time being the Q3 has been reasonably acceptable.
The reason for keeping the margins pretty good have been mostly the actions we implemented in term of cost management in the region. Latin America, Latin America 531,000,000 with an organic decline, of 14.4%. The 1st 9 months 2019 and closed that $69,000,000 today, the 1st 9 months 2020 are at 44. Constantly are quite significant drop with, lower EBITDA margin of 8.2%. In Q2, the region has been touched very strongly by the COVID, Now seems that is on the way to recover.
Now I mean, after December. Asia Park. Asia Park, at the end, has suffered the most of all by the COVID in the first half because of China, the end of the scale down of the way see a result. We have been benefiting in brackets in Q3 by the carryover effect of YOC of the Q2 numbers that we were not having And once we consolidated, we have added those $5,000,000, if I'm not wrong. The total of South America, as you can see, has closed it with a minus 12.7 percent organic growth that is heavy, but is not unsustainable for the company.
What comes out from this picture that may be pleasant or not Is this sustainable resilience of Energy Business? That is not very exciting business in terms of margins. But very steady. That's the business that I used to name, the bond. Because at the end, with 5% to 6% EBITDA margin, I would own a basis of a very large amount of money, we can count on alphabillionEBITDA, every every year.
That is not so bad. You can see that in term of sales, the, the sales went down, went down from EUR 8,000,000,000 to EUR 7,300,000,000 with a reduction of EUR 170,000,000, but we have been able to lose on the 9,000,000 EBITDA. That is not so bad. Last but not least, what about General Cable? We can consider completed the General Cable integration.
We took over General Cable at the end of 2017. We started the we made the closing in June, 2018, 1 a half year later, let's say, December 2020, we can consider that our actions are completed with a better geographical balance for the group. A better product mix and complementary product mix for the group and with 175,000,000 synergies, having spent $200,000,000 restructuring cost. It's not that everything is over because we are still rationalizing the footprint
in Iberia
but most of the actions have been taken and brought the results up. Thank you very much. I leave the floor to Francesco for all the details of the financial numbers. Thank you.
Thank you, Valerio, and good evening to everybody. As usual, Let me start from the profit and loss statement as next year. As Vale explained, organic sales posted quite a recovery in the third quarter. Excluding the project business, the 3rd quarter was down compared to the prior year by 5% only, so much closer to the prior year level that we regard as a good achievement, of course, differentiated region by region, but as a matter of fact, this third quarter recovery was taking place across all the geographies. And across all the businesses with, of course, a different, maybe intensity, but the recovery was there everywhere.
Adjusted EBITDA showed quite a positive resilience. In terms of margins, despite the difficult scenario in the difficult environment we are moving. Specifically, in the third quarter, the EBITDA margin was above the level of 9%, even slightly above quarter on quarter the level of the priority and confirm the very high above 90% to begin margin of the 2nd quarter. So that's a very important confirmation. And also the operating leverage was extremely positive.
As Valer, you explained that referring to the last 12 months numbers on September, this year September last year, even looking at the 9 months, you see a drop of sales, which is approximately 1,100,000,000. So from 8.6% last year. To a EUR 7,500,000,000 this year. And these trigger 8 pre limited decrease of EBITDA before YFC 118,000,000, which is approximately 10% drop of EBITDA on the sales. If you think that our contribution margin before fixed costs moves, in the region of 17%, 18%.
I think that this is a quite, quite an achievement, which was, of course, obtained on all the cost items variable in the M6. Unfortunately, the ForEx translation on target suite in the third quarter was almost neutral until Alpha 1, then was about 10,000,000 negative impact in the third quarter. Now year to date, the translation effect is 1,000,000 And with the current set of rates, of course, we will have another impact and negative impact for the fourth quarter. Let's keep in mind that our guidance was given under the assumption of flat have a rate compared to 2019. This is unfortunately not the case.
And despite this, we are confirming with with a good confidence our guidance. And focusing on the top right box bridge in the EBITDA to last year quarter by quarter. You see that invariably across all the businesses, we have an improvement, meaning that the gap to last year is closing up. This is the case of projects. In the third quarter, only 5,000,000 below last year.
It's the case of energy that, as a matter of fact, showed very strong resili so early in Q2, but even improving a new enclosure last year level in Q3, and there is also the case of direct commenting briefly the other lines of the profit and loss, the total level of adjustments at $46,000,000 even lower than last year and will be even lower on we are based due to the fact that restructuring costs are really starting to scale down compared to last year, for instance, last year in Q4, in Q3 and Q4, we had a pretty material that was related to the South or PRI footprint, industrial footprint, so that's, and this is not the case, this is not the case in the second top will not be the case in part of this of this year. Finance costs, I will briefly comment on the next slide, but are definitely decreasing, very strongly decreasing, I would say. Taxes are quite stable compared to the first two quarters of at 36% tax rate. And the group net income reached the 1,000,000 with a third quarter above 1,000,000 New York net income. I move quickly to the 2nd slide to better comment the line of net interest expenses.
With a certain satisfaction, I have to say that we commented because as you see, it's down by 23,000,000 from 102 to 79,000,000. Net interest expenses specifically are down by $7,000,000. And this is due to the very strong cash generation and the very low financial leverage, which was in place for the 1st part of the for the 1st part of the year. Another item, which explains the drop of finance cost is a very strong reduction of the hedging cost. In geographies like Turkey and Argentina where we are saving many millions of hedging costs.
Let me move quickly to the balance sheet As Marnell, you already commented, the net financial debt closed better than expected. At 2669,000,000, approximately 1,000,000 below the level of last year. And the driver of that is pretty clear in this chart is the operative working capital, which is down by more than 1,000,000,000 compared to September 2019. As a matter of fact, this comes from the fact that in Q3 3, 2019, we had quite a spike in increase of working capital, mainly, but not only in the project business, which was very popular very quickly in the fourth quarter of 2019, whereas in Q3 2020, the trade then dynamic over in capital is much more stable, is much more flattish. Of course, thanks to these dynamic of the net financial position and operating net working capital.
We think we are quite confident to be absolutely aligned with a very high part of our free cash flow guidance for the full year. Let me move to finally to the cash flow. Actually, I already anticipated the comment. You see that in the last 12 months, from October 2019 to September this year, we generated free cash flow in excess of EUR 600,000,000. This is due mainly to the total totally uneven or an equal distribution of the project business cash flow in 2019 with a pretty negative cash flow in the 1st 9 months and a very strong recovery the fourth quarter, which is obviously included in this last 12 months picture, and that will save out of the picture on a in the full year 2020, whereas this year, the distribution of the cash flow generated by Project Division is much more equally, much more equally distributed through the quarters.
I believe I'm, I finished with my presentation. We can move on now with the Q And A session.
We will now begin this will only And the first question comes from the line of Monica Bozio from Inesta, Sao Paulo. Please ask your question. Your line is now open.
Yes. Good afternoon, everyone, and thanks for taking my questions. I have three questions. The first is on telecom. On the third quarter, the operating performance was good, very good due to contribution also of Yancey Optical Cable Fiber.
I'm wondering if you can elaborate a little bit more on the cost cutting side in the telecom. And if we can project by year end and especially for the full year, some margins above 15% or if you expect a decrease due to price pressure. And the second question is on E and I in USA and in particular in power distribution. What is your outlook by year end? And maybe for the next year, if I'm not wrong, the power distribution in USA, was driven by incentives.
So just an update on this situation. And the last question is on the financial charges. The trend was very good. Can you please just give us a rough indication of the expected financial charges by year end? Thank you very much.
Monica, thank you very much for your questions. Valerio also ring. Okay. The 3rd question, the financials, can you hear me?
Yes, yes. Thank you.
The 3rd question on the financial charges, I'm leaving it to Francesco. In the meantime. Peracom cost cutting every day quicker the cost. Unfortunately, there are markets into which we are not able to get the appreciation of the Innovative products, we have in the market. And there is only a bottle of with price.
That's our headache today. But sooner or later, we will be over, I believe. The margins, I doubt, will go above 15% adjusted to be very clear. By year end because, the pressure on the prices is continuously growing. Let's let me say that if we are going to be able to keep the margin at the 15% or 14.5% IBS.
Year. 2nd question, E and I and PD USA, Believe USA has given us a wonderful performance. Thanks also to the development of a number of new products that we have been able to homologate in the last 2 years. The outlook by year end is is stable. If I listen to Maximo, that is the key for North America, is dramatically dropping.
I don't believe because there are homes to improve. And, at the end, is not in 2020. That's the market with significantly soft of the erase of incentives.
Okay. Just a quick follow-up on the margins on telecom. So $15,000,000 for the current year. And I can imagine that pricing pressure will continue. Can you give us a flavor for the next year?
Do you I know that the cost cutting is heavy, but you say that Sometimes it's not fully effective. So should we expect a stability or maybe a drop on the back of a continuous pricing pressure from Asian players. Thank you.
It's okay about the next year. For the Q4. Whose concerts are already prepared. There are some spots, but doesn't change very much. Next year, I prefer to wait but we have to be prepared to the continuous pressure on price.
Unless in our markets, mostly Europe. Something is going to happen in term of the antidumping.
Otherwise, you have
to be prepared for the world.
On the financial charges, Monica, hi, Francesco speaking. If we focus on the net interest expenses, which is the first line for the financial charges. I believe it's quite the trend will be quite linear in the core quarter and I anticipate slightly below EUR 80,000,000, whereas you look at the total net financial charges, including all the other items, I believe we will be between 101,005,000,000 something like that.
Thank you very much. Very clear. Thank you, Monica.
Thank you. And the next question comes from the line of David Barker from Bank of America.
Gentlemen, I hope you're well. A couple of questions from me. Just following up firstly on telecom. I think on the volume side, we talked about customers destocking quite aggressively, since the end of 2019. Where would you say we are in terms of customer inventory levels?
And has that still been having an impact on volumes in that business? And then my second question is kind of two questions rolling to 1 in project. When we think about 2021, obviously your backlog coverage is significantly higher, how should we be thinking about margins and volumes in projects, excluding any COVID impacts. And then I think my kind of follow-up is you talked about some strong tendering activity in submarine in 4Q. Can you just walk through what these key projects are and what the timing of the awards are likely to be for the next, I guess, 6 months on major projects.
Okay. Thank you very much. I'm sorry, but I missed the question. I don't know if Francesco has properly got and wanted to answer.
Yes. He's on, with pleasure. He's was on the telecom. I believe that the question was basically certified yet where we are in terms of our customer destocking. And in general, I believe that the talking particularly in some European count of is taking a bit longer than we anticipated before COVID for quite obvious reasons because I think that some of the largest telecom markets are also the regions mostly impacted by by the COVID pandemic and the COVID pandemic affected all the businesses, which which include some installation and telecom is one of them.
Of course, being the installation of optical cables and fiber cables, certainly lower due to COVID than anticipated before COVID, the destocking is inevitably taking be longer. And this is also why we don't see a strong ramp up of the reasonably good ramp up of telecom volumes as we may have we may have worked 9 months ago.
Customers are still pretty well filled with stock. Is not the case. I don't know if Filip that is on the line. We'd like to come to more properly comment but that is Yes.
I can I can add a quick comment, Valero, if you want? Just to say that there is, what Francesco said is absolutely correct, the destocking takes longer than planned because of COVID. And on top, there is a number of phenomenon that we observe in a few countries, which is the fact that due to COVID, but the priority has been given to connecting the homes and the users. Which means less work on the backhaul of the network and more work on the access which means smaller cables with less fiber into these cables. So the double effect is indeed having having an impact on the destocking?
That's a very clear sign that we have that the increase of the drop table, the few fibers is extremely high. Reason why our capacity is under pressure there, but unfortunately, the high fiber count capacity is not. That's because also due to the COVID impact, many customers, many utilities needs to connect as much as possible the customers to the system.
Great. And the second question just on projects. Did you guys get that?
On projects, which was the question, sorry?
No, it's essentially, I was asking your backlog coverage for 2021 is obviously higher than 2020. Can we think getting some more normalized levels of margin in projects next year after a kind of step down this year.
Yes and no. In the sense that I don't see a trend that may over saturate the capacity? The capacity is going to be saturated. I don't see consequently significant increase of the prices, although because as soon as prices are going to be better, competitors are going to increase the capacity very quickly. So it's not the asset I would like to to leverage on.
Prices, difficultly. We are lucky if also for projects, prices are going to be stable. I believe that Hakan is on the line.
Yes, I am.
I can't push your opinion.
Let me say for the coming year, the last quarter order intake is going to be important for us. Therefore, I would not comment, without seeing the outcomes of the project that you were mentioning, that we are currently awaiting an award or, practically discussing? I agree with Valerio that there is a significant increase in the capacity, announcement of the competitors, which is going to also have an effect on the pricing. But I think there are significant projects right now in the 4th quarter that we are expecting let's say that it's going to be clear, who is going to be awarded. And, after that, I think it will be much easier to comment on the 2020.
Okay, fantastic. Thank you for the answers. I'll go in the queue.
You're welcome.
Thank you. And the next question comes from the line of akash Gupta from JP Morgan. Please ask your question. Your line is now open.
Good afternoon, everybody. Thanks for your time. My first question is a follow-up on project business. I mean, if you look at the backlog, which is at all time high, can you provide us some indication of how should we think about top line or project business in 2021 given year to date, it is down double digit and probably you will end 2020 with double digit decline in project organic sales growth. So if we look at 2021, can we come back to 2019 levels or will it take longer for you to come back on 2019 sales level in the project business?
So that's the question number 1.
Okay, Akash. Thank you very much. Obviously, under the in brackets control of Acan, Let me tell you that 2021, I would advise that to comment on, the next year. That the project has an altered backlog sufficiently strong, not completely full, and then that's not good, but, advanced. I believe that the 2021, it would be the 1st year in 2 weeks after the drop of of the previous decade, the projects will start to reconsider giving us some satisfaction in terms of performance.
At hand, do you agree or not?
I certainly agree, Valerio, and I would like to repeat what you have said also before. The project let's say order entry is high, but if we see the German corridors that are in multiple years dispersed, The remainder capacity is still to be filled. And from that perspective, we are very much dependent on the 4th quarter's order entry to comment on the coming year. I would repeat myself. But if I look through the tender activity, I can say, I can repeat what Valerio said that we are seeing opportunity to improve the coming year, as Valerio stated.
High hope, in other words, that in the next quarters, some order will come for the extruded capacity that will protect our 2021 and following the years performance provided that our competitors are not going to be so greedy to drop the price to take the orders.
Thank you. And my second question is on full year guidance So you are reiterating $800,000,000 to $850,000,000 EBITDA guidance range. And I'm particularly surprised the lower end of the guidance range because that would imply $153,000,000 EBITDA. And given that at the height of lockdowns, you did $197,000,000 in Q1 and more than $200,000,000 in Q2. Why we are why you are not saying that we should be ending the year at the upper half of the guidance range towards the upper end.
Okay, Akash. Let me give you the satisfaction. I believe that provided that the COVID second wave is not going to create dramatic disruption, despite the almost the 20,000,000, 25,000,000 scale down due to the exchange rate effect, we are going to close in the surrounding the 85084850. Is that the question for you?
Yes, thank you. I'll go back in queue now.
Thank you. And the next question comes from the line of Sean McLoughlin from HSBC. Please ask your question. Your line is now open.
A couple from me, if I may. Firstly, on General Cable, you've got the 1,000,000 of synergies. And it sounds like that is in the final target. I'm wondering, what is the scope potentially over the next 6 to 12 months for further improvements? For example, in Iberia, as you say, when integration are ongoing.
Should we, in fact, consider 175 as a final number?
Okay. So later, you have to put the end, the word end at a transition. It's clear that, is not completely over, just in case we are going to close in November, one important plant of dryer cable in Spain.
That's,
by the way, is not going to change the numbers. And then 2 years after, the all the other situation have changed so much that continuing to count the synergies and blah blah blah is a little bit lost of time. That's why it has I don't see any significant goal to transfer to you for the next 6, 12 months the generic liquidity ish.
Understood. Thank you. I suppose building on the general cable, I mean, it's impressive to see the strength now of your North America business, the profitability of your North America business. I'm just wondering what is the opportunity that you see for maybe cross selling regionally in the energy segment 2 other regions to drive profitability across other regions.
The cross sellings in North America are quite evident, We are selling these products of the replacement perimeter into the general cable, the commercial the ground and vice versa. I'm very happy with the cross cross selling opportunities we generate. For instance, we are selling to some of the customers of the of the prison perimeter, the overdraft lines made by General Cable.
Thanks. And then lastly, just on your wind exposure, I think that the market is looking at a peak year in 2020 for installations. Do you get any sense that there's further growth in the U. S?
I think so. Because of the New York, I'm still waiting for the first larger scale offshore wind farm to be built. When and that depends on the administration, obviously. When the American population and regulators will see the advantage coming from the offshore wind energy generation, I believe that there will be a new way, similar to the ones that we have in Europe for developing the the offshore wind. In the meantime, of course, U.
S. Has the has the benefit to have a very large, land side that can be filled with with the turbines for the onshore. But the, the performance of onshore wind is lower than the offshore wind in terms of stability and in terms of power because of the stability. You're welcome. Thank
you. And the next question comes from the line of Max Yates from Credit Suisse. Please ask your question. Your line is now open.
Well, two questions. Just the first one is on, the John and Curidor project. I just wanted to check with your conversations with the customer, are those still from a delivery standpoint on track? And are you still expecting approximately $100,000,000 of revenues to come from the ramp up there in 2021.
Okay. German Correvos are on track. That's on my knowledge. If I can have different, more recent informations, be free to entered into the map. But German corridors are running in line with expectations let's say, the 1st kilometers of cable made in the German And then we may have a more precise and detailed forecast.
Please. I'm sorry.
No, no, go ahead.
I agree. I would like to end the question in a different way. We have no indication so far that the German coders are having any delay. But I want to underline that permits are really right now after the announcement of the awards of the projects are the focus of the utilities and the TSOs and also ours. But so far, we did not see any hiccup.
And we internally are, as Badillo has said, we are already progressing positively with our, let's say, trials and also industrialization of these cables.
Okay. And so yes,
sir. Do not forget that every month, day or year, that the German corridors are not a priority utilities that have built a lot of offshore wind farm capacity in the North Sea are going to use money or not enjoying the green energy available.
Yes. Okay. And just my follow-up was on the offshore wind contracts that we've seen in the UK. This is obviously going to be an important region for offshore wind and it's not somewhere where you, you have played a big role so far in terms of contracts. Is, is that anything to do with the customers?
Is it more because of pricing or is it just you were focused on other projects? And I guess I'm thinking about the round of UK CFDs, which is obviously going to just subsequently generate a large proportion of cable orders.
Max, I understand. Perfect for your question. And then a little bit upset. Because really UK is the land of where everyone is going to play the game. We are fine with it.
We have simply to understand that an offshore wind farm in UK has different risks and the different margins from an interconnection. If we can find an interconnection, we to do the interconnection. If not, we are going to go for an offshore wind farm in U. K.
Okay. So it is the profitability decision.
Yes, but Max is also a matter of saturation of the capacity. Offshore wind farms in UK are more standardized systems. XIP320, 220,175, 150 kilobytes, And obviously, we like to compete and to stay there, but there is always someone that is ready to drop the price to catch the market. We like participate, but it is not our best performance focus.
Could you give us a sense of if interconnections are a 20% EBITDA margin project, where you think some of these more competitive sort of wind contracts are coming out at in terms of profitability on offer for the cable companies. Because it's important because this is quite a big probe barrier.
I understand much, but, I would like not to transfer to the mark it indication on our EBITDA margin.
Thank you. And the next question comes from the line of Alexander Tortorra from Mediobanca. Please ask your question. Your line is now open.
Okay. Thanks. Good evening to everybody. I have three questions, if I may, quick question. The first one is on the U.
S. You mentioned before that the company already achieved an improvement in terms of product mix or upselling. On top of hopefully, it is long, so I waited, in the offshore wind farm. Do you see the opportunity maybe also on the land side on the high voltage? Do you see any potential, let's say, project that may may come in the, let's say, medium term.
The second question is on the net debt. I understood that you confirmed and probably also you see the high end of your guidance on free cash flow side. Can you in part to understand in absolute terms considering that probably you're going to pay, let's say, part of your anti trust fine in Europe. And I don't know if that's also going to see to register, take a shout from the acquisition, the small acquisition you made. Can you help us understand if net debt could be, let's say, touchable, touch below the around, let's say, 2,000,000,000 to shoulder, considering all the factors, so, I told you.
The last point is on the anti dumping investigation. Clearly, this is an outcome that they will be visible in or will it probably 1st quarter or 2 quarters of next year? Do you believe that at a certain point, some telcos that currently are not your customer could decide to diversify their supply and maybe starting also to ask to give me some optical fiber cables. Thanks.
First
question,
The first question is a very interesting question. I believe that the the volumes we have been able to catch in, in the market. We are going to be able to keep at least as market share. Then obviously, if there is scaled down of the market due to the Expiration of the incentive that's in touch as to. On the other side, IC, I said that some additional opportunities for the extra voltage and interconnection, especially in Germany.
Because there is no way that there will be a continuation of installation of gigawatt hours in North Sea and the power has to be bring down south. Consequently, other in brackets, sued link or German corridors in the next years. About the debt, I leave the floor to Francesco Fakini.
Yes. Good evening, Alessandro. To cut it yes, to cut it short, if we I think if we point our free cash flow to the by the end of the guidance, just for simplicity's sake, EUR 300,000,000. And we account for all the impact that you have mentioned, name by name, the farther cash outs that most likely we will face on the antitrust, the we factor in the full cash effect of the Canadian acquisition that I believe will take place by year end. Of course, we consider they already distributed $70,000,000 dividend and the, IFRS 6 the impact for the period 2020.
And then we have also to consider some impact on our financial position coming from the currency devaluation, which is touching our cash positions. I think it's realistic to expect an NFP, which is broadly in line, maybe slightly lower than December 2019. December 2019 was $2140,000,000. I think that the good target would be to stay slightly below that
Okay.
And the next question comes from the line of Luigi
maybe that there was a third question by Alessandra on anti dumping. Yes, thanks. Is that correct? Anti dumping, I have some doubt maybe that some of the customers will say it about the source they're gonna utilize for date network. I've been in touch with one of them, And they told me that the price is the price.
Then if there would be a dumping case, and an increase of the of the tariffs That means we should be the supplier. But for the time being, we don't see any movement in that direction. Did you confirm it or not?
Yes, I found out a good evening, Alessandro. I would express the points in a different way. Because even if there is a very if anti dumping measures are decided, It will not eliminate competition. By the way, it's not the intention because there are many suppliers presented Europe first. And second, there are also non Chinese suppliers entering into Europe also with low prices.
The intention with that is to reestablish the normal field of competition, which I mean will not eliminate the price pressure we can have, but will eliminate the suppliers that are using unfair practices. Like government subsidies or selling below their costs, for instance. This is what we expect. So I'm not expecting too much of the major change on the price pressure, but one could hope a stabilization of prices. In any case, they are already extremely low.
And more than the sanitized processes in the market. That's what I would expect the most from this personally. And then, of course, as you know, most of the operators in the Western countries are already our customers. They will keep on doing tenders they will keep on putting us in competition, which is the normal game. And I hope we can, we can gain more market share in the future again, but it's not necessarily directly linked to the anti dumping.
Thank you. And the next question comes from the line of Luigi Dibelis from Equita. Please ask your question. Your line is now open.
Yes, good afternoon. I have three questions. And the first one is on the project business. Can you elaborate on the meeting pipeline for the coming quarters and trying to figure out the size of the set for 2021 compared to 2020. And trying to elaborate if it's more skewed on summer in Orlando, Winds Fargo interconnection?
And the second question on the projects, based on your visibility, how is the saturation of the plants in the summer in industry as of today after a good order flows in 2020? And the last question on the telecom business, can you elaborate on visibility you have on demand in this business now. In particular, do you expect your return to a positive top line organic growth from Q4 or early 2021? And how do you see demand volume of optical in Europe, China, U. S.
Going into 2021. Thank you.
Okay. Thank you very much, Luigi. Let me try to give you an answer about the first question. Coming quarters, projects. There are many projects coming, many tenders.
Then I've seen that there are there is 1 or 2 players that are extremely greedy in looking for tenders, looking for acquiring business at a very low margins or at least for us, successful margins. We follow cautiously. We are not gonna open kind of war on price because the prices once are destroyed are not going to get back So I see a good flow of order income. The margins are not going to grow. Hopefully, we are not going to destroy the margins in the next quarter.
Saturation of plants, saturation of plants is a I'm sorry, there is a strong noise I don't know where it's coming from. Saturation of plants in 2020 seems to be in 2020, 2021. Seems to be pretty good. We have only some room in the extruded capacity. And it depends on the next adjudication of the coming tenders, the already come tenders.
If we are going to have the saturation fully booked or not, I think, yes. Because our competitors have already feel that their mouths, they stomage. The demand in telecom, the demand in telecom, I don't see, frankly speaking, a very big rebound. What I've seen, what we have seen and I asked the help of Filipe, quite significant rebound of the demand only in USA for the rural broadband. That is a very important matter in terms of trend.
Why? Because the pandemic has created the demand of connection of broadband, even in the rural area. In order to let the people talk, to let the people go school, remotely. And that's a good sign. Unfortunately, the density of fibers for the cables required for those cables for those network is, is lower, consequently.
There will be a pretty good saturation of the telecom cable, not very strong from the fibers. I don't know if affiliate has a different view on it.
Yes. I agree with what you said, Valerio. I think we are informed in terms of visibility of a solid U. S. Market.
We believe the U. S. Market is growing. The view is short in Europe. And I would say basically, I would expect a market growth in 2021 mainly driven by the U.
S. But with a big question mark about COVID because 2020 was impacted by COVID. And I think here now we are in Nova in the very end of October. And it seems that COVID will impact also 2021. So it's very difficult to predict.
You're welcome, UJ.
Thank you. And the next question comes from the line of Lucy Carrier from Morgan Stanley. Please ask your question Your line is now open.
Hi, good afternoon gentlemen. And thanks for taking my question. I have just a few left. 1 was hoping if you could comment maybe on the margin quality you are seeing in your backlog for the industrial business and also how long this backlog is bringing you to I. E.
How long is the visibility you have on this division?
Hi, Lucy. Sorry. Just to clarify, the margin quality in our Industrial Business, you said?
Yes, correct. Because I know sometimes depending the mix you have of business, it has quite a lot of impact on the
On the margin levels?
Yes, Drew. No, I
we don't see any significant change in the level of the margins for the industrial business. Why? Because from one side, we have seen a strong decline of automotive business that is up very low margin with on the other side, we are not seeing yet an increase of the heavy industrial business like the crane, mining, mining, slowing down. But overall oil and gas is out of the game. And overall, the margin quality is pretty stable.
Thank you. And just maybe a follow-up on telecom. It wasn't the earlier question, and apologies if I misunderstood, but I think you were saying you're not expecting So not expecting the margin to be above 15% by year end in telecom. By year end, do you mean the full quarter? Or do you mean actually the full year 2020?
Because obviously after 3 quarter, you are above that, that 15% threshold, if I'm not mistaken.
Okay. It depends. My answer was, added with more generic, meaning that I don't see the telecom business margins going up. If we are lucky, we should be able to keep where they are for the full year. And hopefully in the first quarter of last year.
You have to remember that the very bad result of the tender in the second quarter this year in China the China Telecom 1 has reduced the fact that dramatically the prices of fibers. And that's one way or another is gonna spread all over the world. Dropped in the margins.
Thank you very much for
Thank you. And the next question comes from the line of Gabrielle Gamba Rova from Banco Arcos. Please ask your question. Your line is now open.
Yes. Good evening. Thanks for taking my two questions. The first is just a curiosity on the leonardo da Vinci. You are going to get it in July.
The cable laying vessel. And I was wondering if it is already booked So if it will start generating revenues from day 1, and the second, question is again on projects. Is it possible to know the utilization rate in the third quarter, I mean, it was a reasonably normal quarter, I would say. So I was wondering if it is possible to understand our rules. I mean, what was the capacity utilization?
First of all, the Leonardo Davinci. Leonardo Davinci, we have seen the the the ship completed that has been transferred to Norway for the completion, the final completion, the ship have to be given to us by May, April, May, if I'm not wrong, to complete all the tests. And by July, has to be ready for operating. Is already booked. It's already booked.
Just in case, a hand can correct me, but I doubt to be wrong. The ship is gonna start the installation of Viking.
Yes, correct.
The utilization rate of all the assets in some months I would say that for the paper tables, it's 100% for the extruded cables is lower is something like 80%, 75%. The ships are fully booked. Can you confirm me, or I'm wrong?
Valeri, a further reference of the Q3, I understood, correct? So for Q3, You're correct absolutely correct on the, on your assessment. But if the question is beyond Q3, it's a different question.
Is your question beyond the Q3 or Q3?
No, it was just on Q3. But if you want to give me any information on Q4, I would be more than glad. If you can.
It's better not to do it. I prefer to confirm the actions good accents that to foresee very fantastic future.
Okay. Very last question. Is it possible to understand how many revenues may, I mean, the incremental revenue coming from the Leonardo Vishi more or less?
That's a good question. Because we are internally debating still. The question in other word is, is gonna Leonardo da Vinci to substitute the current ship or to be added to the existing ships. In my opinion, is a substitution. Consequently, the revenues would be slightly higher from the ship from the installation point of view, but not, not labelling, not the growing significantly.
Because my idea is not to keep the current Giulio and cooperative.
Okay. Thank you very much.
This was our last question. Please continue with the closing remarks.
For participating to the 9 months conference call of Prism Group, and good luck to everyone. Bye bye.
Thank you, ladies and gentlemen. That does conclude our conference for today. You for participating. You may all disconnect.