Ladies and gentlemen, thank you for standing by and welcome to the Prismian Group Q1 twenty twenty Financial Results. At this time, all participants in a listen only mode. After the presentation, there will be the opportunity to ask questions. I must also advise you the conference is being recorded today. I would now like to hand over to your host, Valerio Batista, Clean Group's CEO.
Please go ahead.
Hello and good afternoon to everyone. Welcome to the first quarter 2020 financial results conference call of Prisma Group. And let's start with Page 3, the highlights of the quarter. Organic sales growth, unfortunately, negative, not extremely negative, minus 5.4%. Mostly driven by the expected slowdown of the telecom, 19% compared obviously to our first quarter 2019.
That was very, very good. E and I taken it down 3.4%, not very much, mainly because of TNI, whereas PD was going pretty well, especially in North America, +3.6 percent. The results, adjusted EBITDA 197,000,000 7.6% of sales versus the 251 of the previous quarter 2019. With an energy mostly stable with a positive performance in PD partly scattered down by TNI. 2 projects, our profitability that is stable and underground, the high voltage and submarine, But declining in Surf, because obviously, it's linked to the oil and gas market and the submarine telecom as in Quebec.
So we have completed the project that was under execution last year. Telicom Telecom has declined as expected. Reflecting the lower volumes and the price pressure that started in springtime 2019. Partially, we have been able to offset with cost efficiency. On top of it, we go to the dramatic drop of YOC contribution simply because YOC is located in Wuhan, a at the center of the COVID pandemic issue since general.
Net financial debt to 1,000,006, in line with the expectation Not so bad, with a sound cash generation confirmed by the last 12 months free cash flow, at $538,000,000. That's because, obviously, we are taking care as much as possible of the cash. And we are very, very prudent in growing the volumes if not with appropriate payments. German corridors, we have been awarded by 2 customers pseudos to Link and Aynor by roughly 500,000,000 project, 500,000,000 value each 1. Technically, that represents 50% of both the projects.
The outlook for 2020, obviously we released the outlook on 5th March, but we have to hydro because the uncertainty is extremely high And the lack of visibility during this crazy pandemic, do not let us to have a clear view of where are we going to go by the year? Let's flip to Page 4 and have a look of the numbers. Sales, Q1 twenty nineteen, two billion seven seventy one We closed the first quarter 2020 at EUR 2,587,087,000,000 with an organic decline, as I said, -5.4 percent. The related adjusted EBITDA from $251,000,000 scaled down to 197.6 percent of the sales. Of course, not as strong as it has been 1 years ago.
The working capital, one of the chapter we take care as much as possible, 1,000,000,000 1,000,000 compared to the level of 1,361,000,000 of the same month March 2019. December, obviously, was lower, 749,6.5%, but there is the seasonal that this is significantly different. Net financial debt of the company, 2.06 at the end of March, comparable with the $2,900,000,000 of March 2019 and 2.40 in December 90, again, with Mr. Patrick. Let's move to Page 5.
The case and adjusted EBITDA by business. Starting with projects, sales at $347,000,000 with an organic decline of minus 5.5%. The EBITDA has been $36,000,000 compared to the $39,000,000 of the previous year, the first quarter obviously. The marginality is very similar to 10.4 instead of 10.6. What's good was not good.
The organic decline has been driven by surf and submarine telecom. The COVID has a certain, I started to have a certain effect mostly on the output of certain plans. Especially in South Europe, because a significant part of our high voltage is produced in South Europe, France, and Italy. But the tendering activity is going forward very well. So we are reasonably confident in the next quarters.
Let's move to energy. Energy closed the sales at 1,000,008 With an organic decline of 2.4 percent, E and I, EUR 1,239,239 with minus 3.4 percent. The total EBITDA from $69,000,000 is carried to 68. Consequently almost equal, with a slightly higher contribution, EBITDA margin. The organic decline has been driven by TNI in South Europe and LatAm, and partly in the overhead lives.
Improvement profitability in power distribution. Mostly in North America, North America has performed extremely well in the first quarter. Slightly down in TNI. The construction market is one of the most volatile market and consequently, has started to feel the COVID problem as fast as possible. Industrial Network Components $598,000,000 in the first quarter, it's an organic smooth decline of 0.3%.
The EBITDA moved from $41,000,000 to $45,000,000 and the EBITDA margin went up from $6,900,000 to 7.5. The profitability has improved, thanks mostly to the mix. And the OEM has shown resilience that is even due to the longer order backlog than the TNI. Automotive is is a problem, but has not shown itself in the first quarter or if not in the second part of the March month. Telecom, telecom 352,000,000 minus 19 percent of on organic growth.
With a significant drop as expected from $80,000,000 to $48,000,000. Keeping any way a decent EBITDA margin of 15.6%. The significant drop off was expected due to the crisis of the market. On top of it, we have to consider that for us, the YOC First Quarter has impacted dramatically from $8,000,000 to $1,000,000 simply because the COVID effect in YOC based in Wuhan has been the entire quarter, differently from the rest of the world. So overall, EUR 2,587,000,000,000 minus 5.4 percent EBITDA from EUR 2.31 to 197 keeping a 7.6% EBITDA margin on the total sales.
Moving to Page 6. German corridors. It was a decision, and I told you in the previous meetings that German corridors were going to be awarded by the summer 2020. 2 of the 3 are already awarded pseudos link and A North, we made we released the announcement of A North this morning. Simply because those are already 3 1000 kilometer of cables.
We have been awarded, rounding the numbers roughly 50% of the two projects. For a total award of 1,000,000,000. Superlink has to come. And is going to be officially awarded in the next month. We are going to negotiate with seed link in the next weeks.
We closed the negotiation. Not to forget that seed link is more or less the double, if not more than the other 2, right? So it's an extremely challenging and important project. From the geography point of view, the sales and EBITDA are showing that in EMEA, closer with EUR 1,375,000,000 minus 6.1 percent. And the EBITDA went down from $109,000,000 to $85,000,000.
So weak performance of EMEA Why? Because in the second half of the of March month, the market really collapsed, especially the fast market that is TNI. South Europe UK has been almost blocked by the COVID as well as partly telecom have been the weakest business in the region. North America very resilient, 864,000,000 with 3.6 percent organic growth, And outstanding, I would say, performance in term of EBITDA and EBITDA margin, you see from $85,000,000 to $97,000,000 with an 11.3% EBITDA margin particularly strong has been the PD. TNI not so bad in the second half of March, TNI started to show in the USA, and we are going to see the effect of it in the second quarter.
Latin America Latin America is another region seriously impacted by the COVID spread, $180,000,000 with minus 14.6 percent in term of organic decline. The margins went down from 22000000 to14.9percent, The performance, the pretty bad performance comes from TNI And Parkly Telecom in that region. As a part $168,000,000 sales with an organic decline that is very strong, minus 25%. But we have to consider that the COVID spread started in China and in Asia, generally speaking. The first quarter has been the most difficult in China.
Reason why our EBITDA in the region went disappeared from $15,000,000 last year to $1,000,000 only this year. Okay. Let's move to page 8.
Excuse me?
Page 9, how the company is acting in this particular environment? We decided the priorities. And the priority number 1, we said that has been to protect the group employees, the people. The second one would be to protect profitability, and most of all, the cash flow, the third one to serve the customers and the 4th one to support the surrounding, the people around us, the community. What we did to Safeguard, the group employees We decided not to fire anyone maybe to reduce the level of activity of everyone, paying a little bit everyone for it, We have, as of yesterday, 42 employees, positive to COVID, out of 29,000.
So a very limited numbers. The remote working, we started to implement before the lockdown of the countries. Thanks to our IT systems. And we have been able to work reasonably well despite we are not able to be in the office. And we are protecting our people with all the masks and gloves and whatever we have.
Profitability and cash flow. We decided to cut part of the fixed cost of the company, not to hire anyone and we utilize the temporary layoff in line with the government authorizations. Most of all, we focused the cash flow because once the crisis comes, The first item you have to look at is the cash flow, is the cash position of the company. And apply if customer was not giving us a reasonable comfort in the possibility to receive the goods and most of all, to pay it. It's better not to sell than to sell Luzin Detopnik.
Support of operations, our supply chain is running reasonably well. I have to say, obviously, in South Europe, especially we are, significantly touched by the COVID spread, but we have been able to keep the supply chain properly running giving the service as much as possible to our customers. And we plan production orders every day and we replay all the system data system every week. Finally, we participated that helping the communities We donated the cables for the hospitals in China, the first two hospitals that have been realized that for the COVID in Italy, in Brazil, other than other actions. We have to we did in order to help the communities.
Flipping to Page 10, how the things are going. Hey, Israel. Robert, this is Pokemon. Because we used to give you the first quarter, but in that case, we have decided to give you a light on the trend of the 1st 4 months. And you see it by region comparing for E and I only.
A trading update. As you can see, you can see in the continuous line, the 2019, in the dotted line, the 2020. Starting from the left, North America. North America has been going reasonably well, especially in the 1st 2 months, then March started a little bit to reduce the speed and April, we are seeing a modest decline. South America is much worst.
And compared to last year, April is significantly down. That's because the spread of the virus seems to be stronger in South America than in the rest of
the world today.
UK, you know better than me, but UK at the beginning of the year resisted completely to the COVID. Spread, then March April, the volumes went down dramatically. Everything has been locked and, as a consequence, the volumes are significantly down. More or less the same of South Europe. Not Europe and CEE.
So the rest of Europe is by that's going to pretty in line with the previous year. That's because the drivers in that region is not so hard. And the stop of the economical activities have not been introduced strongly. Hopefully, not fully binding. Finally, Asia Pac, Asia Pac, especially China has been the first to suffer the COVID impact And obviously, also for the E and I market is pretty visible.
But we are not very big in Asia Pac, but consequently, doesn't change a lot of our numbers. Looking ahead, Page 12, we have entered into the pandemic with a strong fundamentals The business, the geographical mix, the balance sheet is strong. We have a supply chain that is running pretty well, we are able to manage the supply chain and the customers from remote, and the organization is lean. Not enough in my opinion, but it's clean. The secular drivers, the big drivers of our business, the energy transition, the telecommunication network, validifications are untouched.
The COVID is a one off That has come and hopefully is going to leave as quick as possible. The Q2 will not be an easy task. That's clear because most of the effect of COVID in our markets are going to be deployed in the second quarter. And we have seen with April already, What we have to do, chapter 1, protect the cash, chapter 2, serve the customers, and trying to maximize what can we do for the market. Avoiding always to create extra stock I leave the floor now.
To consist for the details of the economics.
Thank you, Valerio. Good evening to everybody. As usual, let me start from Page 14, the profit and loss statement. As Valerio commented, organic growth was negative for around 5%, 5.24 defend driven down by the optical cable drop, which was a double digit drop, what Valerio already explained, and a drop in energy and infrastructure, which started in March. And it, particularly, some regions, was very differentiated region by region, much heavier in South Europe and UK as for Europe.
In Latin America, of course, very heavy in Asia Pacific, specifically in China, which was it for the entire quarter. Whereas, North America, specifically in PD, but also in TNI held up relatively well. The organic growth was much more stable in the project business. You see a negative time, but it is mainly related to the oil and gas driven surface. And that was pretty flat in the industrial business.
Thanks to the relatively longer order backlogs performance, which is protecting the very short term at least. Adjusted EBITDA down to $197,000,000 minus 34 1,000,000. Let me focus on the box, on the top right of this page. Where we quickly, quickly, but quickly bridge the EBITDA from last year. You see that the main drop is affecting the telecom business.
$25,000,000, fully in line with expectation, I have to say. And on top of that, minus $7,000,000 coming from the very tough first quarter YOC. A much more stable project and even slightly better than last year, the energy business. Of course, in the energy business, we have 2 completely different speeds. We have North America, seen in the geographic results, in the regional results, growing very significantly in power distribution and the industrial business.
Is, from last year, whereas some regions in Europe and the entire Asia Pac much more seriously affected by the COVID crisis. Adjustments, pretty much in line with last year in terms of restructuring charges, whereas we had a, as we expected, a negative impact on the metal derivatives fair value, minus $36,000,000, which is driven by the a very material drop of the copper price. Again, this was no surprise at all. It is a temporary effect on our profit and loss, which will be reversed in the coming quarters in the next two quarters, I would say, and I don't hope it is a non cash effect. A significant decline on financial charges as well and a group net income down to 20 $3,000,000 still positive, down, of course, from the $88,000,000 last year, affected by the operating profitability, read adjusted EBITDA, and also by the negative change of metal derivatives for value.
Let me quickly comment on the following page, the net interest expenses, very nice drop the net interest expenses, the 1st line of the financial charges, which is net interest expenses, is pretty much in line with last year and also the full year will be pretty much in line with last year after having realized the $30,000,000 of synergies coming from the general cable debt refinancing, which was completed very short after the acquisition. Whereas the total financial charges decreased, the farther and benefited of a material reduction are benefiting of a material reduction of hedging cost for a number of technical reasons, from which we will benefit for the entire year. Now on Page 16, pretty good performance on the financial debt, down by $300,000,000 versus the equivalent mark 2019, so $2,600,000,000 with a very strong last 12 months free cash flow generation. And I have to say that even the financial dynamics that we see in the month of March, which, as Valery explained, has been seriously hit in terms of volume, is pretty normal. It's pretty much in line with the normal year, with, for instance, last year, seasonality and the financial dynamics, which gives me and gives us a very good confidence on the capability of Prism keep generating cash in this difficult environment.
The driver the positive driver of the debt has been working capital, you see that compared to March 2019, it has been down by 1,000,000 roughly And this was pushed down by the project division. As a matter of fact, the level of working capital in project was pretty high in March 2019, so was pretty an easy decline. But we also benefit of the paradoxically terms on customer are shorter than our payment terms to supplier. So a reduction the activity volumes, impacted first our receivable and this happened in the first quarter. Whereas the impact on the payable, which is a reduction of the payable materialize a little bit later.
And these will materialize in Q2. So this will explain why our Q1 working capital benefited significantly of the activity drop which will be an effect, which will be, almost totally reversed in Q2. Let me close on Page 17 to comment the outstanding performance in terms of cash generation. Last 12 months, cash generation, free cash flow exceeding the 1,000,000,000, 538
$100,000,000
increase compared to the free cash flow of the full year 2019 And the big difference was achieved in working capital changes. You see a pretty dramatic read that is positive of $228,000,000, again, driven by the project division, which performed working capital pretty flat in the first quarter and also by the receivable net of payable decrease. The restructuring charges on the other end increased a little bit compared to the full year 2019, related to the payments related to the South Europe Industrial Restructuring, which had an economic effect on the profit and loss last year and which will have a financial effect in terms of cash out this year. Let me close with a very important page 18, where I want to highlight the position of our group in terms of liquidity and that profile also to convey our confidence on this position. 1st of all, and most importantly, our confidence on our liquidity position which is extremely strong.
As at the end of March, it is made of 600,000,000 cash cash equivalents on balance sheet, plus a 1,000,000,000 committed revolving credit facility, expiring by the way in 2024 for pretty long and which is fully unutilized, so fully available. And on top another $400,000,000 and rounding number of uncommitted credit lines that given our relationship with the bank system to me are like committed credit lines. This was the first point. The second is the average debt which is pretty good, on average, 3.1 years, which is long. And you see a bottom right the profile of our debt maturities in detail.
And you clearly see that we don't have significant maturities before 2022. And the 2022 maturities that most likely, we have to deal with end of 2021. So we have more than 1 and the other year to deal with that, to start and deal with that, our maturities on the capital market, the Eurobond the convertible bond 0 coupon, respectively, $750,000,000 $500,000,000. Even longer are the maturities on the loan market with the acquisition term loan of $1,000,000,000, which was contracted for General Cable acquisition, expiring in 2023. And even longer, as I mentioned already, the revolving credit facility, which will expire in 2024.
So We are extremely comfortable with our position, both in terms of liquidity and in terms of not being obliged to tackle a short term and urgent debt maturities. Good. I think we can move forward with the Q and
Thank
Your first question comes from Max Yates from Credit Suisse. Please go ahead.
Thank you. Just my first question is on the suitors link and A Nord. Contracts that you've booked. I just wanted to understand given the delivery dates of those are quite far in the future, when do you expect to recognize the revenues for those contracts? Will it be evenly split between now and delivery?
Or can it be kind of more front loaded than that. And as an extension of that question, when you look at your backlog today and the delivery schedules, across your backlog in projects, does it point to you that the 2021 should still be a very strong year of growth both in terms of installations and cable activity or cable production? That's my first question.
Thank you,
let me comment on the timing of the execution of these two very important projects, the pseudo's link and the A Nord. The timing is pretty different in the sense that the pseudo's link should be the project with a fast execution and actually should positively affect our profit and loss already in 2021. So not this year next year. And then should have in our idea pretty linear or pretty stable distribution for, if I'm not wrong, 3 years, that's from 2020 1, differently from for A Nord, which has a longer, which was awarded, more or less with same timing of Sudo's link, as you have seen, but as a longer execution timeframe, and actually should start to affect our profit and loss in 2020 to even 2023. Marginally in 2022 and main impact in 2023 for the simple reason that the delivery time to the customer is much longer in time.
Because is required by the customer. But from a certain point of view, Max, so let me point out that is even better because obviously having everything together may represent a problem. It's better to have more diluted the execution of these projects because the experience to execute is helpful. It is true that we already did the France Spain and the France Italy that is still under completion So we have a certain experience, but that's a different slightly different product and it's better to have a progressive experience in doing it.
Okay. So should I assume when I look at your backlog across the extruded cables across the mass impregnated an installation 2021 should still be a relatively full year? Or are there any gaps that need to be filled by order wins for the rest of this year?
Let's talk about the 2021. For 2021 MI cables is fully booked, constantly no problem on it. The execution problem obviously, right? For extruded cables, this, the SUGOS link is going to help but not over saturating our capacity. So Let me say that in the second half twenty twenty one will be a good part of the year, not extremely buoyant.
Did I answer to your question, Max?
Yes, that's helpful. Just the very final one was on the energy product division, obviously kind of very good performance in Q1. I just wanted to understand when you look at the April developments across E And I And Energy Products as a whole, would we if you showed the margin in the EBITDA, would we see similar resilience to what was shown in Q1, I. E. Did that sort of favorable mix and favorable regional mix still continue into April?
Yes. What has helped us in the first quarter or has been the geographical mix. Because North America is going very well, crossing fingers, I hope that the COVID impact will not damage too much this trend, but I don't believe because the administration needs to keep the the business planning. In the second half, especially the fourth quarter, we expect North America to lower the speed, simply because the incentives are gonna These incentives for the power distribution, renewable energy, the wind farms the land wind farms are expected to complete at least with the current scenario to complete the incentive and consequently to slow down a little bit.
Okay, perfect. Thank you very much.
You're welcome.
Thank you. And your next question comes from Lucy Collier from Morgan Stanley.
I have 3 and I will go one at a time. I was hoping maybe that you could help us to understand a little bit what you see in terms of current trading in your industrial business. You gave us very helpful data on E and I, but I was hoping we could get a bit more color on how we exited first quarter in industrial and what you are seeing so far in the second quarter.
It is not easy because your question is not easy to get an answer, a proper answer. Why? Because obviously, the E and I market is the fastest. We know it's the first to go down and it's the first to ramp up. The industrial business has a different order backlog and have to be differentiated the segment by segment.
For instance, automotive. Automotive is a disaster. Everyone knows, and winners too. We have been almost surprised of a decent resilience in the first quarter. Now the party is over.
And out of our 106 factories, if I'm not wrong, at least 3 are on hold and are automotive plants. Because there are no orders. Obviously, Automotive will be also one of the first to revamp when the business will restart. One is going to happen. It depends on the region, but I strongly believe that in the second quarter, there would be a restart was for automotive.
Had to be clear that the automotive business is not changing our numbers, not significantly. Because the turnover, of course, changed, but the margins are so limited that are not affect positively, nor negatively, our profitability. The other businesses I can give you, the other segments of the business, I can give you some color. Mining mining is not going very well. Let's say, infrastructure, generally speaking, are quite resilient.
Crane has recovered And the rest of the business is almost flattish. Now we have to see the 2nd quarter because the 2nd quarter with the stop of many industrial activities, in Europe may suffer a little bit more. We expect honesty in the second quarter the biggest shrink of the year.
Thank you very much. My second question, if we could go back maybe to the German corridors contract. One of your competitor has publicly stated that they felt the terms of the contract were too risky and the contracts were not necessarily incredibly profitable.
I would
be interested to have your take on what you think about the risk profile of this contract how you think about managing this. And overall, in terms of profitability, when we look at the value per nomitor, it seems significantly higher than what we are seeing sometimes in other land high voltage contracts. So your take as well in terms of the overall ability profile of this contract versus your traditional land high voltage would be helpful?
Thank you, Lucy, for the question. I understand the doubt in brackets. You know the history of Nandu Maturaeste. No, okay. It's, almost less in old story.
I believe, so to be very clear, the term and condition of the contracts are not worst than a typical submarine project are more or less in line. We have been negotiating hardly. Thanks to God. At the end, we found an understanding with the 2 customers, the third one has a still to be finalized, and this is the biggest. I consider the term and condition of these two projects in line with the risk of the other projects.
Especially the submarine. It's clear that there is a difference, which is the difference that there is no one kilometer of 5 25 DC excluded, working underground since years. Cinfident. In order to mitigate this risk, the risk of production at least, we produced 20 kilometers of this cable. At our cost, 10 kilometers for DXLP and 10 kilometers for PILASER.
That was the maximum was possible to execute by ourselves, to protect the risk. Unfortunately, we was not possible to install it and to run the cable for a long time, but let's mitigate as much as possible the risk we suffered with Western adjusted to be very clear because the risk we suffered with Western Link has been the extension of the production from the prototype to the real production and the manipulation, the handling of the cable during the installation. Okay. I have to say that from the reward obviously, that's a very important project. It's a project that are projects that are the milestones for the future of the energy transition.
And that's why we accepted the contractual risks. Because all you are in or you are out. And that's forever. Did I answer to your question, Luce?
Yes, you have. Thank you. Thank you very much. And I guess my last question, you mentioned earlier, some of the medium term perspective for the business, including in telecom, I was I was wondering if you, if you are seeing currently in China, an accelerated level of discussion around the 5G deployment, because some of the commentary we could see was suggesting that part of the stimulus would be to accelerate maybe that deployment. So I was just curious to hear about your channel checks around the 5G deployment in China?
Almost every day, for sure, every Monday, I have a call with our China team to check how the things are moving there, because I consider China at least in the season at the forefront of what's going to happen in the world. Starting from COVID, and we got a lot of informations and lessons from them. Now 5G 5G is gonna come when I cannot tell you because I don't know, For sure, if it's going to come, will not be business for us because we are not Chinese and consequently or we have not considered Chinese. And consequently, we have no access to this business. Of course, the 5G start in China will reduce significantly the pressure on the telecom business in the rest of the world.
Even if today, I have to say we have been able to demonstrate ourselves that we can compete with Chinese, at least out of China. So in Europe, we are the market leader and no doubt. But also in South America, in many endors, we have been able to compete from our sources with the Chinese crazy prices. Obviously, leaving some margin on the table. We don't see for the time being because that was your question.
We don't see a revamp of the demand into China, at least for the time being, a significant revamp Probably we need some more quarters. For sure, the Chinese government wants a need to relaunch the investments, especially in the telecommunications, consequently, I expect that the 5G will start as expected.
Just maybe on that, Valero, if you can you remind us the position of YUFC, in China on fiber, please, the competitive position?
YOC is the market leader in China. Is the market leader is not the double of the number 2, but is the market leader. Now YOC can compete of courts. They, 1 years ago, you remember, the tender of China Mobile in the springtime 2019, They did not accept the crazy prices, put it on the table by other players. And that they have been suffering for, 1 year 6 months.
The drop of the volumes. They are able to beat it. Then prices are not always aligned with the costs. And it depends on the appetite. I believe that YFC is the strongest Chinese player of the market.
Then we do not control, but we we are cooperating with them.
Okay. Thank you very much and stay healthy.
You're welcome, Lucie.
Thank you. And your next question comes from Monica Boscio from Bank of Please go ahead.
Yes, good evening and thanks for taking my questions. The first one is general question. So how do you see the energy project ordering take in the market once the entire German corridor will be fully assigned. Just to have an idea what is coming ahead. And the second question is on the switling It is double in size.
I can imagine also in value terms. Do you expect to get I can imagine a lower share in this last tender. And I was wondering if you if this will require additional CapEx and you can give us an indication of the CapEx for the full year. Thank you very much.
The German corridors have arrived finally because, at least 2 years. I was meeting 1 of the board member of Tenet some years ago. Talking about the German corridors to be executed because the utilities in Germany are losing money because they cannot dispatch and sell all the energy producers by the wind farms in the North Sea. So sooner or later, was a necessity to execute it. Now are on the table, We got 50% of the first 2.
There is the third one, the biggest that counts as much as even more than the others 2 together. And we are in the race. Raised that most probably will be finalized not for the market, but internally in the next 15 days. Being the double of the other 2 I expect to have possibly our market share because we got more than more than our market share in the first two. On the third one, I hope to be able to catch 30% to 25%.
It depends. But I hope to to make you happy. Once you are, you are, swimming because you are in the water, you have to run. Yes. So doing 2000 kilometer or 4000 kilometer hooker.
I can't understand. And how the energy transition process can evolve after we after the German corridor because do you expect a change in pricing other tenders in the next the years, maybe not at the same site?
Not very much. Because unfortunately, once the market grows, the capacity grows too.
Yes.
And going to the your second question, we will need a little bit of additional CapEx for the German Corriedos, but it depends on the result of Sudeilink. If in case we will be forced to invest a little bit in the French plant to increase the capacity for the very high-tech to the extra voltage, but is not a very big number. And anyway, the cap of the CapEx is there, a 200,000,000 Finito.
Okay.
If someone enter someone less important to exit.
Fine.
Okay, then $200,000,000 to $205,000,000 doesn't change very much. Okay. As you know, we have reduced the CapEx for 2020 by EUR 50,000,000, including the new ship. Obviously, that's a quite strong effort, but no way. We must
Thank you. And your next question comes from Akash Gupta from JP Morgan. Please go ahead.
Yes. Hi, Valeri and Francesco. Thanks for your time. My first question is on slide number 10 and thanks for giving the granularity. About these trains by region.
But I'm just wondering that if you had to split out at a group level, how our distribution is doing against CNI. Can you help us understand, is it doing better or worse or especially in month of April, like how the trading has been in power distribution, the distribution number 1?
I leave the floor to Franchesk.
Ayakash, definitely, there is a quite a difference between the trend that we see in place for TNI and the power distribution. In the positive sense for power distribution. In a way, of course, we see a drop of power distribution in Q2 but ending, but the order of magnitude is will be, and this week, clearly, if you're at April, completely different from the one that we see in the construction driven T and I business, which was the first to react negatively to the COVID crisis. I think 15% more or less of our PD volumes are related to North America, to the North America region and even more in terms of profitability. Let me say that so bar and also in April, we are seeing these volumes holding up pretty well.
That's very important because Valerio showed the E and I trend for all the regions, including North America, actually for North America, we should split this into because the trend for P and I in April in North America is already hit by the COVID crisis, much less is the impact for power distribution, which is, by the way, a renewable grid, renewable energy driven, and which is much more stable in the month of April, we hope that we use the term, hope that this stability will be confirmed also in the following months. On the other end, for some European regions, for instance, South Europe, the impact is in place, the negative impact in April and in Q2 in general will be in place also power distribution. But as they all, power distribution is performing and will perform much better because it's strongly driven by the North American locomotive
This is going to be a fact till year end. From the year end onwards, have to be seen because it depends largely on the incentive.
But by the way, Akash, if I may add one point, These strengths of the PD business in North America is also very important from the profitability point of view. Because the level of margins, this applies to P and I as well, but even more to PD is significantly higher in North America. And I have to say that if volumes of PD for North America represents 50% more or less our entire power distribution volume, if we look at contribution marginal EBITDA, it's more twothree or 60%, 65% So the resilience of North America in power distribution, but also in the industrial business is extremely important for the resilience of our overall group result and let me express some confidence on that. Of course, without having any crystal ball, which is
in this period
of time would be highly necessary.
At the end, let me say that we are reasonably happy to have invested so many money in taking over generically.
Thank you. And my second question is on telecom business. I mean, I see that most of Chinese production is coming back online to Wuhan as reopened early this quarter. Maybe if you can talk about what is happening on competitive and dynamic side like what are you seeing on pricing? And given the way how we have seen lockdowns impacting your Q2 performance, is it fair to see that the Q2 margin in telecom could come down to high single digit level?
That's why I don't believe. Frankly speaking, a single digit margin seems to be 2 top remaining should remain in the level of the first quarter. Because you have to consider that in the first quarter, our margins have been impacted seriously by the disappearing YOC. That we expect is going to come back. The prices have been impacted.
That's true But even our costs are going to go down. Consequently, we are able to react and to defend our position. Obviously, in a market like the European market, we cannot give up. We are the market leader, and we have to deposition. In a market like U.
S, we are the number 2 behind Corning. But the price, Chinese are not welcome in the U. S, especially in the telecom business. Consequently, the prices are not so terrible as China and other regions. In South America, we have been we have seen that we are able to compete.
Obviously suffering and paying some margin. In the rest of the world is is a nice game every time tender by tender, sometime we win, sometime we lose, but the price is will not revamp. That's quite true. In a commodity, rarely the price goes up, unless we are going to touch the max capacity available. Sorry, go ahead.
And the Chinese have created so much capacity to the problem of the capacity is not anymore on the table. I don't know if Philippe wants to add anything.
No, hello, everyone. I think what you said in the summary, we We I don't see our margin going down to single digits. For the main reasons earlier you just described. We work hard, as always, we won't let work harder on our costs. And we are able to complete.
That's the essence of what we do. And that in China, we are not direct active. In China, there is YUFC. We are our shareholder, and so we lead, we give it to UFC actually, I expect indeed YFC to have better quarters to come. I have heard about everyone else that China has announced an acceleration of the 5G person.
So far,
it is only worse. I believe it will translate into action you know, at which speed and the next big element to understand the trend in telecom will be the next China more tender that's expected for, if I understand, probably at the end of May or the to this will be a moment in which we will understand that you are trying to think
for you.
Thank you, Philippe.
Thank you. And my final one is on restructuring costs. And you said earlier that you haven't fired anybody since COVID-nineteen crisis, but maybe if you can talk about what should we expect for the full year like should we expect higher restructuring cost? Maybe because you may want to do some restructuring, which was not possible otherwise or should we expect lower? So I think feedback on that would be?
No. First of all, as a result of the COVID crisis, we don't necessarily expect an increase of very structuring costs because as Valerio stated very clearly, how our idea and our confidence is that we'll be able to preserve our workforce without acting on that because of the crisis, although because we believe it's a temporary crisis, so it wouldn't make so much sense. So the COVID should not impact the restructuring costs significantly. In terms of profit and loss of economic impact, the restructuring costs will be significantly lower than last year. Last year, if I'm not mistaken, we had the restructuring cost in the region of 80,000,000 dollars, $85,000,000, I go by memory.
Let me say that we expect more or less 1 half of these restructuring costs, even lesser than 1 half for 2020 from the profit and loss point of view. Differently the picture, for the cash point of view. Because of the cost charges that we took in Q4 due to the Spanish industrial restructuring, will mainly have cash outflows in 2020. Actually, you already see these in Q1. If you take our last 12 months free cash flow chart, you see that the restructuring cost increased compared to the full year 2019, meaning that Q1 in terms of cash outs Q1 2020 was higher than Q1 2019.
And in general, I expect that restructuring costs cash wise will be into in 2020 in line with 2019. So one picture for the profit and loss a different picture from the cash point of view.
Thank you. The next question comes from John McLaughlin from HSBC. Please go ahead.
Thank you, and good afternoon. Can I just come back to the German corridor project? My first question, in March, you said the terms and conditions were not acceptable. So what's changed? Did you receive concessions from the customers or are you simply more comfortable with the risks following your, your 20 kilometer of test runs?
And I'm just thinking on my second question. I'm following a little bit off from my cashier's question. How does COVID impact your synergy targets is for 2020. Is there a risk that some of these are postponed into 2021 and beyond? Thank you.
Thank you, Sean. Now to be clear, on German corridors, we have been negotiating very, very much. With the customers, having Akana in USA, Akana's man that is listening, everything. We spent most of the evening and night during this pandemic lockdown on calls to discuss what could have been accepted and whatnot for all the projects. Akan, can you confirm it?
Yes, Valerio, if you allow me to add, it is always a negotiation as you said. And we were at the very beginning of the negotiations. And, again, it is not very, it's unclear actually to comment on things that are ongoing during a negotiation Therefore, the positions are changing. But what Valerio was saying is absolutely correct, versus the technology and the implementation, we see the terms and conditions, at the final agreement, in line with our expectations. But, definitely, before you start, to have the, the request evaluated, you may have higher expectations.
So the final outcome is pretty in line with our expectations, as Valerio said. So term and conditions are not easy as well as all the other big projects. I think that are manageable. There is the real big risk here is that the technology is not going to work on a larger scale, but obviously, that's a risk that all of us have to take care And I have in front of me, Srini, the head of R&D of the group and He's very confident with what we are doing. Sure.
Can you, the COVID and the impact on synergies? Of course, the COVID is going to delay a little bit everything. But for a minimal number of months. Consequently, in the full year, we don't see significant impact on the due to the spread. We are moving as fast as possible in the South European restructuring.
And we have already closed at one plant and we are going to think when is most convenient for us to close the second one. And that's it, is done. I believe that we can do it as per the plan. Thank you for you.
And your next question comes from David Barker from Bank of America. Please go ahead.
Good evening, everyone. I've got 2 quick questions. Firstly, on cost savings, I think you've given good detail on travel. We know how much that is in the P and L. I was just wondering what are you calling as part of your 5% to 10% of other fixed costs in an absolute number?
And also how much can you save on personnel costs? Is there any possibility you could quantify those two numbers for me? And then secondly, on project clearly margins deteriorated quite significantly versus Q4. Is there any further granularity you can give us on the drag from oil and gas and telecom submarine on margins this quarter?
Okay. Cost synergies, obviously, as soon as the COVID trend has started to hit our our perimeter, we have been thinking how to react because it was essential to reduce breakeven point. You know, that one of my most challenging target is on the fixed cost. And analyzing with the team, we decided to claim for a drop of the fixed cost by EUR 50,000,000,000. How, 1st of all, the travel Secondly, the hiring, reducing the substitution and the hiring of the people blocking the salaries of everyone and all the other expenses that are not vital We have already deployed the goal of 50,000,000.
Now we are in the execution phase. We have been also trying to launch a reduction of the cost of our purchasing raw materials and not only raw materials, everywhere in the world. That's much less trackable than the fixed costs, but we hope to be able to to realize some other cost savings that are variable in that case other than the fixed asking support and help. And Masimo, maybe that can give you some more color because he has already started in USA. 2nd question, projects Your question was the margins projects.
The surfer is, is on hold. That's the problem. We are thinking what to do with the South American surf activity. Why? Because the cost of the oil is a solo today that there is no way for, how, for the oil companies to invest money in the very expensive extraction of oil from deep submarine activity.
We made probably a mistake years ago when we decided to invest in the new plant in Villa area no way, we have to find a solution. And I don't believe that we have a ramp that's most of all, the most important way, because Oil and renewable is a substituting progressively in oil. And that's the benefit for the benefit of those of the people. Consequently, I'm now fully supportive of the switch from oil to Renewable. We are one of the big players for Renewable.
Makes no sense to keep investing in oil. Then we have and we have to manage. Of course, we are not investing there and we are not expecting significant revamp. Maybe that we have revamped, but how the question is for how long? For the telecom submarine, it's more or less the same, is a one off We got a quite good project in Chile.
We executed now if something else will pass from, we come, we will take it. If not, no way. Is not the business we are looking strongly for the time being. We are too little. We are not a dominant player in the telecom submarine business.
And we cannot be the number 1, everyone, everywhere, consequently, be prudent. So in other words, if that's the question, we don't see any significant recovery, if not due to some spot activity coming into our hands.
Understood. Thank you.
And your next question comes from Daniela Corsa from Goldman Sachs. Please go ahead.
Yes, not very well, but.
Okay. Well, anyway, I only have one question left, which is actually a follow-up on these last questions, but it more on looking at the high voltage margin and the fact that, it is, it is kind of flattish year on year. We had had a tough, supply demand balance, over the prior few years, but as yourself, you have had your order intake is recovering, probably getting closer to what your 2014 thesis level of backlog were and across the industry, everyone now has a better, is more utilized. So is there any reason why we shouldn't think that margin could take effectively recover closer to the levels that you had back in, 2016 in terms of profitability, what would be the rush all for that not to happen?
Hi, Daniela Francesco speaking. We already highlighted with the presentation of the full year results that in 2020, we didn't expect any particular increase of margins and results from the project division for the simple reason that the German corridor impact is to come in 2021 and even on a longer timeframe. At the same time, certainly, we are improving a lot our operations and our execution. And this is helping improve margins, but it's a fact that compared to the intake, going back a few years, the recent intake already since a couple of years have come at a slightly lower margins. This was already clarified a few quarters ago, let me say.
And now we are executing some projects, which are a little bit less profitable than the one that we were executing. In the years that you are referring to. So it's possible, in my opinion, to stabilize the level of margin. Of course, we have to work very hard on the execution of the projects on the operations and avoid any minimal e cap and try to recover all the let me say, I'm not calling this price pressure, but the lower margin project mix that we had in the last 12 months, 18 months.
My question was more like as you look out like 2022, 2023, when
It's a very long time frame, man.
Now everyone is at capacity for all the players.
Let me just give you a comment that the by that period of time, we should see a very good impact coming from German corridors, If we assume that we will, as we hope, we'll have our share also on the Suddenlink, we will start and see an impact coming mainly from the Soodos Link in 2021. But then the main key key in terms of impacts and therefore margins will come in 20222023 with the hopefully, certainly, and certainly in order because the in order, we have already been awarded. Difficult to envisage or to anticipate 8, which impacted the German corridors, the German corridors capacity utilization will have on the pricing. Of course, the industry will have a tight capacity, utilization, there is no doubt, because some players are using for the high voltage, the German corridors, the same capacity that they are using for submarine business. So theoretically, one could even expect a tight capacity utilization on the submarine business as well, but in my opinion, we have to wait for the effects to come and see if this theory will translate into reality.
Yeah. Unfortunately, Daniela, the time to go to
grow the capacity is not very long. It's 12 months, 24 months. Consequently, the capacity can be adapted quite quickly. Reasonably quickly. So if, problem of availability will come will be for a limited number of corporates.
If the demand will grow and hope that we continue to grow because after the German corridor, there will be other link to be realized to move the power from one region to the other, into Europe, But the capacity will follow no way.
Okay. Thank you very much. There Thank you. And your next question comes from Alessandro Tostoro from Mediobanca. Please go ahead.
Yes, hi. Good evening to everybody. Okay, Sam asked some question.
I've been
already answered. Just 3, let's say, flash questions. So if I may, the first one is on, the, tax rate I know that the quarterly tax rate is not, let's say, extremely relevant, but if you can give us an idea of say the increase and what's your expectation for the full year? The second question was on, to clear the we saw the results of, let's say, the last end of the in order, and I also saw the presence of Sumitomo. Can you give us, let's say, a comment on that?
Because clearly, if I remind, well, this is, let's say, the first important award, okay, from a non European player for this type of projects. And the last, the last question John, yes, was on the margin on the telecom. Clearly, in the first quarter, we saw very good results considering the minus, let's say, almost 20% decline in organic terms. Do you consider A reasonable guidance, the margin dilution we observed in the first quarter clearly taking out the share related to YFC? Thanks.
Okay. The first question, I leave to Francesco.
The tax rate, the 35%, 35.5% we have put, I think, is a reasonable estimate for the full year. Let me comment that these, of course, as you know, the rate, you estimate based on the forecast, based on the forecast for the full year as the EBT, the earning before tax forecast for the full year. Of course, these COVID crisis doesn't contribute to decrease the tax rate because some geographies and let me highlight, for instance, some countries within South Europe are going to a level of I'm talking not of EBITDA yet, but earning before tax to a level of little loss. And basically when you have some geographies going into a loss, even temporarily, the tax rate normal increase because conservatively or prudently, we don't accrue deferred tax assets on the losses. This just to make an example why the tax rate, normally when the profit and loss is it normally the tax rate tends to tends to increase.
Your second question, the position of Sumitomo in digital corridors. Sumitomo is a very reputable player. We have seen them in the NEEMO project in the submarine, And let me remind you that Sumitomo has his own compound. Similar to our PILASER. It's different, but at the end, it's the same concept.
Consequently for them, it was very important. I understand, to prove the ability to serve the European market that is today the market with today's technology, okay, welcome. What I can say? And that's clearly the appetite of Sumitomo for the European market. So Midomo is a very serious and reputable player.
So I have no doubt that they will be able to execute the project in a proper way. Obviously, maybe not so easy for them to act in an environment that is an European environment. But for sure they'll be able to adapt themselves to it. Telecom margins, the telecom margins we have seen in the first quarter seems to be reasonable. As you have seen, someone, Akash, if I'm not wrong, asked that if we could not be not 1 digit margin.
No, I don't think so. I don't think so. I would call it MB. Because, for the Asian suppliers to further drop the price of the fibers, will not be easy. Will not be easy because we are really running at a very low cost.
Low price. And the cost cannot be shrinked for the time being much more than it's going to be. So I see a modest double digit margin as a reasonable out for the next quarters, at least.
Okay. Okay. And the last question the promise is the last question is on the, working capital on sales. Clearly, this year, considering, let's say, the current results on the 2 German corridors, you are going to get the advanced payments. If I may well, clearly, the guidance now has been suspended, but the EUR 300,000,000 free cash flow was already including the part of the advance payments.
Is it correct?
Correct. Of course.
Okay. Okay. Okay. Okay. Clearly, if I remember, well, we are not talking about that they this success ratio because clearly now we already got 1,000,000,000 and clearly during the last on the last tender.
In theory, can I say that this could be a potential upside for you?
Let me comment on this Alessandro Yes. On the down payment specifically, you can say that. I think that depending on the result of the Suddenlink, we may end up adding an order intake on the German corridors, which is certainly higher and consequently, consequently down payments, which are higher than the ones that we projected in our management plan. Of course, then the project business picture is more complex because you have also milestones to be achieved in Q3 and Q4. These milestones, if you take a normal year, normal implied collections in Q4, between $400,000,000, $500,000,000 collection from customers.
And you understand that depending on also on the COVID crisis and the speed of manufacturing output in the project division, the achievement of these milestones could be, of some milestones or some specific milestones could be slightly delayed. So it may well happen that this upside that we are in down payments is compensated by downsides, I hope not, of course, but by downsides that we have in the achievements of Progyny milestones. This for the project business. Then looking at the entire cash flow picture, as Valerio said, we certainly have a positive effect coming from the lower CapEx because given the environment, we have soundly decided to contain our CapEx level by the $50,000,000 that Vadriel mentioned. I expect that working capital only in all other than project will not have a huge impact throughout the year will have a quarterly impact.
We have seen working capital decrease a lot in Q1 I think we will have partially a partial recovery of working capital in terms of growth in Q2 and then depending on the speed of the recovery in Q4, we will have certainly a buildback or build up of working capital. So frankly speaking, I don't expect working capital will play a major role other than project to affect our yearly cash flow and then what is left is EBITDA. And EBITDA is a direct impact on cash, but let me say that as you have, as you have heard, we have withdrawn our guidance for me take some time to come back on this and update the free cash flow guidance when we will update the adjusted EBITDA guidance.
Okay.
Thank you. And you have one more question from Monica Bossier from Bank of America.
Yes, thank you. Just a very quick follow-up Therma has announced in its strategic business plan roughly billion of investments for the Iranian connection I was just wondering if you can give me some indication because I I understood that the tender for the first tranche of the Iranian link might occur in 2023. And it could be worth just the very first lot roughly 1,000,000. I just I was wondering if you can give me some indication if you have about the weight of the cables in this tender.
Thank you. Okay. Clearly, the Iranian link is going to be a very long connection in the Iranians season. It was planned to have a meeting with the Terna team in April. Unfortunately, we have been obliged to postpone it.
I believe that is a need for, Terna is a need for European community and will happen. If in 2023 or 20 4 or 20 22, I don't know, for the time being, the tender is not yet out. And if the time that will come, we will be there for sure.
Okay. So no, no more detail so far because it's too longer term. Okay.
Not at all. Not at all for the time being, Monica.
Thank you. And your next question comes from Luigi DeBoules from Equita Stream. Please go ahead.
Yes, good evening. Just one question left for me. On the competitive scenario, a more complex macro scenario makes a smaller company more vulnerable and that's probably weaker. How do you think your industry, generally speaking, will be affect by this emergency, do you think you will have higher market share after the crisis? Thank you.
Frankly speaking, Luigi, the answer is not. At least in the short, medium term. Why? Because the crisis obviously may create some trouble, but no one of the competitor is going to bail out at least in the short term. I remember that in 2009, attheendofthesubrankrises Draka suffered the crisis from the financial point of view and the shareholders decided to give up.
And we took over. May happen again? Who knows? Maybe if that's the case, unfortunately, our balance sheet today is not sufficiently strong to take it into consideration if it's a good if it's going to happen to a big target. But maybe 1 or 2 years, Why not?
Thank you.
Thank you. And we have no further questions at this time.
Thank you very much to everyone for participating to this first quarter 2020 financial results conference call of Prism Group and see you the next quarter. Bye bye.
Thank you. That does conclude
our conference. Thank you all for joining. You may now disconnect.