Ladies and gentlemen, thank you for standing by and welcome to the Prismian Group 2019 Full Year Results Conference Call. Answer I would like to advise you that this conference is being recorded today, Thursday, 5th March 2020. I would now like to hand the conference over
Thank you very much. And good afternoon to everyone for the full year 2019 results. Conference call of Prisma Group. Okay. Let's start immediately with the key achievements in 2019.
First of all, strong cash generation, we generated the EUR 433,000,000 proposing at the same time an increase of the dividend to per share from the previous 0.43. A submarine business, a submarine business has started, especially in the last quarter to improve. And the projects of the backlog has been restored over 2,000,000,000, almost 2 years roughly. Somewhere in energy order intake has been over 1,300,000,000, consequently more than our output. Projects that are, have been awarded to us, the Viking link, the Dolwin Five, the Vineyard Wind and the NNG Offshore Wind Farm.
Last but not least, the Western Link has been commissioned. Synergies and the general cable integration. The synergies has reached 140,000,000 in the original plan, it was expected to be in $120,000,000. So it is faster than expected. Our focus is today, even on ESG.
We are in the Dow Jones Sustainability Index, we are the number 2 in the valuation of the downhole Sustainability. We are confirming the other indexes like FTSE4Good, standard ethics, and so on. And the engagement result for the Prisma employees is 67. Not so bad. Let's flip to the following page.
The financial highlights of the full Piazza Adjusted EBITDA reached $1,070,000,000 $7,000,000, 8.7% of sales compared to the previous year at the third, the 167, obviously, with the Western Link provisions we did. Energy is going well with a solid trend in ANI and consolidated ANI and PD especially in North American LatAm. Industrial network component is improving. If we take into consideration, mainly the fact automotive business has been a declining business in 2019. Projects.
The projects, as I said, had a very good performance in the last quarter, that was anticipated in our 9 months conference call, vice versa, mainly due to the very low order intake in 2018. The total result, full year result has not been extremely good. Has been scaling down a little bit. Telecom. Telecom had a very good performance in North America, stable in Europe, but the lower in Asia Pac due to a lower contribution of YFC.
And in Health II, we have started to see the decline of the volumes and partly of the prices. To be noted that 2019 include the $47,000,000 of IFRS 16 application positive impact. Free cash flow, that's, I believe, is the best performance of the company. EUR 453,000,000, with the net financial debt that closed at EUR 2,140,000,000 or 1 $1,971,000,000, excluding the IFRS 16 impact of 169,000,000. Let's imply is automatically the 453,000,000 free cash flow reported.
On the basis of those results, we propose the board has proposed to increase the dividend to 0.4 point 5 per share with a dividend yield of 2.7 percent. Let's flip to Page 5 financial highlights. Sales have been almost stable, but on on April to April basis, there is a little decline of 0.9%. The adjusted EBITDA vice versa went up significantly from 767 to 10,000,007, of which 47,000,000, as I already said, comes from the IFRS 16 effect. So without the IFRS 16 effect, the EBITDA is for his 900 60,000,000,000.
Reported operative net working capital appears to be growing from 707 to 749 but there is a technicality into it that has increased the operating working capital on sale of the company without a real cash effect. And later Francesco will better explain the reason why. The reported net financial debt is close at $2,140,000,000, of which $169,000,000 is the effect of the IFRS 16 impact. By segment, what we can tell about the segments So the projects that say organic growth in sales of 5.8% negative. That was, in a certain sense, already for senior and expected The good news is that the total amount of EBITDA has increased for projects from 1000000 to 1000000.
Obviously, we have to take into consideration the 1000000 also we did in 2018 for WOSZERLYNQ and consequently, APO2X, or on the same perimeter. As it was foreseen, the low level of orders, order income, of 2018 has costed us $44,000,000 in the total EBITDA. '19 versus 'eighteen, because we have to compare, excluding Western Linked provisions, 265,000,000
versus 2021.
The good note is that the order backlog has finally restored over $2,000,000,000 and the last quarter has had a very high speed in term of acceleration of of the EBITDA. The execution in 2019 went very well. No problems. We delivered to the customer, many projects. Later if I'm not wrong, we are going to see the list of the projects.
The Western Lien, most of all, has been commissioned and delivered to the customer. Energy segment Sales organic growth 0, we have to distinguish between E and I and industrial component. Whereas, E and I went up 0.7% in term of organic growth. Industrial control component continued to be a little bit below the previous year, 1.7%. From the EBITDA performance point of view, E and I traded up from $202,000,000 to $288,000,000.
That's mostly thanks to U. S. And South America. Industrial Network component vice versa went up from EUR 172,000,000 to 184 with our EBITDA margin of 7.4%. The performance here has been particularly strong in power distribution and especially in North And South America.
Overheadlines, that is a new segment in brackets for us because it comes from General Cable. Went and not so big. And the industrial component vice versa has improved the profitability 18, you see it from 6.8percentto7.4percent, driven mainly by OEM, renewables and network components, whereas automotive as expected and as foreseeable went down quite significantly. Telecom. Sales organic growth full year 0.4% with a double speed in the 1st and the second half of the year.
As you can see, in 2018, the EBITDA of telecom closed at that $295,000,000, but in 2019, only at $267,000,000, 16.2 percent of the sales. If we exclude YOC and the 1 off of 2018, The profit of the EBITDA of the segment went slightly up from 2.35 to 2.44. Keeping more or less a very similar EBITDA margin on sales. That's because YOC obviously has has declined quite significantly. And on the right side of the box, you can see that excluding what you see and one off, more or less, we kept the same profitability of the previous year.
Overall, the situation in telecom as we have been commenting in Q3 is not so easy because the demand is has declined, prices have declined and consequently, the market is becoming tougher. I flip to Page 7 by geography And here, we can see that the organic growth of EMEA has been negative for 2.4 percent, except the project business has been down by 1.3%. With total sales of $6,200,000,000 roughly. The total EBITDA of the EMEA region has closed at 467, 7.5 percent of sales compared to the previous year at 5 13. Obviously, we had to consider the better last year in 2018, EMEA, that is the region that delivers the projects, most of the projects have been impacted by 165,000,000 provisions.
North America. North America closed with the 3,000,00441, with an organic growth of 2.6 percent, except the projects which are not going to grow 1.9%. The total that went up from $242,000,000 in 20.18 to $338,000,000 in 20 19, reaching a very good level of 9.8% on sales. This thanks to the strong growth and results increase driven by E and I, mostly PD and partly TNI that has been pretty stable even in Q4. In Q4, vice versa telecom in North America has started to slow down In all the North American region, as well as in the Latin American region, the The integration has supported quite well in term of performance, these two regions.
Latin America, sales at 951 with an organic growth of 0.7% without projects with an organic growth of plus 2 percent. And, EBITDA level that went up from $76,000,000 to $97,000,000, going to 10.4% of the sales. At the end we had we enjoyed accelerated general cable integration, benefiting margins, cross selling opportunities, especially in the South American countries where Prisma was not in the past. And coupled with this bank process, it's not put you at this point. Last but not least, Asia Pac, with a EUR 951,000,000 sales, a negative organic growth of 4.5%, quite significant.
And without projects, with a negative organic growth of 1.4%. The problem here is the EBITDA level of the region that scaled down from 101 to 58. That's why because of the drop due to the telecom, the telecom business in Australia, and most of all, a lower contribution of YFC. Let's flip to Page 8, Synergies from the integration of generic table. We had, we closed at $18,000,000, obviously, if you remember, we were planning $120,000,000 in 2019.
And you remember that the final goal to be reached at day is 175 The actual in 2019 has been $140,000,000. So on the way to reach the 175 by 2021. In the meantime, in 2020, we are having a new target of 155. Most of the synergies have been partly realized We have the most difficult one to realize in 2022 2021. The total costs have been EUR 220,000,000 over the 4 years of the integration.
Let's have a look of Page 10, energy transition. Energy transition is very well known chapter to be addressed. And one of the main area where have to be executed is in Germany. As you know, in Germany, number of gigawatts have been installed in the North Sea. And now we have we have the industry has to bring this power to the users, the users that are in the interland of Germany.
Whereas the generation is on the north coast on the north sea. Totally, we have we expect over 5000 kilometer of cables with a value estimated today over 1,000,000,000. The first order or the first award should happen in the summer this year. The technology choosing by customers has been the 5 25 kilowatt extruded, consequently, or XLP or Pilar. We have both technology qualified.
The projects are 3 pseudo slink that counts for roughly 1100 kilometer of cables. Soodling 2750 kilometer of cables and A north, 1280 kilometer of cables. The technology decided by the customers, 10, 50 Hertz Transnet and the embryo is the 525 XLP or P laser. You can see on the right side of the chart, even the completion date expected from those projects. Flipping to Page 11.
Talking about energy transition again, the success story of Offshore Wind. May you remember or some of you may remember that some years ago, I'm talking about 2009, if I'm not wrong, in my opinion, the offshore wind farms could have been, could that become. 1 of the main generation sources for the green energy. Obviously, This may happen if the cost of the energy is not much higher than the cost of the traditional carbon generated energy. The graph, you can see on the left side of the chart.
That is not our analysis, but this analysis of Goldman Sachs. Show clearly that the global installed capacity was minimal in 20.092 Gigawatt. 4gigawatt in 2011, in 2013, 7gigawatt. So the speed at the beginning has been pretty low. Today, we are in 2019, and there are already solid the 27 gigawatt.
The cost of the equivalent cost of energy, 0 per megawatt hour, has scale it down significantly from EUR 150 to EUR 162. And that's the driver really for the expansion of offshore wind farms. Now I cannot guarantee or comment too much on the forecast in term of the growth of the business. But even if you cut by 50%, the speed of growth of those numbers, thermological towers. There are 2 important chapters.
1st of all, the trend is growing. The speed may be lower. I shall with you that, could be more carefully. Expected at a lower speed. But the crucial point is that the level legalized cost of energy is expected to be in line or below the fossil fuel generation.
And that's
the real driver for the group of
this business.
From the cable point of view, we made an analysis. And if we assume that, as it is, that per each Gigawatt installed it. There are between 2505 100 million of cables, including the submarine cables to connect the offshore wind farm. The inter array wind farm cable and keeping out for the time being because it's is minor. The value of the cables in the tower and in the nutshell.
Almost 45% of the CapEx to develop a wind farm is related to our job, the job of the cable makers. So average Gizawa, we can consider that 45% of the value of the investments And we estimate, but if we assume 1,000,000 per gigawatt, we are not wrong. That is going to generate a significant amount of value for the cable. If you look at 2019, that is today, and the growth year on year from 2017, You can recollect quite easily the market of today. The market of today for some Marine is roughly Let's flip to Page 12.
Taking into consideration the change in the board, especially for transmission, energy transmission, we are developing some new technologies, just in case to serve our better our cost. 1st of all, the 5.25 kilo volt XLP and T laser that is the one that is that has been homologated by us for the German corridors. Secondly, the high debt non metallic carbon cable. Just for you to know, we have already produced and the installment, Elian Drosinos with this kind of technology. And we are now installing the other project, and obviously, as a member, crepe, crepe, peloponnes.
Both with alamides are moving with a much lighter cable that if you extrapolate to a single core, because those are 3 cores, If you extrapolate to a single core is the way for us and for the market to transmit energy across very highly up to 3 thousand meters Valley in the bottom of the sea. That's to give to our customer the possibility to link two areas that have in the middle very deep sea because that's important. And there are projects that are under scrutiny in the market to understand if it's possible and viable financially to do it. From the telecom business point of view, we have the optical fibers. The optical fibers, we launched the 180 micron fiber and the cables.
That's why, because we cannot and makes no sense to fight simply on the price. We have to rise the level of the bar in order to create again between the players that are able and the players that are not. We homologated the 118 microns, having a much higher density for the fiber cables. Have developed the Flexrybon cable up to 6900 fiber per cable. Last but not least, the control of the network for our customers, the monitoring systems that's in the hands of region electronics.
And we developed the DTS distributor sensor. And we are developing other products that will be useful for our customer to control and monitor Dave's network to utilize as much as best as possible delinked data. Let me flip to Page 14, the outlook. Outlook 2020. The outlook is, as a range of 951,000,000,000 in 20.20.
Obviously, I'm very transparent with IFRS 16 in. I don't want to create doubt or apparent tricks. The free cash flow continued to be good to over 300,000,000. And that's included all the cash out for restructuring. We expect projects improving, but a little bit yet.
Not significantly. Not significantly because we have to execute certain projects. We have to continue to execute the project in a flawless way Projects are quite difficult and require a very big effort. Energy. Energy, we expect to have slight grow in North America and Latin America as it has been this year, not maybe so intense as it has been this year, but Not so bad.
Telecom, vice versa is the bad guy of the group. Why? Because the decline in telecom is driven by volume and price pressure. And YOC YOC, obviously, for us, is a contribution only from the results point of view, not from the sales point of view because we do not consolidate the sales. And that is the doubt where it's going to go.
We have to wait for the official release of the results of YOC. I doubt that being YOC in the center in Wuhan, in the center of the Coronavirus epidemic, it will not be easy. We have to wait and see. Check on COVID-ninety. Prisma has implemented the highest possible FETM monitoring standard to manage the control development of COVID.
There are mitigation actions put in place to safe work first of all, the people. That's our mantra. Number 1, we have to protect. The employees. Even if today, we are here working regularly in our end quarter.
As of today, we have no employees infected. All the plants of the group are open and running including the China and Northern Italy. Obviously, both China's Chinese plants and Northern Italy are not working at full speed simply because the people is partly at home. And consequently, we are working at 80% roughly of the capacity. For the time being, there is no been relevant disruption, not in manufacturing, nor in the supply chain activities, with all the possible difficulty that obviously every day will encounter.
Okay. Thank you very much for listening me. I leave the floor to Francisco Fattini for the financial results.
Good evening. Thank you, Valerio. As usual, I start from the profit and loss statement, as Valerio commented, organic growth for the full year is slightly negative 0.09 percent with a slowdown in the 4th quarter, which was substantially driven by the slowdown in the telecom business volumes. EBITDA reached the 1,000,001,000,000,000 7, including $47,000,000 of IFRS 16 impacts. Important to talk maybe on the little box on the right of the page.
You see that before IFRS 16, the fourth quarter as 2017 is substantially in line or slightly above the fourth quarter or the prior year, if you restate that for the Western Link effect, So 116+95, which was $211,000,000, so $6,000,000 higher. And these are mainly thanks to the positive performance of projects 17,000,000 above last year in 2019, the Q4, as expected, the recovery in Q4 as we continue after as expecting a slow start of the year in the 1st 3 quarters. End energy, where growth was confirmed in Q4 as well. Of course, on a slightly more challenging comparables as Q44 2018 had already improved, specifically in North America. Whereas you clearly see the development of telecom excluding YRC throughout the 4th quarter, a very strong first half then reaching a plateau in Q3 and dropping in Q4 with a minus 18,000,000 in terms of telecom.
And then, of course, the drop of wire share results which contributed negatively adding also some positive one offs of 2018 for 1,000,000, EUR 37,000,000. On this page, let me comment very positively the group net income, which was very close to $300,000,000 with a solid Q4 as well, also in consideration of the material restructuring charges that we took in Q4 and also some impairment related to the slowdown of some areas such as, for instance, Southeast Asia. Flipping to page to the following page to commence briefly the adjustments of our on our EBITDA. First of all, we have some positive nonrecurring items. Antitra related positive for $32,000,000, which are coming from a general reassessment of the antitrust provision antitrust risk provision that we decided to decrease a little bit.
Restructuring costs amounted to $85,000,000, sharply up in the 4th quarter. In year to date September, the amount was $17,000,000, so an increase of $68,000,000 in Q4. And this increase is almost reattributable to the footprint, industrial footprint rationalization, which was launched in Southeast Europe, specifically in Spain, that from the P and L profit from the profit and loss point of view impact 2019, whereas, from the cash point of view, will impact 2020. I was mentioning assets impairment when I was commenting the group net income. You see here that we posted a total amount of SEK 36,000,000 which is mostly due to the development of Southeast Asia Business.
And to a lesser extent due to some specific impairment on my and equipment involved in the Spain Industrial Restructuring. I flip to Page 19 to comment the financial charges. Net interest expenses were absolutely in line with our expectation fully realizing the synergies by the first half of this year coming from the General Cable Debt refinancing, which was completed right after the acquisition, but whose benefits went through our profit and loss in the last, basically in in the period from closing to the first half twenty nineteen. Overall, we achieved a major drop of net interest expenses. Just to give you an indication, if I combine the net interest expenses of Trismian Group And General Cable in a pro form a 2017 statement, I current level of net interest expenses is approximately 50,000,501,000,000 lower than 2017.
And this is mainly due to the synergies coming from the refinancing of General Cable debt, which was very expensive, as you all know. Our financial structure was strongly approved during 2019. First of all, in terms of maturities, now we have an average debt maturity, which is well over 3 years. We paid back entirely the acquisition financing bridge for a total original amount of $700,000,000 and Visa was possible, thanks to the massive cash generation that we achieved in 2019 that Valerio has already commenced. And we raised on mainly on the loan market.
Some some specific loans with some financial institutions with a pretty long tenure And also we refinanced in the first half of the year, they are revolving credit facility for 1,000,000,000 for 1,000,000,000 So we are very solid from the point of view, no issue and facing the first important refinancing appointments in 2022, 2023, I'm referring to the capital market refinancing of course. On the balance sheet, let me comment on the dynamic of operating net working capital, apparently rising by approximately $40,000,000 from $707,000,000 to $749,000,000. As Valerie anticipated, this is mainly an accounting effect there's no cash effect. It's mainly coming from the Wester Link Takeover Certificate, which technically closed the project and which basically allowed us to transfer the fraction contracts, which are part of working capital as liabilities to risk provisions. And this technically as these are liabilities, of course, provisions in principle, technically generated an increase of working capital and an increase over provision, which has basically no cash effect.
Apart from these, our working capital was strongly driven down improving, thanks to a very strong 4 months of the project business, which executed and finalized some major projects in Q4 and collected a lot of cash with a free cash flow on a yearly basis, which exceeded the 100,000,000 On the other hand, that was penalized by the, repair costs and also the liquidated damages which were converted into cash related to the Western Link, of course, Net debt, Valerio commented exceptionally good performance, a 2,450,000,000, including IFRS, or $1,970,000,000, excluding IFRS 16, which is a deleveraging and the cash flow generation pretty much above expectation. I would say around 70,000,000 dollars, $80,000,000 better than expected. I'm sure that you remember that I was guiding, starting from the AlphaONE Results 2019 for a net debt without IFRS 16 impact. Around 2050. And actually, we landed with a debt, excluding IFRS 16, at $1970.
So the $18,000,000 improvement or better performance that I was commenting. And also in terms of leverage, we are exactly what we wanted to be with a net debt on EBITDA at 2 times plus something, but a very very strong and positive deleveraging. On Page 21, cash flow, Valerio has already commented on this. This was a record year for $133,000,000, of course, including the $42,000,000 contribution coming also in this case from IFRS 16, but also without that $390,000,000, $391,000,000 to be exact versus the guidance that you can you remember, at 300,000,000 plus minus 10 percent for a real strong performance. This was mainly generated or mainly achieved in the project business, certainly.
In the North American region and also in LatAm region. These are the 3 areas, businesses and regions which contributed so strongly to our cash generation. In the bridge, you clearly see that the main contribution, the main boost came from a cash reduction, our working capital of 1,000,000. And this, as I said, mainly came from business. And you clearly see here also the negative cash impact of our salary income is 1,000,000 and the net $75,000,000 restructuring and integration costs related to the total perimeter which were slightly lower than the $90,000,000 that we anticipated in the guidance.
You remember the $300,000,000 plus minus 10% including the $90,000,000 The structuring cost is $90,000,000, where in reality is slightly lower at $75,000,000 and is also contributed to boost our cash flow. Let me jump to the last page. To briefly comment on the dividend proposal, as Valerie explained, the $0.50 will be our proposal to the upcoming shareholder meeting, plus 15%, sixteen percent from the $0.43 current dividend apart from the some normal swings in the business. I'm obviously referring to telecom. That we may have from time to time depending on the seasonality of this business, this won't really to signal a very strong commitment and the confidence of this company of this group to keep generating a very strong cash flow and to keep the averaging.
So it wants to be a very strong signal of confidence. Very good. I believe I'm finished and we can proceed with the Q And A session.
And the first question comes from the line of Max Yates from Credit Suisse.
Just my first question is around the guidance And on Page 17, you give us quite a helpful bridge to get from sort of 2018 to 2019 EBITDA by division. Obviously conscious the midpoint of guidance is 1,000,000 lower year over year, and you should have the LTI sort of management payments reversing for about EUR 15,000,000. So if you could maybe help us a little bit by division, how we kind of bridge that gap from 1007 down to 985 at the midpoint and what the major moving parts are? That's my first question.
The problem, Max, hi, Hans. Valerio speaking. The problem obviously comes from one very clear. And whether this business is telecom. We have to consider that, compared to the previous year, I mean, the 2019, especially in the first half, we are going to lose a significant amount of new kilos, something like 50,000,000 we expect as a loss in term of profitability of the business.
That's due to the volumes and the related prices. I don't know, I don't know if Francesco wants to add something. No, I think it's very, very clear.
Basically, the bridge just without going too much into details, it is certainly burdened by the telecom business anemic that Valerio is mentioning, which will mainly materialize in the first half, which was you remember, very strong last year in 2019 and then was plateauing in Q3 and was slowing down and dropping at in Q4. We expect these sharp drop in telecom to be driven by volume and price to be only very partially compensated by a recovery in the project business where we are very confident on an improvement, but on a longer term, actually 2021, as we commented also on the guidance page, and also a slight improvement in after the major improvement in 2019 of the energy business. And once again, we expect this to come from North America And South America, but nothing in the magnitude of the improvement that we're seeing in 2019. Then we have the synergies, of course, But as Valerio has commented, we over performed in 2019 in terms of synergies. You see that we have shift, the $140,000,000 versus the target of $120,000,000 year to date 2019.
And this of course, limits the additional synergies that we can achieve in 2020. EUR 15,000,000, which are basically year older by inflation. So it will be difficult to see a further contribution in terms of total fixed cost in 2020. And then last but not least, as you are correctly saying, the fact that 2019 was finalized by the LTI cancellation for $15,000,000, which will be recalled. Provided, of course, the new incentive scheme will be approved by our shareholder meeting in 2020.
This is the bridge Max, I don't know if we have been clear, but I Yes. That's If you add up all the bricks, you should.
That's helpful. And just my second question is just around the telecom business. And I mean, I think we've talked kind of historically about 2 different things for this business. One is the destocking that you've seen with certain customers because the market was previously very tight and some merchants had some bottlenecks The second issue is obviously the overcapacity in China. So could you give a little bit of detail around how long you expect that customer destocking to be a drag on the volumes?
And then also a little bit of color, what you're seeing from the Chinese competition side in telecom, are these now are you seeing sort of more often in kind of frame contracts, local Chinese competitor or Chinese competitor as emerging in those conversations? Or could you give a little bit of color around what you're seeing there?
Max, let me pass the the question to Philippe Banil that is here around the table.
Hello, Max. On the destocking, we see we see the destocking going ahead, for quarters. I mean, we clearly see the destocking effect to last nearly for the whole year. 2020 now. We understand better than 3 months ago where our customers are I think they also understand better themselves where they are because it's quite a complex project to roll out an infrastructure And the consequence is that we do not expect the destocking to be over soon in the year.
If we want to be optimistic, I would say during 4, but I would count that, the 2020 is about destocking.
Just on that is the Q4 organic decline of sort of minus 10% or the second half decline of sort of minus 7% or 8 Is that a is either of those a good proxy for what we should expect for 2020 growth?
Yes, absolutely. It's close enough. Yes. That's also what I expect. Then on the Chinese development today, we see, and without adding the virus issue that is adding some uncertainty on everything.
Of course, we see China still, we see that the Chinese market is not resuming. It's still it even still, as I understand, slightly shrinking again. So of course, the overcapacity that is installed in China, as we all know, is still on. And as a consequence, we see our Chinese and Asian competitors in general being always more aggressive. As you know, we have been we have seen the impact of that aggressiveness, a little bit in with a certain delay because of our existing contracts.
We still have contracts, but of course, with time, we have less and less ongoing contracts. And we see more and more of that pressure. We see, we see this aggressiveness in the market. And I have to say
could I just ask one final question, what do you see do you see this as structurally being the new normal or do you see something on the horizon in the next 2, 3 years that can fundamentally improve the situation? Or or is it realistic to think margins could trend down from where we are today to historic sort of 12% to 14% levels? Can what is ultimately the trigger to change this and improve it?
I think the trigger is the global volume. And the global volume is, as we know, driven by the Chinese volume. So I think in the industry, we more or less all agree with the fact that when China will really launch a significant 5G plan, things could change because we could have again, a trend of a market that would go up more than just a single digit per year, which we all expect in any case. But if China launch would launch a 5G plan in the Chinese way as they always do, meaning in a very strong way, then the overcapacity situation in China could revert but no one expects that very soon. And there are still a lot of uncertainties, technical uncertainties about how to do the 5G.
And, and you know, as always, in China, it's a decision decision government. So it's extremely difficult to predict in terms of timing. So I would say, I personally expect to be under pressure for a couple of years, but I also expect my cost reduction roadmap to keep on paying off year on year and to offset a part of that pressure. I mean, we've been in a very brutal situation in the quarter 4, and we are still in from both the price and the volume perspectives Now we are going to keep on working on what we have always been working on, meaning our costs and our commercial presence. And, our cost reduction offsets a part of the price pressure for sure.
Now it's a matter of time. And the timing in telecom and especially given that situation in China is difficult to predict the phasing is difficult to predict.
If you want an optimistic view, that is not my traditional way of looking at the business, we may expect that being the majority of the Chinese capacity in the in the region, infected the region of China, maybe that the pressure from Chinese will not be so high as it was in the last quarter. Yes. Talking about Thank you very much.
Thank you. And the next question comes from the line of Monica Boscio from Banco Minimini. Please ask your question. Your line is now open.
Yes. Good evening, everyone, and thanks for taking my question. The first question is again on on telecom. Now, maybe the first one is on the on the guidance, which has been set at the very cordially. That's very direct.
Do you feel comfortable, tower, the mid or toward the bottom end of this guidance because the situation is quite uncertain. The telecom cable visibility also on the back of the COVID nineteen is even much more even much worse. And I'm just wondering where do you feel more comfortable? And the second question is on telecom. You have room for cost reduction for telecom.
And this could offset the past of the slowdown in telecom, which is your floor in terms of profitability for the telecom cable business just an idea. Thank you very much.
Okay, Monica. Thank you very much for your questions. So that's not easy, Franc, please. Anyway, it's clear that the situation today is pretty bullet aisle. After, with a little bit of delay, frankly speaking, after the tender of China Telecom China Mobile last year, we cut the CapEx for the capacity, right?
And we focused the remaining CapEx only for the cost reduction. We are progressing during it. And that's a reason also why we are able to keep with the 250,000,000 CapEx the ship inside that was planned to be outside the global CapEx. Okay. Today, so consequently, we are confident to be able to reduce further the cost of the fibers.
I'm not so convinced to continue to invest a lot of money into this chapter, only for the cost reduction. Then, which is the floor, which is the floor is you should ask to the Chinese competitors in reality, because I believe that that's a strong assumption, but I believe that the current price of the fibers in the market It's really already the floor of the Chinese competitors. And sooner or later, I don't know how long it will take. The Chinese will be obliged to rationalize their capacity. Meaning to merge some of their industries.
And they are able to do it because government will take part of it. Obviously, by the way, creating larger and stronger companies. We have to think about this picture because I believe that in the next 1 or 2 years, something will in China and consequently have to happen in the rest of the world.
Okay.
But it's clear that with the current price of the fibers, very few of the players are able to make money.
Okay. Maybe for 2020 would be, in many cases, a tough year. Because it will take time before the consolidation and the rest. So at the end
Sorry, Monica. Say again?
No, no, sorry. The line is very noisy. I can hear you well now.
Hello? Yeah?
Can you hear me?
Yes. We can listen you.
Okay. Sorry. The line was disturbed. Please go ahead. Thank you.
Okay. So consequently, we have to take into consideration that will not happen in the very short term. It will depends of the political support of the made by the Chinese government and the other governments to the industry that are going to be affected. But today, most of the capacity in China is in the Hubei province. And we have to see what's going to happen to them.
Anyway, with the current level of price, of the fibers that have been introduced in the market by the Chinese. We have to consider that not all the players, not the entire capacity that is clearly too much today, it's able to match such kind of prices. Consequently sooner or later, our consolidation in the sector has to happen.
Okay. And on your feeling on the guidance, our the mid part of the guidance or maybe the hip bottom and just a feeling
Monica, the feeling is that the guidance is tough. As usual, we believe to be able to stay in the guidance. Maybe that we will not be in the upper side of the guidance.
Yes. Okay, clear. Add.
It's largely depending also by the Coronavirus effect, because the Coronavirus effect has other implications other than the ones we see today that, for instance, are I give you a little color. Yesterday, our ship was in was going to attract in Singapore port if I'm not wrong. And the authority has refused to receive an Italian shift in the port. We have been obliged in the port. So because now Italians are spreading the coronavirus around the world.
Okay. Got it.
We're not going to have a real consequence in the short term, but we have to take care of it.
Okay, fine. Very clear. Just a follow-up on the financial charges for Francesco, Francesco, sorry, can you give us an idea in terms of financial charges for 2020?
I think substantially flat. I don't I don't see because the synergies have been realized 100%. So plus or minus very few me then few millions, I wouldn't see any big change.
Okay. Thank you very much. Thank
you. Thank you.
And the next question comes from the line of Daniella Foster from Goldman Sachs.
Things. The first one on like you've mapped out very helpfully all the German contracts. Wanted to understand a little bit of sense of like the terms and the of these contracts. It's quite a massive set of projects. And I guess sort of all the cable players will have to contribute somewhat to this.
How does like the pricing, the technical terms on the contracts compare to sort of look at the average, high voltage contracts that you've got over the last few years, if you could give any color on that. That's number one. Number 2, 1 to 2F, like, one of your business new mediator has signed a sort of a frame agreement for submarine with Orsted, which is a little bit different dynamic, to what we're used to in like single one point in time contracts. I'm wondering sort of what's your thinking towards entering in those type of agreements for capacity has a wind offshore expense internationally. And my third point, just wanted to check on the dividend.
It's sort of like been your biggest increase on the dividend in a long time, how shall we think about your dividend policy going forward? And then perhaps sort of, I guess, was quite a a bigger increase than you've done over the past? How do you think about like buybacks and capital allocation going forward now that maybe consolidation is not as much in the agenda. I don't know, just their syndrome listed on capital allocation as well. Thank you.
Thank you, Daniela. 1st of all, German corridors. Yesterday, we were here in our restricted team to discuss about the tendencies of German Corriedos. I don't tell you which one of the 3 till 9 o'clock PM. Why?
Because it's clearly a quite important chapter. I've seen that I've heard that one of our main competitors has has told something about it. We cannot talk about the Ts and Cs of the German corridors during the tender. What I can tell you is that we are not probably going to accept decisions have been submitted to us. Finito, I don't I cannot.
Go more in detail of it. Of course, we don't like and we are not available to take excess of risk into these projects. Pricing From the pricing point of view, German corridors seems not to be so bad, meaning that being a new technology being the very big projects. Key pricing we see are acceptable, At the end, we have 2 pillars in the big high voltage contracts. Decencies and the price.
The acceptable one today is the price. The tendencies is the most difficult one. I don't know if that's sufficient for you. Second point, frame agreement for summary. Okay, we have seen, obviously, the frame agreement that our main competitor took with customer, for the high voltage interconnection.
I'm fine. Appreciated. Makes sense. We are negotiating something else with glass dimmers, something similar to the customers, not for U. S.
Specifically because as of today, we don't have a specific capacity in U. S. But the debts seems to be the style of the purchasing strategy of our customers. That makes sense in order to reduce as much as possible the cost, the megawatt hour of the projects. Make sense, and we have to follow it.
Then as of today, we don't have our plan for summer in North America, who knows what about the future. The last question was related to dividend I leave the floor to ventures to leave announcement to you.
Hi, Daniela. As you have seen, we have decided the first step up our dividend per share to be proposed to our shoulder meeting. I think that this reflects what we did in terms of cash generation in 2019 and what we are planning to do. And you have seen the guidance for 2020. I think it will be important still, of course, after the Generali Cable acquisition, we are at a financial leverage level, which is decreasing, but which is still let me say a bit higher than our average throughout the last cycles, as well as a few the last few years.
So I believe that we will, in the medium term, that's my view, of course, be then discussed with the board in the next few years, we'll be logic the new level of dividend in place. On this, we are confident. Let's really assure that we are not increasing the dividend and then set back the following year. Of course, if we increase the dividend, we increase the dividend with this with the current perimeter because we are confident that this is sustainable and we want to keep this. Then to keep the leveraging and then when we have the leverage farther, let me say to a level, which is a 1.5 or between 1.1.5 times, then we will, at that point in time, we will have a better view in terms of real opportunities, real M and A opportunities in terms of a bolt ons rather than a further consolidation, maybe not as big as we have done recently, but maybe in some geographies, there is still some potential for consolidating the market.
And depending on our assessment of these opportunities, we may even decide to step the DPS farther up because let's face it with a company generating this level of EBITDA and this level of cash flow In theory, we have still room to increase the DPS, depending on the capital allocation strategy, and the opportunities that we see not so much on the organic on the internal investments, but more on the M and A side, more on the acquisition side.
All right. Thank you. Thank
you. And the next question comes from the line of Lucy Karia from Morgan Stanley. Please go ahead. Your line is now open.
Hi, good evening gentlemen. Thanks for taking my question. I actually only have, 2 questions left. One was related the slide you've shown on the offshore wind potential in terms of market. Thanks for that.
It's quite helpful. If I can make the math correctly, you expecting about 50 gigawatts of increase between 2019 to 2023. If we take the average 1,000,000 of value per gigawatt that you've indicated, we are looking roughly at a 1,000,000,000 margin size over 5 years roughly. So it's about 1,000,000,000, a 50% increase to the current market of 1,000,000,000. How do we think about that from your standpoint in terms of one being positioned for that from a geographic standpoint where the projects are going to take place?
But too also to be able to deliver potentially on this growth profile. And I appreciate you mentioned you don't necessarily expect all of this to happen within this timeframe, but then maybe can you indicate a bit more closely what is your your expectation and how you guys continue to deliver on that expectation?
Here, the pessimistic Valerio is coming back. Sorry for saying that. It's clear that there is going to be a group. I frankly speaking, we took the most important analysis on the market. I don't believe that 9 gs per year will be installed in the next years.
Frankly speaking, But simply because 9 Gigawatt means that being each tower today, roughly 10 megawatt means an incredible number of towers. To be built, a solid, connected and so on. It will happen, but with a lower speed. That's the reason why did we consider that the grow is going to come is in place, is not yet in the order of a in the projects queue, not completely, but it's going to happen. Is not a problem of capacity.
Gentlemen, when the market demand, the capacity can be assessed properly in 1 or 2 years. So I used to say that I never see anyone that is missing cables so much. So I believe that will grow that a proper discount has to be done on the yearly number of Gigawatt installed, and there would be sufficient breadth for everyone in the market. Unless like in the fibers, someone is going to invest higher level money to grow too much the capacity in order to see later the price is going down. That is not what we wanted to do.
If I can leave a comment as well, on this page 11 slide, We always like this company to concentrate on this. Of course, we like the long term view and we like the long term vision very much. And we believe very much in that apart from the then the final quantification of that. But we think that kind of estimates are sometimes very solid in for the 1st few years. And then of course, the longer term is there, but is more difficult to be predicted.
So let me focus maybe on the first couple of years of these gigawatt installed projection. So from 27 to 40 5, there is an increase of 18 gigawatt. So let me average these 9 gigawatt per year. Using conservatively the 300,000,000 conversion factor that we have put in this slide, these would land in a market only for offshore wind, which is 2,700,000,000 in my annual market. Only offshore wind, 2,700,000 Then we usually see over the last few years, a market we have seen in the market for the summer interconnections of 1,000,000,001,000,000,000 plus something.
So this would for the period of 2020, 2021, end up in a total market of between, let me say, conservatively, 1,000,000,000, which is, however, very significant, maybe not huge as it is in the longer term, but still a very already of significant improvement and increase of the market. And of course here, we are talking of offshore Wind Farms, we are not talking of interconnectors. We're also the pipeline that we are seeing is very good in terms of projects may be not yet finalized, not yet coming to the market, but very solid, but clearly coming to the market. And then we have also to we are excluding year what is what is coming in strict relation with our Shoe Farm, which is the strengthening of the underground network, of which the German corridor is a clear is a clear outcome. And so we are not We have sued the German corridors on top of this to be very clear.
So even focusing on the shorter on short term part of this slide, this allows us to anticipate a very solid market. And we like very much this perspective.
But we wanted to see the orders.
Absolutely. Also because in this market, we have the we normally we can afford the luxury in terms of time to market of the orders to see the orders as well as you're saying and then follow-up in terms of capex to match to be able to match the growth of the market. Of course, we must be fast and good in doing that, but we normally ask.
The biggest mistake Lucy, that the market can do is on the basis of certain level of expectations to inject money and invest heavily in advance. The result will be, obviously, similar to the fiber in China.
Thank you for this. I guess just maybe to try to put some numbers on this for you. If we are kind of looking at the upper end of what you just indicated, Francesco, close to EUR 4,000,000,000 combined market between the offshore wind and the interconnection in the short to medium term. Your usual market share, depending every year, but about maybe 35%, 40%. So we would be I'm just trying to see or get a sense from you, which type of growth you are expecting for your project business in the short to medium term?
And I appreciate there are some phasing, time of manufacturing, time of installation. But when we look at it, I would say on maybe 2 to 4 year basis. Are we talking about a solid mid single digit growth at least that you think the market can deliver? Or something higher, something lower, because I think for us, we get this forecast from various independent provider, but it's seems to be very difficult to materialize it in the
you know, the left side of the chart, I'm referring to Page 11. The right side of the chart we did because I was very keen in having a potential translation from the Gigawatt going to be installed to the business for summary cable. Keeping on a side of the interconnect mix. That's the reason why we made this assumption of 300,000,000 per gigawatt hour. That makes sense.
Our market share is clearly something in between, as you said, the 45.40%. So mathematically, it's easy. The rough number. We have to take care, most of all, of the ramp up of the Gigawatt installed in the next years. I frankly speaking, don't believe, in the left side, very sharp rise of digital.
I hope to be wrong, but for the time being, our move will be on the line of a more modest growth. Hoping to be wrong. Then everyone can take the decision of how many gigawatt hour gigawatts are going to be installed on the field. Remember also that sooner or later, the available low debt C is not sufficient for all those gigawatts, meaning that sooner or later, the gigawatt hour to be installed in the sea, where the sea is there, that have to be had to become floating. There is no way.
It's a matter of time. Okay. Any other question, Lucy?
Yes. Sorry, I think I was on mute Just my second question quickly was, if you could add some color on the deceleration we've also seen in the fourth quarter, from the more cyclical business. So E And I And Industrial, is that really macro related? How much are you having in terms of visibility right now as you start the year in those more cyclical businesses?
Lucy Francesco speaking, I think that the actually is not a deceleration. I wouldn't define this deceleration. I think that the growth in terms of earnings of EBITDA of energy business was very messy in the first three quarters only because the growth started in the fourth quarter of 20 So 2018, so 2018 provided a significantly stronger or more challenging comparable base. But in terms of margins, in terms of earnings, we didn't see any major difference between the linear or the sequential trend of the 1st 3 quarters and the last quarter. Then of course, there are some upper trends or downtrends in different markets, but this is always part of the game and is always compensating.
Then of course, going to 2020, the sale business, mainly in North America and South America, will not be able to provide the same level of growth because we'll compare with a very solid 2019 throughout the full year. But don't see these 16,000,000 plus in Q4 to be precise as a deceleration of the energy business because it's not
And it's not in our forecast. In our 2020 forecast, we expect energy to be able to slightly
Okay. Thank you very much.
And the next question comes from Asuka Gupta from JP Morgan. Please go ahead. Your line is now open.
Yes. Okay, good. So I have
a couple of questions, please. The first one is on telecom. I mean, We are hearing from some market player that Asian companies or some of the patients supplier for fiber are selling below cost. What likelihood would you assign for potential antidumping duties and maybe kicking off sometime in in 2020. So that's question number 1.
Question number 2 is on cash flow. Maybe if you can talk about what's the assumption is for what capital? And if you get a sizable share in German corridors, then could there be upside on free cash flow for the year? And then the third one is on Italy. Can you talk about if you look at 2019 year as a whole and if you look at sales by destination, then how much exposure you have to Italy both for sales and for production.
Okay. Let me leave Akash, good afternoon. Let me leave the floor to Philippe for the telecom as well.
Hi, Akash. I don't know whether someone is selling below their cost. For sure. There is a suspicion of dumping towards a certain numbers of players. And the association of the cable industry in Europe has decided to look at that point and is now in the process of of acting on this.
I cannot say much more than this, but for sure, there is an association in Europe that is really serious taking care of that. In case the dumping would be proven, then of course, there would be a case. And we do not have yet the conclusion of this but many of us have a strong suspicion, let's say.
And going by previous examples, how long it can take for European Commission to act?
Okay. It's a matter of months for sure. I understand is it could take between 1 2 years. It's not as fast as in some other places like the USA for instance recently or China also. Europe is a slow moving animal from this perspective, but when they go, they can go very serious.
So if, you know, we like because it's the way for us to improve what we do, but it's also absolutely legitimate to fight against unfair practice if unfair practices are proven. That's what we are after as an association and as Priscaming as well, of course.
Akash Francesco speaking on the free cash flow guidance. Let me first comment a little bit more generally and then maybe come down to your question about the down payment function. Basically, we are guiding for a free cash flow that at the midpoint approximately $100,000,000 lower than this year, still very strong but still $100,000,000 lower. To cut it short, this is mainly to do with the fact that this year, we were able to achieve a major in working capital, cash wise, this $92,000,000 that you have seen in the bridge, which is not factored for next year. It's true.
That this is partially compensated by the fact that next year, we will not have the negative impacts coming from liquidated damages of Wester Link, the precursor cost of Wester Link, but still the reduction of working capital that we have shift in the project business this year has been very massive and has driven up our cash flow. Then of course, we have taking our EBITDA guidance some, some lower cash flow coming coming from that front, if taking the range of the guidance that in terms of adjusted EBITDA that we have given. CapEx, I think, will be broadly stable in terms of cash impact, maybe slightly higher restructuring costs because as I said, we took the full profit lost charge of the South Europe Industrial Restructuring in 2019. But cash wise, this will fall 100 and in 2020. And also from tax point of view, I believe that we will have a higher cash out, a higher level of tax paid simply for the reason that our results, our earning the forecast in North America is increasing very sharply and this is partially reflected in 2019 will be normalized in 2020.
Regarding the down payment assumption, I think the down payments, all in all, will not be very different in 2020 from 2019. Of course, we have assumed some, to take some share, let me a in of German corridor business. I think we have made a reasonable assumption. Of course, I will not disclose which assumption we have made, but I can say that we have assumed to take the share for sure. But let me highlight that also last year, we had a major down payment related to the Viking project.
So this explain why in terms of total contribution of down payments, 2020 doesn't look very much different from 2019.
Finally, if I may, I used to say that the bottom of the barrel does not exist in the efficiency. Consequently may be that even if not reported in the target, we settled for the free cash flow maybe that's something from the working capital reduction we may still find.
And then on exposure to Italy for sales and production?
Can you repeat maybe, Akash, because I believe your 3rd question was not coming to us very clearly. I believe you are still planning to repeat it.
Yes. So basically, I was after, if you can disclose how much is Italy contributing to your group revenues and group production and after revenues by destination because you also invoice sales in submarine from Italy. So in your annual report number, we get a bigger number, but sales wide destination is, I believe, is lower than that. Italy?
Italy. Italy. Yes. The sales the sales for the projects, obviously, mostly comes from PPL company. And the PPL company is an Italian company.
But by definition, you mean sales into the Italian domestic market overall?
Yes. Yes.
I think that the sales into the Italian market are sales of our Italian affiliates, excluding the project business. And this is in the region of 1,000,000. So it's quite irrelevant. I would say that it's even more irrelevant from my Italian business colleagues will pardon me. But it's even more irrelevant from the earnings point of view, even more than from the revenues point of view.
So don't be concerned on any.
If you are scared of the Italian market trend, that's not a problem. It's not going to be up to us because it's very limited our participation to the Italian market. Maybe that we have to look at the European market trend because the Europe, the coronavirus is is affecting not only Italy, has started from Italy, unfortunately, but is going to spread all over Europe. And the demand of the market due to it had to be valued is terrific. But there is not a
do you have a number of
do you
have a number for level of production that is taking place in Italy? Because I think you have a marine plant and also optical fiber plant there.
The production is not an issue, believe me. The issue may come from also because our plants are mostly except one, the Merlino one that is in the northern Italy, south side of Milano, all the other plants are in the south. And for the time being, are not affected at all, as I explained it in the last chart. Then the the situation change every day and there is no certainty.
Thank you.
You're welcome.
And the next question comes from the line of David Baker from Bank of America. Please ask your question. Your line is now open.
Good evening gents. Two quick ones from me. Just to go back on 2020. And how are you looking in terms of capacity utilization in high voltage? And are there still some orders that you can fill that remaining actually with?
And then secondly, look, we've clearly been speaking a lot about renewables and offshore wind. And in this context, Are you looking at making any more divestments in the portfolio to kind of refocus the equity story more generally? That's just my 2.
Okay. First of all, the capacity utilization mostly for arrival in 2020. Assuming that as expected, the first order, if any, will come by the summer of this year. We believe that the capacity utilization will not change significantly in 2020. Will be surely fully saturated in 2021.
If we are going to get a significant chunk are going to get an offset and significant for the German creditors. We are not worry because to increase the capacity in high voltage needs of 1 or 2 years, we have already qualified two plans for the German corridors, theoretically 3, if we consider even the Finnish 1, so we can answer The problem in 2021, if the order will be significant, it will be probably to be obliged to switch part of the supplies from European plants to other plants. But we have other capacity available around the world, if needed, namely. U. S, namely China, and we had to reallocate other orders to those 2 plants.
Last but not least, if the quantity of cables would be giant, We have nothing against the idea to invest, but it's the last resort. The second question is about the renewal and offshore wind capacity.
Just more specifically about the portfolio Is there anything that you're thinking of divesting?
Okay. The divestiture we already is already in progress and is the little business of aerospace. I don't believe we need to divest anything else unless useful for us to divest, but we have no offers. For the time being, To cover the CapEx, we have no problem because we have a significant cash flow generation. As you have seen, we have been able to insert in the budget, the CapEx budget of $250,000,000, even the new ship that was out consequently, I don't see significant growth.
Last result, if the boom of offshore wind will require additional CapEx we can increase the CapEx. Why not? Once we have the other demands, we know what we have to do. We have the
And the last question comes from the line of Aleksandra Tourottura from Mediobanca.
Okay, thanks. And if I add the two questions on it, the one on the CapEx probably, you asked about, okay, telling us that would be the last result, okay, to invest in extra incremental CapEx, okay, on Germany. The only question I have is on, let's say, the taxation, the fiscal side. So this year, let's say, 2019, a very tax rate. So I would like from, to understand which level, let's say, of tax rate we may assume for the next year of 2020, 2021, considering, let's say, VA level seen in 2019.
Hi, Alessandro Francesco speaking. I think for next year, you can assume tax rate a few points lower than this, I would take a 30%. You are right. You have spotted very clearly an increase of the tax rate in the last quarter up to 33%. This has to do with a few drivers.
First of all, we have the impairment that as you perfectly know, is non tax deductible as no tax effect. Then the second effect was the restructuring in Spain, which is, of course, driving down the earning before profit of our Spanish legal entities and given the overall level of profitability of these areas, I think it not a given that we will be able to recover these tax losses. And basically, we decided in any case not to activate any deferred tax assets. And last but not least, we have, as I commented, by the way, a major increase of our net income, our earnings in the U. S.
Jurisdictions. This is building up earnings and profits in the U. S. Jurisdictions that sooner or later, we'll need to distribute upstream, our legal chain in the group to be able also to serve dividends to our parent company shareholders. And unfortunately, There is a withholding tax between Italy and North America of 5% and we have decided correctly to post the deferred tax liability on these earnings and profit, at least on the portion that we think is we anticipate to be distributed in the future years.
Okay.
But these are mainly one off effects, right, on 2019, that will be normalized in 2020. And that's why I expect to go back to a 30%. Then with the current legislation, believe me, it's very difficult to to decrease the tax rate below a 30% level with our mix of jurisdictions course.
Okay. Okay.
Thanks.
Thank you. This was the last question.
To all of you to for your participation to the full year 2019 financial result of Prisma Group. Have a good evening and see the next time. Thank you.
Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for participating.