Thank you very much. Good afternoon to everyone. Welcome to the conference call for the nine months 2019 financial result of Prysmian Group. Let's start with the financial highlights as usual. Organic sales has been growing at 0.3%, mostly guided by North America, with an outstanding performance of +3.3%, a solid trend in E&I, driven mostly by power distribution. The growth in telecom has closed in the first nine months at 3.8%, thanks mostly to the optical cable trend. To be noted that in the first half it was 7.8%, considering the third quarter has seen a slowdown. Adjusted EBITDA closed at EUR 773 million, 8.9% of sales, compared to EUR 651 million in the first nine months of 2018, possibly with a quite good recovery and improvement in terms of EBITDA margin. Why is that?
First of all, the integration synergies that are perfectly on track, and let me say, that are going progressively ahead. Energy. Energy has a solid trend in E&I, especially North America and LatAm. The trend in term of margins are good for industrial and network component, with exception of automotive. Projects. Projects have had a result, excluding Western Link, scaling down as it was expected because of the reworks and the activity we have been obliged to activate in order to recover the problems of last quarter 2018 that you know. From the business point of view, Sorry. We have had a very good order intake this year, finally, it's not completely executed yet. Telecom. Telecom is growing progressively.
Still very good, in the last quarter, we have seen a certain reduction of the demand due to the excess of stock created by our customers during the season of shortage. To be noted that in the nine months 2019, we have a positive impact at EBITDA level from IFRS 16 of EUR 30 million. The order backlog for projects has been restored at EUR 2.15 billion. Finally, the net financial debt closed at EUR 3.027 billion. Apples to apples, EUR 2.898 billion before the EUR 129 million additional debt coming from the impact of IFRS 16. It is exactly in line with the guidance. Let's flip to page four, let's look at the sales. EUR 8.635 billion have been the sales of the first nine months 2019, comparable to the EUR 8.712 billion of the first nine months 2018, with an organic growth of 0.3%.
The adjusted EBITDA related to the sales has closed at EUR 773 million in the first nine months 2019, versus EUR 651 million of the same nine months, 2018. To be noted that the EBITDA margin of the first nine months, 2019 is now not so far from the EBITDA margin of the group before the acquisition of General Cable. It was at the time 9.3%, is now 8.9%. Still half a point to be recovered. Operative networking capital. This has been not very good with EUR 1.642 billion versus EUR 1.454 billion, with a 14.7% working capital sales.
That's a level that we are not used to, but is the effect of the projects slowdown in order in 2018. We have increased a little bit the stock, and that's because of the restructuring we have already opened, especially in South Europe, and we have been obliged to create some stock.
Net financial debt, EUR 3.027 billion including EUR 129 million from IFRS 16, comparable with EUR 2.877 billion. If you look at it, practically, we have generated the cash in the last 12 months of the dividend. Make it simple. Moving to page five. EBITDA by segment. Projects. Not very good organic growth. - 5.4% from first half that was at - 3.4%. Consequently, has worsened a little bit. The order backlog has been restored. The profitability of the segment moved up from EUR 138 million to EUR 148 million. If we carve out the Western Link effect of last year, has moved down from EUR 208 million to EUR 148 million.
It was foreseen, I told you, and I confirm you, because obviously, the first six months especially, but even the third quarter, we have not been able to realize a lot of projects because the order book was a little bit weak, and moreover, there was the problem of the reworks that we have been obliged to realize in the first half. Overall, the performance is going to improve in the last quarter, because there are many milestones that are going to be completed in the fourth quarter of the year, and we are not so scared of the numbers of the first three quarters. Also because as the goal number one, let me remind you, was to execute the projects without any problem. We have had a flawless execution in the first nine months 2019.
We have to continue in that way in order to recover the perfection in the execution. Last but not least, the qualification of the 525 kilovolt for the German corridors is done, both for P-Laser and XLPE. Consequently, we are ready to offer to customers the two technologies available for them. Last but not least, we have decided to produce autonomously 10 km of 525 DC to test the technology and the process on a larger scale. Energy. Energy has had organic sales growth of 0.8%. That is not brilliant, but that's Europe mostly, because Europe is scaling down a little bit in term of demand. It was 1.8% in the first half of the year, but it's not so dramatic.
What we have to consider is the gap or the difference in the trend of E&I, these two sub-segments, and the industrial and network components, +2.4% in E&I and -2.4% in industrial network component, which are the key points to be noted. E&I is going very well, especially power distribution and especially in North America and Latin America. In Latin America, is improving significantly the overhead line business. On the other side, industrial network component is not growing very much because of automotive and oil and gas. They are the two businesses that are shrinking. On the other side, the profitability is improving from 6.7% to 7.7%. Consequently, it's not so bad. At the end, the real number is that the EBITDA went from EUR 127 million to EUR 142 million, and that's what counts. Telecom.
Telecom has closed with first nine months, 3.8% organic growth versus a 7.9% in the first half. EUR 225 million sales in the first nine months versus EUR 228 million in the first nine months of last year. It is true that last year, there were certain one-off effect in the first half, the first nine months that we didn't have this year. You can see in the right side of the chart. Overall, what is important? The most important event is that our customers, during the shortage of fibers, has ordered a lot of volumes that now they are receiving, because the capacity has increased, and now the stock, being the speed of installation not fast enough, the stock has grown, and they are cutting the call-offs. Okay, it is nothing unusual. We used to deal with it.
That, unfortunately, is going to be summed to the very poor performance of our Asian business, both in Australia, because NBN project has ended, at least for the time being, and secondly, because the YOFC contribution has halved compared to the previous year. Flipping to page Adjusted EBITDA by geography. By geography, what has to be noted? EMEA, EUR 4.617 billion are the sales, - 1.5% is the organic growth, mainly driven by the negative organic growth of the projects, because in the light blue, you can see the 0.3% slight negative organic growth of the business except projects. At the end, the business is not going extremely well, but is even not going very bad. Demand is stable, we have not lost significant volumes due to the integration. We have not yet recovered a significant upside in terms of synergies in Europe.
North America, vice versa, is doing very well. The EUR 2.6 billion sales in nine months have been growing organically by 3.3%, even more than the organic growth without the project, that has been 2.6%. That's thanks mostly to the projects we got in North America, especially the Pepco project in Washington D.C. The EBITDA moved from EUR 181 million to EUR 277 million, almost EUR 100 million. Let's say EUR 90 million improvement. That's a very good performance driven by E&I and Telecom, at least for the time being. Margins that went up from 7.2% to 10.6% have been improved, thanks to the integration synergies that have been particularly important. Latin America. Latin America closed with EUR 684 million sales, + 1.6%, with the same perimeter without the projects that has been increasing, growing 3.9%. Why this difference? Mostly because the SURF.
The SURF in South America is suffering, obviously, the low level of investment, and consequently, has carved out more than 2% organic growth in Latin America. The EBITDA went up from EUR 53 million to EUR 66 million, with an EBITDA margin extremely good of 9.6%. Business is improving. The integration with General Cable is helping. Moreover, we are seeing some cross-selling that we are realizing in all the jurisdictions of South America that were not touched by the Prysmian perimeter in the past. Asia Pac. Asia Pac is the most difficult chapter regionally, because sales closed at EUR 724 million, with an organic decline of 1.2%, except the projects could have been 1.2%. The EBITDA dropped significantly. You look at EUR 84 million that went down to EUR 44 million. Why is that? With a profitability that obviously scaled down from 11.6% to 6%. Why is that?
Most of all, because EUR 27 million swinged on YOFC perimeter, because of the fiber issue in Chinese market, and EUR 13 million as a reduction of the Australian telecom business. The sum of the two represent almost the entire gap in term of EBITDA. Let's look at the outlook. We gave an outlook in March. EUR 1.020 billion, EUR 950 million, with a midpoint of EUR 985 million. In June, we told you that we were seeing as in the upper side of the range. Today, the outlook is to be in the first part of the range, below probably the midpoint. That's why. For two or three different reasons. First of all, the slowdown of the telecom business. That is a fact. Secondly, because we have added into our costs the EUR 12 million till now.
That will be EUR 15 million by year end of MBO, because the co-investment is not going to happen anymore because the LTI has been canceled. The LTI has been canceled simply because it was totally out of the money, because we are not going to be able to reach the entry level that was pretty tough. It is what it is. Management is going to lose the investment, and consequently, we have to consider the MBO paid in cash, if any. Finally, free cash flow. We have seen the net financial position is not extremely brilliant, but we are confident that we are going to match the free cash flow number, the famous EUR 300 million ±10%. That's because we are seeing that the last quarter, it will be a significant quarter in term of execution and milestones for the projects.
That has been the business absorbing EUR 200 million cash this year that was not foreseen. Okay, I leave the floor to Francesco for the financial results overview.
Thank you, Valerio. Good evening to everybody. I start as usual from the profit and loss statement. As Valerio already explained, organic growth year to date was a +0.3%, 1.3% excluding the project business, which is a slowdown compared to the 1.9% in half one, mainly due to the slowdown in the telecom business, following the comments that Valerio has already made. Let me comment briefly the adjusted EBITDA bridge that you see in the box on the right of the page, focusing on the third quarter, Q3. I believe third quarter has been reasonably healthy, reasonably good. Also, before the IFRS 16 effect, you see that the EUR 243 million result is EUR 5 million higher than last year, which was EUR 238 million. After the EUR 9 million IFRS 16 impact rise to EUR 262 million.
This little increase compared to Q3 2018 is certainly remarkable in consideration of the EUR 12 million LTI cancellation impact. Basically, the recognition of the full MBO for the year. The slowdown, which is very evident in the sequence of the quarters of the telecom business, which is for the first time organically a little contraction in terms of EBITDA compared to the previous year, you see EUR -3 million. The continued weakness of YOFC with lower results than last year, minus EUR -5 million. As expected, the still pretty weak phasing of the project business as expected below last year for EUR 13 million and to be almost 100% recovered in the first quarter. Of course, the positive news come from the energy business.
You clearly see from the sequence of quarters that with the EUR 38 million above last year, Q3, it kept substantially the same pace of growth of the first two quarters, thanks to specifically the Americas. I would say both North America and LatAm. Great achievement in terms of the integration. Also pretty solid market trends. Last remark on the profit and loss is on the very good achievement in terms of group net income, which rose by almost EUR 100 million to EUR 271 million and will be well above the EUR 300 million for the full year. I like to remark this because also is then strictly related with the cash generation. On the following page, let me just highlight the quite stable restructuring costs at EUR 17 million, quite linear from the first quarter.
We expect some increase of restructuring cost in Q4 related to the South European industrial footprint restructuring that Valerio has mentioned. Let me flip quickly to the following page to comment financial charges. The relevant line is, as always, net interest expenses amounting to EUR 65 million, an average of EUR 21 million, EUR 22 million a quarter. This will let us land by year-end at around EUR 85 million, EUR 90 million in terms of full year net interest expenses. Which is, summing up the reduction in 2019 and the reduction in 2018 versus 2017, an overall reduction of EUR 50 million, 5-0. EUR 15 million, 1-5 this year, and EUR 35 million in 2018 versus a combined picture of Prysmian Group and General Cable 2017.
This, of course, is achieved thanks to the very fast refinancing of the General Cable debt, which was made in a matter of one month after the closing and which brought synergies for an amount of approximately EUR 30 million. Let me also comment that our financial structure has been further strengthened, further enhanced, in terms of average maturity, thanks to some new bilateral term loans that we finalized very recently, which extended the average maturity of our debt to around 3.5 years. Thanks to this, we plan to refinance entirely the acquisition financing, which is still in place for a residual amount of EUR 250 million by year-end. As you know, we have already refinanced the revolving credit facility, which was due in June 2019, last April, with a new five-year committed facility.
This puts us in a very favorable situation with the first significant maturities, in particular, the ones related to the capital market, coming only in 2022. Not forcing us to tap the capital market in the short term. Balance sheet on the following page. A quick comment on the dynamic of operative networking capital from September 2018 to September this year. An increase of approximately EUR 190 million, which is substantially 100% related to the project business. Of course, in the project business, we also have to include the cash outs, the negative working capital impacts coming from the Western Link repairs and the Western Link liquidated damages, which are starting to be monetized after being accrued last year. We have, of course, a positive effect on the working capital from working capital synergies from the acquisition of General Cable.
Which is, however, offset, as Valerio already mentioned, by a certain inventory increase, mainly related to the telecom volumes slowdown and also related with the industrial footprint restructuring in Spain. As a consequence of that, the net debt is carving out IFRS 16 substantially in line with last year. Is a bit high, but for the particular phasing of the project business, for the Western Link repair, and LDs monetization, for the stock increase that I was commenting, but it is in line with our expectation. What I want to highlight, this net financial position is substantially consistent with our year-end target, which is guiding for a net debt, including IFRS 16, between EUR 2.2 billion-EUR 2.25 billion, I would say. Including, I repeat, the effect of IFRS 16. Last but not least, the last 12-month cash flow.
Again, this highlights the substantial stability of our net financial position carving out IFRS 16 effect. As Valerio summarized, it means, in principle, that our free cash flow is more or less in line with the dividend that we have distributed, so EUR 120 million. In order to reach our EUR 300 million ± 10% guidance free cash flow by year-end, it means that we need to generate approximately EUR 170 million, EUR 180 million better cash flow in Q4 compared to last year.
Let me reassure you that this is fully in line with our possibilities, mainly coming from a better cash flow in the project business compared to last year. Just to give you an example, the order intake is starting to bring benefits in terms of cash flow. For instance, in Q4, we will have the cash-in related to the Viking down payment, just to make a very clear example.
The higher landing point in September in terms of inventory certainly results in more potential to bring this down in Q4 this year compared to last year. I believe I finished my presentation. We can go ahead now with the Q&A session.
Thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press the star and one on your telephone keypad and wait for your name to be announced. Your first question comes from the line of Lucie Carrier from Morgan Stanley.
Good afternoon, gentlemen. Thanks for taking my question. I will have a couple. Before I start with the question themselves, Valerio, I was hoping you could just clarify your comments around the fiscal 2019 guidance for adjusted EBITDA. I couldn't really get it well on the call. Did you say that you expect the adjusted EBITDA to be in the bottom half of the guidance or at the bottom end of the guidance?
I said in the bottom half.
Okay. Thank you very much for the clarification.
You're welcome.
Starting with my first question. I wanted to speak a little bit more about Telecom. We've seen earlier in the fall the profit warning of one of your competitor. You're now in negative organic growth territory. When you look at the inventory situation and the visibility you have in terms of contract, do you expect this negative trend to be continuing in the fourth quarter, but maybe most importantly into 2020? If it is the case, how should we think about the dynamic around operating leverage and margin in Telecom? That's question number one.
Okay. Let me clarify a little bit better the situation. It's clear that during the shortage, customers have asked to many suppliers the same products. Once the shortage ended, the customers have started to receive products from all the suppliers at the same time. That has created an overhang in their stock that now they have to digest because they are not fast enough to install. Some of our customers have encountered those problems in installing so many cables as per their expectations. You have not to forget that in U.S., AT&T did change, for the time being, their policy in term of deployment of the network. All together, obviously, that has created overstock. I believe that the first six months of next year will suffer of it. For sure the first quarter. I believe that also the second quarter will be touched.
I don't know if I did answer to your question.
I guess, yes, but maybe, as you kindly guiding us to some extent to the first half 2020, I appreciate there might be an impact, but what are we really talking about in terms of magnitude, and how do you think about the profitability of the business if we are staying in negative growth territory, I would say, for the telecom business, or is that not something you're considering?
Okay. First of all, on 2020, it is a little bit too early to give you an indication. It's clear that I do not expect a 2020 so good as it has been the 2019. We'll improve a little bit in terms of volumes compared to this year. Obviously, we have to take into consideration that the trend of the market has slightly changed. Softening.
Okay. Thank you.
There is Philippe here on the table, and he can give you more color if he want.
Hello, Lucie. I would say what happened on the market as a certainty is that first, what we know about China, which is still on, the Chinese change in the beginning of this year is still the situation today. Second thing, more recently, the Indian market shrunk significantly for financing issues. These are two markets in which we do not operate directly, but have an impact on the overall supply chain in the world of fiber in particular. Then, AT&T, as Valerio mentioned, has slowe d down. We see destocking of some of our customers in this quarter, and probably also in the first half of next year. From the overall picture perspective, the demand is still on because this infrastructure must be built. It's a question of understanding how fast they will be able to grow, to build their networks.
I think now the consensus is to say, yes, next year is likely to be flattish for the growth in general. It is changing very fast in telecom. We want to be a bit careful here, yeah.
Lucie, it's the same experience we have had with NBN in Australia. They started theoretically very, very quickly. The demand was extremely high.
Yeah.
We were not able to follow them on the paper. After having reassessed our supply chain, we have been able to follow them, but they were not able to progress in their investment as fast as supposed. Exactly the same experience. What did happen? They simply diluted in a longer time the consumption of the cable for the network. That's what is happening today in France, and probably on a lesser extent in U.S. The investment are continuing to go.
Thank you.
Not sure we have totally answered your question, but that's, I think, the best answer we can give today.
Thank you very much. My second question was around the project business. How much visibility do you really have on the fourth quarter rebound, and which type of magnitude are we really talking about here, in terms of this rebound? Also, as you are looking to 2020, the backlog is up year-on-year at nine months. There's maybe couple of more projects coming. I don't know. I guess we will see. How do you think about the top line momentum in 2020 in projects? Of course this year it's been probably quite disappointing with negative numbers throughout the year so far.
Okay. Projects are quite good. Listen, to be very honest, projects have even some opportunities. Will not be an extremely buoyant upside, but the last quarter, we are going to have a number of completion of projects that are going to give us the cash and the result. One of it is also Western Link, because we are expecting to have the TOC of Western Link before the year end. When exactly, I wouldn't like to disclose, but in a matter of weeks. The closure of those projects are going to create the project completion and milestones completions with the related cash. Consequently, on the projects, I'm quite confident that will be a pretty good last quarter.
When you think about next year, considering the backlog that is up year on year?
Next year, it depends of the German corridors, because German corridors are going to happen in the second half of the year or in the last quarter as a physical demand. I believe that we are very well-placed as Prysmian. Overall, I see projects moderately improving. Not very much, but moderately have to improve.
All right. My last question is just around the free cash flow bridge. Thanks, Francesco, for quantifying the upside you need for the fourth quarter, EUR 170 million- EUR 180 million. Without maybe giving us details project by project, because I know sometimes it's a bit sensitive, but can you maybe give us an indication of how much more kind of project related cash down payment do you expect for either the fourth quarter or the full year 2019 versus last year? It seems that it could be the main delta or maybe equally, can you maybe help us a little bit on the bridge? How do you generate that EUR 170 million- EUR 180 million?
I think the total additional free cash flow, compared to last year, is coming from the project business. We plan to generate EUR 190 million-EUR 200 million more than Q4 last year. I believe that one third of that is related to down payments which were missing last year, and the other two thirds is just as Valerio commented, achieving more milestones on more material projects. Let's also take into consideration that the comparison to last year is pretty easy, let me say, because last year was a quite shrunk or a quite weak cash generation, both in the first nine months, but also in the fourth quarter.
Thank you.
Welcome.
Thank you. Your next question comes from the line of Akash Gupta from JP Morgan.
Hi, Valerio. Hi, Francesco. A few questions from my side. First of all, a clarification of previous questions. Valerio, on this Western Link, where you're expecting handover by end of the year, do you have some significant payment to receive from customer at the completion? Is that what you were saying, that you will get some significant cash that will help Q4 free cash flow?
Yes. The answer is yes.
Thank you. That is very clear. Then, maybe starting with monthly trends that you have seen in Q3, and maybe if you can talk about what was the exit rate in September, and if you have seen any incremental weakness towards end of September, like seen by your French competitor. Also, if you can comment about what you have seen in trading in early Q4.
Listen, it's clear that the strong brake pressure on the demand of telecom in France has been pretty evident. I'm not scared. We are not scared at all of it, but obviously, that's disturbing us, because it's disturbing us from the P&L point of view and from the working capital point of view. We believe that, in the first quarter of next year, max the second quarter, the overstock is going to be digested by our customers. Did I answer to your question, Akash?
No, maybe outside of Telecom, because if I just look at your industry exposure and maybe in Trade & Installers, have you seen any incremental weakness or something towards end of Q3 or early Q4?
Sorry, I missed the point. Basically, not very much. The demand for T&I is pretty stable, taking into consideration that we are not a giant, especially in certain markets in T&I. Our competitors, especially the French one, can be definitely bigger than us. The market is not very profitable, especially the France one. Consequently, from the margins point of view, whereas from the organic growth may have a good or bad sign, from the margins point of view, has a very limited effect.
Thank you. Maybe on this project business, on slide five, you show that excluding Western Link, your EBITDA for first nine months was down EUR 60 million year-on-year, which you attributed to some issues from the past as well as some under absorption. Looking into 2020, is it fair to say that the vast majority of this year-on-year decline can be reversed?
Should be the case. Obviously, maybe that some later effect on the installation is going to remain, but the major effect of the reworks is going to be over.
Thank you. My final one is on projects. Can you talk about this Vineyard project, which got delayed because of some delays in approval from environmental side? Is that in your backlog, or have you received a notice to proceed from your customer to manufacture cable for the project?
Projects without notice to proceed are not in the backlog.
Vineyard is not in the backlog?
No.
Okay. Thank you very much.
You're welcome.
Thank you. Your next question comes from the line of Max Yates from Credit Suisse.
Thank you. Just my first question would be on SuedLink. Could you give us an idea of what you think the total value of contracts coming to market will be? Should we think of this sort of split between the main three players, or do you think the sort of split of that value could extend to some of the players in Asia? That's my first question.
That's a very difficult question, Max. What we think that SuedLink and SuedOstLink are going to come in the last, as orders, in the last quarter next year. Consequently, the effect in 2020 in the P&L will be very modest. Participants. Okay. There are the three main players are Europeans, plus at least one Japanese, maybe two. What else? The competition will be not extremely tough because the risk of these projects are very high. Consequently, we have to be extremely careful altogether. The size of the business, are we talking about 4,000 km, 5,000 km of cables. Extremely huge, but will be diluted in a number of years. Consequently, the impact year-on-year will be huge, but not extremely huge because there will be, suppose, three players sharing the main chunk of the business and having, as a consequence, a quite good saturation of the equipments.
Maybe that will not be even sufficient, the capacity, but cable makers are ready, unfortunately, to raise the capacity very quickly if needed.
Okay. That actually leads to my second question. Given all of this capacity, all of the project tendering that you talk about, given where your backlog is, do you think about needing to add capacity expansions at any of your plants? Can that be done easily with minimal CapEx by adding cable lines? Would you have to think more about greenfield plants?
No. Greenfield, forget it. Maybe some moderate addition if needed, but frankly speaking, I'm very skeptical about it. Once you increase the capacity later, cable makers used to try to fill the capacity at any cost, and that's not very useful for the margins.
Okay. Just one other question is on the southern European restructuring that you mentioned. Is this part of the synergies linked to General Cable, or is this actually separate restructuring related to demand evolution and market structure in south of Europe? If it is, how many plants is it affecting?
It's very clear. We have already announced it to the unions, that we are going to close two plants in Spain because together with General, we have an excess of capacity for the South European market, and there is no other way than close it. We have announced the closure of two plants. The action has been not very positive, obviously, and we are negotiating. We are in the middle of the negotiation phase with the Spanish unions. The outcome for the time being, I don't know yet.
Okay. My final question is just to Philippe, because it's a question that comes up quite a lot in discussions. Could you talk a little bit around what the depressed global pricing is doing in fiber. Is that coming up in discussions with your European telecom customers around prices, discussions reducing prices, or do you see the European market as somewhat isolated relative to the pricing weakness that we're clearly seeing in Asia telecom, Asia fiber?
Unfortunately, Max, Europe is not isolated. It's even the opposite. It's a very open place from the business perspective. It is one of the areas that are growing. For sure it's attractive for our Asian competitors, and they come with prices that are as low as possible, which means a lot for them, very low. The point is, to enter into these markets, you need qualified products of good quality for a part of the market at least. It's not necessarily always easy for them, but for sure we see a price pressure, and as you know, we've seen a price pressure already before. It's not new. We've seen them aggressive in Europe now for several quarters, even before the crisis in China. Indeed, there is price pressure. We also improve our cost. One of our key items is to improve our costs.
We try to resist, and that's why our margins so far have been resisting. We are able to improve our cost in the meantime. Whether we have or not organic growth, our focus is very much on cost.
Max, we redirected all the CapEx that were planned to be as a capacity increase into cost reduction. Very quickly.
We see a flattening growth as we said earlier. We see a slowdown in the last quarters of the year and in the beginning of next year. We think we'll end the year in low single digits, positive organic growth in Telecom. We think we have ways to manage the price pressure for our cost reduction. This is the summary of Telecom if you want.
Okay. That's very helpful. Thank you very much.
You're welcome.
You're welcome.
Your next question comes from the line of Monica Bosio from Banca IMI.
Yes, good evening. Actually, most of my questions have been already answered. Just some housekeeping questions. Can you please quantify the metal effect on the third quarter of the year, and what do you expect for the full year? The same as for the Forex. If you can give us an indication for the CapEx for current year. Thank you very much.
Metal effect.
The metal effect has been Oh, sorry.
Yes.
Monica, your question was related to the effect of metal price on sales?
On revenues.
Sorry. On revenue.
On the revenues. Yes.
On the revenues.
I've seen that the slides there is.
I would need to check. Francesco speaking. I would need to check exactly Q3. I am not able to give you an answer right now. I can tell you that for the year to date, nine months was over EUR 200 million, slightly over EUR 200 million. If you agree, we can check this out for you in Q3 and come back.
Okay. Thank you.
The effect on the other end, always year-to-date, first nine months was around EUR 120 million positive.
But just-
On the top line, of course.
frankly speaking, the metal price has not changed a lot.
Yeah.
In the last 12 months.
Okay.
Yeah. I agree. I don't expect a very material Q3 effect out of this.
Okay.
EUR +200 million that I will confirm.
It's clear that the EUR 200 million out of EUR 12 billion is peanuts.
Okay.
Apologize, Monica, but I don't have the number here.
No problem. For the CapEx slide.
The second question you made, Monica, was related to CapEx.
Yes.
We see the CapEx pretty stable, including the ship. I already told you that in the EUR 250 million floor of CapEx level, we are going to introduce even the ship. That's de facto is a reduction of the CapEx.
Okay.
Reduction of CapEx on telecom.
Okay. Perfect. Thank you. Just to sum up the scenario. The economy in Europe is slowing down. The general environment is tougher. The submarine business will be more visible in the second part of 2020 if we want to see some driver of growth. Can we say that the first part of the year might be a bit challenging? The most of the growth for the 2020 will be concentrated in the second part?
Yes, Monica, I believe that the first part of the year, next year, will not be easy because of the de-stocking of telecom and the projects will come on stream in the second part of the year. On the contrary, the big bulk of energy is continuing to run quite steadily, generating results and cash, and consequently, we are reasonably comfortable from that point of view.
Okay, thank you. Very clear.
The second part of the year, I believe that it will be better.
Okay. Thank you. Thank you for that clarification.
Welcome, Monica.
Thank you. Your next question comes from the line of Alessandro Tortora [audio distortion].
Okay, thanks. Good evening to everybody. I have three questions. Quick question. The first one is on the pipeline of orders you have not included yet in your order backlog. For instance, I am referring to this offshore wind project in France. Just to have an idea, what is the reason behind why you are not getting a notice to proceed on these projects in France, if there is a specific reason? Because it is a mid-size project for you. Linked to this question, if understood well, we have been shortlisted by the Greek utilities, together with Nexans on the submarine link. Do you have any update or your feeling on this ongoing tender? The second question is on the cash flow. Cash flow also for the next year, because if I remember well, you have recently reached an agreement for a disposal of a non-core asset.
I would like to understand, considering the outlook you pictured before of, let's say, first half challenging, maybe improving, what's your view on the cash conversion next year if, for instance, you believe that considering any CapEx efficiencies you are doing, if we can assume a better or a higher free cash flow next year? These are the two questions.
Okay.
You made a lot of questions, Alessandro.
Sorry. I know it's too late.
No, don't worry. Chapter one: pipeline of orders. The pipeline of orders is not so bad. Now we have 2.15 billion orders. There are many orders coming. I'm not touching the German corridors. Why? The energy transition towards the renewable is going ahead. Of course, you were referring to the offshore projects in France. We have got the green light for the first one. We have not yet get the others. It's a matter of the timing of the customer. I don't believe that we are going to have any problem on it.
Okay.
Greece. Greece is a different matter. I'm quite sure that we are going to close the negotiation, the customer is going to close the negotiation with the potential suppliers, that are two at the end, by the year-end, before the year-end. It is a matter of days. When we or the others will be able to announce these projects, it's a matter of agreement with customer. I believe that by the year-end, something has to happen because the time is quite strict for the execution of the projects.
We are not in the hurry to get the order. The order in that case is linked, if I remember well, unfortunately, our account is in U.S. If I remember well, it's an order that includes the notice to proceed. Once we have the order, the notice to proceed is going to be automatic.
Okay.
Next year cash flow. I leave the floor to Francesco.
Thank you.
He need of the crystal ball, I believe.
Let me try. It's actually a bit early to take your question and to give you a projection before having fully worked and finalized our management plan. You mentioned correctly that we'll have the addition coming from the finalized deal on the no-core asset disposal, which is the aviation business. Let me comment taking this out, because this is a non-organic. I think that our target will be to improve from the EUR 300 million free cash flow this year. How much? Let me take some more time to tell you. The reason why I think we may improve is, first of all, we'll have certainly lower restructuring costs, restructuring cash outs, than this year. Not by a huge amount because the restructuring cost that we incur in Q4 this year due to the Spanish restructuring cash wise, will fall mainly in 2020.
Still, I expect overall to have a slightly lower restructuring cost. It affect.
We are landing September and also by year-end, with some higher than expected stock, meaning inventory, due to the telecoms slowdown, due to the Spanish restructuring. Also in this case, I think we have some margin, some potential to recover, and this makes me rather confident that we can top up the number of EUR 300 million free cash flow this year. Again, I want to be careful before giving you a more precise indication of that.
Improved.
Okay. Sorry, just let's say, a follow-up on the release of next year guidance. Do you expect, let's say, to issue the guidance in March? Maybe you come back, let's say, to the historical timing of May? Just a stupid question, sorry.
With the first quarter results release, we are going to give you the guidance.
First quarter.
Yeah. No, full year?
March.
Sorry. In March, with the full year, we are going to give you the guidance. No change, Alessandro. No change from last year.
Okay. [Non-English content]
So we stick to-
From this year?
From this year.
From this year.
This year.
Okay. [Non-English content]
Thank you. Your next question comes from the line of Sean McLoughlin from HSBC.
Good afternoon. Thanks for taking my questions. Looking at your restructuring in Spain, just wondering what impact this will have on margins, and particularly, which segment is it mostly concentrated in? Energy. It's remarkable to see that the level of profitability across both energy segments, I think, looking at North America.
Okay. The restructuring in Spain is due.
Why? Because the capacity of the players, especially us and General, was too big for the market. General was exporting a significant amount of data products outside of Spain. Obviously, for us, makes no sense, and we are going to resize the capacity. That's the goal. It is an unpleasant goal, but is our duty in order to keep the company safe. We are going to do closing two plants, and we have already closed the headquarter in Barcelona of General Cable, and that's part of the synergies we need to create.
And should we then-
The segment. Sorry.
Yeah.
I missed your question, the segment chapter. The segment is PD and E&I.
Thank you. Just thinking about your deal with Siemens Gamesa on supplying cables for all their turbines, could you quantify what kind of sales volumes you expect in 2020 and 2021 from this?
Francesco Facchini is here and can answer your question.
We confirmed our historical market share in the deal with them. We are taking almost 1/4 of the overall expected demand from this player. This is something that should last 2020 and most probably 2021.
This sounds like a part of your strategic push to increase more exposure to renewables. Could you say where else you see opportunities? Are you pushing with other OEMs, other technologies?
We are in a quite prominent position, both as far as wind makers are concerned, as well as into the solar business, which is the other incoming part of the renewable industries. I would say that in the moment, we are mostly in discussion with all the main OEMs to follow their path of increasing the power of the turbine, and therefore, they are requesting us much more powerful vertical cable to be inserted into the tower. This is where our development is, I would say, leading the race. We have been also recently appointed to supply cable for the first 10 MW turbine in China, and this is a clear sign of our leading technology to move forward this kind of innovation.
Just for you to have a reference. Wind farm, I'm not sure, wind farm, at least, it used to be 100 towers, 80, 100 towers. 100 towers of 10 MW are 1 GW capacity. It is an extremely important energy capacity. We are totally supportive of the energy transition.
Thank you. My last question on Western Link. You're sounding pretty confident the handover is weeks away. Could you just talk about the final steps to handover, and what can still go wrong?
The final step, I don't know if I can tell you because it's part of our commercial agreement with Western Link. I can tell you that it's going to be a series of tests that are going to happen in end of November, let's say, mid of December, max. It's going to give us the authorization to receive the taking over certificate.
Is there any significance in the year-end 2019 stopover date? What happens if things slide into early January?
I'm sorry, I missed the question. Say again.
Is there any significance in the end of December date, in case the tests take longer than average? Is this a hard deadline, or can things slip again another weeks beyond that deadline? Should we interpret that as a hard deadline?
Let's say that is almost hard deadline. What I mean, that is an hard deadline, but customer is always customer. Consequently, we have to have a customer that is happy.
Very good. Thank you.
You're welcome.
Thank you. Your next question comes from the line of Daniela Costa from Goldman Sachs.
Hi, good evening. Thanks for taking my question. A couple things about quick. First, can you talk a little bit about the outlook for YOFC in China and how do you see that specifically there? I know we had this China Telecom and China Mobile tenders and the latest tenders were a little bit-
Sure.
better than the earlier ones in the year. There's also a few 5G projects launched in China. How do you see that in China is question number one, and then I'll ask the others which are quicker after.
Thank you, Daniela. I'm going to leave the floor to Philippe, that is one of the board member of YOFC, and obviously will not be able to answer totally to your question.
Daniela, of course, your first question I cannot answer, but I'm sure YOFC is fully available for answering your question anytime. On the development of China and the 5G in particular, the latest news that I have is that they are currently actually accelerating the coverage over a few cities in China with their C-band technology. They expect, that's what the industry says in China, not YOFC, but in general, the industry, say that they expect some effect at the end of 2020 on the market. It's a projection that I can give you because it's public. There are many ways to do 5G. The Chinese way is done essentially by using the existing antennas of the 4G. I'm not expecting a spectacular effect on the fiber market very soon.
My view, personal view that I built from what I know, is that we have to expect a couple of difficult years still in China. You should ask YOFC about that, of course.
Okay. Thank you. Wanted to check on some of your submarine, or one of your submarine players still have excess capacity. You gave a lot of detail on volume outlook there, what is the pricing situation? How price-aggressive are the main players still at this point?
Well, listen. About the submarine projects, the price situation, I already told you that in the last five years, there has been a slight decline, few percentage, that have been partly compensated by the efficiency and the insourcing. If I compare the margins of the last projects with the margins of the projects of five years ago, overall, I see a very moderate reduction of 2%-3%. Today, the capacity of the players is much more saturated than it was last year. Consequently, I don't believe that there will be need of taking risks for very low margins.
Mm-hmm. Thank you. A final point is regarding the long-term incentive plan. Where do you book that divisionally? Understand the EUR 12 million at a group level, but where is it coming through?
We have not introduced a bit on the various segments. We have booked centrally.
Other?
Sorry?
Revenues even with that.
On the basis of revenues? Okay.
Basis of revenues.
On the basis of revenues. That's the answer I got. I was not aware of it, sorry.
No problem. Thank you very much. Bye.
You're welcome.
Thank you. Your final question this evening comes from the line of Luigi De Bellis from EQUITA.
Yes. Good evening. Two quick questions, if I may. First one, how do you expect industrial business to evolve in Q4 ? If you could provide some color about the trend in specialties OEM and elevator business in particular. On the project business, if I understood correctly, you will have higher execution in 2020 thanks to better backlog, but lower installation activity, so still some idleness cost. Is it correct?
I start from the second question, Luigi. It's correct, meaning that obviously our business has two phases. The production of the cable, the completion of the first milestones, and later the installations. We missed orders in 2018. Consequently, we are suffering this year by the production phase. Next year, obviously, having restored the level of the order book, we are going to produce the cables, but we are going to miss part of the installation utilization. That's the reason why I see an improvement, but not a very significant improvement. That should come the year later. That's the second part of your question, I believe. Which was the first one?
Industrial business.
Industrial business, you are right. The industrial business. Industrial business is recovering, not very much, because Europe is still suffering. Have to be seen by geography. Europe is suffering. North America is going pretty well.
The LatAm is going pretty well, too. What we are missing today is the very high margin sub-segments like crane, mining, and whatever.
Yeah, mostly the high-end crane project due to the various postponement and fragmentation along the years of the key project, well known to everyone. Mining business is proceeding decently well. While, of course, within the industrial businesses, the renewables take a lion's share.
Overall, Luigi, can we say that we see the industrial business from here to the end of the year, recovering a little bit? Next year, I believe that will be slightly better, but not significantly better.
Very clear. Thank you.
Thank you, Luigi.
Thank you. We do have a second request from Akash Gupta.
Yeah. Hi, Valerio. A quick follow-up on portfolio. I saw that in the quarter you announced divestment of Draka Fileca, which you said it's a non-core business for you. I'm wondering if you have any more plans to divest any small, non-core businesses and also if you can update us about when you are going to resume your acquisition plans.
Okay. Akash, let me clarify a little bit about the divestiture of [avio]. [Avio] is a quite good business in terms of margins, but is very limited in terms of size, and is not going to grow very much. Consequently, it makes a limited sense to keep capital invested into it for a business that will never be a gigantic business. Moreover, the counterpart was offering us a very significant valuation, and we decided to sell. As simple as that. Because [avio] was not synergic with any other business in the group. That's the message. Other dismissals. Frankly speaking, I don't believe that we need. If there will be another very big opportunity, of course, available to discuss, we have nothing into our radar screen.
Thank you.
Is that it?
Thank you, sir. That was your final question.
Okay. Thank you very much to all of you for participating to our nine months conference call, and have a good day.