Thank you very much, and good afternoon to everyone. Welcome to the conference call the 9 months 2019 financial results of Swiss Megro. Okay. Let's start with the financial highlights as usual. Organic sales has been growing at 0.3%, mostly guided by North America, with our outstanding performance of +3.3 percent, a solid trend in E and I, driven mostly by power distribution.
The growth in telecom has closed in the 1st 9 months at 3.8%. Thanks mostly to the optical cable trend. But to be noted that in the first half, it was a 7.8% considering the 3rd quarter, has seen a slowdown. Adjusted EBITDA closed at EUR 773,000,000, 8.9 percent of sales, compared to the SEK 651,000,000 in the 1st 9 months of 2018. Possibly with the quite good to recover an 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 I had energy, energy as a solid trend in E and I, especially in North America and LatAm, The trend in term of margins are good for industrial and natural component with the exception of automotive projects. Projects have, had a result, excluding Western Link, scaling down as it was expected because of the rewards and the 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, we have had Sorry. We have had a very good order intake this year, finally, but it's not.
Completely executed yet.
Telecom,
is going progressively. Still very good, but in the last quarter, we have seen certain reduction of the demand due to the excess of stock created by our customers during the season of the season of shortage. To be noted that in the 9 months, 2019, we have a positive impact from, at the EBITDA level from IFRS 16 of EUR 30,000,000. The order backlog for projects has been 1,000,000,000. Finally, the net financial debt closed about 1,000,000,000 Epo to EPO 2,000,000,008 before the 129,000,000 additional debt coming from the impact of IFRS 16 is exactly in line with the guidance Let's flip to Page 4, and let's look at the sales.
8,000,006 35 have been the sales of the 1st 9 months 2019, comparable to the SEK8.712 of the 1st 9 months 2019, with an organic growth of 0.3 percent. The adjusted EBITDA related to do sales has closed at 773,000,000 in the 1st 9 months 2019 versus the 6 51 of the same 9 months 2018. To be noted that the margin, EBITDA margin, of the 1st 9 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 networkingcapital This has been not very good with SEK 1,642,242 versus SEK 1,454,000,000, with our 14.7 percent 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. Moreover, We have increased a little bit of this stock. And, that's because of the restructuring we have already open it, especially in South Europe, and we have been obliged to create some stock. Net financial debt, EUR 3.27, including EUR 129,000,000 from IFRS 16, comparable with the EUR 2,000,000,000 EBIT under EUR 77,000,000.
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 5. EBITDA by segment Projects. Not very good. You're gonna go minus 5.4%. From, first half that was up minus 3.4.
Consequently, has worsened it a little bit. The order backlog has been restored. The profitability of the segment moved up from 138 to 148. If we carve out the West Elink effect of last year has moved down from 208 to 148. It was foreseen I told you, and I confirmed you, because obviously the 1st 6 months, especially, but even the third quarter, we have not been able to realize a lot of projects because the order was 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 nice 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. Other because as the goal number 1, let me remember you, was to execute the projects without any problem. And we have had are flawless execution in the 1st 9 months'nineteen.
We have to continue in that way in order to recognize the perfect the perfection in the execution. Last but not the least, the qualification of the 525 kilowatt for the German corridors is done both for P laser and XIPE. Consequently, we are ready to offer 2 customers the 2 technologies available for them. Last but not least, we have decided to produce out on mostly 10 kilometer of 5.35 DC to test the technology and the process. So or a larger key.
Energy. Energy has had, have had organic sales grew up 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 and I, this 2 subset and the industrial and network components plus 2.4 in E and I and minus 2.4 in industrial and network components. Which are the key points to be noted. E and 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. And on the other side, industrial network component is not growing very much because of automotive and oil and gas, the target 2 businesses that are shrinking.
But on the others 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 margin went to EBITDA, sorry, went from $127,000,000 to 142. And that's what counts. Telecom. Telecom has closed with our 1st 9 months 3.8% organic growth versus a 7.9% in the first half.
225,000,000 sales in the 1st 9 months versus 2 28 in the 1st 9 months. Of last year. It is true that the last year there was certain one off effect in the first half, the 1st 9 months. That we didn't have this year. And 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. And, because the capacity has increased. And now they stock being at the speed of installation, not fast enough day stop has grown and that they are cutting the call offs Okay. It's nothing unusual.
We used to deal with it. That, unfortunately, is going to be summit to the very poor performance of our Asian business, both in Australia because MBN project has ended at least for the time being. And secondly, because the YOC contribution has Albert compared to the previous year. Flipping to page Adjusted EBITDA by geography. By geography, what has to be noted?
EMEA, 4.617 of the sales minus 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 it's even not growing very bad. Demand is stable. And we have not lost significant volumes due to the integration. Not to me, but we have not yet recovered a significant upside in terms of synergies in Europe.
North America, vice versa is doing very well. There is the 2,600,000,000 sales in 9 months have been growing organically by 3.3%. Even more than the organic growth without deploy that has been 2.6%. That's thanks mostly to the projects we got in North America, especially the Pepco project in Washington. The EBITDA moved from $181,000,000 to $277,000,000, let's say $90,000,000 improvement And that's a very good performance, driven by E and I and Telecom, at least for the time being.
Margins that went up from 7.3% to 10.6% have been improved, thanks to the integration synergies that have been particularly important. Latin America. Latin America closed with 684,000,000 sales, plus 1.6% coming from, sorry, the same perimeter without the projects that has been increasing the drawings 3.9%. Why this difference, mostly because the surf, because the surf in South America is a suffering, obviously, the low level of investments and consequently has carved out more than 2% organic growth in Latin America. The EBITDA went up from EUR 53,000,000 to EUR 66,000,000, with an EBITDA margin extremely good of 9.6%.
Business is is improving. And the integration with General Cable is helping. Moreover, we are seeing sorry. We are seeing some cross selling that we are realizing in all the jurisdictions of South America that was well not touched by the Prisma perimeter in the past. Asia Pac.
Asia Pac is the most difficult chapter regionally. Because sales closed at $724,000,000 with an organic decline of 1.2% except the projects has been, could have been 1.2%. The EBITDA drop at the significantly, you look at the $84,000,000 that went down to $44,000,000. But why is that with our profitability that obviously is carried down from 11.6% to 6%. Why is that?
Most of all, because EUR 27,000,000 is wind on yoc perimeter. Because of the fiber issue in of the Australian Telecom business. So the sum of the 2 represent almost the entire debt in terms of EBITDA. Let's look at the outlook. 1.2950 with a midpoint of 985.
In June, we told you that we were seeing us in the upper side of the range. Today, the outlook is to be in the 1st part of the range. Below probably the midpoint. That's why from 2 or 3 different reasons. First of all, the the slowdown of the telco business.
That is a fact. And secondly, because we have added into our costs, the, 12,000,000 till now, it would that would be 15,000,000 by year end, of MBO because we have the co investment is not going to be happen. It's not going to happen anymore because the, LTI has been canceled. The PI 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, but, it is what it is.
And management is going to lose the investment and consequently, we had to consider the NBO 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 300,000,000 plus or minus 10 percent. That's because we are seeing that in the last quarter, it will be a significant quarter in term of execution and milestones of for the projects.
That has been the business absorbing the $200,000,000 cash. This year, that was not was not foresee. Okay. I leave the floor to Francesco for the financial results, Lucas.
Thank you, Valera, and good evening to everybody. I start as usual from the profit and loss statement, as Valerio already explained, organic growth year to date was plus 0.3 percent, 1.3%. It including the project business, which is a slowdown compared to a 1.9% in Alpha 1, mainly due to the slowdown in the telecom business, following the comments that Vale adio has already made. Let me, comment briefly the adjusted EBITDA bridge that you've seen the box on the right of the page. Focusing on the third quarter, Q3.
I believe 3rd quarter has been reasonably healthy, reasonably good. Also before the IFRS 16 effect, you see that the $243,000,000 result is $5,000,000 higher than last year, which was $238,000,000 and then half the $9,000,000 IFRS 16 impact rise to $252,000,000. And this little increase compared to Q3 2018 is certainly remarkable in consideration of the 1,000,000 LTI cancellation impact, basically full 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 previous year, you've seen minus 3,000,000. The continued weakness of YOSC with lower results than last year, minus 5 And as expected, they are still pretty weak phasing of the project business, as expected below last year for EUR 13,000,000 and to be almost 100% recovered in the fourth quarter.
Of course, the positive news that come from the energy business You clearly see from the sequence of quarters that with the 1,000,000 above last year, Q3, it kept substantially the same base 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 and also pretty solid market trends. Last three, Mark, on the profit and loss is on the very good achievement in terms of group net income, which rose by almost EUR 100,000,000 to EUR 271, and, will be well above the $300,000,000 for the full year. So I like to remark at this because also is then strictly related with the cash generation. On page, on the following page, let me just highlight the white stable restructuring costs at 1,000,000, quite linear from the 1st quarter. We expect some increase of restructuring cost in Q4 related to the south European Industrial footprint restructuring in the Valerio, as I mentioned.
Let me flip quickly to the following page to comment financial charges. The relevant line is, as always, net interest expenses amounting to $65,000,000, an average of $21,000,000, $22,000,000 a quarter. This will let us land by year end at around 85,000,000 dollars, $90,000,000 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 1,000,000, 50,000,000 dollars, $15,000,000 this year, and the $35,000,000 in 2018, versus a combined picture of Prisma Group in general, capable 2017.
This, of course, is achieved thanks to the very fast refinance of the general cable debt, which was made in a matter of 1 month after the closing and which brought synergies for an amount of approximately 1,000,000. 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 residual amount of 250 by year end. As you know, we have already refinanced the revolving credit facility, which was due in June 2019 in last April, with a new 5 year committed the facility.
And these puts us in a very, in a very favorable situation with the first significant maturities in particular, the ones related to the capital market, coming only in 2022, So 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 net working capital from September 2018 to September this year. An increase of approximately $190,000,000, which is a substantially 100% related to a business. Of course, in the project business, we also have to include the, cash outs, the negative working capital impact coming from the Western Link Repairs and the Western Link liquidated damages, which are starting to be monetized after being accrued last year.
And 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 volume slowdown and also related with the industrial footprint restructuring in Spain. As a consequence of that, the net debt is carrying out IFRS 16 substantially in line with last year is a bit high that for the particular phasing of the project business, for the Western Link Reeper And LDs monetization. For a stock increase that I was commenting, but it is in line with our expectation. And 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 2,250,000,000, I would say, including I repeat the effect of IFRS 16.
Last but not least, the last 12 months cash flow again, these highlights of the substantial stability of our net financial position carving out IFRS sixteen 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 120,000,000 in order to reach our 300,000,000 plus minus 10% guidance, free cash flow by year end, it means that we need to generate approximately EUR 170,000,000, EUR 180,000,000 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, doing benefits in terms of cash flow, for instance, in Q4, we'll have the cash in related to the Viking down payment just to make a very, very clear example.
And also the higher lending point in September in terms of inventory, certainly results in more potential to bring this down in Q4 this year compared to the 2 last year. I believe I I finished my presentation and we can go ahead now with the Q And A session.
Thank Your first question comes from the line of Lucy Harrier from Morgan Stanley.
Afternoon, gentlemen, and thanks for taking my question. I will have a couple, but before I start with the question themselves, Valier, you 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 in the bottom half of the guidance or at the bottom end of the guidance?
I said at the bottom half.
Okay. Thank you very much for the clarification. So starting with my first question, I wanted to speak a little bit more about telecom? I mean, we've seen, earlier in the fall, the profit warning of one of your competitor you now in negative organic growth territory. I mean, when you look at the inventory situation and the visibility you have in terms of contract, do you expect this negative trend to kind of be continuing in the fourth quarter, but but maybe most importantly into 2020.
And if it is the case, how should we think about the dynamic around operating leverage and margin in telecom. That's question number 1.
Okay. Let me clarify a little bit better of the situation. It's clear that during the shortage, customers have asked that too many suppliers, the same products. Once the shortage ended, the customers have started to receive products from all the suppliers at the same time. This 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 strolling so many cables as per their expectations. You have not to forget that in U. S, AT and T did change for the time being the policy in term of deployment of the network. And all together of Ulyssa's creed, there are overstock I believe that the 1st 6 months of next year will suffer of it.
For sure, the first quarter but I believe that also the second quarter will be touched. I don't know if I did answer to your first
I guess, yes, but maybe, as you can be guiding us to some extent to the first half twenty twenty, 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 that you're considering?
Okay. First of all, on 2020, it's 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. Will improve a little bit in terms of volumes compared to this year. But obviously, we have to take in consideration that the trend of the market has slightly changed.
Okay. Thank you. My second.
There is Philippe here around the table and he can give you more color if he won. Hello, Lucy.
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. And then AT and T, as Barry mentioned, has slowed down. And we see a 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. And I think now the consensus is to say, yes, next year is likely to be flattish So we want to be a bit careful here.
Lucy, is the same experience. We have had with NBN in Australia. They started theoretically very, very quickly. The demand was extremely high, and we were not able to follow them on the paper. Then 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 support is entered with the same experience.
What did happen? They simply diluted in a longer time, the consumption of the net the consumption of the cable for the network. And that's probably on a lesser extent in U. S, but the investment is going to continue 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 4th quarter rebound? And which type of magnitude are we really talking about here, in terms of this rebound? And also, as you are looking to 2020, the backlog is up year on year 9 months, there's maybe a couple of more project coming.
I don't know, I guess, we will see. How do you think about the top line momentum in 2020 in project because, of course, this year, it's been probably quite disappointing with negative numbers throughout the year so far.
Oh, okay. Projects are, quite good, 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 leave us the cash and the result. One of it is also a sterling because we are expecting to have the TOC of what linked by the year before the year end. When exactly, I wouldn't like to disclose, but in the matter of weeks, The closure of these projects are going to create the
project completion
and milestones completions with the related cash. So consequently, on the projects, I'm quite confident that will be a pretty good last quarter.
During the backlog that is up year on year?
Next year, it depends on the German corridors. Because German corridors are going to have 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 Prisma. Overall, I see projects moderately improving. Not very much, but moderately have to improve.
All right. And my last question is just around the free cash flow bridge. Thanks, Francesco, for quantifying the upside you need for the fourth quarter, 170 to 180. 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? Because it seems that it could be the main delta?
Or maybe equally, I mean, can you maybe help us a little bit on the bridge? How do you generate that 170 to 180?
I think is the total additional free cash flow compared to last year is coming from the project business. So we plan to generate $190,000,000 to $100,000,000 more than Q4 last year. I believe that 1 third of that is related to down payments, which were missing last year. And the other twothree is just achieving more as Valera commented achieving more milestones on more material projects, which is let's also take into consideration that the comparison to last year is pretty
easy. Let me say, because
last year was a quite swank or a quite weak cash generation. Both in the 1st 9 months but also in the 4th quarter.
Thank you. Your next question comes from the line of Akash Gupta from JP Morgan.
Yes. Hi, Valerio. Hi, Francisco. I have a few questions from my side. First of all, a clarification of previous questions.
So 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 it the is that what you were saying that will get some significant cash that will help Q4 free cash flow? Thank you. That's very clear.
And then maybe starting with monthly trends that you have seen in Q3 and maybe if you can talk about how what will what was the exit rate in September? And if you have seen any weakness, any incremental weakness towards end of September, like seen by your French competition? And 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 and 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 that for your question, Akash?
No, maybe outside of telecom because I mean, if I at your industry exposure and maybe in trade and installer, have you seen any incremental weakness or something in towards end of Q3 or early Q4?
Sorry. I missed the point. Basically, not very much. The demand for C and I is pretty stable. Taking into consideration that we are not a giant, especially in certain markets in T And I.
Our competitor especially the French one can be definitely bigger than us. But for us is, and the market is not very profitable, especially the France 1. Consequently, from the margins point of view, whereas from the organic growth may have a good or bad sign, the market's point of view has a very limited effect.
Thank you. And maybe on, this project business, on Slide 5, you show that Western Link excluding Western Link, your EBITDA for 1st 9 months was down 1,000,000 year on year, which you attributed to some issues from the past as well as some under absorption. I mean, looking into 2020, is it fair to say that the vast majority of this year on year decline can be reversed?
Yes, should be the case. Obviously, maybe that Sun some later effect on the installation is going to remain, but the major effect of the rewards is going to be full.
Thank you. And my final one is on projects. So, 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 noticed to proceed from your customer to manufacture cable for the project?
Projects without notice to proceed are not in the backlog.
So Vineyard is not in the backlog.
Yes. Your next question comes from the line of Max Yates from Credit Suisse.
Thank you. Just my first question would be on suit link. Could you give us an idea of what you think the total value of contracts coming to market will be? And should we think of this sort of split between the main 3 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 the seed link and seedless link are gonna come in the last other orders. In the last quarter of next year, considering the effect in 2020, in the P and L will be very modest. Participants, okay, there are the 3 main players, Europeans, plus at least 1 Japanese, maybe 2. What else?
The competition will be not extremely tough because the risk of these projects are very high. Considerably, we have to be extremely careful altogether. The size of the business, are we talking about 4 1000, 5000 kilometers of cables. So 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 supposed 3 players sharing the main chunk of the business and having, as a consequence, quite good saturation of the equipments. Maybe that will not be even sufficient the capacity, but civil maker already, unfortunately, we rise the capacity very quickly if needed. Okay.
And I mean, that actually leads to sort of my second question. I mean, given all of this sort of capacity, all of the project tendering that you talk about, given where your backlog is, Do you think about sort of needing to add capacity expansions at any of your plants? Can be done easily with minimal CapEx by adding cable lines, or would you have to think more about greenfield plants?
No, Springfield forget it. Maybe some moderate addition if needed, but finally speaking, I'm very skeptical about it. Because 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. And 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 there such a separate restructuring related to demand evolution and market structure in South of Europe? And if it is, how long is it affecting?
It's very clear. We have already announced that with 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. We have announced that the closure of 2 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. And 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 kind of the European market as somewhat isolated relative to the pricing weakness that we're clearly seeing in Asia Telecom, Asia fiber.
Unfortunately, Matt, the Europe is not isolated is even the opposite. It's a very open place for from the business perspective. So and it is one of the areas that are growing. So for sure, it's attractive for our Asian competitors. And they come with, as 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 in for parts of the market, at least. So 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. So indeed, there is price pressure. We also improve our cost.
You know, one of our key items is to improve our costs. So 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. We, Max, we redirected all the CapEx that were planned to be as a capacity increase into cost reduction. Very good. So 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 in low single digit, positive organic growth in telecom. And we think we have ways to manage the price pressure for our cost reduction. This is the summary of telecom if you want.
You're welcome.
Your next question comes from the line of Monica Bougier from Banker IMI.
Yes, good evening, Nina. Actually, most of my questions have been already answered. Just some out keeping the questions. Can you please quantify the metal effect on the third quarter of the year? And what do you expect for the full year?
And the theme as for the ForEx? And if you can give us an indication for the CapEx for current year. Thank you very much.
The metal effect, the metal effect has been of home sales, Monica. Your question was related to the effect of metal price on sorry, or revenues?
On the revenues, yes.
On the revenues.
Because I've seen that the slides,
there is a
I will need to check Francesco speaking, I will need to check exactly Q3. I'm not able to give you an answer right now. I can tell you that for the year to date, 9 months was over EUR 200,000,000, slightly over EUR 200,000,000. 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 here today's first name, ma'am, so it was around the 120,000,000 positive. But John, on the top line.
And speaking, the metal price has not changed the outlook. In the recent, in the last 12 months.
Yes, I agree. I don't expect a very material Q3 effect. Out of this $100,000,000 plus.
Okay. No problem. And for the CapEx side,
you were made You made, Monica, was related to CapEx?
Yes.
We see the CapEx pretty stable, including the ship. I already told you that in the 250,000,000 floor of CapEx level, we are going to introduce even the sheet that the fact of is a reduction of the CapEx. Okay. And just of topics on telecom.
Okay. Perfect. Thank you. And 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 2nd part of 2020. If we want to see some driver of growth. Can we say that the 1st part of the year might be a bit challenging And then the most of the growth for the 2020 will be concentrated in the second part?
Yes, Monica. I believe that, the 1st part of the year, next year will not be easy because of the rest the destocking of telecom and the projects will come on stream in the 2nd part of the year. In the contrary, the big bulk of energy is continuing to run up quite steadily generating results and cash. And consequently, we are reasonably comfortable from that point of view.
Okay. Thank you very clear.
I believe that it will be better. Okay.
Thank you. Thank you for the clarification.
Welcome, Maurita.
Thank you. Your next question comes from the line of Alejandra Tocoria Okay,
thanks. Good evening to everybody. I have, let's say, 3 to questions, a quick, quick question, okay? The first one is on, let's say, the pipeline of orders. You have not included yet, okay, any order of the backlog for instance.
I'm referring to this offshore wind project in France. Just to Nordea, what is the reason behind if let's say, why you are not getting a set of notice to proceed on these projects in France, if there is a specific reason, because it's, let's say, mid sized project for you. And, a link to this, to this question, if I understood well, we'll be shortly with the, by the Greek utilities, together with Exane on the Summerlin link, you have, let's say, any update or you're feeling on this, let's say, ongoing tender? The second question is on is on the cash flow. Cash flow, let's say, also for the next year, because if I remember, well, you have recently reached an agreement with the for a disposal of a non core asset.
So I would like to understand considering the outlook you picture before, 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 okay free cash flow next year. And yes, this is on this question. Okay.
Okay. You made a lot of questions, it's Andrew. But we are going to try to
I know it's too late.
No, that's too late. Chapter 1. Pipeline of orders, The pipeline of orders is not so bad. Now we have 2,501,000,000 orders, and there are many orders coming. I'm not touching the German corridors.
Why?
Because 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, but it's a matter of timing of the customer. I don't believe that we are going to have any problem on it.
Greece, Greece is a different market. I'm quite sure that we are going to close the negotiation, the customer. It's going to close the negotiation with the potential suppliers that are to, at the end, by the yearend. Before the year end. It is matter of days.
Then when we are back or the others, we'd be able to announce those projects. It's a matter of agreement with customers. But 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. And the order in that case is linked at I remember well, unfortunately, Gaqan is in U.
S. If I remember, well, it's an order that includes the notice to proceed. So once we have the order, the notice to proceed is going to be automatic. Next year, cash flow. He need of the crystal ball, I believe.
Let me try is it is a credit 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 had the addition coming from the finalize the deal on a no core asset disposal, which is the aviation business. But let me comment that taking out because this is a nonorganic. I think that our target will be to improve from the EUR 300,000,000 free cash flow of 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, will have certainly lower restructuring costs, so restructuring cash outs than this year.
Not a huge, not by a huge amount because the restructuring costs that we incurred in Q4 this year due to the Spanish structure in cash wise will fall mainly in 2020. But still, I expect overall to have a slightly lower restructuring cost. So then is the fact that we are landing in September and also by year end, with some higher than expected stock minimum inventory due to the telecom slowdown due to the Spanish restructuring. So also in this case, I think we have some margin, some potential to recover. And these makes me rather confident that we can top up the number of EUR 300,000,000 free cash flow this year.
But again, I want to be careful before giving you a more precise indication of that. So
Okay. Okay. And so we 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 or maybe you come back, let's say, to the historical timing of May, just to just a stupid question survey.
Is it the 1st quarter results really, so we are going to give you the guidance. Yes. No, fully on. Sorry. In March, with the full year, we are going to give you the guidance.
So no change, Alessandro, no change from last year.
Okay, okay. From this year. From this year. Okay. Okay.
Thank you.
Your next question comes from the line of Sean McLoughlin from HSBC.
Good afternoon. Thanks for taking my questions. So looking at your restructuring in Spain, just wondering what impact this will have on margins and particularly which segments is it mostly concentrated in energy? As remarkable to see that the level of profitability across both energy segments, I think, looking at North America?
Okay. The restructuring in Spain is a deal. Why? Because the capacity of the players, especially as in general, was too big for the market. And General was exporting a significant amount of dairy products outside those basins.
Obviously, for us, makes no sense, and we are gonna resize the capacity. That's the goal. It's an unpleasant goal, but it's our duty in order to keep the company safe. We are going to do, closing 2 brands, And we have already closed the hit quarter in Barcelona of General Cable, and that's part of the synergies we need to create.
And should we then
Sorry. I missed your question of your question, the segment chapter. The segment is PD and TNI. E and I.
Thank you. And 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 20202021
from this?
Francesco Fanchule is here and can answer your question.
We, confirmed our historical market share in the deal with them. So we are taking almost one fourth of overall expected demand from this player. And this is something that should last, 2020, and most probably 2021.
This sounds like 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?
Well, 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. So 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. And this is where our development is, I would say, leading the race. We have been also recently appointed to supply cable for the first ten megawatt 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. He used to be 100 Towers, 8100 Towers, 100 Towers. 100 Towers of 10 Megawatt are 1 Gigawatt capacity. It is an extremely important energy capacity. And 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 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 agreement with West PalmLink. I can tell you that there's going to be a series of tests that are going to happen in, end of November, let's say, mid of December, max. And is going to give us the authorization to receive the taking over certificate.
Is there any significance in the year end 2019 stopover date? What happened if things slide into early January?
I'm sorry, I missed the question. Say again?
Is there any significance in the end December date in case the test 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 there's almost deadline. What I mean, that is another deadline, but customer is always customer. Consequently, we have to have a customer that is happy.
Very good. Thank you.
You're welcome.
Your next question comes from the line of Daniela Costa from Goldman Sachs.
Hi, good evening. Thanks for taking my question. One couple of things about quick. First, Can you talk a little bit about sort of the outlook for Y OFC 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 better than earlier ones in the year, but, and there's also a few 5G projects launched in China.
So how do you see that in China? Question number 1, And then I'll ask the others, which are quicker often.
Thank you, Daniel. I'm gonna leave the floor to Philippe. That is one of the board member of YOC and obviously will not be able to answer it totally to your question?
Daniela, of course, your first question, I cannot answer. And but I'm sure why UFC is fully available for answering your question at any time. And on the development China and the 5G in particular. The latest news that I have is that they are currently actually, accelerating the coverage of a few cities in China with the C band technology. And they expect that's what the industry says in China, not what you have seen, but in general, the industry.
Say that they expect some effects at the end of 2020 on the market. It's a projection that I can give you because it's public. And there are many ways to do 5G. The Chinese way is done essentially by using the existing antennas of the 4G. So I'm not expecting a spectacular effect on the fiber market very soon.
I think we have to be, my view, personal view that I built from what I know is that we have to expect a couple of difficulties still in China. But you should ask why you have seen about the tariffs, of course.
Okay. And then 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 sort of a volume outlook there, but what are what is the pricing situation? Price aggressive are the main players still at, at this point?
Well, listen, about the submarine projects, the price that we I've already told you that in the last 5 years, there has been a slight decline few percentage that are partly 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 5 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 for very low margins.
And a final point is regarding the long term incentive plan. Which, where do you book that divisionally? I understand the $12,000,000 at a at a group level, but where is it coming through?
We have not reduced a bit on the various segments. We have booked. Sorry. We have booked the centrally.
And other.
On the basis of revenues, on the basis of revenues. That's the answer I got. I wasn't 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
Yes, good evening. Two quick questions, if I may. First one, how do you expect industrial business to evolve in Q4? And if you could provide some colors about the trend in specialties OEM and Elevator business in particular. And 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 tightness cost. Is it correct? I start from the second question, Luigi. And it's correct, meaning that obviously, our business has 2 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. And 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, you're 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. And the LatAm is going pretty well too.
So the what we are missing today is the very high margin subsegments. Like crane, mining and whatever?
Yes, mostly, mostly the high end crane project due to the various postponements and fragmentation along the years of the key project well known to everyone. Mining business is proceeding recently well, whilst, of course, within the industrial businesses, their renewable take a lion's share.
Overall, Luigi, can we say that we see the industrial business from here to the end of the year, recurring a little bit. Next year, I believe that will be slightly better, but not significantly better. Very clear. Thank you.
We do have a second request from that, Gash Gupta.
Yes. Hi, Valera, a quick follow-up on portfolio. So I saw that in the quarter, you announced divestment of Antraka Filica, which you said it's a non core business for you. I'm wondering if you have any more plants to divest any small non core businesses? And also if you can update us about when you are going to resume your acquisition plans?
I a little bit about the divestiture of, of Avio. Avio is quite good business in term of margins, but it's very limited in term of sites. And this is not going to grow very much. Consequently makes a limited sense to keep, capital invested into it. For a business that will never be, a gigantic difference.
Moreover, The counterpart was offering us a very significant valuation. And we decided to serve as simple as that, because Avio was not synergic with any other business in the group. That's the message. Then other dismissals, from 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 RADA screen.
Thank you.
Okay. Thank you very much to all of you for participating to our 9 months conference call. And have a good day.