Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Thijsmeen Group First Quarter 2019 Financial Results Conference. Will be a presentation followed by the question and answer I must advise you that this conference is being recorded today. Thursday, 1st August, 2019. And now I would like to hand the conference over one of your speakers today, Valeria Battista.
Please go ahead.
Thank you very much, and good afternoon to everyone. Welcome to the first half 2019 results conference call of Bridgeman Group. Firstly, financial highlights of the first half. The organic sales growth went up 1.9% positive, Not so bad, let me comment. Thanks to telecom that performed very well with a 7.9% organic growth.
And particularly with a double digit organic growth in optical change. Solid trend of E and I, three point percent, of which, we posted a double digit growth in power distribution. A very good performance of North America with a grow of 4.7%. Adjusted EBITDA, the results Results closed at EUR 521,000,000, 8.9 percent of sales, comparable, not really totally, to the 1,000,000 of the first half twenty eighteen. We have to take into consideration that in 2019, the restatement of IFRS 16, has given us a positive impact of 21, consequently, apple to apple, the adjusted EBITDA of the staff has to be redid with the criteria of 2018 as EUR 500,000,000.
That is anyway, definitely higher than the 4 13 of last year. Energy solid trend in E and I especially in North America and Latin America. Overall, the trend is positive for industrial and network component Projects, projects are still suffering, but starting to recover. And at the start of the recovery, you are going to see in the order book, most of all, and the order award. We have to remember that in 2018, we got negative 1 off of 59,000,000 in the first half.
$70,000,000 of Wester Link and the $11,000,000 positive for telecom that were the OE provision release in Brazil and the carryover of 2017 last quarter results of Finally, what I already commented, the first half twenty nineteen, IFRS 16 are in. And consequently, there are EUR 21,000,000 advantage at the EBITDA level that are going to be compensated by higher financial debt for 141,000,000 Projects. Projects awarded in the 1st 7 months 2019, 1,100,000,000, very strong order award, Of which Viking is the Lyon part, with 700,000,000, we have been able to be awarded of 4 out of five blocks of the projects. Very outstanding performance. Congratulations to the project team.
And last but not least, the net financial debt closer to EUR 2,819,000,000, are lower than the last year, but Not so easy, not so easy, meaning that compared obviously to the year end, we have had as an significant increase of the debt because of the seasonality. We have to take into consideration also the counter side of the EBITDA IFRS 16 impact that in the debt counts for 141 $1,000,000 significant, but not so much. Flipping to page for sales, sales for the first half closed about 5,000,000,000 dollars, $849,000,000,000 compared to 5,000,007 82 pro form a combined with generic cable in the first half of twenty eighteen. Organic growth, as I said, is 1.9%, not extremely high, but consistent, okay? Adjusted EBITDA, 8.9%, 521,000,000 of which 21 IFRS 16 effect, the half 1 last year was 4 57.1%.
Let me mention that the percentage of EBITDA on the sales is start to be pretty significant, roundabout 9%. That is a pretty good result. 1 year after the acquisition of the United Kingdom. Working capital, working capital closed at that 1,269,000,000, 10.3 percent of the sales compared to 10.50 of June 2018. Pretty high, pretty high because, you know, that our working capital usually is 1 digit of the seas, we are still 2 digits.
We are going to work on it. That's one of the point we have to improve. Reported net financial debt, $2,890,929,000,000, coming from the $3,014,000,000 of June last year. So the improvement is there, but the EUR 141,000,000 are coming, as I said, from IFRS. 16.
Let's go to the segment. Page 5 Projects. Organic growth of 3.4 percent negative in the first half. That's not nice, but it was planned. It was a very clear to us that in the first half, we were going to suffer the rework of some lengths of some of the projects that for the sake of certainty of the quality, we have decided to scrap last year in the first in the last quarter.
And now we are using the capacity to reproduce see. Okay. The results are better than the previous year because of the previous year, there were accruals for the Western Link fold significant. And that Dusaku has reduced the result to $69,000,000 this year, are not anymore. And consequently the results are EUR 94,000,000.
But if we look at the right side of the chart, of the project chart, we are going to see that the $139,000,000 last year excluding Wester Link, have scaled down to 94. Why is that? You remember that last year, in the last quarter, we have been finding problems in the execution of certain lengths of submarine connections that for up with a prudent approach. And after the bad experience of West Dublin, we decided entirely to scrap and to rework. That's why, unfortunately, cost has a cost and is reported in the numbers of the first quarter 2019.
But is going to go over in the second half. Energy. Energy is going very well, mostly thanks to the innovation which cable in North America. Organic growth of 1.8 percent E and I have had a extraordinary ramp up from $106,000,000 to $151,000,000 with an organic growth of 3.1%. Whereas, the industrial network component went up in term of EBITDA from $83,000,000 to $93,000,000, $10,000,000, with a EBITDA margin on sales of 7.5%.
This has to be an acceptable level, but the organic growth has been negative for 1%. Percent. Yes. The trend in North America and Latin America is excellent. Power distribution particularly is very strong.
And you have to consider that in those numbers, there are also the effect of all the synergies that we are realizing, especially North America, with General Capology. The sole problem still in place that is going to disappear of to be very much mitigated in the second half are the overhead lines in South America. Especially in South America, Latin America. We expect to have a minor effect in the second half. Industrial network component, very good performance in all the segments, except automotive and oil and gas.
For the well known reasons by the market. Automotive, unfortunately, is facing a crisis crisis and the oil and gas is still in the recovery phase. Telecom. Telecom had a extremely good organic growth of 7.9%. With a result that closes at 162 versus the 155 of the first half 'nineteen, 'eighteen, certainly.
EBITDA margin of the first half twenty nineteen reached 18.3 percent, pretty good. What we can say that excluding the one off of last year in the first half, again, the OE provisional release and the YFC carryover. The result in the first half 2018, would that be in 143,000,000, possibly the jump and the improvement is much more significant that appears. We have to consider also that, in those numbers, are reported that the lower contribution that we got from YFC, that is not consolidated, that is consolidated, the only as at the net level. Let's flip to the next page.
Page 6. With the hours of the project business. Extremely good, are really Lyon role in the market, Viking, 1st of all, of which I'm very proud of the job done by the team. $700,000,000 out of $770,000,000 more or less. The interconnector.
We are going to realize the 3 submarine sections, and these land sections in UK. The sole portion of Denmark Land wanted to competitors. But within 5, we already have the work of it. From 1 at 40,000,320 kiloatt. Provence's grand large is one the if not the first is really one of the first offshore floating wind farms.
We have already been awarded of other 2 liter projects, single power. That's for us, at least, is the project with Four towers. And I'm, again, convinced that this is a technology that is going to be very significant in the future for the development of the offshore wind farms. Finally, Vineyards, Vineyards we got 1.5 months ago, 200,000,000, 220 kilowatt export cable, and is the 1st very big project of offshore in U. S.
Let's move again to telecom business more in detail. Excluding the FRS impact, as I said, The result moved from 155 to 162. How, with a EUR 58,000,000 improvement of optical cable and a $5,000,000 decline of the copper because mostly the NBM project was using some copper cable in the connection of the homes and the NBM project, unfortunately, is over. Last but not least, the 26,000,000 of the gain, the 1 off of last year and YOC, therefore, to not really scale it down in terms of results. Let me note that the lower part of the chart, where we report since 2013 till today, the EBITDA of the business that went up from $106,000,000 to 302,000,000 on the LPN, obviously.
That's a very good improvement, very good ramp up across the last six years, 6 plus years, with an EBITDA margin that is going to stabilize around about 17% to 18%. That is a very good performance. That's combining with YOC. In my opinion, it makes sense to keep the track of the line, the dotted line, because the profitability of the business as it is, except YOC is significantly good and is improving up to almost 16%, fifteen plus percent. Adjusted EBITDA by geography.
Interesting chart because now we are not anymore, mostly European company. EMEA closed the 1st half with the $3,147,000,000 sales, an organic growth of 1.2% North America 1.751000000000 dollars, 751,000,000,000 dollars, 751,000,000,000 sales with an organic growth of 4.7 percent. Latin America 466 with an organic growth of 2.7%. And that's a part 485 with an organic growth of 1.4%. On the light blue, chapter, we reported the organic growth without the projects because, obviously, projects can change significantly with organic growth in half of the year.
And you can see that Europe, in reality, accept of having a negative effect of the projects in organic growth and being the source of most of the projects. Has posted in reality a 3% organic growth without the projects as well as North America scaled down a little bit from 4.7to4.1 and Latin America from minus 2.7 to 1.9 negative. Finally, Asia Pac, +2 percent. So if we exclude the projects, all the other businesses have posted a plus 2.8 organic growth compared to the plus 1.9 including the projects, but that's the life. From the results point of view.
Another important chapter is how North America now represent a significant chunk of our results, 185,000,000 EBITDA in Alpha 1, compared to the 244 of Europe. Where the performance in terms of EBITDA margin is definitely better than you 10.6% compared to 7.8% of Europe, increasing significantly from the previous from the first half 1 years ago, where in Europe. The performance was EUR 195,000,000, with 8.1% sorry, 6.1 percent EBITDA margin. And in North America, where 117 with 7.2% EBITDA margin. On the other side, Latin America that has scaled down internal, organic growth In reality, it is a little bit cleaning portfolio.
And the results went up from 38 to 45. With a quite significant EBITDA margin of 9.6 percent. What to mention, they the business mix is improving. The organic decrease mainly comes from the overhead lines, because of red lines suffering in South America because of in Latin America, because of the poor order income of 1 year or 1 year ago. Now the order book is better and we expect a better performance, especially last year.
Next year. Whereas in the second half, we still have some, another book that is not totally covering the capacity. AzePAQ is, is going not very well. It's going pretty bad, frankly speaking, for many different reasons. As you can see, from $63,000,000 down to $26,000,000 with our EBITDA margin of 5.5%.
Why? Because first of all, the fact of YFC contribution that is definitely lower And secondly, because of the end of the NVM project in Australia on the telecom side, that obviously penalize it significantly the result of Australia. Let's flip to Page 9. 1 year after the closing with General Cable. I have to say that I'm very happy of having done apparently expensive acquisition.
1st of all, because of the size of the company, the relevance of we have for our customers. And secondly, because the all the synergies are coming to home. That was what we planned. Synergies, synergies are achieved are coming and are even in the numbers. Costs, costs as of June 2019, we have realized already $90,000,000 of synergies.
By the year end, we expect through each one and then and by 2021, 175. It's true that it's pretty fast. We are trying to concentrate as much as possible all the actions in within 2020. Working capital synergies, we already realized this true. Unfortunately, we don't see in the total working capital of the company, for other reasons that we will comment later.
But in mostly in USA, we realized $200,000,000 working capital synergies, partly in USA, partly in Europe and in South America too. Financial synergy, 1,000,000, done. We refinanced completely the depth of generic cable, saying EUR 30,000,000 of financial costs. Costs stimulate. We realized it already 105,000,000.
The plan was to reach 220 And we expect to reach 155 by the year end. The chapter that is missing, yes, in the reorganization of the General Kilometer is the industrial footprint that is going to come in the second half and next year. And that's one of the reasons for the pretty high working capital. We are obliged to accept Finally, how we rebalanced our geographical presence? Whereas EMEA was a 68% of the total sales today, EMEA is 54%.
So it's definitely lower. North America from 14% to 30%. Asia Pac reduced a little bit from 12 to 8% and LatAm increased at the high bit from 6% to 8%. Finally, the guidance. The guidance is confirmed, a number in between of $950,000,000,001,000,000,000 in 20.
The easy mathematics, say, is 500 times to our 1,000,000,000. Obviously, are we talking about numbers without before IFRS 16 application. For the time being, there is there are no reasons to rise officially the guidance. I believe that we can and we have to try to land at the famous 3 digits goal. That is 1,000,000,000.
But there is still road to go. Complimentary, I do not want to unbalance too much. Our internal goal is clearly this number. Free cash flow, free cash flow today is a little bit the most weak performance of the company. But we consider the 300,000,000 plus or minus 10%, a chapter to be to be confirmed.
Obviously, after almost EUR 90,000,000 of restructuring cash out. Okay. I leave the floor to Francesco
for all the financial results detailed. Thank you, Valerio, good evening to everybody. Very quickly on the profit and loss, as Valerio said, organic growth 1.9% in the 2nd quarter is substantially in line with the 1st quarter. With a very solid trend in energy and infrastructure, both in TNI and even better in power distribution fueled by the very strong growth of North America. Also industrials Network component improved the organic dynamic, unfortunately, burdened Valea, you explained by the drop in volumes of both oil and gas and automotive.
Last but not least, telecom, with a very strong double digit growth in optical tables despite the phase out of the NBN project in Australia and a very solid trend in multimedia solution, specifically in North America, but overall, but specifically in North America. Commenting on the adjusted EBITDA just to wrap up some of the planation that Valerio already gave. The result went from, $413,000,000 last year. 1st us to 521. I try to make a clear bridge on the right part of this page in the little on the right, as you see, also highlighting the 1st quarter dynamic and the second quarter dynamic.
So you see how we go from $430,000,000 to $500,000,000 before IFRS 16 impact and then 521 with the additional 21,000,000 positive impact of IFRS 16. Of course, we benefit from the from recovering as the negative impacts on Western Link last year, EUR 70,000,000, which 20,000,000 in the first quarter and 50,000,000 in the second quarter impact 2018. As Valerio explained, the organic Italy, the project division is dropping by $45,000,000. And let me highlight very clear, I believe that the second half is expected to be much more in line with last year than than the first half, of course. So pretty close to the prior year, the second half.
Energy, improved very significantly, EUR 55,000,000 EBITDA, with an acceleration, I would even say, in the second quarter, you see a growth of 1,000,000 in Q1, going to $35,000,000 in Q2 for a total cumulative ALF1 growth of $55,000,000, so pretty impressive time that we are, as Valerio said, Northern America was certainly the main engine. Telecom also impressive performance $33,000,000 increase in EBITDA, of course, excluding YFC and 1 offs. Also in this case, accelerating. And I like to highlight again that in all the energy businesses and in from as well. We have an underlying improvement of EBITDA margin, which is very, very, very positive.
And then, and for shortly, the missing contribution of 1 offs, which were there in 2018, and the drop in the contribution of YFC result, which is impacting significantly 26,000,000. And this is bridging, as I said, the 450,000,000 with 500,000,000 EBITDA ex IFRS 16 in 2019. Another good news come from the dynamic of the net income. As you are seeing, like to comment this sharp increase of the group net income, which is more than doubling from $80,000,000 to $190,000,000. I believe that we will maintain very positive trend in net income also for the second Alpha.
And this is, of course, driven other than the outstanding operating performance of the company. Also by the drop in adjustment and special items in also restructuring costs. So let me say compared to the prior year. The strong synergies that we have achieved in financial charges and this is, of boosting the group net income. Let me flip to Page 14.
To briefly comment adjustments. As I said, EBITDA adjustments are going down from $46,000,000 to $29,000,000 this year, slightly lower restructuring costs. And also on the non cash items, special items, there is basically neutrality in the metal derivatives value change versus a pretty deep negative impact last year. And as I commented, this is boosting our net income. And on a cash base, as well as you anticipated, we anticipate total cash outs for restructuring and integration this year of 80,000,000, more or less, plus the 75,000,000 incurred in 2018 for a total cumulative plan for year end of 155,000,000.
Financial charges, very positive dynamic. Net interest expense is at 1,000,000 indicates a target for year end around the 90,000,000, expected at 90,000,000. And this $90,000,000 is approximately $13,000,000 lower than in 2018, of course, combining the 2 perimeter And 2018 was already dramatically lower than 2017, combining Prisma And General Cable Meters. So all in all, we are achieving net synergies on interest expenses of $30,000,000, which are even higher if we consider that, of course, acquiring General Cable, we paid a fair amount for the equity of General Cable, which is definitely a change of perimeter in our net debt. So growth synergies calculated on the poor, on the pure net debt refinancing would even be at the level of EUR 40,000,000, I would say.
The financial structure is very strong. I like to say that we have recently refinanced the EUR 1,000,000,000 revolving credit facility with the new one, 5 year tenure, 5 year maturity, and this has increased as extended our average maturity considerably, which is on average now almost 4 year. We don't face any significant maturities on the capital market before 2021, 2022. So we are pretty relaxed. On this front and also the 2020 maturities on the bridge financing.
Will be mostly covered by the cash flow generation that we will generate in the next 12, 18 months. Let me flip to the balance sheet. Just to quickly comment the net financial debt, which reached the 2819 with 141,000,000 IFRS 16 impact in line with the expectation and with a pretty strong cash generation in the second quarter. If you consider the dividend that we paid in the 2nd quarter, the free cash flow achieved in the 2nd quarter was pretty close to $200,000,000 positive, which is pretty much in the higher range, if we take the history of the last, of the last 5 years. More specifically, last page, which highlights the last 12 months cash flow, bridging the $3,000,000,000 net debt that we had at June 2018 with a $2,800,000,000 set we are adding as of June 2019.
Let me comment that the strong cash generation that was achieved in this period was, absorbed by, first of all, the very important, the very significant acquisition of restructuring and integration costs that we incurred due to General Cable Acquisition. You see that the yara lighted in this bridge in 115,000,000. These are cash outs in the of the last 12 months. Then of course, also Westerlink repairs and technical issues play their role. And we had cash outs in the last 12 months for 65,000,000.
Working capital in total was pretty stable, an increase of $38,000,000 as well as earlier anticipated this increase of $38,000,000 is made of very different drivers. We have increased a significant increase of working capital in the project business, which will be partly recovered in the second half. And we have an offset related to the synergies, to the EUR 200,000,000 synergies that we achieved in the last 12 months. Then of course, working capital was also driven up by the transaction acquisition and restructuring costs. That we paid.
I believe I am done with my presentation. We can go ahead with a Q and A session. Thank
you so session. Please stand by. You. And the first question comes from the line of Lucille Carlier from Morgan Stanley. Please go ahead.
Hi, good afternoon, gentlemen, and thanks for taking my question. I will have 3 questions and I will go one at a time. The first one is a follow-up on the free cash flow. Francesco, are you able to help us a little bit around the dynamic for the free cash flow for the second half to kind of build up to the target of EUR 300,000,000. And within the target of EUR 300,000,000, how much have you assumed in terms of prepayment or maybe in other words, in light of the recent contract win that you've had How much do you expect to get from prepayment this year from those?
And are they including the target?
Thank you for the question, Lucy. I think I can fully confirm our target for the 300,000,000 plus-10 percent free cash flow. Which basically translates into a net debt at year end, which is before IFRS 16, between 2050, 2100, after IFRS 16, U. S. To gross this up by EUR 114,000,000.
So just to simplify, including IFRS 16, our target for year end net debt is 2,200,000,000 or 2,200,000,000 plus something, in this region. This is a number which is absolutely consistent with the EUR 300,000,000 free cash flow generation. Now your question is obviously how do we deleverage so much from the EUR 2,800,000,000 that you are seeing as of June. 2019 down to 2,200,000,000, say. Basically, last year, we had, if you take out the capital raise that we had in July, of course, we had a lower deleverage.
But this year, the leverage should be pretty much boosted by, first of all, the completely and dynamics that we are seeing in the project business. Because last year, the second Alpha was a huge burn of cash and huge pain in my CEO is suggesting that I think he's right. A huge pain in terms of cash burns burnt by the project division. And this year, I'm not saying that we have a fantastic dynamic but is a completely different dynamic. By the way, coming to your down payment question, such orchid by the down payments, which are obviously related with the recent orders that we got.
Of course, we are assuming that we will, we will, cash the down payments related to the Viking order, which was, by the way, a big a bit larger than our original expectation. So I think that these down payments can support the cash generation of 300,000,000 Whereas, in terms of down payments, we are a little bit more prudent in terms of other projects I don't want to mention here, because the timing of these projects is a little bit, I mean, it's certain, but of course, it's difficult to predict if the down payment will fall in December in January, which doesn't make any difference, but of course, it makes a difference on the year end, the net debt, right? Then we have another component, which is explaining why this year we will deleverage a bit more which is the fact that last year was the 2nd half was pretty much burdened by the big transaction acquisition and restructuring cost. Which fell mainly in the second half of twenty eighteen. Of course, we are still having some restructuring costs in the second half of twenty nineteen, but are significantly lower than the ones that we incurred last year.
And this is makes me pretty confident on the fact that we will go to the target that I mentioned. I don't know, Lucy, if I help you to understand.
Yes, yes, that's helpful. Thank you. My second question was related to all of the contracts you've got since the beginning of the year. You are ahead at the moment of your 1,000,000,000 target. I'm not hoping to comment on specific contract generally speaking, when you look at the planned margin level of the recent contract wins, do you do you see them, I would say, fairly in line with historical level of margin for subsea transmission profitability?
Okay. Lucy Valerio speaking. Margins of the projects. I asked them, and I got a chance that I cannot publish. With all the projects of the last 7 years, just to understand the margins.
The margins are not the price. Remember, the margins we play with. In those projects. And I've seen that in the next the last 7 years, the average margin of the projects, scale it down a little bit, but then talk about 1 or 2 points. In reality, the price effect has been higher because you remember that we invested to insource activities of our business.
Reducing the payments to third parties, consequently. The effect of the of the prices has been higher than 1% or 2%. The fact on our margins have been roundabout 1.2%.
And
just to your question,
Partially, no. Basically, I was just curious to know whether if you are looking at the contract you obtained since the beginning of the year, so the Viking vineyards, the provenance contract, Dolwin and so on. If you are looking at those projects in Aggregates, do you expect this project to deliver a similar margin to, I would say, what you've seen in Subsea Transmission Project over the last few years?
Yes, I already said that during the previous conference call, round about with the level of margin we are hosting in our offers, we consider to be able to reach the 15% average EBITDA margin.
Okay. Thank you very much for that. Yes, no, that's helpful. And then my last question was around general cable. So of course, it seems the cost synergies seem to come through very quickly, maybe faster than we were expecting.
But the when I look at the organic growth as well that you are showing in North America and the momentum, it seems to be quite strong compared to what we see generally in the market. Can you maybe give us a little bit of color in how General Cable is also helping you, not only from a cost synergy standpoint, but also from a top line standpoint, what it brings to the portfolio and the synergies around that you can generate also from the sales with the present portfolio.
Okay, got it. Lucy, if I may, would like to ask Masimo, Batini, that is here and he's managing North America. To answer the details that I can.
Hi, let's see. Good evening. So regarding the selling opportunity in North America. I mean, the portfolio is a wide analogy in North America is as a result of integration, for example, to mention only one segment at Telecom, we were strong in optical business, and General Cable was strong in expense datacom business and the combination of the 2 make us a strong player in all the American Telecom space. And we are selling to our TS customer, the MMS targets.
And, we also signed into the MMS, the legacy General Cable customer to pay a solution for that. So this is the type of synergy that have boosted the growth in the North America. Narsima case happened in the cloud distribution administration, North America where General Cable complemented our product range with the red lines, which we didn't have increasingly on a legacy portfolio. And so we are selling over airlines to legacy Prisma customer. And this is just to mention 2 simple catalysts.
In addition to that, not only we haven't lost a revenue in any of the overlap customers. We've been able to leverage of the relationship with the distributors to increase our surprises in the in this channel. So the growth that you see is the result of volume growth, cross selling synergies and pricing improvement in the market, which is a growing market. So we'd like to for a market, the substantial difference between North American market and the European market. So there is growth in the European market, and you have the chance if you have such a wide portfolio to grow your top line?
To be clear, is not exactly the same picture in Europe. It's not very different, but the cross selling opportunities are more or less going to be offset by the overlap on certain cost Thomas.
Thank you very much gentlemen.
You're welcome.
Thank you so much. And the next comes from the line of Mark Jates from Credit Suisse. Please go ahead.
Just my first question is on the timeline on Viking Link. So now that you have it, obviously, one, when do you plan to start producing Viking Link. And is that one of the things, if you do start in maybe Q4 this year, is giving you some visibility on a second a better second half? And then just as an extension of that, when you look at your order book, how much of your 2020 revenues in the submarine business are now covered by the existing order book and how much do you still have to win in contracts coming to market over the next 6 to 9 months?
How can Osman speaking, the Head of Project Business, for the Viking, we had planned already the Viking production for this year. So we already let's say, started planning the raw material purchase and the production So there is not going to be a significant difference between our plan and what we achieved. Even we got a bigger order because the project is, let's say, spread over the years, it will not have directly an incremental effect on the first part of the project are better to say the second half of the year. Therefore, overall, we can say that it's in line with the expectation. Looking for the 2020, it's a little bit early to say, to plan for 2020, but the existing order backlog and also the expectations that we are going to receive from the second half of this year, is coming to a saturation level, which is higher than the previous year when we started the little bit more comfortable starting 2020 than 2019.
I think as the time is going to pass in the coming quarters, we will have more concrete, let's say, visibility.
Okay. I mean, maybe just ask sort of a slightly different way. I mean, is your backlog sufficiently big that it's going to prevent you from bidding on any of the major projects coming to market in the next 9 months like Creet Attica, like some of the UK Offshore wind projects, which should CFD later this year. So just trying to understand if there's any constraints on what you're able to bid for?
Looking for the bits going forward, we don't expect that we are going to back off from any bid going forward. Our capacity and our measures that we are taking will be enough to participate to the big projects going forward.
Obviously, Max, when I speaking, we are going to participate we believe that with a sound order book in house, we have to be a little bit prudent
in
talking about margins.
Sure. And just the second question I had was just to understand you've given guidance of flattish energy projects EBITDA in the second half, which implies sort of 1,000,000 better than what you did in the first half. So obviously, I mean, I'm not trying to sort of catch you out here, but it implies if everything else is equal that you should be doing a 1,000,000, better EBITDA in the second half. So I'm just trying to understand, is there anything across your business where you think you had an abnormally big H1, whether it was in power distribution growing double digit because it was related to phasing or anything else across the business that you would have good reason at this point to assume that it wouldn't continue in the second half?
Frankly speaking, Max, no, I don't see. I believe that projects are going to release a result that obviously is better than the first half. That's for sure because obviously it's not going to be the problems. Are we suffering in the first half of the day works? The other businesses, but remaining on projects, the crucial point is the execution.
Execution have to be flawless. And that's the goal the team of projects have a very clear in mind. The other the other segments, I believe that, is gonna are going to be in line with the performance more or less of the first half. Okay. Confirming at the end, the very good performance of North America, the sound performance of Latin America, the poor performance of APAC.
And that's it.
Okay. And just a very quick follow-up on FX. Just when you mark to market the current FX rates, what is your estimated impact outside of your guidance for what that could contribute for the full year EBITDA, please?
No, we had a positive contribution in the first half, which is a 14,000,000 Europe, I think in the second half is pretty negligible. It will be a few additional million, but no more than this because already in the second half, of 2018, the dollar strengthened pretty much. So we are much more the level, the current level of the dollar is slightly stronger, but is substantially more comparable with the second half last year.
And the next question comes from the line of Akash Gupta from JP Morgan. Please go ahead.
Yeah, hi, good afternoon, Julio and Francisco. I have couple of questions, please. My first question is a follow-up on guidance. So you don't see any negative surprises in second half and we are expecting $50,000,000 roughly more in projects, $30,000,000 more in incremental synergies. So why you are not increasing guidance yet.
And maybe just to add to that question, is it fair to assume that if Q3 goes on track, then maybe in Q3 and when you come out with your Q3 results in November, should we expect any upgrade to guidance? That's question number 1.
Hanswelt number 1, not for the time being. I believe that there are possibility to reach the second part of the And usually, the bad news used to come in the second half. And that's the reason why I prefer to be prudent. But it's clear that projects should contribute a little bit better, but I don't believe that the end of the market is such a strong to confirm the upside that we got in the first half. And the seasonality effect within the second half is going to be nowhere.
You have to consider moreover, that the effect of YOC, we have got in the first half have to be replicated partly at least in the second half And that's one of the reason why I have some doubt to be able to raise the guidance. It's too early. But we have another quarter before to, if in case.
Thank you. And my second question is on telecom business. Can you talk about how much visibility do you have in your fiber business? I mean, we are hearing from your competitors about overcapacity in China and some of your competitors are flooding European market. But maybe if you can talk about how much visibility do you have and what sort of actions you are taking there to address your profitability?
Okay. The fiber business, as you know, has had a collapse in the first half twenty nineteen in the Chinese market. The most important chapter is that the Chinese market is declining in term of demand, fiber kilometers. Physical demand significantly double digit double digit means between 10% 20%. For the certainty of the second half, I would like to ask Filipanil that is around the table to commence.
Hello, Akash. Good evening. We have a good visibility on the second half in Henrico. Because of 2 things, essentially, because, you know, we do not operate directly in China. And the first market to take the hit of this Chinese issue with China.
For the Chinese competition to enter into our territories. They need to qualify in some time. So we are, of course, getting steady in taking a share of our markets with lower prices, but we do not we see it, yes, we see it, but it's marginal in terms of effect on visibility of the second half at this stage. The second element of it is, with many of our customers, during the shortage period. Our attitude was not to be too opportunistic on price.
And second, to sign contracts that are securing some business in the mid long term for us. So we are to a certain extent protected by this attitude we had in the last 3 years. We certainly did not fully optimize our profitability in the last 3, 4 years. But as a consequence, we are a little bit protected in particular, I'm comfortable for the second half of this year. I hope this answers your question because when you talk about China, Presmian Telecom is not impacted as such because we
do not operate on this market.
On our market, the effect we see from the in this competition at this stage on our P and L is marginal. So I'm comfortable with the second half.
Thank you. And my final win is on pricing and competitive dynamics in general for the group overall. We have seen good results from you for two quarters now and your French beer, Nixant's also reported very strong margins. Can you talk about is there any improvement? I would say structural improvement in pricing in general, particularly after you consolidated the industry by acquiring General Cable?
Okay, Akash. That's quite clear because General Cable was we have been commenting in the past. Cable was one of the most aggressive player in the market, also because the sales team of General Cable was focused on the volumes and not on the margins. It was also incentivized on the volumes. We changed dramatically this attitude.
And so at least they are not the ones that are going to drop the price so much. On the other side, we have to remember that especially in Europe. There are so many competitors ready to drop the price for the last meter of cable that is very difficult to obtain to get a serious consciousness of the control of the market. Consider there is always anyone available to drop the price for additional cable kilometers. Now that's the style of cable makers.
And the next question comes from the line of Daniel Acosta from Goldman Sachs. Please go ahead.
Hi, good afternoon. I wanted to ask 3 things as well. Back to your commentary regarding the second half EBITDA outside projects. Within that comment of sort of stable versus the first half, How much do you consider of a top line deterioration? And is the way that the reason why there's sort of stable more because of the benefits from General Cable given we're seeing some of the cyclical end markets decelerating in other companies.
That's question number 1. And then I'll do like the others. I'll ask when you're done.
Okay. You're right. The second half EBITDA, if we consider that the projects are going to be better than the first half as we are reasonably comfortable with, should justify an upside. But we have to consider that in the first half, our performance has been improved significantly by the synergies. That are not going to be repeated as strong as in the 1st half and the second half.
And that's one of the main variances, synergies are coming are, but the variance comparison to the first half are not is not going to be as strong as it has been in the first half. That's the life. Time by time, we realized the synergies and the synergies are not going to be repeated. What which was the second part of the question? Sorry,
Well, I had 2 other questions, but I'm not quite sure. Actually, I understood the answer, because you had, I think, previously mentioned the second half for the non project business will be similar to the first half and now you just comment synergies will be lower. And my question was the top line we're seeing across the board in throughout reporting season in a lot of these general industrial end markets, which that division has exposure through a slowdown quite material slowdown on industrial demand. So what is the compensating sector, given the top line is likely to slow down and the synergies are also going to slow down. Is this just seasonality or why stable
Josh, this is Ronald. July August are weak months of the and moreover there is also December. Usually, in the second half, we are going to have a better performance of the project and a slower performance of the traditional business. For the simple reason that 2, 3 months are partially of consequently, we are going to have a lower result on the run rate business
Okay. And then following
up on
okay. Understood. And following up on the general cable, you mentioned during the intro, that you still have to do the industrial footprint savings part in general cable. Can you give a little bit more color and exactly what's stop preparing there?
To be clear, we are planning to act on the perimeter of General Cable from the plants point of view, we are going to act possibly in the second half, but have to be negotiated. And that's it. The savings will not come in the second half will come next year. Because to act on the plans, the timeline is much longer.
And is this how many plans?
It is better not to mention.
Okay, fair enough.
Because first of all, we have to share this information with the unions and enough with the market.
Okay. Fair enough. My final question is just more of a longer term question in terms of capital allocation strategy. For the time being, you still have some leverage, but has you generated free cash flow and de lever, what's next for Prismium? Do you think there are still other sort of significant consolidation opportunities within the cable industry?
Or would you consider at some point starting to raise the dividend, I guess, in absolute terms, the dividend has always been very close to the same amount for several years.
Okay. For the time being, let's us to deleverage. Once we have deleveraged and get to the point that you asked for. Now it's not the case. Obviously, if some very good opportunity is going to come, we have to have and we will have the proper batch.
We can take it into full consideration, but I'm not in the hurry at all. No one is going to leave. For the time being, we have to deleverage. And when the proper opportunity will come, if the case will be, we will act. Otherwise, we will raise the dividends, for instance, on share buyback.
Okay. Thank you.
You're welcome.
Thank you so much. And the next question comes from the line of Alessandro Tortosa from Mediobanca. Please go ahead.
Yes, thanks. Good evening to everybody. I have 4 questions, fast questions, okay, if I may. The first one is on, if you can, let's say, share with us the other view on short, let's say, cycle businesses. I'm not, let's say, asking to you an outlook for this year, but what's your feeling?
Because we are leading a lot of companies telling about, worsening, let's say outlook on cyclical businesses, okay? So just to have your feeling on that. The second question is, sorry, but it's on West link, just if you have, let's say, any update on the timing of the commissioning if if I remind, well theoretically after summer, let's say, could be a good period seasonally speaking, okay, to do testing and commissioning. The third question is, just on the accounting for the adjustments, EBITDA adjustments, I saw, let's say, in the first half, around 1,000,000 EBITDA adjustments. Honestly, I was thinking about a higher number.
Because of you're going to have also integration costs. And therefore, I would like to have an idea of what this number could be for the full year. The last question is on Germany. If you can just give us any idea of what's next on the German Corvidos. This is, let's say, key projects follow-up from the sector.
So we're going to be on this project.
Hey, Alessandro. Thank you very much. First question, the short cycled businesses. Are worth saying, but for the time being, seems not. I'm very prudent.
You know that we are a little bit postcyclical consequently, maybe we are not going to see as quick as other businesses, other companies. For the time being, I have to say that, is not buoyant, are not buoyant. The short term cycle businesses but are not so bad. Thanks also to the North American integration with General Cable. 2nd question, Western Link, the Western Moon update is very simple.
From the 3rd June, the line is in service. Is running properly. It's running well. Now are 2 months. No update.
The line is up and down, up and down. Depends on the availability of power to be transferred. And we are fine with it. The taking over certificate of the completion of the commissioning as I already said, we hope and we expect it to be to get it to be able to complete finally, the project was within the year, but in the sense of the wind, no wind, no power, No commission. German corridors, let me complete the love question.
Then I leave the floor to Francesco for the accounting matter. The German corridors, we homologated already 2 technologies for the 525. If in case the 525 will be the choice of customers. The customers at the end are 3. 3 different German customers.
And assuming that all of them will take 1 the same decision that is not sure, we believe it to be well placed because we have 2 technologies homologated, the P laser and the XLP 525. Then it will be a competition and we will see the results. But until I don't have the the fox in the bag, I'm not going to stop it. I leave the floor to Francesco for the accounting question.
Yes. I let me say that it's difficult to predict the second half in terms of specifically of restructuring costs because it's a little bit related to what Valerio was explaining on the timing of the industrial footprint. So it's, so allow me to execute this portion that it's difficult to predict in terms of of timing, which can be obviously material, but no one knows right now if it will fall in 2 2019 or maybe in 2020. But taking this out, I would anticipate in the second half, around 1,000,000 dollars, $40,000,000 of additional adjustments. In the second half.
So if I say, just to in line with the restructuring that we are completing.
Yes, the question was related
to your statement on the net income, okay, you mentioned the good result as a reported net income and therefore also considering this item, maybe you can do, let's say, the number you had faster times 2 or something close to that level. Okay. So that's the reason why
Yes. None of that is a you are right in principle. I think that time 2 is certainly a challenging net income, but not totally impossible, not totally unfeasible. I would be maybe slightly more prudent saying times 2 less something, but 1.8. Exactly.
1.8 something like this. I didn't do the math, but whether you're certainly very close to reality, But this level of adjustments is consistent with my comment on the, on a very good net income in 2nd half as that.
And the last question comes from the line of Siena Magloffin from HSBC.
Just wanted to specify which of the projects that you highlight in Slide 6 are included on Slide 20 in your June 2019 subsea backlog?
We are looking for
No. Just hold on.
Just hold on. Just hold on. Yes. In the backlog, out of the Wamp in June, end of June. Obviously, there are are missing many projects that have been awarded after June.
And some projects that are not in the backlog yet because we don't have the proceeds to proceed, to be clear. The EUR 1,300,000,000 not include, for instance, the $700,000,000 roughly of Viking do not include the vineyard, and the includes vessel development 5. Volume 5 and smart projects.
Excellent. Good. That's better. The second question, I think just a broader question on on offshore, in particularly in the U. S, I mean, clearly, we've seen a lot of activity in the U.
S. Market a lot of big orders. And it looks as though your competitors, what sounds like your competitors haven't really been, particularly active. I mean, what do you sense is the kind of near term opportunity here for, more in order intake over the 12 months. And then specifically on Vineyard, we're hearing there are some issues potentially with the environmental permits.
What could be the the kind of knock on effect on your delivery schedule for that project?
Okay. Hakapentin speaking. Again, regarding the offshore business in the U. S, vignance is going to be the first one that is going to be realized until the notice to proceed that we expected in the year, depending on the permits, as you have stated, Then the market is active. There are some licenses that are being, let's say, double up especially in, in New York area, New Jersey area and North Carolina area.
So, we see that, in the future, that is going to be a good month in the North American environment, depending on completion of one project. So the potential is big once the developers are going to realize the advantage and that the European market is enjoying with the wind farms. And but we don't expect in the next 12 months that going to be any major, let's say, project award, regarding North America. If I come to your second question about Vineyard, there is going to be lots of speculations until the notice to proceed therefore, every news is going to create some circulation, but we are feeling confident that everything is going pretty well from our, let's say, customer's perspective. Definitely, this is going to be the 1st project and, you can't extract the difficulties and the speculations around the project.
Great. Thank you.
Thank you so much. And there are no further questions. So please go ahead.
Okay. Thank you very much to everyone for participating to our first half results release and enjoy the evening.
That does conclude our conference for today.