Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Prysmian Group first quarter 2019 financial results conference. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, you will need to press star one on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded today, Thursday, the 1st of August 2019. Now, I would like to hand the conference over one of your speakers today, Valerio Battista. Please go ahead.
Thank you very much, and good afternoon to everyone. Welcome to the first half 2019 results conference call of Prysmian Group. First page, 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 7.9% organic growth, and particularly with a double-digit organic growth in optical cable. Solid trend of E&I, 3.1%, of which we posted a double-digit growth in power distribution. A very good performance of North America with a growth of 4.7%. Adjusted EBITDA, the results. Results closed at EUR 521 million, 8.9% of sales, comparable, not really totally, to the EUR 413 million of the first half 2018. We have to take into consideration that in 2019, the restatement of IFRS 16 has given us a positive impact of EUR 21.
Consequently, apple to apple, the adjusted EBITDA of the first half has to be read with the criteria of 2018 as EUR 500 million. That is, anyway, definitely higher than the EUR 413 of last year. Energy. Solid trend in E&I, especially in North America and Latin America. The trend is positive for industrial network component. Projects. Projects still suffering, starting to recover. The start of 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 one-off of EUR 59 million in the first half, EUR 70 million of Western Link and EUR 11 million positive for Telecom. That were the OE provision release in Brazil and the carryover of 2017 last quarter results of YOC.
Finally, what I already commented, the first half 2019 IFRS 16 are in, and consequently, there are EUR 21 million advantage at the EBITDA level that are going to be compensated by higher financial debt for EUR 141 million. Projects. Projects awarded in the first seven months, 2019, EUR 1.1 billion. Very strong order award. Of which Viking is the lion part, with EUR 700 million. We have been able to be awarded of four out of five lots of the projects. Very outstanding performance. Congratulations to the project team. Last but not least, the net financial debt closed at EUR 2,819 million, lower than the last year, but not so easy. Not so easy meaning that compared, obviously, to the year end, we have had a 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 accounts for EUR 141 million. Significant, not so much. Flipping to page four. Sales. Sales for the first half closed about EUR 5.849 billion, compared to EUR 5.782 billion pro forma combined with General Cable in the first half 2018. Organic growth, as I said, is 1.9%, not extremely high, consistent. Adjusted EBITDA, 8.9%, EUR 521 million, of which EUR 21 IFRS 16 effect. The half one last year was EUR 413, 7.1%. Let me mention that the percentage of EBITDA on the sales starts to be pretty significant, around about 9%. That is a pretty good result, one year after the acquisition of General Cable. Working capital.
Working capital closed at EUR 1.269 billion, 10.3% of the sales, compared to EUR 1.050 billion of June 2018. Pretty high, because you know that our working capital usually is one digit of the sales. We are still two digits. We are going to work on it. That's one of the points we have to improve. Reported net financial debt, EUR 2.819 billion coming from the EUR 3.014 billion of June 2023. The improvement is there, but EUR 141 million are coming, as I said, from IFRS 16. Let's go to the segment, page five. Projects. Organic growth of 3.4% negative in the first half. That's not nice, but it was planned. It was very clear to us that in the first half, we were going to suffer the rework of some lengths of submarine projects that, for the sake of certainty of the quality, we have decided to scrap last year in the last quarter.
Now we are using the capacity to reproduce it. Okay. The results are better than the previous year because of the previous year, there were accruals for the Western Link fault, significant, and those accruals have reduced the result to EUR 69 million. This year are not anymore, and consequently, the results are EUR 94 million. If we look at the right side of the chart, of the project chart, we are going to see that the EUR 139 million last year, excluding Western Link, have scaled down to EUR 94 million. 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 with a prudent approach, and after the bad experience of Western Link, we decided entirely to scrap and to rework.
That unfortunately has a cost and is reported in the numbers of the first quarter 2019. Is going to go over in the second half. Energy is going very well, mostly thanks to the integration with General Cable in North America. Organic growth of 1.8%. E&I have had an extraordinary ramp-up from EUR 106 million to EUR 151 million, with an organic growth of 3.1%. Whereas the industrial network component went up in term of EBITDA from EUR 83 million to EUR 93 million, EUR 10 million, with an EBITDA margin on sales of 7.5%. This has to be an acceptable level, but the organic growth has been negative for 1%. 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 we are realizing, especially in North America with General Cable. The sole problem still in place that is going to disappear or to be very much mitigated in the second half are the overhead lines in South America, especially in South America and 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, and oil and gas is still in the recovery phase. Telecom. Telecom had an extremely good organic growth of 7.9%, with a result that closed at EUR 162 versus the EUR 155 of the first half 2018.
The EBITDA margin of the first half 2019 reached 18.3%. Pretty good. What we can say, that excluding the one-off of last year in the first half, again, the OE provision release and the YOC carryover, the result in the first half 2018 would have been EUR 143. The jump and the improvement is much more significant than appears. We have to consider also that in those numbers are reported the lower contribution that we got from YOC that is not consolidated, but is consolidated only at the net level. Let's flip to the next page six, with the awards of the project business. Extremely good. A really leading role in the market. Viking, first of all, of which I'm very proud of the job done by the team. EUR 700 million out of EUR 770, more or less. The interconnector.
We are going to realize the three submarine sections and the land sections in U.K. The sole portion of Denmark land went to competitors. DolWin5, we already have the award of it, EUR 140 million, 320 kilovolt. Provence Grand Large is, if not the first, is really one of the first offshore floating wind farms. We have already been awarded of other two little projects, single tower. That, for us at least, is the first project with four towers. 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, Vineyard. Vineyard, we got one and a half months ago, EUR 200 million, 220 kilovolt export cable, and is the first very big project of offshore in U.S. Let's move again to Telecom business more in detail.
Excluding the IFRS impact, as I said, the result moved from 155 to 162. How? With a EUR 38 million improvement of optical cable and MMS, a EUR 5 million decline of the copper, because mostly the NBN project was using some copper cable in the connection of the homes, and the NBN project, unfortunately, it's over. Last but not least, EUR 26 million of, again, the one-off of last year, and YOC that unfortunately scaled 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 EUR 106 million to EUR 302 million on the LTM, obviously. That's a very good improvement, very good ramp-up across the last 6+ years, with an EBITDA margin that is going to stabilize around about 17%-18%. That is a very good performance. That's combining with YOC.
In my opinion, 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%, 15+%. Adjusted EBITDA by geography. That's a quite interesting chart, because now we are not any more a mostly European company. EMEA closed the first half with €3,147,000 sales, an organic growth of 1.2%. North America, EUR 1.751 billion, EUR 751 sales, with an organic growth of 4.7%. Latin America, EUR 466, with an organic growth of 2.7%. Asia PAC, EUR 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 the organic growth in a half of the year.
You can see that Europe, in reality, except with 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 4.7% to 4.1%, and Latin America from -2.7% to -1.9%. Finally, Asia PAC, +2%. If we exclude the projects, all the other businesses have posted a +2.8% organic growth compared to the +1.9% including the projects. 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. EUR 185 million EBITDA in half one, compared to the EUR 244 million of Europe, where the performance in term of EBITDA margin is definitely better than Europe. 10.6% compared to 7.8% of Europe.
Increasing significantly from the first half one year ago, where in Europe the performance was EUR 195 million, with 6.1% EBITDA margin, and in North America, where EUR 117 with 7.2% EBITDA margin. On the other side, Latin America, that has scaled down in term of organic growth, in reality, is a little bit cleaning portfolio, and the results went up from EUR 38 to EUR 45, with a quite significant EBITDA margin of 9.6%. Worth to mention, the business mix is improving. The organic decrease mainly comes from the overhead lines, because overhead lines are suffering in Latin America, because of the poor order income of one year, one year half ago. Now the order book is better, and we expect a better performance, especially next year. Whereas in the second half, we still have An order book that is not totally covering the capacity. APAC is going not very well.
Is going pretty bad, frankly speaking, for many different reasons. As you can see, from EUR 63 million down to EUR 26 million, with a EBITDA margin of 5.5%. Why? Because first of all, the effect of YOFC contribution that is definitely lower, and secondly, because of the end of the NBN project in Australia on the telecom side, that obviously penalizes significantly the results of Australia. Let's flip to page nine. One year after the closing with General Cable. I have to say that I'm very happy of having done a apparently expensive acquisition. First of all, because of the size of the company, the relevance we have for our customers, and secondly, because 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 EUR 90 million of synergies.
By the year-end, we expect to reach EUR 120, and by 2021, EUR 175. It's true that is pretty fast. We are trying to concentrate as much as possible all the actions within 2020. Working capital synergies. We already realized. That's true. Unfortunately, we don't see in the total working capital of the company for other reasons that we will comment later, but mostly in U.S., we realized EUR 200 million working capital synergies, partly in U.S., partly in Europe, and in South America too. Financial synergy. EUR 30 million, done. We refinanced completely the debt of General Cable, saving EUR 30 million of financial costs. Costs to do it. We realized already EUR 105 million. The plan was to reach EUR 220, and we expect to reach EUR 155 by the year-end.
The chapter that is missing yet in the reorganization of the General Cable perimeter is the industrial footprint, that is going to come in the second half and next year. That's one of the reason for the pretty high working capital we are obliged to accept. How we rebalanced our geographical presence. Whereas EMEA was 68% of the total sales, today, EMEA is 54%. Is definitely lower. North America, from 14% to 30%. APAC reduced a little bit from 12% to 8%, LATAM increased a little bit from 6% to 8%. The guidance. The guidance is confirmed. A number in between of EUR 950 million and EUR 1.02 billion. The easy mathematics says 500 times 2 are EUR 1 billion. Are we talking about numbers without, before IFRS 16 application. For the time being, 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 EUR 1 billion. There is still a road to go. Consequently, 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. We consider the EUR 300 million ±10% a chapter to be confirmed. Obviously, after almost EUR 90 million of restructuring cash out. Okay, I leave the floor to Francesco for all the financial results details.
Thank you, Valerio. Good evening, everybody. Very quickly on the profit and loss, as Valerio said, organic growth 1.9. The second quarter is substantially in line with the first quarter, with a very solid trend in Energy and Infrastructure, both in E&I and even better in Power Distribution, fueled by the very strong growth of North America. Also Industrial Networks component improved the organic dynamic. Unfortunately burdened, as Valerio 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 cables, despite the phase out of the NBN project in Australia, and a very solid trend in Multimedia Solutions, specifically in North America. Overall, but specifically in North America. Commenting on the adjusted EBITDA, just to wrap up some of the explanations that Valerio already gave.
The result went from EUR 413 million last year, first half, to EUR 521 million. I try to make a clear bridge on the right part of this page, in the little box on the right, as you see, also highlighting the first quarter dynamic and the second quarter dynamic. You see how we go from EUR 413 million to EUR 500 million before IFRS 16 impact, and then EUR 521 million with the additional EUR 21 million positive impact of IFRS 16. Of course, we benefit from recovering the negative impacts on Western Link last year, EUR 70 million, which EUR 20 million in the first quarter and EUR 50 million in the second quarter impact of 2018. As Valerio explained, organically, the Project division is dropping by EUR 45 million. Let me highlight very clearly that the second half is expected to be much more in line with last year than the first half, of course.
Pretty close to the prior year, the second half. Energy improved very significantly, EUR 55 million EBITDA, with an acceleration, I would even say, in the second quarter. You see a growth of EUR 20 million in Q1, going to EUR 35 million in Q2, for a total cumulative half one growth of EUR 55 million. Pretty impressive trend, where, as Valerio said, North America was certainly the main engine. Telecom also impressive performance, EUR 33 million increase in EBITDA. Of course, excluding YOC and one-offs. Also, in this case, accelerating. I like to highlight again that in all the Energy businesses, and in Telecom as well, we have an underlying improvement of EBITDA margin, which is very positive. Then, unfortunately, the missing contribution of one-offs, which were there in 2018, and the drop in the contribution of YOC result, which is impacting significantly EUR 26 million.
This is bridging, as I said, the EUR 413 million with EUR 500 million EBITDA ex IFRS 16 in 2019. Another good news come from the dynamic of net income. As you are seeing, I like to comment this sharp increase of the group net income, which is more than doubling from EUR 80 million to EUR 190 million. I believe that we will maintain very positive trend in net income also for the second half. This is, of course, driven, other than the outstanding operating performance of the company, also by the drop in adjustments and special items, so in also restructuring costs, let me say, compared to the prior year. The strong synergies that we have achieved in financial charges, and this is, of course, boosting the group net income. Let me flip to page 14 to briefly comment adjustments.
As I said, EBITDA adjustments are going down from EUR 46 million to EUR 29 million. This year, slightly lower restructuring costs, and also on the non-cash items, special items. There is basically neutrality in the metal derivatives for value change versus a pretty deep negative impact last year. As I commented, this is boosting our net income. On a cash base, as Valerio anticipated, we anticipate total cash outs for restructuring and integration this year of $80 million, more or less, plus the $75 million incurred in 2018, for a total cumulative plan for year-end of $155 million. Financial charges, very positive dynamic. Net interest expense is at EUR 44 million, indicates a target for year-end around EUR 90 million, expected at EUR 90 million. This EUR 90 million is approximately EUR 13 million lower than in 2018, of course, combining the two perimeters.
2018 was already dramatically lower than 2017, combining Prysmian General Cable perimeters. All in all, we are achieving net synergies on interest expenses of EUR 30 million, 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. Gross synergies calculated on the pure net debt refinancing would even be at the level of EUR 40 million, I would say. The financial structure is very strong. I like to say that we have recently refinanced the EUR 1 billion revolving credits facility with a new one, five-year tenure, five-year maturity, and this has extended our average maturity considerably, which is on average now almost four years.
We don't face any significant maturities on the capital market before 2021, 2022, we are pretty relaxed on this front. 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 EUR 2,819 with EUR 141 million IFRS 16 impact, in line with expectation and with a pretty strong cash generation in the second quarter. If you consider the dividend that we paid in the second quarter, the free cash flow achieved in the second quarter was pretty close to EUR 200 million positive, which is pretty much in the high range if we take the history of the last five years.
More specifically, last page, which highlights the last 12 months cash flow, bridging the EUR 3 billion net debt that we had at June 2018, with the EUR 2.8 billion debt we are having 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, restructuring, and integration cost that we incurred due to General Cable acquisition. You see that they are highlighted in this bridge in EUR 115 million. These are cash outs of the last 12 months. Of course, also Western Link repairs and technical issues played a role, and we had cash outs in the last 12 months for EUR 65 million. Working capital in total was pretty stable, an increase of EUR 38 million. As Valerio anticipated, this increase of EUR 38 million is made of very different drivers.
We have a significant increase of working capital in the project business, which will be partly recovered in the second half. We have an offset related to the synergies, to the EUR 200 million synergies that we achieved in the last 12 months. Of course, working capital was also driven up by the transaction acquisition and restructuring costs that we paid. I believe I'm done with my presentation. We can go ahead with the Q&A session.
Thank you so much. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Please stand by while we compile a Q&A queue. This will only take few moments. If you wish to cancel your request, please press the hash key. Once again, please press star one if you wish to ask a question, and the hash key to cancel your request. The first question comes from the line of Lucie Carrie from Morgan Stanley. Please go ahead.
Good afternoon, gentlemen. Thanks for taking my question. I will have three questions. 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 build up to the target of EUR 300 million? Within the target of EUR 300 million, how much have you assumed in terms of prepayment? 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 included in the target?
Thank you for the question, Lucie. I think I can fully confirm our target for the EUR 300 million ±10% free cash flow, which basically translates into a net debt at year-end, which is, before IFRS 16, between EUR 2,050-EUR 2,100. After IFRS 16, you have to gross this up by EUR 140 million. Just to simplify, including IFRS 16, our target for year-end net debt is EUR 2.2 billion plus something, in this region. This is a number which is absolutely consistent with the EUR 300 million free cash flow generation. Your question is obviously, how do we deleverage so much from the EUR 2.8 billion that you are seeing as of June 2019 down to EUR 2.2 billion, 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.
This year, the leverage should be pretty much boosted by, first of all, the completely different dynamic that we are seeing in the project business. Last year, the second half was a huge burn of cash. A huge pain, my CEO is suggesting, and I think he's right. A huge pain in terms of cash burnt by the project division. 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, supported by the down payments, which are obviously related with the recent orders that we got. Of course, we are assuming that we will cash the down payments related to the Viking order, which was, by the way, bigger, a bit larger than our original expectation. I think that these down payments can support the cash generation of EUR 300 million.
In terms of down payments, we are a little bit more prudent in terms of other projects that I don't want to mention here, because the timing of these projects is a little bit It's certain, but of course, it's difficult to predict if the down payment will fall in December or in January. Which doesn't make any difference, but of course, it makes a difference on the year-end and next year. We have another component, which is explaining why this year we will deleverage a bit more, which is the fact that last year, the second half was pretty much burdened by the big transaction acquisition and restructuring cost, which fell mainly in the second half 2018. Of course, we are still having some restructuring costs in the second half of 2019, but are significantly lower than the ones that we incurred last year.
This makes me pretty confident on the fact that we will go to the target that I mentioned. I don't know, Lucie, if I helped you to understand.
Yeah. 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 EUR 1 billion target. I'm not hoping a comment on specific contract, but generally speaking, when you look at the planned margin level of the recent contract wins, do you see them, I would say, fairly in line with historical level of margin for subsea transmission profitability?
Okay, Lucie, Valerio speaking. Margins of the projects. I asked and I got a chart that I cannot publicize with all the projects of the last seven years, just to understand the margins. The margins are not the prices, remember. The margins we play with in those projects. I've seen that in the last seven years, the average margin of the projects scaled down a little bit, but I'm talking about 1 or 2 points. In reality, the price effect has been higher. You remember that we invested to in-source activities of our business, reducing the payments to third parties. The effect of the prices has been higher than 1% or 2%. The effect on our margins has been around about 1%, 2%.
And just-
Did I answer to your question or not?
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, Vineyard, the Provence contract, DolWin, and so on. If you are looking at those project in aggregate. Do you expect this project to deliver a similar margin to, I would say, what you've seen in sub-sea transmission project over the last few years?
Yes. I already said during the previous conference call. Roundabout 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.
You are welcome.
Yeah. No, that's helpful. Then my last question was around General Cable. Of course, it seems the cost synergy seem to come through very quickly, maybe faster than we were expecting. 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 that you can generate also on the sales with the Prysmian portfolio.
Okay. Got it. Luciey, if I may, I would like to ask Massimo Battaini, that is here, and he's managing North America, to answer better than I can.
Hi, Lucie. Good evening. Regarding the cross-selling opportunity in North America, the portfolio has widened a lot in North America as a result of integration. For example, to mention only one segment, the Telecom, we were strong in optical business and General Cable was strong in mass datacom business. The combination of the two make us a strong player in North America Telecom space. We are selling to our TS customer, the MMS products, and we are also selling to the MMS, the legacy General Cable customer, the Telecom solution products. This is the type of synergy that have boosted the growth in the North America. Now, similar case happened in the cloud distribution space in North America, where General Cable complemented our product range with the overhead lines, which we didn't have in Prysmian legacy portfolio.
We are selling overhead lines to legacy Prysmian customers. This is just to mention two simple cases. In addition to that, not only we haven't lost revenue in any of the overlap customer, we have been able to leverage the scale of the relationship with the distributors to increase also prices in this channel. The growth that you see is a result of volume growth, cross-selling synergies, and pricing improvement in the market, which is a growing market. I would like to remark the substantial difference between North American market and the European market. 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, it's not exactly the same picture in Europe.
Yes.
It's not very different, but the cross-selling opportunities are more or less going to be affected by the overlap on certain customers.
Understood. Thank you very much, gentlemen.
You're welcome.
Thank you so much. The next question comes from the line of Max Yates from Credit Suisse. Please go ahead.
Hi. Thank you. Just my first question is on the timeline of Viking Link. Now that you have it, obviously, one, when do you plan to start producing Viking Link? Is that one of the things, if you do start in maybe Q4 this year, is giving you some visibility on a better second half? 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 six to nine months?
Hakan Ozmen speaking. I'm the head of project business. For the Viking, we had planned already, the Viking production for this year. We already, let's say, started planning the raw material purchase and the production. There is not going to be a significant difference between our planning and what we achieve. 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, or better to say, the second half of the year. Overall, we can say that it's in line with the expectation.
Looking for the 2020, it's a little bit early to plan for 2020. 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 year.
I can say only in that extent that we feel a 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. Maybe just ask sort of a slightly different way. 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 nine months, like Crete-Attica, like some of the U.K. offshore wind projects, which should CFD later this year? Just trying to understand if there's any constraints on what you're able to bid for.
Looking for the bids 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, Valerio speaking, we are going to participate. We believe that with a sound order book in-house, we have to be a little bit prudent.
Okay.
I'm talking about margins.
Sure. 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 EUR 50 million better than what you did in the first half. Obviously, 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 EUR 50 million better EBITDA in the second half. 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 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 very clear in mind. The other segments, I believe that 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, 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 EUR 14 million. I think in the second half, it's pretty negligible. Will be a few additional EUR million, no more than this, because already in the second half of 2018, the dollar strengthened pretty much. We are much more. The current level of the dollar is slightly stronger, but is substantially more comparable with the second half last year.
Okay. Very helpful. Thank you very much.
Welcome.
Thank you so much. The next question comes from the line of Akash Gupta from JPMorgan. Please go ahead.
Yeah. Hi, good afternoon, Valerio and Francesco. I have a couple of questions, please. My first question is a follow-up on guidance. You don't see any negative surprises in second half, and we are expecting EUR 50 million, roughly more in projects, EUR 30 million more in incremental synergies. Why you are not increasing guidance yet? Maybe just to add to that question, is it fair to assume that if Q3 goes on track, then maybe in Q3, when you come out with your Q3 results in November, should we expect any upgrade to guidance? That's question number one.
Answer number 1, not for the time being. I believe that there are possibility to reach the second part of the guidance. I'm not sure, because it's still a long way to go, usually the bad news used to come in the second half. That's the reason why I prefer to be prudent. It's clear that projects should contribute a little bit better, but I don't believe that the trend of the market is such a strong to confirm the upside we got in the first half, and the seasonality effectively in the second half is going to be lower. 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. That's one of the reason why I have some doubt to be able to raise the guidance.
It's too early. We have another quarter before, if in case, do it.
Thank you. My second question is on telecom business. Can you talk about how much visibility do you have in your fiber business? When 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 of 2019 in the Chinese market. The most important chapter is that the Chinese market is declining in terms of demand, fiber kilometer. Physical demand is significant. Double digit. Double digit means between 10% and 20%. For the certainty of the second half, I would like to ask Philippe Vanhille , that is around the table, to comment.
Hello, Akash. Good evening. We have a good visibility on the second half in telecom, because of two things, essentially. Because, we do not operate directly in China, and the first market to take the hit of this China issue is China. For the Chinese competition to enter into our territories, they need to qualify, they need some time. They are, of course, getting interested in taking a share of our markets with lower prices. We see it, yes. It's marginal in terms of effect on our visibility on 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. Second, to sign contracts that are securing some business in the mid-long term for us.
We are, to a certain extent, protected by this attitude we had in the last three years. We certainly did not fully optimize our profitability in the last three, four years. As a consequence, we are a little bit protected now. In particular, I'm comfortable for the second half of this year. I hope this answer your question, because when you talk about China, Prysmian Telecom is not impacted as such because we do not operate on this market. On our market, the effect we see from the Chinese competition at this stage on our P&L is marginal. I'm comfortable with the second half.
Thank you. My final one 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 peer, Nexans, also reported very strong margins. Can you talk about, is there any 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, we have been commenting in the past. General 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. Was also incentivized on the volumes. We changed dramatically this attitude. 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 it's very difficult to get a serious consciousness of the control of the market. There is always someone available to drop the price for additional cable kilometers. That's the style of cable makers.
Thank you very much.
You're welcome.
Thank you. The next question comes from the line of Daniela Costa from Goldman Sachs. Please go ahead.
Oh, hi. Good afternoon. Wanted to ask three 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? Is the reason why they're sort of stable, more because of the benefits from General Cable, given we are seeing some of the cyclical end markets decelerating in other companies? That's question number 1, 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. 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 first half, in the second half. That's one of the main variances. Synergies are coming, but the variance in comparison to the first half is not going to be as strong as it has been in the first half. That's the life. Time by time, we realize the synergies and the synergies are not going to be repeated. Which was the second part of the question? Sorry.
Well, I had two other questions, but I am not quite sure actually I understood the answer. You had, I think, previously mentioned the second half for the non-project businesses will be similar to the first half, and now you just comment synergies will be lower. My question was the top line we are seeing across the board throughout reporting season in a lot of these general industrial and markets which that division has exposure to, a quite material slowdown on industrial demand. What is the compensating factor, 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?
Just the seasonality. July and August are weak months. 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 two, three months are partially off.
Sure.
Consequently, we are going to have a lower result on the run rate businesses.
Okay.
That's normal.
Okay. Understood. Following up on 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 there, sort of how many plants, time frame, and how is the process of preparing that?
To be clear, we are planning to act on the perimeter of General Cable from the plant's point of view. We are going to act possibly in the second half, but have to be negotiated. That's it. The savings will not come in the second half, will come next year.
To act on the plans, the timeline is much longer.
Is this how many plans?
It is better not to mention.
Okay, fair enough.
First of all, we have to share this information with the unions and not with the market.
Okay, fair enough. My final question, just more of a longer term question in terms of capital allocation strategy. For the time being, you still have some leverage, but, as you generate free cash flow and delever, what's next for Prysmian? 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 as to deleverage. Once we have deleveraged, I can get to the point you asked for. It's not the case. If some very good opportunity is going to come, we have to have, and we will have the proper balance. We can take it into full consideration. 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. We will raise the dividends, for instance, or share buyback. Who knows?
Okay. Thank you.
You're welcome.
Thank you so much. The next question comes from the line of Alessandro Tortora from Mediobanca. Please go ahead.
Yes, thanks. Good evening to everybody. I have four question, fast questions, okay, if I may. The first one is on, if you can share with us your view on short cycle businesses. I'm not asking to you an outlook for this year, but what's your feeling? We are reading a lot of companies telling about worsening outlook on cyclical businesses. Just to have your feeling on that. The second question is, sorry, but it's on Western Link. Just if you have any update on the timing of the commissioning. If I remind, well, theoretically after summer 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 in the first half, around EUR 30 million EBITDA adjustments.
Honestly, I was thinking about a higher number, because 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 corridors. This is, let's say, a key project for all the sector. We would like to have an idea on this project. Thanks.
Okay, Alessandro. Thank you very much. First question. The short cycle businesses are worsening, but for the time being, seems not. I'm very prudent. You know that we are a little bit post cyclical. Maybe we are not going to see as quick as other businesses, other companies. For the time being, I have to say that it's 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. Second question. Western Link. The Western Link update is very simple. From the 3rd of June, the line is in service. It's running properly, it's running well. Now are two 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 to be able to complete finally the project within the year. It depends on the wind. No wind, no power, no commission. German corridors, let me complete the last question, then I leave the floor to Francesco for the accounting matter. The German corridors, we homologated already two technologies for the 525 kV, if in case the 525 kV will be the choice of customers.
Okay.
The customers at the end are three different German customers. Assuming that all of them will take the same decision, that is not sure, we believe it to be well-placed because we have two technologies homologated. The P-Laser and the XLPE 525. It will be a competition, and we will see the results. Until I don't have the fox in the bag, I'm not going to sell it. I leave the floor to Francesco for the accounting question.
Yes. Let me say that it's difficult to predict the second half in terms of specifically of restructuring cost, because it's a little bit related to what Valerio was explaining on the timing of the industrial footprint. Allow me to exclude this portion that it's difficult to predict in terms of timing, which can be obviously material. No one knows right now if it will fall in 2019 or maybe in 2020. Taking this out, I would anticipate in the second half, around EUR 35 million-EUR 40 million of additional adjustments, in the second half.
Okay.
35, say. Just to in line with the restructuring that we are completing.
Mm-hmm. Yeah. The question was related-
Something like this.
Mm-hmm. No, the question was related also, let's say, to your statement on the net income. Okay? You mentioned the good result at the reported net income, and therefore, also considering this item, maybe you can do, let's say, the number you had in the first half times two or something close to that level. Okay, that's the reason why.
Yeah. No, you're right in principle. I think that times two is certainly a challenging net income, but not totally impossible, not totally infeasible. I would be maybe slightly more prudent saying times two less something.
1.8.
Exactly, 1.8, something like this, right? I didn't do the math, but-
Okay
Valerio is certainly very close to reality.
Okay.
This level of adjustment is consistent with my comment on the very good net income in second half as well.
Okay. Thanks, Francesco.
Thank you.
Thank you so much. The last question comes from the line of Sean McLoughlin from HSBC. Please go ahead.
Good afternoon. Thanks for taking my questions. Just wanted to specify which of the projects that you highlight in slide six are included on slide 20 in your June 19 subsea backlog?
We are looking for the page, sorry. Okay, yeah. Not included.
No, just for the volume. Just for the volume.
Yes. In the backlog, out of the one-
In?
In June, end of June, obviously there 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 notice to proceed. To be clear. The EUR 1.3 billion do not include, for instance, the EUR 700 million, roughly, of Viking. Do not include the Vineyard, and they include, vice versa, the DolWin5.
Volume V and the smart project.
The other smart projects.
Excellent. Good. That's better. The second question, I think just a broader question on offshore, in particular in the U.S. Clearly, we've seen a lot of activity in the U.S. market, in particular, a lot of big orders, and it looks as though your competitors, or it sounds like your competitors haven't really been particularly active. What do you sense is the near-term opportunity here for more order intake over the next 12 months? Specifically on Vineyard, we're hearing there are some issues potentially with the environmental permits. What could be the knock-on effect on your delivery schedule for that project?
Okay. Hakan Ozmen speaking again. Regarding the offshore business in the U.S., Vineyard is going to be the first one that is going to be realized until the notice to proceed that we expect within the year, depending on the permits, as you have stated. The market is active. There are some licenses that are being, let's say, developed, especially in New York area, New Jersey area, and North Carolina area. We see that in the future, there is going to be a good market in the North American environment, depending on completion of one project. The potential is big, once the developers are going to realize the advantage that the European market is enjoying with the wind farms. We don't expect in the next 12 months that there is 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 speculation. We are feeling confident that everything is going pretty well from our customer's perspective. Definitely, this is going to be the first project, and you can't extract the difficulties and the speculations around the project.
Great. Thank you.
Thank you so much. There are no further questions, so please go ahead.
Okay. Thank you very much to everyone for participating to our first half