Thank you very much, good afternoon to everyone. Welcome to the full year 2018 financial results conference call of Prysmian Group. Let me start with the financial highlights, as usual. Fully combined organic sales grew 3.3%, with a quite good organic underground high voltage growth, a solid performance in telecom, with a single-digit organic growth in optical and double-digit organic growth in MMS. General Cable has posted an exactly equal organic growth of 3.3% during 2018, exactly the same of Prysmian Group. Adjusted EBITDA. Adjusted EBITDA closed at EUR 763 million, including EUR 123 million from General Cable for the seven months from June to December. Projects. Unfortunately, have been upset, have been shocked by the 95 collective provisions related to the Western Link projects, including the EUR 25 million impact posted in the fourth quarter 2018, due to the February 19th problem.
Obviously, that has been unpleasant and quite significant experience, but it's going to be over. Telecom. Telecom margin, vice versa, went well. The volume growth in optical business, supported by capacity increase in fiber we launched in the last two years, is helping the volumes, the margins, and the results of telecom. YOC, let me remember that the share of net income coming from YOC has been pretty good, especially thanks to the transfer of the results of YOC of the last quarter 2017. The full year combined EBITDA pro forma has closed at EUR 837 million, having had a strong impact by the Forex for EUR 41 million. General Cable. General Cable is improving. The focus is strictly on the integration process, the synergies in terms of cost and working capital are going faster and better than expected. Net financial debt.
That's the positive note, because at the end, we closed it at EUR 2,222 million versus the EUR 436 million of year end 2017, the sole Prysmian perimeter. We paid EUR 2.6 billion for the acquisition of General Cable. The proposal for the dividend is EUR 0.43 per share to be submitted to the forthcoming AGM. Let's skip to the financial highlights, as usual. Sales. As you see in the presentation, you have the reported, the official numbers, on the left side of the chart. Whereas, as the same way we did with the merger with Draka, on the right side, we have the fully combined numbers that are more significant, if I may. Fully combined, EUR 11,577 million in 2018 versus the EUR 11,353 million of 2017, with an organic growth of 3.3%, as I said already.
You can even see the split of the contribution in terms of sales of the former General and former Prysmian perimeters. The adjusted EBITDA, let's look at the fully combined, went down, vice versa, from EUR 940 million in 2017 pro forma, to the EUR 837 of 2018. Obviously, here you can see that the gray part of the EBITDA comes from General, whereas the blue part comes from Prysmian. The part from Prysmian has suffered significantly, mostly because of the accruals for Western Link, whereas the General Cable perimeter has posted a reduction of only EUR 7 million, but mostly due to the exchange rate effect. Overall, as I said, the exchange rate counted for EUR 41 million, the total group, it's not only dollars. Reported operating net working capital. The working capital obviously has increased for the EUR 106 million year end 2017, sole Prysmian perimeter, to the EUR 736 of 2018.
You can see even the split of the working capital of the two part of the company. EUR 380 million, roughly 11% of working capital sales for General Cable, and EUR 356 million, 4.5% is the Prysmian chunk of working capital. The net financial debt at the end closed at EUR 2,222 million, with the significant increase compared to the previous year, but mostly due to the effect of the acquisition. General Cable. Let's have a look of General Cable perimeter, and let's start with the bottom line. The bottom line state that the sales for General Cable perimeter closed at EUR 3,536 million in 2018 versus EUR 3,449 million in 2017, with an organic growth of 3.3%, exactly the same of the total group. The EBITDA related to the sales have been 5.6%, EUR 197 million versus the EUR 204 million of the previous year. A slight decline, mostly driven by the exchange rate effect.
We posted even the last quarter performance, because the last quarter is going to give us the light of the exit speed from 2018 to 2019. For General Cable, globally, the important chapter is that the performance of the Q4 2017 has been EUR 37 million, whereas the performance of the last quarter 2018 has closed much better at EUR 49 million. Let's go as General Cable used to do in the past, by region. North America. North America closed with an organic growth of 4.6%, from EUR 2,039 million to EUR 2,131 million, with an adjusted EBITDA slightly scaling down by EUR 10 million, from EUR 149 million to EUR 139 million. That has been mostly the effect of a very different first half and second half.
If you look at the last quarter, that is on the right side of the chart, the last quarter posted a significant improvement from EUR 27 million last quarter 2017 to EUR 38 million last quarter 2018. Europe, on a different way, moved from EUR 798 million in 2017 to EUR 863 million sales in 2018, with an organic growth of 8.2%, with a total EBITDA of EUR 25 million this year, 2018, versus EUR 20 million the previous year. Very low profitability, 2.9%-2.6%, the last quarter is even worse than the same quarter of the previous year, closing at a zero margin in the fourth quarter 2018. Why. Mostly because the decreasing order backlog in the project business of General Cable. Practically, General Cable was having a certain level of backlog of projects that has been executed 90% in the first half.
The second half, and consequently even the last quarter, has been suffering of the very weak situation of the order book. Latin America. Latin America moved from EUR 612 million to EUR 542 million, with a reduction of 7.5% organic growth. The adjusted EBITDA went down from EUR 35 million only to EUR 33 million, with an increase in percentage from 5.7% to 6.2%. That's more in line with the strategy of Prysmian, not to sell for selling, but to sell with a certain margin. Consequently, we accepted to reduce a little bit the sales, but to improve the margins. The margins went up from EUR 8 million to EUR 11 million. That's because of a solid T&I and Industrial Business performance, but despite the very heavy headwind due to the overhead lines in Brazil.
We have been able to grow the performance of General Cable in the last quarter, even if the overhead lines have performed very badly in the region due to the import from Asia. Okay, let's flip to the next page six, where is explained the new segment reporting. With the integration, obviously, all the main businesses have taken a different light. We decided to remove from our first line business organization, the oil and gas, for the simple reason that was too little in order to keep it as a first line report of the business. Reason why, the oil and gas business, we splitted in two parts. The offshore specialties, namely the SURF and other components of this business, moved to the Projects, because more similar to a project business.
The core oil and gas products, the more standard cables for refineries and oil and gas applications, moved vice versa to the Industrial and Network Components. Let me add that you find in the Projects, the submarine telecom, that was not in our perimeter in the past before the acquisition of General Cable, and you find even the overhead transmission line in the Energy and Infrastructure that was, again, not in our perimeter before the acquisition of General Cable. All the rest, more or less, remain the same and have been added the business of General Cable to the business of Prysmian Group. Flipping to page seven, performance by segment, the fully combined results. Let's start with adjusted EBITDA margin.
Projects closed at a pretty low margin, unusually low, at 9.4%, obviously taking into consideration the accruals for Western Link issues, and consequently moving down from 17% of 2017 to 9.4% 2018. E&I scaled down a bit from 4.3% to 3.8%. Industrial and Network Components almost stable from 7.4% to 7.1%. Telecom continuing the ramp-up from 15.5% to 18%, with a total EBITDA margin that moved down from 8.3% to 7.2%. Don't forget that obviously the merge with General Cable is diluting a little bit, for the time being, the performance of the group. Looking, vice versa, to the adjusted EBITDA and the organic growth, numerically, we have the Projects that closed with an organic growth of 4.7%, but with a result that scaled significantly down from EUR 298 to EUR 170 after EUR 195 million of accruals related to the Western Link issue.
E&I, vice versa, posted organic growth of 2.1% but went down in term of absolute EBITDA from EUR 233 to EUR 207. Obviously, those numbers is inside the effect of the exchange rate. Industrial and Network Components, basically flat in term of results, with an organic growth of 3.3%. Telecom going up from EUR 247 to EUR 295, with an organic growth of 6.4%. Let's move to the EBITDA bridge, splitted in two parts, the Prysmian Group and the General Cable. Pro forma, in 2017, we were having EUR 940 million EBITDA, divided in two parts, EUR 736 for Prysmian, EUR 204 for General. The scale down of Projects is significant, is EUR -124 million on the previous year, of which EUR 95 million are the Western Link provisions. E&I almost flat with a slight EUR -3.
Industrial network component +EUR 10 million, telecom +EUR 54 million, of which EUR 12 million, anyway, are coming from the reversal of the bad debt provision in Brazil and the carryover of YOC 2017 results in the first quarter. General Cable perimeter, at the end, was almost flat with North America with -EUR 4 million, Europe +EUR 5 million, Latin America physically flat, and the Forex effect that accounted for EUR 8 million negative impact. That's how you can find the EUR 837 million, that is the results of the company, assuming General Cable for the full year. Let's move to page nine and look at the integration. The integration is going very well. That's my opinion, but it's the opinion also of the board. Cost efficiencies and cross-selling are helping. We counted EUR 35 million of synergies during 2018 in the first six months. A very good results. Thanks to fixed cost reduction and reorganization.
I remember you that 6th of June, immediately after the closing, we launched the new organization. Savings on purchasing, raw materials, base materials, and base metals. Leverage product range across GC and Prysmian Group because we have had the opportunity to at least compensate the risk of loss of sales overlapping with additional cross-selling opportunities. Working capital synergies. I have to say that my colleagues act very quickly and efficiently, reducing the stock that was pretty high in the General Cable perimeter, changing payment terms and conditions to the suppliers, and that's accounted for EUR 180 million cash synergies. The financial synergies that have been realized in the first six months are linked mostly to the refinancing of the debt of General Cable that has been done with a much better conditions obtained by the financial sponsors. I counted EUR 14 million, but below the EBITDA, obviously. Let's flip to the different segments.
Projects. Projects closed at EUR 1.804 billion sales versus EUR 1.750 billion for the previous year, with an organic growth of 4.7%, but with a significant reduction in term of EBITDA from EUR 298 million to EUR 170 million. That has been a pretty tough and unpleasant situation, but we are managing it. The submarine. The submarine has been impacted by the provisions of Western Link across the year. The Q4 EBITDA has been impacted by Western Link and other delayed phasing out on projects. You remember that I mentioned to you on the nine-month call conference that the Giulio Verne was damaged by a transshipment, and we have been obliged to repair. That's costed us money, and costed us, most of all, time. Consequently, some Liquidated Damages on some projects in Asia. Has been more or less in line with the foreseen amount.
The problem is that we have been, at the same time, obliged in the last quarter to make some reworks of lengths of submarine cables. Last but not least, last year, the last quarter was very exceptional. The order backlog scaled down. You see EUR 1.900 billion is the order backlog at the year-end, comparable with the EUR 2.450 billion of December 2017. We are not scared. That is what is helping us to continue to operate at full speed without being obliged to run for a fight on prices. Sorry. Backlog. The backlog is down, but we have time to replenish it. A good news is that the tendering process for Viking has started, and we expect by December to see the order. At the same time, in high voltage underground, have been positive results with growth in Asia-Pac, South Europe, and South America.
Finally, the tendering for SuedLink and SuedOstLink has started, too. Seems that there is a revamp, finally, of the business for projects that may drive a recovery of the performance other than Western Link in the next years. Energy infrastructure, page 12. The sales went slightly up from EUR 5,379 million to EUR 5,492 million, with an organic growth of 2.1%. The EBITDA from EUR 233 million scaled down a little bit to EUR 207 million. Let's have a look, first of all, on the bottom right part of the chart to the new equilibrium of our presence in the different markets. With the acquisition of General Cable, thanks to it, our extremely high exposure to Europe, that was 76% of our sales, is moved now to 54%. You see that North America, that was only 11%, now is 31%, much more balanced compared to the market geography.
What we are missing still is a higher presence in Asia-Pac, but it's a little bit difficult. You can see also that LATAM went up from 4% to 10% of the total sales with a more reasonable geographical presence. The Trade & Installers business went reasonably well, is improving. Let's say that after the dramatic drop of 2009, now step by step, 10 years after, the market is recovering a little bit. Obviously, there has been, especially in Europe, the positive effect of CPR that we were commenting in the past quarters, and North America went really pretty good. I have to say that the North American market is a different market from Europe, is better, and we are very pleasant to be in. Power distribution. Power distribution is still tough, but with some sign of recovery, even in Europe, after a very sharp decline in 2016 and 2017.
We expect to be better next year. Finally, the overhead. That is a new business for us, for Prysmian. That has been affected by very tough market conditions in Latin America due to the attack by some Chinese competitors. Despite the transshipment cost, despite the duties, they've been able to enter unexpectedly with very unexpected level of prices. Industrial network components. The turnover 2018 closed at EUR 2.353 billion versus EUR 2.302 billion of the previous year, with an organic growth of 3.3%. The adjusted EBITDA at the end remained almost stable, with a slight decline in term of percentage. Specialties OEM and renewable are going reasonably well, even if with a quite not satisfactory mix, in the sense that railways is doing very well, but is not so rich as a business. Crane is still so-so. Solar is improving, but again, is not very high margin.
Overall, the growth has been there, but with a mix that has not helped us to deliver EBITDA, also because of the Forex. Elevator. Elevator is going well. It's continuing to grow, and we are able to see a continuous growth, progressive, slightly, but it's going pretty well. Automotive. Automotive, for the time being, is not so dramatic as the market comments. We expect, and we are ready to receive the shock, because sooner or later, the crisis of automotive will come to us, no way. Obviously, if you lose sales of a business that runs at 4% margin, okay, the damage is relatively low. Oil and gas is stabilized at the bottom, and network components is stabilizing at the bottom, but with some sign in the last quarter of recovery of the traditional business. Network components is good, improving, especially in China and North America.
Last but not least, let's go to telecom, page 14. Sales closed at EUR 1,000,000,634, compared to EUR 1,000,000,592 of the full year 2017, with an organic growth of 6.4%. The adjusted EBITDA went up from EUR 247 million to EUR 295, that I believe is the historical record for telecom, with a 18% EBITDA margin. What to be highlighted, that optical cable and fiber is going well, but don't forget that in this segment, we have to report also the copper telecom. The copper telecom that has been pretty strong in Australia. Now, the implementation of the project, of the NBN project is over, consequently, we suffered quite a lot, obviously offsetting part of the upside of the telecom optical.
The EBITDA margin benefited by the volume increase, the capacity expansion in fiber, the plant supply mix, the reduction of the cost of the fibers, thanks to the investments we did in the last two years. Finally, the MMS. MMS is continuing to go pretty good, pretty well, in North America, we expect good news in the next quarters, thanks to the fact that we are entering with General Cable just now in the North American market of data cables and/or MMS, as your choice. That's a positive advantage generated by the acquisition of General Cable. Okay. Synergies, page 16. We are updating the synergies plan with EUR 25 million additional synergies on costs, and one year faster execution.
The 2021 target, as you can see on page 16, is going to be EUR 175 million total synergies, versus EUR 150 we gave to you at the time of the acquisition of General Cable. You can see that in 2018, compared to the EUR 510 million we previously were expecting to reach. We have been able to realize EUR 35 million, that's a very important chapter. Means that we found the way to realize a better integration of General Cable, seems to run. You can see that the management staff part of the synergies remain the most important chunk of the EUR 175 million. The procurement are almost at home. The industrial footprint has to be executed. We have still to start, we expect to start in 2019. Let's go to the guidance.
The guidance, we are anticipating the guidance by one quarter for the simple reason that today the situation is pretty complex, we prefer to give to the market clarity in advance on what are going to be the targets of the company. EUR 950 million, EUR 1 billion and EUR 20, with a midpoint of EUR 985 is our guidance. It's pretty challenged, but we are confident that if the telecom business is continuing to go well, the Western Link 2018 has been a one-off, is not going to be repeated. The results of submarine we are going to recover, not immediately, but obviously, we took into account the decline of the submarine business in 2018. At the end, the cyclical business are expected to be more or less stable, the synergies from General Cable integration are going to be EUR 120 million accumulated.
Consequently, we have to put it into the numbers. We assumed the Forex flat. Other than the EBITDA, let me give you also a free cash flow outlook, because that's important. At the end, is something more important than the EBITDA. The free cash flow expected is expected to be EUR 300 million, plus or minus EUR 30 million, but more or less, that's the range we expect. We have to consider that this is going to be the number after restructuring and cash out of EUR 90 million. What does it mean? Means that at the end, EUR 300 million plus EUR 90 of extra one-off cash out, means that the company in 2019 is something similar to a machine generating EUR 400 million free cash flow. The goal is to reach something higher, EUR 450, EUR 500, but the direction is the right one. Okay, thank you very much.
I leave the floor now to Francesco for all the details of the financials. Thank you very much.
Thank you, Valerio. Good evening to everybody. As usual, starting from profit and loss statement on the sales and organic growth, Valerio summarized all the main dynamics with an organic growth of 3.3%, which was there in all the businesses, with the only exception of the submarine business affected by the Western Link issues. Also, in the projects, this was more than offset by the very good organic growth in the land high voltage business. On a reported basis, meaning including General Cable for the seven-month consolidation period starting from beginning of June, the adjusted EBITDA reached EUR 763 million, as you see, including a contribution from General Cable of EUR 123 million, and this corresponds to the full year combined adjusted EBITDA of EUR 837 million that Valerio's already commented.
Whereas the General Cable perimeter was pretty much in line with the guidance that we gave out in June, I would say even better, thanks to the stronger, to the higher than expected synergies that we achieved. We achieved EUR 197 million full year results for General Cable versus a guidance including synergy in the region of EUR 190, EUR 192. I would say a EUR 5 million better. This was not the case for the Prysmian perimeter. If you strip out the EUR 123 million of General Cable contribution, you see that the Prysmian perimeter full year declined by approximately EUR 96, EUR 95 million. Of course, this is the impact of the Western Link provision for EUR 95 million.
The very strong Forex headwind on the Prysmian perimeter, only EUR 33 million, this was partly offset by positive business dynamics, mainly in the Telecom business and also in the Energy business, which more than offset the decline, which mainly happened in the fourth quarter in the Project business, mainly in the Submarine business. You see that our result was below the adjusted EBITDA line, was heavily impacted by significant adjustments in the region of EUR 167 million that I'm commenting in the following page. Including, by the way, a significant antitrust provision related to Brazil that we decided to take consequently from the state objection we received from the relevant antitrust authority in the fourth quarter. Let me comment this in the next page. The financial charges moved very well.
112 million, by the way, including an extraordinary amount of EUR 6 million related to hyperinflation accounting in Argentina that we have been obliged to adopt in Argentina, fully realizing the interest expenses synergies that we were targeting for the first six months, of course, in 2018, and the remainder will come in 2019. Fully in line with our expectation and even faster than we anticipated. You see a quite high tax rate, don't worry about this because this 34% is only the result of the non-deductible EUR 69 million antitrust provision that we had to take for Brazil, which has, unfortunately, no tax effect. If you clean this effect, the tax rate achieved was very good, even better than the one posted until the nine months, down to 25% approximately. Pretty good.
This, of course, reflects the increasing weight of the profit before tax result of North America, which will, by the way, increase further in 2019. Group net income closed at EUR 130 million, heavily affected by one-off items like the antitrust Brazil for EUR 69 million, like the restructuring cost related to General Cable integration for almost EUR 50 million, and another EUR 50 million for acquisition and integration cost, other than the EUR 95 million was standing provision. On the positive side, we only enjoyed the EUR 35 million positive effect related to the YOC listing, which was already there in the third quarter. If we now try to normalize this group net income from all these one-off effects, we would come to a normalized net income in the region of EUR 300 million. I flip to page 20, commenting the quite significant adjustments that I was referring to.
You see the EUR 69 million provision related to antitrust Brazil, EUR 66 million restructuring cost, of which EUR 49 million related to the General Cable combination and integration. Other non-operating expenses, which mainly include, respectively for EUR 431 million and EUR 16 million, acquisition related costs, integration costs, and inventory step-up release, which is related to the purchase price allocation exercise. On the positive side, the YOC listing for EUR 36 million. Let me flip now to page 21 to comment the financial charges. Just to say that apart from these reported numbers, on a fully combined base, the interest expenses came down by EUR 35 million in 2018 compared to full year pro forma, of course, 2017. Out of this EUR 35 million, a good portion was the achieved synergies. Another very significant portion was the lower interest charges coming from the conversion of the convertible bond, which took place in March 2018.
The remainder of the synergies will be achieved in 2019 for another EUR 14 million. To wrap up numbers, we have net synergies that we target within 2019 for almost EUR 30 million. One half already achieved in the second half of 2018. The additional EUR 15 million to be achieved in 2019. We have gross synergies, which are in the level of EUR 40 million. By gross financial synergies, I mean the synergies excluding the effect of the additional debt which was created by buying the equity of General Cable, because you understand that the synergies, the financial synergies, theoretically, we would need to account only on the refinancing of the debt of General Cable. The acquisition of the equity of General Cable is clearly a change of perimeter.
I'm very pleased to say that with the refinancing that we put in place, the cost of funding now of Prysmian overall is lower than 2%, including also the non-cash component of interest expenses related to the convertible bond of Altra Video in Europe. Balance sheet, page 22. I'm happy to say that we substantially finalized the purchase price allocation exercise. You see on this page, in the second column, the, I believe final or almost final goodwill that we are posting, which is EUR 1.1 billion. The working capital moved up to EUR 736 million, as Valerio explained. Of which EUR 380 million related to General Cable perimeter, meaning that the remaining portion, EUR 356 million, is related to the Prysmian perimeter. The Prysmian perimeter moved up significantly by EUR 250 million, the main driver is by far the working capital increase of the project business.
There is also another important driver, which is the payment of the transaction and acquisition costs, mainly in the opening balance, which was realized in the second half. A big part also already in June, as a matter of fact. Whereas the working capital of General Cable since acquisition, since the beginning of June, moved down hugely, very significantly. Think that the opening balance of General Cable working capital was EUR 636 million, you see that the year-end level is EUR 380 million, so down by EUR 260 million almost. This is, of course, the result of the huge synergies, the EUR 180 million that Valerio has already mentioned. NFP closed significantly better, I would say at least EUR 80 million better than I expected until a couple of months ago, at EUR 2.2 billion approximately. Once again, this is the result of the faster than expected working capital synergies.
Overall, EUR 180 million working capital synergies in 2018. We still expect another EUR 20 million-EUR 30 million in 2019 to have a full picture of EUR 200 million-EUR 210 million, which is, by the way, fully offsetting the restructuring cost that we envisage to complete the General Cable integration that I'm sure that you remember, are in the region of EUR 220 million. Basically, the same amount with the opposite sign, of course. Cash flow statement. Given the complexity, I preferred to draft this cash flow in a bridge, as you see. This is bridging the EUR 436 million, year-end 2017 old perimeter with the EUR 2.2 billion year-end 2018. Of course, we have all the acquisition effect, EUR 1,386 for the General Cable consideration, including almost EUR 100 million acquisition transaction and integration cost. The EUR 1.2 billion of net debt consolidation refinancing of General Cable.
On the positive side, the cash flow from operations before working capital changes of EUR 552 million, which is, of course, lower than 2017 due to the cash effects related to Western Link, which are in the region of EUR 70 million, and also the restructuring cost related to General Cable. You see that the working capital posted here is reducing. It's a positive contribution to cash flow for EUR 100 million, of course, taking out the transaction and acquisition cost. This is the result on the positive side of the working capital synergies, EUR 180 million, and the positive seasonality that we enjoyed on the General Cable working capital because we took over General Cable beginning of June, and we enjoyed the positive seasonality in terms of stock reduction. This effect I mentioned, because it is very relevant, is another EUR 100 million working capital improvement.
On the negative side, I already mentioned the project business dynamic, in terms of working capital, which was negative in the region of EUR 175 million. The net effect of all this is the positive EUR 100 million that you see reported here. Net operative CapEx have been pretty high this year, but seeing that this EUR 278 million include also EUR 30+ million related to the CapEx, referring to the new cable laying vessel, that by the way will be zero in 2019. We will have no cash impact from this in 2019. The other significant part is, of course, the EUR 779 million positive effect, which is the sum of the convertible bond conversion for EUR 280 million approximately, plus the right issue, which was finalized last July for EUR 500 million.
Let me close with the final page that I was already having in the package for the third quarter, just to reassure you on the composition and the exposure of our gross debt. 83% of the total gross debt of approximately EUR 3.2 billion gross debt is at fixed rate or swapped into fixed rate. No exposure to base rate increase. Whereas a minor portion, 17%, is exposed to floating rates. Even more important, on the right side of this slide, you see the repayment date and the maturity of our gross debt. The only short-term maturity is the revolving facility, EUR 1 billion, that we are already addressing. This will be addressed and finalized in a matter of, let me say, one month, one and a half months. No worry about this.
We have a quite minor refinancing in 2020 of the bridge loan related to the acquisition, which is now only half a billion, which was originally EUR 700 million. Actually, as we speak, is even EUR 400 million because we have already refinanced another EUR 100 million of that in February. The first capital market maturities will come not earlier than 2022, with the euro bond, EUR 750 million, the convertible bond, the half a billion convertible bond, and then on the loan market, the acquisition term loan for EUR 1 billion. The message that I want to give is that we have no necessity and no requirement to tap into the capital market, which is now quite challenging as you all know, before 2021, basically. 2021, 2022, we will see.
Of course, if we will have a favorable windows and opportunities, we will catch them, but there is no obligation for us to go into the capital market now, which would not be very favorable and very pleasant. Thanks a lot. I think we can open the Q&A session.
Thank you, ladies and gentlemen. We will now begin the question and answer session. As a reminder, if you wish to ask a question, you will need to press star and one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Your first question comes from the line of Akash Gupta from J.P. Morgan. Please ask your question. Your line is open.
Hi, good evening, everybody. I have three questions, please. My first question is on guidance or adjusted EBITDA guidance. If I take 2018 reported figures and add back Western Link charge and additional synergies that you're guiding for 2019, I already get to the higher end of the 2019 guidance. I wanted to ask, should we see this guidance as more conservative? Also I wanted to ask about if you have assumed anything from new orders, like maybe potentially any contribution from Viking, if you get that in the course of the year. That's question number 1. Question number 2 is, again, on guidance, free cash flow guidance. If you can provide a bridge from midpoint of EBITDA guidance of EUR 985 to how you get to EUR 300 million in free cash flow. Third question is on standalone Prysmian performance in 2018.
You reported number of EUR 640 million, which was EUR 40 million below lower end of guidance of EUR 680 million and adjusting for EUR 25 million in additional Western Link provisions. You missed guidance by EUR 15 million, or that's the low end of the guidance that you missed by EUR 15 million. Can you tell about what are the factors? Because I think FX was already a headwind at Q3 results. Maybe if you can say, what are the driving factor in Q4? Thank you.
Okay. Thank you, Akash, for your questions. Let me start from the last one. That is easier. It's clear that we missed the guidance for a certain amount. I explained to you why, because by the guidance was confirmed in end of September, consequently at the nine months results. Other effects occurred later. Some effects were already foreseeable because the ship was damaged during the transfer into the South China Sea, and we were knowing it. We were not expecting it was impacting as much as been in reality. Apart of the cost of repair, the problem has been the delay in the installation of certain projects that cost us LDs in these projects. That's more than 50% of the total swing, negative swing.
The rest comes from the rework of some lengths of the cable that we carefully decided to execute, scrapping some length of the cable and reproducing entirely in order to avoid any other kind of issues in term of quality to our customers. That has been obviously agreed with the customers, but cost us money, and partly are going to offset the recovery in 2019 of the problems we have had in 2018, because we are going to reproduce part of the projects that obviously is going to absorb capacity with no margins. Last but not least, it's true that the last quarter 2017 has been particularly strong, this year the order book is much lower than the previous year. We are almost EUR 1 billion below the previous year. No, EUR 600 million below the previous year. That's the answer to the question number 3.
I leave the floor, Pier Francesco for your questions about the bridge for the free cash flow.
How do we come to the EUR 300 million, to be starting from the midpoint of the guidance, say, of EUR 985 million? I go with the big numbers as usual. Say EUR 985 million. Then, as usual in our cash flow, you should remove from this the share of net income of YOC, which is material, is say, close to EUR 50 million, EUR 45, EUR 50 million. You should consider what is mentioned, by the way, in the presentation, meaning restructuring and integration cash out for EUR 90 million. You should consider the cash conversion of the EUR 25 million provision on the Western Link, on the Q4 Western Link, which had no cash impact last year, that we will have a cash impact for sure in 2019.
You should assume around EUR 150 million taxes on a cash base, EUR 250 million CapEx. I'm also giving an indication of the level of CapEx, which is quite stable compared to this year. You should finally take out EUR 100 million financial charges on a cash base. This should land, if my calculation is right, more or less in EUR 300 million. +/- 10%, of course, IO plus.
Akash, let me now try to give an answer to the first question that is the more complex.
The confidence we have, or we don't, to stay on the higher part of the guidance. Listen, I tell you a story. More than 10 years ago, the management team was in a trip. We were challenging ourselves. We were at EUR 400 million EBITDA. We challenged ourself with the famous story of EUR 1 billion. We are now near to it.
Maybe this year, 2019, or maybe the next one. We are going to reach it. If in 2019, we will be able to be in the upper part of the guidance, that means to be at EUR 1 billion. We are not sure. That's our focus. It depends of so many things.
First of all, the trend of the market, the general economy, that, as you know, is not particularly brilliant today, especially in Europe, with all the political tension that are in place. We see the possibility. Thanks to what? Thanks to, obviously, a non-repeatable Western Link issue. Thanks to the synergies, and thanks to a business that is expected to run in a reasonable way, as well as the Telecom going to continue a more modest, but still good improvement year-over-year. Thanks to all the investments we did in the last two years, and thanks to the European and U.S. market-
that is brilliant. Let me mention you that for Telecom, we launched two products, two new products. One is the FlexRibbon, that is combining the strength of the ribbon that lets to splice together 12 fibers at a time, and the strength of the Flextube that lets the customers to fit as many fibers as possible into the minimal diameter. That's a product that, for the time being, in the data centers, is encountering a very good performance. Customers are very happy and are ordering it. I believe that is a product that can, in the North American market, have the trend to substitute the traditional ribbon, because it's much easier from the size point of view of diameter of the cable. Consequently, much more comfortable for customers to fit more and more fibers into the same tube or in the same diameter. That's a plus.
How big will be the market? It depends on us. It depends on us, and it depends on the customers. If the customers like it, as seems to be, I believe that we can give to the Telecom a second upside, reasonably good. I do not expect, vice versa, a particularly brilliant performance from Energy. Why? Because Energy, historically, has been, every year, flattish, not going very much. Only if there is another boom, that I do not suggest to have, of real estate like the ones of 2007. That has been a disaster for the economy. Overall, I'm confident that we will be in the range. I'm not sure, nor too much confident, that we will be in the upper side of the range. The goal is one zero zero zero. Did I answer to your question, Akash?
Yeah, thank you. Thank you, Valerio.
You're welcome.
Thank you very much. Your next question comes from the line of Lucie Carrier from Morgan Stanley. Please ask your question. Your line is open.
Hi, good afternoon, and thanks for taking my question. Can you hear me? Because I'm on the road.
Yeah.
Yeah.
Okay, very good.
Go ahead.
Sorry, I'll be quite quick with my question. The first one is regarding the Western Link. Can you clarify your comments around the fact that this is a one-off? Do you have now the absolute certainty that we are done with the issue with the Western Link? If I can add to that, has the link been tested in both direction at the moment? That's my first question. I'll go into my second question directly. This is around the Viking project. You seem quite confident during your comments that you could get a share of that contract. What gives you the confidence, especially considering what we've seen around the Western Link? My last question. I think you were mentioning the pipeline this year in terms of the bidding activity.
Are you able to quantify the pipeline you are expecting this year in the market, not necessarily for Prysmian, but in the market, for subsea contract, i.e., interconnection and offshore wind and land high voltage? That's my three questions. Thank you.
Okay. Thank you, Lucie, for your questions. Chapter one, Western Link. We cannot be 100% sure that nothing is going to happen anymore. At the end, the management of projects is even a something to be analyzed with the statistic. We have had two faults, in reality, after the commissioning on the pole one. The ones in April, in the shallow water, that have been repaired. Unfortunately, the first repair went not so well, and we have been obliged to repair again. Another fault on the pole one land. Both shallow water and land have been the most suffered installation. It's very difficult to install such a kind of cable. You remember that the cable, as well as happened in 2014, is very sensitive to each manipulation. We had it in the factory, and we had it into the installation, especially on land. We repaired it.
We restarted in October the operation, five months later, again, failed, the fault of February, failed pole 2. The ones that, in the meantime, has not been working. Because the first period of the exercise of the link, the pole 1 was working, was bringing power. The pole 2 was simply used as return of the current. Why we are reasonably confident that is not going to be repeated? Because now, after five months of work, the pole 2 has evidenced a similar fault to the ones that pole 1 has showed one year ago. Obviously, nobody's saying that for sure will not happen again. Obviously, the running, the month into which the line has been running, should be, we expect that is going to be the cleaning of any kind of installation damaged the cable may have suffered.
Last but not least, the link is going to operate now in, let's say, by the end of the month, or better, by the end of March, we are going to give the line back to the customer. How and when to operate is a decision of the customer. We are going to test the cable on reverse polarity, we made a lot of tests internally on cables, we are almost sure that the reverse polarity is not going to create any other problems. If some problem has to come, it's better to come now than later, because if comes, we are going to repair again, that's it. Second question, Viking. Viking. Viking is on the door.
Is on the door, we are confident that all the effort we did with the customers in order to mitigate and to solve the problems that obviously Western Link has shown, are a good presentation card for the Viking. Frankly speaking, I've been even last week in U.K. to the customer, their attitude is reasonably positive despite the very challenging problem with Western Link. We are doing really what is possible and even what seems to be impossible to solve the issue. That's something we expect the customer is going to appreciate. I leave for the third chapter, the line to Hakan Ozmen, that is in charge of projects.
I would add one thing on the Viking. I would not speculate on the tender, definitely, because the tender is in process. Our confidence comes also from our track record of paper-insulated cables that we have done in the past. We have done many projects and even big projects that are right now running without any problems. I think the confidence comes also from the completion apart what Mr. Battista has told you. On the market conditions for 2019, we believe that the market is going to be in the level of EUR 3 billion, in terms of overall order intake of all the players inside the market. We see a robust market, even a slight increase in the market conditions. Looking also to our usual track record, we believe that we should get our share from that market.
If you take into consideration, sorry, Lucie. If you take into consideration NSL, that is another big project with the same customers. At the end, we are performing perfectly on it. Unfortunately, Western Link has been a mess, but the following project, that has been NSL, we are running perfectly. That's a sign that the Western Link has been a particular issue, but the abilities of the company to properly execute a project, at least with the traditional technology, is perfectly consistent.
Thank you. Just as a follow-up on the size of the market, the EUR 3 billion, is that only for subsea, i.e., subsea interconnection and offshore wind, or does that include also potentially, some awarding in the land transmission business?
Yes. Majority of this business is on the submarine side, which is definitely, let's say, offshore wind, but it includes also some land section. Majority of it is submarine.
In the land section, are you already including or considering SuedLink and SuedOstLink, or it's not in that number?
No, definitely not. We are not considering any land, DC, big DC projects. We don't consider that.
Thank you.
The tenders, Lucie, the tenders are going to come, and the award of the projects will come in 2020. Consequently, are not in the market of 2019.
Very clear. Thank you.
You're welcome.
Thank you. Your next question comes from the line of Monica Bosio from Banca IMI. Please ask your question. Your line is open.
Good evening, everyone. Can you hear me?
Yeah.
Yes.
Yes. Good evening. Thanks for taking my questions. The first question was on the submarine cables. Obviously, 2018 has been a mess also because of the Western Link, of the further delay in some projects in Asia, et cetera. In 2017, the profitability of the energy project was 17%, if I remember well. I was wondering if you can give us some indication for 2019, in term of profitability and some flavor on the mix, because profitability depends also on the mix between land, submarine, offshore, big links, et cetera. Do you project to come back at this level, or it would be a more gradual recovery? The second question is on the working capital, which was at 6.4% on the revenues. What is, in your view, a sustainable ratio in term of working capital on revenues, once a stream?
The very last was on the synergies. It was a very good news to hear that synergies are better and faster than expected. Do you feel confident with this new level, or do you believe that at the end, there could be some further space, some further room to get even more synergies? Thank you very much.
Thanks to you. Let's start with question number 1, the profitability of the submarine market. Obviously, the profitability of submarine can be affected by the aggressivity of competitors. Competitors that, in order to take the contracts, are available to sell at low margins. That, unfortunately, is the history of the cable industry. We didn't follow this challenge in the second half of the year, when the tenders came back. The first half, there were no tenders, basically, or very minimal tenders. We did not accept the fight on price. Why? Because we were having a reasonably high or good order book still in place. Now, I can say that we don't have any more our very good order book. Consequently, we have to enter into the game. Our competitors, hopefully, are a little bit more satisfied than the situation they were having mid of the year.
That doesn't mean that the margins and the prices are going to grow, but I hope will not be as under pressure as have been 6 months ago, few months ago. The profitability next year will not be outstanding, that's clear, for different reasons. First of all, because of the order book. We have an order book that is not 100% saturation of the plants.
Okay.
Nor 100% saturation of the assets. That, in a certain sense, is something more reasonable of the level of saturation we applied in the last two years. We have to rework the cables that we scrapped in the last quarter. Especially the first quarter and the second quarter, we expect to suffer a little bit.
Okay.
Overall, the level of profitability of this business should be in the range of 15%.
Perfect. Okay.
I say should, because it depends on the aggressivity of competition. Let's see. The good news in the submarine business is that, maybe you remember, that some years ago, I told you at one of your questions, that I was seeing the offshore wind farms growing because of the green energy, reasonably cheap, generated by offshore wind farms. This is happening. What's the problem is that it's not possible to extend too much offshore wind farms in windy locations if there is very high depth. Simply you cannot install the poles and the towers. Now, the technology is evolving, creating new offshore wind farms floating, that may open the door to a much larger extension of the offshore wind power generation.
We got one or two test projects, with only one or two poles, towers, floating, that I believe is going to be the future or an important upside for the continuous growth of the offshore wind farms.
Okay.
Second question, working capital. I leave the floor to Francesco that is more skilled than me on it.
Thank you.
Good evening, Monica.
Good evening.
All in all, I believe that the current level of working capital, which is a compounded 6.4%, is sustainable. I would say that this is the case both on the general perimeter side and the Prysmian side. I would expect maybe a slight improvement from this level, due to the additional synergies that we anticipate for next year. Not very material, but still a EUR 20 million, say EUR 20 million-EUR 30 million. EUR 20 million.
Then a first slight recovery of the working capital increase that we had in the energy business in 2018. All in all, I would say that a 6% level is a good level, compounding the two perimeters.
Okay. Thank you.
Third question, confidence on synergies. We never disappointed the market in making synergies, I don't believe we are going to do it this time.
Yeah.
I'm reasonably, more than reasonably, I'm very confident on the ability of the company to reach the EUR 175 million synergies. The doubt I may have is to find it at the bottom line of the result. That's unfortunately a different chapter, and depends of the aggressivity in the market that may absorb the synergies. It's a no way, because at the end, the market is the same for everyone. If we make the synergies, we can compensate the costs. If competitors are not doing the synergies, are not able to compensate the costs. Just to give you an idea. This year, in the second half only of 2018, the transport cost in U.S.A., due to the new regulation for the drivers, ramped up $18 million.
Thanks to synergies, we have been able to partially offset. Who did not such kind of level of synergies have to have seen in their P&L, the significant amount of cost increase of transportation.
Yeah.
No, it's a Yeah. Fully clear. Thank you.
You're welcome.
Thanks a lot.
Thank you. The next question comes from the line of Alessandro Tortora from Mediobanca. Your line is open. Please go ahead.
Yes. Hi, good evening, everybody. I have three question, if I may. The first one, sorry, if you can come back to the point of the EBITDA margin profitability for the project division. Let's take on the Prysmian side. Let's say profitability should stay at around 15%. Is this something to be achieved in the medium term, or we can already, let's say, project this level in 2019? The second question is on the level of factoring, if you can just disclose the amount of factoring that you made in 2018. The third question is on the guidance on free cash flow. You read before the bridge on how you get this EUR 300 million. Are you also assuming, let's say, advances, okay, in this guidance? Thanks.
Okay. I answer to the first question. EBITDA margin at 15% for projects is a good proxy of the run rate of this business. Makes sense, because you have to consider that there are fixed costs, especially the risks that are pretty high there. Consequently, is a level of profitability that is simply decent for such kind of business. You need of assets, you need of people, you need of technology, and you need to cover the risks. Reason why 15% is a reasonable average trend. The question, if you can apply in 2019, I suggest not to do it, in the sense that we have to recover. Unfortunately, the effect of the problems we had is going to disappear in the second half, because in the first half, we are going to have, still, a lower level of saturation with production with margins.
Consequently, some effect will hit our profitability in the first half. In the second half, I believe we can consider the run rate profitability of this business. Second question, about the factoring. Let me leave the floor to Francesco for it.
Yeah. Slightly above EUR 300 million level of total factoring year-end 2018. Also related to your question regarding the cash flow guidance, EUR 300 million ±10%. Yes, of course, it's including down payments that we normally get. This was one of the chapter which was damaging heavily the cash flow in 2018. What we are assuming is to recover, as by the way, my colleague, Hakan, said, a normal level of market share, our normal share of the market in 2019, out of a quite significant market, submarine market in particular. Let me say a market share which is in line with the historical trend, not the 2018 trend, but the prior years.
Now, Alessandro, for the third question, I missed. Put again the question.
It was this one.
You put together, really, in this way, I can add another question, if I may.
Yeah.
When you talk about the reworks on land cable, are you referring to Western Link? There is also another project in which you are going to rework. I missed it.
I didn't say, frankly speaking. We are talking about extruded cables that we improperly, we were not sure of the quality of this project, those products, we decided to scrap and rework.
Okay.
Western Link.
I cannot tell you which projects are because are not authorized by the customers.
Okay. It's not Western Link?
No. Not Western Link at all, because Western Link was already produced.
Okay. Thanks.
Thank you. The next question comes from the line of Sean McLoughlin from HSBC. Your line is open. Please go ahead.
Good afternoon. Thank you. Three questions from my side. Firstly, looking at the subsea market in 2019, if you could give us a split between what you think will be the interconnectors and offshore wind. Also, what is your capacity for turnkey in both these subsections? The second question is on telecoms. Just wondering on the organic growth outlook for 2019 and what are the risks to pricing. Ultimately, do you think your current capacity now is sufficient? Lastly, on the North American market, you have had some recent order announcements. I am wondering how quickly can this become important to the overall high voltage market mix for you. Thank you.
There were not three questions?
Yes.
Okay. Three. Yes. Submarine market in 2019. We expect the submarine market to be in the range of EUR 3 billion, more or less stable, slightly increasing. The split between interconnectors and offshore wind farms, I see in favor of offshore wind farms, because the offshore wind farms are doing pretty well. Even if there are interconnectors, pretty important, that is Viking. Most probably one project. There may be another big project in Mediterranean Sea, but we are not sure that is going to come in 2019. Most probably in 2020. The second question, for the second question, let me leave the floor to Philippe Vanhille.
Hello, Sean. For organic growth on the telecom segment, we expect it to remain more or less in the same range.
It's made of
Clearly double-digit on the optical side of the business. A decline in copper and also a growing MMS. On the copper, we still have some effect of the Australian business visible, between the two first quarters of the year. We are going to see an impact of the copper business in the first quarter, in particular this year. On the optical side, as you rightly say, our ability to grow is very linked to our capacity, but we are still growing very significantly, our capacities at this moment, because the investment we launched a couple of years ago are paying off in 2018, 2019 and even 2020. We believe really, clearly in a double-digit organic growth for the optical segment of telecom in this year for sure. There will be some price pressure, probably, coming from our Asian competitors.
We are also working very strongly on our costs, and so we are quite confident that we are going to maintain our positions.
Your third question was about the expansion of the submarine business outside of Europe, and if I understood well, and that's correct. Finally, we are seeing tenders in Asia, Taiwan, and in the U.S. That's the best sign for the future development of the submarine business because that was the chapter missing till now. It was only Europe. Finally, seems that European companies, European developers, have been able to obtain the grant of developing new projects in Asia and in the U.S. That is going to be, in my opinion, a very good launch of this business for the other two regions. It's not in the numbers for the time being, because it's too early. There are two tenders, one in Asia and one in, or two maybe, in the U.S. that are promising.
Thanks, everyone. Thank you. If I could just follow up on the first question between offshore wind and interconnectors. What's the different competitive outlook for turnkey versus supply only? We see a lot of offshore wind volumes being won for supply only contracts.
That's the unpleasant chapter of this business. Unfortunately, the installers and the customers, especially for the offshore wind, are giving preference to split the cable supply only from the installation. It's a matter of time, in my opinion, because having the offshore projects have already too many players. There are the players supplying the towers, players supplying the installation of the towers, players supplying the medium voltage interarray cables, players supplying the medium voltage interarray installation, players supplying the HV connections, and players supplying the HV interconnection installation. There are too many dogs around the same bone. That's really a risk for everyone. We are seeing it because, reading the offshore news, you can see that customers are really upset of the results of this mess. That's why our offer tends to be much more
Complete
Complete. Offering installation and cables for HV and installation and cables for interarray.
Land.
The land, obviously. That, in my opinion, in the long run, is going to be a positive asset. Obviously, the cost may be less competitive. The result is in the hands of one supplier only. We need time to show to the market that to give cables and installation to the same player, possibly HV and medium voltage is the best solution to guarantee the minimum cost of ownership. Did I answer to your question?
Thank you. That was great.
You're welcome.
Thank you. The next question comes from the line of Akash Gupta from JP Morgan. Your line is open. Please go ahead.
Yeah. Hi. Thanks for follow-up. I have a question about the co-investment for performance share, where you have a target of minimum EUR 3 billion pro forma EBITDA cumulative over 2018 to 2020. Do you think this EUR 3 billion target is achievable after 2019 guidance, or will it be adjusted for issues like Western Link, which was continuation of a previous issue?
Okay, Akash, I got your point. It's clear that the guidance, let's say guidance, the range of the long-term incentive for the management, is under debate and has to be submitted, some change into it, because with EUR 837 million in 2018, obviously the minimum guidance is not anymore achievable. It's a one-off, but we have to take it into account. It's written in the press release, we are going to propose to the shareholder meeting a change, not of the guidance, not of the targets, but an extension of one year in the target. Practically, we are going to say, okay, this year we failed. Instead to give up and scrap the plan, we accept the penalty. We are going to present an extension of the plan. Give us one year more to realize the result.
Does this mean EUR 3 billion for 2019 to 2021?
It will be No, obviously not. It will take into consideration the EUR 830 million of 2018 plus, let's say, for matter of simplicity, EUR 3 billion. A four-year target of roughly EUR 4 billion.
Thank you.
Thank you. The next question comes from the line of Alessandro Tortora from Mediobanca. Your line is open. Please go ahead.
Yes, thanks. Two brief questions, I promise. The first one is on the tax rate for 2019, again, that you achieved a very low tax rate in 2018, if we can apply this around 25%. The second question is on IFRS 16. This is, let's say, one of the most discussed topics. I guess that for you, impact is not incredibly relevant, but, I would like to have, let's say, your view on that. Thanks.
Yes. Let me start from the IFRS 16, that you know is effective since January 2019. We are right now reviewing the numbers. Let me not anticipate the total effects that we envisage for 2019. Of course, the guidance that we have released is not taking into account any effect of IFRS 16. Let me anticipate that is a positive effect in the sense that finalizing the number, you will see that we will have additional EBITDA for the simple reason that we are taking out the cost of operating leases from the EBITDA, and we are turning this cost into financial leases. Basically into depreciation and interest expenses. Our EBITDA will go up quite materially. The debt, of course, will go up because we capitalize the future installments of the financial leases.
Let me just say that the multiple. Sorry, just let me finish. The multiple between this additional debt and this additional EBITDA is very favorable, meaning you will see the quite low multiple. Let me not anticipate any number because we are right now finalizing it. Can you remind me your first question? Sorry. The tax rate it was.
Yeah.
Wasn't it? Okay. The tax rate looks, I think, you're right saying that the 2018 achievement, stripping out the unfortunate antitrust Brazil provision was pretty good. For 2019, we are assuming a very similar tax rate in the 25% or 26%.
Okay.
Is a fair assumption. I hope it will be better if our friends in North America will increase the profit before tax result very materially, as we expect, by the way.
Okay. Thank you. Yes.
Thank you, Alessandro.
Thank you. There are no further questions. Please continue.