Thank you very much, and good afternoon to everyone. Welcome to the Full Year 2018 Financial Results Conference Call of Prism Group. Let me start with the financial highlights as usual. Fully combined organic sales grow 3.3% with a quite good organic underground high voltage growth and a solid performance in Talla with a single digit organic growth in optical and double digit organic growth in MMA. General Cable has posted an exactly equal, grow organic growth of 3.3% during 2018, exactly the same of Prisma Group.
Adjusted EBITDA. Adjusted EBITDA closed at 763 1,000,000, including 1,000,000 from General Cable for the 7 months from June to December. Projects. Unfortunately, it has been of upset, have been shocked by the 95 collective provisions related to the Western Link projects. Including the million impact posted in the fourth quarter 2018, due to the February 19th problem.
Obviously, this has been unpleasant and quite significant experience. But is going to be over. Telecom. Telecom margin, vice versa, went well. The volume grow in optical business support by capacity increasing fiber we launched in the last 2 years is helping the volumes, the margins and the results of Telecom.
YFC, let me remember that the shares of net income coming from YLC has been a pretty pretty good, especially thanks to the transfer of the results of YOC of the last quarter 2017. The full year combined EBITDA pro form a has closed about EUR 837,000,000, having had a strong impact by the ForEx for EUR 41,000,000. General cable. General cable is improving. The focus is strictly on the integration process.
And the synergies in term of cost and working capital are going to faster and better than expected. Net financial debt. That's the positive note because at the end, we closed that up to EUR 2,222,000,000,000 versus the $436,000,000 of year end 2017, the sole Prism perimeter. But we paid the EUR 2,600,000,000 for the acquisition of The proposal for the dividend is per share to be submitted to the forthcoming AGM. Let's switch to 3 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 the merger with Braca, on the right side, we have the fully combined numbers that are more significant if 27 in 2018 versus the 11.353 of 2017. With an organic growth of 3.3 percent, as I said already. You can even see the split of the contribution in term The adjusted EBITDA, let's look at the fully combined, went down vice versa from 940,000,000 in 2017 pro form a to the 837 of 2018. Obviously, here you can see that the gray part of the EBITDA comes from general, whereas the blue part comes from Prisma. The part from Prisma has suffered significantly.
Mostly because of the accruals for WESTER Link, whereas the general cable perimeter has posted a reduction of only EUR 7,000,000, but mostly due to the exchange rate effect. Overall, as I said, the exchange rate accounted for 41,000,000, the total group, and it's not only dollar. Net working capital. The net working capital obviously has increased for the $106,000,000 year end 2017 sold premium perimeter to the 736 2018. You can see even the split of the working capital of the 2 parts of the company.
EUR 380,000,000 roughly 11% of working capital on sales for general And 3 56, 4.5% is the Prismian chunk of Booking Character. The net financial debt at the end closed at $2,222,000,000 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 closer that $3,536,000,000 in 2018 versus $3,149,000,000,000 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% $197,000,000 versus the 204 of the previous year. So, slight decline, mostly driven by the exchange rate effect But we posted even the last quarter performance because the last quarter is going to be the light of the speed, exit speed from 2018 to 2019. And for General Cable globally, The important chapter is that the performance of the Q4 2017 has been $37,000,000 whereas the performance of the last quarter 2018 has closed much better at $49,000,000. Now 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 percent from $2,39,000,000 to $2,131,000,000 with an adjusted EBITDA slightly scaling down by $10,000,000 from $149,000,000 to $139,000,000. And that has been mostly the effect of Sorry. And that has been mostly this 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 27,000,000 last quarter 2017 to EUR 38,000,000 last quarter 2018.
Europe on a different way, moved from 1,000,000 in 2017 to 1,000,000 sales in 2018 with an organic growth of 8.2 percent with a total EBITDA of $25,000,000 this year, 2018 versus $20,000,000 the previous year, very low profitability of 2.9% to 2.6%. And the last quarter is even worse than previous year. The same quarter of the previous year, closing at a 0 margin in the 4th 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 for projects that has been executed 90% in the first half. And 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 6 12 to 542 with a reduction of 7.5 percent organic growth, but the adjusted EBITDA went down from 35 only to 33 with an increase in percentage from 5.7to6.2. That's more in line with the strategy of Prisma, 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. And the margins went up from 1000000 to 1000000. And that's because of a solid, the TNI And Industrial Business Performance, But despite the very heavy headwind due to the overhead lines in Brazil.
So we have been able to grow the performance of the 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. Page 6 where he's explained the new segment reporting with the integration, obviously, all the main businesses have taken a different light. And we decided to remove from our 1st line business organization, the oil and gas for the simple reason that was too little in order to keep it as a 1st line report of the business.
The 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 project 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 summer in telecom that was not in our perimeter in the past before that we of the 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 Generac Cable.
All the rest, more or less, remained the same and have been added the business of General Cable to the business of 2 business groups. Flipping the Page 7, performance by segment, the fully combined results. Let's start with our adjusted EBITDA margin. Projects closed at a pretty low margin and usually low at 9.4% obviously taking into consideration the accruals for Western Link issues and constantly removing down from 17% of year 2017 to 9.4% year 2018. E and I scaled down a bit from 4.3percentto3.8percent industrial network component almost stable from 7.4% to 7.1%.
Telecom continued 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 by Saversa to the adjusted EBITDA in the organic growth, We have the projects that closed it with an organic growth of 4.7%, but with a result that scaled significantly down from 298 to 170 after SEK 95,000,000 of accrual related to the Western Linked issue. E and I, E and I, vice versa, posted organic growth of 2.1% but went down in term of absolute EBITDA from 253 to 207. Obviously, in those numbers are the effect of the exchange rate.
Industrial, network component basically flat in terms of results with an organic growth of 3.3 percent and telecom going up from 247 195 with an organic growth of 6.4%. Let's move to the an EBITDA bridge, splitted into parts, the Prism Group and the Generali Cable. Pro form a in 2017, we were having EUR 940,000,000 EBITDA divided in two parts 1036 for Brisbane to 100 and 04 for general. The scaled down of projects it's a significant increase of minus 124,000,000 on the previous year, of which 95,000,000 are the Western Link provisions. E and I almost flat with a slight minus 3.
Industrial network component plus $10,000,000 and telecom plus $54,000,000, of which 12, anyway, are coming from the reversal of the Bedash 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 minus 4,000,000 Europe plus 5,000,000, Latin America physically flat and the ForEx effect that countered for 8,000,000 negative impact. And that's how you can results of the company assuming General Cable for the full year. Let's move to Page 9 and look at the integration. The integration is going very well.
That's my opinion, but is the opinion also the board Cost efficiencies and cost savings are helping. We counted 1,000,000 of synergies during 2018 in the 1st 6 months. So and reorganization, I remember you that 6th June immediately after the closing. We launched the new organization, savings on purchasing, raw materials based materials and base metals, leverage product range across GCMP, Brisbane 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 generic cable perimeter, changing payment terms and conditions to the suppliers, and that's accounted for 180,000,000 cash synergies.
The financial synergies that have been realized in the 1st 6 months are linked mostly to the refinancing of the debt of General Cable, that has been done with much better conditions obtained by the financial sponsors encountered EUR 14,000,000, but below the EBITDA of this Let's flip to the closed at $1,804,000,004 sales versus $1,754,754,000,000 the previous year with an organic growth 4.7%. But with a significant reduction in term of EBITDA from $298,000,000 to 107 team. That has been a pretty tough and unpleasant situation, but we are managing it This submarine, this submarine has been impacted by the provisions of which were linked across the year. The Q4 EBITDA has been impacted by Western Link and other delayed phasing of those projects. You remember that I mentioned to you, and the 9 months call conference that the Giulioverne was damaged by a transshipment and we have been obliged to repay euro.
That's costed us money and costed 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 of obliges in the last quarter to make some reworks of Lens of submarine cables. And last but not least, last year, the last quarter was very exceptional.
The order backlog scale it down, you see $1,900,000,000 is the order backlog at the year end compatible with the 2,000,004,450,000,000 of December 2017, we are not scariest. That is what is helping us to continue to operate at full speed. Without being obliged to run for a fight on prices So sorry. So the backlog is down, but we have time to replenish it. A good news is that the tender in 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 growing Asia Pac, South Europe and South America. And the fine and finally, the tendering for seed link and seedless link head starting to. So since 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 $5,379,000,000 to $5,492,000,000 with an organic growth of 2.1 percent The EBITDA from SEK 253,000,000 scaled down a little bit to 207 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 percent. And do 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 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 Installer business went reasonably well is improving. Let's see, 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 effect 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 2017. We expect to be better next year. Finally, the overhead that is a new business for us for Prisma.
That has been affected by a very tough market conditions in Latin America due to the attack by some Chinese competitors. Despite the trans shipment cost, despite the duties, they have been able to enter unexpectedly with very unexpected level of with unexpected level of prices. Industrial network components, EUR 2,000,000,000, the turnover 2018 closed at EUR 2,353,000, versus 2, 302,000,000 of the previous year with an organic growth of 3.3%. And the adjusted EBITDA at the end remained almost stable with a slight decline in terms of percentage. Specialties on EMEA Renewable are going reasonably well, even if we 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 margin, high margin. Overall, the growth has been there, but with 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 progressively, but it's going down pretty well. Automotive. Automotive for the time being is not so dramatic as the market commence. But we expect and we are ready to receive the shock because sooner or later, the crisis of alternative will come to us in a way. But obviously, if you lose sales of a business that runs at 4% margin, okay, the damage is relatively low.
Oil And Gas is a stabilizer 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 1,634, compared to 1,000,00592 of this the full year 2017.
With an organic growth of 6 point percent. The adjusted EBITDA went up from that I believe is the historical record for telecom with our 18% EBITDA margin. Wanted 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. And the copper telecom that has been pretty strong in Australia. Now the implementation of the project of the NBN project is over and consequently, we suffered quite a lot obviously offsetting part of the upside of the telecom optical.
The EBITDA margin benefited by is the capacity, functioning fiber, the plant supply mix and the reduction of the cost of the fibers, thanks to the investments we did in the last 2 years. Finally, the MMS, MMS is continuing to go pretty good, pretty well. And In North America, we expect good news in the next quarters. That's the fact that we are entering with Generacable just now in the North American market of data cables and or MMS as your choice. That are a positive advantage generated by the acquisition of General Cable.
Okay. That's my result from my side. Synergies. Page 16. We are updating the synergies plan with 25,000,000,000 additional synergies on costs and 1 year faster execution.
The 2021 target, as you can see on Page 16, is going to be 175,000,000 total synergies. Versus the 150 we gave to you at the time of the acquisition of General. You can see that in 2018, compared to the $5,000,000, 10,000,000 we previously were expecting to reach. We have been able to realize $35,000,000, and that's a very important chapter means that we found the way to realize a better integration of General Cable and seems to run. You can see $175,000,000, the procurement are almost at home.
The industrial footprint has to be executed we have still to start and we expect to start in 2019. And let's go to the guidance. We are anticipating the guidance by 1 quarter for the simple reason that today, the C2 is pretty complex. And we prefer to give to the market clarity in advance on what are going to be the targets of the company. 950,000,000 $101,000,000,000 in 20 with a midpoint of 9.85 is our guidance is pretty challenge, but we are confident that If the telecom business is continuing to go well, the Western Link 2018 has been a one off and it's not going to be repeated.
The results of summary we are going to recover not immediately, but obviously, we took into account the decline of the somewhere in business in 2018. At the end, the cyclical business are expected to be more or less table and the synergies from General Cable Integration are going to be 120,000,000 consequently we have to put it into the numbers. We assume that 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 expect it is expected to be EUR 300,000,000 plus or minus EUR 30,000,000, but more or less, that's the range we expect. And we have to consider that this is going to be the number after the structuring linkage out of 90,000,000. What does it mean? Means that at the end, $300,000,000 plus $90,000,000 of extra one off cash out means that the company in 2019 is something similar to a machine generating 400,000,000 free cash flow. The goal is to reach something higher for 50, 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, Alaria. 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. And but 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 7 months consolidation period starting from beginning ofJune, they adjust EBITDA reached the 763,000,000, as you see, including a contribution from General Cable of 123 1,000,000.
And this corresponds to the full year combined adjusted EBITDA of 835,000,000 at Valerio has already commented. Whereas the general cable perimeter was pretty much in line with the guidance we gave out in June, I would say even better, thanks to the stronger, to the higher than expected synergies that achieved, we achieved $197,000,000 full year results for General Cable versus the guidance, include synergy in the region of 190,000,000 dollars, $192,000,000. So I would say a $5,000,000 better. This was not the case for the premium perimeter. If you strip out the $123,000,000 of general cable contribution, you see that the premium perimeter full year declined by approximately 96,000,000 dollars, $95,000,000.
Of course, this is the impact of the Western Lincoln provision for $95,000,000 the very strong Forex headwind on the premium perimeter only 1,000,000 and 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 $167,000,000 that I'm commenting in the following page. Including, by the way, a significant antitrust provision related to Brazil that we I need to take consequently from the state objection we received from the relevant antitrust authority in the fourth quarter. But let me comment in the next page. The financial charges moved very well $112,000,000, by the way, including an extraordinary amount of $6,000,000 related to hyperinflation account in Argentina that we have been obliged to adopt in Argentina, fully realizing the interest expenses synergies that we were targeting for the 1st 6 months, of course, in 2018.
And the remainder will come in 2 2019, fully in line with our expectation and even faster than we anticipated. You see a quite high tax rate, but don't worry about this because this 34% is only the result of the non deductible six 9,000,000 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 9 months down to 25% approximately. So pretty, pretty good. And 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.
Net income, group net income closed at 130, heavily affected by one off items. Like the antitrust, Brazil for 69,000,000, like the restructuring costs related to general cable integration for almost 50,000,000 and another $50,000,000 for acquisition and integration costs, other than the $95,000,000 was still in provision. On the positive side, we only enjoyed the 1,000,000 positive effect related to the wireless see listing, which was already there in the 3rd quarter. If we now try to normalize this group net income from all these one off effects. So we would come to a normalized net income in the region of 1,000,000.
I flip to page 20, commenting the quite significant adjustments that I was referring to. You see the 69,000,000 provision related to antitrust Brazil, 66,000,000 restructuring costs of which $49,000,000 related to the General Cable Combination And Integration and other nonoperating expenses, which mainly include respectively for $41,000,000 $16,000,000 acquisition related costs, integration costs and inventory step up release, which is related to the purchase price allocation exercise. And on the positive side, the YFC listing for $36,000,000. Let me flip now to Page 21 to comment the financial charges. Just to say that apart these reported numbers.
On a fully combined base, the interest expenses came down by $35,000,000 in 2018 compared to full year pro form a course 2017. Out of these 35,000,000, a good portion was the achieved synergies. Another very significant portion was the which took place in March 2018. And the remainder of the synergies will be achieved in 2019 for another 14,000,000. So to wrap numbers, we have net synergies that we target within 2019 for almost $30,000,000, 1 alph already achieved in the second half of 'eighteen, the farther additional 15,000,000 to be achieved in 'nineteen, And we have gross synergies, which are in the level of $40,000,000.
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 Generali Cable. The acquisition of the equity of Generali 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 Prisma and overall is lower than 2 end, including also the non cash component of interest expenses related to the convertible bond of alphabedio in Europe. Balance sheet, page 22. I'm happy to say that we substantially finalized the purchase price allocation exercise And you see on this page, in the second column, the, I believe the final or almost final goodwill that we are hosting, which is 1,100,000,000.
The working capital moved up to EUR 736,000,000, as what I explained, of which EUR 380,000,000 related to general cable development are meaning that the remaining portion, $356,000,000 is related to the premium perimeter. Premium perimeter moved up significantly by $250,000,000 and the main driver is by far the working capital increase of the project business. But 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 of already in June as a matter of fact, whereas the working capital of Generali Cable since acquisition since the beginning of June moved down hugely very significantly. See that the opening balance of General Cable Working Capital was $636,000,000 and you see that the year end level is $380,000,000, so down by $260,000,000, almost And this is, of course, the result of the huge synergies, the 180,000,000 that Valerio has already mentioned. NFP closed the significantly better, I would say at least 1,000,000 better than I expected until a couple of months ago.
And at 1,000,000,000 approximately. And once again, this is the result of the faster than expected working capital synergies. Overall, $180,000,000 working capital synergies in 2018, we still expect another 20 $30,000,000 in 2019 to have a full picture of $200,000,000 to $210,000,000, which is, by the way, fully offsetting the restructuring costs that we envisage to complete the general cable integration that you I'm sure that you remember are in regional million, basically the same amount with the difference 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. So this bridging the 436,000,000 year end 2017 old perimeter with a 1,000,000,000 year end 2018.
Of course, we have all the acquisition effect, 1386 for the general cable consideration, including almost $100,000,000 acquisition transaction and integration cost. The $1,200,000,000 of net debt consolidation, refinancing of General Cable. And then on the positive side, the cash flow from operations before working capital changes of EUR 552,000,000, which is, of course, lower than 2017 due to the cash effects related to Western Link, which are in the region of 1,000,000 and also the restructuring costs related to general cables. You see that the working capital posted here is reducing is a positive contribution to cash flow for $100,000,000, of course, taking out the transaction and acquisition cost. And this is the result on the positive side of the working capital synergies, 1,000,000 Euro and the positive seasonality that we enjoyed on the Generali Cable Working Capital because we took over Generali Cable beginning of June, and we enjoyed the positive seasonality in terms of stock reduction.
This effect I may because it is very relevant is another $100,000,000 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 $175,000,000. And the net effect of all these is that positive $100,000,000 that you see reported here. Net operative CapEx have been pretty high this year, but seeing that the $178,000,000 include also $30 plus 1,000,000 related to the CapEx referring to the new cable laying vessel. That by the way, will be 0 in 2019.
So we will have no cash impact from this in 2019. And the other significant part is, of course, the $779,000,000 positive effect, which is the sum of the convertible bond conversion for $280,000,000 approximately plus the right each issue, which was finalized last July for 1,000,000. 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 3,200,000,000 gross debt is at fixed rate or swapped into fixed rate.
So no exposure to base rate increase, whereas a minor 17% is exposed to floating rates. Even more important on the right side 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 $1,000,000,000 that we are already think. So this will be addressed and finalized in a matter of, let me say, 1 month, 1 an ounce month, so no worry about this. Then we have a quite minor refinancing in 2020 of the bridge loan related to the acquisition, which is now only 1,000,000,000, which was originally 700,000,000.
Actually, as we speak, is even 400,000,000 because already refinanced another 1,000,000 of that in February. And then the first capital market maturities will come not earlier than 2022 with the Eurobond $750,000,000, the convertible bond, the $100,000,000 convertible bond. And then on the loan market, the acquisition term loan for 1,000,000,000. So 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 and A session. Thank
you.
And your first question comes from the line of Akash Gupta from JP Morgan.
Yes. 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 ring charge and additional synergies that you're guiding for 2019, I already get to the higher end of the 2019 guidance. So I wanted to ask, should we see this guidance as a more conservative and 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. So that's question number 1. Question number 2 is, again, on guidance, free cash flow guidance, if you can provide and a bridge from midpoint of EBITDA guidance of $9.85 to how you get to $300,000,000 in free cash flow? And then third question is on stand alone premium performance in 2018.
So you reported number of $640,000,000, which was a $40,000,000 below lower end of guidance of $680,000,000 and adjusting for $25,000,000 in additional Western Link provisions, you missed guidance by 1,000,000 or that's the low end of the guidance that you missed by 1,000,000. Can you tell about what are the factors? Because I think FX was already a headwind at Q3 results. So maybe if you can say what was 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 it to you why because by the guidance was confirmed in end of September, consequently at the 9 months results, but other effects occurred later, some effects were already foreseeable because the ship was damaged during the was impacting as much has been in reality.
A part of the cost of repaying, The problem has been the delay in the installation of certain projects that cost us LDs in these projects. And that's, more than 50% of the total's week, negative suite. The rest comes from, the reward 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 And this has been obviously agreed with the customers, but costed us money. And partly, are going to offset the recovery in 2019 of the problem 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 17 has been particularly strong.
And this year, the order book is much lower than the previous year. We are almost 1,000,000,000 below the previous year. No, 600000000 below this year. That's the answer to the question number 3. I did the floor, vice versa to Francesco for your questions about the bridge for the free cash flow?
Do we come to the $300,000,000 to be starting from the midpoint of the guidance, say, of $885,000,000 I go with the big numbers, as usual. So say 985,000,000 Then as usual in our cash flow, you should remove from these, the share of net income or YOC, which is material is, say, close to 50,000,000 dollars, $45,000,000, $50,000,000. And then you should consider what is mentioned by the way in the presentation, meaning, and the integration cash out for $90,000,000. You should consider the cash conversion of the $25,000,000 provision on the WESSA Link, on the Q4 WESSA Link, which had no cash impact this year that we will have a cash impact for sure in 2019. Then you should assume around $150,000,000 taxes on a cash base, $250,000,000 CapEx.
So I'm also giving an indication of the level of CapEx, which is quite stable compared to this year. And then you should finally take out $100,000,000 financial charge on a cash base. And this is should land if my calculation is right more or less in the 1,000,000. Then plus minus 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 on the or to stay on the higher part of the of the guidance. Listen, I tell you a story more than 10 years ago, The management team was in a trip, and we were challenging ourselves. We were at the $400,000,000 EBITDA.
And we challenged ourselves with the famous story of $1,000,000,000. We are now near to it. Maybe this year 2019 or maybe the next one, but we are going to reach it. Then if in 2019, we will be able to be in the upper part of the guidance, that means to be at 1,000,000,000 We are not sure, but 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. But we see the possibility. Thanks to what, thanks to, obviously, not a non repeatable Western Link issue. Thanks to the synergies and thanks to our 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 2 years and thanks to the European and U.
S. Market that is brilliant. Let me mention you that for telecom, we launched 2 product new products. 1 is the Flex ribbon that is combining the strength of the ribbon that lets to splice together 12 fibers at the 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 different to substitute the traditional ribbon because it's much easier from the side's 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 customer. If the customers like it, as it 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, because that has been a disaster for the economy. So 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. Did I answer to your question, Akash?
Yes, thank you. Thank you, Elijo.
You're welcome.
Thank you very much. And your next question comes from the line of Lucie Carrier from Morgan Stanley.
Can you hear me because I'm on the road, sir? Sorry, I'll be quite quick with my question. The first one is regarding the Western Link. Can you clarify your comment around the fact that this is a one off. I mean, do you have now the absolute certainty that we are done with the issue with the Western Link?
And 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 this confidence, especially considering what we've seen around the Western Link? And then my last question, I think you were mentioning the pipeline this year in terms of the bidding activity Are you able to kind of quantify that the pipeline you are expecting this year in the market, not necessarily for Christmas, but in the market for subsea contract, I. E. Interconnection and offshore wind and land high voltage? That's my three questions.
Okay. Thank you, Lucy, for your questions. Chapter 1, Wester Link. We cannot be 100% sure that nothing is going to happen anymore. But at the end, the management of projects is even something to be analyzed with the statistic.
We have had two folds in reality after the commissioning on the Paul 1. The ones in April in the shallow water that has been repaid, repaired. Unfortunately, the first repair went not so well, and we have been obliged repair again and another fault on the Pol 1 land, both shallow water and land have been the most suffered installation, because 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 manipulation. We had it in the factory, and we had it into the installation especially on land.
We repaid it. We restarted in October the operation and 5 months later, again, failed the 4th January of February, faded Paul 2, the ones that, in the meantime, has not been working because the first period of the exercise of the link, the poll I was working with bringing power. The poll II was a simply used as return of the because now after 5 months of work, the fall to as evidence the, a similar fault to the ones that Paul 1 has showed 1 year ago. Obviously, nobody is saying that for sure will not happen again, but obviously, the running, the month into which the line has been running should be we expect that it's going to be the cleaning of any kind of installation damaged. The cable may have suffered.
Last but not least, the link is operate 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. Then how and when to operate is a decision of the customer. We are going to test the cable on reverse polarity, but we made a lot of tests internally on cables And we are almost sure that the reverse polarity is not going to create any other problems. But if some problem has to come, it's better to come now that later.
Because if comes, we are going to repay again. And that's it. 2nd question, Viking. Viking, viking is on the door. He's on the door and we are confident that all the fault 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 to the in UK, to the customer, and they've attitude is reasonably positive despite the very challenging problem with Western Link. But we are doing really what is possible and even what seems to be impossible to solve the issue. And that's something we expect the customer is going to appreciate. I leave for the 3rd chapter, the line to Akan Usmena can that is in charge of projects?
I would add one thing on the budget. 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 problem. So, I think the confidence comes also from the completion apart what Mr.
Batista has told you. On the market conditions for 2019, we believe that the market is going to be in the level of 1,000,000,000 in terms of overall order intake of all the players inside the market. And so we see a robust market and even a slight increase in the market conditions. And looking also to our usual track record, we believe that we should get our share from that market.
If you take into consideration, sorry, Lucy, you take into consideration NSL, that is another big project with the same customers. At the end, we are performing per actually on it. Unfortunately, the West of Lincoln has been a mess, but the following project that have been NSL, we are running perfectly. And that's a sign that The Western Link has been a particular issue, but the ability of the company to properly execute a project, at least with the traditional technology is perfectly consistent.
Thank you. And just as a follow-up on the size of the market, the EUR 3,000,000,000, is that only for subsea in subsea interconnection and offshore wind, or does that include also potentially some awarding in the land transmission business
Yes. I mean, majority of this business is on the submarine side, which is definitely let's say, offshore wind, but it includes also some land section. But majority of it is submarine.
And in the land section, are you already including or considering did link and did Austin 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.
Because the tenders, Lucy, the tenders are going to come and the award of the projects will come in 20 20. Consequently, are not in the market of 2019. You're welcome.
Thank you. Your next question comes from the line of Monica Bossio from Bank of IMI. Please ask your question. Your line is open.
Good evening, everyone. Can you hear me?
Yes.
Yes. Good evening. Thanks for taking my questions. The first question was on the submarine tables. Obviously, 2018 has been a mix also because of the Western Link.
Of the further delay in some projects in Asia, etcetera, etcetera, in 2017, the profitability of the energy project was 17%, if I remember well. So I was wondering if you can give us some indication for 2019 in terms of profitability and some flavor on the mix, because profitability depends also on the mix between land some arena, offshore, big links, etcetera. So do you project to come back at this level or it would be a more gradual recovery. And the second question is on the working capital, which was at 6.4% on the revenues. What is now in our review a sustainable ratio in terms of working capital on revenues once stream?
And 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, that could be some further space, some further room to get even more synergies. Thank you very much.
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 2nd 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 anymore our very good order book.
Consequently, we have to enter into the game. But our competitors hopefully are a little bit more satisfied then the situation, they were looking they were having, sorry, 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 is not will not be outstanding.
That's clear for different reasons. First of all, because of the order book, we have another book that is not 100% saturation of the plants, 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 2 years. We have to rework the cables that we scraped in the last quarter. So especially the first quarter 2nd quarter, we expect to suffer a little bit.
Okay.
But overall, the level of profitability of this business should be in the range of the 15%. Perfect.
Okay.
I say should because it depends on the aggressivity or competition. But let's see. There are 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. And this is happening. Now what's the problem is that it's not possible to extend too much offshore wind farms in windy locations, if there is a very high depth.
Because simply you cannot install the poles and the towers. But now the technology is evolving creating the new offshore wind farms floating that may open the door to a much larger extension of the offshore wind power generation. And we got 1 or 2 test projects, with only 1 or 2 poles, towers, floating that I believe is going to be the future or an important upside for the continuous growth of the offshore wind firms. 2nd question, working capital I leave the floor to Francesco that is more skilled at the mid net.
Good evening, Monica. 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 premium side I would expect maybe a slight improvement from this level due to the additional synergies that we anticipate next year, not very material, but still a 1000000, say 1000000, 1000000, 1000000, 1000000, 1000000, 1000000, 1000000. And then a first slight recovery of the working capital increase that we had in the energy business in 2018. But all in all, I would say that a 6% level is a good level, compounding the 2 perimeter.
Okay. Thank you.
3rd question, confidence on synergies. We never disappointed this market in making synergies. And I don't believe we are going to do it this time. So reasonably, more than reasonably, I'm very confident on the ability of the company to reach the $175,000,000 synergies. If you want, the doubt I may have is to find it at the bottom line of result.
That's unfortunately a different chapter and that depends of the aggressivity in the market that may absorb the synergies, but is, is there no way, because at the end of 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 USA due to the new regulation for the drivers, ramped up 18,000,000 dollars. Thanks to synergies. We have been able to part the offset.
Who did not such kind of level of synergies have to have seen in their peer the significant amount of cost increase of transportation.
Yes, fully clear. Thank you.
You're welcome.
Thanks a lot.
Thank you. And the next question comes from the line of Alessandro Tortora from Mediobanca. Your line is open. Please go ahead.
Yes. Hi. Good evening to everybody. I have a quick question if I may. The first one, so if you can come back to the the point of the EBITDA margin, the profitability for the project division, let's take on the premium 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 at this level in 2018, The second question is on the level of factoring, if you can just disclose the amount partnering that you made in 2018? And the third question is on the guide some free cash flow. Just you read before the bridge on how you get this 1,000,000. Are you also assuming, let's say, advances, okay, in this guidance?
Okay. I answered to the first question. EBITDA margin at 15% for projects. Is a good proxy of the run rate of this project, of this business and makes sense because you have to consider there are risks, especially the risks that are pretty high there. Consequently, is a level of profitability that is simply decent for such with business.
You need of assets, you need of people, you need of technology, and you need of to cover the risks. This is 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. But in the second half, I believe, we can consider the run rate profitability of this business. Second question about the factoring. Let me lead with floor to Francesco for it.
Yes, slightly above 300,000,000 level of total factoring year end 2018. Also related to your on regarding the cash flow guidance, 1,000,000 plus minus 10%. Yes, of course, it's a 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, I can said, in normal level of market share, our normal share of the market in 2019 out of a quite significant market, summary 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 3rd question, the I missed.
So we put again the
Yes, you put together, not necessarily in this way, I can actually ask another question, if I may. When you talk about the heavy works on Land Cable, are you referring to Westlink or sorry, there is also another project in which going to be working. Sorry, I missed this.
I didn't say frankly speaking. We are talking about the extruded cables that we improperly or we were not sure of the quality of this project, those products. And we decided to scrap and rework. I'm not I cannot tell you which projects are because not authorized by the customers.
Okay. But it's not Western Link?
No, no, not Western Link at all because Western Link was already produced.
Thank you. And the next question comes from the line of Sean McLaughlin 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 interconnectors and offshore wind? And 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? And ultimately, do you think your current capacity now is sufficient? And lastly, on the North American, market, I mean, you've had some recent order announcements. I'm wondering how quickly can this become important to the overall high voltage market mix for you?
There were no to three questions. Yes. Okay. Yes. Okay.
Yes. Summary market in 2019. We expect the summary market to be in the range of the $3,000,000,000, more or less stable, slightly increasing the split between interconnectors and the 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, but is most probably one project. There may be another project in Mediterranean Sea, but we are not sure that it's going to come in 2018.
Most probably in 2020. The second question for the second question, I let me leave the floor to Philippe Vanil.
Elocean, the organic growth on the Telecom segment We expect it to be to remain more or less in the same range. We're clearly double digit on the optical side of of the business, a decline in copper and also a growing MMS. On the copper we still have some effects of the authorities visible between the two here. So we are going to see an impact of the copper business in the first quarter, in particular, this year. Then 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 'eighteen, 'nineteen and even 'twenty. And so we believe really clearly in in a double digit organic growth for the optical segment of telecom in this year of for. There will be some price pressure probably coming from our Asian competitors. But we are also working very strongly on our costs. And so we are quite confident that we are going to maintain our position
The third question, 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 U. S. And that's the best sign for 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 U. S. And that is going to be, in my opinion, a very good launch of this business for the other 2 regions. It's not in the numbers for the time being because it's too early.
But there are 2 tenders, one in Asia and 1 in or 2 maybe in U. S. That are promising. That's
excellent. Thank you. If I could just follow-up on one On the first question between offshore wind and interconnectors, what is your ability? What's the different competitive outlook for turnkey versus supply only because we see a lot of offshore wind volumes being one for the supply only complex?
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. Because there are the players supplying the towers.
Players supplying of the towers. Players supplying the sorry, the medium voltage inter array cables, playing, supplying the medium voltage inter array installation. Players supplying the HV into the HV connections and players supplying the HV interconnection installation. Are too many, too many dogs around the same bone. And that's really a risk for everyone.
And we are seeing it because reading the offshore news, you can see that customers are really upset of the results of this mess. And that's why our offer ten to be much more, complete offering installation and cables for HD and installation and cables for inter array. And the land obviously. That's, in my opinion, in the long run, is going to be a positive cents. Obviously, the costs may be less competitive.
But the result is in the hands of one supplier only. We need of 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. The next question comes from the line of Akas 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 co investment for performance share. Where you have a target of minimum 3,000,000,000 pro form a EBITDA cumulative over 2018 to 2020. Do you think this 3,000,000,000 target is achievable after 2019 guidance or will it be adjusted for issues like Western Link, which was continuation of a previous issue?
Put me on a more difficult assembly.
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 $857,000,000 in 20.18, obviously, the the minimum guidance is not any more achievable. It's a one off, but we to take it into account. We are going to and is written in the press release we are going to propose to the shareholder meeting are change, not of the guidance, not all of the targets, but an extension of 1 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 1 year more to realize the results.
Does this mean $3,000,000,000 for 2019 to 2021?
It will be no, obviously not. It will take into consideration the EUR 830,000,000 of 20.18 plus let's say, for a matter of simplicity, $3,000,000,000. So a 4 year target of roughly 4,000,000,000. Tend to ship you.
Thank you.
And the next question comes from the line of Alessandro Tora Tora from Mediobanca. Your line is open. Please go ahead. Yes,
yes. Thanks. 2 brief questions. I promise the first one is on the sorry, tax rate for 2019, again, that you achieved a very low tax rate in 2018, if we can apply this around 25%. And the on the question is on, sorry, IFRS 16.
This is, let's say, one of the most discussed topic. I guess that for you, impact is not incredibly relevant, but I would like to have, let's say, your view on that.
Let me start from the, from the IFRS 16 that is effective January 2019. We are right now reviewing the numbers. So let that may not anticipate the total effect that we envisage for 2019. Of course, the guidance that we have released is not taking into account any effect of IFRS 16. But 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 costs into financial leases. So basically into depreciation and interest expenses. So our EBITDA will go up quite materially, and the debt, of course, will go up because we will capitalize the future installments of the financial leases. But these, let me just say that the multiple, sorry, just let me finish. The multiple between these additional debts this additional EBITDA is very favorable, meaning you will see that quite low multiple, but let me not anticipate any any number because we are right now finalizing it.
Can you remind me your first question? Sorry. The tax rate was
Yes, yes.
Wasn't it? Okay. No, the tax rate looks, I think, you're right. Think that the 2018 achievement, stripping out of the unfortunate antitrust Brazil provision was pretty good. And for 2019, we are assuming a very similar rate in the 25% to 26% is a fair assumption.
Then I hope it will be better if if our friends in North America will increase the profit before tax result very materially, as we expect, by the way.
Okay. Thank you.
Thank you, Alessandro.
Thank you. And there are no further questions. Please continue. Okay.
Having no other questions, I thank you all of you for participating to the conference call of the full year 2018 of Christian Group. And Goodbye.