Welcome to the Prysmian Group nine months 2018 financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Valerio Battista, CEO of Prysmian Group. Please go ahead, sir.
Thank you very much. Good afternoon to everyone. Welcome to the nine months financial results reporting of Prysmian Group. Page three, the highlights. Organic sales grew 3.8%, not so bad. 7.4% specifically in the quarter three, thanks to very good growth in optical and connectivity that now is growing higher since more than 10 quarters. A positive trend in energy products in the sell in E&I, other than the underground high voltage. Even underground high voltage has been able to grow in the last quarter of two digits. Including the General Cable perimeter, the organic sales growth has been 3.4%, driven by Europe and the U.S. EBITDA. The EBITDA closed at EUR 577 million, 7.9% of sales, with EUR 74 million contributed by General Cable perimeter since the 6th of June for the previous year.
Driven by telecom, thanks to the growth of the telecom market, including the EUR 70 million provisions related to Western Link that have been posted during the first two quarters. The General Cable integration is going ahead. The process of integration is going well, the synergies are in line with expectations. Net financial debt closed at EUR 2.87 billion, obviously much higher than the same period of 2017 because of the EUR 2.6 billion acquisition effect that we closed at the beginning of June. Flipping to page four, the financials. Sales accounted for EUR 7.29 billion, with an organic growth of 3.8%. The full combined, including consolidated entire perimeter General Cable for the full year, sales could have been EUR 8.7 billion, coming up from the EUR 8.4 billion of the first nine months in 2017. The organic growth is going to move in that case from 3.8% to 3.4%.
That doesn't change very much. The adjusted EBITDA, vice versa, went from the full nine months combined from EUR 714 million down to EUR 651 million, mostly because of the scale down of the provision for Western Link and a slight decline in the General Cable perimeter. That is obvious, the effect of the transition and acquisition period. Networking capital. Networking capital is now again very high with EUR 1.4 billion, EUR 616 million of which are related to the General Cable perimeter and EUR 827 million related to the Prysmian perimeter, the former Prysmian perimeter. Now, it's clear that the gap in between of the two numbers and the effect on the sales of the two companies, the two perimeters, is significantly different. 17.8% in the General Cable perimeter versus the 10% in the Prysmian perimeter.
Even if in the Prysmian perimeter in the last quarter, that was expected, the working capital has increased due to the effect of the phasing of certain projects and payment, especially the absorption of cash due to the slowdown of certain order income in the project business. The net financial debt has closed at EUR 2.87 billion, much higher obviously of the EUR 1,000,000,052 of September 2017, but taking into account EUR 2.6 billion of the acquisition of General Cable. Now, the level of debt is reasonably high. We expect to be in the range of the EUR 2.3 billion-EUR 2.335 billion by the year-end because the highest chunk of working capital increase foreseen in the working capital of the projects is already in and at house in the third quarter. Let's flip to page five. General Cable. Obviously, this year we have the problem to manage the two perimeters.
The transition year is not so easy. We are trying to help you in the way you can understand the numbers of the combined company as we did at the time of Draka. Nine months 2018, the sales General Cable closed at EUR 2.665 billion with an organic growth of 2.5% comparable to the EUR 2.592 billion of the first nine months 2017. So possibly a positive organic growth, not as good as the ones we had in the Prysmian perimeter, but quite good in Telecom and Projects in Europe. But the Projects are softening in the Q3. U.S. is continuing to go very well. And finally, we are facing a little bit of decline of the overhead transmission line in South America, where the sales have declined a little bit.
From the profitability point of view, EUR 148 million, 5.5% of the sales, comparable to the EUR 167 million of the same nine months of one year ago. That was 6.5%. Here, we obviously at a profitability level, we suffered of EUR 8 million of exchange rate effect and the metal price dynamics. Why? Because General Cable was not hedging, and consequently, the metal cost going up was not hedged and created a higher cost in the cost of goods sold. Other than that, another very big increase we have been suffering in the first nine months has been the transportation cost in U.S. Because the change of the regulation in U.S. obliged a number of provider of logistic providers to rise the price significantly, and that needs time to be absorbed by the market. Flipping to page six. The performance by segment.
You can see that overall, all the segments are going not so bad, with a special remark on the Telecom that is running in nine months at almost 21% of EBITDA margin. Energy Projects is not very far from the previous year, unless for the EUR 70 million accruals of Western Link. E&I, more or less the same. Industrial and Network Components, 7.6% versus 8%, and Oil and Gas that is negligible at 1.2% compared to 2.2% one year ago. EBITDA-wise and organic growth, we have already commented the total numbers. But the total numbers of 3.8% of the Prysmian perimeter have to be splitted by segment. 6.4% in Energy Projects, 1.7% in E&I, 4.9% in Industrial and Network Components. Oil and Gas, -0.4%, and Telecom, +6.5%. So the organic growth of all the business segments, it's positive, apart from Oil and Gas.
The profitability is improving in telecom, mostly, has become flat in industrial network component, whereas it was below the previous year in the first six months. E&I is recovering slightly, and energy project could be better than the previous year without the Western Link provisions we posted. Page seven, the EBITDA bridge. You can see the previous Prysmian perimeter and the General Cable perimeter. Here we can say that energy projects, after the EUR 70 million Western Link provision, posted a reduction of EUR 61 million. Consequently, as I commented before, the projects, without the Western Link provision, have been increasing a little bit the profitability, the profit. E&I, - EUR 9 million, mostly coming from the Oman Cable gain in the first six months, because in the third quarter, Oman Cable has started to recover.
Industrial Network Component has a + EUR 6 million, the telecom has a plus +EUR 48 million, of which we have to consider that EUR 12 million are coming from the provision reversal in Brazil for the bad debt, and a carryover of the YOFC results end of 2017, that we were not able to count in the 2017 P&L. There is a very significant effect of the ForEx exchange rate for EUR 28 million in the perimeter of Prysmian. You just being of the chapter, if you look at the General Cable perimeter, there are other EUR 8 million. Consequently, in the first nine months, the total ForEx exchange has counted for -EUR 36 millions. Moving ahead with the General Cable perimeter, -EUR 14 million variance of EBITDA for North America. Europe, positive for EUR 7 million.
Latin America, -EUR 4.4 million, and the ForEx that I already commented for EUR 8 million. To be noted that in North America, there have been two effects, significant. One, the metal price being not covered, hedged, by the General Cable organization, especially in the first half, got a loss in term of profitability, a slowdown in terms of profitability. The increase of the transportation cost that has not been able to be absorbed immediately by the market. Let's step to the last slide on the General Cable integration and synergies. We can confirm that the synergies are going to be the EUR 150 million we told you. The organization, as I said in the past, EUR 90 million is confirmed and are starting to come, or that has already started to come. Procurement of EUR 40 million.
EUR 30 million, goods internationalization, the total integration cost, as a consequence, are going to be EUR 220 million. Just to be totally clear, because here is not reported, the working capital synergies that we already started to generate, are expected to cover mostly entirely the integration cost of EUR 220 million. Let's go segment by segment. Page 10. Page 10, you see the energy projects. Energy projects closed the nine months with EUR 1,086,000,000 sales, compared to the EUR 1,041,000,000 of the previous year, with an organic growth of 6.4%. At EBITDA level, the EBITDA closed, vice versa, at 117 million, 10.8%, definitely lower in term of profitability than the same nine months one years ago because of the EUR 70 million Western Link accrual.
The submarine business, other than the talks of the Western Link, has seen an order intake that is in line with the market share of Prysmian. In the first nine months, obviously, all the market suffered of the delay of a number of projects that have started to come in the first quarter, and we expect, in the last quarter, to be completed. Overall, the total market 2018 is expected to be between EUR 2.6 billion - EUR 2.8 billion, in line with the historical average size of the market. That's one of the reason why we have given the go-ahead to the supplier for the new cable lay vessel. Because that's an important step in order to be able to be competitive on the future projects, especially on the Viking. Moreover, Giulio Verne has been obliged to a stop of 15 days recently because a repair was needed.
The sum of these two chapters has helped us to take new decision. Let's say it. Underground voltage. Underground voltage is going pretty well. Positive results in Q3 too, both in Asia Pac, South Europe, and South America. I have to say that Land High Voltage, even if it's not so high margin as the submarine, has given us good performance. A double-digit growth that is a good move. The order book, the order backlog, vice versa, is the weak chapter of the quarter. That's a matter of the quarter. The submarine scaled down to EUR 1,550,000,000 , and the underground high voltage are so bad. We have to consider that inside these numbers, we did not count for the EUR 220 million for the offshore wind projects in France.
The Crete-Peloponnese, EUR 125 million , and finally, EUR 80 million of projects awarded in the underground high voltage. What I mean, that these projects are awarded to us, but having not the notice to proceed in hands, we do not book in the order backlog. Let's move to E&I. Excluding obviously the General Cable perimeter that we will address at the end of the presentation, that I will address at the end of presentation, one shot. The turnover for the first nine months has been EUR 2.5 billion, slightly higher than the EUR 2,467,000,000 of the first nine months 2017, with an organic growth of 1.7%. The EBITDA level, vice versa, has been EUR 92 million, comparable to the EUR 107 million of the first nine months 2017. Obviously, here, there are two effects.
One is OCI, and the other one is the exchange rate effect. The trade installers, as well as the power distribution, goes into markets that have been seriously affected by the exchange rate effect. Like Turkey, like, obviously, U.K., like Argentina, Brazil, many countries with a translation effect that has been affecting our results. Overall, the organic trend is not so bad. Obviously, it's not very fast, but makes sense. The volume growth in North America and Europe is quite consistent. Limited, but consistent. Now OCI is improving. Obviously, the first two quarters were very difficult in term of comparison for the OCI results. Now, the third quarter OCI starts to be at least in line with the previous year. The power distribution, vice versa, has had a positive organic trend in Q3, especially in Europe, and a profitability that has been affected by ForEx even here.
The slowdown in Middle East in half one, and Nordics that are scaling down in terms of demand. But more than the demand, is a demand related to the installation issues, because the winter season has been pretty tough, difficult in the Nordics, because in the first quarter and a half has been a difficult season. Now the utilities are installing, but obviously, there is not sufficient capacity in terms of installation to recover quickly. That, consequently, has to be recovered over the years, over the quarters. You can see finally, after many quarters of scale down of the E&I market, that finally we are in the positive territory of something likely more than zero organic growth, something like 4%-5%. Flipping to page 12, Industrial & Network Components. Sales at EUR 1,146,000,000 compared to EUR 1,100,000,000 with an organic growth of 4.1%.
As you may recollect, is in line with the first quarter. No, sorry. The first quarter was +10%, the second quarter was zero, and the third quarter cumulated, obviously, is +4.1%. It's going pretty well. The EBITDA is in line with the previous year. And we expect, at the end, not to go so bad because quarter-by-quarter, the industrial business has been able to recover a little bit. What happened? Most of all, that the OEMs is recovering. Mining, special cables, train, are appearing into the market and are giving, obviously, higher margin than the traditional mix we had in the first six months. Elevator. Elevator is going well in U.S. It is not going very well, honestly, into China, where the construction market has a significant reduction of speed. Automotive is growing, even if a middle single-digit organic growth.
North and South America is going well. Frankly speaking, I doubt that there will be a very bright future for the automotive growth in the next quarters, because it's written everywhere that the market of automotive is expected to slow down. As it happens, obviously, that will touch also our sales. Network components are continuing to grow pretty well, with pretty high margins and volume growth in China and North America. Finally, the Telecom. Telecom posted EUR 974 million sales, comparable to EUR 953 million of the same nine months one year ago, with an organic growth of 6.5%. The adjusted EBITDA raised up to EUR 204 million. Take into account that EUR 11 million are related to, let me say, one-off events. Consequently, the reversal of the provision in Brazil is one-off, but the YOFC performance is expected as a carryover.
The market continues to grow. The demand is very high. The investments we launched, especially for the fiber capacity, are going into production, and we are very happy with it. You can see the LTM adjusted EBITDA. That is continuing to go up since over 10 quarters. That is very helpful. The performance of optical is extremely good. Unfortunately, we have two negative effects. That one is in the third quarter. One is the demand in Australia, that is starting to slow down. You remember that in the first six months, I already told you that the copper cable was going down. That's the last mile of our main customer, that is NBN Co. Now the decline is going into the fiber. Consequently, the party cannot be forever, and we were prepared for it, and we are going to deal with it. Finally, MMS is going well.
It is growing and recovering after the little problems we suffered the second half of last year because of CPD, CPR in Europe. The rest of the business is very, very good. Last but not least, the General Cable perimeter, page 14, says in, l et's see first of all the global on the bottom of the chart. EUR 2,665,000,000 versus EUR 2,592,000,000. An organic growth of 2.5%. The EBITDA that is on the right side of the line, EUR 148 million versus EUR 167 million. Below the previous year of nine months. That's because of the translation effect and the raw material effect that affected for another roughly EUR 10 million, the performance of the business. Mostly North America, and you see it in the performance of North America, because North America went slightly up in term of sales with a 2.6% organic growth, but a EUR 21 million decline in term of performance.
It's also clear that during the transition period between the signing and the closing, the management of the company in North America may have been not good enough. Europe, we have seen, vice versa, a quite good improvement in term of sales and in term of EBITDA. Thanks mostly to, you see that the EUR 654 million versus the EUR 566 million is an organic growth of 9.8%, whereas the EBITDA went up from EUR 18 million to EUR 25 million. It's still very low, but better than the previous year. That's because the mix in Europe has been better. With projects and optical telecom that has been able to increase significantly. Whereas for the optical telecom, we see a steady, solid trend. For the projects, we have seen a utilization of the existing orders to match the numbers.
Latin America, finally, from EUR 449 million one year ago to EUR 407 million to the first nine months this year, with an organic decline of 8%, and a decline of EBITDA from EUR 27 million to EUR 22 million. That's mostly because lower sales in overhead lines in Brazil, with the related margin disappearing. That's something a little bit tricky that we are looking for, and most of all, it seems to be the attack of some Asian players on the overhead lines in the region. I leave the floor to Francesco, but before to leave the floor, I wanted to clarify our vision for the guidance. The year end. We did not put another slide for the guidance, being so many slides. As to be clear, the guidance is confirmed, EUR 860 million, EUR 920 million. The midpoint is EUR 890 million. We are not going to change the guidance.
We are not going to tell you that we are in trouble. Obviously, the market is difficult today. It's not as could have been expected, but we strongly believe to be able to close in the range of the midpoint. Maybe a little bit higher probability to be slightly below than slightly higher, to be honest with you. I leave the floor to Francesco.
Thank you, Valerio. Good evening to everybody. As usual, I start with the profit and loss. Organic growth accelerated, excluding the General Cable perimeter, up to 3.8% in the nine months, with a very good growth in the third quarter, exceeding 7%. As Valerio already commented, there was even an acceleration in the growth of the telecom business. That in the third quarter was very close to 10%. There was an improvement in the growth of the E&I business, both in T&I and the power distribution. There was a steadily positive growth in the third quarter, both for the Land High Voltage and the industrial network component. For the Land High Voltage, even double digit. For the industrial network component, in the mid-single digit. Adjusted EBITDA reached EUR 577 million, with a contribution from General Cable of EUR 74 million for the four months.
This means excluding General Cable, with an equivalent perimeter to the Prysmian year, EUR 503 million, down EUR 44 million from the prior year. This -EUR 44 million was impacted by some headwinds. Some very obvious, the EUR 70 million Western Link provision and the -EUR 28 million currency translation effect, plus some weakness of Oman Cable, specifically in the first half. On the other hand, the tailwinds was the very sharp growth of margins and revenues, which drove the telecom results. Let me also underline a pretty good performance in terms of profitability increase of the Land High Voltage business that you have seen also in the total of energy project business, net of the Western Link provision, and also growth netting the negative currency translation effect of Industrial and Network Component business.
The Q3 specifically on the equivalent perimeter was pretty good, with an EBITDA focusing on the Prysmian perimeter of EUR 189 million, which was even EUR 6 million above last year, despite the negative impact of EUR 4 million of currency translation effect, specifically on the pure third quarter. Adjustments increased up to EUR 43 million from EUR 33 million last year. We have here a very positive impact coming from the listing of YOFC on the Shanghai Stock Exchange, which determined a slight dilution that is generating a non-cash gain according to IFRS. This, of course, was offset by the pretty heavy restructuring cost, integration, and acquisition cost. We will see the detail in the next page.
The special items, non-cash items, were also negative for EUR 59 million, with the main impact, which is coming from the change in the metal derivatives fair value related to the stabilization and even drop of metal price after the rise of the metal price last year. Pretty good news on the financial charges, which are stable at EUR 73 million versus the prior year, despite the important increase of the net debt that we had as a consequence of the acquisition. Also pretty good news on the tax rate, which is slightly down to 27%, mainly as the result of the tax-free gain on YOFC listing that I was mentioning before. The group net income closed at EUR 183 million in the nine months, not too far from the EUR 196 million last year.
Let me judge this as a very positive result because, of course, this EUR 183 million is impacted by the Western Link provision, is impacted by the negative change in the metal derivative fair value, and also by the pretty heavy acquisition and integration costs that I was mentioning. Also positive from the YOFC listing gain. All in all, in the first nine months, we have pretty heavy one-off charges, which are weighing on this EUR 183 million. As a matter of fact, the third quarter in terms of net income was very solid, even above EUR 100 million in the pure third quarter. Let me flip to page 17, just to comment in detail the adjustments, -EUR 43 million at the EBITDA level, which are EUR 25 million restructuring costs, of which EUR 15 million are related with the integration of General Cable perimeter in the combined entity.
We expect approximately another EUR 13 million coming related to General Cable integration coming in the fourth quarter. Then you see in the line other non-operating expenses, the pretty heavy impact coming from acquisition and integration costs. EUR 6 million acquisition cost related to a transaction execution, EUR 20 million of integration costs, which are actually the cost incurred by consulting costs for the preparation of the integration or retention bonus, just to give you some examples. Then an accounting effect, a negative for EUR 16 million, which is resulting from the step up of the inventory, which is part of the purchase price allocation, which is an increase of inventory value, which is then released when we utilize the inventory in the cost of goods sold. It's a negative effect actually in the profit and loss.
Then, as I was mentioning, the EUR 36 million positive gain related to YOFC listing. Here, I want to draw your attention to the fact that the cash cost related to integration, acquisition, and restructuring were even higher than the costs that we accrued in the profit and loss. Just to give you an indication, in the first nine months, we had total restructuring and restructuring costs, plus acquisition and integration costs, which totaled EUR 125 million-EUR 126 million, to be exact. This, of course, is one of the reasons why, as expected, our net debt increased in the third quarter, together with what Valerio already explained, meaning the sharp increase of working capital in the project business. Financial charges on the following page. Very good news and very good indication on this front. The net interest expenses increased to EUR 56 million, which is a very minor increase.
If you think that we brought on our balance sheet EUR 2.6 billion additional debt. Of course, we had also the EUR 500 million capital increase and the EUR 280 million impact coming from the convertible bond conversion. Still, the net incremental debt that we put on our balance sheet is very significant. I'm very proud that we were able to finalize the financing of the General Cable debt in a matter of 45 days after closing, so by mid of July, more or less. I'm even more proud to say that we are fully seeing the financial synergies effect, the synergies effect in terms of interest expenses in our profit and loss.
Just to give you an indication, if we calculate the net interest expenses 2018 on a full combined base, including the 12 months of General Cable, I expect net interest expenses in the region of EUR 105 million, again, including the first five months of General Cable. This compares to EUR 137 million if you do the same combination for 2017. A reduction of EUR 32 million net interest expenses that I expect for the full year. Of course, this is not all synergies. There is also a part of this which is coming, for instance, from the conversion of the old convertible bond. I would say that in this 2018, we will generate at least EUR 15 million net synergies coming from the refinancing of General Cable debt, and that another EUR 15 million I certainly expect for 2019.
This to deliver the EUR 30 million net financial synergies, net interest expense synergies that I have been mentioning a few times. We can flip to the balance sheet. Here, the most important highlight to be commented is the dynamic of the operative net working capital. As Valerio said, working capital went up significantly in the third quarter to EUR 1.44 billion. We have two opposite trends. On the General Cable perimeter, there was a drop. A drop by around EUR 50 million from the consolidation of General Cable beginning of June, which highlights the very good synergies that we achieved on the working capital already in the third quarter. Seeing that this drop of EUR 45 million, EUR 50 million is also, in a way, negatively affected, lower in term of drop, by the fact that we paid a lot of restructuring and integration costs.
I estimate that the working capital synergies we are able to achieve already in the third quarter were in the region of EUR 70 million in one quarter, in Q3. I expect another EUR 80 million to come to EUR 150 million already by the end of 2018. On the other end, I have to say we had a quite opposite dynamic of working capital on the former Prysmian perimeter, which increased by over EUR 400 million in the third quarter. The largest part of that coming from the increase of working capital in the project business. To be very clear, this dynamic, as I was already announcing in the half year results mid of September, was totally expected.
I understand it's not pleasant, is totally in line with our expectation and is also totally in line with the anticipation of a net financial position by year-end between EUR 2.3 billion - EUR 2.35 billion, as the CEO has already anticipated. I come to a page highlighting the cash flow. This is just to explain the bridge between the year-end 2017 at EUR 436 million and the September 2018 at EUR 2,877,000,000 . You see the total impact, the first two columns are the impact of the acquisition for a total of EUR 2.6 billion. The cash flow generated by operations before working capital changes, the very significant increase of the working capital for EUR 570 million that I have already commented.
The CapEx, of course, the financial charges, the taxes paid, the dividend, and the positive effects coming from the convertible bond conversion in March 2018 for EUR 283 million and close to EUR 500 million, the positive effect coming from the rights issue. The debt increase compared to June, of course, increased if you pro forma June debt with the capital increase from the EUR 2.5 billion, increased by around EUR 360 million, and this is once again related to the negative cash flow expected, generated by the project business. The payment in taxes of the taxes related to the old LTI incentivation, which was a cash-in in the second quarter, and which was paid out in the third quarter, which was, let me say, a shift of debt positive in the second quarter, negative in the third quarter for around EUR 70 million.
Pre-TI cash outs for acquisition, integration, and restructuring costs for almost EUR 80 million in the third quarter. This was offset by the very good working capital synergies on General Cable. Let me close my part on the last page, 21, which is highlighting a simple concept. The fact that despite the debt, which increased, obviously due to the acquisition effect, despite the increase of debt, I believe the Prysmian Group has a pretty limited exposure to the volatility of the financial market. Let me explain the main two reasons, starting from the right part of this page. First of all, we don't have any significant short-term maturity in our gross debt, which amounts to a total of EUR 3.2 billion, as you see. The largest maturities are starting in 2022, with a euro bond, the convertible bond, the global bond, the acquisition term loan in 2023.
These are the largest maturity. There are two short-term maturities. One is the revolving facility for EUR 1 billion, which is coming to maturity in June 2019, but which is, however, not utilized. As of September, was not yet drawn. It's a cash reserve for us. Of course, we'll refinance this in the next few quarters. There is a maturity in June 2020 that you see here, which is the acquisition bridge loan. A part of this we have already covered because we have just finalized a bilateral credit agreement with an Italian bank, which is refinancing EUR 200 million out of the total EUR 700 million. Let me say that I'm very confident that the remainder of this bridge loan will be mainly covered with the cash flow generated in 2019 and the first half of 2020.
All this to say something very simple, that we have no strict necessity to tap the capital market in the next few years. Let me say until second half of 2021, beginning of 2022. Of course, if the condition will be great, I don't exclude that we will tap the capital market. We are not under strict necessity to do this. This, of course, is an advantage because what we have seen in the last few months is a sharp deterioration of the credit spread. It's not an increase of the base interest rate, but a deterioration of the credit spread. We are quite neutral to this.
I conclude on the left part of this slide to highlight that we are even pretty neutral and not very much affected by a potential increase of the base interest rate, for the simple reason that our debt, our gross debt, the same of the EUR 3.2 billion, is almost 80% at fixed rate. Either a fixed rate or swapped from variable into fixed rate. From this point, we are very confident that we may not suffer any big effect coming from any base rate increase. Thank you very much. I think we can move ahead with the Q&A session.
Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Again, please press star one to ask a question. We will now take our first question from Akash Gupta of J.P. Morgan. Please go ahead.
Yes. Hello. Good evening, everyone. I have three questions, please. The first one is sort of a follow-up on guidance. If I understood correctly, Valerio, you said that you are still aiming for the midpoint of the EBITDA guidance with higher probability to land slightly below midpoint than above the midpoint. If you can confirm that statement, that would be my first question. The second one is on submarine projects, both in terms of margin and potential orders this year. If I look at EUR 2.6 billion-EUR 2.8 billion and the 40% share that you historically had, I get to about EUR 1.1 billion in order intake in submarine business this year. Can you say how much of that has already been booked or announced, and how much is still in pipeline?
If you can also say if margins in new projects are, how that compares against what you have in backlog and what you are currently delivering.
Two questions.
I understood three. Okay, sorry. Guidance. I confirm you that I said that we see the result of the year in the range. The advice I gave you is that, because you are a little bit used to see us landing in the upper side of the part of the range due to even the delay or the swift of certain milestones in one project at the end, due to unexpected dry dock of Giulio Verne, we most probably are going to land below the midpoint, but in the guidance. That was the advice. Submarine margin and orders. It's true, the orders and the submarine market has been delayed significantly. What we see is obviously a fierce competition that is going to depress a little bit of the margins. For the time being, we have not been part of this fight.
For the time being, we are leaving competitors to fill the gap, and let's see what happens, because this is a race that is going to be won by the long term, not in the short term. We don't want to risk, to exchange the orders for risks. Consequently, we keep calm. The margins of the order we got till now are in line with the traditional margin. We are not going to give up the margin for the volumes. Obviously, if there will be too much appetite by the competition, for the time being, we try to keep us quiet and solid. Consistent. Did I answer to your question, Akash?
The one on orders, if I look at EUR 2.6 billion-EUR 2.8 billion and 40% market share, you should get about EUR 1.1 billion in submarine orders. I wanted to ask how much of that is already been booked and what is still left out to come?
EUR 600 million. Okay. For the time being, we are slightly below the EUR 600 million. We doubt to be able this year to catch the EUR 1,100,000,000 you are mentioning.
Long term.
It's science. Obviously, the submarine business is not a business that you can measure in terms of market share every quarter or even every year. You have to see it in the medium term, multi-year. On the multi-year, we are quite comfortable.
Thank you.
You're welcome, Akash.
Lucie Carrier.
We will now take our next question from Lucie Carrier of Morgan Stanley. Please go ahead.
Oh, hi. Good evening. Thanks for taking my question. I have two question. I will go one at a time. The first one, I just wanted to confirm the comment you made earlier on fiber optic, it was very difficult to hear the call today. Have you actually said that you expect the fiber optic business to slow down? Is that correct?
No, Lucie, I didn't mention at all a slowdown on the fiber business. Maybe that I said the opposite, that the fiber business is continuing to progress very well. I apologize, but even my colleagues here are confirming that maybe the line was bad, but I didn't tell this.
Okay. Very good.
Anyway, the fiber market is going well, Lucie. The growth is in average, something like 10% year-on-year. The investments we launched are coming into the pipeline. Reason why, for instance, in the General Cable perimeter, they have been able to, in the third quarter, I mean, to realize a significant volume of fiber optic cable, even without the fibers of third-party suppliers they were buying in the first half. I don't mention the suppliers. These suppliers, after the closing, stopped almost completely the delivery of fibers to General Cable, and we have been able to supply the General Cable perimeter with the fiber of Prysmian Group. Obviously, subtracting a little bit to the fibers to the lower margin customers of Prysmian.
Okay. Very good.
There is no slowdown.
Very good.
Sorry, Lucie.
I just wanted to double-check. On the back of that, how much visibility do you have on the YOFC business in China? Because of course, for many years, that market has been particularly strong. The contribution of YOFC has been particularly strong for you. How much visibility do you have into 2019 for that?
Okay. I leave the floor to Philippe Vanhille, even if he is a board member of YOFC and he has to be careful.
Hello, Lucie.
The visibility that we have on YOFC is, of course, linked to the visibility that everybody has on the Chinese market. The Chinese market has a moment of uncertainty at this moment, because we know that we are waiting for the announcements of China Mobile about their needs for next year, and it's going to come most likely in the first quarter of next year. This is uncertainty on the Chinese market. Uncertainty doesn't mean slowdown. It means that we don't know. By definition, the world is not knowing about this. YOFC, by the way, as everybody knows, it's public information, is not acting only in China. It's also a large player in Asia, outside China, which is a market that is growing. This is all I can say about YOFC. You can also, of course, ask questions to the management of YOFC.
They will answer, it's more or less to where we stand. Some uncertainty in China, waiting for announcements, some nice growth in Asia in general.
Okay. Thank you very much. My last question was around some of the headwind we see generally at the moment in the industrial sector between tariffs, labor cost inflation. You were also mentioning freight cost or transportation cost inflation. I was just curious to know, what is your exposure to this different area in terms of potential headwind, and do you have the capacity, either via pricing or via cost reduction or maybe the synergies of General Cable, to offset those headwind as we head into 2019?
Okay. Tariff is a completely different chapter. The transportation cost in U.S. is a very clear chapter. If you want, we have even Massimo here, it's clear that the tariff in U.S. have been rising a significant amount. I'm talking about more or less EUR 10 million in the perimeter of Prysmian plus General. We are trying to compensate, that's a problem of all the market, meaning that it's touching us as well as all the other players of the cable industry, and not only the cable industry. Sooner or later, as usual, it's going to be passed on to the market. It's a matter of time. I don't know if Massimo wants to add something.
I can add something, Lucie. In some cases, in some segments, we have a cost price adjustment contract, so we can pass this price, this inflation to the market, I would say, in 30%-35% of General Cable revenue in North America. As far as that is concerned, we don't have this agreement, as Lorenzo said, that this is something affecting the whole market, sooner or later, everybody will recognize this inflation across all prices for most of the segments.
What I can say, Lucie, is that whereas the European market is very reluctant to the update unless contractually regulated, to the update of the costs into the prices, the American market is much faster and flexible into it.
Okay, just for me to articulate, was that in the quarter, or next year, you expect a EUR 10 million impact from tariffs?
No. It's an impact we suffered almost in the third quarter that is going to progress in the second quarter, most probably. Next year, I believe that we will be able to recover it back.
Yes.
Okay.
I don't know, Massimo, if.
Sorry, Lucie, we missed you.
The transportation costs, inflation?
Yeah. We're talking about transportation costs, Lucie, and the impact in 2018 happened across all quarters, and we try to offset with price adjustments in the portion of business which is regulated by contracts. Next year is going to reduce. We won't see this much inflation in transportation costs. Whatever will be, we will offset for sure with efficiency, with synergies, and with price increases.
Thank you. Thank you very much.
You're welcome.
We will now take our next question from [Dennis Sintomyer] of Goldman Sachs. Please go ahead.
Hi. Good evening. Three questions from my end. Number one, could you give us an update on Western Link? Is the project now fully commissioned? Number two, could you help us with comments on the tendering outlook in the submarine business? I believe your comments on the market imply a pickup in orders in 4Q and potentially out to early 2019. Could you help us with which projects, more interconnectors, more submarine, or more offshore, and in which regions in particular? Then Number three, could you help us on your visibility in your short-cycle businesses, in the cyclical businesses? What growth do you see in early 2019, and do you see a slowdown in your businesses?
Okay, Daniela. First question, update on Western Link. Western Link is, since 16 of October, in the hands of the customer. It's running. The link is now available to operate, delivering up to 2.2 gigawatt from Scotland to England and Wales. It's running with no problems, depending of the demand of energy the customer wants to transfer. That's it. We are happy. The second question, vice versa, is the Sorry?
Does that mean the project is fully commissioned and there's no more tests ongoing?
No. The fully commissioning is going to happen in the next quarters because we need of the talk. We believe that will happen in a reasonable time, some months. I don't know if within the year-end or within the next year. It depends on the needs of the customer, because to make the full commissioning, we need to put the line out of service for a certain number of days, and that, it depends on the customer. Question two, tendering outlook in the submarine. Obviously, nine months of almost no orders, or six months of almost no orders in submarine has created a certain anxiety. We see now coming, and part of the projects have already come, that are coming into place. There will be the usual competition. It depends of the appetite.
As of now, also thanks to the order book we had at the beginning of the year of EUR 2 billion, we are not pressing too much or accepting too low margins in order to catch orders. That's the strategy. Also, because once you get an order with a low margin, if something happens, you are going to have a very big problem, and we would like not to incur into it. The tendering is going ahead. The third question, frankly speaking, I didn't understand.
What's your outlook for the cyclical businesses in early 2019? How much visibility do you have in growth? Do you see a slowdown?
Are you talking about the other businesses?
Cyclical businesses.
Other cyclical business. I don't see. Frankly speaking, the cyclical businesses are growing a little bit, especially T&I. The construction market in Europe, at least for the time being, is going well, in U.S. too. Ultimately, we are quite comfortable. We are quite happy. The growth is not extraordinary. It is a sound growth, because once we talk about few percent, a very limited percent of growth, it may be a steady growth for quarters and quarters. Once you see the peaks of 10%, 15% growth in two quarters. Means that seems not to be speculation around the construction market again. The growth seems to be solid, is in the range of 2%, 3%, depends obviously on the market, but solid. For us, it's fine.
We are growing with the market, and we are happy also because obviously in the meantime, the actions we did in terms of improving the mix, with CPR, is helping the profitability of the business. Did I answer to your question, Dennis?
Yes. It's very clear. Thank you very much.
Thank you very much to you.
We will now take our next question from Alessandro Tortora of Mediobanca. Please go ahead.
Yes, thanks. Good evening to everybody. I have four question, if I may. Very brief question. The first one is on the, let's say, U.S. dollar exposure you have. Clearly the, let's say, sensitivity on the combined entity on the U.S. dollar is, let's say, quite new, even, let's say, to me. What I would like to understand if you can share with us some sensitivity on the U.S. dollar given the sharp strengthening we saw on the green dollar. The second question is on just a clarification from an accounting standpoint on the one-off gain you had on the listing of YOFC. Basically, the gain we saw around EUR 30 million and something is, let's say, a positive item accounted on the EBITDA reported, but I didn't see this impact on the adjusted EBITDA. The third question is on the integration cost.
Sorry, the line was not, let's say, perfect, therefore, I missed the indication for the integration cost for the full year. The last question is on the order intake. As you mentioned before, that you had, let's say, some orders awarded, but with the notice to proceed, that still have to come. Can you, let's say, give us an idea of when technically you get this notice to proceed? Thanks.
Okay. Chapter one, the exposure to U.S. dollar. I leave the floor to Francesco, that is much more competent than me.
Actually, on the sensitivity, we are working right now. I would avoid to give you any number, frankly speaking, because we are putting together now our management plan. Starting to put together our management plan. Of course, the sensitivity to the U.S. dollar is higher than in the past, but not very easy to tell you what will be the impact, depending on certain changes on the exchange rate. For sure, if this level of U.S. dollar to EUR will be maintained, I believe that we can have a quite significant impact, and certainly larger than in the past, due to the exposure of General Cable perimeter in U.S.
It may be we are going to recover part of the $36 million we lost until now.
this is absolutely.
Not to forget it.
Absolutely.
Okay.
On the YOFC listing, it is very simple. According to IFRS, any dilution that you have as a consequence of a listing is treated as a sale. It is like we had sold 2.5%, so meaning 10% of our stake in YOFC. Actually, according to IFRS, the price of this sale is the subscription price of the IPO. It is the market value, which is reflected by the IPO, and this is compared with the book value, which is much lower, of our participation in YOFC. If you take page 17 of our presentation, you see that this EUR 36 million is clearly included in the other non-operating expenses, of course, as a positive. Actually, the other non-operating income, which is not contributed to our adjusted EBITDA, but which is impacting positively the reported EBITDA, so below the adjusted EBITDA line.
Just to be even more clear, the other non-operating net expenses are EUR 17 million. This EUR 17 million is benefiting of the EUR 36 million gain. Without this EUR 36 million gain, we would have had other non-operating expenses of EUR 17 million plus EUR 36 million. It is not benefiting, it is not impacting positively on our adjusted EBITDA.
Oh, okay. Thanks.
The third question was on the
We can say that the integration cost full year Sorry? Just say so. No, I explained.
I was mentioning during the presentation, that I expect restructuring cost in the fourth quarter of approximately EUR 30 million. This is in line with our reorganization plan. Whereas the additional integration cost, in the fourth quarter, should be pretty limited. Let me say that most of this will be the planned restructuring cost for the fourth quarter.
Finally, you put a question on the order intake and the notice to proceed for the submarine. Let me leave the floor to
On the EUR 400 million+ , half of that will have notice to proceed before the end of this year. One quarter of this, so approximately EUR 100 million between Q2 and Q3 2019. The rest, the other EUR 100 million, Q1 2020.
Okay. Thanks. As you can see. Please. No, I was saying that as you can see, other than a delay in giving the orders, there is in the market, for the time being, an uncertainty in giving the green light, the go ahead with the projects, the offshore wind. For the offshore winds. It is improving. Did we answer to your questions, Alessandro? Yes, you did. Okay. Thank you very much. Thank you.
As a reminder, if you'd like to ask a question, please signal by pressing star one. We will now take our next question from Sean McLoughlin of HSBC.
Thank you for taking my question. Can I just clarify, you said EUR 600 million of subsea orders in 2018. Does this include the EUR 220 million French offshore wind order and the EUR 125 million Crete interconnect?
Yes. Are included.
Yes.
Yeah.
They're not in the order book.
Yeah. Okay.
That's the size of the market and the related market share. The order backlog is different.
Yeah. Okay. Next question, just a follow-up on Western Link. Can you confirm that the cable is operational in both directions and that you're able to invert polarity?
The cable is in operation. It's running in one direction simply because the customer needs the power in that direction, from north to south. For the polarity reversal, it will happen once the customer will need of it.
Okay. Is that necessary for commissioning?
Yes. Obviously. That's the reason why it's subject to the customer to decide if and when to complete the testing procedure. Because we have to stop the line for a number of days.
Understood. My last question. You mentioned Asian players have been in the LatAm transmission market. Is this an isolated case, or is this an area where you're seeing a lot more Asian competition? Where else are you seeing maybe more Asian competition? Which market segment?
Well, frankly speaking, Sean, I tell you what I think. Makes not a lot of sense, but happens. Consequently, there is something that, for the time being, maybe we missed, but let the Chinese to enter with the red lines from China in a very competitive way to South America. We have, obviously, the Chinese subsidiaries. In our understanding, that could not be possible. Having the duty to be paid into South America. The red lines is a so poor product, and the price is not so high, that it seems not to be easy to justify the fact that the Chinese are coming at a very low price into South America. We have to analyze it. We have not yet an answer. It's a phenomena that happened at the end of the first half.
Okay. So you're not seeing, let's say, a wider penetration of.
No
Chinese competitors into other areas of the market?
No. There has to be something special for the aluminum flow from China to South America. That's something that we are analyzing, but we have not found yet. There is no reason for the Chinese supplier to pollute the South American market.
Understood.
Did I answer to your question?
Yeah.
Okay.
Thank you.
You're welcome, Sean.
It appears there are no further questions over the phone at this time.