Good day and welcome to the Crispy And First House 2018 Results Conference Call. Is being recorded. And at this time, I would like to turn the conference over to Valerio Batista, CEO of Caribbean Group. Please go ahead.
You very much and good afternoon to everyone. Welcome to the half 1 twenty eighteen financial results of the SBM Group. Starting with the financial highlights, as usual, Half 1, organic sales growth closed at +2 percent. Excluding General Cable. That's thanks to high single digit organic growth in optical and connectivity and a reasonably good, positive organic trend in TNI and other cloud voltage.
On the other side, We have to note, sorry, that including General Cable, the organic growth has been 2.7% thanks to the fact that General Cable has been able to post up plus 4% plus 4.4% organic growth, driven by projects and telecom. EBITDA, the adjusted EBITDA closed at percent of sales, having aside the 1,000,000 contribution of General Cable for the month of June being a pretty good result in the month of June for the cable. Driven by energy projects, Whereas, vice versa. Prisma posted the 70,000,000 dollars, $70,000,000 plus 50 you already know in the first of the 2015 in the second for the West Delink project. The telecom has seen a very good margin expansion, helped by volume growth, manufacturing efficiency YOC and Brazilian bad debt provision reversal.
The provision we that for a bad debt that we were having, we have already partly in Q1. The business has been impacted heavily by the ForEx that costed 1,000,000 in term of translation effect And OCI, that the debt of the ForEx effect still in the second quarter had 5,000,000 negative impact on the previous year. But that is going to disappear mostly starting from the third quarter. Net financial debt $3,014,000,000,000 comparable with 1000000000 in F1 2017 because of the 2,500,000,000 investment due to the acquisition of General Kidney. The $500,000,000 capital increase successfully realized in July 2018 is not yet in the number of June.
Let's flip to Page 6. Page 4, sorry, Page 4, the key financial of the company. As we did for the acquisition of Drakha, here are we report the reported numbers on the left of each part of the chart and the full combined on the right Let's start with the report that are the official numbers. Sales at 4,364,000,000 of which 381 coming from Turner Cable with an organic growth of 2%. If we look at the combined, the full combined, and consequently taking into consideration, the entire 1st 6 months of generic cable, this says, would that be in the 5,000,000,002, 182,000,000 comparable to the $5,660,000,000 of the first half twenty seventeen with an organic growth of 2.7%.
The related EBITDA related EBITDA reported 339 slightly slight, quite significantly in reality, below the first half twenty seventeen, impacted obviously by the 1,000,000 Western Linked provisions. So we did a 7 point 8% of the sales. The full combined could have been million of which 314 coming from the perimeter of Prisma and 99 coming from the perimeter of General. The 314 of Prisma, again, is obviously has been impacted by 1,000,000 Western Link provisions. Working capital, the working capital jumped, obviously, after the acquisition to 10.69, coming from $640,000,000 that was the same seasonality 1 year ago.
Obviously, indeed, we add 700,000,000 from the new perimeter of General Cable. As you probably know, General Cable was not able to have a performance in term of working capital on sales at the level of Prisma that has been particularly good in June 2018 at 1,000,000, but we are working on it. As a consequence of the working capital of the cash out for acquisition, our debt tripling compared to June 17 from 1,000,000,000 to 3,014,000,000. The net debt without the acquisition of Generac, could I have been for under 67. Let's have a look of General Cable Test and adjusted EBITDA.
The sales of the first half of General Cable have been $1,799,000,000 comparable with 1.722 of the first half last year, with an organic growth of 4.4% So consequently, the organic growth of the business in General Cable is not so bad. Thanks. Positive to North America. What has to be noted? That General Cable enjoyed a quite good season in the first for projects and telecom, mostly in Europe, other than a good performance in construction and automotive in the U.
S. On the other side, the lower sales in hotel Transmission, both in North America and especially South America, and the lower demand for the utility industrial cable in U. S. And Europe have been vice versa scaling down a little bit the performance. Going to the EBITDA, we have to consider that 1 year ago, in 2017, General Cable closed that $204,000,000 EBITDA with a first half at $113,000,000, considering more or less 50% This year, has closed at $99,000,000, so $14,000,000 below the previous, the same period period of the previous year.
Have to take into account that converting the results of general cable from dollars to euro, we have lost 9,000,000 of Forex effect. Let's flip to page 6 Are we talking here about the solar, please be on perimeter. We have seen the adjusted EBITDA looks at the total at the beginning of $314,000,000 comparable with the 4 the previous year, the total organic growth of 2% with the EBITDA margin that posted a 7.9% compared to the 9.2% of the previous year. Now let's look at the various segments And we see that energy projects has been the main decline from an EBITDA margin of 17.2% of first half last year, down to 7.4 percent EBITDA margin this year. E and I scaled down a little bit industry from 4.5percentto3.6percent.
Industrial network component either to from 8.3percentto7.7. Oyling us recovering a bit from a value that is very, very limited. Finally, telecom telecom made the boom from 16.8 percent to 21.8 percent, thanks to various reasons that we will see later. From the EBITDA point of view and the organic growth point of view, posted plus 1.8% in term of organic growth. The EBITDA, as we have already said many times, went down from 118 to 50 if we could be able to add back the 70,000,000 provisions the profitability of the energy projects could have been could be considered stable at 1,000,000.
E and I, E and I had a limited, but positive growth to 0.2% with a reduction of the profitability from 74 to 61,000,000. We will analyze later the reasons why. Finally, Industrial Components with an organic growth in the first half of 4.8 percent posted a $59,000,000 EBITDA versus the previous first half or better the first half 1 years ago at 62. Oil And Gas starting to recover a little bit with an organic growth of 0.8%, $3,000,000 comparable to the 2,000,000 of the previous year. Finally, telecom, telecom that enjoyed a very good organic growth 4.4%, moving from 1,000,000 EBITDA to 141.
Let's have a look at Page 7 of the EBITDA bridge of the first half twenty seventeen versus the first half twenty eighteen, but in the contrary. Start 2018 versus first half 'seventeen. You see in blue the numbers related to the Prisma perimeter and in gray the number of generic The total full combined net in the first half of twenty seventeen was 4.27 scaling down to 4 13 in first half 'eighteen. What to be noted, perimeter of placement $65,000,000 is the reduction of the EBITDA in the perimeter of Prisma of which 70 are coming from Western Link Provisions. Consequently, Apple to Apple except the Western Link, the the project perimeter has improved 1,000,000 on the previous year.
E and I negative for impact for $7,000,000. Basically, coming from Ooma Kego. 5,000,000 positive for the industrial network component in oil and gas. We already put in here the oil and gas. Telecom moving up to 1,000,000, thanks to the very good business, but also 2 effects to the extraordinary one off effects that counts for 1,000,000 and related to the carryover of YOC 2017 results, YOC closed accounts after our closer and consequently, we have been obliged to move into the first quarter, the effect of it.
Finally, the ForEx, the ForEx accounted $24,000,000 in the perimeter of Prisma And just to keep the eyes on the ForEx, other 9,000,000 are consequently, the total perimeter, full combiner, that's been impacted by 1,000,000 due to the ForEx. Going into the general cable perimeter, we have 2 different effects in North America that went down in terms of performance of the business by 1,000,000 and the europe that went up vice versa by 11 Latin America technically flat. Let's flip to page 8. The integration and the synergies how we're going with Jack. For now, 3 months later.
We have a little bit more clear idea. And we can confirm that the new organization we announced 1 week after Petrosine and the streamlining of the management and staff organization is going ahead and is planned to generate the synergies expected. Financial synergies, vice versa, we already realized refinancing the debt of General Cable with a much cheaper with much cheaper lines. The working capital, we are working on it, obviously, because we, at the same time, don't want it to damage in any way the service to the customers. We are optimizing the supply chain and the supplier rationalizing the suppliers, especially in terms of payment terms alignment.
So we can confirm the target by 2022 in term of synergies for $150,000,000 of which $90,000,000 have to come from the organization. The procurement are going to be 40,000,000 and the footprint that will take place starting from next year for 1,000,000. With total costs of 1,000,000. Now Let's start with the analysis of the various segments and let's start with energy projects. Excluding General Cable, obviously, the sales closed at 684, comparable to 687 of the first half of 'seventeen with an organic growth of 1.8%.
Let me remember you that for the first quarter the organic growth was very high. It was 14%, but simply because it's a matter of execution of projects. The adjusted EBITDA unfortunately versus EBITDA instead to be $120,000,000 closer to $50,000,000 because of the $70,000,000 Western Link provisions. The adjusted EBITDA consequences has been impacted by the provisions for Western Link. But the performance of the underlining business is reasonably stable.
Underground voltage has vice versa posted better results, thanks to the growth in APAC, South Europe and South America, UK and Netherlands, vice versa slowing down. There are good news, let me say, on the progress of the corridors in Germany. Because the tender is now on the table and we are going to participate. Obviously. The order book last but not least is not so buoyant simply because the season in the projects.
As you probably know, it's difficult is difficult because of the delay in big tenders. And today, our order book has scaled down for the submarine, not vice versa for high voltage well is progressively recovering. Moving to Page 11, Energy And Infrastructure, obviously again, everything, excluding the general capability measure. Energy And Infrastructure, closer with sales at 1,681 compared to the previous year that was slightly lower. With an organic growth of 0.2 percent positive.
In the first quarter, it was negative for 2.5%. So the business is recovering a little bit. The organic trend is positive in the Q2 the volume recovery has been in North America and in main countries in Europe. The adjusted EBITDA has been impacted obviously by ForEx and the slowdown in Middle East. Sorry, I forgot to comment the adjusted EBITDA, $61,000,000 compared to the 74 of the same period 1 years ago.
You can note that the gap in term of profitability for 1,000,000 came from OCI. Overall, looking at the bottom right side of the chart, you can see that the organic growth has been again positive after many quarters of negative trend. Design are not so bad overall. We expect that E and I, especially in Europe, is going to recover We have to consider that E and I is based on 2 subsegments: trade and solar that is going reasonably well in Europe. But even if impacted by the ForEx and the Middle East crisis, the power distribution at the end of the story after many months of reduction has has found probably a bottom and is expected at least to stabilize.
Let's move to industrial and network components. Industrial and network components business closer to 764,000,000 from the 759 of the previous year with an organic growth of 4.8%. Let me remember that in the first quarter, it was a peak of 10 plus percent. The EBITDA related to it, 59,000,000 comparable with the 62,000,000 of the previous year. So is increasing has increased significantly too much significantly, maybe in the first quarter, in the second quarter, more table.
Water to be highlighted by the subsegments, specialties OEM and renewables are have been stabilizing there is still the effect of the mix of these businesses, where a lower margin business is like railways and rolling stock that have been increasing, but other businesses pretty strong, like pretty important, like nuclear mining going down. Geographically, we have seen an increase in Australia, Argentina and Europe. Elevator. Elevator finally after some quarter of difficulties is starting to reaccelerate You remember that Elevator had been suffering of the crisis of the construction market in China. And partly in North America.
Now the North American market and other than Europe. This is continuing to grow is able to more than offset the slight crisis of the Chinese market. Automotive is reasonably positive, takes it to the volumes in North And South America. The adjusted EBITDA benefited of volume effect footprint rationalization and cost reduction in Europe and North America. Last but not least, the network component that posted a good performance in volume in China and medium voltage products in North America.
Let's move finally to telecom. Telecom closed the weight of $645,000,000, practically the same number of the previous year with a +4.4 percent organic growth in Q in first half. In Q1, it was plus 1.7 percent. So, consequently, it's continuing to grow. The result has been extraordinarily good, 141,000,000 21.8 percent EBITDA on sales, but enjoyed $11,000,000 of 1 off effects due to the reversal of the reversal of the bad debt provisions.
And due to the postponement of the last quarter, results of YOC last quarter 2017 YOC results. Overall, the demand is very strong. We are continuing to grow at a rate of almost 10% year on year, quarter on quarter. Prices are stable and the capacity is growing. Consequently, we expect in the next quarters to continue such part of growth.
Moving to page 14. Page 14 is a more detailed picture of general cable perimeter. With the view of the full combined identity. It comes with the full year. North America or better.
Let's start from the global. Are the numbers that we have already seen, sales up 1,799,000,000,000, obviously in euro, compared to the 1,722 of the previous year. So the first half, the organic growth in general has been pretty good. With a plus 4.4%. That's thanks to telecom, projects and construction in Europe and construction and automotive in the U.
S. The adjusted EBITDA vice versa, we closed at $99,000,000 versus the $130,000,113 conservatively lower than the same period of last year, but that has been affected by the translation translation effect due to exchange rate. Let's have a look of the 3 regions. The 3 regions move it in a different way. As you can see from the column, North America went up slightly up in thermal organic growth of 1.7% but posted a significant reduction of the of the EBITDA.
Why is that? Basically because 2 reasons. First reason is the exchange rate that counted quite significantly 8,000,000 of scaling down. And the second reason, but we have not totally clearness of it yet. The in the first quarter last year, generic cable that doesn't edge or was not able to edge the order has enjoyed a quite significant something like 1,000,000 of metal effect.
Technically, orders they got with the new copper that was rising were covered with products with a lower copper in the stock. Europe, vice versa went up 16% in term of organic growth from the sales point of view and went down significantly in term of performance in term of EBITDA Going to the 1,000,000, you can see in the right in the center side of the chart, moving from 9 to 20 So very good performance in the first half of the European perimeter, mostly thanks to the projects and SW. Finally, Latin America basically flat and minus 2.1% organic growth with a result that is physically euro wise stable on the same period of decrease. Last chart, the outlook. The outlook the full combined and outlook stay the same, 816,920 with a midpoint of 890.
That's why because we expect Prisma to be able to close in the range of 680,720, The general cable perimeter in the range of 175,190, with an exchange rate of 1.2 and the synergies to be in between $5,000,000 $10,000,000 and that's a confirm. The report that as a consequence, will take into consideration only the 7 months of the results consolidated for degenerative key. Which are the assumptions behind these numbers. Volume and margin grow in telecom, more or less similar to the first half. And we have, design that is a solid grow.
The volume trend more or less stable, similar to the half 1, the adverse ForEx impact will slow down because we counted on a very large amount of money in the first half. In the full year, we expect to be able to reach 40,000,000 adverse Forex effect. That is a very huge number. Finally, the synergies target will come. We are doing.
We are acting and we are quite confident to that will come on top of the results of the 2 parameters. That's all. Thank you very much. I leave the floor to Francisco Facchini for the details of the financial report.
Thank you, Valerio, and good evening to everybody. As usual, I start from page 18 with the profit and loss statement. You see here the Alpha 1, 2018 reported with the contribution of General Cable for the month of June and compared to the Alpha 1, 2017. As Valerio commented, organic growth remained pretty positive at 2%. Of course, organic growth here is referring only to the Prismian perimeter, slightly down from the 3.1% in Q1.
Adjusted EBITDA reached the $339,000,000 with a contribution of $25,000,000 coming from general. Therefore, on premium perimeter, $314,000,000, down $50,000,000 from the $364,000,000 last year. Summarizing some indications that Valerio already gave. I can say that we had headwinds in the region of 100,000,000, including course, so $70,000,000 of Westerling provision and $24,000,000 ForEx and then also the drop of Omen Cable in the first alpha, these are the headwinds. And these were offset more or less 50% with some positive drivers among which by far the most important was the very sharp growth of the telecom business.
So, we saw an EBITDA growth of $41,000,000, but also some recovery in the EBITDA of the TNI business of the industry and network component business and also land high voltage. Below the adjusted EBITDA line, we had adjustments of 1,000,000, rising from 1,000,000 obviously driven by the 1st restructuring costs related with the combination and also related with a $27,000,000 impact coming from acquisition integration costs and also some first profit and loss effect of the purchase price allocation. Financial charges decreased from last year down to $6,000,000 despite the huge impact of the debt and the related financial costs for the pure months of June. And the main reason for this, I will comment later, a little bit more in detail, was the conversion of the 2013 convertible bond for 1,000,000 with the decrease of the associated financial costs. Net income the $82,000,000, slightly down from the $113,000,000 last year.
And once again, as the main by far the main effect you are the Westerling provisions for 70,000,000 net of tax, of course, and then the acquisition and the integration costs for $27,000,000 that I would comment with. We can flip to page 19 where we see the detail of the that I was referring to over $46,000,000. Restructuring cost increased to $14,000,000 out of which 4,000,000 coming from general cable perimeter. I would indicate that included in this 14,000,000, we have approximately $6,000,000 that we can put in direct relationship with the reorganization and with the combination, Prismian, General Cable, and then million of other non operating costs. And then 1,000,000 of other non operating costs arising from 1,000,000 As you see, including the 27,000,000 costs related to acquisition integration and the inventory step up release for 5 1,000,000.
This is the effect, which is related with the application of the inventory step up as part of the purchase price allocation then of course, the utilization of part of the stock, which was set up in the month of June generates a negative impact in terms of profit and loss. We can go to page 20 to comment the financial charges as usual The most relevant line is the net interest expenses, which were quite stable at the $33,000,000 versus $34,000,000 last year. This number are reported number, of course, with the inclusion of General Cable for the month of June. This stability is the effect of the positive effect coming from the conversion of the convertible bond, which is partially offset by the interest expenses associated with a 1,000,000,000 additional debt for the month of June, of course. Related with the acquisition.
The good news here is that we completed, as Valerio mentioned, the refinancing of Generali Cable that very, very quickly and very successfully in around 45 days and that we are absolutely seeing in the profit and loss of the synergies coming from this debt refinancing. Just to give you an indication fully combining the 2 parameters for the entire year, we see a reduction of interest expenses from 2017 to 2018 in the region of 1,000,000. So in 2017, if you combine both parameters, you come to total net interest expenses of $137,000,000 compared to what I estimate will be the combined net net interest expenses for this year at 107,000,000. And these 30,000,000 includes around 15,000,005 of financial synergies, which is the 1st part of the financial synergies realized this year. Of course, we will have a more or less equivalent part which will be achieved in the first half twenty nineteen for a total estimated financial synergies of $30,000,000 as I was already anticipating in the last calls.
We can flip to page 21. Where we have the balance sheet. I apologize for the slightly complex representation here, but we couldn't do any any better than this. You see the consolidated balance sheet for the month of June. And you see also in this case the contribution, which is coming from consolidation of the new general cable price allocation exercise is ongoing.
The provisional goodwill is still very high is 1466,000,000, you see here in second line. This I expect will go down significantly because we are working, as I was saying, on the assessment of the General Assets step up in particular tangible and intangible assets. Whereas for the time being, we have mostly taken into account the negative purchase price allocation, reflecting the refinancing of general cable debt. At fair value, which are of course negative in terms of equity effect. So I expect the goodwill in the end to go down between to a level between 1,000,000,001,100,000,000.
We will see the final result of the purchase price allocation. The, operating net working capital increased, of course, due to the consolidation of General Cable, whereas on the premium perimeter, the performance was really good with a pretty significant drop of the working capital due to some non cash effect like the ForEx and like the Western Link provision effects, but also due to a temporary increase of the tax payable related with the assignment of the old LTI scheme, the LTI scheme, which referred to the period of 20152017 and with the tax payments related to this. Basically we had a positive impact in the month of May, June, which is already offset in the month of July. For I defined is a very temporary effect. And as Valerio commented, the net financial position closed slightly above $3,000,000,000 also benefiting from these one time or temporary effect on tax payable, which is quite significant because amounts to 1,000,000.
Last but not least, on Page 22, you see the bridge explaining the move from the 4 36,000,000 NFP year end 2017 to the $3,014,000,000 debt at the end of June. 2018. The first two columns represent the impact of the acquisition, 13 is the consideration paid for the shares of General Cable, including $43,000,000 of transaction costs already paid as of June, then $1,215,000,000 related to the refinancing of general cable debt. A positive inflow referring to the EBITDA close to $300,000,000 to the reported EBITDA an increase of working capital close to monthly 100,000,000 of the financial charges paid for 39,000,000 of the taxes paid for 45,000,000 and the dividends, of course, for 103,000,000. Last but not least, that the benefit acquired material to 183,000,000 coming from the 2013 convertible bond conversion, which took place in March 2018.
I believe I completed my presentation and we can proceed with the Q And A session. Thank you.
You. And we'll take our first question from Danielle Acasta from Goldman Please go ahead.
Hi, good afternoon. Thank you for taking my question. I have three things I wanted to ask about. The first one was in terms of backlog for energy projects. I see sort of on your slide 10 that you had a slight drop in backlog.
In June, but you have also over the last few weeks, gain, I think, quite a few small, medium sized projects, but I was wondering how you see evolving the backlog, if you if we can still expect the backlog to be up year on year this year? What is your view that? That's question number 1. And then question number 2 wanted to ask you about, obviously, these set of results are on how have you seen sort of the end market trends evolving since then, particularly on the more cyclical side of the business. And the third question goes towards, the working capital benefits, or optimization that you manage.
You have potential to do in general cable. I understand last time, sort of, when you comment on the deal, you still needed to sort of look into the details, but now that integration seems to be progressing quite fast. What can you give us some guidance on terms of sizing what the potential working capital benefits will be in terms of, quantitative guidance. Thank you very much.
Thank you, Daniela, for your questions. Let me try to hear you and answer first of all, starting from backlog. It's clear that our backlog went down. No way. I believe that the backlog of all the players in the projects went down in the first half of twenty eighteen.
Because the market has been very poor in term of project assignment. How the out I see the full year. For sure, it will be a difficult year from the from the side of the project awards, simply because 2 big projects are mostly Viking is going to be delayed is expected to come in the summer twenty 19. And consequently today is 1,000,000,000 that is not going to enter into the backlog of anyone. We got the project of the offshore wind farms in France and that's good.
It's not in the backlog yet because we got in August. For sure, there are projects that have started, but have not been assigned yet. Even the Saudi, Saudi agent theoretically has been assigned, but practically it's not in the backlog of anyone. So it's a quite tough time from the market perspective point of view. Underlying reasons for the development of these projects is still in place because the energy the cost of the energy generated by offshore wind farms is definitely lower than the FOCE production.
Consequently, we expect that the project business will revamp. In addition to it, let me note that there are rumors more than orders for the time being. Of some projects coming into the area of Taiwan. And some projects coming into the U. S.
Area. That's my treat. Finally, the market opening even in other regions. 2nd question, the end market trend in the, let's say, commodities or fast run is going better. Is going better and is clearly stated by the trend in TNI, not yet of the PD Obviously, the market is still enjoying up pretty good level of activity in North America.
Not yet a full recovery in Europe. Overall, I don't see bad situation because the financial, sorry, the financial market is really available to finance acquisition of Real Estate Gas. Today back after 10 years. And consequently, I believe that there is going to be revamp. Last but not the least, the working capital benefit coming from General Cable.
That's may, we said to the market that we expect to find some results. And I can confirm. I can confirm because we have been already started in U. S. To negotiate with custom with suppliers, sorry, different payment terms and to clean up a little bit the stock.
Clean up meaning that we are producing less than we sell simply that. There is no way. That's a chapter that has to be resolved. I cannot say this year, but doesn't next year. How much?
We said something like 150,000,000. I I'm trying to post the goal for the team to recover the entire cost to recover from working capital. The entire cash out of the restructuring costs, 1,000,000 plus period.
Yes, thank you very much. If I can just ask one follow-up. I think one other thing you had mentioned regarding the deal was the plant that General Cable had in Germany and how important that was for Soodling and you mentioned Soodling some better news there. Have you started sort of the investment on the upgrade of the plant when will we see some cash deployment from that, the outflow?
Okay. We have to be always careful in injecting money in the assets, because if the orders are not going to come, we have the depreciation to pay. To be clear, next week, we are going to be there. With the board of a Christian to present to the board our ideas what we would like to do, is obviously a significant investment that will start only if and when the suit link and suitist link will be awarded. Or at least when we are going to be sure that the projects are going to be awarded reasonably quick.
We have to consider that the tender came out now. Staff next year. Consequently, there is time. There is time for us to complete the investments and for the competition to get the for all of us to get the obligation.
And the investment is you mentioned it would be a significant investment? What sort of type of CapEx increase should we expect?
I know NSW because I've been there at the time of the due diligence is a quite big plant. It's good. Is good for telecom is not good yet for energy. We needed to build that tower, probably with lines similar to PIKALA and Finland to produce extruded extra voltage cables. With long lengths.
That's the goal. But don't ask me the days because the same things that I'm going to tell you are going to be listened by competitors and I don't like it.
And our next question comes from Max Yates from Credit Suisse. Please go ahead.
Just look, my first question is just on Western Link. And obviously, you've said today that you don't think you need any further provisions based on what you've seen. So maybe if you could give a little bit more color on what you've been able to uncover since the announcement and then maybe some quantification around how much of the EUR 50,000,000 or the EUR 70,000,000 synergy from the first half is remaining that you're able to use on any repair work or any further delays? That was the first question.
Okay. Max, the situation is the following. The first problem occurred we posted 20,000,000 of provisions, and we absorbed it almost entirely. Have to be clear that the provisions are more absorbed by the liquidated damages than the real cost of the repair. The second provision has been $50,000,000 and I already told you that we were posting such amount having one fold because we were dealt force to be able to solve the issue of default in a very, very complex area is the intertidal area in Wales where during the day you have the Sand And during the night, you have the water.
It has been a nightmare repairing it. Reason why we had we repair it and we had another fault. So the decision has been that has been driven even by me to be absolutely careful in repairing default. Without any, let me say, stringent timing to solve the problem. Liquidated damages, we have not been carrying of it.
We solved it well. We repaid well the link, despite the problems, the logistic problems we were facing. We did it with 3 ships that costed us a lot of money and Part of the management around this table was there mid August to follow the repair personally. The repair went well. Unfortunately, after 1 month of operation of testing, another little fault occurred in the land side of the circuit.
You have to consider that a circuit of 800 kilometers may have many problems in term of installations that derate later during the first time running of the link, some problem. In that case, default has occurred between 2 connections of two reels of one kilometer H1 on the land side. Now that's occurred 10 days ago. Here we are, the people is already in the field. The fault has been found.
We have not yet the piece of cable to have a clear understanding of the reason for default. Maybe water penetration made, but for sure is a fault that occurred to the joint of the land part. Nothing else. The cost of repairing limited in term of liquidated damages is high. But the provisions will post of 1,000,000 were in excess for the repair of a single fault of the default we were having.
Consequently, in certain sense, we already posted the provisions for default occurred now. To be clear and honest, fully honest, the cost of the first repair was has been higher than expected. Consequently, there is no provisions that can be released. It will be strictly enough to cover Did I answer to your question, Max?
Yes. That makes sense.
So I mean, I guess, a lot of understanding this there's a very small cost or a very small amount. So you are confirming ultimately that you don't think you'll have to take any more provisions? Related to this, right?
Okay. If you consider small 1000000 to 1000000, it's small.
Okay. So but there is the potential.
Mostly driven by the liquidated damages, the transfer fast.
Okay, understood. Just then in terms of your subsea backlog or your submarine backlog of 1 1,000,000 sorry, 1,000,000, are you able to give us some clarity on how much of that is for delivery next year. And also, I think previously we've heard about potential contract with 50 Hertz coming to market in the second half. And I was wondering if you could give us any update on negotiations progress any risks of delay with that contract? That was my second question.
Okay, Max. Thank you very much for the question. Let me pass the question to Hakanusman, the responsible of energy projects.
Good afternoon. Regarding the first part of your question, the backlog that we have, which is 1.7 50, including also potential further additions to the backlog. We will be able to generate, of course, these are very preliminary numbers, but a reduction in our sales versus this year for the coming year. We don't expect, if, of course, significant delays are going to occur into the additions into our backlog, we don't expect that significant reductions are going to occur for the coming year in the execution. Regarding the second part of your question, the 50 Hertz project is out.
And is going to be beginning of October. We will be bidding for the project. We are we don't see any delays. And we are ready, and we will be on time, from that perspective, looking forward we feel, of course, depending on the conditions that this project is going to be continuing. And there'll be Perhaps
let me remember you that we executed the first 50 hertz. That counted for 800 and comma 1,000,000. We executed let me say reasonably well, but the customers should say it. And that is a credit I hope the customer will take into account, and consequently, it would be not easy to get the project. It's something like a 100,000,000, we would like to put into our basket before the year end.
And with that 500 or with that contract, obviously, the backlog is lower going into next year, but with that contract, should that give us visibility on flat submarine revenues of about 1,000,000,000 for next year? Because some of the revenues be booked for 2019? Or is there still some risk on revenues for next year?
Let me say yes and no. In the sense that the 50 apps coming in will help definitely the backlog, the execution in the factories to reach the 1,000,000,000. But we are going to have a slight gap in term of paper cable. That is not 50 yards, meaning that 50 yards will have a longer life than 2019. If we are not able to get a paper project, within mid of next year, we are going to have slowdown in term of sales for the paper cables.
How much I cannot tell you now?
Okay. And just very brief final one. I think you've talked about previously on net financial position that you are on a pro form a basis aiming to be between CHF 22,100,000,000, including the including the capital raise by year end. Is this target? Does this still stand?
Hi, it's Francesco Fakini speaking. I have an update on this, unfortunately. Because the slowdown of order intake that Valerio was mentioning this year and will and also of course, the costs and the liquidated damages associated with the Western Link is generating a significantly worse cash flow anticipated the 4 hour link for the energy project business in the second half. So currently, we see a net financial position for year end, which is more in the region of the 1,000,000,000 to 1,000,000,000.
Okay, very clear. Thank you.
Welcome.
And our next question comes from Please go ahead.
I have a couple of questions, please. And my first question is on General Cable where basically performance improved quite significantly sequentially in Q2 versus Q1. And the question I have here is that can you talk about net pricecost situation at general cable? And should we not expect upside in second half? Because you had 1,000,000 in first half in EBITDA and essentially your guidance is implying 1,000,000 to 1,000,000 in adjusted EBITDA in second half.
So maybe if you can talk about why should we expect lower EBITDA in second half than first half? And then my second question is on synergies where you are reiterating 150,000,000 and by looking at the details, it looks like you are on top of this 150,000,000 number, but maybe if you can talk about when should we expect update on synergies and maybe like similar to previous acquisition, drug acquisition, where you raise the synergies is it reasonable to expect upside to the synergy level at some stage?
Okay. Thank you very much for your questions. Let me start from the second question, then I leave the floor to Francesco for the first one. Synergies, we counted the 150,000,000 We strongly believe into it. We are looking for better opportunities for the time being, I'm not able to spend any additional euro on it because the synergies other than talking about it have to be realized and to be realized need of a lot of effort.
I don't want to compromise anything that I don't see really in the medium term. We acted absolutely faster than any any reasonable expectation. We announced that the 1 week after the closing the new organization. 2 weeks after the closing, we were having here in Milan, the top 450 managers of the entire group. And we clarified immediately who is in charge of what and which are the goals to be reached.
Now we have to do it. And that's need of time. On the way to do it, maybe we will found something better. I know that you know the drug story and you would like me to do the same but let's find it. I believe that something better can come but needs of time to be found analyzed.
What I can tell you for the time being what has happened is that from the market perspective, we are not suffering a lot What does it mean that the customers in at least in South America and the U. S. Are not disturbed too much of our acquisition. Obviously, the sole customers that have already told us as expected. We are not going to confirm you probably the total market share you are going to have combined are the European Utilities.
And that is what it was planned. So that's what I can tell you from the synergies point of view. I would like to leave the floor at Sanchez because maybe I lost some point.
Good evening, Akash. Regarding the part of the guidance related to Generali Cable, which is included in our guidance I would say that the current picture is absolutely that we see is absolutely in line with the midpoint of that guidance. Let me explain this. As you correctly stated, we have indicated the guidance of Generali Cable between 175 to 190. So the midpoint is 182.
But then in the general cable results, so that you've seen the actual, you have conceptually to add also the synergies, because let me simplify most of the synergies that we are realizing are on the perimeter as we speak of General Cable. So you should add to this 182 also the 10,000,000 synergies, which is the 3rd portion of our guidance. So say 192. Based on this $192,000,000 and putting this in relation with $99,000,000 not generated in the first in the first half of EBITDA, you are right saying that we see a second half of general cable stable slightly declining versus the first half. The main reason is not North America.
North America had a pretty tough, I would say, 1st half, mainly because of margins, not because of volume. Which were pretty good. But the main reason for this drop is Europe. Europe, as you saw from the number, had an 1st Alpha, mainly driven by telecom and the energy projects business, so NSW, mainly The second also is much less loaded in terms of project delivery and project execution. Therefore, we forecast for the second half of General Cable Europe perimeter is significantly lower second half than the first half.
So all in all, the result will not be materially different from this 99,000,000 of the first half, maybe slightly lower, but your assumption is correct so that it will be slightly lower.
And our next question comes from Alessandra from Mediobanca.
Yes. Thanks. Good evening to everybody. I have a, let's take 2 questions, if I may. The first one is on the submarine side, if you can, let's say, clarify, sorry, the, projected sales of these divisions for the next year because, let's say, Excluding the impact of provision for this year, the top line level, my reference number for 2017 is around 1,000,000,000 sorry, for the, for, let's say, this year 'eighteen.
So just to understand, so the reduction projected in the summer in assuming, let's say, your other pipeline that you mentioned board. The second question is on the cash flow generation for this year. I understood that you mentioned, let's say, lower level of advances this Iara, what I would like to understand is the CapEx, okay, spending for this Iara, take into account that overall you spend around 1,000,000 in these first half? Thanks.
Okay. Thank you, Sando, for your questions. Chapter 1, obviously, the summary project say next year, maybe not able to reach the 1,000,000,000. It depends largely of the Viking project. I told you, we may have even an order book that is larger But if there are not paper lipid projects in the queue, we are not able to saturate our capacity of our COVID ish.
And if that's happened, there is no way. We are going to suffer. Maybe 6 months. Who knows? For sure or almost for sure, we are realizing now the NSL contract.
Till June, the factory is full. If Viking is not going to come to us, at this time, there may be a gap in term of output that will be translate automatically into a gap in term of sales. Second point, the cash flow is true due to the fact of the very limited order income we enjoyed this year. As a consequence, we enjoyed we are suffering a lower level of advanced payments for the project. That's been the plus that generated to us are very, very low, if not negative.
Working capital on sales for the projects. Having no the orders, having no or limited advanced payments, our working capital, I don't think it will not be so nice as it has been in the last years. That's the reason for the advice Francesco is giving you in term of net financial position year end or working capital year end is going to be worse than foreseeable. Not forecasted for Ciel. Is that temporary effect?
Yes. It's a temporary effect that we think with the executions and the completion of a certain number of milestones of projects next year in the first half. Should be recovered. On the positive side, we can consider that vice versa, the land high voltage is improving. Even for the land buy voltage, we have order that have advanced payments inside.
Obviously, we cannot compensate this wing, this significant swing if any of December. Allison CapEx, sorry, just to tell you the CapEx. The CapEx is a very easy solution. We are investing heavily in the telecom. We are limitedly investing in all the rest of the business.
I said, okay, let's put are capped to the CapEx and the cap is $250,000,000 period. The best investments will come in, the worst will not enter as simple as that. Because the cash has to be protected anyway. Moreover, whereas in telecom, we need CapEx to expand the production and it's very expensive. In project, as of today, there is not a lot of investments to be done.
If not, the ship and maybe NSW, but the investment in NSW is not a matter of 2019, probably only limitedly in 2019, if will be approved internally.
I just want to add specifically to your question on that the level of CapEx and related cash outs for the second half will be pretty much in line with last year. So I don't expect that this any change and either positive nor negative because in both years 2018 and last year 'seventeen, we had in the first half, as you are seeing a CapEx in the region of $100,000,000 and we plan to land that CapEx in the region of $250,000,000. So The second half will be a little bit more loaded as it was last year. No change.
Okay. Also because clearly you have a general cable CapEx, right, in the second part of the year? [SPEAKER JEAN FRANCOIS
PRUNEAU:] Yes,
it's the $250,000,000 that I mentioned in is all in. Including everything.
And our next question comes from Sean McLaughlin from HSBC. Please go ahead.
Thank you. I have three questions. Firstly on Telecom, you're still seeing strong margins and the stable pricing implies that demand is robust. As you look into 2019, how do you view this? Do you still think you may need to even ramp further to match demand or do you see potentially risks of overcapacity?
2nd question, the mix drag effect in the industrial segment, how long do you think this will continue? I believe you were suggesting that this will improve in 2019. And how does general cable change your overall industrial exposure? And lastly, just a word on your new chairman, if you expect continuity or strategic change?
Let me forward your question on telecom to Philippe, Vanil, that is in charge of telecom.
Hello, Shen. Yes, 2019 for telecom, what we see is a market that is going to keep growing. Globally Worldwide. And in particular, we have no doubt that in our main markets that are North America and Europe, the market will be, still growing more or less at the same speed as today. We are therefore following our plan, which is to keep our positions by growing at more or less the same speed as the market.
And, that's my answer to your question. Basically, the perspectives in Europe and in North America are quite good. China has been showing some signs of change maybe not because we don't know what the the China mobile tender tell us in the last quarter of this year. But in any case, in China, we do not directly operate and we do not see any consequence, any major consequence for us in the short term.
But we say that in addition to what said, Philip, that, anyway, it's not easy for the Chinese to come to Europe or U. S. For U. S. Is forget.
Be forgot. But even in Europe, it's not easy at all because today they are selling in Dave market with a price that is 20%, 30% higher than the level of crisis in Europe or U. S.
Yes, yes. When it comes to this, yes, so course. We didn't have an opportunistic attitude on the market. So we are operating at prices that are not in the high end of the range. And so we also feel that we can sustain our margins for that reason because we are not operating in the spot price market.
We have secured long term contracts with our customers. And we also work on our cost in parallel So we are quite confident that our margin can be sustainable.
2nd question, the situation of the the mix in the industrial cable. That's a more difficult question because it's a very differentiated mix But overall, let me say that we are seeing now some improvement in one of the main pillars of the profitability of our industrial cable. That is the crane cables where we are the market leader. And has been suffered has been suffering a lot in the recent years, in the last 2 years. Now we are seeing some new order coming in.
And we expect consequently a reasonable recovery in the next quarters. I don't know if Francisco Fanchule that is here around the table who wants to comment on it.
Hi, good afternoon. So I simply confirm the Valer sentiment. As of now, we envisage a growing pie very much similar to the current one. We are posting an organic growth around 5% and most probably shall be also the path for the next year, while in terms of application mix, we see a good stability with a smooth improvement on the EV special segment particularly coming from some release of some formerly blocked interesting project on the claim business.
Let me add, Sean, that general cable from the special cable point of view is a pretty good addition, let me say, especially in North America. Because they're positioned in North America is quite important, the margins are reasonably good. And we expect to be able to leverage on the different portfolio of products, we have the 2 companies with the same with the base of the combined customers. I think that, that can be a good addition that may help us to compensate the potential reduction of market share in Europe for some utility. At the end, our idea of 150,000,000 synergies take into account also a potential downside on the market side in Europe.
This was the forecast, the idea compensated partly by some additional synergies on the sales side of combined sales. And that's, at the end, is one of the special cable is one the outcome we see today.
Okay.
Sean, can you repeat your third question? I'm not sure that we were getting this.
It was just a comment on your new chairman, really, if you expect a change of strategy or continuation, any first thought
Sorry, sorry, sorry, sorry. I was not following the question. The new chairman, The new chairman has been nominated Claudio De Conto. Claudio De Conto is has been with the board for 9 years, 8 years, going to be the next one. And no doubt is one of the most knowledgeable manager
in
our history. He knows very well the cable because he was the CFO of Pirelli at the time, Pirelli. Constantly, he knows perfectly the business. He has been following and being responsible of the control committee. He has been following all the details of the business in the last 8 years.
And that is a big help.
But to be clear, there is no implication terms of any change of strategy. The reason of the change is just that Mr. Tonone add to release is assignment within the Parisian due to other assignments, which are, by the way, very well announced and known by the market namely Chairman of deposit the capacity. That's the only reason.
Yes. Unfortunately, Masimo has been obliged in a certain sense. To resign. And we have been obliged to the him as a Chairman. It's not for sure a change of strategy that has driven the change of the Chairman.
That's very clear. Thank you.
And we'll take our next question from Roberto Campani from Amani. Please go ahead.
Just European, I mean, what happened with the West Delin? Do you think it may cause any a reputation problem going forward, particularly in execution, and give back some advantage to your competitor? Or I mean, it's something that nobody else will be able to to comply with. And in the case, in the worst case scenario, which looks unlikely, but if the company should put in a position to reproduce part of the cable. What could be the damage, the impact that the negative impact
Okay. First of all, The Western Link has been repaid or redundant replacement. As of now, we don't see we don't have any evidence that there has to be additional accruals. Consequently, the accrual we did is sufficient to solve is going to fail during the testing phase. Just maybe you were not following us at the time, but the Baseling project had five folds, if I remember well, before to be separate, may happen.
So that's the reason why it does not surprise us so much. Obviously, we took the risk, currently or concurrently, we did it, to execute a project of 800 kilometers with a new technology. And we failed it or better. We In the execution, we found problems that were not foreseeable at the beginning. Now we are paying the bill of it.
It's a risk that obviously has been pretty significant is impacting our accounts today. But from the reputational point of view, I have to say that probably no other companies would have been able to react as we did to the mess. Because that's been a mess. Maybe you remember 2014, I remember very well. And the effort in term of technology, assets, people and company overall has been very huge.
If the customers and the market are going to recognize it to us, I hope. I hope seriously. And I think that, it will is happening. At least, we have been able to demonstrate to our customers that we are totally serious even if this project today is 200,000,000 below the expectations. Or higher in term of costs than the expectations.
We didn't give up. We are not going to leave the customers alone. That's quite important pillar for the customer. I believe I hope. There were a second part of there was a second part of your question that I missed.
If you need to reproduce part of the cable What would be the
We don't see the reason for it, frankly speaking, also because the damages that have generated these faults are problems of installation. Obviously going to install 800 kilometer of a cable, you may have 1, 2, 3 damages here and there. Some of the damages we have found at the beginning, some of them are coming out later. To reproduce, it may be. But if we reproduce, then we have to reinstall.
And we are back to square 1. That's the reason why we are very skeptical on this kind of solution. You're welcome.
And our next question comes from Tom Swift from Credit Suisse. Please go ahead.
Hi guys. Francesca, I guess this is a question for you. Are you thinking about tapping the debt markets anytime soon? I know you have the acquisition loan that's last thing, I think it's a 2 year maturity, but just thinking about, 1, the liquidity levels and 2, also that one of your competitors, they also got a bond out a couple of months ago and it was at an interesting time for them. So just your thoughts on whether that's a possibility.
Over the short term? Thank you.
Thank you for your question. I don't believe it's a good timing now. Tap any capital market because the credit spread had increased very significantly. I think that for this couple of year, we are enjoying a very good bridge financing of $700,000,000, which is by the way, one of the most competitive funding source that we have with a step up in terms of spread of margin. But even if you average out the margin across these 2 years, believe me, is really very competitive.
We have already hedged almost 50% of that basically converting a variable interest rate into a fixed rate. So I think that we may wait for better time. By the way, given the cash generation, I don't think that we would look into a full refinancing of the bridge through capital market. In the capital market.
And our next question comes from Lucy Dibella from Equita SIM. Please go ahead.
Yes, good evening. Just one question on Western Link. I don't know if you can answer, but I will try. When do you think when you expect a full completion and full commissioning of the West Delin projects based on the information that you have today? Thank you.
Thank you very much for the question. When it's difficult to say, but as of now, as of now, before year end, theoretically should we be able to get the full commission. Now full year because we are going to complete the repair within, let's say, 1 month. Then we have to restart the test of the for the reverse polarity of the line.
Thank you.
I believe that by the year end, the line should be tested and completed.
And it appears we have no further questions at this time.
Okay. So thank you very much
to all of you
for participating to our first half results release and have a good evening.
And this concludes today's conference. You for your participation and you may now