Thank you very much and good afternoon to everyone. Welcome to the first quarter results conference call. 2018 in the Prism Group. As usual, let's start with the highlights at page 3. Financial highlights.
Organic sales grew +3.1 percent, not so bad. Supported mostly by the underground voltage and industrial cable growth. A high single digit growth in optical and connectivity and a positive organic trend in TNI if we do not consider the still the effect of OCI that is obviously negative. The adjusted EBITDA has closed out the $153,000,000, 8.1 percent of the sales, in line with Q1 2017. What about the segments that have contributed to it?
Telecom, further margin expansion with volume growth, significant volume growth, improved manufacturing efficiency, namely the effects of the investments that we are progressing in the fiber and the YOC results that has been very good in 20172018. Obviously, it has reporting in the first quarter, the upside that we did not were aware of the last year. At the same time we had the reversal of part of the bad debt provisions we did in 2016 for the OE bankruptcy. Bankruptcy, the problem of OE, Chaparralife. Energy Projects, Energy Projects are going reasonably well the operating results of the quarter because of the Westerling project having had a problem in the connection in at the beginning of April due to probably a problem in the shallow water cable, but we will touch more deeply the point later.
ForEx, we had $30,000,000 of ForEx negative effect. And obviously OCI I was commenting before a negative effect of 1,000,000. Net financial debt that closed at 1,000,000 coming from the 998 same quarter last year. But with the 291 effect positive, from the equity linked bond that has been converted recently. Let's flip to the financials page 4.
7bturnover1.879 versus $1,849,000,000 of first quarter last year. That means organically, agro and organic growth of 3.1 percent. The adjusted EBITDA, as I said, the 153 Bradingen in line with the previous year, despite the 20,000,000 provision release for the problem on the test of Westerlink. Operative net working capital at $604,000,000 comparable with the 732 of the same quarter last year. So 8% of working capital on sales.
Net financial position as a consequence of $648,000,000 compared to the $998,000,000 of March 2017. Let's move to page 5 and see that the profitability is continuing to grow. Thanks mostly to telecom obviously, but also properly redid the energy projects because energy projects are as posted, are pretty low EBITDA margin after the approval for the problem in the test phase of Western Link. 6.9% with an organic growth that vice versa has been very positive with 14.8%. As you can see, the a result at the end of the game has been 1,000,000 after the accrual of 1,000,000 we posted.
The organic growth 14.8 percent has to be properly readed because we have to consider the summary despite the 20,000,000 Western Link provision has had a grow of 3%. Consequently would have been 13% roughly without the provision release, without the provision. And high voltage that posted a very significant growth. Unfortunately, 1 quarter is not the full year. But a very significant growth of 40% compared to the same quarter last year.
E and I E and I had, EBITDA margin slightly scaling down from 4.3% to 3.8%. And an EBITDA as a consequence of 31,000,000 comparable to the 35 of the same quarter last year. To be noted inside it that there is the effect of OCI that is still declining comparatives we've used here, this effect should be over within the first half, at the end of first half. The organic growth that globally is -2.5 has to be evaluated taking into account that without OCI, the organic growth would have been 1.9%. Consequently, it's not so bad.
And most of all, that is positive 5% for TNI and negative 5% for PD. Then obviously, the difference in term of size of TNI and PD where TNI is higher is generating the plus 1.9 percent compounded organic growth. Industrial network component, flat in term of results 27, 27 with a slight decline in term of EBITDA margin. And an organic growth that is pretty significant 10.7 percent, mostly in the industrial cable segment because network components is still suffering of the same problem of power distribution at the end and posted an organic growth negative for 5%. Oil And Gas, minus 2.3 percent adjusted EBITDA margin minus 1,000,000 with an organic decline of 9 point suffering as well as has been suffering the core oiling gas in the past quarters.
Telicom, the very good news is telecom, where the organic growth as the EBITDA margin has jumped from 16.3% of the first quarter last year to 23.5% this year. From the results point of view from 53 to 75, very big jump with an organic growth of 1.7 the 1.7% is to be correctly analyzed with the optical cable going up by 8% CApper cables, vice versa going down by 25% and fibers that are only the fibers we sell to third parties with a minus 10% but simply because we need of our fibers for ourselves. We are not selling fiber to third parties if not absolutely needed. This year is the EBITDA margin. The 3.1% is the total organic growth and the result is in line with the previous year.
Let's flip to page 6 and see the EBITDA bridge. 154 was the result in 2017 energy projects before the Western Link provision posted an increase of 2,000,000 The West Delink provision we took is for $20,000,000 E and I, excluding OCI, has been positive for $2,000,000, thanks to TNI that went up by $5,000,000 and the PD that VESSA scale it down by $3,000,000. OCI has a negative impact of $3,000,000. And the industrial network component globally had a positive impact of 1,000,002. Oil And Gas minus 1, as we have seen, and the telecom that has to be correctly analyzed $28,000,000 upside of which twelve are coming from the bad debt provision for 5 and the carryover of the results of YOC for 6.
ForEx counted for $13,000,000 negative results, negative effect on the result. Overall, my comment is that the results have been pretty good despite obviously the Western Link provisions of which we have to better clarify to you the reason why. Who is driving the growth of the company is telecom, definitely at the moment. Let's flip to page 7, General Cable Acquisition. General Cable Acquisition is progressing very fast That's my opinion.
We got almost all the clearances, except the Brazil that is a debut this year. Clearance because there are 15 days to oppose to the clearance and the diffuse that has still to come. So the closing of the transaction Moving to page 9, energy projects. As I said, the organic growth has been 14.8 percent, very significant, mostly driven by underground high voltage, partly by high voltage submarines, The business is going well. Unfortunately, during the taste phase of depolar 1 of Wester Link to be totally transparent to you.
An interruption of the Link has occurred has occurred in the line we were testing with the customers and has occurred probably because of a fault of the cable. We don't know yet because we don't have the cable already in hands. We don't know yet the reason for it. Obviously the location of the fold is in the intertidal area, meaning where the C goes up and down roughly by 8 meter coming from 8 meter water depth from sorry, 4 meter water depth to minus 4, consequently to a totally no water, dry water, dry water area. It's a very difficult location.
It closed a very difficult location for the installation and it is Moreover, for the repay. The repay, what we considered in the $20,000,000 to be very clear are $3,000,000 that are the deductible of the insurance because the pay is covered by the insurance and the expected roughly 60, 67 days of time to go to complete the repair. At this stage, we will be able to reconnect the line and to complete the thing of the 2 poles. As of now, we cannot test the other pool simply because we do not have the return on cable. And the Grand Day Voltage is going very well with a very positive start in Asia Pac and EMEA.
Indonesia particularly is driving the race is fine. Unfortunately, the margins are not so high as could have been in other markets, but is acceptable. The energy projects closed at $311,000,000 $21,000,000 EBITDA. The EBITDA obviously has to be read with and without the provision. Otherwise, would that be 41,000,000.
Order book. The order book for high voltage is back to 450,000,000 Whereas for some Marine has declined to 1,000,00900. It's very huge, but it's not as huge as some months ago, some quarters ago, sorry. We expect in the second half of the year to see the execution of other tenders so that today have been delayed for technical reasons. Energy Infrastructure.
Energy Infrastructure closed at $790,000,000 with compared to the $806,000,000 of previous year. With a slight organic decline of 2.5 percent. The EBITDA has been 31,000,000 versus the 35 of the same quarter 1 year ago. As I said in that chapter, we have to consider the effect of OCI Without OCI, the organic growth could have been positive for 1.9%. Overall, the business is improving, especially in Europe, South Europe, Germany, East, Europe and Netherlands are going well.
The margins are in are growing. I'm talking about TNI only. The EBITDA is better than the previous quarters finally. Thanks to the CPR introduction that we have already commented in the last quarters, the volume growth is generating even more margin. The chart the picture is different from power distribution where the volumes go down in South America and the Nordics are not good totally compensated by the slight recovery that we are seeing now in Germany and Netherlands.
We expect that that's an effect of the first quarter only. Obviously, the winter has been particularly difficult this year. But we consider that the real season is starting now with April, considering the second quarter should be good indication of the trend of the year. Industrial network component is closer with $369,000,000 coming from the $340,000,000 of the previous year, of the 1st quarter previous year. With an organic growth significant of 10.7 percent.
That's a sign that the growth of the CapEx into the industrial segment is having an effect in the cable business tool. We have seen in the previous quarters a growth of the CapEx for industrial And now we are seeing the effects here. The result has been positive has been positive for $27,000,000 in line with the previous year not better, simply because of the mix, mix because we have seen a positive performance in railways and infrastructure. But we have seen a decline compared to the same quarter last year in nuclear mining and let me add crane. The trend is stable in the renewable and but we have a slow a certain slowdown in wind in North America because is going to start in the next quarters.
Elevator good organic growth in Europe and but the compensated partly by the weak performance in Asia Pac as well as by the fact in North America of the exchange rate. Because all the business in U. S, that is the biggest. We have a denominator in dollar, obviously going to the euro suffering the exchange rate effect. Automotive going pretty well, sound organic trend, strong performance in North And South America as well as in Europe.
The adjusted EBITDA has benefited from a mix improvement and the business is improving. Finally, network components, not very strong in the medium voltage and low voltage, in line by the way, with the trend of medium voltage cable as we have seen the power distribution. Whereas the recovery in high voltage accessories reflect the improvement of the business in HP. Oil And Gas Closing the first quarter with $57,000,000 compared to with the $66,000,000 of the previous year first quarter when the umbilicals was going pretty well still. Today, obviously, the umbilical drop it significantly during the quarter with a very strong price pressure in Brazil.
With the order we see to recover internal volumes, not internal margins starting from the second quarter. The DHT is going by severe saprolite well, the downhole technology. Thanks to the number of rigs that are under activation into especially into U. S. The core oil and gas cable is is recovering, still recovering in the onshore side, in the offshore and marine, frankly speaking not yet.
But with the oil price at $75, we think that the business will recover. Finally, telecom telecom, $317,000,000 sales with an organic growth of 1.7% on the previous year, but an outstanding result of 75,000,000 compared to the 53 of the previous year. In the 75,000,000, we have to take into account the 11,000,001 off represented by the effect of YFC upside last year of the last quarter last year. And the 5,000,000 of the provision release for OE accruals. The business is growing outstandingly with a very sharp demand of fiber cable.
The real problem is the availability of fiber that is in shortage everywhere. And consequently, the demand is very strong. And we are we have been growing and we continuing to grow in term of capability capacity of the fibers. And that is helping us also to reduce the costs. The side the chapter of the telecom that vice versa is declining is the capital become because the copper telecom in Australia that has been very buoyant in the last years and today unfortunately it was foreseen a business that has no longer life than it.
Let's go to the outlook page 15. The outlook we are giving to the market is $730,000,000 for the full year 2018, taking into account the $20,000,000 of provisions we took on the Wester Link project on the problem in Wester Link. Obviously, this guidance is linked to unexpected volume and margin telecom trend in line with the Q1. Volume trend in E And I And Industrial that should be and make sense to have a trend similar to Q1. The effect of the ForEx that has impacted 1,000,000 in the first quarter not to go higher than 20,000,000 dollars, $25,000,000.
But if we look at the exchange rate of today, makes sense. Energy projects, obviously, we consider the 20,000,000 provision release and we think that should be enough to cover the problem we had in the testing. Okay. That's it. I'll leave the floor to Francesco for the details of the P and L.
Thank you. Valerio, and good evening to everybody. I start as usual with the profit and loss statement, just to recap some notes that Valeri was already anticipated. Total organic growth was 3.1%. Actually, this has been the best quarter since 2016 in terms of organic growth.
And followed in already reasonably good fourth quarter 2017, which was close to a 3% organic growth. As Valerio explained, this was driven by a quite solid growth in the industrial businesses. Even if on the lower part of the mix, which priced a bit on our margins, was obviously driven by the sharp growth of optical tables, very close to 10%, eight percent as Valerio explained. And also a reasonably positive performance of the E and I business net of the excluding the OCI performance, which was a positive and mid single digit, specifically in the TNI business. I repeat excluding the OCI performance.
Adjusted EBITDA was actually flat compared with the previous year 153,000,000, just to recap 3 main impacts on this number. 2 pretty negative impacts, the Western Link provision for $20,000,000 $13,000,000 of currency translation effect, partially compensated for 12,000,000 by the telecom still netting these effects, we have a 20,000,000 negative effect net, which is a burdening the 153,000,000. So this let us comment that results have been in the first quarter pretty solid. And of course, this is the way also to read the guidance that Valerio anticipated between $730,000,000 $770,000. We have to consider that this guidance absorb the 20,000,000 Western in provision, of course, takes into account the say 11000000, 12000000 of 1 offs in the telecom but also absorbs a pretty negative ForEx scenario.
And the assumption is that for the full year, the ForEx will impact between 202025. Just to help you read correctly the guidance. Of the financial charges that I will comment separately. We had a reduction of the tax rate as well down to 27% Unfortunately, the group net income was negatively impacted as you see is lower than the prior year. Was negatively impacted by the reversal of the metal derivative fair value, which is, as I always say, a non cash effect, which is the result of the stabilization of the metal price after the sharp price of the metal price in 2017.
We can flip to the following page just to shortly comment that the total EBITDA adjustments decreased since last year from 24000000 to 17000000, pretty low restructuring charges. Waiting, of course, for the combination with General Cable. And most of these EBITDA adjustments are related, as you see, with the General Cable Acquisition acquisition costs and integration costs. In the special items, you see the negative impact $26,000,000 that I was referring to in the commenting the profit and loss statement and the reversal of the deposit of metal derivative for value of 2017. I go to the following page to comment the financial charges net interest expenses, which is the most meaningful line here is down to 15,000,000 from 17,000,000 last year.
This drop is mainly due to the conversion of the old 2013 convertible bond because the conversion resulted in the fact that the last cash coupon was not due. As the conversion took place and these of course reduced the net interest expenses compared to the prior year. We can flip to the following page to comment the balance sheet operating net working capital decreased compared to March $130,000,000 down to $604,000,000. There is a major non cash effect year, which is due to the depreciation of the currencies, which is a decrease of working capital for 80,000,000 And the other pretty positive effect is a reduction of the working capital in the project business as well. On the side, there was an increase of working capital driven by the higher metal price compared to last year.
Net financial debt, 648,000,000. If we add back as Valerio explained, the 291,000,000 debt related to the old convertible bond conversion. This means 939 like for like with the $998,000,000 of March 2017, a reduction of approximately $60,000,000 but take into account that these 60,000,000 reduction of net debt was achieved with a 100,000,000 dividend distribution and also 50,000,000 shares buyback, which was executed in the second quarter 2017. Last but not least, the cash flow, given the seasonality of our working capital, I would mainly focus on the right column, which is recapping the cash flow over the last 12 months from 1st April 17 to end of March 18. The free cash flow is pretty good to $7,000,000 on a last 12 month basis.
I repeat, and it is not very far from the record free cash flow, which was achieved for full year 2017, which was $276,000,000. So pretty solid cash generation in the last 12 months. I think I have concluded and we can go ahead with the Q And A session.
Thank you very much. If you find the again, you. We will now take our first question from Mila Castar with Goldman Sachs. Please go ahead. Your line is open.
I hear the line really badly. Hello?
Yes, we hear you.
Hey, you hear me. Good afternoon, everyone. For taking my question. I wanted to ask 2 things. First, I want we've seen the tenders for Wind Offshore starting in both at least for the turbine side for in U.
S. And in Taiwan. Can you comment a little bit about your expectations around these markets when could cable orders come and how would you be positioned in terms of capacity to or supply those and gain contracts there? And then the second point, can you talk a little bit about CPR, it doesn't look like energy products sort of accelerated in Q1. Can you talk about what we have seen in terms of all people getting out of the market that are compliant pricing, give a little bit bit of color on should we still expect to see an acceleration in the business driven by CPR?
Thank you.
Okay. Thank you, Daniella, for your question. First of all, let's go to the tender of offshore wind farms in U. S. And Taiwan.
We have heard something, honestly. We have not received any request for quotation yet. We hope that at least the U. S. Will start with such a kind of technology that seems for Europe to generate pretty good and cheap energy clean and cheap energy.
For the time being, is too far away the idea to see business coming from it. So I cannot give you a very brilliant answer today, but as soon as we have, be sure that we can tell you. For the time being, we have no tender activity on it. And frankly speaking, I'm a little bit careful on it because theoretically, we have been awarded by the by a customer in the U. S.
Of the Cape Wind project that never has been realized. Consequently CPR CPR is going well. Unfortunately, on a limited number of markets in Europe, But for sure, we have seen a number of competitors, not especially the very little one, not being able anymore to supply products compliant products to the market. And that's helping us and the serious competitors to grow and to serve the market properly without the the dogs that are killing the prices for the volumes. So we are pretty reasonably happy with the outcome of CPR.
The real problem is that has not been extended seriously in the application country by country by certain countries. And that's a matter of or position of the local cable association.
Thank you. Can I follow-up on your on the first point, given you don't see sort of U? S. And Taiwan very near term, what are the biggest contracts or the biggest tenders out there for the next 12 months in terms of submarines. I know we've seen news flow about Viking maybe being delayed.
There's also another project called Euro Asia out there, but can you give some concrete examples of what's potentially out there in the pipeline for tendering over the next 12 months? Thank you.
Okay. Let me give you my knowledge. The knowledge is that Viking has been postponed in term of award of tendering, sorry, because of problems in the permits in UK. That are suffered by National Grid. The other projects, vice versa, are coming bigger should be another 50 apps as big as the first probably.
Other medium sized project, but let me leave the floor to Massimo, but the thing that is here, in order to give you more color on the tendering activity.
Thank you very much, Neil. So yes, there is still kind of active, handling movement in the market. As Verda said, only Viking has been only delayed by due to a specific technical reason, which is the permitting of the land portion in the UK. But as far as the rationale and the business case associated with the project that we don't see in our risk associated to it. There are other projects like fablinker the Canadian UK and France, which are quite active.
There are active projects in the offshore space like 50 ads mentioned by Valeri, which is a duplicate the 50th that we are just about to complete, the first projects awarded to us 3 years ago. There is an offshore project in Holland, HKZ, quite, quite relevant. So there is both in interconnection and the offshore quite an intensive tendering activity. We do expect the market in 2018 to catch up a little bit with what hasn't been awarded, has been adjudicated in 2017. We're market ended up with the 1,900,000,000 dollars, $1,800,000,000 worth of intake.
So do expect an improvement over 2018 although Viking, which is a big size, a big portion of 20 19 market was slipping too early in 2019. But overall, the outlook is extremely positive and attendee activity dynamic as well. Thank you, Danilo.
Thank you. We will now take the next question
can you hear me?
Yeah.
Okay, perfect. I have three questions. The first one is around the telecom. I mean, I understand that you had some provision release in the quarter, which were small and also some carryover from a from why you have seats but even if we exclude that, the margin expansion actually looks quite spectacular, especially considering the organic growth was a little bit lower this quarter. So maybe can you explain the building block of this margin expansion and specifically, how much visibility you have for the margin for the rest of the year?
And of course, I'm here curious to know about sustainability of what we've seen the first quarter. Is that question number 1?
Thank you, Lucy. Now the provision release has been $5,000,000 is related to the provision we took on the entire credit with OE. Is secured. The 5,000,000 across the way we have to release it. The margins are Nevertheless, very high.
Why are very high? First of all, there is an operating leverage effect. Because the volume are going up the fixed cost. So by definition at my home fixed and currently we cannot grow and growing the volumes that helps also to grow the efficiency. Thanks to the investments are we doing.
If you remember in 2014, we started a better we restarted to invest in telecom in fibers. And we started with the aim to reduce the cost of the fibers because we were pretty high in terms of fiber costs. Now the fiber cost is much better helped by the actions, the investments we did, the improvement in the process, and the volume comes with the scale effect. The race is not over. We have still to go to complete the capacity and the upside in a business that is driving the race is growing.
Just in case today, during the board, we are and we obtained a significant investment of 1 1,000,000 to be executed in the next 2 years to further grow capacity and reduce the cost of the 5 The combined effect of the 2, the grow capacity, the growing capacity and the reduction of the cost is giving very solid margins to the telecom business. We expect such a kind of level can be sustainable for the next quarters. The market trend. Frankly speaking, everyone is over saturated. We do, we are trying we are moreover going to close the deal with the general and consequently to increase further our capacity, our presence in the market.
I don't see any the real problem may come in the future, maybe from a very sharp slowdown of the Chinese market. But for the time being, is not in any forecast, even though YOC is not.
Okay. Thank
you. Lucie, did I answer to your question?
Yes, you have. Thank you very much earlier. There was there was very here. The second question I had was around energy project and if I exclude the provision, the contribution was actually only table, I would say, year on year, but I see that in your guidance slide, where you showed the arrows division, you are indicating that you expect contribution, organic contribution in energy project to be up actually year on year versus last year. So how much visibility do you have in terms of the building blocks for this margin to actual for the organic contribution to accelerate in the remainder of the year.
Considering it's stable in the first
Are we talking about projects overall? And we expect a better contribution in 20 18 compared to last year of high voltage, a very moderate improvement Western Link provision apart. A very slight improvement maybe of submarine, but most of all, the progression of the trend of high voltage, the rest of high voltage. That's the reason why I don't know if you have there
will be a slight, I mean, we have full visibility of the project because they're all in line as far as summer is concerned. We can easy project a slight improvement in submarine. As far as about digital concern, we should do better than last year because we're going to have a better result in China. Thanks to the qualification that are going on. So we're going to recover that portion of the market to be a little bit lost as a result of the disposal.
So we have, I would say, a safe visibility of some improvement in some more significant improvement in the voltage at the end of the year.
Okay. Thank you very much. My third question was on the industry division order book and I understand that the mix at the moment is not, you know, the best make from a margin standpoint, in the order book that you have before industry for the rest of the year, are you potentially seeing an acceleration or an improvement of this margin mix as the cyclical businesses are continuing to improve?
Lucy, let me leave the floor to Francesco, Frenchurally, the responsible of products. So that you can hear from directly from him.
Good evening. Do you hear me?
Yes.
Okay, hello. So, thanks for your question. Picture, as of now, in the order books, reflected the speed we have seen in the first quarter. The quality of the order book is still characterized by midsize project while we are still waiting the big orders that should come related to the largest project that has not been released yet. So The book quality in terms of mix is still driven by transportation segment, mainly railroads or restock good solar park coming stablewind and relatively stable gradient mining.
The expectation for the year end is to keep stable the speed as it is today providing the release of the expected industrial project in the pipeline.
Okay. Thank you. And maybe if I can have one last question, if I may. Thank you for all of the color around the provision and what's going on at the Western Link. Valero, from your standpoint, is this level of provision of 1,000,000 conservative enough?
Are you feeling comfortable with this level?
Okay, to be clear. That's the provision that is totally in line with the risk deductible. And we expect $50,000,000 in total cost of delay because we are going to be late 2 months more and 2 months more times the LDs we pay per day is a mathematical calculation. Then obviously if the delay will be longer, but we don't think so. We are already on-site in the next 2 days should we be able to have the cable to get the cable and to start the installation of the repair cable.
We believe that that's the proper provision for the damage we had. Thank you.
Thank you. We will now take our next question from Monica Buscio from Bank of IMI. Please go ahead. Your line open.
Yes. Good evening, everyone. Can you hear me?
Yeah, we do.
Okay, perfect. My first question is on the organic growth in the first quarter, which as Francesco told us, was pretty good. I was wondering if you believe that this organic growth could be maintained or improved over the rest of the year? And my second question is on the General Cable acquisition costs and the integration costs in the first quarter. Obviously, they were quite small justinos, but I was wondering if they are on top of the euro to 1,000,000 that you announced at the time of the acquisition.
And the third question is on General Cable on the first the quarter. The first quarter for general cable was characterized by a negative mix in the USA and a pretty good performance in Europe. I was wondering if you could comment on this and on what do you think about the rest of the year for General Cable? And the very last question is an indication from Francesco if it's possible on the financial charges by year end. Thank you very much.
So first question, organic growth first quarter, let's say not so bad, 3.1%. We expect that level to be sustainable in the full year.
Okay.
Obviously is a compound of different organic growth. We see energy projects thanks to high voltage mostly able to grow a little single digit, submarine flat So I'm going to give you an answer that gives information for the guidance to all of you. Indust sorry, that's energy projects. E and I slightly positive despite OCI, because OCI has been seriously negative in the first quarter. In the second quarter should be with a lower level of negativity, but in the second half should be at least in line with the previous year.
We have 2 effects: 1st of all, the previous year, the second half was the drama for OCI. Secondly, the oil price is now at $75 if that level of price keeps the investment in the Middle East may restart. How much time it will take I don't have a very clear idea, but we are seeing a better perspective for OCI. Industrial NetBot Components are mid single digit growth. That's what we foreseeing today.
So, lower to be clear than the 10% we posted in the first quarter. Why? Because the first quarter last year was very low level today or better. This year has been much better. But last year, if you remember, progressively, the industrial cable segment went up along the year.
Finally, oil and gas, let's say more or less flat. With a potential recovery in the serve in term of organic growth. But the organic growth without the margins is useless. So the problem of surf is going to be the margins of the new tenders because our competitors in South America have pushed down the price like hell, we reacted and now we have the volumes going to come but with very low margins. Finally, telecom, a single high digit organic growth that is more that is better than the 1.7% we posted.
Obviously, last year the copper telecom that has had an effect, a negative effect in the first quarter, along the year will have a lower effect. Unfortunately it was foreseen and planned at the slowdown of the copper telecom in the last mile for NBN.
Okay.
So overall, I confirm that the current first quarter organic growth is something that we are thinking to be able to reach year end.
Thanks.
And
that's the first question. 2nd question, integration costs Francesco, do you wanted to I
think in substance, I Monica, Francesco speaking, I think in substance, we can say that These integration costs are included in the $220,000,000 total implementation costs. In any case, they represent as you as you said, a pretty small part.
Okay.
More the integration costs for the time being are we talking about cost of lawyers, the cost of, What about the first quarter of general cable? Our comment, okay, has not been outstanding. Has not been even so bad. Obviously, is impacted by the fact that General Cable doesn't edge the metal. So last year, a part of the project, for what is our knowledge at the time, they do not edge the metals.
What does it mean that last year in first quarter, they enjoyed a very high level of they enjoyed a very high level of copper. Consequently, they had a positive result from it. This quarter, the first quarter unfortunately they have not been able to enjoy the same upside in the copper and consequently they did not they lost they lost They did not realize the same advantage of last year. The business is going reasonably well. Not dramatically well nor dramatically down.
There is an effect of the mix. Obviously, we have been talking with them just to understand the trend of the business. We don't see and they don't see an effect, dramatic effect on the power distribution as someone else has shown. The power distribution is going not very well, but not very, very bad. Is pretty stable.
Maybe a little bit of negative mix, but nothing else. What else there is an effect of mix in North America. That's true because the mix for special cables and for power distribution tends to go through is higher in the trade. And in the trade that the margins are lower by definition. This has been in their opinion little slowdown on the contrary is improving definitely Europe.
That's the projects. And the high voltage that's partly by the way are doing for us for the France, Italy. And that's it. I'm not worried.
Maybe I take this question Monica on the financial charges. Let me refrain first of all, from giving you an indication on the expected net interest expenses of the year end including potentially the combined perimeter because it's very complex. It depends on the timing. It depends on a lot of counting impacts and would be a waste of your time. What I can say is, if we have reason on our existing perimeter.
Last year, we had the level of net interest expense is approximately 1,000,000, we will enjoy the positive effect of the conversion of the old convertible bond, the 2013. And this of course should impact around 9 1,000,000 positive. Then what I can say is that in 2019, when the financial expense and when the synergies of financial expenses will be already at run rate the refinancing of Generali Cable debt and the payment of the acquisition consideration, we will realize that around 30,000,000 synergies. And in my best estimate, this should lead to net interest expenses combined net interest expenses around 1,000,000 for the combined for the combined company. Then you have to add of course veg in cost which is another $15,000,000 to $20,000,000.
The financial expenses are some financial expenses amortization, but the line of net interest expenses, I think that $100,000,000 for the combined entity 2019 would be a good target to reach.
Okay, perfect. Very clear.
Our next question from Andreas Willey from JP Morgan, London. Please go ahead. Your line is open.
Good afternoon or good evening, everybody. I have two questions left, please. First one on the provision and the Western Link issues. When you have the the original problem with the project in a different part of the cable, it was also because it was a new type of cable and something specific and therefore unlikely to occur elsewhere in other projects. Is that the current fault also related to this being kind of a bit one of a kind?
Or what do you think it could be? And could there be an issue elsewhere where you have used a similar cable? And the second question, from Entresco on the net financial position at the end of the year prior to the deal happening. So what do you see in terms of kind of working capital CapEx move and we land at roughly for the end of the year. As a starting point before we add the debt and financing of the deal?
Thank you Andreas for the question. I try to answer to your first question. At the end the some problem in the testing phase of a link of 900 kilometers may happen. Now obviously with the history of Western Link, everyone is care. We do.
The point is that where first of all, we had the default if any, we have to see because maybe even an external damage. The 4th if any has happened in the first is a 2500 meter from the shore. In intertidal area. And maybe that obviously has been afforded due to the cable, maybe that has been afforded due to an external damage maybe made by third parties or maybe has been a fault that progressively came out because of damage or particularly hard solicitation of the cable we did during the installation in that difficult area. We don't know today.
We have to have the cable in hands and to examine and to analyze.
As far as the case is concerned, you said, until we get the cable in hand that we cannot figure out whether this is a intrinsic cable problem or an external damage we will know this in the next over the next 10 days. Your question was also about whether we have other application or this technology, which we don't have. So this was the only cable project where we apply the polypropylene laminate technology. So if you are hinting a possible risk another project not at all associated to the technology. This would be the unique project which we've done with this specific installation technology.
Did I answer the question, Andreas?
Yes, that was very Thank you.
All right.
Francesco, would you like to answer that one? Yes. On the
debt rezoning on the current perimeter. They basically let me start from the 4 36,000,000 that at the end of last year, we anticipate a free cash flow, let me say, between 200000000 to 130000000 So a little bit weaker than last year because last year benefited from a major reduction of workers capital this year, I think we will have an increase of the working capital. Then of course, we have to consider the dividend, let's say 100,000,000 considering everything for net cash flow between 101120. This would bring that down to $300,000,000 and then you have to take into account the conversion. Keep in mind that $17,000,000 of this conversion took place already in 'seventeen and the $280,000,000 as already occurred in Q1.
So this boils down to NFP, which is after the conversion of the 2013 bond, a very small debt in term of NFP. Then of course, you have to consider all the effects of the acquisition, including the the capital increase that we want to finalize as soon as possible. I can also give you an estimate of the debt or the combined debt that I see for year end, all including acquisition, including and including the capital increase that in my opinion should be slightly higher than 1,000,000,000 to between 1,000,000,000 and 1,000,000,000, I would say. Year end 2018, including general cable acquisition, refinancing of the debt of general cable and the $500,000,000 capital increase.
Very helpful. Thank you very much.
Thanks a long term forecast.
Our 2018 is not a long term. Eventually sure. Thank
you. We will now take our next question from Tom Spitz from Credit Suisse.
Hi, thanks. I guess just a follow-up from Andreas's question, just seeing at the bottom of the first page on the press release saying, the possible capital market transaction in the coming months? I know you've spoken about the the equity raise but what on the debt side are you thinking about coming to the debt market anytime soon? Thank you.
We have not decided, I. E. Franchesco Vakimi speaking. We have not decided yet the acquisition will be funded with acquisition financing for 1,700,000,001,000,000,000 is a term loan. 700,000,000 is bridge financing and then of course the bridge financing is bridge financing.
So, it's subject to a take up this take out, sorry, this take out will take place most likely in the second half of the year in the fourth quarter, actually, of the year and then of course, to be decided whether the takeout will be for the entire amount of 700,000,000 or only a part of that. Too early to answer the question.
Okay. All right. Thanks very much. I mean, just thinking, allowed here, I mean, I mean, you've got the 22s 2.5 and I know they're trading, you know, you know, they're trading alright. So just thinking it might be quite opportunistic for you to tap the markets again.
That's all.
Sales of America?
Yes, sure. No, no, sure. I agree. The interest rates on the market are very interesting. The market confirms to be pretty, pretty appealing, pretty attractive right now.
Going to the market in the second part of the year will allow us to fix a pretty low interest rate. So, we would either is, as I think, it will be the case, a good window, we'll certainly take it. To be decided the amount because it's not given that we will go to a capital market for the entire amount of the bridge.
Okay, got that. Thanks very much guys.
You're welcome.
Thank you. We will now take the next question from Dennis Income from Goldman Sachs. Please go ahead. Your line is open. Hi,
good afternoon. My first question is regarding the Viking link. Obviously, the Viking link is going to be a very large interconnector. And a lot of stakeholders are involved in the organization and the decisions made regarding technologies and potentially the suppliers. Do you think that you experienced the National Grid and the potential problems you had with Western Link in any way of pairing your ability to gain the Viking link?
And secondly, do you think that, given that Western Link was done with must implement the technology that's perhaps a little bit older. Do you think there's any way that, the Viacomene will favor extruded lines?
Yes. Okay. Let me give the floor to Matthew, but I need to give you an answer.
Hi, Dennis. So regarding Viking and yes, additional grid is involved. It's one of the two customer and the other one in Energeneta. But as we many times said, the Western Inca experienced with National Grid, they actually strengthen our position within National Grid there rather than wakening it. So we don't feel any kind of disadvantage in participating to the Viking project any negative influence from the West Alink position.
Viking would be a different technology in West Alink. It is unlikely that it's going to be astruded because, as the lady said before, it is the longest connection ever. And I don't see customer ready to take on the risk of running a new technology through the technology at 525 kilo volt, which is the voltage of the line in a, in a, in a, through the solution. So 99% confident that the technology shows for this connection will be the MI. So the paper insulated technology.
Which is a very well consolidated technology, in which we benefit from a longest installed, one of which has been installed 50 years ago and is still running. So, actually, we think we are the best positioned in terms of experience and how DMI technology in the market. This is what we know at this stage. As you know, the award that was supposed to happen in July will be probably moved back to quarter 1 next year. But I think the customer decision regarding technology has already made according to the connection and the information that we get from the customer.
You very much. And then the second question regarding the telecoms division. First, you have mentioned, that there's a and the select long demand in the market for fiber and there's also shortage. Do you think there's potentially a pricing upside to fiber cables, at least both for the ones that you're selling, giving the shortage? And perhaps could you also comment on where you see strong demand in which regions is Europe with the China?
Is it North America?
Okay. First part of the question, Yes and no. Obviously, there is a shortage of fibers today in this market and consequently the prices are slightly going up. But very slightly in Europe and US. Why?
Because simply there is the terrorism of the Chinese entering into those markets. The Chinese is true that they don't have capacity but they may try anyway to offer at in in the markets of the US and Europe in order to prepare the future of themselves. That's why we keep the prices in line with the I cannot say the desire of the customers but we raise the prices very smoothly for the time being. Very important. Can you repeat the second part of the question, sorry?
Where the strong demand for optical fiber cables? Is it mostly Europe? Is it North America, is it China?
It's everywhere in the world. Is Europe today, thanks mostly to France because France launched a big investment to digitalize the community is U. S. But it's been launched the 2 years 1.5 years ago. Is the reply of the telecom carrier to the projected investment of Google that has been canceled.
And finally is China that is governmental driven and is growing terrifically in term of demand. Today, China mobile is tendering roughly 200,000,000 fiber kilometer per year. That is a dramatic number and seems not to slow down at least for the time being. So, we expect this demand still going to grow. Obviously, the operators are preparing their network for the 5G.
But the 5G is not yet in place. Nowhere. Consequently is a further upside that should come in the next five 10 years.
The next question from Gabriela Gambaroba from Bank of America. Please go ahead. Your line is open.
Yes, good evening to everybody. Just a couple of questions from my side. And the first one is on the tax rate. In Q1, you had a very low 26 percent tax rate. So I was wondering if we cannot see this level across the whole year?
And second question is on trade and installers. You said you stressed that the CPR put somehow some of your worth worth competitors
out of
the market. So I was wondering if you can quantify this aspect. I mean, the overcapacity was around the 40%. Is it possible to say to assess how much of this overcapacity is out of the game?
Okay. Let me leave the floor to Francesca for the first question.
Hi, Gabrielle. I think for the existing perimeter, it's certainly a good function, actually 27% is actually about 26%.
2nd question, T and I quantify is not easy. But if you consider that because that's to be done market by market, let's take the example of the Italian market. The Italian market has 3 big players. We are the 4th one or we're supposed to be the 4th one. And there are at least 20 little producers.
Out of the 20, only 5 or 6 are today able to provide the CPR cable. Will they be able to join the specs? Probably yes. When don't ask me because they don't have any idea about it. But in my opinion, out of the total capacity, roughly 10% of the capacity can be considered today in the CPR real CPR market out of scope.
Obviously are we coming from overcapacity of 30%, 40% today with maybe that we are roundabout 30, but at the same time, the CPR has obliged the producers to reduce the speed of the insulation lines. Consequently further reducing the capacity output. And that is another additional step forward to help the saturation of the lines. But for the time being, if that's your goal, There is no clue of a potential shortage, unfortunately, a long way to prove. Okay.
Okay. Thank you.
We will now take our next question from Artham Topra Venkou from Credit Suisse. Please go ahead. Your line is open.
I have 2, if I may. So on energy projects margin, excluding the $20,000,000 one off charge, I the margin is still 130 basis points down year over year and you flag mix in high voltage underground cables as the main driver could you just give us a bit of color how we should think about margin progression going forward this year?
Okay, I give you a very simple answer. Higher is the impact or the percentage of high voltage land in the combined to novel projects, higher is the impact of the margin simply because the margins of HV the rest of HV is lower than the submarine link. As a full year expectation. I told you that we expect a very limited single digit organic growth Considering that comes entirely from HV to wrestle and not from somebody that will be flat obviously that so will explain lower margin for the combined business segment. Maybe not as low as appears to be today because the upside in term of HVeter vessel has been particularly strong this quarter.
In the quarters to come we expect not to be plus 40% just in case.
Okay. Very much. That's very clear. And then my last question would be given that some of your competitors runs back capacity this year and going forward, do you see any deterioration in pricing in the energy projects business in the orders and just generally on the market?
Unfortunately, yes. If I'm not wrong, some of our competitor has even told that we'd be very aggressive. Okay. Here we are.
Mean, it's possible to, could you give any color on what's the magnitude?
No, frankly speaking, not because do not have an idea of what means exclusivity from their side. It depends. Everything depends by the capability to compete. So obviously project by project the picture is different because there are projects that some competitors can do projects that some competitors cannot do, cannot execute. There will be, I not be surprised to see a shown in the margins of the projects.
That's true. But there is a limit for everything, okay? There is a point to which we have to say, okay, be free to go. Help yourself.
Let me just one thing, after the result that this is new and we've been seeing this price reduction in the last 3 years. It has just happened that over the last 3 years, we've been able to add internal action to offset mitigate the price pressure. So this action will continue from our side on the Internet side as well. The price reduction cycle will be still there. So it's not an unusual trend compared to the past.
And as Valero said, that is project by project in some situation where we are kind of a single supplier, we can compete much better in some cases because not. And additionally, very minded prices only one element of adjudication there is the technical capabilities and the thermal conditions. Most of the time, we win or we lose based on the other 2, not on the price.
Okay, I see. Thank you very much.
As there are no further questions in the queue, I would like to turn the call back to Mr. Batista for any additional or closing remarks.
We have another question
from Luichi De Brule from
Yes, yes.
Yes, three, two quick questions for me, sorry, considering the delay in the order of Viking, how much is the expected order intake for transmission in 2018 and the market size compared to 2017? And do you expect any impact in the 1st part of 2019 due to potentially lower workload in 2018 or your backlog is sufficient to cover all 2019? And second question, how much is the expected contribution in the guidance of YFC? Thank you.
Okay, Luigi. Thank you for the question. Late and difficult. So I leave the floor to mass.
No, the size as a viking is on 100,000,000 in a normal situation, we would have faced a $3,500,000,000, $3,300,000,000 worth of market in 20 18. So once you take out Viking, we will spend now the market in 2018 to be in the region of 2.5,2.6,2.4. From many other variables. The workload for next year, I mean, we have a backlog which is a big, not entirely sufficient to cover complete as an 'nineteen by Whistler as well, the
whole of the impact of
the order intake of 2018 to help us fill up 2019. So at this stage, we are not worried. We're not concerned about 2019 backlog. And, we will manage it as a standard goes by the next for the next tenders. Did I answer Luigi?
Yes, yes. Thanks.
About YOC. We expect YOC to perform slightly better than this year. Even if they always surprise us.
Luigi, let me add Francesco speaking a very short comment on this. Of course, first of all, we expect that it's more than an expectation. We consider this guidance the carryover coming from 2017. That's an obvious, the famous 6,000,000 that we have referred to. Then we substantially what I can say that for the remainder of the year, we are assuming that the very strong results the way you see posted in the first quarter will more or less be in line.
We continue for the following quarter. So a trend in line with the first quarter. Welcome.
It appears there are no further questions at this time. Mr. I would like to turn the conference back to you.
Yes, thank you very much. I thank you everyone has been participating to our conference call Thank you very much and see you next time.