Good day, and thank you for standing by. Welcome to the Prysmian First Half 2024 Integrated Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Massimo Battaini, CEO. Please go ahead.
Good morning, everyone. Thank you for attending this second quarter call for 2024. We move directly to the key KPIs for the first half. You see a stronger performance in EBITDA, EUR 870 million EBITDA, with a great progression between quarter one, where we had some gap over quarter one 2023, while in quarter two, as you see on the right chart, right-hand side chart of the table, a great increase over the same quarter two of 2023. Driven, as I say, by the strong performance in transmission, as you see from the color code in the bar chart. Strong leap improvement in transmission and also in Power Grid, while Electrification Solutions outperform slightly better than the expectation. Overall, delivering this upside over last year.
We consolidated the 11.1% EBITDA margin for the whole company as a first half EBITDA margin, and a stronger free cash flow last 12 months at almost EUR 900 million. We continue to remain very focused on the CO2 emission, confirming a 36% achievement in Scope 1 and 2 reduction versus the baseline of 2019, and a significant upgrade of the recycled content in our cables, which went from a 12.5 last year to a 15% in first half this year. Completed the acquisition Encore Wire in a very fast and timely manner, and equally fast we are proceeding with the integration. This highlight the fast process.
I'm really proud of the way we conducted this process was a great example of a team play efforts across the headquarters in Milan, the headquarters of North America, our external advisors, our lawyers in the United States. This has made this acquisition very fast, with a closing on 2 July, very successful. With the same speed, we have implemented the first step of the integration. We already have aligned the commercial force on the field, so that we will not suffer from any kind of disruption or pressure or attempt from other competitors to take advantage of the integration. So we have now already one single face in front of one common customer, and this will also help us proceed with the proper pace in delivering the commercial synergies. I move to the business.
First of all, Transmission. Great, 10% organic growth, in line with the expectation and in line with the expansion of activity resulting from our first part of the investment deployed. Even more important is the leap in EBITDA from EUR 116 million last year to EUR 150 million in first half of 2024, and also reassuring is the growth in EBITDA margin. We are. We hit almost 14% in first half. We head for a 14.5% for the full-year 2024, and we confirm our target for next year to hit 16% EBITDA margin. This, thanks to the good execution, thanks to projects in the backlog, which are with better margin.
Next year, this 16% target will also benefit from the additional capacity that is coming online. There will be three additional new production lines coming on stream by mid-2025, plus the new vessel, Monna Lisa, available for installation from the end of Q1 2025. The backlog remain pretty solid at EUR 18 billion. You've seen that last night we announced the award of a new project. The connection between Mallorca and Spain mainland is a EUR 500 million project. Good margin. As you see, we are extremely selective now. With this backlog, we can afford really to target only the project where we think the margin will be the highest and where the customer is the one that we like, and so namely our traditional target customers. We also performed a nice sea trial.
We hit the record of sea depth installation with 2,200-meter sea trial for the installation on the Tyrrhenian Link. Unique performance only possible thanks to the capability of our installation teams and more importantly, to the capability of the Leonardo da Vinci vessel. Power Grid continues a great story of success. The first half of 2024, EBITDA has risen over second half 2023 sequentially, and also over last year, first half 2023. The EBITDA margin is confirmed at 13.2%. Once you account for the LME, actually, this 13.2% is slightly higher. The story is the same. There are strong drivers in the market. The electrification of building is putting pressure into the demand, and the strengthening of the power grid. Data center asking for additional demand of electricity.
The renewable business onshore is moving faster, again, requiring additional reinforcements of the medium voltage and the voltage grid. Last but not least, climate change is paying a good effect because we've seen many outages in the last 3-4 weeks due to the hot weather and the high demand of air conditioning. So the robust demand here remain the drivers of the growth for this segment of business. In electrification, we have a significant performance in first half 2024 over first half, second half last year. You see the margin as high as 9.5% in first half 2024, over 9.4% last year.
But when you equalize the LME and some one-off negative, which I'll mention later in first half 2024, the first half 2024 rates are closer to 10.1%, so with a significant improvement sequentially over the quarter, over the second half of 2023. Down to the industrial construction, similar story, stability, EUR 224 million EBITDA, EUR 224 million EBITDA in 2024 and 2023. The margin dilution is a pure effect of this one-off that we suffer from in quarter two 2024, and the incremental LME value. Once you normalize this effect, you would read 9.5%, 9.6% in first half 2024, which compared to our 10.1% of last year, which also, unfortunately, on the opposite direction, benefited from some upside.
In the specialty business, we have a stronger consolidation of a growing EBITDA margin, 11.5%, and we plan to achieve 11.5%-12% over the full-year. This is driven by solid backlog. This is driven by a good mix of projects in the different verticals for the specialty business unit. In digital solution, we see a rebound of the market in quarter two. In the average EBITDA margin of first half 2024 is 11.6%, but this comes from a weighted average between quarter one, with less than 11%, and quarter three, sorry, quarter two, close to 13% EBITDA margin. Of course, the comparison to first half last year is unfortunately not fair. It doesn't do justice to the rebound that we see today in the market.
Last year, in 2023 first half, we benefited from the high backlog that we had carried forward from 2022, and the real order intake in 2023 was, in first half, not dissimilar to what we see in the second half, so pretty low and pretty irrelevant. So we see this quarter two setting a new trend. We believe that North America will benefit from quarter three onwards of new projects. The subsidy for the rural broadband are actually active in seven states, and this will certainly drive additional demand alongside the data center, additional demand for fiber optical cables and MMS connections.
Scope 1 and 2 and Scope 3, we confirm our goal for 2024 at 36% reduction of CO2 emissions after the Encore Wire acquisition, which is not helping because Encore Wire, which is represented by the orange line, was on a -15 trajectory. So despite the addition of this large perimeter, we can maintain our goal at 36% by accelerating the legacy Prysmian activity in order to achieve the same 36%, even in presence of an Encore Wire, which is lower in the decarbonization of the footprint. The goal for 2030 remains very solid at 55-60%, and Scope 3 emissions are confirmed at 13% for 2024 and -28% for 2023. In the ESG scorecards, I'd like to again confirm the significant upgrade, the pace at -36% over the -33% of 2023.
More importantly, this is the central part of the page, where you see the significant rise in revenue linked to sustainable products from 37 last year to 43 this year, so greater performer. This is an enabler of additional revenue with customer, which are more and more demanding of low carbon footprint product solution. And then the recycled content, as I commented before, increased by a couple of percentage point, and important activities also because of the same time this benefit our customer CO2 emission. Scope emission is proceeding in line with the target set for 2024. With this, I will hand over to Francesco for more insight into the financial results.
Thank you, Massimo, and good morning to everybody. As usual, let me wrap up the profit and loss first half. As Massimo explained, organic growth was slightly negative at 3%, affected by the digital solution business, which is, as Massimo explained, gradually recovering, sequentially recovering, but of course, still suffers from a very tough comp versus the first half 2023. On the other end, organic growth in transmission was very positive and also in power grid. In terms of EBITDA, we definitely confirmed the margin expansion that we already saw in the first quarter, with a half year margin level of 11.1%.
You see on the box, same box on the right, that specifically the second quarter was higher than last year at EUR 457 versus EUR 451. Again, that's remarkable because it suffers from the tough comp in Digital Solutions that you see pretty clearly, even bigger in the first quarter, but still there. In the second quarter, of course, is affected by the price normalization in North America, E&C business, in line with expectation, and enjoys the extremely strong performance of our Transmission, which is definitely accelerating versus the first quarter, and power grid, which maintains a very high level of margins and profitability in North America, but improving also in Europe.
Focusing on the lower part of the profit and loss, I like to mention the extremely good performance in terms of group net income, exceeding EUR 400 million, and substantially stable versus the already very high level of the first half 2023. The net income enjoyed a substantial stability in financial expenses. You see financial charges at EUR 53 million stable versus EUR 54 million last year, and this is achieved thanks to a substantially hedged against interest rate debt structure for the group. Whereas on our cash and cash equivalents, we enjoyed the benefit of the rising interest rates, and these allowed us to stabilize financial charges. You see also a pretty low level of tax rate at 23.9%, much lower than last year.
This is benefiting from the usage of cash in the U.S., specifically, which is related to the Encore acquisition, which prevented, let me call it, a tax inefficient redistribution of this cash back to the parent company, which discounts withholding tax. So this was, of course, the pre-acquisition situation, was considered in our tax rate and with a new situation, with a new cash utilization of the acquisition, this freed up some tax liability, some deferred tax liabilities, technically. And this explains the approximately 2% positive impact on tax rate. So normalized, you should read this as a 26%. Still much better than we anticipated.
The net income, I already commented, very strong and definitely, let me add, ahead of any targets we had set at the capital market day in terms of net income and also earnings per share. We flip quickly to the cash flow. As Massimo said, great cash flow, not far from EUR 900 million over the last 12 months. A very strong deleverage. That's very important now with the new debt coming from the acquisition. You see the leverage in the region of EUR 750 million, June this year versus June last year. Of course, it's driven by the close to EUR 900 million free cash flow.
We paid the dividend increased in line with our anticipations, with our indications that we gave at the capital market day, and we enjoyed also the step down of the debt, the reduction of the debt of approximately EUR 250 million, coming from the net effect of the conversion of the convertible bond, net of the ongoing share buyback. Let me be very clear on this. This is only the cutoff situation as of June, net impact of EUR 253 million. The full-year impact, net, the net effect of convertible bond conversion net of the buyback will be in the region of EUR 370 million.
So we have another EUR 110 -EUR 120 million positive effect on the net debt to come in the second half. I think I'm over with my presentation, and back to Massimo for the conclusions.
Thank you, Francesco. So let me drive you through these, maybe complicated slides. With the change of perimeter, we thought it was good to, of course, upgrade the guidance, but now I have to give more color on the way we upgraded this guidance. So the new guidance for the EBITDA is set at EUR 1.9 billion EBITDA through EUR 1.95 billion, so midpoint at EUR 1.925 billion. On the right-hand side, you see the construction of this new guidance. We started from the old one. Legacy Prysmian was at EUR 1.625 billion midpoint, ±EUR 50 million. We raised the Prysmian guidance in line with the first half performance and confidence on the second half to EUR 1.7 billion plus, euros plus.
That is this, meaning of the green bar added after the original midpoint. With the Prysmian standalone guidance above EUR 1.7 billion, we added the Encore Wire second half guidance above the EUR 200 million mark. This brings us to EUR 1,925 million midpoint. We are confident to achieve the EUR 1,925 million. Whether we will be able to beat EUR 1,925 million, please give us three months, and we will give you this view at the time of the nine months result, consolidation results. Similarly, we did for the free cash flow guidance. EUR 725 million was the midpoint of the previous guidance pre-acquisition.
We increased the previous Prysmian legacy guidance and adding the impact of Encore Wire, and this has brought the EUR 725 up to EUR 880 million midpoint, with a stretch target at EUR 920. The ambition target, we already committed it, note w e already commented, sorry, unchanged. And so let me give you the first, the last, and quick remarks. So we had strong performance, supported by the electrification and digital solution delivering as per expectation and complemented by some performance stronger traction gained by transmission in the market and Power Grid, both in Europe and in United States. The Encore Wire was completed very fast and very fast we are moving in the integration and hopefully in the generation of the relevant commercial synergies.
Cash generation was pretty solid and robust, leading for the target for the full-year guidance, and we are full on track, even if we acquire company with less performance on decarbonization. We're full on track on our original Prysmian goal, as far as the Scope 1, 2, and Scope 3 emission is concerned. I think, with this, I'll leave the floor to you for your question and clarification. Thank you.
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We will now take our first question. Please stand by. The first question comes from the line of Daniela Costa from Goldman Sachs. Please go ahead. Your line is now open.
Hi, good morning. Thank you. I have three questions, if it's possible. The third one is a small clarification, but the first question regarding ou mentioned some one-offs on electrification. Just can you give us a little bit more clarity on that? And then extend from them on to what you've seen in terms of pricing normalization for your business, but also for Encore, which I guess we don't see the numbers on Encore yet.
Okay. Thank you, Daniela. Yes, we had in quarter two this year some VAT adjustment which belongs to 2023, actually, which has required some provision creation for this VAT adjustment in Europe. And as said before, you remember that in quarter one, 2024, sorry, we reported 9.5% EBITDA margin in I&C. With this correction in quarter two, plus the LME that in second quarter is much higher than the LME in quarter one, you will read the same, 9.4%-9.5%, also in quarter two. As far as the normalization is concerned, we've seen some softening in the low voltage aluminum prices.
On the contrary, we see some strengthening in the copper building wire prices and in the industrial products for the I&C space, especially in North America. There is some softening on the contrary, in some areas in Europe, like Germany and France. But overall, we see this normalization ending, and the 9.5% stable on a like-for-like basis, EBITDA margin between quarter one and quarter two suggests that this is the case.
Got it. Thank you. And then on power grids, we're still seeing relatively small growth despite many utility announcements of power distribution increases. Can you talk through, is this impacted by the capacity coming through, when we will see those benefits and growth from these expansions?
Daniela, you are totally right. Despite the stronger and buoyant and, and bold announcement from utilities, and despite the, the commitment in, in giving us down payment for future volume, we are constrained and restrained by the existing capacity. We had the first wave of, capacity increase coming on stream, in quarter two. You said, as a matter of fact, the EBITDA in quarter two was higher than the EBITDA of quarter one. The real fruition of this capacity will happen towards the end of 2024, waiting also for the second wave of capacity that will hit, ground in late 2025, early 2026. So in the next, 18 months, you will see gradually there's, volume and organic growth, moving up, in terms of, company, power grid performance.
Mm-hmm. Thank you. And the last question was just a clarification on what Francesco was saying on tax rates. I thought the deal with Encore closed on the second of July, but how does that impact the tax rate already? And does that have implications towards the end of the year or into next year that you've used the net operating losses? I didn't quite understand why that was impacting now before-
No, no, no. It's nothing to do with. Thanks, Daniela, for the question, which allows me to clarify. It's, it has nothing to do with operating losses or losses carried forward. As you know, the tax rate, the quarterly tax rate, is not estimated quarter by quarter, is estimated based on annual forecast. This is according to accounting principles, huh? So if you have a transaction like we had, closed the beginning of July, which has happened, used our cash and cash equivalent, which is very substantially U.S., and which was used up. You remember that, out of our sources for the transaction, $1.1 billion was cash on balance sheet. This cash basically was in U.S. Most of it was in U.S.
And without the transaction, we would have distributed this cash back to the parent company. And when you do that, you discount a 5% withholding tax. This was the situation pre-transaction, and this was reflected in our balance sheet and in our tax rate in terms of deferred tax liability. Sorry, it's a bit technical.
Oh, okay.
So,
Thank you for that.
When you use the cash, you don't have any cash to distribute back, and of course, you reduce these deferred tax liabilities, which generates a positive effect on tax rate. In a way, it's a one-off, eh? Accountingly, or in terms of PNL, is a one-off. In terms of cash, is a real effect, which will be distributed over time.
Mm-hmm. Got it. Thank you. And if I may, just to clarify what Massimo said before on the electrification normalization. Can you address specifically Encore? Is there a similar trend on the margin drop that Encore has seen? Because you mentioned copper, copper was doing better on pricing than aluminum, I think, and they're more copper, right?
Encore entered in second half with a good trajectory. Second quarter was particularly good, higher than quarter one. Setting the guidance for Encore about EUR 200 million means that we are actually thinking for the full-year, well, higher than EUR 400 million EBITDA, which is in continuity with the second half of 2023, when also in the Encore perimeter, the normalization has come to an end. So we see no changes in this trajectory for Encore Wire, which is similar to our trajectory in the E&C space in North America.
Got it. Very clear. Thank you.
Thank you.
You're welcome.
We will now take our next question. Please stand by. The next question comes from the line of Vivek Midha from Citi. Please go ahead. Your line is now open.
Thank you very much, everyone. Good morning. I have two questions, if I may. I'll go on the time. The first is on transmission. It looks like there was a big acceleration in revenue growth between Q1 and Q2. As you mentioned, you have quite a lot of new capacity coming on stream, particularly next year. So what was the driver of the big acceleration growth between the first and the second quarter? Which expansion projects helped you there? Thank you.
We have also, in this, first half, some, additional capacity coming on stream. Basically, terrestrial, capacity, land, HVDC cables capacity. We had expansion of the installation activity, which has, marked as a significant organic growth over, over last year. And, so these are the main driver for first half this year. There will be no changes in capacity in the second half of 2024, so continuity, continuity with what we achieved in, in first half in terms of capacity. But next year, I said that there would be a significant, step up and a significant uptake driven by, three factors, which will, provide, new three lines. One of them is for land activity. The two of them are for submarine activities.
Thank you very much. Before my second question, can I clarify? So this installation capacity, particularly on the terrestrial side, would it be right for us to link that to the German Corridors? So, you know, is it a step up on those projects there?
No, no, no, not necessarily. First half, we have limited German corridor installation, which will actually be a driver of installation growth in inland activity in the second half. It was about proper phasing of installation activity of submarine cables, what has delivered organic growth over 2023 first half.
Okay, thank you very much. My second question is on the specialties business. You, I think you commented, you're expecting 11.5%-12% margin, but then on the second quarter, it also looked like the organic growth was a bit weak. So could you talk us through what's going on in that division? What's driving the top line decline there? Thank you.
But this division is a class made of a class of many verticals. We have a business with the defense, with marine, with rolling stock, with railway, with irrigation. There is also renewable business inside this division, so all the cables to connect the wind onshore to the grid, all the cables needed for feed electricity into solar parks and the connection to the grid. So it was a mix of projects and additional demand in many businesses, among which renewable is probably the main drivers of the growth in EBITDA margin. And the organic growth negative is simply the results of different level of mix, different level of countries. There is no major concern. This is a very wide, from a product range point of view, business.
Shifting from one cable, from one family to another, this drives a lot to the level of revenue of the division. The real upside is that we have a solid backlog. We have 4-5 months of backlog in this division, and that's why we are confident that the 12% EBITDA margin is within reach for the full-year.
Thank you very much.
You're welcome.
We will now take our next question. Please stand by. The next question comes from the line of Monica Bosio from Intesa Sanpaolo. Please go ahead. Your line is now open.
Thank you, and thank you for taking my questions. Good morning. I have three questions. The first one is, can you please remind us the size of the revenues of Prysmian, including Encore Wire in the data centers, and what is the growth expected for these areas? And second question is on the power grid. If I re-remember well, looking at the power grid, roughly 40% of the revenues are in USA, and 60% of the EBITDA is in the USA. I am wondering if you can give us any color on the situation for the power grids in Europe in terms of demand. And very last question is on potential reorganization in future. Encore Wire is a pretty unique business model.
I'm wondering if the group is planning to export the business model of Encore Wire in other group sites in USA. Just a curiosity. Thank you.
Thank you, Monica. Interesting question, especially the last one. Let me start from the first. The data center exposure to Prysmian legacy is actually around EUR 700 million, and we estimate, because we still have to figure this out better, that the Encore Wire exposure is in the range of EUR 100 -EUR 150 million. It's difficult to say, because in many cases, we, Encore Wire, provide cables to distributors without knowing where this cable will finally ended up in a data center connection or electrification or some other use cases. Of course, data center is a great, great, unique opportunity for Prysmian, because we play. Basically, all our four segments of business are affected by data center.
You wonder why transmission could be affected by data center, but you know that those hyperscale data centers want to feed their data center with renewable electricity, because they feel bad with the high consumption electricity they generate. So they want to make sure that at least they consume renewable electricity. So there are projects driven by data center demand, which prompt additional demand into the transmission space. In power grid, of course, you know, we had to connect the data center with existing grid. The existing grid is not strong enough to withstand the demand of data centers, so additional power grid cables. Electrification goes without saying. These are the last mile cable to connect the data center buildings among them, and the data center to the grid, and finally, digital solutions.
So we are confident that this will drive our EUR 700 million upwards. We'll be more clear as to what the ambition is in this space at the next Capital Market Day, once we can refine our strategy and specifically focus on some interesting use cases, like data center. The power grid split is yes, more or less correct. It is actually even higher, the exposure to revenue in United States and of course, even higher the share of the group of the North America out of total EBITDA. I would say that is close to 70% the EBITDA generated in North America, thanks to the volume effect, but also thanks to the addition to the differential profitability between North America and Europe. Demand in North America itself remains solidly driven by the drivers that I mentioned before.
In Europe, we have a situation pretty scattered, and we have a country like Italy, where the demand is a little bit sluggish in France also. On the contrary, in Germany, the demand is booming in North Europe also. Different situation, but in the end, we have confirmed our CapEx investment plan also for Europe, because the overall demand, notwithstanding the different trend in the different countries, requires additional capacity. We are investing. We are going to invest into a new line after having upgraded and expanded capacity on the existing lines. The third interesting question is that we will definitely benefit from the Encore Wire business model in the U.S.
We are actually, as we speak, relocating our copper building wire activity from our American plants into Dallas, because the business model of Encore Wire is more efficient, and because this will be the way to benefit the legacy premium volume in copper building wire with the fantastic service level set up that Encore Wire has defined. And we will also benefit from incremental capacity from Encore Wire to feed additional volume in our business in the United States. This model is marginally replicable in other countries because the beauty of Encore Wire is it lies on a few things. First of all, they are vertically integrated. Second, they have all the factory in one place. Third, next to the factory, there is a distribution center, a very powerful distribution center.
So if we wanted to replicate this model that's set on North America, we will have to establish all the three conditions, these three conditions, which in some cases, which I would consider not simple to establish it. We will make some, I'll say, fertile cross-fertilization of this model, but not to the full extent, because we will never be able to create one single place in Europe to feed the INC activity across all countries, nor to create one single distribution center. So it's possible that 20%, 30% of their model we can copy and paste also in Europe, but definitely USA would be the best way to exploit and harness this facility and this business model.
Okay, got it. If I may, just a follow-up. Is this on top of the expected synergies that you already announced for the with the integration of Encore Wire? And if I may, should we expect a low double-digit impact from the synergies already in the second half of the year? Thank you very much.
Everything I mentioned is, apart from Europe, which is still far to be implemented or actually started, everything I mentioned is part of the synergies. You know, the question is we committed to EUR 140 million, EUR 100 million being commercial and EUR 40 million being operational. What matters here is certainly to possibly beat the EUR 140 million mark, but also to make these synergies build-up happen very fast. So our intention is to succeed in achieving as fast as possible the commercial synergies, so that we consolidate with the synergies and EBITDA margin over close to 20% in the Encore perimeter, and hopefully then to add the additional opportunity outside of North America. We will have some impacts for synergy in second half. I said that the relocation of our copper activity into Encore will provide us some incremental margins.
It is still too early, as we speak, to define a size of the EBITDA margin impact due to the acceleration synergies. We think we'll have some EUR 10-15 million synergies in absolute value already hitting the profit of the second half, INC business unit.
Thank you very much, Massimo. Very clear. Thank you.
Thank you, Monica.
Thank you. We will now take our next question. The next question comes from the line of Josh Miller from Morgan Stanley. Please go ahead. Your line is now open.
Yeah, thank you. Just two quick ones, please. I guess, starting with the telecom division. So margins were quite good this quarter. Just wondering, is this sort of cost out of pricing, and is this more sort of moving towards a normalized margin level for this division? And then I guess within that, what does that mean for the margin, sort of thinking this year and through the next few years? And then second question on the power grids business. So customer ordering is obviously very favorable at the moment. I guess maybe you could just give us a bit of color around what you're seeing on margins in on orders you're taking today versus sales that you're executing on today. Thank you.
All right. So telecom margin good in quarter two, mainly driven by two factors. Some rebounding volume in the United States were marginally at, technically higher than the European margins. Compounded by some nice activity in Asia Pac, in Australia, where we have a stronger project under execution with Telstra. There's also marginal benefit from the restructuring that we performed in quarter four, in quarter three and quarter four last year. So there is some cost effect, there are some margin upside coming from pricing and regional mix. For full-year, I said that we will try to exceed the 12% marker.
It's all depend on the demand on North America, which we see pretty positive, and, so we see no major issue to, deliver to the coming quarter, the same performance delivered in, in quarter two. While in the power grid, you know, power grid is a larger, conglomerate. We have HVAC business there, medium voltage cables, low voltage cable, and, overhead lines. We see very solid margin in sales in, in our order entry into medium voltage, into bare overhead lines. We see some softening on the contrary, in the low voltage space, and we see solid margin in HVAC. In HVAC, the demand is strong. Unfortunately, also here we are, sold out. We share some of this capacity with the transmission business, so some of the lines are fungible, both for HVAC and HVDC.
As a matter of fact, we decided to invest in another line dedicated to HVAC for European production. This will happen, will come on stream at the end of 20, mid of 2026. So we see stability margin. We maybe might see some margin upside in medium voltage and HVAC. On the contrary, we have to gauge what's going on with the low voltage space, where the demand is not so stronger to justify margin increase. But, you know, this could also change in light of additional data center requirements that are coming online.
Thank you.
Thank you, Josh.
Thank you. We will now take our next question. Please stand by. The next question comes from the line of Akash Gupta from JP Morgan. Please go ahead. Your line is now open.
Yes. Hi, good morning, and thanks for your time. I have a follow-up question and then one question from me. The follow-up is on this 11.5%-12% margin you talked about while explaining electrification business. Can you please elaborate on the background? Because my line was not clear, and I'm a bit confused whether that is the margin guidance for the full-year or second half, or is it for the whole electrification segment or just INC part? So maybe first one to start with that 11.5%-12% margin background.
I think, when I mentioned 11.5 and moving to 12, I was referring to the specialty business, which has marked a significant improvement over second half last year and first half last year. While for the electrification, I, Akash, I mentioned that the first half posted a 9.5% EBITDA margin, which actually reads 10+ when you account for the LME, which is worsening the EBITDA margin, that the diluted EBITDA margin of first half 2024 over first half 2023. First half 2023 was 9.4, first half 2024 is at 9.5, increased to 10.1 once you account for the LME effect, and I went off for the VAT topic that I mentioned before.
For the full-year, we see an improvement, actually, because we are embedding in our perimeter more of the Encore business in the United States, which is by design and by default, more profitable than that of the European footprint. So we will see this 9.5% of first half adding towards a different number, which I would like to share with you in three months and not now, but of course, it will be above the 11% mark.
Thank you. My second one is on the guidance. I mean, a year ago, when you upgraded the guidance, we had EUR 100 million wide corridor, and today we see it is only EUR 50 million. When I looked at your remark earlier, you said for standalone Prysmian, it's at least EUR 1.7 billion. For standalone Encore, it's at least EUR 200 million. So I guess that's how you get to at least EUR 1.9 billion, and then you're putting a cap at EUR 1.5 billion. Maybe anything that you can say in terms of the upside case, and do you think that maybe perhaps reaching EUR 2 billion already in 2024 could that be possible? Thank you.
Very, very ambitious goal, EUR 2 billion for 2024. Let me explain the rationale of the guidance upgrade. So we were talking about us being in the upper part of the previous guidance, legacy Prysmian, so between EUR 1.625 billion and EUR 1.675 billion. So with the Prysmian legacy raised to EUR 1.7+ billion, we wanted to convey the message that result of good continuity in electrification, normalization coming to an end, a strong drive from power grid and transmission is bringing us a high confidence that we will beat the EUR 1.7 billion outlook for Prysmian. Would it be EUR 1.75 billion, EUR 1.705 billion or EUR 1.710 billion? We will see in the next three months. Please give us some time to consolidate quarter three, and that will be more accurate.
And then on top, we build this 200 +, so let's call it 210, if you wanted it, for Encore Wire. Of course, a chunk of this depends on the ability to deliver what I mentioned before, the EUR 10 million, EUR 10 million plus water synergies. This brings us to the EUR 1,900 -EUR 1,925 million in a solid manner. The EUR 2 billion, I think, is out of reach. Will be very, very satisfactory if it could go in the upper range or the EUR 1,925 -EUR 1,950 million range, which is a kind of, would be a kind of outstanding result.
A lot depends, some depends on the real speed of a rebound in telecom, which we still have to see how it would be impacting the quarter three and, and quarter four. While we have, as I say, a solid and pretty definitive number when it comes to transmission, when it comes to power grid. Electrification, the only uncertainty we have is this additional EUR 10 million coming from the synergies in the Encore Wire perimeter. So, I would like to be more bolder towards September, October, November. But yes, EUR 1,925 million is the bottom. Let's put it like this.
Thank you.
Thank you.
We will now take our next question. Please stand by. The next question comes from the line of Lucas Ferhani from Jefferies. Please go ahead. Your line is now open.
Thank you. I have two questions as well, please. Just the first one on power grids. You should have had some additional capacity coming online in the U.S., I think starting in Q2 and obviously over coming quarters. We haven't seen necessarily the organic growth really move during Q2. It's, you know, slightly higher than Q1, but not meaningfully higher. Has that additional capacity in the U.S. come online, and do you expect Q3 and Q4 in power grids to show better organic growth? Thank you.
Thank you, Lucas. Yes, we do expect that in line with the incremental capacity that benefits the USA in quarter two, quarter four, there will be some more organic growth. You have to consider that the first wave of capacity deployment is going to happen in two ways: two additional Catenary lines, so two additional full line producing additional volume, and the bottlenecking of some of the existing lines. So the two additional line have been commissioned, and they are operational as we speak, and so they will continue delivering volume through the second half. The upgrade of the existing lines to make them more productive is a challenging project, because as you upgrade, you have to take the line of production, and you lose the, theoretically, some capacity.
So it's a difficult trade-off to deal with that. So that's why this upgrade of the existing line will happen over a certain number of months to avoid disrupting production continuity of the existing lines. The real strong volume upgrade will take place in first half 2026, when two additional new lines will come to fruition in our existing plant. And by the way, we are considering having another wave of investment for two more additional lines. This will be decided in the next month. So the organic growth certainly will be more robust, visible, and satisfactory in the coming two years than what you see in this first half 2024 over first half last year.
Okay. Thank you. And my second question, just on Encore Wire and the strategy there. What are the first steps in the integration, especially when it comes to the commercial synergies? And also, Encore Wire had specific CapEx plans when it comes to kind of XLPE, the vertical integration there and additional capacity. Do you maintain kind of all that strategy, all the CapEx plan that they had, or do you kind of review that and potentially make changes based on obviously the combined perimeter now? Thank you.
Thank you, Lucas. So as far as the commercial strategy is concerned, we are implemented the foundation to this, to make this, strategy, these synergies, achievable, and the foundation is, one commercial, sales force in, in place. We are not going to have much, more complicated integration than this. Once we harmonize, which we already done, the commercial sales force, the rest of the, the rest of the business, Encore Wire will run, in with the, with the organization. Of course, there will be synergies by having, one single, customer care center. There will be synergies by having one single way to, develop, new products in Copper Building Wire and in Aluminum Building Wire space. The synergy will be, achieved, on the commercial side by cross-selling products.
So we will sell through Encore Wire channel, the Prysmian products, and we will sell through the Prysmian legacy channel, the Encore Wire products. This is happening. We are training the combined sales force so that we make the old sales force capable of selling the broader product range of product. Of course, there will be also other synergies related to relationship with common customer, let me call it a relationship, I would like not to be more specific. And so in the next 12 months, we should be able to be progressing fast on the commercial synergies. The operational one are related to CapEx, and the CapEx plan of Encore Wire is in place. We will not disrupt it, we will not derail from what they decided to do with their CapEx. Basically, you mentioned them all.
They are completing the vertical integration and compounding activity. They are investing into a new rod mill to complement the capacity or the one they already have, which is, by the way, a nice way to help the Prysmian legacy to benefit from additional rod in-house capability. Those operational synergies will take longer because the CapEx plan is ongoing, but it will take one and a half years to implement a new rod mill, which will certainly be very impactful inside the total operational synergy that we mentioned we will achieve. So no changes to the organization of Encore Wire. Simple integration of the commercial team to avoid to have a disruption in the market, and continuity in the CapEx plan to maximize the operational synergies across the two companies.
Perfect. And if I may, one last clarification just on the free cash flow, obviously very strong in this quarter. Did you have an impact of the down payment from the Amprion and Eastern Green Link, the two large project this year over H1?
Yeah. Sure, this was a strong benefit. I would say that the last twelve months free cash flow, which is the one that we highlight, close to EUR 900 million, benefited from very strong down payments, both in the second half of last year. Let's remember the conversion into backlog of the GL one and the GL two, for instance. And the first half, actually, the first quarter of this year was, you are right in mentioning the Amprion, for instance. This, of course, will create a kind of tough comparable in the second half of this in terms of down payments, but that's normal. Down payments tend to distribute a little bit differently from quarter to quarter, from half to half in different years.
Okay. Thank you.
Thank you, Lucas.
Thank you. We will now take our next question. Please stand by. The next question comes from the line of Sean McLoughlin from HSBC. Please go ahead. Your line is now open.
Good morning. Thank you for taking my questions. I have two. Firstly, on availability of high voltage capacity, I noticed you announced an MI project in Spain, a MI-HVDC project, last night in Spain. Just wondering, in terms of availability of capacity looking out over the next years in terms of bidding, are you focusing more on MI? How much relative MI and extruded polymer capacity are you adding over the next two to three years as part of your CapEx plan? Just a reminder there would be helpful. Secondly, on digital, I understand there are some cost benefits that you're highlighting in terms of contribution to the better quarter-on-quarter margin. You'd previously talked about the importance of anti-dumping in Europe. Just any update on progress there? Thank you.
Thank you, Sean. Yes, the voltage capacity is certainly critical to our capability to follow the market. We won a project with the MI technology because we would like to how to say, saturate as long as possible the MI capacity before the old world will switch from MI to XLPE. Also, the MI capacity is kind of sold out through 2028. With this project, we gained one more year of saturation, almost one year of saturation. There will be other projects coming on stream that we can address with the MI technology. As far as the extruder technology is concerned, we had large plans for increasing capacity. In our factory in Groningen, we started with one line, one existing line two years ago to produce German Corridors.
We have already approved, we are executing the expansion of two more lines, and we are discussing for a third lines in HVDC space, because the demand of submarine cables, HVDC technology, is actually requiring a lot of land tails or submarine connection. Now the distance between the submarine cable landing on shore and the substation gets extended. So you have this submarine project, which require a lot of submarine cable, but at the same time, a lot of land HVDC cable. That is the real drive behind additional expansion of HVDC capacity. On the other hand, once you have transmitted the HVDC power from renewable generation to shore, you have to distribute internally in the grid. And so HV demand, HVAC demand, is pretty high across all European customer.
So we have cannibalized a little bit of the HV capacity in the past, shifting it towards HVDC, because we had large project to execute, and now we had to reestablish some additional HVAC capacity to follow the demand, which is coming after the HVDC expansion, the HVDC requirement from the market for submarine connection. We will have a new line up and running in a couple of years in Montereau, in France, to help us keep pace with these French HVAC capacity requirement, but also the Dutch one, the German one, and so on. If you are satisfied with this HV topic, I will move to digital, Sean.
Thank you. Please.
Thank you. So digital, so yes, cost benefit are mainly coming from the factory that we restructured. You know, that we basically took off the footprint, one plant in France, optical cable plant, and also, and also, our fiber production capacity in the south of Italy. And so this is providing some margin expansion due to cost efficiency. The anti-dumping case is very important for Europe. It's a 1.5-2 year process, which is not different from the duration of the process that we had for the optical cable, Chinese anti-dumping. The only difference is now we want to broaden the range, so we want to find a way with the European Commission to apply duties to the fiber importers, which are not necessarily only Chinese, but are also Indians.
So this will hopefully one day protect the market and prevent the penetration of this market with low cost costs with dumping costs importers. We are also helped in this case by Corning. Corning has established capacity in Europe, so he has a strong interest also to protect the European market as they've been very good at creating barriers for the North American market.
Thank you.
Thank you, Sean.
Thank you. We will now take our next question. Please stand by. The next question comes from the line of Alessandro Tortora from Mediobanca. Please go ahead, your line is now open.
Yes, hi. Good morning to, to, to everybody. I have three, three questions, okay? Maybe with some sub-questions, but let's say three questions. The first one is on the tax rate indication for the year, if you can help me to understand with or without Encore offer, you mentioned before in the call, which kind of level we should think about for tax rate. That's the first question. Okay, for the second one, considering the new free cash flow guidance, but also the full contribution of Encore Wire, is it realistic to see the pro forma that the EBITDA ratio this year close to 2.5 times net debt by year-end?
240 - 250 million net financial charges, is it a good assumption for, let's say, a level of, for a level, let's say, next year of, again, net financial charges? That's the second question. And the last one is on Encore Wire. Can you comment also a little bit on the cash flow synergies? I remember you mentioned some working capital optimization you can get from the integration. And for everything I understood on faster commercial synergies, easier commercial synergies, can you also give us an update on the integration cost you are assuming on the integration process? Thanks.
Thank you, Alessandro. Very quickly on tax rate, for the full-year, you should expect in 2024 a tax rate by design in line with the 24% that we have for the first half. Could be even slightly reduced by the impact of the Encore consolidation in the second half, which mainly in Texas enjoys a tax rate which is slightly lower than this 24%. And to normalize that, add two points.
Okay.
So consider it 26%-26.5% tax rate, which is, I think, a very good assumption for the coming, for the coming years. The free cash flow guidance, I think you are, you are, too conservative in estimating our, ratio net debt on EBITDA. First of all, of course, we have to consider this including a pro forma full-year impact of Encore.
You cannot estimate the ratio. If you do that, this ratio is in the region of 2.1. It's a very comfortable leverage, okay? Of course, this is benefiting. This is a bit better than the original plan because it is benefiting from the soft call on the convertible bond, the net of the share buyback.
Okay.
On the other end, on the financial charges, I think you are too aggressive, or too conservative in the other sense. The impact of, for instance, the impact of Encore, and the acquisition financing related to that, and the cash utilization in the second half, will be in the region of EUR 95 million, eh? So, and this year, the interest expenses will be in the region of EUR 200 million. So basically, I think that it's more between EUR 270 million and EUR 300 million, a fair estimate of our full-year 2025 interest expenses. Okay?
Okay, okay, gratsi.
Prego. And cash flow synergies, we didn't make any specific estimates on this. I don't exclude that we can have some optimization, especially on the payable front of Encore Wire, harmonizing it with our DPO, our payable terms, but let's see. The integration costs are pretty low because, as Massimo explained, most of the synergies are commercial synergies. The cost synergies are very limited, and I would almost neglect them.
Yeah, it is only about the real integration cost would be the CapEx to make the cross, some of the cross-selling opportunity happen. So about some, some of this happens were already embedded in the Encore Wire plan as far as the new equipment is concerned. The other ones are related to additional medium voltage capacity that we had to create in our footprint to benefit the Encore Wire channel to market. So let's call the integration cost mainly CapEx, apart from some retention scheme to put in place for in second half of 2024 for some of the key people at Encore Wire.
Okay. So basically, you say when you mention, let's say, the integration cost, it's much more, let's say, integration CapEx and at PNL level, the impact is, let's say, minor?
Integration cost, as far as 2024 is concerned, we already built into the guidance that we provided you. So the EUR 200+ million EBITDA second half Encore Wire already include this, let's call it one-off impact due to retention, the retention, retention amount, retention cost.
Okay, thanks.
Thank you, Alessandro.
Thank you. We will now take our next question. Please stand by. The next question comes from the line of Tore Fangmann from Bank of America. Please go ahead. Your line is now open.
Good morning, and thank you for taking my questions. I've got two quick ones on electrification. The first one, could you give us a general end market demand picture, maybe split a little bit on the different regions for electrification? And then secondly, also based on this, could you give us a bit more insight on the profitability, the relative profitability between the U.S. and Europe in electrification? Thank you.
Thank you, Tore. So the electrification market demand pictures sees, North America driving, well ahead of the other regions. This, this demand, they benefit from trends that are not that strong in other regions. One to mention about the others is the reshoring of manufacturing activity in the United States. Not to mention the, the expansion in data center is twice as much in United States vis-a-vis Europe or, Oceania. So these are great drivers of electrification, and, the, the demand of electrification for non-residential building is definitely, driving and complementing the North American, additional electrification demand. In Europe, we have also cases of data center. We have also cases of industrial building, construction, but there is a different level between the two demands.
Yes, the profitability, you see, you should see some 15%-16% EBITDA margin in the United States, which is pretty much in line also with what you've seen in the Encore Wire perimeter in quarter one 2024. 15%-16% EBITDA margin there, vis-a-vis 7%, 7.5% in Europe, with, of course, different pockets of profitability, very high in the northern side of Europe, lower in the southern part of Europe. Low profitability in Latam, especially in Argentina, in Brazil. So it's differentiated, but overall, consider that the record numbers are the one in the... the high numbers are the one in the United States by this amount, 15%-16% EBITDA margin in U.S.
Thank you.
Thank you.
Thank you. We will now take our next question. The next question comes from the line of Gabriele Gambarova from Banca Akros. Please go ahead. Your line is now open.
Yes, good morning to everybody. Thanks for taking my questions. The first is on transmission. The organic growth in Q2 was very strong, at +17%. So I was wondering what could be the organic growth for the second half of 2024? And same question for margins. 14.4% in Q2 EBITDA margin. I was wondering if we can assume a similar level for the rest of the year.
I will address the second, the latter question easier. So the 14.4 in quarter two will actually be followed by higher margin the rest of the year because we are heading for a 14.5 for the full-year. So compensating for a lower margin in quarter one, so we'll be about the 15% mark, the profitability in quarter three and quarter four, anyway, in the second half of transmission 2024. While the organic growth was very strong, as I said, but also the comparison to last year was easier.
In second half last year, we had some benefit of the expansion of capacity, some benefit of the additional installation activity, but we think we can continue with this 10% organic growth through the remainder of the year.
Okay, thank you very much. And the second question is on the, between, again, on transmission. Mm, what do you see in terms of market, I mean, the commercial activity, the pipeline is still very strong. Any color on this would be interesting to know.
Yes. Thank you, Gabriele. Good question. The 2024 market is a bit different from 2023, where you recall we had overall a EUR 30 billion order intake as a market, half due to single projects and half of it due to frame agreements. Now, frame agreement has been placed by all players, basically, but National Grid and basically that's it, RTE. But the National Grid frame agreement will happen across 2024 and 2025, so we think it will benefit 2025 more than 2024. So the standalone single project business market will remain in line with the EUR 15 billion level of 2023. Maybe some frame agreement where benefit will raise it to the EUR 18-20 billion level.
This is what we see today in the pipeline. Of course, these projects are, you have to appreciate, are very big and will be just enough that one slip from November into January, that the full market size changes. But in average, if you take the next three years, we see still a solid market around EUR 15-20 billion level of order intake per year. Also accounting for the frame agreement on National Grid that has to come and the RT frame agreement that still has to come.
Okay, thank you very much. Very clear. The last one is on M&A. Francesco said, you're going to have, let's say pretty limited leverage by 2025. I was wondering, what could be your next moves, and in particular, if you would consider, let's say, widening your geographic presence or rather than, let's say integrating your presence in the existing markets you serve?
It would. We would we were still moving on M&A, you know, despite the large acquisition, which certainly has raised our level of debt, but still remaining with a good level of 2.4, heading for a 2.1 by the end of this year. We are keep looking at the market. We, as I mean, the priority hasn't changed. We wanted to expand, further expand in North America. We wanted eventually to take some opportunity in Europe, should they come along, and we want to complement our product range in the telecom space. We are looking at also Middle East.
Of course, we cannot—forgive me, Gabriele, we cannot really specific because, because targets are under investigation as we speak, because, you see, with Encore Wire, we didn't tell you anything, but in the end, we made it. And we made it with the right moment, at the right timing, with the right price, and the right benefit. So we cannot be more outspoken here, but, we are working on it as we speak.
Okay. Thank you very much. Very clear, Massimo. Thanks.
Thank you, Gabriele.
Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Bastien Aigouy from Berenberg. Please go ahead. Your line is now open. Hello, your line is now open. Bastien Aigouy from Berenberg. I believe there might be an issue with this participant's line. Are you happy to take the next question?
Sure, we are.
Great. We will now take our next question. The next question comes from the line of Miguel Borrega from BNP Paribas Exane. Please go ahead. Your line is now open.
Hi, good morning, everyone. Thanks for taking my questions. I've got two, one on Power Grid and another one electrification. I'll, I'll ask one at a time. So first, on Power Grid, Massimo, you mentioned strong grid CapEx demand within your Power Grid division. Can you help us put that in context of your first half year results? Your organic sales growth was less than 2%, and I think HVAC grew by double digits, at least in Q1 did. So how is the pure medium voltage business performing? And if you can also give us some flavor on pricing and what would be the volume component of that? And then help us understand, booming, and could there be,
You broke for us.
Competition?
You broke. Sorry, Miguel, you broke for a second. Help us understand?
Yes. Help us understand the framework agreement. How long do they last? Where specifically are they booming, and could there be increased competition once these contracts reset? Don't you see price normalization at some point, just like what we are seeing now in North America, low voltage, and like what we saw in European optical fiber? That's my first question.
All right, thank you. So the strong demand in the medium voltage space is what drives the organic growth, where the lower demand in low voltage is what also drive the organic growth in the opposite direction. So this 2% is a compounding number coming from these two drivers. The medium voltage organic growth demand is, or the medium voltage demand is definitely very solid. There is no price effect, basically, in the 2% organic growth, because we are running at a stable price in the medium voltage space with our frame agreement contracts, with existing customer and also with the spot business with the existing or new customers. The volume will be higher than 2% as soon as we convey the additional capacity to the market.
As said before, this will take time over the next 12-24 months, depending on the different action that we are undergoing in expanding capacity on existing line, making them more efficient and building new lines. Some of which, as I said before, will be utilized by the NA space to achieve the cross-selling opportunity resulting from the integration of Encore Wire. The frame agreement situation is pretty complicated because different contracts normally last three, four, five years. Even if in the last three years, if you perform well in terms of quality and in terms of lead time or delivery, you automatically those frame agreements are automatically extended by one or two more years because customers don't want to disrupt their supplier base.
It is always also difficult for newcomers entering into this frame agreement space because you have to have, it's a kind of chicken and egg problem. You have to have a track record of quality and service level, and customers tend not to take the bet of engaging someone else. I think I mentioned already once that in United States, there is one player that has built significant capacity in medium voltage space over the last 10 years. He has been trying and to enter into the utility space for 10 years. Never have they succeeded. They are only present in the renewable spot project business space.
So we feel pretty good with the continuity of our demand across this customer and the level of price in medium voltage, as I said, is stable. In the same space, there is HVAC with strong demand, higher than the capacity we have. But point that also, yeah, we have to invest, we are investing. Low voltage, as I said before, is a lower segment of the market, but is also lower in terms of profitability, is also lower in terms of demand for what we see in the coming quarters. Tell me if I'm satisfied with the power grid answer, Miguel, before I move to the electrification.
That was great. Thank you. And then just on electrification, if I can squeeze one more. You mentioned softer pricing in aluminum cables in North America. Can you give us some flavor on that? Where is the competition coming from? How much exposure do you have there? And if prices continue to slide, how would that impact copper cable pricing? Is there any correlation between the two? Thank you very much.
Well, first of all, there is no correlation between the two spaces. The Aluminum Building Wire prices follow different logic, and that's all the copper, copper market. Copper market is pretty strong, pretty demanding in volume. You've seen, you mentioned before, now we are coming from a normalization, which was due to a high pricing activity in 2022 and early 2023, resulted from a disruption of supply chain, as I mentioned multiple times. Today, we have a different demand driving, or different situation driving the demand is the additional cable demand, not the capacity that was constrained by other factors, like the lack of raw material, the lack of labor. So this is a new demand, genuine demand, which is benefiting the copper space as well as the aluminum space. But in terms of aluminum competition, there is more competition.
While in the, especially after the integration with Encore Wire, there are only basically three players in the United States to serve the copper building wire, copper building wire market. In the aluminum building wire market, there are local players, two or three, two or, two or three of them, let me mention who are they. But there is a, a good 40% or 35%-40% of the market in the end of importers, which are kind of Chinese and Indian people, kind of circumventing the import duties rules. So landing to Mexico to import in North America to try to avoid these import duties. So this is why the aluminum building wire is more exposed to price competition.
But there is an important but: the aluminum building wire market, or our aluminum building wire exposure in Encore Wire, as well as in Prysmian, legacy Prysmian, but definitely in Encore Wire, is 1/8 of the total volume that we trade in copper building wire.
Thank you.
I hope I answered your question, Miguel.
We will now take our next question. Please stand by. The next question comes from the line of Bastien Aigouy from Berenberg. Please go ahead. Your line is now open. Hello, Bastien. You might be muted. Please unmute yourself and ask your question. There seems to be an issue with Bastien's line.
Yeah, it seems so.
There are now no further questions on the phone line. I would like to hand back to Mr. Massimo Battaini for any closing remarks.
Well, thank you all for attending the call. I think we gave you more color about our performance, our results, our trend, our trajectory for second half. We remain very confident that we will achieve the midpoint annual guidance and hopefully beat it. But of course, we take every quarter at a time, and we will consolidate this confidence through quarter three and hopefully through quarter four. So thank you all. I take the opportunity to wish you good holidays and talk to you next time. Thank you.