Good day and thank you for standing by. Welcome to the Prysmian Group H1 2022 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Valerio Battista, CEO. Please go ahead.
Thank you very much, and good morning or good day to everyone listening to me. First half 2022 financial results of Prysmian Group. Okay. Let's start with page two of the presentation. The key highlights. It has been the strongest quarter of the history of the company. EUR 411 million EBITDA in the second quarter with a remarkable performance in Q2, following the very good performance of Q1. Results are driven by energy and telecom. More or less, but all the businesses have been going very well, with an outstanding performance in the energy division, especially E&I and OEM Renewable. The performance in telecom is driven by North America. You will see later that the North American market is the ones driving the race. Projects.
Projects is progressing well with EUR 55 million adjusted EBITDA in Q2, reaching more or less higher 9.6%, if I remember well, first half EBITDA margin. The orders are coming. The projects pipeline has got EUR 2.4 billion of projects awarded in the first six months, namely NeuConnect, the second German corridor-
Spanish.
The Spanish, the two projects in Spain. Projects are continuing to come. The financial structure has been reinforced, or better, made more sustainable in the long term, with a EUR 1.2 billion sustainability linked term loan signed with banks one week ago. Okay, let's move to the page three. Total sales, let's name it EUR 8 billion, 7.95, with an organic growth of 12.5%. Very solid organic growth driven by E&I, with a 16.5% growth and the sound trends all over the regions. 8.7% is, cyclically is the business that is following E&I. Industrial nets or component, basically industrials, have an excellent performance both in OEM and renewables. Telecom. Telecom posted a growth of 6.6%, driven mostly by the growth in optical.
Finally, 14.3% have been the organic growth of projects. Very good. Adjusted EBITDA, let's name it EUR 700 million because we are not at the supermarket, and an EBITDA margin of 8.8%. Margin expansion with EUR 229 million adjusted EBITDA increase versus the EUR 470 million of the H1 2021. A significant increase of the adjusted EBITDA margin. Sorry, adjusted EBITDA money. The margins had an improvement of 100 basis points. That is not negligible, from 7.8% to 8.8%. Finally, the adjusted EBITDA margin in reality have to be considered 9.4% if we consider the price of the metals last year. Last but not least, what we found at the bottom of the cycle.
EUR 174 million free cash flow last 12 months, with a net debt of EUR 2.33 billion. The working capital management has mitigated the effect of raw material price increase entering into our balance sheet. The operative net working capital now is at 8.4% of the annualized sales. Let me remember that by the year end, this number is something one little digit 3 %- 5% usually. But it's a matter of seasonality. Let's move to page four. Page four, the organic growth by regions. By geography. As you can see on the top left, North America is the best region today, with 18.7% organic growth. That's an extraordinary ramp up made in the first half. If you look at the first quarter, means that the second quarter has been further accelerating.
EMEA follows with 11.1%. Then Latin America, 9.8%. Asia Pac, let's see, let's say 0%. 0%, why? Because in the second quarter, the COVID and the restrictions related to it, especially in China, has reduced the level of the business quite significantly. Now the problem seems to be over, and in the third quarter, should we seen again, a re-increase of the organic growth in Asia Pac. Looking at by business. E&I is increasing, has increased from the first quarter to the first half to 16.5%. Industrial network component from 7.9% the first quarter to 8.7% in the first half. Telecom from 7.4% to 6.6% in the first half.
Overall, the organic growth of Prysmian Group has increased from 11.4% to 12.5%. Going to projects, flipping to page five. I cannot say that we inaugurated the plant in Somerset in Brayton Point, but we received the visit of the President Biden to support us in the communication of the new plant in U.S.. The new plant is going to be construct in the next years and have to be operative more or less by 2026. In the meantime, we will supply the U.S. customers from Europe. New orders. EUR 2.4 billion new orders in the first half. The biggest one, as I said before, is NeuConnect, EUR 1.2 billion. The Project Lightning in the Middle East for EUR 220 million. The extension of the doubling of SuedOstLink for EUR 700 million.
Two submarine interconnection for EUR 250 million. Overall, you can see on the right side, bottom right side of the chart, the firm orders in the backlog are as of today EUR 4.3 billion, but there are other 5.8 that are awarded to us, but waiting for the notice to proceed. All in all, we have for the projects an outstanding backlog. All the segments are going well. Page six. Projects, organic growth of 28.4% from 681 to 922. This is the result of the very hard job we did in the last two years. Now the orders are in, and we are starting to deliver. Finally. EUR 87 million EBITDA in the first half, versus the first half 2021 at 76. The EBITDA margin is not yet outstanding.
The accumulated in the first half is 9.4%, but the second quarter posted a margins of 10.7%. It is still far from the 14%-15% we target as a margin for this business, but is improving. Industrial network component in the E&I, first of all. From €3 billion sales to €4.194 billion, with an organic growth of 16.5%. Very good. We will see that out of the various regions, the North American market is the ones that has driven this performance. What I wanted to note for you is that PD is going to follow. That's the history. The first one to take off is E&I, the second one that follow is power distribution. Industrial network component.
Industrial network component has posted a significant growth, 8.7% from EUR 1.3 billion to EUR 1.7 billion in the first half, with an organic growth of 8.7%. The result went up from EUR 99 million to EUR 130 million first half to first half, with a strong growth in OEM and renewables. Renewables, I would say, except China, where the lockdown and the issue, the health issues related to COVID has slowed it down, the demand. Finally, telecom. Telecom moved from EUR 802 million to EUR 911 million, with an organic growth of 6.6%, and an EBITDA that moved up from EUR 123 million to EUR 138 million. Again, here, North America is the pillar of the group. Is the geography that is driving the growth.
Let me leave the floor for a while to Juan for page seven.
Very good. Thank you, Valerio. Good afternoon. Good morning, everyone. This is Juan Mogollon, responsible for the energy division. With this slide that you see, I'm gonna try to provide more visibility to the composition of the energy division, perhaps that you have seen in the past. Most importantly, to the end markets and the economic drivers that fuel the performance of that division. I will try to be as comprehensive as possible within the reporting guidelines of the company. If I take you to the center of the slide, you will recognize the two businesses there in the middle that Valerio just mentioned it, the energy & infrastructure and the industrial network components.
As you would know, within the E&I, we have the PD, the overhead lines, and the T&I segments. Let me expand a little bit on that green shaded area that you see in the middle that we categorize as secular trends, secular segments. The big circle on the left, on the top left, is roughly about EUR 2.7 billion, in which about EUR 2 billion of that is power distribution and overhead transmission, with mid-range margins. The segment is fueled by, as Valerio just mentioned, the grid hardening expansion, and, as you all know, also by the solar and the onshore wind expansion.
Just to put it in perspective to what it means to Prysmian Energy, just in the first half of this year, PD and Prysmian expanded almost 30% over the same period last year. Our backlog is 33% over the same period last year, and our order intake weekly remains at about 10% versus last year. We do not foresee segment to slow down anytime soon. In fact, we're seeing utility companies clearly increasing CapEx to support the net zero targets, even with inflation and the policy consideration. I would also like to mention, referring to this segment, that our complete basket of product offerings makes a huge difference to our customers. A good example of that is a recent contract that was awarded to our colleagues in North America by Berkshire Hathaway Energy.
It's an investor-owned utility company that you would all recognize. This was a $100 million contract, which would include not only power distribution, but also underground low voltages and overhead transmission line. Again, it's the power of the portfolio that makes a difference here. If we stay on the green box within the secular segments, let me move to the right a little bit to refer to the industrial component, network component. Which is industrial and network component, which is a segment that generates roughly about EUR 2.5 billion at mid-range margins, what I would consider. Okay. Let me expand on a couple of them that Valerio just indicated, a higher growth in the first half. The first one is the renewables, which would include solar and wind.
This is a bucket of about EUR 700 million with double-digit margin. Growing, I'm sorry. We continue to capture the growth in these segments. These are two segments where Prysmian has the most comprehensive production footprint in the industry, with a wide range of products suitable to the local requirements. For those of you that follow both of these segments, you would agree that both of the segments will not slow down anytime soon. I'd like to touch on a couple of other segment in this secular drivers, one of which is the one that we don't often talk about, which is the mining. We sell about EUR 120 million annually at double-digit margins, high double-digit margins. We're looking at about at least 20% growth this year.
I say that based on the backlog that we have and the order intake. I say that because we are all seeing, and those of you that follow the mining industry would agree, that we're all seeing an unprecedented demand for major minerals, and not just copper, but also lithium and nickel, which is driving capacity expansion for the next 3-5 years. Obviously, behind this is the electrification and the electrical vehicles and the energy transition. I'd like to make a remark on the fact that we have relevant share in this market, and we have a very comprehensive product basket of products to serve different mining applications.
I would also like to mention the, another segment that we often don't talk about, which is the, railways and rolling stock, which you see within mobility. This is another secular trend, enabling the electrification. We sell about EUR 200 million annually in this segment. High double-digit growth and growing at double digit. This is another one that is expanding in CapEx in the next 3-5 years. Again, primarily because of the urbanization and the CO2 reduction targets. Again, we have relevant global market share in this segment with a unique basket of product. This is an area with high barriers to entry because of the product qualifications. I'm gonna quickly move to the middle of the slide, which is the residential commercial segments.
As you can see, this represent about 20% of our energy portfolio, or roughly about EUR 2 billion that you see represented in the middle circle. I would like to point out the fact that in North America, residential is less than 5% of the T&I business. Finally, the last bucket categorized as non-residential. This is a combination of institutions like schools, healthcare, and local infrastructure, the majority of which is in North America, and to a lesser extent in Europe. In a nutshell, I would like to highlight two key points about the composition of the energy division, okay? Number one is the fact that more than 50% of the revenue margins are driven by secular market segments. Number two is the fact that the diversity of our portfolio makes us a strong player in the electrification.
With that, I'll pass it back to you, Valerio.
Thank you very much. We flip to page eight. The geographical presence before and after the General Cable acquisition. Before General Cable, our revenues in 2017, we took 2017 as a reference, was roughly EUR 8 billion, with EMEA representing 67% of the total revenue. After General Cable, the first half 2022 have more or less the same number, EUR 7.9 billion sales, of which EMEA represents 51%, you see on the right, and North America is 33%. At EBITDA level, more or less, the picture is the same for 2017, with EMEA representing 70% of the total EBITDA. After General Cable acquisition, you can see that it's North America representing 50% of the EBITDA of the group, 49%, whereas EMEA has decreased it to 37%.
In my opinion, that's a very important pillar to recognize that, the move in North America has been very profitable for Prysmian Group. Flipping to page nine, again, you can see by geography, the performance of the company. You recognize easily the very high spike of North America. From EUR 166 million to EUR 335 million, almost more than doubling the result of, the group in North America. Whereas the other regions, with the exception of Asia Pac, have been improving significantly anyway. The sole flattish performance is the Asia Pac, because affected by the COVID crisis in China during the first half. Last but not least, the consequence of everything we have been looking for. Our previous guidance, released at the first quarter debate, was EUR 1 billion to EUR 1.08 billion. It was too early to.
At the time, to raise this guidance. Now we have a more solid perception of the market and our capability in the market to make money. The reason why we decided to raise significantly the guidance 2022 from the already said numbers to EUR 1.3 billion-EUR 1.4 billion, with a midpoint at EUR 1.35 billion. What does it mean? That if the market will continue to be stable in the second half, we see the possibility to reach EUR 1.4 billion. In case of slight deterioration in terms of pricing or volumes, the midpoint is a reasonable landing point. If we are gonna have a serious deterioration of the market in the second half, maybe we are gonna reach the lowest part of the guidance, EUR 1.3 billion.
As a consequence, the free cash flow have to be updated, and we basically removed the lower part of free cash flow, moving from EUR 400 million ±15%, that means ±EUR 60 million, to EUR 400 million-EUR 460 million. The upper side of the guidance. Of course, the value of the raw materials and the working capital are still under pressure, and that's the reason why we choose to expect a landing point in the upper side of the range, of the previous range, but not to increase significantly that range. Thank you very much. I leave the floor to Francesco for the details of the financials. Thank you.
Thank you very much, Valerio, and good evening to everybody. As usual, I start with a recap of the profit and loss statement. Organic growth, as Valerio explained, was very good. Overall, including the project divisions, was above 14%, in line with the first quarter, and also showing a pretty good growth in the power distribution business, which we have strong expectations also for the quarters to come, which is obviously driven by what we believe is a long-term trend of grid expansion. The adjusted EBITDA reached a record level, in particular the second quarter following an already very good first quarter.
Margin expansion has been spectacular, let me say, with a growth of 100 basis points from 7.8 to 8.8, as Valerio explained, restating metal prices at 2021 level. EBITDA margin rose to 9.4%. If we go a little bit back in the past, and we fix the metal price that we had, for instance, before the pandemic in 2019, our EBITDA margin would exceed the 10%, by the way, significantly, which is, in my opinion, a remarkable achievement. Of course, this was also impacted by some positive Forex effect. You see the detail in the bridge, top right, for the first half, a total impact coming from currency translation of EUR 48 million, mainly in the second quarter, which accounted for EUR 33 million positive impact.
All the businesses perform very well. Of course, the lion's share of the growth came from the energy division, but also Telecom gave an excellent contribution, I have to say, above expectation, at least the initial expectation we set with our old guidance. Projects is showing a flawless execution and progressing well on track to achieve the full year target. Moving to down in our profit and loss, I would say adjustments are pretty limited, also driven by lower than in the past restructuring charges. Non-monetary item are a bit heavy, impacted by the drop of the metal price, which impacted, in particular, our metal derivatives fair value for the part of them which is not rated under hedge accounting.
Financial charges, as already commented in the first quarter, grew, but only as a consequence of the extraordinary positive component, which was in place last year, in the first quarter in particular, which was related to the issuance of the convertible bond in Q1 2021. Other than this, in the first half, net interest expenses were quite stable compared to last year, and will be also rather stable in the second half of the year. Also good news coming from tax rate because it dropped, as you see, below 30% to 29% tax rate, driven by the sharp increase of our profitability in the U.S., enjoying a nominally lower tax rate in the U.S. than the average of our group.
This allowed all these effects combined, allowed our net income to reach for the first half a record result at EUR 259, growing, almost doubling, maybe not doubling, but growing 70 %- 80% compared to last year. Let me comment briefly on the following page, the statement of financial position, the balance sheet, just to explain a little bit better the growth of the operating net working capital, growing from EUR 939 to EUR 1.4 billion, approximately, so a total growth close to EUR 500 million. Very simply, this is the effect of the metal price rise. The recent drop of metal price is still not reflected in our working capital.
Eventually, if it stabilize, we will see this in the second half of the year. For the time being, we have been impacted by the sharp rise of metal price in the springtime, let me say, the period March, April, and May. Other than this, also the price increase of non-metal raw material had a very large impact in terms of growing our working capital. I would quantify the sum of these two effects pretty close to EUR 500 million, so justifying the entire growth of our working capital. Our net debt was in line with our expectations. As you see, EUR 57 million lower than the equivalent period of last year, and also around EUR 50 million lower than in end of March 2022. Moving to the cash flow.
Our cash flow is still, as Valerio said, a bit under pressure because of the raw material price increase and the related impact on working capital. Nevertheless, it is improving significantly on a last 12 month basis compared to the last 12 month basis in as of March 2022. You remember that we had the last 12 month free cash flow of EUR 86 million, and this is moving up to EUR 174 million. This improvement is mainly driven by the very sharp growth of our earnings, our EBITDA, whereas the increase of the working capital is still pretty much at the peak level, is plus EUR 360 million. If you go back to the presentation we gave three months ago.
Two months ago was not very different at the time. The improvement of free cash flow is mainly coming from the improvement of the last 12 months adjusted EBITDA. This doesn't mean that we are not improving our working capital. We have taken very strong and effective actions, specifically in our inventory, reducing the days of inventory. In terms of cash impact, positive impact, we will see the effect mainly starting from Q3 and even more in Q4. All this to say that, as you saw, we have slightly improved our guidance, as Valerio explained, taking out the lower part and pointing a range from EUR 400 to EUR 460. Of course, this range is also pretty much sensitive based on the level of the raw material price, in particular the metal price.
I move to a slide that we wanted to introduce to explain a little bit the work that we are doing to reinforcing and to strengthen our financial structure. You have the main transaction that was finalized at the beginning of July, has been the refinancing of the old term loan for EUR 1 billion that we did through a new term loan, slightly higher than the previous one, EUR 1.2 billion. The good part is that this is also partially linked to ESG targets, which is very important for us because it reinforce through finance, solid and concrete finance transactions, our commitment to sustainable growth. Looking at the strengthening of our financial structure, the new term loan extend our average maturity very significantly. Before the EUR 1.2 billion term loan, our average debt maturity was three years.
Now it moved to 4.5 years. As a result of a full hedge of the EUR 1.2 billion term loan, you see that also the component of fixed rates out of our total gross debt moved up to 70%, which is quite a comfortable position in the current environment of inflation and rising interest rates, which is protecting us significantly. Let me close my presentation with some little remarks. As Valerio clearly outlined, our results have been outstanding in the first half. This has been driven by our very strong customer focus, which leveraged on a, let me call it, a fast and flexible supply chain, fast and flexible operations.
That in a situation, in a market situation of product shortage or scarcity, of course, put us in the condition to catch, to fully catch the market opportunities and also the pricing opportunity. All this, in point two is explained, was based on a very broad business portfolio, highly exposed to secular trends. I think that one clearly explained that this secular trends exposure is not only present in project and telecom, which is quite obvious, energy transition for project and digital transition for telecom, but is also clearly there in the energy division. I don't want to repeat what my colleague Mogollon already explained, but some drivers, long-term drivers like grid expansion, like renewable power generation, like data centers, like electric mobility, are very clear and solid examples of this. Last but not least, two final points.
I think that our focus on cash, which is relentless and which has always been there, and now it's even more there. I think that now is even more crucial in the current challenging environment from a financial point of view, rising interest rates, rising inflation. I think it's an even more point of strength for our company. Last but not least, the project business is executing flawlessly, has a huge visibility. Valerio mentioned the EUR 10 billion total visibility if we add up the backlog with the orders which will convert into backlog in the next 18 months, and is very well on track to deliver the results not only for this year, but even more important, the results that we expect to be delivered in project in the next few years.
I think I'm over with my presentation. We can go ahead with the Q&A session. Thank you very much.
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. Please stand by while we compile the Q&A roster. We will now take the first question. The first question comes from the line of Daniela Costa from Goldman Sachs. Please go ahead.
Hi, good afternoon. Thanks for taking my question. If I could ask three, actually that would be great, on three businesses, actually one by business. Starting by the project, wanted to check with you regarding your commentary. Obviously, the margins are still subdued versus your 14%-15%. One of your peers yesterday talked about 17%-24% margin. Of course, there are some differences 'cause they report on constant copper sales. Anyways, I think even adjusting for that is materially higher than how you view things. Can you talk about how much of that difference is just mix differences or what you think about those numbers? That's question number one.
Question number two, wanted to check on the very helpful split of the energy projects between structural and non-structural. Can you comment at the moment, I guess both sides are at very, very elevated levels. Where are inventories at distributors? What's the drop in the non-structural part that you've included within, I guess you said your bottom end of your guidance has a severe drop versus the top end, but if you could just explain how much is from those businesses and what's the situation in terms of risk of destocking there. Third part on telecoms, the U.S. market has also been very strong. We're seeing high fiber prices again. When we look at the development on the build-out of the U.S. network, where do you think we are in that cycle of build-out?
Is 2023 the peak? Is there growth beyond 2023 and how you managing your capacity on the back of that? Thank you.
Thank you very much, Daniela. Let me answer first of all to your first questions. Differences versus Nexans, maybe because they are better than us, I don't know. For sure, in our project division, we don't have only the submarine energy. We have the land interconnections that have, by definition, a lower margin than the submarine. Anyway, I leave the floor to Hakan Ozmen to give you a more detailed answer.
Okay. Thank you, Valerio. Actually, you hit the nail on the head. First of all, as Daniela, you said, there is the copper value effect, which is significant. I mean, you have to extract that value. Then, the second is the mix of the projects that we have. As Valerio stated, the land portion of the high voltage, and then you see also submarine telecom, and also we have the SURF business inside our project business. Having said so as well, there is also the seasonality that I can say we are building at the very beginning of the year. As you see also, in the past, the second half is much stronger.
If we put all these elements together, we come also to a level which is not on the 14% level, but at least we come to a 12% level, which we will see. If we add also the copper delta, we may get also some percentage point from there. Again, you have to look also when the orders have been taken. The orders that we are completing currently have been taken a year and a half ago, which the market was a little bit different than today. Therefore, there is also a time lag. At the time we were taking orders, our competitors were losing the orders because they had built before for that period.
Now they have fresh orders, and we are going to most probably be able to push through all the orders for this year that have relatively, let me say, a longer period of order entry and financial close expected. But having said so, the 24% margin also with the extrapolation of the copper is really a good level. I don't think it is a sustainable margin for the long term. We think the sustainable level is on the 14%-15% level, and this is what we are going to show in the midterm.
Okay, let's move now to the second question. Energy, the inventory of our customers of the distributors. We try to keep under control, but obviously we have not the crystal ball. I believe that the inventory of the distributors is not so high. Has increased, but now they are trying to start to keep in line with their balance sheet availability. Is the drop expected in the cyclical part? I would say yes. When? I don't know. For the time being, especially in U.S., the market is still pretty buoyant. Will not stay forever. That's sure. That's the history. Mm-hmm. As a consequence of it, we consider that next year, at least, should we see a decline of the EBITDA of this segment. I don't know if Massimo or
I want to just add that, yes, the residential will soften in, probably, the beginning of next year. In U.S. we have a stronger presence in the non-residential segment, which will follow different dynamics. We might see some retreat in the margin, EBITDA margin of the T and I residential, which is mainly Europe, already maybe quarter three, quarter four this year. Already, in fact, in North America. The rest of North America based on industrial clients, residential, non-residential opportunities, airports, commercial building, institutional buildings, and all the rest will probably hold longer in terms of profitability. As you see, as we said many times, we have to watch and see what happens in the next two quarters.
The third question is about telecom, and I would like to leave the floor to Philippe Vanhille.
Hi, Daniela, and good afternoon, everybody. The U.S. market, as we see it, is far from being at the peak. The optical market of the U.S. has been growing for 20 years with a couple of years of exceptions due to a specific context. It's been growing in the long run, and we see the building of the broadband infrastructure in the first third of its construction, I would say. There is still a long time of growth in front of us. We are absolutely certain of that. As you know, we have a strong position in North America in this segment. We are preparing ourselves for a long-term growth on this market.
Okay. Thank you very much.
I think I answered your question, Daniela.
Yeah.
Thank you. We will now take the next question. The next question comes in line of Vivek Midha from Citi. Please go ahead. Your line is open.
Thanks very much, everyone. Good afternoon. Just following up on the questions on energy, I'll go at a time. Firstly, could you maybe break down the Q2 organic growth performance in energy into pricing and volume components? I think you said that you're still seeing July quite buoyant in the U.S. Is that also true in July in Europe so far? Thank you.
Thank you very much for your question, Vivek. I give you a very sharp and direct answer. Very most of the growth is price. The physical volumes, that is what is used to connect, has grown very minimal. Differently from 2007, 2008, when vice versa, the growth was the boom of the construction market, thanks to the loan. Thanks to the financing. Here, the problem is the availability and the reliability in serving customers. That gave us a price upside, especially in North America. We are very happy with that. It will stay, I doubt, but let's enjoy until it stay. I don't know if Massimo or Juan wants to add something to it.
No.
No, it's okay.
Just that the price is the effect of the pure effect of the cost inflations. In the T and I space, you are benefiting from a great ability to pass through the cost inflation and a premium price, especially the scarcity that we mentioned in the previous comments that exist and remains in the market. Since this growth has not happened, so this profit growth has not happened through volume, we don't foresee a great deal of change in volume nor in profitability, as long as the cost inflation remains in place. As we said before, we will monitor this cost inflation next months, and hopefully this might not disappear as a bubble which burst as happened in 2028.
We believe that obviously part of this advantage we are catching today may disappear next year. May reduce, but will not be or shouldn't be similar to the event in 2009 when the bubble burst. Because that was a bubble created by the financial market over-investing in construction and mortgage.
Thanks very much. That's really helpful. The second question is just on the project business. Thanks for the color on your order intake. Could you maybe give us an indication on the level of capacity utilization covered by the backlog as things stand? Do you have any room to take in further orders in the next couple of years? Thank you. Before execution in the next couple of years. Thank you.
Vivek, we are fully booked everywhere. This week, we authorized a transformation of a line in Finland to increase the capacity for projects. Maybe the Hakan Ozmen wants to add something on it.
Vivek, as Valerio said, we are booked for the capacity as of today for the ones which we have. But we are also investing, as you know, and we have, I think, made this also in the prior discussions available. We are investing into a new plant in U.S.. We are increasing our capacity in Finland. We are increasing our capacity in Gron. We are investing in Arco Felice in Naples. And also, you know, we are doing some smaller investment internally, as Valerio was stating. We are open for new orders, and we are discussing for new orders. Beyond that, we are also discussing further expansion, which is not, you know, now, as a decision, but we are also evaluating that.
To your question, and definitely we are taking more orders. Now the thing has a little bit changed because it was a little bit more of a shorter-term game. Now it becomes a very long-, mid- and very long-term game.
We have simply to evaluate, or our best customers are going to evaluate, what is gonna be the effect of the money cost increase that they are gonna have due to the increase of the cost of the money.
Okay, thank you very much.
You're welcome.
Thank you. We will now take the next question. The next question comes from the line of Monica Bosio from Intesa Sanpaolo. Please go ahead. Your line is open.
Good afternoon, everyone, and thanks for taking my question. The first one is on the energy project. I remember that in the first quarter, you were starting to renegotiate the energy price increases with customers according to the work in progress of the projects. I was just wondering if you can give us an update on this. The second is on the energy products, and especially as for Europe, T&I residential, which accounts for 30-40% of the business. I know that it's a difficult question, but is there a way to protect the margin in case of a severe slowdown of the economy in Europe? Or would you plan to do some restructuring in this case? The third question is on the revenue. It's for Francesco.
I remember that in the last conference call, Francesco guided for revenues in the range of EUR 15 billion, if I remember well. Just a check on this from him. The very last is on the supply of energy. Do you see potential issues from the energy supply side going forward for 2023? If yes, how are you moving to deal with this? Thank you very much.
Thank you, Monica. First of all, the project cost inflation negotiation. We have started, and for the time being, we accumulated something like EUR 4 million upgrade from customers. Most of the answers are, "Okay, complete the projects, and then we will discuss." But they are reasonably open to discuss. EUR 4 million are not negligible. Second chapter, T&I Europe residential. If there is a way to protect margins in case of severe slowdown. Difficult question, Monica. That's a very difficult question. My opinion is that you can do it if you have a significant market share position in the market. Market by market, not Europe overall. Because that's what we are seeing in Spain, for instance. After the General Cable acquisition, there was a certain pressure inside the company to resell the T&I of General Cable in Spain to someone else.
Frankly speaking, I refuse it. Simply because now we have a very significant market share. Definitely the market leader in Spain, and we can manage with the customer a different relationship. Where we are very little in term of market share, we are Mr. Nobody, and we cannot drive it at all. Even the stability of the margins. I'm not saying that where we have a significant market share, we will not be obliged to give up some of the margins to our customers. The slowdown will be littler for sure. Hypothesis of restructuring for the time being, no. Not at all.
Okay, thank you.
You're welcome. Francesco.
Yeah. Maybe the indication for the.
EUR 15 billion only?
Sorry. I think, of course, it's very sensitive depending on the metal price. I think that from 15% to 15% and the alpha, I would say, if the current level of metal price will stabilize. Lower than, of course, a few months ago.
Mm-hmm.
With that level of revenue, we would have reached the EUR 16 billion, most likely.
Last question: Supply of energy and the issues from gas possible stoppage. Okay. In order to protect our key plans in Europe, namely the submarine plant. Okay, Pikkala is not an issue because it has the certainty of the supply. The possible issue can come from Arco Felice, where we produce electricity with gas. For that reason, we have already prepared a plan that it was already in our mind to convert Arco Felice from the gas to the electricity. That will help us to match the commitment of the gas consumption reduction required by EU.
Thank you. We will now take the next question. The next question comes from the line of Miguel Borrega from BNP Paribas Exane. Please go ahead. Your line is open.
Hi. Good afternoon, everyone, and thanks for taking my questions. I've got a few. Just first on energy, you talked about EBITDA likely coming down in 2023, but I'm just wondering what will drive that since most of the performance was price. What drives prices down if volumes have been stable over the last few quarters and inventories at the distributors are not that high? I suppose lower copper prices won't impact your margins, and especially because most of your exposure in the U.S. is non-residential, where, you know, as far as I can see, KPIs are still okay. What will drive those prices down, if it's prices? You talked about normalized margins in projects between 14% and 15%. What would be in energy?
Okay. Thank you, Miguel. The price, maybe. I didn't say that it's gonna decline? I hope not. If in case, it is driven by the demand from one side, because the demand may go lower. We have seen even times into which the demand for cable has been lower. Most of all is the inflation driven by the metal price and the other raw materials. The other raw materials are still high and are not foreseen to go down significantly. The copper price went down, despite it was foreseeing a shortage of copper. It's possible. It's possible that the price will slow down. Not very much until the raw materials are so high. What are the normalized margins in energy? I give you my opinion: 8%.
Thank you.
Just a number.
On projects, can you maybe elaborate on the mix within what you're executing right now? Maybe a breakdown of what's interconnections, what's offshore wind, what's land, and how do you see that mix changing in 2023? Perhaps comment on how much the German corridors will represent as a percentage of total EBITDA within high voltage, just to understand a little bit better how margins may evolve. Thank you.
I leave the floor to Hakan Ozmen for the data.
For this year, on the submarine side, we are completing the Viking project, and we will still have some work to do beginning of next year, but limited. We have some let me say French projects that we are currently doing. It is on the floating and also on the inter-array and export. These projects are taken most probably around three years ago, these projects excluding Viking. Viking was taken a year and a half ago. We do the Turkish Strait that will finish also beginning of next year. But the majority of the work and the production is going to be done this year.
We have already started the Vineyard project, as you know, and we are starting installation also in the third quarter, and it will go beginning of next year as well. If we are looking overall to all these projects, you can understand also from, excluding the Turkish crossing, all these projects have booked some years ago as an order entry. If you look to the coming year, we have a mix which is, you know, geographically also distributed. We will have, of course, the Middle Eastern project, as you know, the ADNOC. We will start Dominion. We will start also some portion of our Tyrrhenian Link.
We will do hopefully some projects in the Mediterranean that we have already announced in Spain. We will follow up also with some projects in Greece. This is, let me say, a mix that is relatively young, new. If we look to the German corridors, you know, there is a ramp up in production versus last year for this year. We will further produce, let me say, into the next year relatively with a higher volume. The question is not on the production side, but is more on the installation side, which we don't think that the installation will start next year.
Overall, the high-voltage mix is going to be richer in the coming year, in terms of German corridor production, as a volume. We are still waiting for the installation that is going to come. Having said so, I'm sure you understood that our business is growing, and in terms of also marginality going forward, due to the time. That I can tell you.
Great. If I can squeeze in just one more question. Can you just update us on the situation of sourcing aluminum? The last time we spoke, I think there were some issues with your supplier, RUSAL. Thank you very much.
Massimo.
Yes, Miguel. Thank you for your question. I think we are good to go with regards to current suppliers. No risk at all, actually, from reliance on Russian suppliers to the extent that we have activated other sources of aluminum as a backup, and we are gonna probably dismiss these sources in the coming weeks or months because we don't need them. We are fully covered, though we don't see any particular instance of criticism in this regards.
Thank you. We will now take the next question. The next question comes from the line of Massimiliano Severi from Credit Suisse. Please go ahead. Your line is open.
Yeah. Hi. Thank you for taking my questions. I have three, one per division. I'll go one by one if I can. The first one would be on projects. I appreciate that subsea interconnections have the higher margin ones because you have installation and very high voltage cables. If I think about the fact that for land interconnections, you can use HVDC and higher technologies, while for HVAC offshore, you are using HVAC and lower voltages. How should I think about the margin difference between offshore wind and land high voltage interconnections? Are they similar or is one much larger than the other?
It depends, Massimiliano. In reality, the German corridors have a similar margin to the submarine.
Submarine projects.
The other interconnectors margins usually are lower. Remember that the German corridors are the first 525 DC interconnector. That's the reason for the higher margin we see in German corridors. Unfortunately, depressed today by the absence of the installation.
If I may add, Valerio, the classification that you have done, DC versus AC, it depends also on our exposure to DC and AC. We are a company that is more exposed in the order book on the DC part, and our expertise is on the DC part. When we are quoting for offshore wind, the mix of the DC is higher than the AC. Lately, we are preferring to have less exposure to the standard AC cable up to 220. But the new AC projects which go up to 275 offshore, of course, they are also different because it is a different project and a different product.
All in all, the DC projects, offshore wind or interconnect, they are relatively richer than any AC cable that we do. I skip the interarray cable because this is the lowest of the range which has been commoditized.
Yeah. Thank you. Yes, makes sense. Then my second question would be maybe again, on the energy product, energy division. If I look at E&I and the split between subsea, resi, and non-resi. Maybe in terms of margins, you commented on raising the subsea margins. If I think about the mix going forward, more like a mid-cycle margin for the three separate segments that you highlighted, how should I think about margins for the three different buckets?
You mean mid-size margin?
5%?
Mid-cycle.
Mid-cycle. Okay.
Yeah, mid-cycle. Yeah, like, average sustainable margins between secular, residential, and non-resi.
It depends on the mix in E&I, because T&I is much more competitive, is much more accessible, and, in, as a consequence, a lower margin. You know that, in T&I, we used to have something like 5% or 6% of EBITDA margin. PD is slightly better and is improving today. It depends on the cycle. Today, everyone, all the utilities are looking for power distribution in order to distribute the electrical power to the customers, because the demand is growing. We are fully saturated on the power distribution assets, at least in Europe and U.S.. In U.S., we have also decided that to increase the capacity. In Europe, not yet, but, may come in the future. I don't know, Massimo, do you want to-
Let me give another information, Massimiliano. Normally, T&I residential has the lowest margin of the three. Then you have T&I non-residential and eventually PD. These, if I take one single geography, this applied to a single geography, it makes sense. You can have geographies in which you make even more money in T&I residential than other geographies or than PD or the T&I non-residential. In within the same space, within the same country, it makes sense to rank T&I residential the lowest and PD the highest. You can have other geographies where you have maybe PD the lowest, or the T&I in the richer country. It's a bit variegated, the answer, depending on the geography.
Overall, given our exposure in T&I non-residential, we have a very good margin, given the fact that we are present in North America, which is a very structural market in terms of profitability.
Perfect. Very, very clear. My last one would be on the Telecom division. If you could maybe split the growth that you had there between price and volume. If maybe you could comment on whether price increases that you're seeing in the market are just enough to meet higher commodities and energy prices, or they are actually much larger, so there is an increase also in the gross margin in the fiber business. Thank you.
Philippe, do you want to give an answer?
Yes, Massimiliano. First, the market is growing in telecom, but in all regions. China is back to a peak. The U.S. market is really growing very strongly. Europe, to a lesser extent, is also growing, but it depends on the countries. Our organic growth in optical, in telecom, I want first to remind you that it's not only optical. We also have inside telecom, the declining copper business, that is, of course, not of the same size, but we have to mention it because we have inside our numbers to absorb the shrinking of the traditional copper telecom business, which is of course shrinking everywhere, but not, of course, offsetting at all the growth of optical.
Optical growth is made of volume, but as far as passing the increase of prices to the market, I would say a good quote would be that in optical, we nearly pass. We are nearly able to pass through the cost increase that we see in our raw materials, and the rest is done by giving priority to the right regions and the right customers in order to optimize our profitability. That's how we drive the business today. We are investing not to lose market shares globally. We keep our market share globally, and we give priority to the regions that are the most likely to absorb the cost increase that we see.
You see basically that our margin in percentage are rather stable, and this is what I said recently. We had this reduction of our margins in telecom one year ago, and then it's been flattish, slightly up, I would say. This is due to our way of managing. It is important to be able to do this in a context of a growing market, because then you have a volume effect on top. I don't know if I really answered your questions, Massimiliano. Forgive me if it's not exactly the answer you were expecting.
Yeah, yeah, no, very clear. Maybe just if I can briefly follow up. How big is still the copper business that you have relative to optical, roughly speaking?
Let's say, roughly speaking, the copper business is.
0.1.
Yeah.
1/10.
0.1. Slightly. About 0.1. Yes. Yes.
Clear. Perfect. Thank you very much.
Thank you. We will now take the next question. The next question comes from the line of Akash Gupta from JPMorgan. Please go ahead. Your line is open.
Yes. Hi, good afternoon, everybody. Most of my questions have been answered, but maybe a couple of follow-ups. The first one is on power distribution business in North America. Maybe if you can elaborate, what is causing this unusual situation where the volumes are not growing that much, but prices have gone up. Is this situation driven by shortage of aluminum, which is generally used in power distribution cable or any other polymer or material that is used? Or is this just because of lack of capacity because some of the companies might have rationalized capacity when the demand was not there before? How do you see. Like, you know, like maybe answer that, but then I'll have a follow-up on that.
Hello, Akash. Valerio speaking. In the U.S., what is happening is the following: We, all the cable makers, have had many problems in the supply chain. Shortage of aluminum, shortage of other plastics and raw materials linked to oil, damages to the system to produce the PVC or the other compounds. So a supply chain that has been disrupted. In the meantime, the demand for power distribution in the U.S. is growing. Is growing why? Because of the electrification. That's a very clear trend that has started not very fast for the time being, but is rising. The equation of the two is creating a sort of shortage. Consequently, all the raw material cost increase can be easily passed through.
Obviously, we have been suffering in the first months because certain contracts were medium-term contracts, and it was not so easy to update the price. In the end, our customers are so keen on getting from us the volumes, having no other possibilities, moreover, that are available to raise the prices in order to catch up with their commitment. I don't know if I answered your question, Akash.
Yeah. No, I think that is a perfect answer I was looking for. Maybe a follow-up on that is on demand. You have seen that demand is picking up on electrification, and here we are talking about medium voltage cables. What is driving this? Is this like small, tiny solar projects that are getting connected with the distribution grid, or is it data center? Because, I mean, we don't see that much on housing side, but just wondering if you can elaborate what are the driver for growth and how sustainable these drivers could be in the next couple of years.
Akash, I suppose that you have been in U.S. many times, as me. The grid in U.S. is quite poor. Quite poor means that needs of refurbishment, needs of renewal. In a moment like the ones we have now, when the demand of electricity is strong, everyone is trying to move step by step from gas or other sources of energy to electricity. Companies understand that there is a need for power distribution and that's what is happening, is starting to happen. My opinion is that we are at the beginning of the trend. The trend of increasing the power distribution demand is gonna be further on in the next years.
Valerio, allow me to add one thing on.
Yeah.
The electrification is certainly an important driver of the power distribution demand. Don't forget the power distribution deals with the low voltage and medium voltage cables, which are needed to transmit the energy once the voltage cable is transmitting power from the generation. One of the significant driver is the energy transition, which is not just to be identified in our energy project space. In the energy space, especially in power distribution, we see strong signs of market growth driven by the energy transition. The renewable generation requirements, all countries which invest in project business for submarine connection, interconnectors and high voltage land connection also needs the rest of the chain with medium voltage and low voltage, so that the final users are connected.
The final users are households or non-residential building, data center, mobile antenna, which requires a lot of energy. There are plenty of needs of electricity which are driven by electrification and energy transition. Don't just assign the energy transition driver to this energy project space in our company. Thank you. My second question is on telecom business. If I'm not wrong, then this fiber production is quite energy intensive, given you have to take the fiber out of glass. Given this energy crisis in Europe and gas rationing, maybe if you can elaborate on do you see any impact in your European fiber production down the line or that might get priority and/or maybe that is not relying on gas and maybe a source of electricity or power.
Maybe if you can walk us through the impact on your telecom optical fiber business in Europe from potential gas shortages in here?
Akash, you are right. The fiber is very energy intensive. The price have to be updated because there is no way. No one can produce the fibers without energy. Our choice has been to move from energy from gas and electrical energy from gas to electrical energy from the network. That is a little bit more costly, but it's clean. That's the choice we made. Fortunately, because with the Russian crisis, there is the risk to lose the gas. I don't know if Philippe wants to add anything.
Yeah, no, I just would like to put that in context. It's true, of course. You know, the fiber prices on the market are also increasing. This increase of fiber prices, in my view, are essentially due to passing the cost increase to the customers. It's a consequence of that. The consequence of being a high energy consumer for fiber makers drives the price of fiber upwards. You know, we had a very massive reduction of fiber prices in 2019 on the worldwide market. Now we are back not to previous levels, but we are back to a kind of an intermediate level, which is essentially due to a cost increase for the manufacturers. It's much more the cost increase than the lack of availability of fiber that is driving this price increase.
Thank you. We will now take the next question. Please stand by. The next question comes from the line of Alessandro Tortora from Mediobanca. Please go ahead, your line is open.
Okay. Thank you. Good afternoon, everybody. I have three brief question. Okay. The first one is on the free cash flow side. What I would like to understand better is, I see, let's say the recent correction of copper. What I don't understand is, at which extent, let's say you are basically factoring in any tailwind from this lower copper price in your indication of this, let's say, some potential upside you are keeping in and monitoring the copper price. This is the first question. The second question, sorry, it's just a follow-up on the telecom side.
Considering, let's say the strategy of selecting clients and basically selecting growth, is this the reason why you see, for instance, next year a further year of growth, let's say with the marginal improvement in profitability we saw this year? The third question is on PD. From what basically I heard in this call, your idea is that compared to, let's say the past cycle, we should have your clients in the power distribution being, how can I say, less volatile and believing in structural investments and therefore, let's say this chunk of the business, this EUR 2 billion space should be more resilient in a negative, let's say, cycle. Is it correct? Thanks.
Yes, Alessandro. Thank you very much. Let me leave the floor for the free cash flow to Francesco.
Good evening, Alessandro. I would say that we are factoring in the current level of copper price, of metal price in the high part of the guidance, in the 460. Then difficult to say if it will be 450, 470, but ballpark number, I think that in the high part of the guidance we are factoring it in. We have to remember that whereas the metal price decreased significantly, the other non-metal raw material didn't decrease that much. Sometimes we underestimate the effect that the other non-metal raw material have on our working capital that I explained were massive, were very, very impactful in the first six months, and this is not decreasing.
On top of that, any decrease of the metal or non-metal takes some time before expanding in terms of change to our cash flow, to our working capital, but above all, cash flow. We will not see this effect immediately, but we will see it in the fourth quarter, maybe, in my opinion. Some of these, if we stabilize the current level of metal price, we will even see it next year.
Mm.
That's why, all in all, I think that it is realistic to say that in the EUR 460, if the metals stabilize, we have a good chance to get to this top level of the guidance.
Mm-hmm. Okay.
Second question. Alessandro is on telecom. Philippe.
Yes, Alessandro.
The floor is yours.
Yes, the selective growth is a geographical selection, I would say, more than a customer selection.
Mm.
We address our capacity increase in the markets where we see the evidence of sustainable growth for the coming years. In particular, as we mentioned earlier, North America shows that evidence. There are also other places showing that evidence, but of course, North America being also large, it's one of our priorities. This will continue for years. Next year, to answer your question, I cannot answer precisely at this stage, but I would say I'm expecting the same kind of growth as we are seeing this year.
Mm.
Maybe changing the geography because.
Yeah
... for instance, the Telstra investment in Australia that was expected to start right now.
Slightly delayed.
Is slightly delayed, but is gonna come.
Yes, let's say we have North America as a very large market growing with the confidence that it will grow for in the long run. We have this project in Australia. The Australian market is, of course, much smaller, but it's a place where we are, we have an important position. Then in Europe, also, some markets are growing and we will address them. Europe is in a different shape, more fragmented as always. Also it's the market where we, the competitiveness, the competition is tougher, I would say than-
Also because there is still a minimal presence of Asians that tends to drop the price easily.
A little bit more than the
Okay. Just enough to mention.
Yeah.
The light, even if the Chinese are out, the Indians are in.
Mm-hmm.
Mm.
Okay.
Mm.
Inside the telecom growth that you see, as I said earlier, you have approximately one-tenth of telecom that is copper and shrinking. You have one-third of telecom that is enterprise business that we call MMS, which is not growing at the same pace. It's a more single-digit growth.
Mm.
Then inside the optical business, you have different paces of growth depending on the regions. I can tell you, for instance, that in North America, our optical cable business in Q2, for instance, has been growing against previous year more than 40%.
Okay.
Alessandro, your last question was about PD, if I remember well.
Yes.
We see customer more stable, that's true, because the stability of the supply. Consequently, the sales are more rigid, especially in North America. In Europe, customers are a little bit more flexible.
Mm-hmm
trying to catch the lower price from a secondary supplier.
Mm-hmm.
We tend not to follow them, and frequently they come back. I do not mention the customer because it's not nice, but there is a customer that is a big customer for us and has been, after our request of price adjustment due to the raw material cost increase.
At the beginning, rejected. We negotiated more fairly, and we got a good agreement. Mm-hmm.
Maybe, okay. I can understand, maybe. Okay, I have some idea. Okay, and just if you may, just a curiosity. You mentioned before, let's say, German corridor installation, let's say, in standby. If we look at the extension you signed now for the SuedLink project, compared to the past, basically, did you put a clause that at a certain point, you will start installation, whatever will come?
No, that's not the case. We put a clause of price adjustment in case of serious variation of the raw materials.
Mm-hmm.
Not the case in the first contract. They are paying the cables, consequently, no way. Sooner or later, they have to install.
Install it.
They pay the cables, and they pay for the time being also the people in standby we have agreed with them to have in Germany for this installation.
Okay. Thanks.
Because it's an extension. Because it's an extension, it is a part of the first. Because the first is volatile, the second is volatile also due to it's not a separate standalone project. From that perspective, you cannot oblige, you know, it depends very much on the permit. The volatility is not on the second one, because now we know more or less, you know, from the customer when they are going to start installation. The extension is more firm. We don't feel like this is something necessary.
Mm-hmm. Okay. That's it.
Thank you, Alessandro.
Thank you. We will now take the next question. The next question comes from the line of Sean McLoughlin from HSBC. Please go ahead. Your line is open.
Good afternoon. Just two quick questions from me. Firstly, on the EBITDA guidance, the range has increased despite being one quarter further into the year, which I suppose implies a greater level of uncertainty compared to Q1 results. Where is this concentrated? You've talked about construction demands, but I wondered if, you know, is there greater uncertainty on projects? Is this driven in other industrial end markets or maybe even telecom? Just any color there. Thank you.
No, Sean. The reality is that we are growing in terms of results across the board. We have better results from projects that are expected to improve further in the second half. We have an E&I market, especially in the U.S., that is very buoyant and probably sooner or later will shrink, but not for the time being. Consequently, we are enjoying it. We expect to be able to reach the year-end before we see the slowdown, if any. Last but not least, the telecom we commented quite largely. The demand is good, the prices have recovered. We are able to pass to our customers the cost increase that we are suffering, especially on the fibers.
Valerio, if I can comment further. Hi, Sean, Francesco speaking. As we tried to explain in the slide related to the guidance, the EUR 100 million range from EUR 1.3 billion- EUR 1.4 billion depends exclusively 100% from the condition in the second half of the energy market. This is what we tried to write in that slide. This means, to give a very straightforward answer to your question, that projects and telecom are not a variable in this guidance. We didn't assume any specific variation of the outlook of neither projects nor telecom. The only range is related to the energy market.
The reason why it even grew a bit larger from what was EUR 70 million in the old guidance to EUR 100 million is, of course, that we had such an upside in the energy market. Any change of the condition of these markets can be back to full. That's the.
Yeah. Very, very clear. Thank you.
The second question is the energy business the one that may change from the top of the guidance to the bottom?
Yeah. The second question is just on the order backlog. I mean, EUR 5+ billion of orders that are expecting to go into the backlog over the next 18-24 months. This is unusually large. I mean, is this simply down to the level of the volume of order intake that you've had? What is missing to add these to the backlog?
I tell you my opinion. In my opinion, is the appetite of the customers to get the volumes. There is a shortage of availability for the high voltage and the DC and AC. They prefer to put an order, making us wait for the confirmation with the notice to proceed in advance. That's good for us, but that is not good enough because until we don't have the order, the notice to proceed, for us is void.
We have two major, let me say, reasons not to put them into the backlog. The one is if it is a TSO, usually they don't have financial issues to finance the project, but they are waiting to get the approvals for the macro permit. Therefore, there is one block that awaits the permits to proceed. There is another block that has approved the financial, but has to be concluded. The financial closure has to be done. Therefore, when the final closure of the finance budget is given, they tend to give us the NTP. Two major roadblocks, permits and financial close. They are completely two different customer groups. A majority of our TSOs, they have already the financing ready.
On the other hand, on the developer side, you know, they have both, as a request, to complete.
Yeah. You wouldn't think there's any risk of any of that EUR 5 billion not converting into firm backlog?
Okay. Let me say this. Out of the EUR 5 billion, 80% of it, we can say that it's not an issue. We have only potentially 20% of the backlog that may need, especially in the circumstances as of today, with the increase of the interest rates, justification that these projects from the financial close are good. I don't see any significant risk in the backlog that it is not going to happen. I mean, the 80-20, we can say, rule of thumb that this is going to be. You are going to see also in the coming second half that some of these projects are going to come into the backlog too.
Thank you.
You're welcome, Phil.
Thank you. There are no more questions at this time. I'd like to hand back over for final remarks.
Thank you very much. No final remarks from my side. Thank you very much to everyone to have been to our call. Bye-bye.
Bye. Thank you.
Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.