Good morning, everyone, and welcome. And thank you for attending this Full Year 2024 Earnings Call. As you see from this first chart, a strong EBITDA delivery, €1,127 million, in line with expectations, with midpoint to the guidance. A very high 11.2% EBITDA margin, in line with the nine-month year-to-date last year and probably the record high of the EBITDA margin achieved by the company. After nine months of slow organic growth, in fact, it was minus 1.4% organic growth in nine months of 2024. We delivered significant organic growth in 2024, quarter four, mainly driven by strong demand in energy delivery and transmission, in power grid, and in digital solutions. Great performance in free cash flow with about €1 billion free cash flow. Moving to the more detailed information, you see a significant surge in EBITDA, 18.4% over 2023. It should take €200 million coming from the perimeter change.
And if you deduct these EUR 200 million from the EUR 1.927 billion achieved last year, you end up with EUR 1.728, which is, by coincidence, exactly EUR 100 million improvement over 2023 on a like-for-like basis. Free cash Flow also standing growth from EUR 700 plus to EUR 1 billion, plus 40%. I'd like to draw your attention to the EBITDA margin on the right-hand side of the page, where with this 11.3% EBITDA margin, you see a significant growth over 2023, but more importantly, over 2022, which was our baseline for the last time our last Capital Market Day. So, 200 basis points additional in profitability, mainly across all business units. A quick comment on the climate ambition and the climate actions. 21 reduction in Scope 3 versus baseline. Confirmed that minus 37% in line with expectations in Scope 1 and 2, and paving our way towards the 55% reduction by 2023.
Recycled content in raw material surged to 16.2%. Not really helped by the perimeter expansion, but helped by strong effort across the legacy Prysmian in driving suppliers to more waste and more recycled content into the raw material that we buy. Transmission performance, I think numbers speak for themselves. Strong organic growth in the quarter, 34%, driven by some additional installation activity and some additional capacity activity that occurred in quarter four. EBITDA margin in the quarter at 15%, similar to quarter three. Turning to the full year results, you see almost 20% organic growth over 2023. A significant improvement in EBITDA margin, 14.6%. With the exit rate, it's very high, 15%, and we are now super confident about beating the 16% goal that we set for 2025 in this business.
Capitalize on additional organic growth that will benefit from the capacity that has been expanded, which will come to fruition in 2025. Moving to power grid. No, I wasn't. Sorry. Moving to power grid, the organic growth in quarter four was significant. We were not coming from a significant organic growth nine months of 2024. It was, in fact, below 2%. Nice to report another quarter with a great EBITDA margin, 13.5%. So, we delivered full year in line with quarter four, 13.4% for the full year. 2 percentage point above the average of 2023. Maybe there will be a question later about the sustainability of this margin, and I will answer the question. But my comment I can share now is that, yes, we see strong demand in the United States. We have a strong exposure to the United States. And so, we would like to consolidate.
We think we'll be able to consolidate a level of EBITDA margin between 12% and 13% also in 2025, and possibly leverage on the capacity expansion that is happening in this space. In E&C, we had a 10.2% performance in EBITDA margin in quarter four, vis-à-vis 18.8% in quarter four, 2023. The EBITDA margin in quarter four, 2024, softened a little bit. If you look at, if you remember what we did in quarter three, 2024, it was 11.5% after the consolidation in Encore Wire. We've seen some seasonal effect, which has driven some softening price in one segment of the E&C, which is the copper-building wire. So, while the aluminum-building wire, the portable cords, and industrial products like medium voltage had margin improvement in quarter four, copper-building wire has softened a little bit. I think it's a temporary effect. We noticed this also in the first weeks of 2025.
The season and the weather, the harsh weather in North America, didn't help at all, and so we think that this is simply a temporary situation driven by a few circumstances. Some residential demand is pretty low, which is not our space, but unfortunately, it's a space for some other competitors, and so we're confident that with the second season entering to the high peak from March onwards, we will rebound and regain momentum in the market, also in volume, which has been very good, by the way, in quarter four last year, and also in prices. Full year EBITDA margin at 10.1% versus 10.7%. You have to remember that in 2023, we had the first half of 2023 still benefiting from the spike in Encore legacy Prysmian business, resulting from the rebound of the market post-pandemic and inflation. Our specialty was certainly not satisfactory.
It's not much different from what we ended up delivering in quarter three in terms of EBITDA margin. We still suffer a lot from the automotive slowdown in volume and in price, more importantly, and from some contraction in the elevator business in the United States, again, driven by the weakness of the residential market. Full-year EBITDA margin in line with 2023, and we count on this stability with some upside for 2025 in terms of EBITDA margins. Digital solution, of course, we had an easy comparable versus 2023, where we posted a negative EBITDA. So, €40 million EBITDA, 12.5% has been the margin of the business over the last four quarters. It's certainly we see stable.
Good news that we've seen finally a strong rebound in volume in the North American market, which was, by the way, the cause of the collapse of the margins and the volume in the last two years due to this stocking process. So, volume has started to rebound kind of aggressively, I would say. Prices are still not where they need to be, or still not in line with what we had at the time the market was very tight, so in 2022. But as we gain momentum in volume, confident the price will come along. 24% EBITDA margin is also what we envisage for 2025 moving forward. We'll now comment across the board. I would like just to draw your attention on the circular economy drivers. Now we have 43% of our revenue connected to sustainable products coming from 37% in 2023.
Recycled content, as I commented before, as high as 16.2%. I insist on these two elements because these are the elements that benefit customers. These are the elements that help customers achieve and meet their sustainability goals. These are the elements that we leverage and capitalize on to grow and add additional revenue, and in some cases, premium price to our revenues. With this, I'll leave the floor to Francesco for more financial insights.
Thank you, Massimo, and good morning to everybody. To recap, as usual, our profit and loss statement stays in the region of €17 billion, consolidating, as you know, Encore Wire for the second half. As Massimo already anticipated, organic growth for the full year is at plus 0.5%, with a good improvement in the quarter four, driven by a strong surge in sales and growth in the transmission business, double digit, a large double digit. And driven also by a pretty good trend in the fourth quarter of both the power grid and also the recovering digital solution business. Adjusted EBITDA 1,927, with a record high EBITDA margin at 11.3%. You see on the right the bridge compared to the previous year of the four quarters. And you clearly see in Q4 the very strong momentum and the very strong progression of the transmission business.
Massimo anticipated that the transmission reached a 15% EBITDA margin in the fourth quarter, which positioned it very well to achieve and beat the level of margins that we had anticipated in October 2023 in Naples. Power Grid consistently, very stable and very consistent improvement versus the previous year with a steadily high level of margin. Digital Solutions is on a recovering path, in particular, the market in North America and is benefiting of this. And as Massimo anticipated, in electrification, you see some little softening of the price environment, of the margin environment in one segment of the North America in the, the copper building wire. And you see some weakness that Massimo commented on the specialty business. But all in all, pretty solid Q4 results. Maybe back a second. Thanks.
For the rest of the profit and loss, the adjustments below the line are largely affected by the acquisition of Encore Wire because of the transaction cost and even more because of the purchase price accounting effect. Likewise, by the way, the depreciation and amortization, you don't see a line here, but also this in the second half, specifically in the fourth quarter, has been, as expected, impacted by the purchase price accounting. Financial charges you see as totally in line with expectation, rising to €225 million, which is discounting more than €100 million effect in the second half due to the acquisition. A pretty low tax rate benefiting of some one-off effects still related to the acquisition. A group net income, which surged to €729, which is in terms of diluted EPS, a level of 2.52, which is compared to 2022, a CAGR, a growth year-on-year of 15%.
You'll remember, I'm sure, that in Naples, we anticipated an objective in terms of EPS CAGR of greater than 10% for, at the time, the period 2022-2027. Let me say that the first two years are certainly better than this anticipated target. And let me also remark on the group net income that the group net income obviously discounts a negative effect from the acquisition because of the accounting treatment of the purchase price allocation. To be very clear, in Q4, we are including negative effects of €80 million before tax coming from the pure purchase price allocation, which is a reversal of inventory step-up and the additional amortization and depreciation, which are coming with the top-up, with the step-up of the assets, which is a normal process in the purchase price allocation.
So, this to put the net income and the strength, actually, of the net income in the right perspective. Okay, we can move quickly to the outstanding cash generation that Massimo commented. For the first time, we broke the wall of the €1 billion. I think we must be proud of that. And obviously, we benefited from a very strong and positive dynamic of the working capital. You see changes of positive changes, a drop of €465 million, driven by the transmission business. And you see also the extraordinary effects on our net debt coming from the acquisition, from Encore Wire acquisition, €4.1 billion, and also coming from the conversion of the convertible bond net of the share buyback, which took place mid of the year and actually the share buyback in the second half for a positive impact net of these two transactions of €406 million.
Let me remark the €4.3 billion, €4,296 to be exact, debt at year-end is largely better than we expected, is €100-€150 million at least better. Likewise, the free cash flow, which is €130 million above the midpoint of the guidance of €880. This puts us already in a pretty good shape in terms of the leverage because in the region of two times in terms of ratio net debt on EBITDA is slightly better than we thought and that we expected. Last but not least, a very quick snapshot on the effect that our acquisition financing, acquisition bridge refinancing that we did in November with the issuance of the two bonds for a total of €1.5 billion. This strengthened significantly our financial structure. You see that we extended the average maturity to 4.3 years.
You see in green, by the way, the two bonds, the four-year bond for EUR 850 million will be due in 2028, and the seven-year EUR 650 million bond, which will be due in 2031. So, a much extended maturity, a stronger financial structure compared to the one that we had right after the acquisition, and also very attractive conditions because the two bonds, you remember, were raised at an average cost of funding of 3.7%. And also, let me remark to finish the fact that the composition of this debt, of this gross debt in terms of mix of fixed and variable interest rate is very safe because 80% is at fixed rate. And by the way, part of that was hedged even before the interest rate increase, which took place in 2022-2023. Okay, back to Massimo for the final conclusions.
Okay, Francesco, so with this result of 2024 in the ISSP, we are pleased to confirm a guidance with a midpoint at €2.3 billion as far as the EBITDA is concerned, €2,250-€2,350 million. Free cash flow with great stability, €1 billion midpoint for 2025, and further acceleration in the Scope 1 and Scope 2 reduction. So I will remind you that in a while, in less than a month, you will see much more about our future, about our ambition, our statement of targets for 2028, of course. And also we'll be very happy to welcome you in Encore, in McKinney, in Encore to see the facility and the powerful service level and innovative product provided by this asset.
Closing with a strong remarkable performance in transmission and power grid, the integration from an organizational point of view and from a sales commercial in the sense of footprint on field point of view has completed, has been completed. And we will tell you more about the speed of the synergies implementation at the Capital Market Day. Great EBITDA, great, sorry, EUR 1 billion of free cash flow and consistent increase to return to shareholders. We are going to propose a dividend of EUR 0.80, so a 14% increase over 2024, which is better than what we thought we would do at the Capital Market Day where we set this at 10% growth year over year. And so with this, I think we hand over to you for your question and clarification about the past year and the coming 2025 figures.
Thank you. As a reminder to ask a question, you will need to press star one one on your telephone keypad 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, and 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 for taking my questions. I have three questions. If that's possible, I'll ask them one at a time. But maybe starting out with sort of what you bake in into your EBITDA guidance in terms of top-line assumptions for the cyclical divisions, particularly for electrification and for digital solutions, if you can comment about[crosstalk] the puts and takes into that guidance first.
More than single-digit growth, let's say in electrification, 3%-5% and 5%-7% for digital solution. I mean, this is volume-wise what we see. And in digital solution, we should see some upside coming from prices.
And then in terms of margins, can you clarify where Encore is right now? And I think in the past, you have commented on what you saw sort of a fair level through the cycle for Encore in the future.
We had.[crosstalk]
Have you changed on that? Where does that number stand now?
Probably the wire, which is that, of course, the major segment of business, they performed in the market 3%-4% price softening in November, December, not in October, in November, December. On the contrary, we've seen aluminum building wire pricing going up. There is some volatility associated with the tariffs. We think we benefit from the tariffs that have been applied to the aluminum material imports and also to the cable imports. Since, as you know, in aluminum building wire space, there is 40% of the American market in the end of imports. So we should be able to capitalize on additional margin improvement in aluminum building wire. In building wire, copper-building wire, we had seen this slow momentum in the market.
I think this was driven by the residential market not taking off and having more competition in the industrial market, which is where we are much more exposed to in terms of Encore Wire. So I believe it was 15% EBITDA margin in 2024 of Encore Wire. We might see some moderate and temporary slowdown in quarter one, and with the second quarter, with the high season and with the strong expectation that we receive from all customers in terms of growth in 2025, we had met in the last two weeks dozens of customers to try to gauge and understand what their view is and their prospect is for 2025. They were all positive about a dynamic market with a lot of additional demand.
So this softening is definitely temporary, and we should be able to stabilize ourselves to a 14%-15% level in the high season quarter of 2025.
Got it. Thank you. And the final one just before you had commented in terms of liking to strengthen potentially organically in the digital solutions business with sort of a stronger offer for data centers and connectivity. And I was wondering if recent sort of developments in that market with DeepSeek and others [crosstalk] also have helped your thinking about that in any sense?
In terms of the news in data center, our stock price drops as if we had 100% of our revenue as opposed to data center. We still have only, or maybe not only, but we had 5%-8% revenue as opposed to data center, potentially with some growth happening in the coming years due to the expansion. We haven't seen any slowdown in data center expansion. We can, as you well know, Daniela, benefit from data center expansion across the fourth segment of business because also in transmission, we receive projects and we participate to tenders for electrifying data center with renewable energy. So for us, it's a strong use case which does justice to our synergistic portfolio, transmission, power grid, electrification, digital solution. We will continue in pursuing M&A activity in telecom and other businesses, looking for complementarity.
In telecom, as you correctly said, we would like to become even more exposed to the connectivity components, not necessarily to data center, but to the fabric, to the home and part of the data center, but to the connectivity components so that we can offer really a comprehensive solution, cable, optical fiber, cables, and connectivity. Thank you, Daniela.
Thank you very much.
Thank you. We will now go to our next question. Please stand by. And the next question comes from the line of Josh Miller from Morgan Stanley. Please go ahead. Your line is now open.
Hi, thank you. Good morning. Just maybe first question on the medium voltage business power grids. I think you've now mentioned a 12%-13% margin level for 2025, which is clearly lower than 2024's 13.4% level. I guess my question is, how do you feel about supply demand beyond 2025? You and competition have brought more capacity online. You will be bringing even more online at the end of this year. I guess what gives you confidence that this [crosstalk] is the end of any potential margin normalization in that segment?
In 2022 or 2023, and partly in also 2024, coming from a market that was tight, capacity was not yet fully deployed, and the demand was strong. The demand was strong. Now, the demand is going to remain strong in 2025 because the drivers for additional electricity needs will insist in making investment in the power grid, which is the asset that delivers more electricity to the users remain solid. The point you correctly said is that now there is more capacity coming on stream. But on the one hand, we have a stronger relationship with key customers. So most of this capacity coming on stream is for public power space or renewable onshore business where you don't have and you don't need to have a long-lasting relationship to be a player. On the contrary, we have 50% of our business, 50%-60% concentrated in utilities.
The strong relationship with these utilities customers and the good service that we keep providing them in terms of security of supply on-time delivery is what they reward a lot. On the one hand, there will be additional capacity, which I believe will be more redirected to onshore business, which is a spot project business, and more redirected to public power. Public power is the kind of distribution space for the power grid. While we will continue leveraging our long-lasting contracts and frame agreements with utilities, I said 12, 13 because anyway, with the additional capacity, despite incremental demand, we might see some pricing adjustment. So far, we haven't seen them. Not at all negative, actually positive. Bear in mind that 2024 was a record year with this 13.4% EBITDA margin.
[crosstalk]Thank you. What do you think?
12 to 13 is the right level for this business.
12 to 13 is the right level.
Just to clarify. 12%-13% is the right level. 12%-13%, I mean, we were 7%, I said. We consolidated a stronger comfort because the market demand is there. The additional capacity will create some maybe mild, moderate turbulence in the market, but not with our customers because of what I said before. So 12%-13% is what we expect to achieve to remain, to see in the coming years, not necessarily only 25.
No, that's great. Thank you. And then maybe one just quick second question, just sort of announcement in December, I think, around the US capacity expansion Brayton Point that sounds like it's now been shelved. I guess maybe a couple of questions on the back of that. Could you just remind us about how big that was going to be all in? I guess now what your intention is for that CapEx is that being reallocated to other capacity expansion projects? And then I guess on the back of that all in, how do you think about revenue capacity [crosstalk] on a three-year basis for 2027, 2028?
The big was $400 million for one additional line, so 400 km of submarine capacity all devoted to the United States. First of all, the reason why we decided originally to pause and then to basically call off that investment was not. It has nothing to do with the political situation with Trump, but has to do with what didn't happen in the last three years, so the demand in terms of order intake in submarine, HVDC land didn't happen, didn't take, didn't gain any traction in North America. Again, during Biden as well, during Trump before, as well during Trump now, the decision is let's not create for us a difficult situation whereby we have an asset very expensive for limited capacity and we have to run it idle because we will have the chance to saturate it.
Or even worse, to use a project from Europe loaded into North America and then to repatriate it to Europe because the North America demand is not there. Of course, we already made a partial use of this CapEx because in the last 12 months, we decided to expand additional capacity in Europe, which will come available by the end of 2026 in submarine space and the HVDC space because the demand in Europe remained pretty solid and actually growing. In order for us to remain the market leader and maintain our ambitious 35%-40% share of the market, we needed to expand capacity where the market is and where the customers that we trust are TSOs in Europe. The backlog we have is large enough to cover revenue through 2028. We are fully sold out despite the additional investment I just mentioned.
It goes actually beyond 2028. I don't see a great deal of concern in European growth plan through 2028. Backlog is there. The capacity is undergoing. The backlog is reliable because it's with a solid project, with solid customer, with project backed by notice to proceed and down payments. We feel pretty confident that we deliver the growth that we said we would achieve and we'll do more. We'll tell you more at the Capital Market Day and also the EBITDA margin announcement that we committed to achieving. Thank you, Josh.
Great. Thank you very much.
Thank you. We will now go to our next question. Please stand by. And 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. The first one just on electrification margin during Q4, which is down year on year despite the integration of Encore. Can you share additional color here on the weakness and give us some thoughts on whether your initial expectations from Encore still stand? I would imagine synergies are progressing well, but what about the underlying business on a standalone basis? I remember you saying margin could be sustained at 2023 levels of 20%. [crosstalk]Can you tell us roughly how much?
The EBITDA margin went away at the acquisition, and actually what we reported in quarter three was 15%. Basically, we lost one point more or less in quarter four over 2024 quarter three. The reason why quarter four 2024 is margin-wise lower than quarter four 2023 is also to be identified in other perimeters. We had a particular situation, very positive in LATAM through the whole of quarter four of 2023 due to the, I mean, kind of panic buying from customers in Argentina where cash were short. They wanted to find a place to put money and protect and shield money from inflation and deflation. So they decided to buy cables and copper and a lot of stuff. So there was a specific spike in quarter four 2023 in LATAM, which made the comparison between 2024 and 2023, unfortunately, unfavorable.
The margin of Encore sits on 14% EBITDA before synergies. We think this level between 14% and 15% is going to remain. Of course, quarter one didn't start, it started in kind of continuity with quarter four. We had seen the same type of pricing softening in copper-building wire in the space, but demand has remained solid. The weather, as I said before, didn't help at all. New project didn't start in light of this difficult weather situation. Synergies will add EUR 140 million. We are moving fast on synergies. Of course, last year there were just some fiscal synergies, minor fiscal synergies. This year is where we have to deliver cross-selling opportunity and operational efficiency, operational synergies. Synergies will not necessarily add margin points per se, incremental EBITDA margin points per se. They will add additional revenue with a margin that has to be identified.
So all in all, I believe that we're still pretty confident about the sustainability of the margin in Encore Wire and the E&C space in the United States.
That's great. Thank you very much. And then on transmission, can you update us on the ongoing capacity expansion? You said just now existing capacity will be done by the end of 2026, and you confirm no longer a US plant. I remember you announcing this sometime in 2021, and that was supposed to add EUR 1 billion of sales by 2026 to EUR 4 billion. So without that, can you confirm again your revenue capacity once the existing plants are done by 2026? Is it roughly EUR 3 billion? And what are the implications of not doing the US plant in terms of your backlog? Does it imply further additions down the line? Is your margin expectation still [crosstalk]16.5% by 2026?
I will not be able to answer that question because we are a few weeks away from what I can tell you much more with more in-depth at the Capital Market Day. First of all, the end of the capacity expansion is not 2026. It's going to be towards the end of 2027. So we will see the full available capacity turn into revenue in 2028. Our revenues will grow significantly from 2024 through 2028. I just tell you that we decided years ago to double the submarine capacity and increase significantly also the HVDC land capacity. So let me not spoil now the Capital Market Day with a number for transmission revenue in 2028, but it will be consistent with a strong organic growth through the period.
The capacity that we are going to lose on the back of the decision not to continue with Brayton Point is going to be more than offset by incremental capacity that we will make available to Europe. The 2026 that you mentioned is additional lines that were not part of the original plan, but will be coming available in Europe by the end of 2026, early 2027, and they will overcompensate the lack of the 400 kilometers not included any longer in the American footprint. Margins will go in our, maybe I should not again tell you anything about this, but margin will go beyond the 16.5% that we committed to at the last Capital Market Day.
That's great, and then lastly, just can you shed some color on CapEx?
CapEx will continue in 2025 in line with the level of 2024. We have, and there will be also a similar number, slightly lower in 2026. This is simply related to the fact that with those two years, 2025 and 2026, we'll see two additional vessels coming available on us. So the Monna Lisa delivered in quarter one, and there will be Alessandro Volta, new vessel delivered at the end of 2026. Beyond that level, beyond that moment, CapEx will marginally reduce because we'll come into an end, we're coming to the end of the wave of CapEx to expand manufacturing capacity, investment capacity, and transmission. Thank you, Miguel.
Thank you very much.
Thank you. We will now take our next question. Please stand by, and the next question comes from the line of Akash Gupta from J.P. Morgan. Please go ahead. Your line is now open.
Yes. Hi, good morning, Massimo and Francesco, and thanks for your time. I have a few as well, and I will ask one at a time. The first one I have is on solution revenue growth in 2025. I mean, we have already seen very good growth in 2024, and you said that some capacity expansion has helped the growth in Q4. So maybe if you can talk about which are the new capacity, like where is it coming from in 2025 to quantify the magnitude of it? And also when in 2025 these things will come in if we have to distribute our revenue forecast into four quarters. So the first question on revenue growth and capacity expansion.
Transmission, don't worry. We like to be associated.
High wind, transmission, high.
A good play. So revenue growth in 2025, yeah, I should give this number to you at the capital market day, but there will be one additional line in Naples in our plant in Pozzuoli for submarine volume. And there will be one that has already come ready to production at the end of quarter four 2024 in Gron, our plant in France for HVDC land. And there will be one small catenary line for submarine production also in Pikkala. So overall, I would say that if you take the revenue of 2024, you should apply, let's say, 15%-20% revenue growth as a result of manufacturing capacity, which goes hand in hand with the additional installation capacity associated with the CapEx that, as you mentioned before. I hope I clarify this scenario for transmission.
My second question.
Thank you. And my second question is on your margin expectations for 2025. I think in your prepared remarks and afterwards, you talk about margin expectations for various segments. And one of the variables in your margin is metal prices, given you don't adjust your margins for metal prices like your peers do. So anything that we should expect from metal prices that you may have embedded in your margin expectation that you communicated earlier or?
I don't see that. I don't see that metal price is in continuity with the level of 2024. Of course, there might be some changes resulting from the tariffs, not on the LME price, but on the other components of the transformation cost, the copper premium, the stuff. And I think, I mean, in North America, we still have to understand what will be the end of this, what will be the end of this game. As I said before, the whole of North America is not self-sufficient in terms of rod, copper rod, aluminum rod production. So those import duties applied to metal prices will not certainly favor the local capacity, which is still not aligned to the local demand.
This will end up providing all customers, providing all markets and increasing the cost of cables and so on, which I think is something that we normally benefit from because we can pass more than inflation to the market. Anyway, our margin expected by business unit does not reflect any of these possible changes. Also because we think we'll be able to remain immune, if not benefit from the import duties applied to imports in North America.
Thank you. And my final one is for Francesco. So, Francesco, you talked about purchase price amortization was among the items that had played role in below the line items. Can you quantify how much was PPA impact in your adjusted EBIT? And any color on what shall be expected in 2025?
Picture of what was the impact on the profit before tax, which means basically an impact on the EBIT more than adjusted EBIT. I try to be clear. Let me start from the profit before tax and then I think. So we had basically a PPA effect of, I said EUR 80 million, actually EUR 77 million to be exact. EUR 37 million, say EUR 40 million to round it up, is additional depreciation, which is coming from the reassessment of the asset, which is typical of the PPA. And another EUR 40 million is coming from the reversal of the inventory step-up. In all the PPAs, you have an inventory step-up according to market value of this inventory. And then you reverse this extra value typically in the first quarter right after the acquisition. So basically EUR 80 million all in all.
Then, let me also add that our profit before tax was penalized by some impairments. A question was mentioned in the basically point related to the Brayton Point investments. We incurred some of these, some investments that we had done, some costs that we had done in 2024. And with other small impairments, the total effect is in the region of EUR 40 million of impairments. All this is penalizing the quarter four, to be exact. So we have total negative effects from PPA and impairment on quarter four of EUR 120 million. The net of tax are effects of EUR 90 million. So basically, you should read the quarter four profit before tax and net income considering this negative impact of EUR 90 million. And if you consider this, our Q4 net income would be absolutely in line with the two central quarters of 2024.
Talking about specifically the adjusted EBIT, the additional depreciation from PPA is included in, is not excluded from adjusted EBIT, is penalizing adjusted EBIT. We are rigorous on this. I don't like, frankly speaking, to say that extra depreciation from an acquisition, we should exclude the depreciation from adjusted EBIT. My opinion would not be very serious. What is excluded on the other end from adjusted EBIT is the reversal of inventory step-up, the EUR 40 million that I was mentioning. Because this is a one-off effect. It's not, whereas the higher depreciation from PPA is not a one-off effect. It's an effect that we will see also in the coming years. By the way, this year was only one half. Next year will be for the full year different is the reversal of the inventory step-up. Okay, I don't know if I'm clear. I was clear, sorry.
In 2025, you should know.
For 2025, we shall expect somewhere around 40 million in depreciation.
Depreciation in the region of, yes, EUR 35-40 million. Because this EUR 35-40 million that you had in 2024 was only one half of PPA.
I mean, PPA is a number that a lot of investors add back in their valuation, given it's a non-cash amortization coming from step-up value. If you have to take full year number, that would be around EUR 70-EUR 80 million.[crosstalk]
I would round it up to EUR 70 million Adjusted EBIT for 2025. Is that depreciation related to PPA? Full year 2025 is a very good estimate. Welcome.
Thank you. Thank you, Francesco.
Thank you. We will now take our next question. Please stand by, and the next question comes from the line of Monica Bosio from Intesa Sanpaolo. Please go ahead. Your line is now open.
Good morning, all, and thanks for taking my questions. I will ask one by one. The first is on the transmission side. Most of my questions have been already answered, but could you share with us, Massimo, the expected size of the transmission market in 2025 and 2026 with a breakdown between connection and transmission and submarine? And just one curiosity, the company is going to add two new vessels. So the installation capacity looked to me very pretty good. How is the situation at the market level in this moment?
The expected size of the market in 2025-2026, based on the pipelines of projects that either we already bid to or we are seen as coming tenders, is between EUR 15 billion and EUR 17 billion per year. There are still some frame agreements or large projects to come into fruition, like the National Grid projects. Then there are projects from Terna for the so-called Hypergrid. So it's a large net or submarine network surrounding Italy. There is the frame agreement from IPTO, the Greek company, utility. So there are projects in the pipeline which make us comfortable saying that 15, 16 is the level of market in 2025, 2026. The market is more or less 70% towards submarine and 30% in land HVDC.
Maybe one additional comment on why in the past we had these long interconnectors, land interconnectors. Those land interconnectors, large and long like the German corridor, will probably not be continuing with the same intensity in the coming years. But more and more we see submarine offshore business with stronger and longer stretches of land when it comes to shore to connect to substations that are much more remote than they were before. So a lot of land activity is actually combined in the submarine project because of the distance between the shore and the substation they have to connect to. So overall, land will represent, as I presented in the past, 30% of the total market. We are unique in a new way in terms of installation capacity because we are the only one able to install with our vessels all the cable that we produce.
So we don't like to resort to third-party installers. First of all, for cost reason. Today, the market is very buoyant, and the price per day of vessels chartered from the market is three times the cost, three times the price that it was only two, three years ago. And this is one economic reason, a convenient reason for us to say we want to maintain this margin within ourselves. But the main reason is probably the quality and the risk of the installation. We want to control the quality and the risk of the installation. So we don't want to depend on anyone else in terms of time extension, bad weather, standby.
Also because our vessels can really perform the best installation, not because we are good, but because we designed them with the best capability to withstand the waves, current, winds, and worst conditions to avoid and to cut the cables to walk away if storms arrive. So there are a lot of technical reasons, and installation capability is one of those for us to justify our strategy, which is different from every other player in this space.
Very clear, Massimo. Thank you. And my second question is on digital solution. Which are the main parameters you are going to look at when and if the company will decide to grow externally in digital solution? Could it be the size on top of the geographical positioning? Could be the size, the margins, the multiples on EV, EBITDA? [crosstalk]Any colors would be useful?
First of all, we have hundreds of targets available in telecom M&A, and so we have also to accept that we work on different scenarios. The main driver behind this M&A is, as I said before, the complementarity of the portfolio, so to make us a real solution provider in optical, we already have a lot of solutions in our optical space. We have a significant revenue in connectivity, but we think that by expanding revenues in connectivity, we can further play the role of providing solutions to a market that is more demanding, and in terms of pricing upside, if you sell the whole package, there will be some upside, and then the company that we're looking at cannot be a huge company because we cannot perform another Encore Wire-like acquisition until 2027, let's say, so we'll be mid-size acquisition.
And so we look at the size of the EBITDA, the sustainability of the EBITDA, the multiple that we pay with the price has to be the right one. We will not pay a multiple of 10 times the EBITDA or even worse, 12 or 15. And so these are the parameters that we're looking at. And we continue with this activity. And maybe we'll tell you more on the capital market about how we see this opportunity moving forward.
Thank you, Massimo. Now, my last two questions. One is on the specialty side. Is the company maybe moving some reorganizations or disposal within the specialties space? And the very last one is for Francesco. Should we expect the free cash flow by year-end to approach the top end of the guidance thanks to transmission? And could you just please give us some indication on the forex impact in 2025 on the operating trend? Thank you very much.
Thank you. On specialties, no, we don't have in mind any particular organization. We are just gradually disposing parts of the automotive business because certainly North America is actually not providing any business upsides. On the contrary, thanks to the consolidation of our organization that we already implemented, turning the four European regions into one single Europe, one single region, we can count on intercompany flows that will become now inside the regional flows. So making the region more focused on pursuing growth opportunities in specialties, where before we had pockets of regions with great upside, with great traction in the market, and others that didn't benefit from the global footprint of Europe. So no reorganization besides the one that we apply with the consolidation of Europe and AsiaPac and chances to gain more traction in specialties, especially in Europe.
Okay, got it. Thank you, Massimo.
Hi, Monica. Thanks for your question. For the time being, I would say that having provided a guidance of free cash flow between 950 and 1,050, I confirm that the midpoint is the one that you have to look at and that I think is more realistic. Of course, I don't exclude that we will be able to be also in the highest part of this guidance. But for the time being, it's very early in the year, and my suggestion is.
Fair enough.
Yeah, yeah, yeah. Yeah. And maybe just to explain a little bit better, the reason for the substantial stability of our Free Cash Flow is that whereas we have a significant progression in our cash flow operations before working capital changes, which is driven by EBITDA. By the way, it's driven by reported EBITDA, where you have the very good growth embedded in our guidance, but you have also a decrease, an anticipated decrease in our restructuring and adjustment. So we have a very strong impact. But this is kind of offset, let me simplify, by the very powerful cash-ins, by the very strong cash-ins that we enjoyed in 2024, which are related with the down payments of the transmission business.
Some of these down payments were actually related to frame agreement awards which had taken place in 2023, as you well remember, the huge market awards which came in in 2023. Most of the collection of down payment collections took place actually in the first half of 2024. So it's a matter of fact that even if we anticipate a strong market in transmission in 2025, the level of down payments will be barely one half of the one that we benefited of in 2024. This is the offset of the, and then a lot of other details that I don't waste your time with.
Thank you, Francesco. Thank you.
Welcome, Monica.
Thank you. We will now go to our next question. Please stand by, and the next question comes from the line of Sean McLoughlin from HSBC. Please go ahead. Your line is open.
Thank you. Good morning. A couple from me. Firstly, just on specialties, I just want to understand a little bit more the dynamics of the margin decline. I mean, I see that automotive is less than 20% of total exposure of specialties. So could you maybe talk about specific conditions, deterioration within automotive, and should we assume that everything else across OEM, renewables, oil, gas elevators, etc., is stable, or are you seeing a broader impact? That's the first question.
Thank you, Sean. No, yes, automotive is the biggest chunk of these specialties, this iteration. It is relatively small, but the margin was decent. It's been decent in 2023, in the first half of 2024, with a bit of a worldwide crisis. We suffer from load saturation, excessive transportation costs because the market has become more complicated. And to be honest, there is also, as I mentioned, in elevators in North America, which is a kind of profitable business, a significant slowdown due to the residential market impact. As far as the other segment is concerned, all the rest is pretty much the same. Yes, there are plenty of verticals in the OEMs and renewable space. One is up, one is down, one is down. We don't have any particular trend in any of these specific verticals.
Of course, it looks like that we suffer a lot in terms of seasonality over the last quarter, starting from September 2024, in terms of volume and across all verticals. But the real impact in terms of margin reduction came from these two segments, automotive and elevator.
Yeah. And should we assume, in fact, I mean, is there something abnormal about this seasonality, or should we expect every year kind of a Q4 slowdown?
I think this has nothing to do with the calendar seasonality. In 2023, quarter four, we had good performance in special cables. So it is more about the pace of investment of OEMs, renewables, and automotive players than the season per se. In the last quarter, the last four months of 2024, we noticed a reduction of volume, definitely across automotive, with implications in prices and all the rest, and elevator. But we should see. We are entering. We enter actually in 2025 with more stability. And so we believe that as we noticed last year, we had a bit of a spike in margin on this business. The margin on this business in quarter one, quarter two, a level of 10.5%-11% is what we consider more sustainable moving forward.
Thank you. Second question is just coming back to Monica's question and just probing a little bit on the guidance range, this time for the Adjusted EBITDA. I mean, is it fair to assume that if we do see this pickup that you've talked about in the U.S. from, let's say, March onwards, that the upper end of that guidance range is realistic?
Sean, it's really very early. As I said, we enter in 2025 with some continuity vis-à-vis what we've seen in November, December in the Electrification business unit in terms of EBITDA margins. I think there is a lot of negative impact coming from the weather because many investments, many constructions didn't start, so we like to reserve our right to tell you more about this at the end of quarter one when we see the actual result of quarter one on the one hand, and we have better visibility of the demand of the backlog that is going to help us in quarter two and quarter three, so there is some volatility as we speak.
There is also this import duties situation that is unfortunately not yet clear as to what is going to be the impact, where it's going to hit everyone, whether we'll be able, as we're doing it, to expand the current import duties also to cables. In some cases, already the administration considers cables as part of products coming from a site that will be charged with import duties, in some cases not. So there is still a lot of clarification that's to happen before we release more comfort on which portion of the range we are going to hit.
Right. Thank you, Massimo.
Thank you, Sean.
Thank you. We will now go to our next question. Please stand by, and the next question comes from the line of Lucas Ferhani from Jefferies. Please go ahead. Your line is now open.
Just to follow up on specialties, where you see the weakness. So for 2025, you're guiding to kind of low single-digit organic growth in electrification, I guess, of the entire segment. But what do you see for specialties? Do you see some recovery, some stabilization, or should we see another kind of down year into 2025? And then am I right that you said the kind of sustainable margin for that business going forward is more 9%-10% EBITDA margin? Thank you.
Now, for specialties, we see also some recovery and some stability in organic growth. Of course, single-digit organic growth. The margin that we expect to maintain is the 10.5% that we see in 2024, and we are going to see in 2025. So 10.5%-11% is the margin that we expect to achieve in specialties in 2025.
Perfect. Thank you. And then just on transmission, the comments regarding growth in 2025 from the additional capacity, I think you said revenue growth of 15%-20%. Is that kind of volume only, or could you have a pricing impact as well, kind of helping further that growth? And also, I think you said you're comfortable, confident on the 16% plus margin in 2025. Just trying to think about the margin potential for that business looking into kind of 2026, 2027, and I know you'll discuss that at the CMD, but you're still delivering projects that were not fully reflecting maybe inflation. And so incrementally, the projects you're going to deliver in 2026, 2027 should have kind of better pricing margin. So how do you think about the margin potential beyond 2025 in that business?
Transmission growth in 2025, I quoted 15%-20% is a combination of volume and price. It's a combination of volume because the additional capacity will help us deliver more projects, both the manufacturing installation capacity. It's a combination of price because, as I said, we will hit a 16% plus EBITDA margin in 2025. Most of this upside take in margins comes from projects with better margins, with better price in our backlog in execution in 2025. Since we will continue expanding our size and we have also some operational leverage, and we will also have better margin projects in execution in 2026, 2027, we do expect to go beyond the 16% plus EBITDA margin that we will deliver in 2025. Again, I would like to give you more about this at the Capital Market Day.
Perfect. Thank you.
Thank you, Lucas.
Thank you. We will now go to our next question. Please stand by, and the next question comes from the line of Alessandro Tortora from Mediobanca. Please go ahead. Your line is now open.
Yes, hi. Thanks. Good morning to everybody. I have three questions, quick questions. Okay. The first one, I remember in the call, the comment that you gave on the aluminum tariff. Can you also elaborate a little bit on the recently announced possibility to have also a tariff on copper and which kind of implication would that have for you? That's the first question. Thanks.
Yeah, they work pretty much the same. The aluminum tariff is going to be applied to import aluminum from Canada and from other countries. And for Canada, it will be a 25% hit on top of the aluminum cost. And from other countries, it will be moving from 10% to 25%, so an incremental 15 points. This is, I mean, an impact common to the entire industry. There are other big players in the United States, like Southwire. We all depend on local production, very limited, and most of our copper aluminum rod comes from imports from Canada, from the Middle East, and other countries. So this aluminum tariff will impact the total industry, and it will play in the same way, passing on this price uptake to cost uptake to the market.
Rod is a bit different because the USA is less reliant on import of rod than it is on aluminum. So there is some significant local production of rod in the United States, but still, there is something that is imported from other regions. So I think what is important, we'll have the same impact to our industry. So the cost will be added to the LME or to the copper cost, and the cost will be passed on to the market because it's common to the entire industry. Where there is a differentiator, which is what I mentioned before, in the aluminum tariff, will also be applied to cables imported from other countries in the United States.
This is where we're going to have help because 40%-50% of the aluminum building wire market is in the hands of importers, which will be more penalized because the tariff will be applied to the entire value of the cable and not to a portion of it like the aluminum rod. This will make us gain some marginal improvement due to the differential cost between our internal production and the cost of aluminum and the cost of aluminum product imported from abroad.
Okay. Okay. Thanks. Then the second question is, considering your roughly cash flow guidance range, let's say, let's take the midpoint, can you perhaps also to reconcile a little bit what this would mean for the, let's say, indebtedness target for this year starting from around 2.0 you got this year? Thanks.
Yeah. You should consider the dividend that, by the way, we just proposed to the EGM. And let me try to give you an indication. Give me a second. In terms of a realistic level of debt, bear with me for a second, please.
Yes. Thanks.
Here it is. I think a realistic level of debt is in between EUR 3.7 billion and EUR 3.8 billion, I would say, consistently with the EUR 100 million range of the guidance.
Okay. Okay.
I would say 3.7, 3.8.
Okay. Thanks, and the last question.
The leverage, you can calculate it by yourself.
Yes. I can try. Thanks. And if you can also help me a little bit on the tax rate, considering the one-off we saw this year, and also last year on financial charges for 2025? Thanks.
Yeah. No, that's very simple. The tax rate, I think, is a fair assumption for 2025, and also for the next few years is in the 27%. So this means that the one-off that we had in 2024 were worth approximately three and a half, three and a half points. For the, give me a second also. For the financial charges, you should consider, of course, that the effect of the acquisition will be a full-year effect next year. So my best projection is in the region of, I would say, EUR 260 million for next year, between EUR 250 million and EUR 270 million, so take an average of EUR 260 million. So an increase, which is not huge, by the way, compared to 2024. We are already at EUR 225 million.
Cash-wise, it's a bit different, just to complement, because the increase in interest expenses paid in 2025 versus 2024 is more than these 40 million on the P&L. The 40 million is from 2025 to 2026, say 35 million. I would say it's more or less the double, so say 80 million. The reason is that it's the difference between, of course, the cash interest and the accrued interest, which played a significant role in the acquisition financing.
Okay. Okay. Thanks and grazie.
Welcome.
Thank you, Alessandro.
Thank you. We will now go to our next question. Please stand by. And the next question comes from the line of Xin Wang from Barclays. Please go ahead. Your line is now open.
Hi. Thank you for taking my questions. My first one is on the 12%-13% margin you commented, so I think we understand the supply-demand dynamics you were explaining, but I'm just wondering, is this 12%-13% coming out of initial conversations with customers on either new frame agreements or frame agreements renewals? Has the duration of frame agreements that is to be signed for the additional capacity changed?
Thank you, Xin. No, yes, we have constant conversation with customers about the market expectation volume-wise in 2025 and 2026. Those frame agreements are rotating. There are frame agreements that are due to expire in quarter two or some that are due to expire in two years. So they are normally of three, four, five years' duration. And time by time, we have some of them that need to, some go out for extension because they're happy with the service, they're happy with the current supplier, and some then go out for, they go out for retention. So the view is more about the 12%-13% view is more in line with the fact that there is additional capacity in the market. It is difficult now to gauge what the imbalance will be in 2025 between this additional capacity and incremental demand.
So should the additional capacity maintain the type of imbalance that we had in 2023 and 2024, of course, we will not see this stabilization at 12%, probably at 13%. But should the country have a different situation between capacity and demand, we might see some pricing pressure, not as much in the utility space, as I said before, but in the power grid, so distributor space, and the renewable onshore business, which is, as I said, a spot business that goes on a project-by-project basis.
Great. That's very clear. And then I also want to follow up on metal prices. I think you touched on this earlier already. So understood regarding the aluminum import. But earlier this year, we also saw CME copper price now adds a premium to LME price. I think you were seeing the same. So in copper price inflation in the past, we normally see cable makers can make outsized gains. Could this be the case in 2025 if tariff materializes exacerbating this copper price premium?
I think you're correct. Normally, when those prices go up, premium transformation prices, you get some upside in the market, provided they don't go up too fast. In that case, it takes a while to catch up with the new price. I think the tendency is that the aluminum and the copper price will go up in 2025, and assuming a moderate stable growth, we will be able to leverage this growth to make increasing margin. I think the market demand will play also an important role in this balance between cost of material going up and ability to pass on to the market, and as far as demand is concerned, we haven't seen any of our customers concerned about a possible rebound, a possible negative downturn on this demand. They see the industrial cables demand going up 3%-5%.
They also spoke positive words about the possible mild recovery of the residential market, which also will contribute toward the overall growth of the electrification business in the United States in 2025.
Great. Thank you very much. My last question goes to potential for shareholder distribution. So with very strong cash generation and forward guidance, also a very strong beat to consensus expectations at midpoint. Would you comment on the opportunity for shareholder distribution? Can we expect another buyback as the current program is being finished?
Yeah. Thanks for the question. For the time being, as we said, we propose an increase in dividend, a 14% increase in dividend. You know that a buyback, a share buyback is ongoing as we speak. It is the one that we had announced in June last year for a total of EUR 375 million. In 2024, we completed approximately 325, if I remember. So the 50 million remaining part is ongoing and will be most likely completed by the end of the first quarter. Let me say on the general topic that that's a matter your question is in the end boils down to capital allocation priorities. We'll come back to you in the Capital Market Day, New York. This will be a specific chapter of that presentation.
Great. Thanks very much.
Welcome.
Thank you.
Thank you. We will now go to our next question. Please stand by. And the next question comes to the line of Chris Leonard from UBS. Please go ahead. Your line is now open.
Hi. Just two very quick questions from me. Thanks for taking the time. I think you commented previously at the end of 2024, you would make a decision on that medium voltage expansion in the US. Well, now you're going to add more. I just wondered if you could speak to any decision there. And the second question is around that dual listing decision. I might have missed it as well. You've spoken on it earlier in the call, but if there's any elaboration on your process here and what we should expect on timing? Thank you.
Thank you, Chris. Medium voltage expansion U.S., we are assessing it as we speak. We are close to making a decision. There will be certainly some medium voltage expansion U.S., probably more tilted towards the industrial construction space, industrial construction buildings rather than utility. But of course, it will be also fungible for the utility space. The discussion we're having is about the size of the expansion, not the rationale behind an expansion per se. U.S. listing is also a running assessment, a running exercise. We are finalizing those considerations, the pros and cons, and soon we will have a view that, of course, we will share with you, and probably we'll share this view either direction to do it or not to do it at the next Capital Market Day.
Great. Thanks very much.
Thank you, Chris. Great.
Thank you. As there are no further questions, I would now like to hand back to Massimo Battaini for any closing remarks.
Thank you all. Thank you for attending this moment. I invite you and hope you will come to attend our Capital Market Day. It is in New York, so not really behind the corner for some of you. But of course, it's a great opportunity to understand our new ambitions and to have more.