Good day, ladies and gentlemen, thank you for standing by, welcome to Prysmian Group Full Year 2022 Integrated Results. After the speaker presentation, there will be a question and answer session. If you wish to ask a question, please press star one one on your telephone. If you wish to withdraw your question, please press star one one again. I would now like to hand the conference over to the CEO, Valerio Battista. Please go ahead, sir.
Thank you very much. Good afternoon, or good morning to everyone. Okay, 2022 is over. How has been over? The company has over-delivered on all the promises that gave to the market. In the first chart, page two, you can see the actual 2021, the first guidance that was EUR 1 billion 10, EUR 1 billion 80 in March. There has been a serious upgrade in August, finally, the ones of November. At the end of the story, the actual 2022 has closed even better, with EUR 1 billion 488 EBITDA and EUR 559 in term of free cash flow. Outstanding, in my opinion, results of the company, that recognize or reflect the performance of the entire company. Let's flip to page three. The key highlights. This has been the best ever year.
EUR 16 billion sales, almost EUR 1.5 billion EBITDA, a net income of EUR 509 million, and a free cash flow of EUR 559. To be mentioned also, the greenhouse gas emission reduction that has reached 24%. The share of recycled materials that is around about 10%. The integrated annual report, okay. Most of all, the dividend that is gonna grow further to EUR 0.6 per share. That's to be submitted, of course, to the shareholder meeting and to be approved by the shareholders. Flipping to page four, the financial highlights. As I said, in terms of sales, we reached EUR 16 billion, with an organic growth pretty significant of 14.4%.
The organic growth has been driven by projects with a 30.3% increase in sales, in organic sales, and followed by E&I with a +14.7%, with a PD that, especially in the second half of the year, has improved significantly the speed. Why? Because after the construction, either industrial or residential, power distribution has to come, and it's coming. 8.7% has been the organic growth in the industrial network component, keeping a pretty high level for this kind of a segment. 10.9% in telecom. Of course, in telecom, what is growing is the telecom optical. Let's move to the EBITDA of those segments. The adjusted EBITDA, as I said, has closed at EUR 1.488 billion, 9.3% of EBITDA margin for the entire company.
Let me remember you that in the cable, 50% of the turnover is basically metal. We buy, we sell, we have no profit on it. We may have losses if we are not smart enough to handle the metals. The margins have to be read properly. 50% increase in EBITDA from EUR 976 million in 2021 to EUR 1.488 billion. The adjusted EBITDA margin of the group overall has been 9.3% versus the 7.7% the previous year. Finally, there is no results that has no cash attached. The cash has been recognizing or reflecting the result of the company.
EUR 559 million free cash flow with a sound deleverage of EUR 343 million, driving the net debt to EUR 1.417 million, EUR 1.417 billion, with a 0.95 net debt on adjusted EBITDA ratio. The free cash flow yield is today at 6.8%. Let's flip to page five. The order intake is progressing and what is progressing mostly is the submarine. That was the missing or the not so buoyant chunk of the order backlog. EUR 3.4 billion have been awarded in 2022. The order backlog has ramped up at EUR 6.6 billion. As you can see from the chart on the right side, other than the big jump of coming from German corridors, that are under execution, but it will be a long story.
The part of the business that is mostly accelerating is the submarine today, with a relevant step up in the backlog. On the left side of the chart, I want to highlight that we have been awarded of EUR 3.4 billion, but we have also completed, means the notice to proceed, the Taking-Over Certificate in our end. It's not only important to get the order, it's also very important to have the ability to deliver in time and with the proper quality, the project that has been awarded the times ago. We have completed a number of projects, and that will be a recurring information that I want to share with you. Let's move to page six. The Emden. Everyone, and we too, me, first of all, was very keen in getting the order.
This is the first 525 kV HVDC extruded submarine. Is a key milestone. It was a key milestone to get it. In reality, a key milestone is to execute it, that will come in the next years. In the meantime, we have been awarded of the project. Is a grid connection for two future offshore wind farm, able to drive or to move 2 GW or more than 2 GW from offshore to the land. That's extremely important. That's my opinion. It's extremely important because it's the first chunk of a number of projects that utilities developing the wind farms are able to leverage on. It's a pretty huge project, 390 km of route, basically offshore, the first connection is scheduled for 2029.
It will not be a very quick game, but it's extremely important to be successful with it for the company. Considering the EUR 1.8 billion of Emden, our order backlog has to be considered right now EUR 8.4 billion. EUR 8.4 billion are a lot of money. The real goal comes when the project is executed without any significant issue, and the customer is happy. Some way to go. Let's move to page seven and analyze the performance of the various segments. Performance of various segments, projects, for instance, that moved the sales from EUR 1.6 billion to EUR 2.161 billion, with organic growth of 30.3%. The projects are growing really. 30% organic growth is a significant amount.
I'm not sure that we stay at this rate for the next years, but in the meantime, I believe that is a very significant goal. The improvement has been very good in the Q4. I would like to mention even the EBITDA, EUR 243 million versus EUR 210 million the previous year, another EUR 30+ million improvement as well as the previous year. What may be negatively noted is the 11.2% margin, EBITDA margin on sales. That's not a very big percentage, I know. Let me remember that the first quarter 2022, our EBITDA margin for the segment was 7.6%. It has been a continuous progression from 7.6% up to over 13%, if I'm not wrong, having or driving the full year average at 11.2%. Let me say, is properly progressing.
We have also to consider that in 2022, we suffered the inflation on all the costs of the projects, and partly, but minimally during 2022, we have been able to get the recognition of this inflation from customers. We are still negotiating, a good chunk of the projects already completed are already negotiated or under negotiation, consequently, that will be another upside for 2023 performance of the segment. Let's move to energy. Energy closed at EUR 12 billion sales compared to the EUR 9.6, let's round it, EUR 9.5 billion of the previous year, with an organic growth of 12.3%. Not so bad, also the organic growth of energy. If we split in E&I and industrial components, the organic growth is differentiated, as you can see. Sorry. 14.7% for E&I and 8.7% for industrial.
The 14.7 of E&I is pretty significant. May not be forever, but the performance is driven today by secular trends, by the grid hardening, the data centers, the renewable. I was analyzing, especially in the North American market, the grid hardening and the data centers projects that we are discussing with customers. There are many giant projects. We are part of this game, we enjoy it. Of course, what may not be feasible in term of continuity is to keep the price at the level of today or better, of yesterday. The growth has been driven mostly sorry, by the inflation and the price increase. Last but not least, the telecom. The telecom came from EUR 220 million to EUR 271, with a solid growing or in optical, driven mostly by North America.
To be added, the very good contribution of the YOFC to the result. YOFC, after two years of poor results or limited results, has recovered more or less the top level of the past, namely 2019. How long it will stay? That's difficult to say, frankly speaking. Overall, outstanding year with an organic growth of 14.4%. A result that jumped from EUR 976 million to EUR 1,000,000,488. That's it. Let's flip to the regions. The following page eight. Regions. Regionally, you can easily see that the big driver of the acceleration has come from North America with 18.3% organic growth in sales versus 10.7% in EMEA. Overall, apart of Asia Pacific, where our participation is really limited, all the three regions grew very well.
EMEA, from EUR 5.2 billion to EUR 6.4 billion, with an organic growth of 10.7% a pretty good result, moving from EUR 265 million to EUR 311 million. The results have been driven by E&I, OEM, and renewables. North America. EUR 3.8 billion that moved to EUR 5.13 billion with an organic increase of 18.3%. The EBITDA went up from EUR 338 million to EUR 722 million. Outstanding, incredible result. It's better to be in than to be out. Today, we are enjoying a very strong participation in the North American market, and we enjoy it. As you can see, the EBITDA margin has moved from 8.8% to 14.1%.
It may be that this performance is not gonna be sustainable, but it will not revert completely. Latin America, from EUR 1.06 billion to EUR 1.275 billion, with an organic growth of 8.2%. From EUR 99 million to EUR 120 million, keeping the 9.4% of EBITDA margin. Are the renewables that are driven the growth. The EBITDA improvement is driven by E&I and renewables again. Last but not least, I would say last and least, frankly speaking, the Asia Pac, that moved from EUR 66 million to EUR 92 million, with a pretty good increase of, from 6.6% to 8.2%, but largely supported by the YOFC performance. Let's flip to page nine and have a look of the innovation, because I'm a fan of the innovation on the products.
Grid hardening and energy transition are driving the growth of the margin. Arising the bar of the technology requested to participate to the market. The energy transition in the subsea system, we have already not commented, but touched the point. The 525 kV HVDC, able to transfer 2 GW, is getting ground. We made the PQ test, and we got the first order. Now we have to execute properly the first order. That will come in not many years. We developed for the grid hardening the E3X technology that will reduce the losses other than increase the capacity for customers, for utilities to transfer power. On the renewable side, we launched the PRYSOLAR. That is the new solar cable of Prysmian Group. Why we did it? Because we are seeing that the solar panel generation is growing.
Is growing continuously, and is becoming as cheap as the offshore wind farm in term of energy generation cost. That's the reason why we are in, but we are in with two kind of product. Let's, let me name it Mercedes or Super Mercedes. That is the TECSUN, the German-style solar cable. The more modest SUNGEN. Modest in term of price, in term of cost, but also in term of performance. Now, with PRYSOLAR, the attempt of the company is to offer to the customers a cable that has the TECSUN performance with a cost that is not much higher than the-
The SUNGEN. The last chapter is the digitalization. The digitalization require more fibers in a lower diameter, and that's the performance we have been able to develop with the Sirocco Extreme. We are the sole, if I'm not wrong, in the world offering the 180 micron fibers. That's the product that has led us to reach extremely high density of fibers in the same diameter. That is getting ground. It will take time to be introduced and utilized in the market, but is a very sensitive innovation for the customers. Just a chart on the CapEx. Discipline in the investment. That's the name of the chart. We have to fuel the sustainable growth. To do it, we need of CapEx, but must be disciplined.
That's the reason why since 20 years, I'm the one that have the last word in saying yes or no to each CapEx of the company. Today, we are looking to, already this year, to EUR 450 million, more or less. For the next three years, following the growth of the project, we are obliged to invest, and our CapEx level has reached EUR 500 million average per year. Okay. I'm not a fan of the capital expenditure, but when is needed, is needed. Being not available capacity in the market, the sole way to grow and to follow the market growth is to invest. We are investing. We are investing largely on projects, keeping a quite good level of investments in energy as well as in telecom.
Not forgetting that part of our CapEx have to be dedicated to the climate change and the digitalization. Our responsibility has to be the number one priority. The last chapter is for the outlook. How we see 2023. It's not easy. It is not easy, or better, it's not certain, but it was not certain even last year, in 22. In 22, when we gave the guidance, we gave the guidance not assuming, surely, the boom of the North American market. Today, we are giving the guidance assuming that the construction market will not be very, very different. Of course, the guidance is a range, and the range means that depending on the conditions of the market, you see an early deterioration of the market may drive for EUR 1.375 billion, whereas a substantial stability may drive for EUR 1.525 billion.
Why is that? In our assumptions for 2023, my friend Hakan and the projects are already planned to increase quite significantly the results, thanks to the investments and the order book they have in hands. The question mark, it will be the speed of the decline or the stability of the construction market. As a consequence, the free cash flow. Free cash flow is EUR 500 million, finito. By definition, must be EUR 500 million. We give a range, EUR 450 million-EUR 550 million, with a midpoint at EUR 500 million. That at the end is, it was the dream at the time of the acquisition of General Cable. We are there because we did already this year. Okay, I close my presentation, I leave the floor to Francesco for the financial details.
Thank you, Valerio. Good evening to everybody. As usual, let me recap our results with the profit and loss statement. As Valerio said, organic growth was 14.4%, with a very good exit split in Q4 as well, substantially in line with the overall trend that we saw in the first nine months, with a very strong momentum, in particular, of the power distribution, driven by the requirement to strengthen the power grid, I would say, across most of the regions. This is certainly a driver that we keep enjoying into 2023 and most likely also for the next few years. Best year ever in terms of adjusted EBITDA, close to EUR 1.5 billion, with a significant margin expansion by 160 basis points, up to 9.3%.
Even more impressive if we think that we dealt with pretty high inflation rates in 2020. This impacted the metal and non-metal raw materials, of course inflated our top line without necessarily inflating our EBITDA. This is meant to say that our EBITDA margin is diluted by high inflation rate. Despite this, plus 160 basis points of margin expansion. On the top right, bridge which is by quarter and by business. You see that all the businesses performed pretty well in the fourth quarter. Projects in line, even slightly better, I would say, than expected. Energy keeping substantially the same exit speed of the first nine months.
The Q4 is compared with an already improving trend in 2021, so has a tougher and more challenging comparables, the Energy Business specifically, and in particular, the North American region. Telecom also performed very well, with also a strong contribution. You see EUR 26 million throughout the year coming from YOFC, as Valerio Battista already mentioned. Also, a pretty advantageous set of exchange rates, which impacted favorably by $110 million this year, and that for the time being, we keep enjoying, specifically a quite strong U.S. dollar. Moving to the lower part of the profit and loss, we are seeing a slight increase of financial charges up to EUR 110 million. Actually, net interest expenses are in line or slightly lower than last year.
The reason of this increase is just due to the fact that 2021 was impacted by a positive non-recurring items related to the issuance of the convertible bond at that time. It was in January 2021. You see the EUR 6 million positive non-recurring and other effects in 2021 in the bottom right table. Of course, the financial charges are the net interest expenses specifically are expected to increase this year in 2023 by a range of EUR 10 million-EUR 15 million, I would say, in line with the interest rate increase. We moved very quickly on that because we moved our overall fixed rate debt or edged debt up to 75% of the total gross debt, more or like.
We also worked effectively to extend our average maturity of the debt facilities, which is now on average four years, which is very, very reassuring, let me say, in this more challenging financial environment. Last but not least, the net income. Group net income growing to EUR 504, not doubling, but close to doubling from the previous year. Let's move to the balance sheet very quickly. My first comment is on the working capital. As I said, inflation affected our working capital. You see a growth of EUR 130 million approximately. However, in terms of percentage on the annualized sales, it's quite flat. It's 4% this year. It was 3.5% end of 2021.
Main reason is other known non-metal raw material inflation, which drove up our working capital and was partially offset or contained the increase by the exceptional performance of the project business in terms of awards, which of course led to a very high level of down payments, which were this year close to EUR 400 million, and we have an even more ambitious target for next year, which is for this year, 2023, which is a very key driver of our cash flow target and our cash flow guidance. The net debt decreased below the level of EBITDA. That's one of the first times, maybe the first time we have seen this.
After the General Cable acquisition.
Exactly. With a leverage below one time and a net financial debt at EUR 1.4 billion. We move to the cash flow. Record cash flow, highest ever cash flow, EUR 555 million.
Fifty-nine.
EUR 59 million. Driven by a very strong operating result, EBITDA, despite the increase of working capital by EUR 100 million on a cash base. Despite the level of CapEx, which is, as Valerio said, already not very far from the EUR 500 million that we planned for next year, was EUR 452 million. Of course, we discounted also a higher level of paid taxes on the much higher earning before tax results, which were already reached, in particular in North America in 2022. We may move to the dividend. Valerio already anticipated the proposal of the board to the AGM to increase the DPS, the dividend per share, up to EUR 0.60, a 9% increase.
I believe a very right level of dividend because it's fully consistent with the CapEx requirement to fuel growth in a few segments, starting from Projects for next year. At the same time, also the objective to deliver fast. Delivering fast is key for us to capture the organic and non-organic growth opportunities in a financial environment, which is more challenging and that most likely will remain more challenging for the next two years, at least. Let's move to some closing remarks. Number one, the most important, I believe our results clearly show the value of a broad business portfolio. Above all, in terms of the ability to self-sustain the CapEx needed for the highest growing businesses like Project.
To sustain that, you always need a large and more mature business, which is delivering a high level of cash flow and which make the company more resilient and more also independent from the volatility or particular conditions of the financial market. That's a very key point for us. Our results reflect the strong exposure to secular trends, starting from projects, but not only in projects. Also energy in a number of business applications is impacted by secular trends. In some cases, even having lower CapEx requirement than projects. Very valuable as well. Once again, this highlights how important the broader and more diverse business portfolio and also geographic portfolio is for us.
We have a proven track record. We confirm this year as well in terms of cash generation and financial deleverage, now of utmost importance. Point number four, the key ambition and the key challenge for the next few years is certainly the growth in the project business unit. We have a great market. We have very long order backlog visibility. Of course, what is really key, and it's stressed here, is the impeccable or flawless execution, which is the most important objective.
Very good. I think I'm over. We can move with the...
Let's move to the Q&A session.
Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star one one on your telephone. We are now taking the first question, please stand by. The first question from Massimiliano Severi from Credit Suisse. Please go ahead. Your line is open.
Yeah, hi, everyone. Congrats on another strong set of results. three questions for me. The first one would be, again, on the guidance. I was wondering if you could clarify a bit more on what are the assumptions on the lower end and on the upper end of the range. Especially in terms of North America, T&I, margins normalization, because I understand the assumptions on demand. What are the assumptions on the margins and pricing, given how extraordinary 2022 was?
Three questions or.
One at a time.
We give you the first one. One at a time.
Mm-hmm. Yeah, one at a time, maybe it works best.
Okay. The guidance. The guidance is based of course, on certain assumptions. The yearly deterioration, what may means. Means, of course, with the lower part of the guidance, that the market, especially in USA, that has given us a very strong upside this year, may collapse. That is what we don't see right now, is softening a little bit in terms of prices, but not collapsing. I hope that the prices in U.S. will stay really quite a bit high for the next quarters, and is what we are seeing in the first two months at the end of the story. The evolution along the year, it will be very difficult to predict.
If I consider the IRA and all the investments that the government of U.S. is launching in order to repatriate a lot of strategic production into U.S., we believe that it may be reasonable to have a limited reduction of the margin and the prices, but not very much. To be very simple, the margins we have seen in the central part of the year and even in the last quarter, most probably will be reduced. Not so significantly. Consequently, we believe that the central point of the guidance is feasible unless there is a collapse. The higher part of the guidance, vice versa, is assuming that the trend of the market, especially in U.S., will remain more or less stable, in line with 2022.
It will be the case, I'm not sure, and that's the reason why our center point of the guidance... Did I answer to your question, Max?
Yeah, yeah. Very clear. My second one would be on E&I, and if you could help us quantifying a little bit the different margins that you see now between PD and T&I. Maybe also if price cost issues on the old contracts have still weighed on the margins of PD in 2022.
Okay, Max, I try to answer, maybe that Juan is more skilled than me with. Let me say that the margins in PD and T&I are different today, with an advantage for T&I. Why? T&I is ask and answer business. There is some noise. Max, could you put him mute?
Maybe someone else.
Thank you. The different margins for PD and T&I are in, with T&I having higher margins. Finally, we are passing a lot of price increase to PD due to the fact that the PD market is asking for more. The electrification is ramping up. The need of distribution cables for utilities is huge, and utilities are ready to accept a limited increase of price. I don't know if Juan has a significant... surely more consistent answer than me.
Yeah. Thank you, Valerio. Hi, Max. I'll expand on a couple of things that I will give you more color into your question. To look at the pricing of E&I, we need to divide the short cycle business from the mid-range and the long range cycle business. Back to Valerio's answer on your first question. For the short cycle business, we carve out two segments for which we expect some kind of price normalization in the second half of the year. That will be the non-residential construction in the US, because we have no exposure in residential, which, right now, we're not seeing any deterioration, and you probably heard that from some of our peer companies.
If the U.S. Fed continue to increase rates aggressively, we're not dismissing the fact that there might be a potential spillover of residential into non-residential in the second half, which is the reason why we're being prudent in the pricing for the second half of the year. In terms of the PD, specifically the medium voltage, we need to break it down into two pieces, the North America and Europe. In the North America, there is full saturation and full capacity utilization right now, which is something that we expect for the next number of years, driven primarily by the renewables and the energy transition. In fact, we're solid booked for the next few years.
In regards to your questions about prices, most of that is contractual for a long period of time, with price clauses that will allow us to adjust the margins, depending on the volatility or the inflation. In the U.S. and Europe is a lower price, but it's also capacity saturation. The answer to your question is, in the short cycle, we made assumptions in the second half in the construction, primarily in the second half in the U.S. and in the residential in Europe. In PD, we expect no deterioration of both price and volume in the coming years.
Okay, thank you. My last question would be on projects. You put out CapEx versus what you guys did last year. I was wondering if you could give us an update on what do you expect in terms of capacity additions in kilometers or revenues for the coming years, and also in terms of phasing, how much can we expect to come already in 2024 versus what will be more back end loaded?
Okay, a general remark. Once we talk about increase of capacity in projects, that takes at least two years to come into turnover. Consequently, it's something that is not gonna act next year. I let Hakan to give you more color on it.
Okay, good afternoon. The projects overall that we are following for the capacity increase, we have already presented. I mean, it's in Gron for let me say the high voltage sub land part. The other projects are on the Pikkala for submarine part and the Brayton Point, which is also additional capacity. These capacities are going to be majority coming along after 2025, let me say this. We will have a portion, a small increases also at the end of 2024, we will see some. In kilometers, it's very difficult to give you the numbers, but I can tell you overall, the why is it difficult to give?
We don't want to give the details about all the, let me say, ramp-ups, and the efficiencies. I can tell you that the total capacity is going to be about double after 25 and 26. This is the idea of the investment. As Valerio said, it's not an immediate impact, but I can give you a little bit of calm that these projects are going well. In Arco Felice, we are on time. Finland is on the time. And in Brayton Point, even where we are seeing, you know, a difficult procedural, let me say, legal environment, we are on time. In the third quarter this year, majority of these projects will be starting to be implemented.
Overall, after 2025 is going to be the significant impact, but that does not mean that we are not going to improve our results until 2025. What Valerio was saying, for the long term, we will already start improving our results before these capacities are going to come along because we have now also Leonardo da Vinci, which is in here. So the performance of Leonardo plus also Giulio Verne is also giving us full speed advantage. On the other hand, of course, when we talk about capacity, installation capacity, the second vessel is also going to be in two years. We have already done the steel cutting. The keel is going to be laid soon, in a month's time.
Everything is going according to the plan.
Clear. Thank you very much. Just a very quick follow-up. If I got it right, it will mean that your submarine capacity will effectually more than double and land will grow significantly, and then you will have more or less double the capacity in 2025, 2026. The additions are more submarine than land.
Both. They are both. I mean, submarine and land, definitely we are doubling the capacity overall. It's not only submarine, but also land. I just want to remind you that every submarine project, has a significant portion of land, and this is growing. Major TSOs are now not splitting the land part, like in the German corridor, for example, it was completely land. The submarine portions are connected to the grid with significant land. Therefore, if you increase on the submarine and you don't increase the land accordingly or your installation, then your offering is going to be not complete.
Okay, clear. Thank you very much.
Thank you.
Thank you for your question. We are now taking the next question. Please stand by. The next question from Miguel Borrega from Exane BNP Paribas. Please go ahead. Your line is open.
Hi. Good afternoon, everyone. I've got a couple of questions. The first one on the outlook message and maybe a follow-up to the previous question. The upper end basically assumes a stable construction market. Can you elaborate a little bit more? Does it mean basically the same result as 2022? I see that over the last nine months. If we exclude Q1 of 2022, your margin was basically 9.5%. Can you confirm that the higher end of the range would imply 9.5% margin? If that is the case, it kind of implies a stable performance everywhere else. You said that you expect a higher profitability in projects. Does that mean industrial and telecom down in 2023? I'll start there.
Juan, would you like to-
Hello, Miguel. This is Juan Mogollon. I will answer the first part of your question in regards to the assumptions made on the T&I and the construction market. You are correct. The upper end of the range assumes some level of stability in the non-residential construction market, as well as the residential in Europe, in which we have a lot of exposure. The normalization that we deal the pricing in the second half, again, is because if the Fed in the U.S. continue with the aggressive interest rate, we're not dismissing the fact that there might be a spillover from residential into non-residential in the second half of the year.
In regards to the assumptions in the project business, I'm gonna pass it on to my colleague, Hakan, for 23.
Okay. The growth and the outlook for 2023 for projects is going to be definitely in the, in growth versus this year. We are gradually increasing our position versus what Valerio already disclosed in the past to reach the EBITDA of EUR 500 million in the next five years. I can already say the figures look good. In the four years we may be already there. Gradually, especially when the capacity hits, it's going to be the biggest, but we will see already a growth starting also from 2023. We are fully booked. That is on one side is good, on the other side is a risk.
We feel very comfortable that we will gradually come to the result, expected result from you and also from our investors and board. Let's say that.
Francesco speaking, to be a bit more precise on the guidance. The shape of the construction market that we command to explain the range of the guidance is actually commented versus the current trade. It's not commented versus the Q4. Valerio said correctly during his presentation that specifically in North America, the level of pricing is already slightly softer than the peak which was reached end of Q3 and during Q4. This is just to reassure that compared to the peak, the top of our guidance, if the peak was Q4, is already slightly lower. This explains why there is room in the top of the guidance for the growth of the project in particular. Otherwise, it may be a bit misleading.
Radically, in the top of the guidance, the projects will grow. Finito. There is a higher or lower softening of the construction market.
Yes.
Take your choice.
Some softening compared to the peak.
Some softening anyway, yeah.
Yes.
Okay. I think that's clear. Thank you. On the other hand, the rapid deterioration, what would be the magnitude of the decline in sales and what level of profitability you see? Because you said before, you don't see a complete reversal of your margins. It basically implies what? Half of the tailwinds we saw in 2022, reversal of that?
Listen, it is like to play roulette. We don't have a clear view. What I can tell you is that today means February, March 2023, prices, the margins on E&NA are scaling down a little bit. If it stay where it is, the more or less, the top of the guidance may be reachable. If we'll turn back to the level of, I don't say 2019, but something like that, we are gonna suffer much more. The bottom of the guidance is the most probable landing point.
In principle, Miguel, they think that the start of the margin expansion in the non-residential construction market in U.S. actually started end of 2021. To cut it short, I believe that the bottom range of our guidance is assuming a drop, which is going halfway in between the peak that we reached in Q4 2022, and the starting point that we had, let me say, mid of 2021. Basically, it means to lose more or less half of the upside that we had during 2022. The other question is if this will happen, and as Valerio said, we are not saying this, how fast or how early this will happen.
In this case, the assumption of the bottom range of the guidance is that this would start happening in, let me say, in Q2, in end of Q2, something like this.
Great. Thank you. That. Yeah, go on.
Thank you. Thank you very much.
Thank you for your question. We are now taking the next question. The next question for Nancy Ni from Goldman Sachs. Please go ahead. Your line is open.
Hi. Thank you very much for, taking my question. I just sort of wanted to understand a bit more, kind of what you're assuming, sort of for the EBITDA for projects in 23. If maybe you could talk a bit more about sort of the mix of maybe submarine versus land, you know, in 23? Is it very different to 22? Sort of how it looks in terms of installation versus production and this sort of stuff? Thank you.
Hakan, the floor is yours.
I mean, I cannot say exactly what the growth is going to be in terms of number because we have to, you know. But I can give you a range saying that it will be more than the growth that we had this year. This I can say versus last year, what we have done, it will be better. Hopefully, we will be beating, let me say the result, the improvement that we have done this year. The mix of overall, definitely, because the capacity is not coming along, that means there are two effects why the margins are increasing. The first part is because we are having more installation on the, let me say, submarine part.
The second improvement is going to come because the older projects are leaving the portfolio, which had lower profitability and newer projects are entering into the execution. I cannot say that all the old projects are out and everything is new, but there is still, let me say, a time lag between the orders taken some years ago. Still there. They have some tails that we will enter into 23. The other part is about the HV part, so the land part. The land part, the installations are still not foreseen for 23, especially for the German corridor.
There are very good, let me say, evolutions, that we are trying to anticipate the installation, in some of the German corridor projects because the necessity of the energy requirement in Germany. I can say that, overall, we see a growth, better than what we have done, but how better we will see during the course of the year.
Okay, cool. Thank you. I just had another question on... Well, I mean, you talked earlier about some large electrification projects in E&I. Kind of just wondering if you'd touch a bit on sort of the CapEx increases there. Like, what is it for and sort of how much contracted visibility do you have?
In terms of visibility, in terms of months or years is always pretty short term because goes through the distributors. I have on my desk the list of the mega projects in U.S.A., and are unbelievable. I don't know if all those projects will be realized, there are many data centers, many solar parks and that require clearly cables. I'm pretty confident that the IRA will drive an increase of the demand that at least should compensate or partly compensate the reduction that we are expecting.
Okay, cool. Thank you.
You're welcome, Nancy.
Thank you for your question. We are now taking the next question. Please stand by. The next question from Akash Gupta from JP Morgan. Please go ahead. Your line is open.
Yes. Hi, good afternoon, everybody. I have three as well. The first one I have, was related to a press article, last month where, Valerio Battista, I think it was you or maybe somebody, citing the company that after EUR 1.5 billion, EUR 2 billion could be the next target. I'm just wondering if you can talk a bit about that and also the timeframe over which it could be achieved. More like, what I want to know is that if EUR 2 billion level is something that can be achieved in the medium term, or will it be more in the long term? Any commentary on that would be great.
Hi, Akash. Valerio speaking. I was sure to have created some turmoil with the assumption, each company has to have a target in front of it, in front of them. Having reached EUR 1.5 billion that years ago was not in the radar, I gave for the team here, but also I transferred, not voluntarily to the newspapers, to the Bloomberg, a target that is EUR 2 billion. Two billion, having today EUR 1.5 billion that may scale down this year, who knows, is not an unreachable level. Of course, not tomorrow morning, but even not within 10 years. Why? Because my friend, Hakan, has committed to reach EUR 500+ million EBITDA, doubling almost the EBITDA of projects. I'm sure that he'll be able to do it.
In addition to it, assuming Telecom, for the time being at the level of today or a slight improvement, there is the real problem of how to reach EUR 2 billion. How to reach EUR 2 billion? There is, of course, the project contribution, but there has to be also some bolt-on acquisition. We have cash. We generate EUR 500 million per year free cash flow. Part of it goes to the shareholders, but part of it has to be dedicated to further consolidation of the market. I'm not talking about giant acquisitions and big transactions. Market by market, where is more interesting, getting us at the level of a dominant or let's say.
Relevant.
Relevant player with our customers, it may happen. It is a matter of negotiation. It's not, it's not a one-way deal. That's our focus for the next two, three years in order to reach the EUR 2 billion. EUR 3 billion is the next one. Oh, yeah. Slaps.
Thank you.
Did I answer my question? Yes.
Yes. The second one was also connected with your answer, which is dividend. You are raising dividend by only EUR 0.05 despite significant increase in earnings per share. I wanted to ask this EUR 0.05 increase is something that we should be looking forward as well. So it may disconnect with EPS growth or payout ratio, and we should look for more like flat or EUR 0.05 increase in dividend. Just connected with this question, as you said, M&As are also on the agenda. Shall we assume that the reason why you are paying 30% payout ratio in 2022 is also because you want to have more money for M&A, and therefore timing-wise, it could be more this year than next year? That's number two.
Akash, this is clear. Two reasons. First of all, the money may be used. First of all, you have to generate it. Once you generate, you have the choice to distribute to shareholders via dividend or buyback, or to utilize for CapEx for projects, because there is no capacity available in the market or acquisitions. That's the rule of the company. Today, we are keeping a position that is balanced. We remunerate our shareholders with a dividend that is 2% of the value of the share, we utilize the rest of the cash generated for foreseeable acquisitions. Once we don't see any more the potentiality of integrating other companies, the dividend may boost.
Thank you. My final question is on projects. We had very strong growth in 2022 in revenues at 30%. Shall we expect more revenue growth in 2023, or could it be more like a year of digestion on revenue side? On the margins, in the past, you told about 13% margins for projects could be doable in 2023. Do you still think it could be possible with inflation that we have seen last year?
Akash, turnover is vanity. Cash is king. That's our motto. Consequently, okay, the turnover has grew very much this year in projects. It's gonna grow more or less at the same path next year. That's our idea. The results is what counts. The cash generation is the real result, one way or another. Okay.
Akash, maybe you asked about also the percentage.
I'm sorry, I missed.
In the percentage part, we will improve the percentage this year because of the change of the project, as we have said. The volume is increasing, and also the percentage is going to improve. I would not give you the number of 13. The 13-14% is a good target once we reach to an, let me say, midterm equilibrium. I don't think, let me say, something beyond 15% is sustainable. Most of all, you're experiencing and seeing that also in the market. There is still room to grow on the percentage side, and you will see also an increase in the sales value.
Akash, honestly speaking, I'm a fan of the euros much more than the %. Consequently, because the % in the banks, you cannot put. That's the answer I give to my colleagues once they challenge me on the %. What I count, the euros.
Yeah. I guess it makes sense given, as you said, half of the revenues are coming from commodity where you don't make any margin. Thank you. I'll go back in the queue now.
Thank you.
Thank you for your question. We are now taking the next question. Please stand by. The next question for George Featherstone from Bank of America. Please go ahead. Your line is open.
Hi. Good afternoon. Good evening, everyone. A few questions from me. I wondered if you could start off by breaking out again for us, the energy products division in terms of what's secular versus what short cycle in %, just to try and help us out there. What the contribution from each of those was to the growth in EBITDA in 2022.
Hello, George. This is Juan Mogollon. I'll address your question. The secular segment's part of the energy division is, as we indicated, in the last six months, is more than 50% of our portfolio, 50%-60%. Those are the segments that follow the energy transition, digitization. That includes renewables, data centers, OEMs, mining, in which we anticipate no contraction in volume and price in the coming years. For the short cycle business, which is the other part of your question, we have about 30% of the portfolio of T&I in the U.S. is in the non-residential construction. That is enjoying, like Valerio, and we have been saying for the last hour, high margins right now because of the conditions of the market.
The other piece of it is the T&I in Europe, which is about 35%, is residential. We also expect some price normalization in the second half for all the reasons that you and I know. Does that answer your question, George?
Almost. Just wanted to know also what the contribution in terms of the growth, that step change in EBITDA you're seeing. You know, what was the relative share of each in terms of the growth in EBITDA?
In terms of 2022 or in terms of the future?
2022. No, just for 22 to start off with, and then maybe we can talk about the future.
2022, clearly a step change in T&I in North America because of the supply-demand tension in 2022.
Maybe, George, Francesco speaking. I may add, I would say that two-third ballpark number is certainly driven by the non-resid construction market, in particular in North America, and one-third from the secular drivers, if you want. Let me stress one more important point. Within the non-residential construction market, I would call it, in our view, there are some drivers which are maybe not secular, you know, secular is a big word, but certainly a bit structural, fairly structural. Let me give you the example of industrial activities reshoring in the U.S. Our T&I business in U.S. is very much exposed to industrial construction. By the way, the way General Cable called it before we acquired General Cable, to remember forever, but it was really industrial construction.
U.S., other than data centers, as Valerio was saying, is also very positively impacted by a huge number of reshoring projects, reshoring of industrial activities. This is a driver which is maybe not secular, but certainly not cyclical, and that will stay in place for certainly a few years. If you treat this in between a secular driver and a conjectural driver, you understand that our growth in 2022 is pinned in North America by pretty structural trends. Again, maybe not secular, but certainly structural.
For instance, all the repatriation of chip production.
The semiconductor.
Semiconductor production in U.S. That require investments of billions, of which the cables count for 1%-2%. 2% of $1 billion are a lot of money.
Yeah.
If I may add to Francesco's point, George, is also in the, in terms of the, onshoring or the, or bringing manufacturing to the US, which is part of the IRA, by the way, basis. We enjoy probably the largest footprint of production in the United States with, 24 plants, production plants in cabling, which, I strongly believe that's gonna help us leverage that, onshoring or repatriation of production or manufacturing to the US. To Francesco's point, maybe it's not secular, but it's certainly not cyclical either.
Okay, thank you for that. Maybe just talking again, just back on that secular point for this year and beyond. What do you think the underlying growth rate is for the market? Obviously, looks like you had a bit of a step change last year, but going forward, what should we think the underlying growth rate is?
I think that, George, there is a, let me say, are drivers which will allow the energy business, in particular the one driven by this secular trend, to grow a few points above the GDP level. Historically, the energy business always grew in line with energy consumption and GDP. Now, energy consumption is growing, is starting to grow and to strengthen much more than GDP growth. It's difficult, frankly speaking, to quantify. What I can say is, for sure, the most important driver out of it is electrification, which is impacting on the necessity to strengthen the power grid. Grid hardening. Maybe not in terms of percentage of growth, because some drivers impacting the, for instance, solar farms may be even stronger.
The size of the business or the power distribution business and also the red line business is such that a growth of, even a one single digit growth will largely impact our revenues and also trigger a very positive operating leverage.
Okay, thank you. Francesco, just a couple of clarification points if that's all right, on some of the other things I think you mentioned. On the free cash flow for this year, did I understand right that you expect the down payments from projects of a slightly higher level than last year, to be the biggest contributor to free cash flow? I didn't quite understand that, I think you said-
No, you understood well, George. You understood well. One of the most ambitious but certainly feasible targets that we have within our cash flow guidance for 2023, especially if you take the high-end part of that, is to achieve a level of down payments, which will be even higher than last year. Just to quantify this, last year was close to EUR 400 million. This year, consistently with the market and the and with the awards that we are targeting, we set an ambition and a target to rise to a level of close to EUR 500 million. It's feasible because the market is strong and our objectives in terms of projects, awards, and market shares are very clear.
Of course, we are always subject to a potential delay, even by one or two months, of a notice to proceed or a project award which can affect this target. We have the largest energy division and the large, the very, very large amount of working capital employed in the energy division that we may use to recover or to offset any lack in the, in the projects, if any. So I think that overall the midpoint is certainly feasible. Also, the high end is not to be excluded at all in terms of free cash flow guidance. Consistently with the high end of the EBITDA guidance. In principle, the high end of our EBITDA guidance is an EBITDA in line or slightly above the level of this year.
We have another positive, which is the fact that last year, 2022, the free cash flow was negatively impacted by a working capital increase driven by inflation. I hope that this will be more stable this year, and that's a big positive and worth around EUR 100 million. Unfortunately or fortunately, we don't have to forget the highest CapEx by EUR 50 million approximately. The highest financial expenses, I was mentioning, EUR 10-15 million at least. Also a further step up of the paid taxes because some of the taxes reflecting the record results of 2022 will be paid as a balance in 2023.
Some have been paid in 2022 already, pay as you earn, specifically in North America, but in some countries the balance is postponed by one year. All these makes the EUR 550 million free cash flow guidance very much in line with the high end of the guidance in EBITDA, and you should assess the feasibility in line with the feasibility of the high end of the EBITDA guidance.
Okay. That's really helpful. Thank you. The last point is just to understand the depreciation charge you're expecting this year, because obviously you've had a big step up in CapEx even last year, and then obviously that's gonna continue going forward. How should we think about.
Yeah.
the depreciation?
No, don't expect a big increase. I would say a pretty modest increase in the range of EUR 10 million max in 2023, for the simple reason that this CapEx will still be under construction in 2023, and even 2024, by the way, yeah. When this investment will start to come to fruition in terms of capacity really available and the, for instance, the Brayton Point new plant, rather than the increase of capacity in the Pikkala and Arco Felice will come to fruition, then you will have a more material step up in depreciation. This will take place between 2025 and 2026, let me say.
Okay. Thank you very much.
Welcome, George.
Thank you for your question. We are now taking the next question. Please stand by. The next question from Monica Bosio from Intesa Sanpaolo. Please go ahead. Your line is open.
Thank you, thank you for taking my question. I would like to focus on the telecom business. How do you see the margins evolving in 2023? I was wondering if you have some feelings about the China Mobile tender and the potential, usual, competitive pressure in telecoms in Europe and inflationary pressures due to the energy cost. Just wondering sorry, what could the margins for telecom in 2023, if they can go up or keep stable? Also for telecom, in the slide number 10, I've seen a significant step up in CapEx for the telecom, if I'm not wrong, in 2025, and I was wondering if you can give us some flavor on this. Very, very last is on a general question.
In a scenario which is characterized by high interest rates, are you seeing any postponement of some projects that need the financing from the customers? For you, it's not a problem because you have fully booked. I was wondering if you are seeing this, and what could be the impact on the competitive amongst the players. Thank you very much.
Thank you, Monica. Valerio speaking. Let me start from the third question. It's clear that the increase of interest rates is putting pressure on the choice of especially the financial customers to give the green light to the investment. We are partly seeing, taking into consideration that most of our customers are TSO. For the TSO, that's much less visible.
Mm-hmm.
-financial sponsors that are sometimes having doubt to go ahead with certain projects. Having said that, our EUR 8.4 billion of backlog is secured, There is no choice to postpone it from the customer's point of view. The risk of the, of the increase of the cost of the money is in. We have seen-
Mm-hmm.
A project that was awarded to us, the Lake Erie interconnection, where due to the increase of the interest rates, the customer has reviewed his internal rate of return and suspended the decision. He didn't cancel, but suspended the decision. That's a warning, of course, but it is what it is. We cannot avoid it. Frankly speaking, as of now, we even don't need, because our order backlog is extremely high.
Yes. Correct.
Having said that, I leave the floor for the telecom to Philippe. That is much more documented than me.
Thank you, Valerio.
You're welcome.
Hi.
Hi, Monica. Good evening. First comment. The market is showing for the next years as a robust growth. I think everybody agrees to say that the telecom market should be a growing market in the coming years globally as a trend. The margins are linked to two things, to our ability to pass through our cost increase and to the mix of customers and geographies that we have in portfolio. We, of course, manage these two things in relation to each other. We try to improve the mix of our customers when we have been facing in the last months. How do we see the margin?
I would say the basic assumption is flattish in % year on year, because, we have been able to pass through a significant part of our cost increase in 2022, but not everything. Our business in telecom is essentially a business made of multi-year contracts, so it's, it takes time to discuss.
Mm-hmm.
pass through costs to these customers. The same applies to 2023. As we mentioned in our presentation, we took a serious hit on the energy cost in Europe that we are trying to pass to our customers, and that's the rule of the game. Flattish margin is our assumption today. We are trying to do better, but flattish is the assumption as a trend. China Mobile, no news, apart from the fact that it seems China Mobile has postponed the tender to March. We are in March. I suppose that it will be end of March, and I suppose it might even be postponed to April. What is expected-
Okay.
By the whole industry here is to have an increase of volume and also an increase of price. The big question is how much will the price increase be? It can be 1%, it can be 10%. That makes the world trend difference. We are all waiting for that.
What, Monica, you have never to forget is that telecom is a unstable, in brackets, market. You may remember the issue of 2019 with the.
Yes.
-the sharp drop of the demand, the sharp drop of the price, and the consequent revamp six months to one year later. This is a characteristic.
It's more volatile than the energy market in the short term. Globally, I think we can talk about also a secular trend.
Yeah.
In terms of need of infrastructure globally.
Is an up and down in term of demand on a medium term growth of 10%.
Yes.
Some years may be minus five, some year may be plus 20, and we have to deal with it.
China Mobile is going to come, I think, in the next two months. My summary is that we have to wait.
Next two months. Okay.
Competitive pressure in Europe. Yes. Yes, there is a, Europe is still the place where the competition is the toughest in my business, no doubt, with many different players. I think we have proven as a leader in this market that we are able to cope with that with a certain resilience, and we are helped by our capacity to innovate as well. The game remains the same in 23 compared to 22. I think that's where we stand. I think I have answered nearly all your questions except the CapEx.
Yes, thank you.
The CapEx that you see in the next year for telecom is what we think we need to maintain our positions on the telecom market. It's made of two big blocks. One block is capacity to follow our market shares, to be able to maintain at least our market shares. The second block, of course, is we invest also to improve our processes and save cost in order to be able to cope with the price pressure.
Okay. Thank you. Very clear. Thank you both.
You're welcome.
Thank you for your question. We are now taking the next question, so please stand by. The next question from Sean McLoughlin from HSBC. Please go ahead. Your line is open.
Thank you. I have two questions. Firstly, on your backlog, you've clearly seen submarine ramping up. If you just wondering about the opportunity mix over the next 12 months for projects under tend. I mean, how does the land submarine split look like? In particular, just wondering how quickly some of these large U.S. opportunities are going to kick in. Second question is on the 525 kilovolts subsea cable. I'm just wondering about technical challenges on that. It's obviously a new technology that you'll be using in a German corridor, but in a subsea environment. I mean, what preparations are you taking to minimize those risks? And yeah, any comments there? Thank you.
Thank you, Sean. I leave the floor to Hakan for the, at least for the first answer.
Okay. Sean, let me tell you that our backlog is strong, but we are not, let me say, stopping to acquire orders. We are still in the market, and we have still opportunities, and we are following them. As also Pierfrancesco said, there is big expectation from the cash side, that is coming from the advanced payments that is also related to new order entry as well. There are significant, let me say, projects underway for this year. I can say that, if everything goes right, we may have a significant further increase in the backlog. We are the main player in Europe, and the European market, as we were discussing also in the other meetings, is that it is growing.
Also in the US, the market is growing, and also outside, Europe is growing. We have good opportunities. You will soon hear hopefully another good, let me say, outcome. It's always we, first two and then, as we say, we announce. You will see some good news from us, and hopefully, we will see also severe, let me say, discussions about big projects in Europe. I can already tell them to you, which is also official, all the TSOs in Europe, they are trying to do frame agreement for long term. Of course, this brings a significant chunk of business into question.
I have to say majority of these projects are 525 kV. 525 is becoming the standard of the future. We are the major player in this arena, on the land side and also on the submarine side. Therefore, these contracts that will be potentially up for award during the year. We are expecting also to be part of that supply. The only thing which I would like to say here, whatever order entry that you're going to see also this year, especially from the TSOs, is going to be longer term orders because all the TSOs are afraid of losing the capacity.
This is giving a great opportunity to Prysmian-like companies to be able to plan their capacity for the long term with the partnership of the TSOs. Some TSOs are very, let me say, prepared at the beginning. Some TSOs are rushing up currently, and there are some followers which are coming. Overall, we will see further, let me say, order acquisitions during the year, and we will not stop being in the market for the long term.
Yeah.
Coming for the technology, I'm sure Valerio would like to say a few words. I'm just going to tell you that we are in the German corridors. We are experiencing significant, let me say, experience with the production of the German corridors. We are having a very good team that is taking care of, let me say, everything that is happening during the production and the testing. This will significantly contribute to the submarine, production and also the experience that we need in order to install those. If you're going to ask me, are we ready? I would say we are always ready.
I can only say that we are more ready than the rest of the market, and we are the only one that really can do this with the requirement. Is there any experience? No, there is not. I feel with my colleague here, Srini, our chief engineer, that we are taking all the precautions to make it happen.
Srini, would you like to add your
Oh, sure, Valerio.
R&D view?
Sure, Valerio. Thank you, Sean. Thank you for the good question. I think as a company, we're a little bit wiser now than before. When we're introducing new technologies, we take industrialization very seriously. I agree with what Hakan said. I think there is two portions to this. You've got obviously the cable industrialization, the flexible factory joint industrialization. The cable industrialization, we've been successful. We started the production for SuedLink, as we've told before, and it's going reasonably well. For the flexible factory joints, we started the journey already three years ago. Yes, we've been preparing both as R&D and operations together in anticipation for this award. We're gonna focus on the execution part.
Sean, have to be clear, there is no one fucking meter of item 25 energized under the water or under the land. It's a challenge that we accept, and we took every precaution in order not to have surprises.
Thank you. That's very clear.
You're welcome.
Thank you for your question. We are now taking the next question. Please stand by. The next question is from Massimiliano Severi from Credit Suisse. Please go ahead. Your line is open.
Yeah, hi, thanks for taking my follow-up. Just two questions on project. Maybe, Hakan, you had mentioned previously that 14%-15% is a reachable midterm EBITDA margin target. One clarification would be, do you think that it is achievable with your current capacity, or do you need the additional capacity that you put on to get there? My second question would be, if we think about doubling capacity to over EUR 4.5 billion, EBITDA looks quite undemanding. Is there a little bit of conservativism or am I missing something?
Okay, the first question about the EBITDA margin, looking to the order portfolio. The EBITDA margin, to increase the EBITDA margin has two elements. Either you increase the price, and relative the cost or, you increase your margin, not increasing as fast your fixed costs. There are two ways in mathematically that you can do this. If you look from the price perspective, yes, the portfolio has better price. One element is there. The other cost element is always a question mark, as Pierfrancesco said, about the inflation. There is a stability now expected, and we are seeing a stability in the price. That looks also promising. If you look on the fixed cost, we have no intention to increase our fixed cost beyond our growth of the margin.
Can we reach the 15%, what we were talking about? Yes. We need definitely the capacity that should come along. With the capacity, we will do more margins, and we will grow our fixed cost, but not as fast as the contribution margin. We are opting for it. Can we go beyond 15%? Yes, but not according to the conditions of as of today. The conditions may change, of course, the pricing structure may change, the technology and the may give us opportunities to go further. I would not anticipate, as of today, creating a dream for the long term. 14%-15% is really a doable level. The second question about doubling the capacity. Yes. Let me explain this.
We are having, of course, the balance of everything has to be utilized in fullest. As Valerio said, the 500 we will reach, but we will not stop at the 500, we will go further. The other element is definitely the installation. We are not doubling our installation relative to the increase of our, let me say, cable capacity. We are using third-party installations in our forecast. Therefore, when you look about the EUR 500 million for a limited period of time, four years or five years, I'm sure we prefer earlier to reach the 500 in four years rather than five years.
That is the element also of third-party installation, and that is the element that we have to evaluate during the course of the year if we are going to further invest in installation capacity to go beyond. Our expectation is that we will reach about EUR 3 billion, maybe three and a half billion. The EUR 4 billion is a good proxy. It will have the effect of the third-party, let me say, installation insight. The EUR 500 million is a solid number, it can go up definitely, there is no question.
Very clear. Thank you.
Thank you for your question. We are now taking the next question. Please stand by. The next question from Alessandro Tortora from Mediobanca. Please go ahead. Your line is open.
Yes. Hi. Good afternoon or good evening to everybody. I have, let's say, three questions, if I may. The first one is related on the adjusted EBITDA made in North America. If you can just help me to understand how much of it comes from the E&I, and would also help the comparison with the last year data. Then, I know you already, let's say, elaborated something on this, but if you take into account the around 19% adjusted EBITDA margin you mentioned before on the E&I, and you already stated that the profitability of T&I and PD are today different. Is it possible to have some indication, like, I don't know, T&I being, for sure, if understood well, above 9%, PD lagging?
Clearly we know that in a normal cycle, in theory, also considering everything you said before on PD should have a profitability higher than T&I. Just to understand, I know that this is very specific, let's say, period, but in theory, PD should be high single digit, let's say, EBITDA margin, or mid-to-high single digit, and let's say TNI should be much more mid-single digit. The last, the last question is for Francesco, just to understand better, let's say a normalized level of tax rate for 2023. I don't know if there is any matter on some different country mix you have in mind. Also maybe, EBITDA adjustments which were, let's say, pretty high in 2022.
First of all, if you can explain a little bit what is inside this number and also, let's say, any indication for 2023. Thanks.
Thank you, Alessandro. The first question, the North America EBITDA. Having been Massimo in North America for, since the acquisition of General Cable, even if today he's not anymore there, I would like to listen to him answering to your question.
Thank you, Valerio. Alessandro, the growth that occurred in North America in 2022 over 2021 in terms of E&I accounts for, let me call it, 70% of the increase that you see in the relevant slide of the presentation. Out of the EUR 350 million, we must confirm probably EUR 270 million, EUR 260 million coming from the E&I growth. Inside this E&I, 90% came from T&I. These are the reason for the spike in results in North America in 2022. When it comes to the second point about the T&M margins versus PD margin, as a whole in the group, the PD margin is more or less around six, seven points of EBITDA. Of course, in North America, the story is much different.
The margin in PD in North America are pretty high. They will remain pretty high given the strong demand in the market following the electrification, rearming, and so on. T&I has seen this spike in 2022, which will believe it continue at least for the first half 2023. Hopefully only soften from a soft reduction in 2022, in 2023 second half. T&I margin in North America in 2022 have been probably in the double-digit range, so three or four percentage point higher than PD.
The evolution will bring a little bit more of normalization in PD versus GM margin North America, but this will be more a case of 2024 than 2023 situation. Have I answered, Alessandro?
Yeah. Let's say that the question was also across region, honestly, and not only on North America, because I know that North America is probably a bit more, let's say, skewed the situation. No? Just understand across the region, this gap between as you said before, T&I and the PD that, if understood well, let's say probably you can expand the comment that should.
Sure. Alessandro, you have to con-.
Yeah.
You have to consider that, the margins for T&I and PD in North America are completely different from the ones in Europe.
Mm-hmm.
It is a comparison that is a little bit unfair.
In the other regions, Alessandro, there is not that big of a difference between the margin on T&I and PD. Of course, also here in Europe we have different situation. In north of Europe, we have a very high margin in T&I. In the South Europe, we have very high margin in France and lower margin in Italy. There is definitely less gap than that you see in North America between T&I and PD in European space.
Okay.
LatAm are almost similarly follow the logic of Europe.
Okay. Alessandro, for the third question, the normalized level of tax rate, I would ask Francesco to answer you.
Yes. Ciao, Alessandro.
Ciao, Francesco.
I don't expect any major change in tax rate in 2023 versus 2022. I think that we will stay in the 30% or say now it's 31. Maybe take 30% as a realistic level for 2023. You had a question on the adjustments.
Mm-hmm.
It's basically our adjustments are related to antitrust, which is the only non-recurring item that we have, are related to restructuring costs, are related to the impact of hyperinflationary accounting on our operating profitability. Namely, we have two countries in hyperinflation, which are Argentina and Turkey, with Turkey which came in this year with an incredibly high level of inflation, this is also one of the reason of the increase other than antitrust. The other reason of the increase was that last year we had some positives in terms of gains on some disposals. For instance, we finalized our restructuring, footprint restructuring in South Europe, and we sold one plant after this restructuring, one site, actually, one land and building, realizing quite a significant gain. These are the main reasons.
Sorry, sorry, Francesco. If I have, let's say, to put a number on 2023.
Sorry. You put a certainly lower number, I would say by approximately EUR 40 million, something like this.
Okay. Grazie.
EUR 4 million-EUR 50 million lower, I would assume.
Okay. Grazie.
Thank you for your question. There are no further question at the moment. I will hand back the conference for closing remarks.
Thank you very much to all of you for having been participated to this conference call. We are gonna see at the end of the first quarter. Thank you very much again to all of you. Bye-bye.
That conclude the conference for today. Thank you for participating. You may hold this conference.