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Prysmian (BIT:PRY) SpA’s Q4 2024 earnings call revealed mixed results, with the company achieving a record EBITDA margin but missing revenue forecasts. Despite strong growth in sustainable products and transmission, the stock fell 7.01% following the announcement. According to InvestingPro data, the company maintains a "GOOD" overall financial health score of 2.66, with particularly strong marks in profitability (3.23) and growth (2.98). Investors reacted to the company’s decision to pause U.S. expansion plans and the pressure on electrification margins.
Key Takeaways
- Prysmian reported a record EBITDA margin of 11.2% for 2024.
- The company’s stock dropped 7.01% following the earnings call.
- Sustainable products now account for 43% of revenue, up from 37% in 2023.
- U.S. expansion plans for transmission have been paused.
- Transmission business achieved 34% organic growth in Q4.
Company Performance
Prysmian demonstrated resilience in 2024, achieving a full-year EBITDA of €1,127 million, marking a record-high margin of 11.2%. The company saw modest organic growth of 0.5% for the year, while free cash flow grew by 40% to reach €1 billion. InvestingPro analysis shows the company’s strong cash generation, with a free cash flow yield of 6% and impressive dividend growth of 16.67% over the last twelve months. Despite these achievements, the electrification business faced margin pressures, prompting a cautious outlook.
Financial Highlights
- Full Year 2024 EBITDA: €1,127 million
- EBITDA Margin: 11.2%
- Organic Growth: 0.5%
- Free Cash Flow: €1 billion, up 40%
- Group Net Income: €7.29, with a diluted EPS of €2.52, a 15% increase year-over-year
- Net Debt: €4.3 billion, approximately 2x EBITDA
Earnings vs. Forecast
Prysmian’s earnings call did not specify the exact revenue results, but the company’s stock reaction suggests a miss in revenue expectations. The market had anticipated revenue of approximately €4.2 billion for the quarter. The diluted EPS of €2.52 showed a 15% year-over-year growth, yet it was not enough to buoy investor sentiment.
Market Reaction
Following the earnings announcement, Prysmian’s stock price fell by 7.01%, closing at €60.48. This decline reflects investor concerns over the company’s strategic decisions, particularly the pause in U.S. expansion plans and margin pressures in the electrification segment. Based on InvestingPro Fair Value calculations, the stock appears fairly valued at current levels. Despite recent volatility, the stock has delivered an impressive 48.89% total return over the past year, with a P/E ratio of 28.49x reflecting investors’ long-term confidence in the company’s growth prospects.
Outlook & Guidance
For 2025, Prysmian has set an EBITDA guidance of around €2.3 billion at the midpoint and anticipates maintaining a free cash flow of approximately €1 billion. The transmission business is targeting an EBITDA margin exceeding 16%, while the company expects low single-digit growth in electrification. InvestingPro data reveals several positive indicators, including a 4-year streak of dividend increases and a 17-year history of consistent dividend payments, underlining the company’s financial stability. Despite the pause in U.S. expansion, Prysmian remains focused on capacity expansions in Europe. Subscribers to InvestingPro can access 5 additional exclusive ProTips and comprehensive analysis in the Pro Research Report.
Executive Commentary
CEO Massimo Bartaini emphasized the company’s commitment to sustainable products, stating, "We have 43% of our revenue connected to sustainable products." He also expressed confidence in achieving a transmission EBITDA margin of over 16%, saying, "We will continue expanding our size and expect to go beyond the 16 plus EBITDA margin." CFO Francesco highlighted a proposed 14% increase in dividends, reflecting the company’s strong cash flow position.
Risks and Challenges
- Margin pressures in the electrification business could impact profitability.
- The pause in U.S. expansion plans may limit growth opportunities in a recovering market.
- Fluctuations in metal tariffs could affect cost structures.
- The competitive landscape in sustainable products requires constant innovation.
- Macroeconomic uncertainties may influence demand in key markets.
Q&A
During the Q&A session, analysts inquired about the impact of metal tariffs and the company’s margin expectations across business units. Prysmian executives clarified the potential for synergies from recent acquisitions and discussed the dynamics of capacity expansion in response to market demands.
Full transcript - Prysmian SpA (PRY) Q4 2024:
Massimo Bartaini, CEO: Good morning everyone and welcome and thank you for attending this full year result of twenty twenty four earning calls. As you see from this first chart, a stronger EBITDA delivery 1,127,000,000 in line with expectation with midpoint to the guidance, a very high 11.2% EBITDA margin in line with the nine months 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 the organic growth in nine months twenty twenty four, we delivered significant organic growth in twenty twenty four quarter four, mainly driven by strong demand in strong delivery and transmission in power grid and in digital solution. Great performance in free cash flow with 1,000,000,000, about 1,000,000,000 free cash flow. Moving to the more detailed information, you see a significant surge in EBITDA, 18.4% over 2023.
It should take 200,000,000 coming from the perimeter changer and if you deduct this 200,000,000 from the 1,927,000,000.000 achieved last year, you end up with 1.728, which is by coincident exactly 100,000,000 improvement over 2023 on a like for like, basis. Free cash flow also outstanding growth from 700 plus to 1,000,000,000 plus 40%. I’d like to draw your attention to the EBITDA margin in the right hand side of the page where with this 11.3% EBITDA margin, you see a significant growth over 23% but more importantly over 22% which was our baseline for the last time capital market, our last capital market day, so 200 basis points additional in profitability barely across all business units. A quick comment on the climate, ambitious ambition and the climate actions, ’21 reduction in scope three versus baseline, confirmed that minus 37 in line with expectations scope one and two and paving our way towards the 55% reduction by 2022. Recycle, content in raw material surged to 16.2, not really helped by the perimeter expansion but helped by strong effort across the legacy Prisma in driving suppliers to a 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 the 15% similar to quarter three and turning to the full year result, you see almost 20% organic growth over ’23, a significant improvement in EBITDA margin of 14.6%, the exit speed is very high 15 and we are now super confident about meeting the 16% goal that we set for 2025 in this business and 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, what was it? Sorry.
Moving to power grid, the organic growth in twenty quarter four was significant. We was not coming from a significant organic growth nine months at ’24, it was in fact below 2%. Nice to report another quarter with a great EBITDA margin 13.5%, so we deliver full year in line with quarter four, ’13 point ’4 percent for the full year, two percentage point above the average of 2023. Maybe there would 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 will have to consolidate, we think we’ll be able to consolidate a level of EBITDA margin between 1213% also in 2025 and possibly leverage on the capacity expansion that is happening in the space. In I and C, we had a 10.2% performance in EBITDA margin in quarter four, vis a vis 18.8% in quarter four twenty twenty three.
The EBITDA margin in quarter four twenty four softened a little bit, if you look at, if you remember what we did in quarter three twenty four, it was 11.5 after the consolidation in core wire. We have seen some seasonal effect, which has driven some soften in price in one segment of the IEC, 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 is a temporary effect. We noticed this also in the first weeks of twenty twenty five, this season and the weather, the harsh weather in North America didn’t help at all and so we think that this is a simply simply a temporary situation, driven by a few circumstances. Some residential demand are pretty low, which is not our space, but unfortunately is a space of some other competitors.
And so we’re confident that with a 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 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 start for 2023 still benefiting from this pack in I and C legacy placement business resulting from the rebound of the market post pandemic and inflations. Resulting specialty was certainly not satisfactory. It’s not much different 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 price more importantly and from some contraction in the elevator business in United States, again driven by the weakness of the residential market. Full year EBITDA margin are aligned with twenty twenty three and we count on the stability with some upside for 2025 in terms of EBITDA margins. This is a solution, of course, we had an easy comparable versus 2023, where we posted a negative EBITDA, so 40,000,000 EBITDA, 12.5% has been the margin for the business over the last four quarters. It’s centered, which is stable. Good news that we’ve seen finally a strong rebound in volume in 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 stock in 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 ’22. 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 ’23 and recycle 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 And 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.
Francesco, CFO: Thank you, Massimo and good morning to everybody. To recap as usual, our profit and loss statement says in the region of 17,000,000,000 consolidating as you know Encore Wire (NASDAQ:WIRE) for the second half. As Massimo already anticipated the organic growth for the full year is plus 0.5% with a good improvement in the quarter four, driven by a stronger surge in sales and the 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 1927 with a record 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 position it very well to achieve and beat at the level of margins that we had anticipated in October 23 in post. Power grid, very stable and very consistent improvement versus the previous year with a steadily high level of margin. Digital solution is on the recovering path in particular the market in North America and is benefiting of these 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 INC, the copper building wire and you see some weakness so 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 that you see as a totally in line with expectation arising to $225,000,000, which is discounting more than 100,000,000 effect in the second half due to the acquisition. A pretty low tax rate benefiting over some one off effects still related to the acquisition, and a group net income which surged to $7.29, 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 remind 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, twenty twenty two-twenty twenty seven. Let me say that the first two years are certainly be 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 acquisition. To be very clear, in Q4 we are including negative effects of 80,000,000 80 million before tax coming from the pure purchase price acquisition, which is a reversal of inventory step up and the additional amortization and depreciation, which are coming with a top up, with a step up of the assets, which is a normal process in the purchase price acquisition. 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 we broke the wall of the 1,000,000,000. I think we must be proud of that. And, and, obviously we benefited from a very strong and positive dynamic of the working capital.
You see changes of a positive changes, a drop of $465,000,000 driven by the transmission business. And you see also also the extraordinary effects on our net debt coming from the acquisition, from Anchor Wire acquisition 4,100,000,000.0 and also coming from the conversion of the convertible bond, the 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 the net of these two transactions of $4.00 6,000,000. Let me remark the $4,300,000,000.0296004000 to be exact, the debt at year end is largely better than we expected is 250,000,000 at least better likewise the Free Cash Flow which is 130,000,000 above the midpoint of the guidance of eight eighty and 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, 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 1,500,000.0 add. This strengthened significantly our financial structure.
You see that we extended the average maturity to four point three year and you see in green, by the way, the two bonds, the four year bond for $850,000,000 due will be due in 2028 and the seven year six fifty million bond which will be due in 02/1931. 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 edged even before the interest rate increase which took place in 2223. Okay, back to Marcio for the final conclusions.
Massimo Bartaini, CEO: Thank you, Francesca. So with this result of 2024 and the ISP, we are pleased to confirm our guidance with a midpoint of 2,300,000 as far as the EBITDA is concerned to 2.5 to 3.5. Free cash flow with great stability, 1,000,000,000 midpoint for 2025 and further acceleration in the scope one and scope two 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, at McKinney in Encore to see the facility and the powerful service level and the innovative product provided by this asset. So closing with a stronger remarkable performance, the transmission and power grid, integration from an organizational point of view and from a sales commercial in the sense of a 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 billion, 1,000,000,000 of free cash flow and consistent increase to return to shareholders.
We are going to propose a dividend of 0.8 so 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 or clarification about past year and the coming 2025 figures.
Moderator: Thank you. And the first question comes from the line of Daniela Costa from Goldman Sachs. Please go ahead. Your line is now open.
Daniela Costa, Analyst, Goldman Sachs: 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 the puts and takes into that guidance first?
We’ve seen
Massimo Bartaini, CEO: more than single digit growth, let’s say, in electrification 3% to 55% to 7% for digital solution. I mean, this is volume wise what we see and the digital solution we should see some upside coming from prices.
Daniela Costa, Analyst, Goldman Sachs: And then in terms of margins, can you clarify like where Encore is right now? And I think in the past you have commented on what you saw sort of a fair level through cycle for Encore in the future.
Massimo Bartaini, CEO: Have you changed on that and
Daniela Costa, Analyst, Goldman Sachs: where does that number stand out?
Massimo Bartaini, CEO: The copper pit, the wire, which is that of course the major cement of business they performed in the market, three to 4% price softening in November December, not in October, in November December. On the contrary we have seen aluminum building wire pricing going up, there is some volatility associated to the tariffs. We think we will benefit from the tariffs that has been applied to the aluminium material imports and also to the cable imports, since as you know in aluminum milliwire space there is a 40% of the American market in the end of imports. So we should be able to capitalize on additional margin improvement in aluminum milliwire. 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 anchor wire. So I believe it was 15% EBITDA margin in 2024 of anchor wire. We might see some moderate and temporary slowdown in quarter one and with the second quarter with a high season and with a strong expectation that we received 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 the view is and the 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 fourteen-fifteen percent level in the high season quarters of 2025.
Daniela Costa, Analyst, Goldman Sachs: Got it. Thank you. And the final one, just before you had commented in terms of liking to strengthen potentially inorganic the digital solution 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 Deep seek and other
Massimo Bartaini, CEO: No, they haven’t changed anything. You’re thinking about there in any sense and where that’s been. There is a venue in the center of our stock price drops as if we had 100% of our revenue as opposed to the center. We still have only, I mean or maybe not only, but we have five to 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 summit of business because also in transmission, we receive projects and we participate to tenders for a little finer data center with renewable energy. So for us it’s a strong use case which do justice to our synergistic portfolio, transmission to our grid electrification digital solution. We will continue in pursuing M and A and other business, looking for complementarity. In telecom as you correctly said that we would like to become even more exposed to the connectivity components, not necessarily to the data center but to the fabric to the home and part to 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.
Daniela Costa, Analyst, Goldman Sachs: Thank you very much.
Moderator: 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 (NYSE:MS).
Josh Miller, Analyst, Morgan Stanley: Just maybe first question on the medium voltage business power grids. I think you’ve now mentioned a 12% to 13% margin level for 2025, which is clearly lower than twenty twenty four’s ’13 point ’4 percent level. I guess my question is, how do you feel about supply demand beyond 2025? Because 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 is the end of any potential market normalization in that segment?
Massimo Bartaini, CEO: So ’22, ’20 ’20 ’3 and partly and also 2024, coming from a market that was tight, capacity was not yet fully deployed and the demand was strong, demand was strong. Now, the demand is going to remain strong in ’25 because the drivers for additional electricity needs will insist in making investment in the power grid, which is the asset delivers more electricity to the users, remain solid. The point to your project 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 to 60% concentrated in utilities. So the wrong relationship with these utilities customer and the good service that we keep providing them in terms of security supply on time delivery is what they reward a lot.
So 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. And while we will continue leveraging our long lasting contracts and frame agreement with the 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 that.
So not at all negative, actually positive. But bear in mind that the 2024 was a record year with this 13.4% in mid March.
Josh Miller, Analyst, Morgan Stanley: Thank you. Do you think
Miguel Borrega, Analyst, BNP Paribas (OTC:BNPQY): the 12% is the right level for this business?
Josh Miller, Analyst, Morgan Stanley: Just to clarify.
Massimo Bartaini, CEO: 12% is the right level. 12%, I mean, we were 7%, I said. We consolidated a stronger comfort because of the market demand is there. The additional capacity will create some maybe milder moderate turbulence in the market, but not with our customers because of what I said before. So 12 to 10 is what we expect to achieve to remain to see in the coming years, not necessarily only 2025.
Josh Miller, Analyst, Morgan Stanley: No, that’s great. Thank you. And then maybe one just quick second question. Just sort of announcement in December, I think, around The U. S.
Capacity expansion Breton Point that sounds like it’s now being 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 on a free
Massimo Bartaini, CEO: expansion of 27, 20 eight for that transmission? For one additional line, so 400 kilometer of submarine capacity, all devoted to United States. First of all the reason why we decided to originally to pause and then to basically call off that investment was not has nothing to do with the political situation with Trump but has to do with what didn’t happen the last three years, so the demand in terms of order intake in summer in HVDC land didn’t happen, didn’t didn’t take, didn’t gain any traction in North America. Again, during Biden, as well during Trump before, as well during Trump now. So the decision is that 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 not have the chance to saturate it.
Or even worse, to use a project from Europe loading to 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 twelve months we decided to expand additional capacity in Europe, which will come available by the end of twenty twenty six in submarine space and the HVDC space. Because the demand in Europe remained pretty solid and actually growing and in order for us to remain the market leader and maintain our ambitious 35 to 40% share of the market, we need it to expand capacity where the market is, where the customers that we trust are TSOs in Europe. The backlog we have is large enough to cover revenue through 2028, so we are fully sold out despite the additional investment I just mentioned and it goes actually beyond 2028, so I don’t see 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 solid project, with solid customer, but with solid customer with project that backed by notes to proceed and down payments.
So 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 enhancement that we’re committed to achieving. Thank you, Josh.
Josh Miller, Analyst, Morgan Stanley: Great. Thank you very much.
Moderator: 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. Please go ahead.
Your line is now open.
Akash Gupta, Analyst, JPMorgan: 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 spare additional color here on the weakness and give us some thoughts on whether your initial expectations from Encore still stands? I would imagine synergies are progressing well, but what about the underlying business on a stand alone basis?
I remember you saying margin could be sustained at twenty twenty three levels of 20%.
Miguel Borrega, Analyst, BNP Paribas: Can you
Massimo Bartaini, CEO: tell us how much we are going to acquire the acquisition and actually what we reported in quarter three was 15%. Basically we lost one point more or less in quarter four over twenty twenty four quarter three. The reason why quarter four point two four is margin wise lower than quarter four point two three has also to be identified in other parameters. We had a particular situation very positive in LatAm in through the whole quarter 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 shoot money from inflation and deflation, so they decide to buy cables and copper and a lot of stuff. So there are specific spike in quarter four twenty twenty three in LatAm, which make the comparison between ’24 and ’23 unfortunately unfair.
So margin of Encore sits on a 14% EBITDA and before synergies and we think at this level between fourteen and fifteen is going to remain. Of course quarter one it didn’t start a starting kind of continuity with the quarter four, so we had seen the same type of pressing softening in copper built environment 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. Synergy will add €140,000,000 We are moving faster on synergies, of course last year there was just some fiscal synergies and minor fiscal synergies. This year is where we had to deliver cross selling opportunity and operational efficiency, operational synergies.
Synergy will not necessarily add margin points per se, incremental EBITDA margin point per se, and 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 Anchorwire and the I and C space in the industry.
Akash Gupta, Analyst, JPMorgan: 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 twenty twenty six and you confirm no longer a U. S.
Plant. I remember you announcing this sometime in 2021 and that was supposed to add $1,000,000,000 of sales by twenty twenty six billion dollars to $4,000,000,000 So without that, can you confirm again your revenue capacity once the existing plans are done by 2026? Is it roughly $3,000,000,000 And what are the implications of not doing The U. S. Plans in terms of your backlog?
Does it imply further additions down the line? Is your margin expectation still 16.5?
Massimo Bartaini, CEO: Okay. Thank you. I will not be able to ask a question before we are a few weeks away from what I can tell you much more, with more in-depth in the Capital Market Day. First of all, the end of the capacity expansion is not ’26, it’s going to be towards the end of twenty seven. So we will see the full available capacity turn into revenue in 2028.
Our revenues will grow significantly from 2024 to 2028. I’ll just tell you that we decided years ago to double the submarine capacity and increase significantly also the HBDC land capacity. So let me spoil now the Capital Market Day with a number for transmission revenue in 2028, but it will be consistent with a stronger organic growth through the period. The capacity that we’re going to lose on the back of the decision not to continue with Bretton 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 we would that were not part of the original plan but will be coming available in Europe by the end of twenty six, early ’20 ’7 and they will overcompensate the lack of the 400 kilometer not included any longer in the American footprint.
Margins will go in our, maybe I should not again tell you anything about it, but margin will go beyond the 16.5% that we committed toward the last Capital Market
Akash Gupta, Analyst, JPMorgan: Day. That’s great. And then lastly, just can shed some color
Massimo Bartaini, CEO: on CapEx. CapEx will continue in 2025 in line with the level of ’24. We have, and there will be also similar number, slightly lower in ’26. That’s simply related to the fact that with those ’20, those two years twenty five and ’26 we’ll see two additional vessels coming available on us, so the Mona Lisa delivered in quarter one and there would be Alessandro Volta new vessel delivered at the end of twenty twenty six. Beyond that level, beyond that moment, CapEx will marginally reduce because we’re coming to an end, we’re coming to the end of the wave of capex to expand manufacturing capacity, investor capacity and transmission.
Thank you, Miguel.
Akash Gupta, Analyst, JPMorgan: Thank you very much.
Moderator: Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Akash Gupta from JPMorgan. Please go ahead.
Your line is now open.
Monica Bosio, Analyst, Intesa San Paolo: 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?
Massimo Bartaini, CEO: So the first question on, growth and capacity expansion. So, transmission, don’t worry, we like to be a Yes, I
Monica Bosio, Analyst, Intesa San Paolo: mean transmission, I will take It’s
Massimo Bartaini, CEO: a good play. So revenue growth in ’25, 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 Pozzuole, for a summary volume and there will be one that has already come ready to production at the end of quarter four, twenty four in, grown our plant in France for HVDC land. And there will be one small, catenary line for salmon in production also in PICA. So overall, I would say that if you take the revenue of 2024, you should apply, let’s say 15%, 15% to 20% revenue growth as a result of manufacturing capacity, which goes end in end with the additional installation capacity associated with the CapEx that as you mentioned before. Are you?
I don’t? No, I hope I clarify this scenario for 2020.
Monica Bosio, Analyst, Intesa San Paolo: And my second question sorry, go ahead, Massimo. 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 variable 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 are considered on the same?
Massimo Bartaini, CEO: I consider metal prices in continuity with the level of 2024. Of course, there might be some changes some changes resulting from the tariffs, not on the LME price, but on the other components, so the transformation cost, the cutoff premium and 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 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 and so this will end up providing all customer, providing all market an increasing 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. So anyway, our margin, our margin expected by business unit do 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 import in North America.
Monica Bosio, Analyst, Intesa San Paolo: 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 we expect in 2025?
Francesco, CFO: Sure. 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 the net income. So we had basically a PPA effect of, I said 80,000,000 actually 77,000,000 to be to be exact.
37,000,000 say 40,000,000 to round it up is additional, depreciation which is coming from the reassessment of the PPA and another 40,000,000 is coming from the reversal of the inventory step up but 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 80,000,000 all in all. Then I let me also add that our profit before tax was penalized by some impairments. So as Equestio was mentioning the basically point related to the break on point investments. We impaired 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 40,000,000 of impairments.
All these is penalizing the quarter four to be exact. So we have total negative effects from PPA and impairment on quarter four of $120,000,000 Net of tax are effects of 90,000,000 So basically you should read the quarter four profit before tax and net income considering this negative impact of 90,000,000. And if you consider this our Q4 net income would be absolutely in line with the two central quarters of twenty twenty four. 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, you know, 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 40,000,000 that I was mentioning. Because this is a one off effect is not, whereas the higher depreciation from PPA is not a one off effect, is an effect that we will see also in the coming years. By the way, this year was only one half.
Next (LON:NXT) 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
Monica Bosio, Analyst, Intesa San Paolo: For 2025 we shall expect somewhere around $40,000,000
Francesco, CFO: in the region of, yes, $35,000,000 40 million dollars Because these $35,000,000 40 million dollars that you had in 2024 was only one half of DPA.
Monica Bosio, Analyst, Intesa San Paolo: And 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. So if you have to take full year number that would be around
Francesco, CFO: Yes, 80,000,000 I would round with up to 75,000,000. Of additional the appreciation related to PPA. Full year 2025 is a very good estimate. Welcome.
Monica Bosio, Analyst, Intesa San Paolo: Thank you, Francesco.
Moderator: 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 San Paolo. Please go ahead.
Your line is now open.
Sean McLoughlin, Analyst, HSBC: 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 twenty five and twenty twenty six with a breakdown between connection and submission and submarine.
And just one curiosity, the company is going to add the two new vessels, so the installation capacity looks to me very
Miguel Borrega, Analyst, BNP Paribas: pretty good. How is the situation
Sean McLoughlin, Analyst, HSBC: at market level in this moment?
Massimo Bartaini, CEO: We specify the market in twenty five-twenty six based on the pipelines of projects that either we already beat the two or we are seen as coming tenders is between 15 and €17,000,000,000 per year. And there are still some frame agreement or large projects to come in to fruition, like the national grid projects, then there are projects from Terna (BIT:TRN) for the so called hyper grid, so it’s a larger network, summary network surrounding Italy. There is the FRAME agreement from Ipto, the Greek company Utility SOTA project in the pipeline which make us comfortable saying that fifteen-sixteen is the level of market in twenty five-twenty six. The market is more or less 70% towards San Marino and 30% in land HVDC. Maybe one additional comment that why in the past we had this longer interconnectors, so land interconnectors, those land interconnectors large as long like the German core, it will probably not be continuing with the same intensity in the coming years, but more and more we see some marine offshore business with stronger and longer stretches of land when it comes to shore to connect to substation 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 there to connect to. So my overall land will represent, as I’ve presented in the past, 30% to the total market. We are unique in the new 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, charter from the market is three times the cost that, to try three times the price that it was only two three years ago and this is one economic reason, 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 installation. We want to control the quality and the risk of 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 design them with the best capability to withstand waves, current winds in worst condition to avoid and we have to cut the cables and 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 the every other player in this space.
Sean McLoughlin, Analyst, HSBC: Very clear, Massimo. Thank you. And my second question is on digital solution. So 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 sites aside on top of the geographical positioning?
Could be the sites, the margins, the multiples on EV, EBITDA? Any follow-up would be First
Massimo Bartaini, CEO: of all, you saw that we have hundreds of targets available in telecom M and A and so we have also to, accept that we work on different scenarios. The main driver behind this M and A is, I said before the complementarity of the portfolio, so to make us a real solution provider in optical. We already have a lot of solution 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 solution 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 company that we’re looking at cannot be a huge company because we cannot perform another Anchor wire like acquisition until 2027 let’s say, so would be image size acquisition.
And so we look at the size of EBITDA, the sustainability of 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’ll continue with this activity and maybe we’ll tell you more the Capital Market Day about how we see there’s opportunity moving forward.
Sean McLoughlin, Analyst, HSBC: Thank you, Massimo. Now my last two questions. One is on the specialty side. Is the company maybe moving some reorganization sort of disposal within the specialty space? And the very last question for disposal within the specialty 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.
Massimo Bartaini, CEO: Thank you, Marius. So specialties, no, we don’t have in mind any particular organization. We’re just gradually disposing parts of the automotive business because it’s separate not court wise, it’s actually not providing any business upsides. On the contrary, thanks to the consolidation of our organization that we already implemented, turning the four European region into one single Europe, 1 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 opportunity specialties where before we had pockets of regions with great upside, with great traction in the market and other that we didn’t benefit from the global footprint of Europe. So no reorganization beside the one that we applied with the consolidation on Europe and as a pack and, chance to gain more traction in specialties, especially in Europe.
Sean McLoughlin, Analyst, HSBC: Okay, got it. Thank you, Massimo.
Francesco, CFO: Hi, Monica. Thanks for your question. Well, for the time being I would say that having provided a guidance of free cash flow between September and October. 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 I
Sean McLoughlin, Analyst, HSBC: I I mean, very enough of venture
Francesco, CFO: Yeah, And maybe just to explain a little bit better, the reason of the stability, substantial stability of our free cash flow is that whereas we have a significant progression, 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 and anticipated decrease of 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. And some of these, some of these down payments were actually related to, frame agreement awards, which had, which had taken place in 2023, as you 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 twenty twenty four and 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 and this is the offset of the and then a lot of other details that I don’t waste your time with.
Sean McLoughlin, Analyst, HSBC: Thank you very much, Srecko. Thank you.
Francesco, CFO: Welcome. Good morning.
Moderator: 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 now open.
Lucas Verhani, Analyst, Jefferies: 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 specialty.
So could you maybe talk about specific conditions, deterioration within automotive? And should we assume that everything else across OEM renewables, oil and gas elevators, etcetera, is stable or you seeing a broader impact? That’s the first question.
Massimo Bartaini, CEO: Thank you, Sian. No, yes. Automotive is the biggest chunk of this specialty deceleration. It is relatively small but the margin was decent, has been decent in ’23 in the first half of twenty four with a bit of a worldwide crisis we suffer from, loads, saturation, excessive transportation costs because the market has become more complicated and, to be honest there is also as I mentioned in elevator in North America, which is a kind of property of business, a significant slowdown due to the residential market, impact. As far as the other side is concerned all the rest is pretty much the same.
Yes, there are plenty of verticals in the OEMs renewable space, one is up, one is down, and 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 EBITDA margin reduction came from these two segments, automotive and elevator.
Lucas Verhani, Analyst, Jefferies: Yeah. And should we assume in fact, I mean is this, is there something abnormal about this seasonality or should we expect every year kind of a Q4 slowdown?
Massimo Bartaini, CEO: I think this has nothing to do with the calendar seasonality. In ’24, in twenty three quarter four we had good performance in special cables, so it’s more about the pace of investment of OEMs, renewable and automotive player than the season per se. In the last quarter, the last four months of ’24, we noticed a reduction of volume, definitely across automotive with implication in prices and all the rest and elevator, but we should see, we are entering it, 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 of this business in quarter one, quarter ’2 a level of 10.5%, eleven % is what we consider more sustainable moving forward.
Lucas Verhani, Analyst, Jefferies: 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?
Massimo Bartaini, CEO: Sean, it’s really very early. As I said, we entered in 2025 with some continuity vis a vis what we’ve seen in November in the electrification business unit in terms of I and C margins. I think there is a lot of negative impact coming from the weather because many investment, many construction 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 end 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, whether it’s gonna hit level one, whether we’ll be able as we’re doing it to expand the current in producer also to cables.
In some cases already the administration consider cables as part of products coming from a side that will be charged within producers in case it’s not, so there is still a lot of clarification as to happen before we release more comfort on which portion of the range we’re gonna hit.
Miguel Borrega, Analyst, BNP Paribas: Right.
Lucas Verhani, Analyst, Jefferies: Thank you, Fatima.
Massimo Bartaini, CEO: Thank you, Sean.
Moderator: Thank you. We will now go to our next question. Please stand by. And the next question comes from the line of Lucas Verhani from Jefferies. Please go ahead.
Your line is now open.
Francesco, CFO0: Just a 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, as And
Massimo Bartaini, CEO: then
Francesco, CFO0: And then am I right that you said the kind of sustainable margin for that business going forward is more 9% to 10% EBITDA margin? Thank you.
Massimo Bartaini, CEO: No, for specialties, we see also some recovery and some stability in organic growth, of course, single digit margin, a single digit organic growth. The margin that we expect to maintain is the 10.5% that we see in 2012 and we are going to see in 2025. So 10.511% is the margin that we expect to achieve in specialties in 2025.
Francesco, CFO0: 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% to 20%. Is that kind of volume on me 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 2627. 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 2627 should have kind of better pricing margin. So how do you think about the margin potential you know, beyond 2025 in that business?
Massimo Bartaini, CEO: So transmission, growth in ’25 that you reported, 15% to 20% is a combination of volume and price, is a combination of volume because the additional capacity will help us deliver more projects, both the manufacturing installation capacity is a combination of price because as said we will hit a 16% plus EBITDA margin in 2025 and most of this upside uptake in margins comes from projects with better margins, so with better price in our backlog in execution in 2025. Then since we will continue expanding our size and we have also some operational leverage and we will also have a better margin projects in execution in 2627, we do expect to have to go beyond the 16 plus EBITDA margin that we will deliver in 2025. And, but again I would like to give you more more about this at the Capital Market Day.
Francesco, CFO0: Perfect. Thank you.
Massimo Bartaini, CEO: Thank you, Luca.
Moderator: 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 (OTC:MDIBY). Please go ahead.
Your line is now open.
Miguel Borrega, Analyst, BNP Paribas: Yes. Hi. Thanks. Good morning to everybody. I have three questions.
Quick question, 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 the possibility to have also a tariff on copper and which kind of implication would there be for you? That’s the first question. Thanks.
Massimo Bartaini, CEO: Yeah. They work pretty much the same. The aluminum tariff, are going to be applied to import aluminum from Canada and from other countries and for Canada will be a 25% heat on top of the aluminum cost and from other countries 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, you know, other big player in The United States like Subwire.
We all depend, we all depend from local production, very limited, and most of our copper rock, aluminum rod comes from imports from Canada or from Middle East and other countries. So So this will, this aluminum target will impact the total industry and will play in the same way passing on this price uptake to, cost uptake to the market. Rode is a bit different because The USA is less reliant on import of rod than it is on a aluminium, so there is some significant local production of rod in The United States, but still there is something that has been imported from other regions. So, I think what is important will have the same impact to our industry, so the cost will be added to the LME or to the COMEX cost and the cost would 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 and this is where we’re gonna have a help because 5040% of the aluminum building wire market is in the end of importers, which will be more penalized because the tariff will be applied to the entire value of the cable and not to apportion on it like the aluminium brought.
So this will make us gain some marginal improvement due to the differential costs between our internal production and the cost of aluminum and the cost of aluminum product imported from abroad.
Miguel Borrega, Analyst, BNP Paribas: Okay, okay thanks. Then the second question is, considering your free cash flow guidance range, let’s take the midpoint, Can you help us also do we reconcile a little bit what this would mean for the, let’s say, an adjusted EBITDA target for this year starting from the around two point zero you got this year? Thanks.
Francesco, CFO: Yeah. Matt, 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 that bear with me for a second please
Miguel Borrega, Analyst, BNP Paribas: yes thanks
Francesco, CFO: I think a realistic level of debt is in between $3,700,000,000 and $3,800,000,000 I would say consistently with the 100,000,000 range of the guidance.
Daniela Costa, Analyst, Goldman Sachs: Okay.
Miguel Borrega, Analyst, BNP Paribas: I would
Francesco, CFO: say 3.7, 3 point 8.
Miguel Borrega, Analyst, BNP Paribas: Okay. Thanks. And the last question is
Francesco, CFO: The latter you can calculate it by yourself. Yes, yes.
Miguel Borrega, Analyst, BNP Paribas: I can try. Yeah. Thanks. And if you can also help me a little bit also on the tax rate considering the one off we saw this year and lastly on financial charges for 2025. Thanks.
Francesco, CFO: 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 3 and a half points. For the give me a second also for the financial charges,
Monica Bosio, Analyst, Intesa San Paolo: you
Francesco, CFO: 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 $260,000,000 for next year between $2.50 and $2.70. So take an average of $2.60. So an increase which is not huge, by the way, compared to 2024, we are already at $2.25. Cash wise is a bit different if, just to complement because the increase in interest expenses paid in 2025 versus 2024 is more than these 40,000,000 on the P and L.
Lucas Verhani, Analyst, Jefferies: The
Francesco, CFO: 40,000,000 is from 2025 to 2026, so say 35,000,000. I would say it’s more or less double, So say 80,000,000. The reason is that is the difference between of course the cash interest and the accrued interest which plays which played a significant role in the acquisition financing.
Miguel Borrega, Analyst, BNP Paribas: Okay. Okay. Thanks Ingots.
Massimo Bartaini, CEO: Glad. Welcome. Thank
Moderator: you. We will now go to our next question. Please stand by. And the next question comes from the line of Shing Wang from Barclays (LON:BARC). Please go ahead.
Your line is now open.
Francesco, CFO1: Hi. Thank you for taking my questions. My first one is on the 12% to 13% margin. You commented, So I think we understand the supply demand dynamics you were explaining. But I’m just wondering, is this 12% to 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.
Massimo Bartaini, CEO: Thank you, Xin. No, yes, we had constant conversation with customer about the market expectation volume wise in 2025 and 2026. You know, there are those frame agreements are rotated, there are frame agreements that are due to expire in quarter two and due to expire in two years, so they are normally over three, four, five years duration and time by time we have some of them that needs to, some go out for extension because they are happy with the service, they’re happy with the current supplier and some, then go out for the guard for for re tendering. So the view is more about the twelve-thirty percent view is brought in line with the fact that there is additional capacity in the market. It is difficult now to gauge whether what the imbalance will be in 2025 between this additional capacity and incremental demand.
So should additional capacity maintain the type of imbalance that we had in 2023 and 2024, of course, we will not see this stabilization at 12 or probably at 13%, but shouldn’t the country have a different situation between capacity and demand, we might see some pressing pressure, not in as much as in utility space as I said before, but in the power grid, so distributor space and renewable onshore business which is, I said, a spot business that goes on a project by project basis.
Francesco, CFO1: 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 I understood regarding the aluminum imports.
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, the parts we normally see cablemakers can make outsized gains. Could this be the case in 2025, if tariff materializes exacerbating this copper price premium?
Massimo Bartaini, CEO: I think, you’re correct. Normally when those prices go up, premium and transformation prices, you get some upside the market provided they didn’t go up too fast, in that case it takes a while to catch up with a new price. I think that the tendency is that the aluminum and the copper price will go up in ’25 and assuming a moderate and stable growth, we will be able to leverage this growth to make increase in 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% to 5% and they also spend positive words about the possible mild recovery of the residential market, which also will contribute towards the overall growth of the electrification business in United States in 2025.
Francesco, CFO1: 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 opportunity for shareholder distribution?
Can we expect another buyback as the current program is being finished?
Francesco, CFO: 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, the share buyback is ongoing as we speak. It is the one that we had announced in June for a total of $375,000,000.
In 2024 we completed approximately $3.25 if I remember so the 50,000,000 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 of your question is in the end boils down to capital allocation priorities and we’ll come back to you in the Capital Market Day New York. This will be a specific chapter of that presentation.
Francesco, CFO1: Great, thanks very much.
Massimo Bartaini, CEO: Welcome. Thank you.
Moderator: Thank you. We will now go to our next question. Please stand by. And the next question comes from the line of Chris Leonard from UBS. Please go ahead.
Your line is now open.
Francesco, CFO2: Hi there. Just two very quick questions from me. Thanks for taking the time. I think you commented previously at the end of twenty twenty four, you’d make a decision on that medium voltage expansion in The U. S, whether or not 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.
Massimo Bartaini, CEO: Thank you, Chris. Medium voltage expansion in U. S, we are assessing it as you speak, we are close to making a decision. There will be certainly some medium voltage expansion in U. S, probably more twisted towards the industrial construction space, industrial construction buildings rather than utilities, but of course it will be also fungible for the utility space.
We will, the discussion we’re having is about the size of the expansion, not the rationale behind an expansion per se. US listing is also a running assessment, running the size. We are finalizing those consideration, the pros and cons and soon we will have a view that TOCOS 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.
Francesco, CFO2: Great. Thanks very much.
Massimo Bartaini, CEO: Thank you, Chris.
Moderator: Thank you. As there are no further questions, I would now like to hand back to Massimo Bartaini for any closing remarks.
Massimo Bartaini, CEO: So thank you all and thank you for attending this moment. I invite you and I hope you will come to attend the World Economic Development 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.
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