Prysmian SpA

MIL:PRY

Earnings Call Transcript 2022-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Prysmian Group's First Quarter 2022 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Valerio Battista, Company CEO. Please go ahead, sir.

[Valerio Battista, executive]

Thank you very much, and good afternoon to everyone. Valerio Battista speaking, we are here to comment the first quarter 2022 results of the Prysmian Group.

First of all, the results. The first quarter went very well in terms of organic growth, in terms of numbers, everything went well. Excellent start of the year with results of further confirming the relevance of a well-balanced business portfolio and geographical footprint. We have seen an outstanding performance of the Energy segment, having a very significant boost from it. We have seen, at the same time, the performance of Telecom going very well, especially in North America. And the Telecom went really very well.

Finally, on Projects, we are going to comment later about the performance of Projects, but to be noted that we accumulated other EUR 1.5 billion orders, namely the Neuconnect and the Project Lightning in Middle East. Overall, 11.4% organic growth, EUR 288 million EBITDA and over EUR 1.4 billion of new orders in Projects.

Let's flip the page and go to the financial highlights. Sales closed at the first quarter at roughly EUR 3.7 billion with an organic growth, as I already mentioned, of 11.4%. By segment, 14.7% in E&I with sound trend across all the regions, 7.9% Industrial & Network Components with an excellent performance in OEM & Renewables. Finally, 7.4% in Telecom. The Projects posted a 13.6% total organic growth. From the EBITDA point of view, EUR 288 million with an EBITDA margin globally of 7.8%. With margin improvement, we have been able to accumulate EUR 75 million increased adjusted EBITDA versus the first quarter 2021 because in 2021, we closed the first quarter at EUR 213 million, this year at EUR 288 million.

The adjusted EBITDA margins at 8.7% in first quarter '21 with the '21 metal price and 7.6% in first quarter '21 at current metal price. We -- to be honest, we have seen also a positive ForEx impact of EUR 15 million roughly. Free cash flow, that's the reverse side of the [ medal ]. Free cash flow has been not totally outstanding with EUR 86 million free cash flow LTM and the net debt closed at EUR 2.380 million (sic) [ EUR 2,380 million ]. Why is that? Simply because with the raw material increase, the impact in the inventory has been pretty significant. Moreover, we have been carefully accumulating some additional stock in order to protect our customers from all the disruption -- potential disruption of the supply chain.

The operative net working capital has been pretty high, even if on annualized sales still at 8.8% versus the 8% of 1 year ago. So as a percentage, didn't grow very much. But in euro terms, that is what counts. Unfortunately, [indiscernible] of additional working capital. That is foreseen to be dismantled during the next quarters.

Let's flip another page to Page 5. And let's have a look of how this business has been moving region by region. You can see the organic growth by geography. 10% in North America, not so bad. North America represented 35% of the total group. 14% in EMEA. You remember that EMEA was the one being late in the recovery. Now EMEA has accelerated, whereas North America continued to be very sound. 5.3% in Latin America and 8.6% in Asia Pac. By business, 14.7% in E&I; Industrial & Network Components, 7.9%; and 7.4% for Telecom. The organic growth of the Projects, we will touch later, has been extremely good, but as I've always said, the organic growth of Projects has not to be measured quarter-by-quarter because it doesn't make any sense.

Overall, organic growth of the group has been 11.4%.

Let me move, flip the page to Page 6. How we reached the outstanding result of EUR 288 million EBITDA from the EUR 213 million of the same quarter 1 year ago. ForEx limited increase, we have suffered a lot of cost increase for raw material, distribution, transport, everything. But we have been able to move it to the customers with the price and mix of the energy to the customers that have been increased more than the costs we suffered. That is a traditional, let me say, trend. Higher is the cost, higher is the price. These are raw material-driven business.

Moreover, the Telecom price and mix has improved, and the EBITDA of Projects has improved, not sufficiently or not as much could have been expected, but still EUR 3 million more than the previous year quarter. Finally, some negative efficiencies and fixed costs more so because of the inflation. Overall, an outstanding result. That's my judgment. The supply chain has been really running well. And that's thanks to the stock of raw materials we have decided at the end of the year to build in order to protect our customer service. And the customers are recognizing it to us.

Geographical and business mix together with proactive management supporting results. The decision we took in 2018 to definitely increase our participation to the U.S. market of taking [indiscernible] General Cable is now really paying off. And we are very proud of it. We are very happy. Very happy to be in U.S., very happy to participate to the development of U.S. economy. And let me say, even well rewarded by the market.

Let's flip to Page 7, Projects. Let's go to Projects. Projects organic growth has been very good. We even got other EUR 1.4 billion in the first quarter of 2022, mainly the Neuconnect interconnection between Germany and U.K. And the second one, the Project Lightning in the Middle East to power some offshore platforms for EUR 220 million. Do not forget that in our backlog, are not included yet EUR 5 billion projects awarded, but not yet accumulated backlog because [indiscernible] to proceed.

We introduced the backlog only the projects with a Notice to Proceed. That are operative. Let's have a look at the backlog in the center of the page. The firm orders in the backlog are EUR 4.2 billion. As I said before, there are other EUR 5 billion projects that have been awarded but are not in the backlog. A significant chunk of the EUR 4.2 billion are underground high-voltage projects, whereas the rest is submarine. We have also an update for German corridors that maybe we are going to touch later on because we are producing, we are shipping and there are already, if I'm not wrong, 120 kilometers of cables ready to be installed in the German territory but waiting before the decision by the customer to start the installation.

The market. The market is growing. It was expected to grow. It's growing fast because from the EUR 3 billion of the last 4, 5 years, is really going to the EUR 8 billion of today. Even yesterday, last year, the market was roughly EUR 8 billion. And it's not excluded, I don't want to promise anything as I have not under control that this market is going to grow further on, even to over EUR 10 billion. In that environment, we had the commitment to maintain our market share, which is a simplified 35%. To do that, obviously, we have to be good or perfect in decision. We have to have the assets; we have to have the capacity available. And this is the capacity that is coming on stream in the next quarters.

Thank you. Let's move to Page 8. The performance by segments, Projects. Projects moved from EUR 314 million to EUR 406 million, outstanding, plus 31% of organic growth. Now we have been suffering a lot for the organic growth of the Projects. Now we have the volume growth, but we don't have yet [ the margin ]. One step at the time, the margin went up from EUR 29 million to EUR 32 million, obviously, with such high turnover we suffered in terms of EBITDA margin. That went down from 9.3% to 7.8%. We recognize our defect, while that installation activities, but even more than installation activities. There are 3 factors: the raw material cost increase that we have not been passed yet to the customers. And we have not EUR 1 accrued for the price revision with the customers. Why? Because we do not have a written agreement [indiscernible].

Consequently, our job today is to start negotiations with our customers to get the recognition of the inflation we have been suffering in the first quarter. But the result of it, we see year-end or better, time by time, the Projects are going to be completed. Second chapter, we had a one-off because we are not perfect. In the Telco-submarine, we had a one-off on [indiscernible]. We made the -- sorry, the high-voltage line, but we need also a telecom cable that we have been obliged to remake. And that has been EUR 3 million extra costs that we suffered in the first quarter of this year.

Finally, the seasonality is not the first year, will not probably be the last one into which the first quarter margin of the Projects is a little bit below the average. That's something that every year happens. And this year has happened too.

Let's move now to Energy. The Energy, especially the E&I has given us outstanding value. We closed the sales with EUR 2.8 billion compared to the EUR 2.1 billion of the same first quarter last year, with an organic growth of 12.1%. In particular, E&I moved up by EUR 500 million from EUR 1.4 billion to EUR 1.94 billion, with an organic growth of 14.7%. The EBITDA margin of the segment has reached 6.8%, a very high value. That is almost comparable with the level of EBITDA margin we have seen in 2007, 2008, something in brackets, pretty significant, but not usual.

Nevertheless, I'm every day almost asking to the team in North America, how long it will stay. For the time being, we see orders coming, price is stable, the demand is strong, [indiscernible] what I have to tell you. Let's enjoy.

Second chapter, Industrial & Network Components, from EUR 648 million to EUR 802 million, with an organic growth of 7.9%, very good. Very good because the numbers here are little than the E&I, but the business is more solid, more steady. [indiscernible], I hope that this is the effect of the rebound of the economy that is going to stay for a certain number of quarters. These are driven by OEM & Renewables, mainly renewables that is growing quite significantly.

Last but not least, the Telecom. The Telecom moved from EUR 382 million to EUR 432 million, with an organic growth of 7.4%. The growth has been solid. The margin improvement in Optical, in particular, has been in North America. The margin moved from EUR 58 million to EUR 67 million with EBITDA margin improvement from 15.2% to 15.6%. So sound -- very sound trend for the Telecom business, especially in North America. So overall, 13.6% organic growth, sales from EUR 2.8 billion to EUR 3.7 billion and the result that went up from EUR 213 million to EUR 288 million.

Let me say more than appreciable. Let's have a look at the trend by geography. As I said before, finally, EMEA has started to rise. You see the sales, EUR 1.1 billion, EUR 1.2 billion in the first quarter of '21, EUR 1.56 billion this year with an organic growth of 14.1%. Telecom and construction market with E&I are the 2 drivers of this growth. The strong growth in OEM & Renewables in the Industrial segment is a good sign, in my opinion because after the very quick boom of the construction market, the economy has to be returned -- has to be [ read ], sorry, also on the industrial part of the business, and is what is happening. North America. North America is under a boom, boom of construction, of infrastructure, of everything. The sales went up from EUR 868 million to [ EUR 1.151 billion ] with an organic growth of 10%. The result that is what counts in our opinion, went up from EUR 87 million, not doubling but almost, to EUR 142 million. With a strong result on all the segments and maximum performance in T&I and Telecom, helped move over by EUR 11 million of ForEx impact.

Latin America. Latin America, we're talking about numbers that are definitely lower than the 2 big regions, EMEA and North America, we're talking about EUR 226 million, and versus the EUR 290 million we reached this year with an organic growth of 5.3% and a result that went up from EUR 21 million to EUR 24 million. Last but not least, Asia Pac, where our presence is limited. Increased the sales to EUR 265 million, coming from EUR 210 million with an organic growth of 8.6% and EBITDA went up from 18 to 19. We suffered and we are still suffering, frankly speaking, from the impact of the lockdown in China, even if for us, China is important, but it's not so significant in terms of numbers compared to the total group.

Flipping to Page 10, the Value4All Plan. The Board has decided to promote and propose to the AGM, the participation of 25,000 workers to the Value4All Plan. What does it mean? That we have the long-term incentive for the management that is represented by 700 people. The MBO, management by objectives that has seen a participation of 3,200 white collars. But we decided to share or to [ offer ] of the possibility to share the results of the company, also with the workers because then, who make the hard job every day and night, other workers.

And that's what we did. That's been over accepted, let me say, by the shareholders in the AGM. We are very happy, and we are starting to offer to the workers that opportunity.

Let's move to the outlook. Okay. First quarter EUR 288 million. Now what's going to be this year? EUR 288 million [indiscernible] makes a very big number. We are not yet ready to revise the guidance, [ even if ] I understand that you expect sooner or later to be revised. We would like to see the second quarter [indiscernible] before to do it. Most probably, we will do, but be patient, don't be too much in the hurry. But I am quite confident that we are going to revise the guidance. But before to tell you, it's useless to give you an updated guidance 3 months after having given you the guidance.

It's even not serious. Let me see -- let us see what's the trend of the market. If the trend of the market appears to be in line with the first quarter, if that is going to be confirmed in the second quarter at the July meeting, you will see an upgraded guidance. How much? You will know at the time.

Finally, the free cash flow that has not been brilliant, I have been pretty nervous because of it. But we are still confident that we are going to be maybe in the lower part of the range, but we are going to be able to match the original guidance. Thank you very much. I'll leave the floor to Francesco Facchini.

[Pier Facchini, executive]

Thank you, Valerio, and good evening to everybody. As usual, I start from capping our profit and loss statement. As Valerio said, record sales, record results for the Q1, the strongest ever, EUR 3.7 billion, close to EUR 3.7 billion sales, with an organic growth of 13.6%, including also Projects, very positive in all businesses. As Valerio said, more than 30% organic growth in Projects, around 15% in E&I, 8% approximately in Industrial, 7% in Telecom. That's a very nice set of organic growth across all the segments.

And of course, the EUR 3.7 billion sales are also boosted by a pretty giant metal price effect and also other raw material price effect, and on top even currency effect. Adjusted EBITDA, as I said, the strongest Q1 ever at EUR 288 million, boosted in particular by a very strong performance of the Energy business, mainly E&I, but also, as Valerio already stressed, very, very satisfactory in the Industrial business. Telecom delivered very good results, definitely above the level that we expected for the first quarter and Valerio already commented, the improvement of Projects as well, EUR 3 million above last year with a slightly lower margin.

Let me draw everybody's attention on this that we are talking in any case of Q1 for the Projects business that in terms of EBITDA represents approximately 13%, 1-3 of the expected results for the full year. So this doesn't mean that it is insignificant, but of course, it means that we certainly don't make, and this is true for every single year, we don't make the full year results in the Projects business in the first quarter. This is very clear.

As Valerio also anticipated, the total margin at 7.8% is extremely good, if we consider the dilution on the EBITDA margin coming from the metal price increase. And the restatement of that with last year metal price returns margin of 8.7%, which is more than 1% growth from the prior year, which is huge on EUR 3.7 billion sales. And we enjoyed also a pretty positive ForEx effect of EUR 15 million, which is, however, certainly not the largest part of this improvement. Very negligible adjustments, negative for EUR 3 million, not even worth to be mentioned.

And what I'd like to comment is also the strongest Q1 ever in terms of net income with EUR 126 million, almost doubling compared to the previous year.

Let me go quickly to the balance sheet. Of course, our balance sheet under the pressure of increasing metal price and raw material was a bit inflated very evidently. With an increase of the total operating working capital in the region of EUR 287 million, EUR 290 million. As Valerio said, at the percentage, that's an increase, but it's not a huge increase because as a percentage on annualized sales, it went from 8% in March last year to 8.8%. And the main reason for this increase is definitely the raw material price increase, which had a total effect, including metal and nonmetal, not far from the EUR 400 million March last year to March this year. And the inventory build or the safety inventory cushion that we built in order to secure our procurement flow and our supply chain for -- from any potential disruption. That by the way, fortunately, we didn't see that part so far.

And that's why we are also confident that we'll be able to recover these few days of extra stock that we built in the remainder of the year. Last but not least, we managed to keep to contain the increase of working capital, thanks to very good receivable and payable management. We gained approximately 4 days, summing up the decrease in receivables DSO and the slight increase in payable DPO, we gained overall 4 days, which is close to EUR 100 million. So it's -- it's real money.

All this, of course, is reflecting in a level of debt that we didn't like for March 2022, slightly above the level of last year, but I'm still very confident that we will recover by year-end.

And having said this, I come to my last slide, which is last 12 months cash flow, EUR 86 million, certainly not brilliant, because of the EUR 345 million increase in working capital over the last 12 months that I have already commented. The level of debt slightly increasing compared to March 2021. I think we are still in a position to land within the guidance. Of course, it will not be easy, or it will be difficult, let me say, to land in the high part of the guidance as for free cash flow, that's quite obvious, because this EUR 345 million working capital increase and in particular, the raw material impact will not go 100% away from now to year-end, but will be partially resolved. We have to do a good job in normalizing the level of inventory. We have to keep very good receivable management.

But I think that the, let me say, middle part, the medium or maybe slightly below the current visibility of the midpoint is still very feasible and under such a pressure of raw material price increase, I think it's even better than delivering at the top of the guidance in a normal environment, frankly speaking, in terms of witnessing our cash generation capacity.

In a way, we already gave the instructions to the companies that they have to restore the level of working capital by [ the summer ], possibly at the proper level. Because the risk is that if the inflationary mode will turn, the cost of raw materials may drop, and our inventory has to be deflated now. There is only one assumption that I like to spell out in order to land within the free cash flow guidance, and it's quite obvious, that the metal and other nonmetal raw material price increases don't keep growing very significantly because this, of course, will make it impossible, let me say. But...

[Valerio Battista, executive]

That seems not to be the case.

[Pier Facchini, executive]

It seems not to be the case. Very good. I think we can go to the Q&A session.

[Operator]

[Operator Instructions] Your first question today comes from the line of Monica Bosio from Intesa Sanpaolo.

[Monica Bosio, analyst]

The first one is on the E&I segment and in particular, the T&I segment. What kind of growth are you incorporating in your assumptions in your target for the second part of the year for the E&I? I'm asking this because maybe the market is expecting some slowdown due to the macro scenario. I know that you are going to offset -- more than offset with Projects, but just a question on the expected growth on E&I in the second part of the year at the organic level.

The second one is on the margin. You didn't disclose any financial detail on the contract with Telstra. But as it is in Australia, my bet is that the contract can carry higher margins than the average one you usually have in the Telecom business.

The third question is on the lawsuit in U.K. I was wondering if you have already accounted for some provision on this and if you can give us some flavor.

And the very last is on Telecom. If I adjust Telecom for why you see contribution, the underlying margins of Telecom seem to me decreasing. Margins in America are rising. So I was wondering if you can share with us what are the margins in North America? And what are the margins in Europe that are expected to be down? Just a check.

And the last one, if I may, for Francesco, it's an housekeeping. Can you please give us the final full year impact from ForEx at the top line and the EBITDA level?

[Valerio Battista, executive]

Okay, Monica, thank you very much for your list of questions. E&I or T&I that organic growth forecast. What we include in our assumptions for the full year guidance. Of course, we are including in our guidance what we have in. We are not including a progression or a stability of the market trend in the second half. We have already the orders with prices booked by the customers for the second quarter Consequently, we see the second quarter or the first half overall, pretty good and solid. The lesson learned is that never say never, meaning that if the market turned down dramatically, customers are used to cancel the order and took place orders at a lower price to someone else.

So never say never. Anyway, we are very careful on it. The assumptions we have is that the market for the first half will be reasonably buoyant. The second half, my perception is that we have to be more careful because the cost of money is increasing, because the economy is suffering -- the real economy is suffering, the effect of the war in Ukraine. And consequently, we have to be a little bit more prudent. So overall, first half, good. Second half, more [ cautious ].

Second question, Telstra margins, you are right, since that you can be part of this meeting, the management team of Prysmian because you know the market perfectly. The Telstra margins are very good. We are very happy to be the #1 -- sorry, the #1 supplier of Telstra. We had some meetings, me personally to -- with the CEO of Telstra and they are absolutely focused on executing this project, of course, with our support. Then to be honest, the fiber will be partly provided by Corning, meaning that our 12,000 kilometers of cables, I'm very transparent, our 12,000 kilometers of cables, 144 fibers each one, if I'm not wrong. The cables will be produced by us. One of the 2 cables would be produced with our BendBrightXS fibers, the other cable will be produced with Corning [indiscernible] fiber that will be produced by us. Nothing [indiscernible] very, very transparent.

Then the U.K. lawsuit that has been a very new of yesterday or 2 days ago. The application has not yet been notified to us. We don't know its content and cannot therefore speculate on the content. What we can say is that promoting the class action is a complex process. First of all, there has to be a permission to start the class action, to be granted by a court that is not a formality -- simply a formality. It's a quite complex process. Secondly, the class action will need to prove that there has been an overcharge and the European community decision do not mention any kind of overcharge. But mentioned that the cable makers have been agreeing on something that they shouldn't.

Third, the class action will need to prove that such a [indiscernible] overcharge have been passed to the -- their customers, have been passed to our customers, to the customer of cable makers, and from the customer of cable makers, namely the utilities to the end customers. That is not easy, but never say never. We have no approvals for the time being because we have no idea of what to approve. Most probably in the quarters to come, we will size, if any, the potential risk of this class action and we [indiscernible] put something in our balance sheet.

Then Telecom, which was the question on Telecom? The margin adjustment of -- because of what you see. Philippe, do you want to give an answer?

[Philippe Vanhille, executive]

Yes. So I can answer. Hello -- we -- the first thing we have to say about Telecom is we have a capacity that is quite busy. And as you know, we have also reinitiated to grow our capacity approximately 1 year ago with a few projects of increasing capacity. So the more our new capacity comes into play, and it will be progressive in the coming quarters, the more we have room also to improve our margin because we do not so much increase the fixed cost in that. That's one element. So capacity matters.

Second thing is inside the capacity that we have, we try to grow selectively in order to offset the raw material cost and energy cost increase that we see from our suppliers, and this is progressive because we are a [ serious ] company. When we have a contract with someone, we manage the contract. And we discuss about increasing the prices as a consequence of our cost increase. So all that takes some time. It depends on the market. It depends on the customers. We do not let down our customers. And I have to say that we see a higher -- a faster reaction in North America and Europe from that perspective.

So as you rightly say, the prices are better in North America than in Europe. Still, it's true that Europe is changing and is improving with time. So I'm -- I would not say that Europe is a problem, but there is more pressure on the margin in Europe than in North America. This is true. And we dedicate a larger part of our capacity to North America than in the past also for that reason.

[Valerio Battista, executive]

Anyway, when our customers, especially in Europe, refuse totally to debate about the cost increase of raw materials, the approach we have is pretty strong. We have stopped completely the shipments to Telecom Italia. Just to mention.

The ForEx effect on the full year for the EBITDA. Francesco, [ I leave the ] floor to you.

[Pier Facchini, executive]

Ciao, Monica. The just rough estimate. On the EBITDA this year, of course, provided that the current level of ForEx will stay in place for the remaining part of the year, will be between EUR 40 million and EUR 45 million positive, slightly decreasing in the second part of the year because last year, there was already a strengthening of the U.S. dollar towards the last part of 2021. On sales, I would approximate that around EUR 300 million, the ForEx effect. Of course, much larger is the full year effect of the metal price, which is quantifiable in EUR 1.4 billion, which is the equivalent of EUR 400 million in the first quarter. For the full year, we forecast the total metal price effect of EUR 1.4 million.

This, of course, the 2 combined effects will -- plus the organic growth, which is very substantial, will drive our sales substantially up, most likely not very far from the EUR [ 15 billion ].

[Operator]

Your next question comes from the line of Max Yates from Credit Suisse.

[Max Yates, analyst]

So just on the first question, just on Projects' margins. Could you walk us through exactly sort of which costs are inflating here? Because my understanding was on the raw materials that you agree the amount of sort of raw materials that will be needed and you price that into the contract. So I was just trying to understand better kind of which the raw materials or what was really affecting the margins from a cost standpoint? And how, from our side, should we get confidence that when you have these negotiations with customers to try and sort of increase the prices, how should we get confidence? Or are there -- is there anything you can point us towards to give us confidence that customers will actually accept those, if there's no legal obligation?

[Valerio Battista, executive]

Okay, Max, thank you for the question. I try to give first answer. Then I leave the floor to Hakan that is here around our table for more details. What's happened, that the Projects have a quite long life. From the time we get the order, we subscribe the contract with the customer. Till the time of execution, there are months, sometimes years of waiting time. Usually, the raw materials do not grow quickly as it has been in the last quarters. We are in front of a very extraordinary event. And whereas the metals are adjusted, hedged. The other raw materials that are not negligible in, not totally negligible, in the Projects, just in case, the [ fuel ] for the ship can generate swing of some millions. And we have no adjustment clause with the customer.

You are right. [indiscernible], we have not the legal right to get it, but it's a matter of negotiation. Now I leave the floor to Hakan because he can give you more color on how we are going to negotiate.

[Hakan Ozmen, executive]

Thank you, Valerio. Let me start with the raw materials overall. The raw material, as you know, has increased significantly. This is bringing down the EBITDA margin per percentage-wise because if you have higher cost, you have higher sales and percentage-wise, it drops even if you keep the same absolute margin that you expected from the project. So this is one element that drops the percentage margin.

The second question is about the confidence on the value that we would be able to generate due to the negotiations. I mean, Valerio explained it very well, that there are these increases on multiyear projects, but these increases are not happening immediately. These increases happen along the way during the project execution. And you cannot claim any value from the customer that has not been hit into your account. On the other hand, we do cost of completion methods. We are evaluating the full project based on some scenarios of raw materials that is definitely having an effect when you start a project, in calculating your calculated margin.

But in reality, when you execute these projects, you have the possibility after the execution to have discussions with the realized cost to talk to the customer. Because you cannot talk to the customer currently for the full project saying that, look, the raw material prices have increased and we would like to negotiate. This doesn't work, because we don't know what is going to happen in the coming years. So once we finish a quarter or once we finish a realized completion, then we have the opportunity to have discussions with our customers.

I mean you're absolutely right that we don't have legal rights, but you know also in the market that there is significant increase. It's an extraordinary situation. So I think, for the sake of the completion of the project and for the quality of the work that we are giving to our customers, it's in both benefits to realize good value generation for them and for us. So I think, if you ask my confidence level, I feel pretty confident. But if you are going to ask me if I would be able to recover the full amount, this would be a little bit too much ask for the customers.

So we will definitely, as time goes by, after we complete some portion of the project, we will be having discussions with our customers to recover and just bear in mind that also the percentage that is coming out, I think, is not the most important parameter in our, let me say, Project business. It's more the absolute margins that we are driving. And I would focus on the absolute. And the absolute actually was in line with our expectations for the quarter, but Valerio also explained very well that we had 1 hiccup on the telecom side, which also created some distortions for a quarter. As Francesco was saying, it's a very small and insignificant quarter for us to evaluate for the full year.

[Valerio Battista, executive]

Can you, sorry -- maybe you can give the example of stainless steel?

[Hakan Ozmen, executive]

Yes. For example, we have in some projects we are using stainless steel in the armor. I mean if we are going to think about, as you know, the nickel price is in extreme levels. But on the other hand, the nickel price also has come down by 15% in the last 2 weeks. So it is very volatile. And what we are definitely discussing with our customers is, in case we have significant swings. And in this case, we are -- after the execution of the project, we are discussing and realizing the value generation for both parties as I explained.

So therefore, if you would, update all our costs based on today's value, expecting that also the future is going to be like this, then we would definitely create a big assumption and a big swing that would be reflected in this year's numbers, but also in the coming years numbers. So therefore, we are -- we are more applying the right method, the cost of completion method. But with prudency that we will -- 1 day we will recover it, but we are not reflecting it into our actual. This is the method that we apply.

[Max Yates, analyst]

Understood. No, that's helpful. Just 1 very sort of quick follow-up just on Projects revenues. Obviously, you've had a very strong start to the year, sort of slightly more than EUR 400 million. You were quite keen to sort of help us maybe not get too carried away. But I mean, on the revenue side, do you think that, that's -- I mean do you think kind of you can be -- because obviously, you have a very large backlog. So I guess I'm trying to understand the revenue phasing of that backlog for this year and next. So I guess sort of particularly into next year, when you think about your phasing of projects, when you think about the capacity that you're bringing on, is it reasonable for us to think that maybe you're kind of EUR 1.8 billion of revenues for Projects and then you go to sort of EUR 2.2 billion, EUR 2.3 billion.

I know you've got this ambition to get to kind of around EUR 3 billion in the next 5 years. I'm just trying to understand a little bit about phasing as we go into 2022 and '23.

[Hakan Ozmen, executive]

If I may say, the first quarter in terms of revenues is reflecting, let me say, a good example for the full year. So we are going to see an increase for this year. Definitely, it's not going to be like last year. We are going to see an organic growth. And again, our business is very much second half loaded. Second half is the most important half for Projects. The first quarter is always under pressure, if you look also in the past year. Second quarter is going to be where we are going to build our installation and operations and production. Third and fourth quarters is the area where we are completing a majority of our operations for multiyear projects.

And for this year, we have multiyear projects only for, let me say, a shorter period of time. We have not started the mega projects, yet. There are a few that we are definitely starting with the engineering, but the big projects are coming from the next year's perspective. But I can prudently tell you that we are going to grow the sales value in the coming years. Also, if you look through our backlog and you will see also that some capacities are coming along in the coming years. So your assumptions are not far away, I can say.

[Operator]

Your next question comes from the line of Daniela Costa from Goldman Sachs.

[Daniela Costa, analyst]

I have a couple of questions as well. I wanted just to check and clarify on the Projects again on sort of on the margin decrease. You've talked about the various elements, but I was wondering if you could help us understand the magnitude of what's more relevant. So there's this issue with the pass-through. There's also the phasing issue and the Telecom issues. Can you break down sort of what's the most relevant?

And then also on the phasing issue on underground, can you talk us through which project is this? How significant? Just give us a bit more color, I guess, what is it technically? That is just timing? Or is there anything in terms of the technology? So that's sort of the first question.

And then the second question I wanted to ask was regarding -- I mean, on the wind offshore side in terms of outlook, obviously, we've all seen very big gigawatt increases by many market participants in terms of what's the outlook. But we have also seen the turbine companies facing like delays. And what's the risk that if we have an outlook in the wind offshore side that is delayed, that cables will also be delayed? And which type of delays would make overcapacity for any of the market participants a worry? I was wondering, yes, on those 2 things, mainly.

[Valerio Battista, executive]

Okay. Daniela, thank you very much. I leave the floor for the answer to Hakan, that is more on the ball.

[Hakan Ozmen, executive]

Thank you, Valerio, and thank you, Daniela. Daniela, the actually, between the lines, Valerio explained already the delta variation that we have seen in the first quarter. He was mentioning about EUR 3 million in Telecom. I mean, you can count that as given, the EUR 3 million is an additional margin that we did not have for a one-off mistake or installation mistake that we have done. I have to say that Telecom is a very particular business that we have in [ here ] that's called General Cable, and we started last year to install also telecommunication cables as a turnkey. So I don't see this as a big hiccup, but I see that sometimes you see these operational problems that you may see.

We don't see that on the Energy side, which we are pretty, let me say, stable. So the EUR 3 million you can add and you can count that as a percentage wise to reach closer to the last year's percentage. And then, of course, there is also the raw material and copper increase, which is also having an effect at least from 0.03, 0.04 percentage margin, on the overall margin erosion. It's not actually a margin erosion. I will just underline that. It is a margin percentage erosion, not absolute margin erosion. So partly Telecom, let me say, mistake we have, we have maybe very little maybe EUR 1 million or EUR 2 million delta that comes due to the cost increase that Valerio was mentioning that we will be recovering from the future, hopefully, from the future.

But keep in mind that we are doing percentage of completion, this EUR 1 million, EUR 2 million cost increase is only effective on the percentage of completion from the -- a bigger amount on the full project. So therefore, let's not confuse that the price increase on materials is only EUR 1 million, EUR 2 million. It is not. It is much higher. But the effect in a one quarter and in a lifetime of a project inside one quarter, it has an effect of a few million.

So therefore, I don't see a significant, let me say, margin erosion. Of course, there is also no margin increase. But again, this is the first quarter. We will, hopefully -- and also we are planning to recover.

On the operational other delays that you were mentioning, how the outlook looks. Yes, we are seeing that certain turbine manufacturers are under pressure. Under pressure, not only from the capacity perspective, but also on the raw material increases, they are under pressure. If you look at their margins, they are significantly eroding margins, because the unexpected growth of these costs will not be able to pass through to the market immediately. On the other hand, the budgets of the utilities and the TSOs is also having a big impact.

I give you very simple example. The price that we were quoting for a project was maybe in the level of 100 last year. It has increased by 30% this year due to the raw material only. And if you look to this as a budget for a big project that they have to execute, this is putting a lot of pressure also on the TSOs to execute projects. We are going to see some delays. We are, let me say, in a relatively better position, because we are more -- in the long-term backlog, we have more interconnect business, which are not depending on the turbine businesses. This is a good balance of portfolio.

But on the other hand, we are hearing that some of our customers would like to delay and we are discussing these delays. So far, I can say that we have not received any significant requests, but there are here and there are some requests that we are managing with our customers. I think the interconnect business is relatively more solid in timing, and this is giving us a better portfolio management overall.

[Daniela Costa, analyst]

Very clear. On the -- if I may have 1 follow-up sort of on the interconnect. What are the next big tenders? Is there anything sizable this year or next?

[Hakan Ozmen, executive]

Yes. There are some projects. We have discussed about EuroAsia for a long time, and this project is still live. And this is going to happen according to our discussions from the customer within this year. But again, this is -- the grants have been given and also the European Commission has announced the budget allocated for that project. I think it's in the hand of the customer to decide on the technology and also on the overall profitability of this project.

So I think a project like EuroAsia is in due course. And then there are significantly big projects that are out in the market. You must have heard about the Singapore-Australia connection, which is a huge project that is out. We are -- and this is also another interconnect that may come within this year, maybe. Because these projects -- mega projects are difficult to predict. On the other hand, there are also similar, but smaller projects, that we are chasing. I will just give you 1 example in North America, that is the Lake Erie project, which is another interconnect, potentially, it may be coming out for this year's decision. We will see how the authorities are going to decide on that.

Even we hear from the market and we have seen also announcements that the authorities have given a green light to proceed for that project. And then there are going to be minor other interconnects that we will hear. But no, I think the biggest are the ones that I have mentioned.

[Operator]

Your next question comes from the line of Akash Gupta from JPMorgan.

[Akash Gupta, analyst]

I have 3 as well, and I will go 1 at a time. The first 1 I have is on Projects. I think you have explained very well on weakness in Q1. My question is that what sort of margins shall we expect for the rest of the year? And for the full year -- I mean, last year, you did 13.2%. Then if we have to look into constant metal price, how much lower margins for this year could go compared to last full year? So that's question number one.

[Valerio Battista, executive]

Okay, Akash. Thank you very much. Valerio speaking. It's clear that the reason for the low margins in Projects has been already explained. What's the expectation for the full year margins? For sure, not to keep the margins at the current level. Our order provides us a certain confidence that the margins for the full year for the Projects will not be so low for the first quarter. How much it will be? To tell a number, I would say, 1 percentage less than the previous year. Because mostly the inflation. Maybe the turnover will be higher, but the percentage of margins will be lower. At the end, what I take care of most of all are the euros, because the margins you are not able to put in the bank. That's the sentence I frequently tell to my team.

Then obviously, it depends also on how much of the inflation on the raw materials, are we going to be able time by time, the Projects are going to be completed to obtain to -- from the customers. I don't know if Hakan wants to give more color on it?

[Hakan Ozmen, executive]

Valerio, you explained it very well. I agree completely what you said. The only thing, Akash, I would like to say I'm in this business for 29 years. And if you look to the couple and or other material 3% reduction, I think -- and we did also in the past, to evaluate what is the value creation of us, the value creation is excluding the metals. Our sales are dropped up or down, depending on the metal. In the recent, we see other materials adding further stress into the percentages. So therefore, I understand that question. But I really would like to reiterate what Valerio said, the percentages in our business, especially on the EBITDA margin, is a good estimate, but it's not an absolute, let me say, key figure that we have to consider, but the absolute values, the U.S. dollar or euro values are the ones that we have to consider.

[Valerio Battista, executive]

From the absolute value point of view, we can confirm that we are not going to be very far from what we have been engaged with the market, plus EUR 30 million on the previous year, EUR 40 million in the previous year.

[Akash Gupta, analyst]

And my second question is on Telecom business. So if you can provide a split of Q1 organic growth between price and volumes? And what are your expectations for the next coming quarters in terms of volumes? And is there any room to more further increase prices, given where commodity prices have gone? And basically, what I want to understand is, that what is the upside versus Q1 levels on growth in Telecom business for rest of the year?

[Valerio Battista, executive]

For that question, I leave the floor to Philippe Vanhille, if you don't mind, because he can answer you better than me.

[Philippe Vanhille, executive]

Akash, the Telecom organic growth gives you an indication of us growing in reality, not so much in terms of volume. The real -- and you see it in our presentation. You see that the Telecom is contributing in this quarter, essentially in terms of mix and price and not so much in terms of volume. It's -- and that's the reality of quarter 1. It's made of 2 things. It's made of increasing the prices, talking to our customers for them to accepting to increase the price. That we see -- at least to absorb the cost that we see, of course. And second, we also do some selection in the way we do business. We give priority to the customer better accepting to absorb the price increase -- the cost increase, sorry. And that's made by customer and also by geographies, which gives essentially a priority to North America compared to Europe. Because the conditions of the market are better, and that's how we do it.

Now the rest of the year, is made of an increment of capacity that is going to come online progressively quarter after quarter. So we will see some volume growth this year. And we will keep the same policy. And the more we enter into the year, the more our contracts will have been renegotiated from the cost perspective. I do not expect the demand to slow down in Telecom this year at all. I would expect more of the opposite, at least for the Optical part. So I'm positive that what you see is a sustainable level for Telecom this year.

Don't forget that our business in Prysmian is not made only of Optical. We also have inside the organic growth that you see in Telecom, we have a shrinking copper business. And we have a relatively stable datacom business, which is doing good as well. The organic growth that you would see isolating the Optical business only would be double digit, approximately twice the organic growth of the average of growth of Telecom.

[Akash Gupta, analyst]

And my final question is on the medium-term prospects, particularly for Energy business. So I mean, one of your competitors called for hyper cycle in front of us in cables given -- or electrification given the current geopolitical events will likely accelerate renewable transition. But on the other side, we are seeing that higher inflation is impacting decision making at customers. So maybe if you can help us reconcile like, how do you see the medium-term prospect? On one side, you have geopolitical events supporting demand, and on the other side, we have the inflation concerns that may take some time. And then if we have a hyper-cycle ahead of you -- ahead of us, then how do you feel about your current capacity? Like do you think you need to increase more than what you previously planned? Any comment on that would be great.

[Valerio Battista, executive]

Thank you, Akash. Let me leave the possibility to Massimo to give to you answer.

[Massimo Battaini, executive]

Akash, thank you. We need to consider that these energy trends are not only visible in Project business. So it is true what Nexans said and what we said ourselves. There are trends impacting the rest of the businesses, in Energy products, for example, power distribution, low voltage, which have resulted from the electrification and the decarbonization trends. And so we have positive prospects in Power Distribution definitely, not just in North America, where strong evidence of this growth happening there as we speak and continue in the next year. So that we have actually invested in capacity increase in North America, and this capacity will come to fruition in '23 first half.

Also in Europe, we will notice the significant uptake in medium voltage cables demand due to decarbonization of the grid. It is true that inflation will probably put to a hold some of the projects, probably the less profitable ones. But I do see this having a significant impact to our positive prospect for the future coming from these trends. This also happened -- this will also impact the industrial industry cable business, the special cable business, where we see stronger order intake for -- from the OEMs [indiscernible] mining cables, solar cable, especially. Also, this business is driven by electrification trends or energy transition trends.

So overall, some delay probably due to inflationary impact, but underlying growth is still there, still positive, and it is still remarkable in terms of trajectory.

[Valerio Battista, executive]

The risk today is the inflation, because our customers are seeing their projects going up quickly in terms of value. And that, together with the increase of the cost of money, may freeze a little bit the sharp increase of the demand that we were seeing.

[Operator]

Your next question comes from the line of Vivek Midha from Citi.

[Vivek Midha, analyst]

I had 2 questions, please. The first is just a follow-up on the Project margin discussion. Given the cost inflation backdrop, I'm curious, the new tenders that you're participating in and the projects coming into your backlog, how do you see margins progressing within that backlog?

And the second question is on Energy & Infrastructure and the good underlying margin momentum you saw there. Based on the chart, it looks like you're overcompensating for raw material inflation. So how sustainable should we think about this? Do you think you can structurally improve margins in Energy & Infrastructure closer to where they were before the financial crisis?

[Valerio Battista, executive]

Okay. First of all, the Projects. It's true that almost every day, the team here is debating about the tender process approval and the price approval. So we are very well updated. Yesterday, we just in case organized the [ TPA ] meeting to debate about how to price the projects -- the project or a certain project. I would like not to mention. Dependency is to try to raise a little bit of the margins -- not very much. But due to the fact that our order book is very huge, and the risk of not being able to quantify for our long life of the projects exactly the increase of the costs, in the doubt, we prefer to take the risk to lose some projects than to get the projects with too low margins, because at the same time, the risks are still there. Even if the projects we were the best in yesterday was not anything new from the technical point of view.

So I see the project margin rather stable -- not going to increase, but possibly going to recover the growth related to the materials. I don't believe, honestly speaking, that the raw materials will continue the raise to go up, as it has been in the last 6 months. Consequently, our margin should be more reasonable in the next quarters. Thanks partly to the recovery that we are going to get hopefully from the customers, partly because of the stop of the increase of raw materials.

If the raw materials are not going to stop their rise, the problem is going to be another one, that many projects will be canceled, and that's even worse.

The second question, if I got correctly, is the assumptions about the E&I trend in contribution margin, in EBITDA margin. That's -- that's a completely different chapter, because we are coming from the sky and the risk is to land [indiscernible]. I don't think so but today, the orders we are getting are still at a very high margin, at least, as I said, for the second quarter.

What about the third and fourth quarter? Believe me, I'm a little bit pessimistic, I don't believe that we continue to be so buoyant -- but never say never. So I foresee a slight decline of the margins. What we have to take care of is that in case of a drop of raw materials, customers will be easily changing the suppliers, canceling the order to have -- to who was having the order and trying to put the order to someone else at a lower price with no penalty. And that's the real risk. Because once you are hedged, you may take the risk to lose hedging costs -- hedging value. That's what I'm pressing the team to analyze continuously.

Overall, for the second half or for the full year, I believe that E&I will not be at the level of the first quarter, maybe a little bit below. Then we have to see how it looks like the third quarter and the fourth quarter in the order income. So that we can foresee the trend, the real trend of the margins for E&I. For the time being, we enjoy the [ margin. ] Did I answer your question, Vivek?

[Vivek Midha, analyst]

Yes, that's great.

[Operator]

Your next question comes from Renato Gargiulo from Stifel.

[Renato Gargiulo, analyst]

Still on Telecom margins. So in the U.S., can we assume, if I well understood, our rising price effort during the year? And in terms of your approach of being more, let's say, selective in terms of customers, are you also accepting to, in some situations, lose some market share versus competitors? Or how is the business environment in your U.S. markets?

[Pier Facchini, executive]

Yes, Renato. Yes, in the U.S., we are increasing prices. The answer is clear -- is a clear yes. We do not have a total control on our cost side of things. We have to say this. But we are able to pass this cost increase so far well to the market. So yes. The answer to your first question is, yes. The second one is also, yes. There are places where we deliberately choose to lose market shares, because the economical equation in certain specific places doesn't make sense for us. So we leave it to others.

[Valerio Battista, executive]

Just for you to know, Renato. Today, the Board has approved the conversion with -- the CapEx for the conversion of the Jackson facility in U.S. Jackson is a facility that is today doing MMS copper cables. And we have proposed to the Board to remove completely all the copper equipment we have there, possibly moving part of it into Lawrenceburg, that is specialized for it, and to fill the factory with Telecom optical equipment in order to raise our capacity, because we have more capacity. And we would like not to increase the plant.

[Pier Facchini, executive]

Let's say, to complement what Valerio is just saying, we are reshuffling our -- we are reshuffling our footprint in the U.S. in order to grow our capacity without losing any business in any segment, but growing the optical side. And really using each and every square meter that we have on the territory.

[Valerio Battista, executive]

Not only the square meter, but also the people, because in Jackson, we have 160 people, if I remember well. Very much fidelized and we would like to offer them a future, thanks to the optical cable production.

[Renato Gargiulo, analyst]

Okay. If I may, just another quick one on M&A. Are you seeing any opportunity also in terms of bolt-on this year like the one last year?

[Valerio Battista, executive]

It's not the season, Renato, today, because everything is extremely expensive, everyone is looking for valuations that are out of the moon. And consequently, it's better to make money, cashing in and then we see. We need to see, first of all, someone that is going to suffer before to move.

[Operator]

Your next question comes from the line of Miguel Borrega from BNP Paribas.

[Miguel Nabeiro Ensinas Serra Borrega, analyst]

I've got 2. First, on Energy. Can you perhaps comment on the breakdown between how much of the 15% organic growth was volume related and pricing related? And can you give us some color on how the mechanics of the price increases work? Are these immediately implemented? Or is there a lag?

Perhaps some color on the difference between Energy and Infrastructure?

And when do you do start exactly increasing prices? Was it last year or just at the start of this year? Just to understand, if there is a carryover effect in Q1 from last year or if it's all new price increases.

[Valerio Battista, executive]

Miguel, I leave the floor for the answer to Massimo Battaini, our COO.

[Massimo Battaini, executive]

So the first question about the volume and pricing contribution to the 15% growth is -- almost all of it is pricing. Pricing means a price increase, general price increase above inflation and partner inflation. So we have basically trading a similar volume as last year with some differentiation in different geographies -- the varied geographies, but overall, the volume is sort of stable. Then to explain you better how this price mechanism works, there are different mechanisms depending on the business. In T&I we have a daily rotation system. And every while we change prices in the market to reflect, of course, the inflation and maybe to go beyond inflation. And we have no contractual agreement with anything on T&I: it's a daily priced business.

On the contrary, in Power Distribution, so medium voltage and low voltage, we have some agreement. In some of the certain agreement, there are cost price adjustment clauses. So when cost goes up, we have an automatic recognition of the cost inflation into prices. In some cases, we have to renegotiate and ask for price adjustment to reflect, for example, energy for meter premium costs and so on. In special cables business, it's similar. We have a fixed price for projects. And when we suffer from inflation, we renegotiate.

At Telecom, we already cover it. So Telecom is midway between T&I. The bid we deliver to distributors is partly the [ elevated -- ] the business we deliver to operators is with price agreement at fixed price.

Now third point was your carryover impacts. So we started working on prices since many months ago. And so in quarter 1 this year, we had some benefit coming from quarter 4 last year, as well of the price negotiation obtained in quarter 1 this year will benefit quarter 2 this year. So there is a carryover for sure quarter-by-quarter. We change the price today, and we deliver product in a month or 2 months. So it is obviously a situation which we have a carryover effect. What I said before is relevant to explain that in T&I, we have an immediate effect, because it's a meter stop business. When we come to the same agreement, Telecom, Power Distribution, special cables, we have a time lag effect, because we have to wait for the inflation to happen, then we renegotiate and then we have a price improvement. I hope I covered your question, Miguel?

[Miguel Nabeiro Ensinas Serra Borrega, analyst]

That's great. And then my last question, just on free cash flow and the negative working capital in Q1. You commented on the metal impact being a headwind. But last year, in Q1, we also saw a major increase in copper prices. I believe Q1 last year, copper prices went up 50%. This year, copper prices are only up 20%. And yet the working capital impact is much higher this year. Can you walk us on what is going on there? What is different from last year? What segments or products are you stocking up? And what kind of other raw material inflation are you seeing that is causing an impact on inventories -- apart from metal, I mean?

[Pier Facchini, executive]

First of all, technically, what we are commenting is the so-called last 12 months, which is the impact of metal in this case, from April 1, 2021, to March 31, 2022. So it's true that last year in the first quarter, the impact was maybe larger than this year, but still this is out of scope. We are -- what is true is that the effect on a full year base of the metal in 2021 was larger. It's also last 12 months [ than ] the last 12 months March, but the impact is the one that I was mentioning. This impact will be partially reabsorbed in the -- during the year, because, of course, as we said, it mounted during last year.

So in the second part of the year, in the next 9 months, will be slight -- will be not slightly, materially reabsorbed and this will help to rebalance our cash flow to substantially the guidance level.

[Massimo Battaini, executive]

And then besides, Francesco, the raw material metal, we had all the inflation from raw materials, which were not actually there in quarter 1 2021, which has started to rise in quarter 3, quarter 4, 2021, with a significant uptake in quarter 1 this year. So raw material means ethylene, polyethylene, premium price for cathode and for rod. So all these other elements and metal have impacted heavily our working capital in the last 6, 9 months.

[Pier Facchini, executive]

Yes. As a matter of fact, I would say that the metal impact in the last 12 months is slightly more than 50% of the total, but Massimo is right, a very substantial part is driven by other nonraw material -- nonmetal components.

[Massimo Battaini, executive]

Nonmetal components.

[Valerio Battista, executive]

A big difference compared to the first quarter of last year is due to the other raw materials.

[Massimo Battaini, executive]

Not to mention energy -- and also energy and transportation costs, those blew up from inflationary impact to our business.

[Operator]

Your next question comes from the line of Alessandro Tortora from Mediobanca.

[Alessandro Tortora, analyst]

I have 3 questions. The first 1 is related to the initial statement regarding the energy projects market and the cable demand for interconnection, wind offshore, with the possibility, let's say, to see a further increase in demand. Can you give us -- give me an idea of the implication you may see -- for sure, this is a market that probably could go through, let's say, full indexation of the main, let's say, material for, let's say, the project execution. But considering also that clearly, we are in a situation of sort of tight supply, which sort of trends do you see in terms of also technology that in [ interim ] Prysmian can push also some other cable makers? Just to understand that considering the imbalance between supply and demand in [indiscernible] metals could drive towards, let's say, a more balanced portfolio of projects, let's say, in terms of [ eastern ] technology? So this is the first question.

The second question is on, you mentioned before German corridor. Is it possible that considering all the geopolitical crisis, let's say, we are living, Germany could speed up a bit the installation, let's say, on the German corridor side?

And the third question is only, say, on the accounting side. Can you give us a guidance on the adjustment EBITDA, which was, let's say, pretty low, which is good. But just to have an idea of the adjustments that you see by year end of the adjustment -- EBITDA adjustment?

[Valerio Battista, executive]

Thank you, Alessandro. Valerio speaking, first of all, the Projects. Yes, I mentioned the fact that the market for Projects looks to be even higher than the EUR 8 billion we have foreseen. That's very good. Which are the problem and the opportunities? The problem is that there is no capacity in the market. You can ask me, why you don't raise the prices -- I ask it too. Having said that, what we need is to keep the trend we are seeing today, because there is no capacity. And to build the capacity -- our additional capacity is going on stream by 2024, not tomorrow morning.

We are overbooked today, over booked -- fully booked, both in terms of cable capacity and in terms of installation capacity. Consequently, we are happy with it. We need now to raise the margins and to properly execute what we have agreed. In the meantime, we are working on the new projects. What I mean? I mean, you mentioned the new technologies. The new technologies basically are two, the 3,000-meter depth and the first example will be Tyrrhenian Link going to touch 2,400 meters. And the second one is going to be the [indiscernible], the new 3 gigawatt -- 2 gigawatt project, 525.

As soon as the 525 DC submarine, is going to be homologated, there will be a number of projects in the North Sea going to increase significantly the capacity of generation and, at the same time, to decrease the cost of that generation. We are going to quote most probably before the summer some of those projects. I hope that our homologated, our PQ test being completed by the summer, by August. So that's the next step from the technological point of view.

The second question you made was related to German corridors. To do that I would -- no -- I cannot project. In the visible appendix, you have a chart. Slide 19. If you go to the visible appendix, Slide 19, you can see that we have already produced 160 kilometers of cables, fully invested, with the FAT of the [indiscernible] at 140 kilometers and 120 kilometers are in Germany in the stock in place of our customer. Now I'm not happy. I'm not happy, because we have 120 kilometers already produced, but no practical installation. The installation shouldn't be a very big issue, because it's a land installation of an extruded cable. But I'm not quiet until I don't see physical results.

The customer is very happy. We are "happy" too, but they wanted to see the light up and running and that will need some time yet. This is one of the problems for the low margin of the projects, because the entire chunk of the installation of the land high voltage, of which German Corridors represent the major part, has not been realized. We are compensated in terms of cost by the customers, but we are not enjoying the margins. That's something we have to debate with the customers, because once we are late in terms of execution, we are penalized by the [ vigilance. ] If they are going to be late, they hurt and lose the margins -- ultimately, something to be discussed during the negotiation with customers. But it depends on the behavior of the competitors. Did I answer to your question?

[Alessandro Tortora, analyst]

Yes. Yes.

[Valerio Battista, executive]

Just in case, we are making the PQ test and the fact also for the 525 DC excluded, because the ones that we are shipping in Germany is delayed -- tested for repairs [indiscernible]. But we have the SuedLink to be executed -- that is, XLPE. The XLPE is under type test. It is doing well. The internal type test has been passed. Let's see.

[Pier Facchini, executive]

On your last question regarding the adjustments, as you said, very low in the first quarter, EUR 3 million only. For the full year, I would expect in between EUR 25 million and EUR 30 million -- still significantly lower than last year, which were close to EUR 50 million, EUR 49 million to be exact. Completing also my answer on the nonmonetary items, the -- we have a positive effect on the first quarter profit and loss as you see, of EUR 11 million, which is mainly coming from the change in metal derivatives fair value.

These technically will be reabsorbed throughout the year, so could go down to 0. Of course, I'm assuming stability in the metal price, whereas the share-based compensation element, which was EUR 15 million negative, in Q1, our best estimate is that on a full year base, may go to EUR 45 million to EUR 50 million. This to provide you the full picture even beyond what you specifically asked.

[Operator]

We have one more question, and the question comes from the line of Roberto Campani from Amundi.

[Roberto Campani, analyst]

Sorry to bring you back again on Projects. My question is about the possibility, I don't know, for future contracts to include basically escalation cost clauses in a way to protect basically your profitability and even the -- basically, risk of execution, which is embedded in pricing of these kind of contracts. What's your point of view about this, please?

[Valerio Battista, executive]

Thank you very much, Roberto, for your question. I understand your question. Obviously, it has been already debated even internally. From one side, we don't want to take the risk to finalize the projects. On the other, it's clear that the inflation, when it happens so sharply, is a problem to be managed. But I believe Hakan wants to tell something about it.

[Hakan Ozmen, executive]

Thank you, Valerio. Roberto, it is definitely -- it's very easy to think about the solution in a situation where things are going up, and we are debating it, as Valerio was explaining. But not only internally, but we are debating it also with the customer. The main problem is indexing in our business for multiple variables is very difficult. On the inflation side, sometimes we are talking about multi-country connections. And if we are going to start inflating or adjusting inflation according to our cost, then we have to disclose also our cost element.

So -- and this is going to be a start for the commoditization of our products. This is, let me say, the basis, one part is this. The second part is that the indexes are not 100% correlation -- in correlation with our costs. So we have to find the best perfect synchronized index, and that is also sometimes not happening. We try with various customers to agree on some indexes, which really, from time to time, is not following exactly the trends that we see in our costs.

So I think even if you index, sometimes it's also very difficult for the customer to evaluate the tender results. What is going to be the price and who is going to be the winner? They have to have standardized indexes for everyone, so that we are able to -- otherwise, if we are indexing and the other competitors are not indexing, which, in my experience, it happened also in other businesses, then you have -- it's an additional term -- additional terms and conditions that you put into the contract, which is also not giving you an advantage value, where you're trying to cover then you have the, let me say, the effect.

I think the best solution so far is the market price. The market price should reflect all the expectations until to a level of cost that is sustainable. Beyond a level of cost, then there should be clause that allows you to renegotiate like the conditions that we see in war conditions. So this is an easier part that we can integrate, we can discuss, and we are discussing with our, let me say, customers. However, it is very difficult apart the metals, which is relatively trivial to contain, which has been already embedded. The rest is very difficult.

But we didn't give up and we are discussing. And we -- and some customers are relatively [ helpful ] ; some customers are not willing to. And -- but I think the best would be to have adjustment clauses after significant events. This would be my, let me say, suggestion. Apart from that, we will see case by case what we can apply. And if also the market is going to follow us because, as you know, we are not alone in the market.

[Operator]

I will now hand the call back for closing remarks to Valerio Battista. Please go ahead, sir.

[Valerio Battista, executive]

Thank you very much. I wanted to thank all of you for the participation to our first quarter 2022. Have a good evening or day. Bye-bye.

[Pier Facchini, executive]

Thank you.

[Operator]

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.