Prysmian SpA

MIL:PRY

Earnings Call Analysis

Prysmian Group Reports Steady 9M 2023 Performance

Prysmian Group showcased resilience in the first nine months of 2023 with nearly EUR 12 billion in sales and improved margins, posting an adjusted EBITDA of EUR 1.286 billion and a 10.9% margin, surpassing last year's 9.4%. Free cash flow was robust at EUR 729 million. The Project segment reported a 24% organic growth and EUR 210 million EBITDA, indicating a promising trajectory for future revenue and profitability. Yet, the Energy segment saw modest expansion at 0.4%. Telecom faced challenges, experiencing a significant 15.7% organic decline due to market cyclicality, particularly in North America. The company highlighted the completion of the landmark Vineyard Wind project and a firm backlog totaling EUR 20 billion. New orders in 2023 amounted to EUR 15 billion, reinforcing the company’s strong position in the market despite regional variations and industrial sector headwinds.

Strong Financial and Project Execution

Prysmian Group reported a robust financial performance with sales reaching nearly EUR 12 billion, coupled with an impressive adjusted EBITDA of EUR 1.286 billion, representing a strong margin of 10.9%. Their nine-month report was particularly bolstered by the successful completions of two significant projects: Vineyard and Viking. These achievements are emblematic of Prysmian's effective execution and operational efficiency.

Project Segment Soaring

The project segment experienced a remarkable organic growth of 24%, further affirming its trajectory of steady growth. This segment's EBITDA hit EUR 210 million, showcasing sustainable growth both in sales and margins, offering a positive outlook for the future of Prysmian's project business.

Energy and Telecoms: A Mixed Picture

The Energy division showed modest organic growth of 0.4%, with sales increasing to EUR 6.3 billion. Margins have been a strong contributor to the performance in this segment. In contrast, the Telecom division, affected by sector-wide challenges, saw a 15.7% decline in organic sales, dropping to roughly EUR 1.2 billion. The decline in performance can primarily be attributed to slowdowns in the U.S. market, which contrast sharply with the robust conditions encountered last year.

Industrial Network Components Showing Resilience

The Industrial Network Components division stands out with EUR 2.583 billion in sales and a significant margin improvement to 10.8% from the previous year's 7.8%, demonstrating an exceptional financial performance despite the broader market challenges.

Exceptional Order Book

Prysmian boasts an order book of EUR 20 billion with solid customer commitments, indicating reliability and future revenue streams. This commitment is further underscored by acquiring EUR 15 billion in new orders or preferred builder orders, illustrating significant customer trust and market leadership.

Efficient Project Delivery

Remarkable project delivery is evidenced in the completion of Vineyard Wind 1 within 20 months—an impressive feat for the first utility-scale offshore wind farm in the U.S. This highlights Prysmian's project execution prowess and the ability to deliver complex infrastructure efficiently.

Geographical Performance Indicators

Regionally, Prysmian exhibits varied performance. Trade & Installers (T&I) managed a modest organic growth of 1.1% with an increase in EBITDA margin. However, North America faced a 4.4% decline in organic growth, with the Telecom sector particularly hit. Nonetheless, margins remain high. Latin America's organic growth was slightly negative, whereas the Asia Pacific region showed a 3.1% dip in organic growth but maintained stable results, demonstrating the Group's ability to handle market fluctuations across different geographies efficiently.

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Prysmian Group Nine Months 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Valerio Battista, CEO. Please go ahead.

[Valerio Battista, executive]

Thank you very much, and good afternoon to everyone. Nine Months 2023 for Prysmian Group, the financial results. Let's move to the highlights, the following page. Almost EUR 12 billion sales with an adjusted EBITDA of EUR 1.286 billion, a 10.9% EBITDA margin, not so bad. Free cash flow, pretty good, EUR 729 million. To be noted that in the first 9 months of the year, we completed successfully, both, Vineyard and Viking. Consequently, 2 very important projects successfully completed because other than the others that are very important, now what's current is the execution and the real realization of the projects we got. Other than that, we have been awarded of 13 billion projects in the first 9 months 2023. That is not a negligible amount of orders. Do not forget that inside these orders, there are also the frame agreements. Let's flip to the page of the margins in the segments. Now let's start with projects. EUR 1.438 are the sales, significantly higher than by 24% organic growth. The results are better. The EBITDA of this segment in the 9 months '23, we have been able to reach the EUR 210 million. So you have to have clear that the project business is going for a ramp, not excessive ramp, but to a ramp of growth in terms of sales and margins, that is steadily consistent. That's what makes me comfortable on the future of projects. Energy. Energy, on the other side, in the first 9 months grew by 0.4% organic growth. Looking at it, we have to consider that the growth of the last quarter has not been brilliant, and that has to be recognized, but not because of us, because of the market, EUR 6.3 billion sales last year, 5.9% in the first 9 months, '23. The growth has been sustained by the margins in PD and headlines, whereas the pricing normalization expected and ongoing in North America is there, but it's not so strong in terms of decline as it was supposed. Let's move to Industrial Network Components, EUR 2.631 year ago, EUR 2.583 billion this year, with an organic growth in the 9 months of 3.1%. Here, what has to be noted is are the margins. The margins are extremely good, 10.8% versus the 7.8% of the previous year, outstanding I would say.Telecom. Telecom is the black sheep because of the crisis that is touching telecom. Last year, EUR 1.4 billion were the sales this year around about EUR 1.2 billion. So with an organic decline of 15.7%. The result, as a consequence is down from EUR 221 million to EUR 162 million with an EBITDA margin of 13.6 million. The volume slowdown we are seeing today is mostly driven by the U.S. market or better. The U.S. market is the most difficult market today also because we have to consider that last year, in this season, we were looking for an extremely sound market, especially in U.S. And today is vice versa a very slow market. Overall, Prysmian has reached almost EUR 12 billion. Consequently, sales almost stable compared to the previous year with a better margin. You can see 10.9% instead of 9.4%. Okay. Let's move to the next one. Project. The project has a very solid backlog and a very long visibility. The firm backlog that includes all the projects with the notice to proceed and the advanced related advance payment represents EUR 10 billion that with the current speed represents 5 years of sales. Of course, the speed of the sales will grow because the capacity is growing. And consequently, the duration of the firm backlog, the notice to proceed backlog is going to be shorter. But in the meantime, we have also other EUR 10 billion roughly orders with a solid commitment. What does it mean solid commitment? Means that we have an advanced payment, a significant advance payment or a contract with penalty in case the customer decided to cancel the project or to postpone over a long stop date contractually agreed. What we have inside, Eastern Green Link 1 and Eastern Green Link 2, basically with National Grid in U.K., Marinus link, the second interconnector between Australia and Tasmania, the frame agreement with Amprion in Germany and the frame agreement with 50 Hertz in Germany. Last but not least, the Clean Path, New York, energy projects. All of them accounts for around about EUR 10 billion we have enhanced. We have a solid commitment, but we don't have yet the notice procedure. So overall, we have EUR 20 billion orders with commitment by the customer solid commitment by the customer. This year, 2023 in the first 9 months, we got EUR 15 billion of new orders or preferred builder orders that is a very significant amount of orders. Next, please. Now orders are not to model. Orders are not execution. We have to take care a lot of the execution phase. Vineyard Wind 1. You remember that Vineyard Wind is the first utility scale offshore wind farm invoice. We have been in the last 3 years behind this project. And today, finally, we have completed the execution of our chunk of the project. What does it mean? The connection between the substation, the substation on sea and the substation on land, 154 kilometers of sub power cable that have to transfer the power from 62 turbines going to be going to generate 800 megawatts. Now what's the problem we see today that due to the mess that there is in the offshore wind farm supply chain, especially in U.S. The number of turbines already stored in the lease area is limited for the time being. The customers are installing the turbines, but they are late. The line is ready to accept the power delivered by the turbines. The total power of 100 megawatt, it will power 400,000 homes in Massachusetts, reducing the CO2 emission of over 1.6 million tons per year. It has to be noted that since the go, we received by the customers, we have been able to execute these projects in 20 months. That is not a negligible goal. Telecom, the black sheep. But it's not the first time that telecom is partially slowing down. The last time we have seen it, it was second half 2019. I go by memory, but... After that event, in beginning in 2020, the market, you see the white line on the graph. And the market restarted very hardly, very sharply. And now second half '22 down turn again, is the cyclical style of telecom business, is not the first time. It will not be probably the last, the trend under the up and down of the market is a solid 4% CAGR period, not so bad. From the volume breakdown is not very clear in this chart, I apologize. The most suffering set area is North America in terms of slowdown. Because North America is traditionally very fast going up and very fast in going down. And this is the season of going down. We have to manage, simply that. Next please. Let's have a look at the profitability across the regions. T&I, EUR 4.9 billion last year. 4.7 billion this year, obviously, with a different standard in terms of metal value. Organic growth, 1.1% modest, but consistent. The EBITDA ramped up by EUR 100 million from EUR 268 million to EUR 350, with 7.5% of EBITDA margin. Remember that geographically is excluded totally the project business. North America. North America went down in terms of organic growth, quite significant by 4.4% with EUR 3.5 billion turnover coming from EUR 3.9 billion turnover. So the decline has been significant in terms of physical volume and sales, but with keeping the margins pretty high. As you can see, 15.6% has been the margins in the first 9 months, whereas in the first 9 months 1 year ago, it was 14%. So the improvement coming from PD and over redline transmission line are offsetting the drop of telecom and the T&I price normalization other than EUR 14 million of negative ForEx effect. Latin America. Latin America had an organic growth slightly negative of 1.4%, with an EBITDA that moved up from EUR 95 million to EUR 102 million, with a 10.4% margins, EBITDA margins. What we can note there that the T&I in Industrial is improving in terms of margins, whereas the telecom is not, is negatively affected. Of course, the tendency is in South America is to be supplied and the price pressure comes from the Asian players. Asia Pac. Asia Pac went down in term of organic growth by 3.1%, but the results have been almost stable. You see EUR 68 million 9 months '22, EUR 66 million, 9 months '23. So ForEx didn't help. The contribution by YOC didn't help, but at the end, the result has been almost stable. Let's flip to the outlook, the outlook is confirmed. We gave you at the end, at the call conference of the first 6 months, a midpoint of EUR 1.625 billion we can confirm it. Then there is a range, 1.575, 1.675. In that range, we will be. But what we see today is mostly the midpoint. Differently is on the free cash flow because thanks to the very big order income on projects. The free cash flow is higher than the expectations. So we can further the midpoint, but we see more the free cash flow in the higher part of the guidance. That's it. Thank you very much. And I leave the floor now to Francesco for the financial results.

[Pier Facchini, executive]

Thank you, Valerio, and good evening to everybody. As usual, let me wrap up the main elements of our profit and loss statement. As Valerio anticipated, organic growth year-to-date slowed down a bit to 1.5%, down from the 4.8% in the first half. The main reason for that is certainly the telecom business, in particular in North America. In the P&I, there were some quite expected elements such as some softening of the volumes and the ongoing price normalization in North America. On the very positive side, on the other hand, I would certainly mention the strong growth achieved by the project business and also the very solid organic trend in power distribution and overhead line and in the industrial business. Adjusted EBITDA is confirming a very strong margin expansion with an EBITDA margin at 10.9%. And this is fully in line with the exceptionally strong result of the first half, which was 11% is substantially the same level of margin. As you see in the box top right, where we are bridging each single quarter with the prior year, the third quarter is, in our opinion, very solid. An adjusted EBITDA of EUR 408 million, currently is slightly lower than last year, but let's take into account that the negative impact of the ForEx translation was EUR 23 million. So considering this, I would comment despite the very weak telecom business, which is quite evident on the table, is a EUR 43 million drop of telecom plus share of net income coming from YOFC. So despite the very weak telecom business in Q3 and despite the ForEx effect, a third quarter, which is substantially in line with the prior year.The project -- the progression of the projects business quarter-on-quarter is very solid and very stable progression also in Q3 of EUR 19 million compared to the prior year. And likewise, it's very positive, the results achieved by the energy business, above last year by EUR 5 million in Q3, I'm focusing my comments on Q3. Despite the fact that the year the ForEx impact was certainly the largest part of the total EUR 23 million negative. Despite this is EUR 5 million above last year. The reason is that the ongoing price normalization in P&I, mainly in North America, I would say, totally in North America is more than offset by the very strong level of margin expansion achieved in power distribution in overhead line. And last but not least, also in the industrial businesses across all the applications. Let me go to the lower part of the profit and loss. A quick comment on maybe on financial charges, very stable, as you see. That's very positive because it's stable, notwithstanding the very sharp interest rates increase. And this is thanks to our very solid cash generation, which is improving our liquidity and at this time, liquidity pays off in terms of interest income as well. And also thanks to the fact that our financial debt is 75%, 80% at fixed rate. So -- and this has been like this for a while. So we are very well protected. We have been very well protected against this rise of interest expenses. Tax rate, 28 point-something percent, slightly better than last year. And I expect this is a slightly better level of tax rate to stay in place for the full year. And as a result of all this, we are achieving the highest group net income ever at EUR 575 million in 9 months, which anticipates a very solid result, net income for the full year and which is absolutely consistent with the targets that we outlined in Naples related to the progression of the earnings per share as well, which is a very important target for us. I move to the balance sheet. To quickly comment that our very strong cash generation was certainly boosted by a positive dynamic of operating net working capital. As you see, significantly decreasing as compared to September 2022. Even focusing on the cash elements of the working capital, which are the ones driving the cash flow, the working capital reduced declined, in particular, thanks to the very strong cash generation coming from the project business, thanks to the order intake and the very large down payments that we are getting and which are absolutely expected also for the fourth quarter and also for the coming quarters, I would say. And we are also benefiting of a certain reduction of the metal price, which is deflating compared to last year our working capital. And thanks to all this, you see that we have been able to take out approximately EUR 300 million from our debt going down to EUR 2,073 million.We can move to the net debt bridge and the cash flow. As Valerio anticipated, the last 12 months, free cash flow has been very strong, I would say, even better than expected, EUR 729 million, excluding a EUR 34 million positive impact that you see on this slide of the cell to cover related to the tax payments on the last incentive plan, which will disappear by the way, in the fourth quarter, but it is already excluded from the EUR 729 million. For the full year, we certainly expect to be in the very high part of the guidance, let's say, the EUR 650 million is certainly a reasonable target. We will certainly have a significant amount of CapEx in the fourth quarter. You see that last 12 months and year as of September is EUR 505 million. This CapEx on a full year basis will most likely grow to EUR 580 million, EUR 600 million. And this explains why we believe that it is realistic to anticipate a EUR 650 million free cash flow for the entire year, which is slightly lower than the EUR 729 million last 12 months September. Some very quick closing remarks. I think that our results year confirm the importance of our complete and balance the portfolio. You have seen some clear points of strength. The project business, the very sharp expansion in margins of the power distribution of the r red line Industrial business, some weaker spots at least in this quarter, at least in the short term, like the telecom business, the strength is the overall balance of our portfolio once again, I would say. Project, a very large and solid backlog completed by very large amount of orders in hand that, in our opinion, are as solid as the backlog, I would say, because they are best by very strong capacity fees reservations by down payments. So here, the name of the game is we need to focus on execution, and that's what we are successfully doing. Then the very strong performance in the power grid scope, power distribution and overhead line, benefiting of solid market trends and very important, maybe most important in terms of stability is the capability to generate cash, especially in this certainly a little bit more difficult financial environment than a few years ago. Thank you very much.I think we can move to the Q&A session.

[Operator]

Thank you. [Operator Instructions]. We will now take the first question from the line of Daniela Costa from Goldman Sachs.

[Daniela Costa, analyst]

Two questions, if possible. The first one, I guess, you put out that announcement regarding Shoals yesterday. If you could give us a little bit more detail on sort of what are the points that they're claiming? And also maybe help us size which business that relates to? And that we have an idea? And then the second question, just more on the environment that is going on on tendering in terms of high voltage at the moment. Do you see any signs from your peers potentially getting more aggressive in terms of the conditions that they're offering given some of them might have capacity available in '24, even though the market is still very strong, whether that could have any impact, not obviously for the business next year, but for tenders that will be executed in the outer years.

[Valerio Battista, executive]

Okay, Daniela, thank you very much for your question. It was expected. Shoals. Shoals, we have had a long meeting yesterday evening with the sample to understand which what are they craving. Now we have provided them cables. At the end, the PV cable is a pretty simple cable that are absolutely in line with the stats. Then what they do with the cables, we don't know exactly. We know just because we have seen -- we have had the access to one of the solar farm. The same cable we provide to them, we provide to other players. And we have some picture of the problem. I personally, that is my judgment. It is not a shrinking of the installation as they are claiming. But it's a problem that comes from the tension they execute on the cable, including the connector that pull out the insulation from the connector that is what they are claiming. In our opinion, there is no ground for the claim. Anyway, if they wanted to go to the judge, we are going to go to the Judge.

[Pier Facchini, executive]

Maybe we can add also the that we are talking about a business that has been worth for us $30 million. So the claim is related to pre-quarter deliveries, whose total revenue for us, cable wise was $30 million. EUR 10 million a year for year. As said, our cable is fully compliant, not shrinkage deviation with respect to the specification. And it has to be added that cable has been coupled with a connector and then created assembling harness and that is stores. All these 3 remaining activities have not been done in our control because we didn't have anything to do with the installation on the commercialization schedule. So we have definitely a solid case. We have already strong evidence of our solid position is. And then just to put this in perspective, it's limited to a business that we classify in renewable industrial for EUR 30 million revenues since to Shoals in 2020, '21 and '22.

[Daniela Costa, analyst]

Sorry. And what is the sales -- the total sales of those type of cables?

[Pier Facchini, executive]

Well, it could be as high as EUR 150 million over the same 3 years. So we sold more to our customer than to Shoals in the same period.

[Valerio Battista, executive]

But we don't see any reason to. Without any claim sorry. Mentioned -- we need to receive from other customers than short and only 20% of the sites for Shoals were out of the 20 sites where our cable base installed in Shoals have reported this claim. So it's a very randomic issue and limited a small portion of the sales delivered to Shoals, which are -- that is in $30 million.

[Pier Facchini, executive]

Environment, I asked to can to give you our position or our perception. Okay. Thank you, Valerio. Thank you for the question. The high-voltage tendering, you asked about some of the competitors have some capacity available. This is very limited to maybe 1 or 2 competitors that have capacity available for the short term. And in the short term, we are not playing in the short-term market currently because as Valerio was stating, we are already booked for a decent time, more than 5 years. And for the long term, I think we are equal. And from that perspective, we do not see, let me say, extreme competition in terms of pricing. However, definitely, the risks in the very long term are different. And therefore, the prices cannot go down in the very long term because of the inflation expectations and the risk perception. Currently, we don't see extreme pressures as you stated.

[Valerio Battista, executive]

Daniela, we have to distinguish to track. The first one is the short term. In the short term, we have already booked our capacity till 2030, roughly. So we don't -- and all the capacity booking is covered by advanced payments or capacity reservation fees that is not the margin, but it's a significant part of it. So if customers are going to change their mind, we will be entitled to the to grasp the -- to retain the advanced payments. What about the future? The future means for us over 3 years. Now with the projects we have been awarded, there is not a lot of thing to be done because the market is closed. What can generate some doubt is the speed of the future projects, if the future projects will continue with a similar speed of the actual one because the capacity no, contract. The contract for frames, the frame contracts have booked the capacity for a quite long time. And it's no way. In the future, we have to see if there would be sufficient projects to continue to have a full saturation of the growing capacity. That's the tricky point of the business today.

[Pier Facchini, executive]

But just to add, next year, we are seeing still a big, let me say, request. And this request is significant. As Valerio said, but the capacity is relatively, let me say, booked, and therefore, some projects may slip, but the tendering activity is still very vivid and very strong. And next year, we are still expecting a very strong tendering activity.

[Daniela Costa, analyst]

Clear, thank you.

[Pier Facchini, executive]

Thank you Daniela.

[Operator]

Thank you. We will now take the next question from the line of George Featherstone from Bank of America.

[George Featherstone, analyst]

Hi, everyone. First one would just be on the EBITDA guidance, which I appreciate you confirming around the midpoint, but that would ultimately imply essentially a weakest quarter since the beginning of 2022. So just wanted to understand what's driving that. Is it just telecom weakness into the fourth quarter?

[Pier Facchini, executive]

Hi George, Francesco speaking. In principle, it's embedding a fourth quarter, which is in line with last year. You are right on that point. And in principle, the reason why we are not exceeding last year is the prolonged weakness of the telecom business in North America, as simple as this. The midpoint is -- was already our idea in -- as the most realistic outcome in terms of adjusted EBITDA. On the negative side, we had in the second half, certainly the telecom business. But on the positive side, compensating this, we certainly had the margin expansion in the energy businesses, such as PD, power distribution and the industrial business. We had also Valerio mentioned this price normalization in P&I North America, which, in a way, is happening, is ongoing, but at a pace which is slightly lower than we anticipated a few months ago. And this is in these quarters, compensating the telecom weakness and is delivering the same midpoint that we had already in our line.

[George Featherstone, analyst]

Okay. So it sounds like just from that, you're effectively saying telecom is worse than you expected, but the T&I normalization better? Is that the right way to read it?

[Pier Facchini, executive]

And also some other elements also the projects, I believe, is slightly better than expected or was already strong, but even better than expected this year. And also the margin level, which is holding up in the -- for instance, in the industrial business rather than in the power distribution business is even slightly better than we expected. So we have a few elements on the positive side. And then I think it's fair to say that the short-term drop of the Telecom business was sharper than expected.

[George Featherstone, analyst]

Next one would just be on the Power Grids development. Just if you could help us just with an update on what you're seeing by region, Europe versus U.S.

[Massimo Battaini, executive]

Hi George. Massimo speaking. We see started from U.S. a stronger strong demand that we are coming out in terms of additional capacity to satisfy it. And this strong demand is continuing through '24 and '25 to the point that we decided also to further expand the capacity for a second wave of investments. Price is not holding up nicely because in '22, we had been spending much time many efforts to renegotiate a firm price agreement contract with new cost price adjustment closes. So profitability, so the margin per kilo per tonne, whatever has increased. So now in North America, we see a net profit of high-priced, high-margin and consistent volume growth. Also back there, as we said, sometimes by customer down payment, so solid commitment to customer to underpin their need or buying these cables while the capacity will be up and running. In Europe, we have a scatter situation. We have a strong demand in many countries like North Europe, like Central East Europe and Spain, where some areas or some pockets of weakness in the market, definitely in France and also Italy, U.K. is holding up nicely. So we have a mixed situation. But all in all, also in Europe, we see volume growth and price consolidation. Thanks again to the renegotiation that we concluded over the last 18 months. You will say this visible at the end of this year and the full year result of 2023 once we isolated with new segmentation of the power distribution business from T&I and the other businesses. And mentioned, George, the other about Asia Pac continue with a solid and stable demand.

[Operator]

We will now take the next question from the line of Akash Gupta from JPMorgan.

[Akash Gupta, analyst]

I have a few as well. The first one is on Telecom destocking. And if I understood correctly, it was ahead of your expectations and which is why we are at the midpoint and not towards the upper end of the range. And the question I have is that given that we have a much faster pace of destocking that anybody was expecting, does that change the timing of recovery, i.e., can we see to Telecom coming back to growth earlier than what you were previously communicating? So that's the question number one.

[Valerio Battista, executive]

Hi Akash, Valerio speaking. Let me try to give you a preemptive answer. I personally see Telecom because I've seen at least 5 cycles negative and positive of Telecom in my career that the slowdown has been stronger than the past, faster than the past. Why? Because this time has started harshly U.S. And as we know, U.S. is very quick in going up and in going down. Does this change the timing of recovery. I prefer to leave the floor to Philippe about this matter.

[Philippe Vanhille, executive]

Hi Akash, I think the first thing is, of course, we confirm that the trend mid, long term will be there. Second, the destocking. The destocking is ongoing and is ongoing at the pace of the installation capacities that we have in the U.S. What we have seen certainly is that the government incentives are going to come from mid next year to early '25 and play a role during this period of time. And so these 2 elements, the destocking ongoing and the incentives makes me think that we have to be careful for the first half of next year. And we can expect the market to rebound from the -- from mid next year onwards. There is another element which is important. It is, of course, the interest rates in general. If the interest rate release a little bit of pressure sooner, it will have a positive effect. If they remain high, longer time, it will have a slowdown effect. That's what I can say today. I think we have to be careful in the first half of next year and then the market should come back.

[Massimo Battaini, executive]

I just want to add, Philippe, Akash, all these 3 elements are important destocking, the delay in the federal funds for subsidizing the projects and the increased cost of capital and cost of projects. for deploying the fiber to the in the United States. We had anticipated this trend that will happen. We anticipated these 3 elements to come and a fatter downturn. So that's in the Capital Markets Day, those 3 elements have been considered for the transaction of the telecom business from '23 onwards 2024 onwards. So we are not taken by surprise. But of course, the recovery for see telecom business, we take not maybe the usual time a little bit longer. So until the second half of next year, we will not see the funds released by the government coming to play, so they will not have an effect in new projects to start. And so only after second half of this year, we'll see this happening

[Pier Facchini, executive]

Absolutely. Let me just add one last thing is that during this period of time, of course, what we are doing is to work on our cost base and to make ourselves more efficient to get fitter and ready for when the business will come back, which is what we always do. But we take that opportunity now to do it with a lot of focus in order to be completely ready when the business will come.

[Valerio Battista, executive]

I see next year, second half. The post EBIDTA for the Telecom market to revamp sharply as did 2 years ago. Thank you. And the second one I have is on the timing of share buyback as you announced that you will be looking to do share buyback as part of the medium-term financial plan. Clearly, you will be generating a lot of cash flow in Q4 towards the upper end of the range. Can you tell us about when you may start a share buyback. Thank you.

[Pier Facchini, executive]

Better not to tell when we will start. I would say but in general, I'm quite confident that we will start next year in 2024. The current share buyback program, by the way, in April next year, the AGM will hopefully approve as always done in the past and as usual, an 18-month buyback program. And then it's up to the board to decide when to launch the individual buybacks, but I would say that if everything is confirmed in terms of results and cash generation, as we expect, we will -- the board... Yes, go ahead.

[Philippe Vanhille, executive]

And final one is on housekeeping on IFRS 16. I see in your bridge that it is now 143 million on a rolling 12 months basis, and it used to be a much smaller number from my memory. So maybe if you can tell us what is going on in here? And what shall we expect for '24 and '25.

[Pier Facchini, executive]

No, I think this year, we have a particularly high variation. You are right in noticing that. It's specifically due to one basically decision that we have taken relating to the extension of the lease agreement on an installation vessel that it is not owned by us. It's a third-party installation vessel, but that for us is a very efficient and effective assets. So we had the commercial opportunity to extend the duration of that lease agreement, and we took that opportunity. And of course, this is bringing a benefit in terms of results, but is also increasing a bit the debt. Specifically, I think to remember that the impact of this specific item on the IFRS was like EUR 80 million yes, EUR 70 million, EUR 80 million. So you should expect this addition of that in the next years to decrease from the current level, certainly to decrease.

[Philippe Vanhille, executive]

Thank you.

[Operator]

Thank you. We will now take the next question from the line of Sean McLoughlin from HSBC.

[Sean McLoughlin, analyst]

A couple of questions from me. Firstly, just coming back to offshore wind. It's clear that you had -- you told us at the Capital Markets Day overall exposure to offshore wind. I mean, clearly, the situation and particularly in the U.S. looks to have deteriorated. I wonder if there's any -- how you're thinking today about Brayton Point and about your CapEx expansion in the U.S? And secondly, if I understood correctly, you're talking about price consolidation in power distribution. Just to understand a little bit more what that means? Does that mean that prices are continuing to increase? Thank you.

[Valerio Battista, executive]

Hakan is going to give you the answer on offshore wind.

[Hakan Ozmen, executive]

Sean, thank you for the question. The offshore wind in the U.S. is, let me say, definitely in a situation where everything is redefined. Let me explain you this why? Because of the inflation. Inflation has increased significantly. And therefore, the PPAs that was agreed before the inflation are no longer justifying the offshore wind investments. So therefore, the offshore wind developers are renegotiating their PPAs. And to legalize these renegotiations, the best is to retender the -- let me say, the PPAs, the agreement. So therefore, this is happening. It is not that these projects are not viable, that these projects are going to be canceled. But these projects are maybe going to be owned by different developers and are going to be supplied by different developers in a different time frame. So the good news that has happened, maybe it was -- you were able to see, especially after the New York bid, the price that came out of the New York bid is justifying offshore projects in the U.S. They are beyond $140. This is official numbers that you can see in the market. And this is good news for the industry that the utilities are seeing the necessity to go forward with the renewable energy projects, and they are willing to pay higher values due to the inflation situation that we are facing. So I think the delay is there. So there is no question about it. But I'm seeing in the market many concerns that this is going to have a significant impact on the future of offshore wind in the U.S., which is not correct. I don't see that as of today that this will happen, especially with the justification of the New York bid. Now coming to the other question is a question that is a little bit more that we have to evaluate internally in order to give a concrete answer of cost, the prices and the costs are increasing, and we are under the evaluation in this matter. I don't know if...

[Valerio Battista, executive]

Just in case today, I informed the Board that the cost of Brayton Point due to inflation and the cost increase has risen, but we want to proceed, we will resubmit the proposal to the Board with the new cost and the new margins of the project sooner, very soon in order to get the approval for the new amount, but Brayton Point is not under discussion. Brayton point is a third pillar of the strategy of the group.

[Hakan Ozmen, executive]

In fact, also this increased cost shown was already factored in the EUR 2.7 billion of CapEx for the next year client as we disclosed at the Capital Market Day. So nothing new. No changes to our program, and there is a slight tickup in the American market, but the reason why we do an investment there go beyond the prospect of the American market. So we will continue with our plan. Consolidation... Yes, probably... For me probably consolidation that meant that after we renegotiated price agreements with all the frame agreements in '22 across all utilities custom in North America and Europe. We consider these prices are kind of stabilizing in the market. And now eventually to cope with further inflation we have closed in those contracts. So I consider when the price consolidation right term is margin consolidation. So the level of margin at PD as achieved in '23 is, in our view, solid and stable through the next few years.

[Sean McLoughlin, analyst]

Very clear. Thank you.

[Operator]

Thank you. We will now take the next question from the line of Miguel Borrega from BNP Paribas Exane.

[Miguel Nabeiro Ensinas Serra Borrega, analyst]

The first one, just on E&I. So sales were down about 8% in Q3. Can you share how much of that was volume and pricing? Last quarter, I think you talked about pricing in North America was down 5% to 10%. Can you update us on that? And maybe give us some color on the expectations for Q4. Do you see distributors still destocking? And then looking into 2024, do you think pricing will continue to fall? That's my first question.

[Valerio Battista, executive]

I think we answered to this question at the Capital Market Day, Miguel, we said that we will see EUR 100 million this year of price normalization in the U.S.A. And this EUR 100 million will also happen next year. So the overall net reduction will be EUR 200 million over 2 years. We've seen some lighter moderators slowdown in the price normalization in the last few months. But in the end, there is a subtle balance between price and volume. So if we hold that price too much, we lose volume and the other way around. So maybe I don't know the answer about the -- how much of the 8% is due to price due to mix and volume. Most of it is price anyway. So this 5% to 10% price normalization that we mentioned a few months ago, has continued along the trajectory that we mentioned, which will drive EUR 400 million over 2 years in terms of margin reduction.

[Pier Facchini, executive]

We assume Miguel, we have lost -- we are going to lose EUR 100 million margins on C&I this year, and we are going to lose another EUR 100 million margins next year.

[Valerio Battista, executive]

And maybe the comfort in also that in the end, we don't set at the end of next year to be back at the level of prices we had prior to this surge in profitability. So we will retain a good portion. I don't tell you now what this portion is, but we will retain a good portion of the marginal side that we gained in -- we earned more than gained in 2020.

[Miguel Nabeiro Ensinas Serra Borrega, analyst]

And then secondly, on projects, can you give us some color on that $20 billion backlog. How much of that -- within that, the $10 billion firm backlog, how much of that will hit your P&L before 2026. So I just wanted to understand, if until 2026, everything you will produce is already in the backlog? Or do you still have some spare capacity among the existing capacity? And how much of that EUR 20 billion backlog will come after the 2026?

[Valerio Battista, executive]

Miguel, I would say the answer, just to be consistent with what we told in the past few weeks. The other EUR 20 billion, we will consume EUR 13 billion to satisfy our revenue from now 2023 through 2027. So there will be 7 million worth of orders left at the end of 2027 to be which will mature in '28 to '29, 2030. Then talking about the spare capacity. We still have some limited room or capacity, mainly in '26 and '27 according to the current phasing of this project. So we can still accommodate some projects, not many. Also the market of '24 and '25 is going to go and award the project who each is going to go well beyond '28 and '29 for the obvious reason that all of us, not necessarily, also the other players are fully booked through the same period of time, with some little exception for our competitor, which I cannot name all the others are fully booked, not on the existing capacity, but also on the planned capacity that all of us have decided to unlock in the next 3, 4 years. Did I answer Miguel?

[Miguel Nabeiro Ensinas Serra Borrega, analyst]

Thank you. And then the new plant, Brayton Point, is there a risk that utilization is going to be lower than you expect? Or is it still all according to plan, once it ramps up, you're going to be fully booked on that plant?

[Valerio Battista, executive]

No. The utilization of submarine plants is what we care the most because the factory -- the submarine plant and a saturated is a big deal of a problem. So we have such a level of order in hand and such a strength in the market that we will not suffer at all or saturation of this plant. At least for the next 5 years.

[Philippe Vanhille, executive]

I would like to add, Miguel, that currently, we are still discussing, of course, the commitment you have heard from the management about the Brayton plant. And we are also paralleled to that discussing future sales through that plant. I cannot say that this is firm orders or firm, let me say, order entries. But I can say there is a significant potential that is coming up beyond the projection that we have done. However, of course, we are also watching carefully the U.S. market, and we are also watching the insulation effect and all this. But I don't think at all that the utilization is going to be low.

[Miguel Nabeiro Ensinas Serra Borrega, analyst]

Thank you. That's helpful. And then last question on Telecom. I've seen the bridge on Slide 11. The delta in EBITDA was EUR 43 million from Q3 to last year. Can you share the impact specifically coming out of a weaker market in the U.S.? And then maybe something we haven't talked about in a while, how is pricing in Europe post the antidumping case against the Chinese players? Has it recovered anything. Thank you very much.

[Massimo Battaini, executive]

I'm not sure I understand your first question. 2/3. Yes. Yes. Of course, this is clearly the answer then on the dumping. On the antidumping against let's say, again in Chinese the Chinese cable on the Chinese cables that was recently doubled, as you probably have seen and 40% to 80% because they were second winning. We have seen the quantity of imported cables from China into Europe stabilizing. The market share of the Chinese players in the U.S. have stabilized, meaning it sorry, I said U.S., sorry, on the EU has stabilized and leaving room to the local players, obviously. Some of them also have invested in European plants, creating European jobs as a consequence of that. So there is an impact for sure of the antidumping. Is that answering your question Miguel?

[Miguel Nabeiro Ensinas Serra Borrega, analyst]

And if pricing continues to come down.

[Massimo Battaini, executive]

Yes. Okay. on prices in Europe, the antidumping didn't stop the price pressure. I have to say that we have in Europe, especially because inside an optical cable, there is an optical fiber, which is a big chunk of the cost of cable. And the optical fibers coming from Asia are at low prices, and they have an impact on the price pressure in Europe. But we are used to this. It's not new at all, and it's already factored in all our action plans, so nothing new here, I would say.

[Miguel Nabeiro Ensinas Serra Borrega, analyst]

Thank you very much.

[Operator]

Thank you. We will now take the next question from the line of Alessandro Tortora from Mediobanca.

[Alessandro Tortora, analyst]

I have 3, 2 questions, if you may. The first one is related to the we discussed, let's say, before the pipeline on wind offshore in the U.S. Can you comment a little bit on the interconnection side, clearly, you mentioned before Clean Path. But for instance, can you give us also an update on a project like so Green that clearly we saw in the past. So just to understand what's going on, on, let's say, the pipeline, excluding the wind offshore in the U.S. That's the first question.

[Pier Facchini, executive]

Okay. Alessandro, good afternoon. Good evening, actually -- the interconnect in the U.S. definitely are an area which is as of today, very much tied to the renewable energy and renewable energy onshore and renewable energy offshore. So the renewable energy offshore, all these delays is affecting automatically also the interconnect of the offshore part. However, when we are talking about specific projects like Clean Path, Clean Path is not only interconnect or a transmission project, but it has also generation behind. So therefore, you have to put this into the context of the full generation. And I can say that these projects are very solid projects. The discussion here is that the same, the PPAs that has to be reformed. And this is what is happening currently. It is very difficult as of today to tell you for certain these project timing, but there will be some delays. But I don't see this affecting our, let me say, capacity utilization as of today. This is what I can say. On the other hand, this will definitely form within time and we will see that. So Green, on the other hand, is more based on the land onshore development and the planned onshore developments are relatively more mature. The only difficulty here is that the overload of the authorities of these connections and how these projects are affecting the overall loads on the system in the U.S. This is the one question, which is evaluated by the local authorities like PGM, the second is, of course, they have to make the financing because these are development projects. And this is also supported by the government and also by private investors. So therefore, I can say that interconnect in the U.S. are not like the interconnect in Europe, which are driven by the majority by the TSO, but are driven more majority by the developers. And these bring some certain difficulty, but I do not see these projects as a risk. I see that sooner or later, these projects are going to happen, the time is the matter. But if we talk about the interconnect in Europe, the are very solid. There is no question.

[Alessandro Tortora, analyst]

Okay. Thanks. Then the second question is on industrial cables. Actually, you commented before, very good profitability in this business. Can you help us understand the underlying drivers behind this profitability because we spent a lot of time on, let's say, P&I price normalization but, how do you see going forward the profitability of this division, which clearly has a degree of diversification, which is much bigger than, for instance, thanks.

[Valerio Battista, executive]

Sides in the taste is renewable, which is driven by the same drivers of the energy transition. So there is so there is solar, there is a wind onshore. So one of the infrastructural investment on new equipment. There is a role stock railway cables. So many countries are investing in infrastructure centering. There is the charges, there is a piece of data center. So there is a lot of electrification and mining, mainly, which is another driver of growth associated to the energy transition. So now then you need to be aware that this is a specific segment were solution this port for customer, where we design cable for specific application. So price is not normally a big deal of an issue because we have to serve customers with disc products and we share time. So there is less reluctance from customers to assess price as in the space.

[Pier Facchini, executive]

Sorry, Alessandro, we can say that due to the inflation we have seen in the last 2 years, we have been able, especially for the industrial to adapt the prices to the new cost of the materials. And we have been able to keep the additional margins related. That's the substance of the profitability of the division.

[Alessandro Tortora, analyst]

Okay. So it is fair to say that, let's say, clearly, we cannot totally allow the scenario of, let's say, some some price normalization, but clearly, it is a completely different situation compared to, let's say, to 9...

[Pier Facchini, executive]

We don't see any price normalization at all in this space. And if you look at -- you can look at the trend over the last 3 years, so there's been a cost that growth.

[Alessandro Tortora, analyst]

Okay. Okay. And then the last question is so on financial charges, net financial charges, clearly, let's say, well below, if you can give us an idea of for the, let's say, for the full a sustained level of financial charges for the full year?

[Pier Facchini, executive]

For the full year, I would say, total financial charges in the EUR 100 million, EUR 105 million and it will take the line of the net interest expenses between EUR 80 million and EUR 85 million.

[Alessandro Tortora, analyst]

Okay, thanks.

[Pier Facchini, executive]

Thanks to you.

[Operator]

Thank you. We will now take the next question from the line of Monica.

[Monica Bosio, analyst]

Can you hear me? Most of us have been already answered. But I have to -- in the project business, I remind during the last call, the first half that you were indicating a roughly 12% margin for the business for the current year, if I'm not wrong. So do you confirm this level or there could be some upside on this previous indication? And my second question is on the ForEx impact on the adjusted EBITDA for the full year, if we can expect a further impact in the fourth quarter. And for the net working capital, the free cash flow is hugely benefiting from the advanced payments on the orders you have? I was wondering how do you see the net working capital trend beyond 2023 given that you have already cashed in a lot of advanced payments. Thank you very much.

[Valerio Battista, executive]

Thank you very much, Monica. Let me try to give you an answer, but under the control of Hakan and Massimo. 12% margins is confirmed. We strongly believe that the 12% is a proper level of margins with the market of today. Can there be an upside? Maybe, but I wouldn't -- I wouldn't put on the table right now. ForEx. ForEx, we set up at our expectations for the ForEx at 1.07 million...

[Hakan Ozmen, executive]

Yes. Let me take this Valerio. For the remainder of the year, we range from 1.25 from 1.10. So I think that you are totally correct. And for the fourth quarter, we should expect another negative impact because at the end of 2022, the dollar was stronger than slightly. And so I would assume another impact, another impact, the EUR 10 million, EUR 10 million. Yes, very clear. No, let me say that beyond 2023, we keep being very confident on the pipeline of new projects and new orders, the resulting down payments. So certainly for 2024, certainly for 2025. Then of course, and this I was commenting also in April in the -- maybe in the last 2 years of our plan, we will see a more balanced ratio between the down payments and the growing working capital related to the acceleration of the execution. Execution of projects will accelerate even before, of course, even already now already in 2024. But maybe prudently, we were factoring in the very last part of our 5-year plan period, a certain level of decline of down payments because, of course, with to is difficult to -- and this was bringing the net working capital of projects more in equilibrium or more in balance. But we are certainly very confident for the next 2 years in terms of down payments.

[Monica Bosio, analyst]

It was just a check on what you say on Naples, but just to be sure.

[Operator]

Thank you. We will now take the next question from the line of Gabriele Gambarova from Banca Akros.

[Gabriele Gambarova, analyst]

My first question regards Telecom. The organic slowdown for, let's say, in Q3 was very strong, minus 29%. So I was wondering if we should assume a similar intensity in Q4 and possibly in the first half of 2024 or there will be an easing of this, let's say fall, and the second question is on CapEx. If I understood well, you said you are going to invest EUR 580 million, EUR 600 million in 2023. So I was wondering if there was any specific, let's say, initiative, investing initiative on which you accelerated. Thank you.

[Valerio Battista, executive]

Okay. First question, the organic slowdown has been very sharp in Q3 and the year. We see -- I personally see a similar intensity in Q4. Last quarter of 2022 was pretty good. Consequently, the slowdown or the decrease is expected to be on a similar shape. In quarter 1 next year, we expect to have a definitely better comparison.

[Massimo Battaini, executive]

Maybe yes. Yes and no, because the point is if you are concerning a business will continue to slow down the quarter after quarter. No, we see this kind of bottom because quarter 4 level of activities in a quarter 3. Then of course, when you compare quarter 4, '23 to quarter 4 '22, we had this big organic decline. And also, when you we compare quarter 1 '24 with quarter 1 '22 quarters 1, 2023, sorry, we still had some strong results. But the bottom, we think we reached then the comparison, it depends on what you're comparing it to.

[Pier Facchini, executive]

Let's say, that the organic growth will start to improve in the second half of 2024. Because, of course, we will compare with very low already Q3 and Q4 of 2023 and will bring an improvement. This is correct.

[Valerio Battista, executive]

Then with regards to CapEx, what we are thinking of accelerating our investment in projects. We cannot be more specific because we still have to, I mean, complete and conclude some negotiation, but we are accelerating CapEx for supporting the capacity, manufacturing installation expansion in projects.

[Gabriele Gambarova, analyst]

Okay, thank you very much.

[Valerio Battista, executive]

Thank you Gabriele.

[Operator]

Thank you. There are no further questions at this time. I would now like to turn the conference back to Valerio Battista for closing remarks.

[Valerio Battista, executive]

Thank you very much. And thank you very much to everyone who has participated to this conf call. And next time, it will be the fourth quarter results in the full year. Thank you all. Bye-bye.

[Operator]

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