Prysmian S.p.A. (ATKR) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Prysmian to acquire Atkore conference call. [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, Massimo Battaini, CEO. Please go ahead.

Everyone, thank you, and welcome to these calls. It's very important and I'm very excited to mention the completion of this M&A acquisition. It's an important step forward in our leadership in United States. You remember that we started 2 years ago in June 24 with the leadership in electrification space, cables with the Atkore acquisition. We gained momentum in that market and we got exposure to the center now this acquisition is bringing us additional complementary products that make us a unique solution provided player in the electrification space in U.S. we are becoming a one-stop shop provider of cable across all the range of cables for data center, nonresidential, residential application. And we complement this cable performance with all the components that are needed annualized store cables in the different building, the residential -- residential and also data center. In this sense, with this shift to solution provider, we are even more exposed to the long-term growth driven by the stronger sector drive growth in the electrification space in the United States. The acquisition is extremely creating in terms of additional value. We will be adding $150 million worth of synergies to the combined entity thanks to commercial strengthening and operational efficiency. And of course, as you've seen, we will fund this growth, this acquisition with time with debt and parting with equity or to preserve our investment grade rating. In this context, we -- this acquisition fits extremely well the strategy to become even more relevant in a asset. This one-off shop solution provided make us even more relevant with distributors who are the key partners to our business in the United States. We will become more sizable, and we'll become more complete in terms of product offering. There is a common go-to-market, all products are called -- are sold to agents to final distributors. In the same way, cables are sold by Prysmian [indiscernible]. The synergy opportunity I mentioned before will create additional EBITDA margin improvement over the coming years. And we would expect again to confirm this completion of the synergies by 2028 at the end of 2029. The product offering of this player is pretty broad. There are many components, let's call them, installation components, so still conduits, pipes, electrical fittings, metal framing, all the stuff to cable -- to manage cable during the installation and cable tray, wire basket, all the stuff. They play in many end markets, industrial construction, data center, cables and components for Power Grid for utilities, renewable business and specialists. The perimeter is supported by -- the business is supported by 3 factors. So they're very spread and they're able to reach out all the end markets in a different state in the United States. They also have a presence, a salary as a statement, 50%, 60% of the revenue is made overseas, EUR 2.8 billion revenue in total in '25, EUR 306 million EBITDA and 14% EBITDA margin. Some comments about the value of the acquisition. The EV is $3.8 billion, going to $95 per share and assets. The multiple based on 2025 is pretty contained 9.8%. And after synergies, it would go down to 7.1x the EBITDA of 2025. Creation, $150 million synergies and from day 1, from year 1, you will see a single-digit growth in EPS, high single-digit growth. Then supported by double-digit growth at a time rate in the implementation of resets. It was important to preserve our investment-grade rating to this acquisition and at the end of the '26 pro forma ratio will be 1.4x EBITDA year-end. So confirm closing -- confirming the value creation associated to this acquisition. It's a third acquisition in the United States start with Atkore, giving us leadership. We continue with the channel where we gain a remarkable position in the digital solutions space. And with that, we complement journey initiative with Atkore in 2024. The one stop shop is the most relevant rationale behind this acquisition when we have drawn a portfolio, and you can sell the whole footprint of cables. They are needed by customers, data center distributors, agents, PCs, you gain leadership gain share of wallet and also profitability enhancement in the market. Solution provider is what we are aiming at. You know that we have target out there for 55x our revenues that can be considered social and this is actually consistent with that and even but adding more revenues as solution drivers to our perimeter. The accretive acquisition from an speak to itself for the value and the compartmentality of this acquisition to our credit. Having covered this, and then I'd like to leave the floor to you for your questions and comments.

[Operator Instructions] We'll now take the first question. Coming from the Max Yates from Morgan Stanley.

Maybe just my first question. Could you just sort of walk us through the industrial logic a bit more. So when you sell a cable via a distributor, how do these products actually kind of relate to that sale to -- is this about sort of packaging them together or at the point of sale? Or is this really what are the advantages for the customer of having these 2 products kind of together under the same roof as opposed to them just buying those kind of individually.

Max, this is the key point I pertinent appreciate the ration of the deal. Our go-to-market is similar to Atkore. We use agents to sell our cables to distributors. Mainly through distributors and PCs. Our distributors, which, by the way, are the ones that we need from the Atkore acquisition already sell other cable components and call them installation components alongside our cables. And in particular, most some of them already sell Atkore products. to the same customers who we sell the cable tool. So in the end of the day, the packaging is the logic behind this. When you have a larger portfolio in the go-to-market through our own agents, which we will, of course, consolidate with the region. When you sell the cable plus components, you enhance your chance to win the bid you become stronger, you sell more than individually because that is actually a package. You need a cable, but you need at the same time that you deliver you need all the components to store cables at the premises. So that's in the strong rationale behind this acquisition complementarity portfolio, same go-to-market, same agent packaging solutions, packaging orders.

Okay. And maybe just sort of 2 more brief ones. So just the synergies, cost -- how much is cost, how much is revenue? Just if there's any kind of guidance you can give us there?

We have out of the $150 million synergies more or less 65% of those synergies are commercial. So call it between $90 million, $100 million. The rest can be associated with operational synergies, procurement and organizational synergies. So $100 million revenues, the margin of lift $50 million cost efficiencies. And to be honest, we haven't completely inverted this $150 million on the operational side opportunity to further consolidate the perimeter. There is also some cable production at Atkore sites, which we might decide to move in our factories. So all these additional opportunity handling included in the original $150 million submission. .

Okay. I'll let someone else ask about the equity raise. But my final question is actually just more about -- it's just more about competition in a course end markets and how you get comfortable with that. If I go back I think I've written notes in the past about kind of that caused profit warnings back in 2025, where people were kind of comparing it to your business. They had a lot of issues with imports from Mexico, I remember at the time. How do you get comfortable with the sort of competitive landscape? And I would assume their business looks a lot better under a tariff regime than not. So I guess does this acquisition work in a world where we don't have 50% tariff on imports of raw materials? And how did you get comfortable in the due diligence with kind of Atkore's competitive position given there seems to be a real issue for them 2, 3 years ago? .

Yes. We carefully analyzed in our due diligence, those aspects, Max. There has been normalization in the pricing and margins for the company. The trends that they follow in the last 5 years is pretty much the same that was recognized in our legacy Prysmian perimeter INC and Atkore where there's been an increase on margin through period '21, '22 and '23 and then a normalization. We see us -- see to now at the bottom of the normalization in fine margin has started improving in quarter 2 and quarter 3 on this fiscal year 2026. As side as competition is concerned, we see them first of all, they are the ones with the largest portfolio. in the deepest portfolio. So they have a comprehensive offering in terms of installation components. Most of the competitors are very debt presence, but only in few verticals. So that's why their portfolio combined portfolio that we own, which is the largest possible give us a significant competitive advantage over the other competitors. That is as far as the target is concerned, that we didn't see a particular consulting point there. They have good sources for the key commodity material competitive sources. They suffer a lot in terms of operational inefficiency, more than raw material cost increase in the last few quarters. So I think that with the consolidation opportunity and bringing the discipline of Prysmian will restore a proper efficiency manager, cost manager and go for an announcement of EBITDA margins.

We will now take the next question from the line of Uma Samlin from Bank of America.

So my first question is on the data center exposure of Atkore. It seems like they do have a relatively significant data center to exposure would be that? And also, it seems like they've been growing at less than the Atkore business, the data center exposed part of Atkore at around 10% year-to-date. And would you be able to elaborate what are your thinkings there? What should we think about the total set wallet for your data center customers after the acquisition?

Thank you for the point, Uma. They have more or less 10% -- 10%, 15% of revenues in data center. So they've not been able to capture talent growth in -- reasons that I think we need to dwell on now, but that's exactly the point why have we've been able to grow fast in our data center end market and our share of wallet has increased a lot, and we became the #1 provider of cables in data center. Having this additional to portfolio where we can combine cable and more cables for data center sophisticated education with train component, we can further accelerate growth in data center together with to -- so as Atkore can join forces ease a stronger player in the data center market in U.S. .

That's super helpful. Another 1 I have is a follow-up on the synergy part. So this reminds me a lot of the general cable you did in 2018. And I was wondering like do you see a lot of synergies in terms of procurement of raw materials and SG&A and manufacturing optimization. And I guess you touched a bit on that. Would you be able to lap perhaps a bit on that? .

I would rather, associate this acquisition in terms of similarity more to anchor than joint general Cable. In general, cable, teens and consolidating the market and 75% of the synergies were cost synergies and we didn't think of achieving commercial synergies back there then a made also upside in commercial synergy. But when you look at the size of the synergy we for $150 million, this is the same amounts that we committed to achieving in Atkore $150 million. And the breakdown between commercial and operation is exactly the same, were $90 million commercial synergy with Atkore and we have now an [ 9500 million ] worth of synergies in Atkore. And the operational synergies are slightly different. There is the Atkore in no million operational is basically associated to the consolidation of our cable activity legacy treatment into Atkore side with Atkore, we have some organizational opportunity we some procurement savings, and we have also some manufacturing consolidation. But the split the breakdown is pretty much the same, $100 million commercial operation is more or less the same rate that we Atkore wire.

That's super helpful. My last 1 is on the U.S. listing. So I guess you previously mentioned that you could potentially the MA as a way to do a secondary listing in the U.S. It seems like that's a bit more further down the line, would you be able to perhaps let us know what's your thinking on that?

We -- this will further expose us to the U.S. We will become even more U.S.-based than before. The revenues and EBITDA generating as we can even higher share in our total portfolio, and U.S. listing will be an opportunity at the right moment that we will disclose. .

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

Just a question on the U.S. exposure. If you could just remind us how much of our Atkore revenues are U.S. And just looking at the other locations that you mentioned is -- how do we think about international locations and other market opportunities for you? Or is this really just a U.S. story just to understand that regional dynamic a little bit more clearly.

Sure, Sean. No, it's not just that you are selling though U.S. is a prevailing part of Atkore and is where the electrification market is the strongest outside the there is a presence in Canada. There's a presence in Australia and New Zealand presence in U.K., Europe and a minor presence in South America and call it, 24% is the U.S.-based revenue and rest is this international business, which is very relevant also because it's exactly overlap, we -- where we have stronger cable presence as said, U.K., Europe, LatAm and APAC, Australia, New Zealand.

Okay. And can I just check some of the numbers that you gave because it sounded like you're talking roughly 100 on commercial synergies and 50 on cost synergies, which is more like a 2/3, 1/3 split. .

Yes. Correct. Correct, Sean.

We will now take our -- the next question from the line of Lucas Ferhani from Jefferies.

Just the first 1 is how do you plan on managing it Will it be kind of a stand-alone within presume? Or do you plan to fully embed it within the electrification business?

It will be managed as a stand-alone asset, but embedded it completely in the electrification business because it with the combination of Atkore legacy Prysmian and Atkore. It is where you will find the EBITDA came from these subprimes. So it will be included in the electrification segment of the United States and also in the other relevant geographies.

Perfect. And then another 1 just on litigation. They were involved in kind of an antitrust litigation it seems the main issues have been resolved, but there are still some that are ongoing. So I was wondering, is there anything in the deal regarding kind of the potential liabilities of remedies that would be needed if there's anything else on that topic? .

So there is still a pending litigation with you that we assessed during the dealing just at that to assess, and we embedded this potential impact in our price. So $95 is where we factor in the possible risk arising from antitrust, not antitrust, litigation. .

We will now take the next question from the line of Nabil Najeeb from Deutsche Bank.

I just wondering if you could talk about the financing the deal and the thought process there. I realize there's going to be a combination of debt and equity. But in theory, it looks like you can comfortably do this with just debt financing and still be investment grade. And on the equity side, do you plan to use up all of your treasury shares? Or would you also issue new equity here?

Thank you, Nabil. I'd like to defer the question to Francesco, that is online. .

Thank you, Massimo, and good morning, Nabil. Actually, the financing is targeting to preserve our investment grade -- it will be a mix of equity and debt. You are right in assuming that the amount of equity will be fairly limited. Just to give you an indication, we believe that the amount of equity taking, let me convert this in Europe, taking a EUR 3.3 billion transaction enterprise value. We believe that the amount of equity will be around 20%. This is really limited because if you convert that into shares it means barely 2% of our capital at the current 2%, at the current stock price. And as I say, 20%, 20% plus we anticipate to finance through hybrid debt. As you know, hybrid debt is also from the rating point of view, a 50% equity component. So this will provide only from the credit point of view, additional equity, but actually hybrid is not a dilutive instrument, as you well know. And so 20 % plus 20% and another 60%, which is, by far, the largest part will be debt -- this is the way we will finance the transaction, ballpark numbers and it's totally consistent with our current investment-grade rating, which has, by the way, recently -- has been recently improved to a positive outlook, as you know. Okay. I think -- [indiscernible] well, we can both resort to treasury shares or newly issued shares in the same transaction basically, which will be this is 20% of the total enterprise value. So we have not decided yet if we will prioritize treasury shares or newly issued shares but it's totally, let me say, neutral from a value creation and dilution point of view.

We will now take the next question from the line of Monica Bosio from Intesa Sanpaolo.

I was wondering whether if you can elaborate a little bit more on the breakdown of Atkore businesses. So you say that part is to data center, but if you can elaborate on how much of Atkore business do you consider as cyclical? And how much not? And I was wondering about the sustainable EBITDA margin for Atkore in 3, 4 years' time. And the last question is on the synergies. Should we expect synergies will be evenly split in 3 years time or maybe more back-end loaded any flavor could be useful. .

Thank you, Monica. So the business breakdown, the mid first breakdown between the electrical infrastructure components, which accounts for $2 billion out of the $2.8 billion in the company and $800 million is the second division of business is called safety and infrastructure. This business used to be cyclical in the past like our invest construction business after the availability of new drivers like nonresidential growth, manufacturing plant reshoring data center AI driven expansion all the rest -- the driver of growth has become solid. And this has happened already since, let's say, the end of '24, beginning '24. And so we don't see cyclical in the end markets owned by Atkore. On the contrary, we see the rates of the strength of the combination, we can drive further growth through the combined perimeter. Data center, as mentioned, is not as intent activity in as not as intense as in Prysmian because the probably missed the first wave of opportunity. But the combination of the 2 perimeter will give us chance to a line to share of wallet in the center to Prysmian and boost additional revenues there. The margins, we think has said a similar situation to that of William. We bought the company at the bottom the normalization. We think that also here, we are at the bottom, the price normalization. In fact, as I said, in part 2 and 3, '27-'26 they're seeing margin accretion becoming solid and more evident in their business. And so I think the margin will benefit from the additional synergies in terms of EBITDA enhancement. The synergies, I would say that more or less, even split between the 3 years. Commercially, we will gain faster leadership. We gain faster traction in the market. And for the operational, some are more short term, some are more mid, long term, but you can probably consider eagerly the $150 million trade over the next 3 years, '27 through '29. .

We will now take the next question from the line of Chris Leonard from UBS. .

Yes. And then guys, maybe 2 for me. The first is on core. And I think I read recently from 1 of their transcripts, they were seeing increase for product intensity inside the day center versus the typical sort of warehouse fit out. Can you just comment on what's driving this? And do you think opportunities for you to expand level as you bundle the offers together with the land cable business? And then the second question would be on the synergies at the moment that you're targeting? And perhaps could you as you draw comparisons to Atkore wire, could you maybe give us feeling how the progression is going with Atkore actually in terms of the targeted synergies you looked for of about $140 million within 4 years and how are seeing that shape up across the commercial and operational synergies you were looking to capture?