Encore Wire Corporation (PRY) Earnings Call Transcript & Summary

Thank you. Good morning, ladies and gentlemen, and thank you for attending this call even if with a short notice and I think you appreciate the strategic relevance of the yesterday announcement -- or the today announcement. I'm really excited to share with you that last night, we signed this agreement to acquire Encore Wire. And this represents, by far, the largest deal ever completed by Prysmian in its history. We are acquiring a strong player in the United States in the industrial and construction space, to be specific, a single site operation with a highly verticalized integration and strong efficiency service and a great customer base. I want first of all, to welcome the Encore employees, all the people, the staff, the people at the operations. And I want also to thank a lot CEO of Encore, Daniel Jones. His leadership has been really great, outstanding. He has created and built a champion in the United States starting from scratch 30 years ago. And I'm confident that with this M&A and with the Prysmian's strength in that geography, we together will become an even greater champion in the market. So we signed this agreement to acquire 100% share of the Encore company for a consideration of $290 per share for an implicit enterprise value of EUR 3.9 billion and EBITDA ratio on EBITDA of 8.2x, which becomes 6.3x if you included a synergy at the run rate state. The rationale is very relevant. The main element that has led us to consider this acquisition is, it's an outstanding opportunity for us to become even more relevant in the American market, is the complementarity of the portfolio between Prysmian and Encore and this combined with highly verticalized operations of Encore in terms of upstream activity, rod activity and compounding activity and downstream service level, makes this operation and this acquisition highly synergistic. We increase the exposure in the North America market, which is, as you know very well, in our footprint, the highest profitable market. And with EUR 140 million run rate synergies, will top up the EBITDA of the 2 company with additional upside, which we expect to generate earlier than the 4 years mentioned here. Let me say that at least 2/3 of the synergies will be achieved in the next 2 years. I will be more specific of this in rest of the presentation. So with this acquisition, the pro forma '23 will read EUR 17.7 billion EBITDA in terms of revenue and EUR 2.1 billion EBITDA in terms of EBITDA. We will finance it with a combination of Prysmian's balance sheet and new committed debt of EUR 3.4 billion. And the accretive EPS is visible from the chart, 20% pre-synergies, plus 30% after the inclusion of the synergies. Now Encore is a single-site operation. It's a campus where multiple plants are set, has been founded in 1990 and it employes 1,600 people and the single site and the vertical integration make this operation extremely efficient and well suited to serve the market in the best possible way. And you remember in this market, what matters is the service level. You see our number in '22 growing, thanks to the service level, thanks to the ability to lead the market in terms of lead time. This is the rationale -- this is the main benefit of the operation in one single site that we can gain thanks to this acquisition. We have very exciting use cases behind the business case of Encore. They are present in all segments of the market. I will say that 40% is their presence in the residential space while 60% is their presence in the industrial space. You might remember that our split is 5% in residential and 95% in industrial. Highly complementary products, highly beneficial of -- benefiting in terms of use cases opportunity and growth. The financial profile of the company is well explained by this right-hand side, $2.6 billion, $500-plus million EBITDA last year, 20% EBITDA margin. So to recap the benefits of the acquisition in terms of strategic relevance, we will further increase our presence in North America in a segment where we're not that strong in the asset construction. So this highly complements our position across all the segments. We are already a significant player in the power grid space, in the transmission space and in telecom space in North America. With this acquisition we rebalance our portfolio in North America in terms of relevance in all the segments of the business. The efficiency, I already dwell on it before, is this has created the opportunity of combining the efficiency and effective footprint of Encore with ours and become the best player in the United States in terms of services to our great partner, customer, distributors. Product complementary is obvious by what I mentioned before. They are a specific strong player in industrial construction. We also, industrial construction have other products that can now perform and in addition, we have all the other segments making the complementarity and the relevant cross-selling opportunities, if not the main, one of the main driver for this acquisition. We will complement Prysmian in terms of EBITDA with additional EUR 140 million synergies. 40% of the synergies are operational synergies, 60% are commercial synergies. And as I said before, we will achieve 70-plus percent of those synergies within a year or 2. You can appreciate from the chart on this page, the change of perimeter in terms of revenues. We are moving from EUR 15.4 billion to EUR 17.7 billion. And you noticed that North America share of our business grew from 30% to 40%. Even more interesting is the view of the EBITDA split of the company. EUR 1.6 billion, the current 2023 EBITDA of the company Prysmian; EUR 0.5 billion, Encore; for a combined level of EUR 2.1 billion. North America will become the most contributive region inside our footprint in terms of EBITDA accounted for in excess of 50% of our EBITDA. And we are very proud of this because we are strong in North America, which is the most profitable business we have in our perimeter and we increased our exposure to the most profitable business that we have with stronger driver for growth in the future. The accretive impact to the EBITDA margin is visible, 10.6%, our EBITDA margin, combined with 20% make this deal, allowing us to achieve 12% level, which will become 12.4% after the synergy inclusion. We have a solid balance sheet, as you know, and we've been asked many times what you think about the future M&A. The time has come for the future M&A with a 0.7 ratio. We will really pause to make new deals happen. And after the acquisition of Encore, our ratio will go to 2.4 and you can count on the usual vigor and discipline and the ability of Prysmian to delever the level of debt of company to a similar level at '23 by 2027. Thanks to free cash flow generation of the organic growth of Prysmian and the other businesses and the synergies and the complementarity of the acquisition. The EPS, as mentioned, will grow as high as 30% after the synergies acquisition implementation. And as I told 2/3 of the synergy will be achieved within 2 years. So let me recap the rationale and the main remarks. So we will further expose -- increase exposure of the company to the secular growth drivers in the most profitable perimeter and in the most profitable geography that we have, North America. We will benefit from the efficient footprint operation created by Daniel in McKinney, Texas, campus. We confirm EUR 140 million synergies with accelerated phasing and the accretive EPS at 30%. The additional incremental cash flow generated by the combined entity will further accelerate the path to the deleverage of the company. I mentioned to you at the Capital Market Day that we were focusing on organic growth to achieve our goal of EUR 2 billion by 2027. And organic growth remains our major opportunity and to capitalize on the growth drivers and secular trends and use cases that we see from the market. But you recognize that M&A is in our -- it is in our DNA. And by the way, with this acquisition, we will reach the EUR 2 billion goal faster -- much faster than 2027. And by 2027, of course, you can figure out what will be the EBITDA level of the company once we perform the organic growth as per the Capital Market Day. So thank you all. I think we leave the floor now to the Q&A session.

[Operator Instructions] We will now take the first question. The first question comes from the line of Vivek Midha from Citi.

So my first question is on the accretion. So can we double check that your calculation of the accretion is based on Encore's 2023 earnings? And then related to that, how should we think about Encore's earnings trajectory from here? Clearly, their gross margins have already fallen much of the way back to its pre-COVID levels. But should we assume further downside given that normalization that they've seen?

Thank you, Vivek. And I'll turn this question to Francesco.

Thank you, Massimo. Good morning, Vivek. Actually, the accretion calculation is based on the first full year of impact of the transaction, which will be 2025. This is resulting in the 20% accretion, pre-synergies and the 30% accretion post-synergies, which is, however, including, as Massimo said, 100% of the synergies at a run rate level. Of course, we made our own due diligence and we made our own assumptions and estimates on the trajectory of Encore. Encore is still a public company, so we cannot comment. You certainly understand this, we cannot comment too openly on this. But what I can say is that I believe we have been quite prudent in our own assumptions, point number one. Point number two, we have considered 2 drivers in the results. One driver is actually the very strong demand and market that we're seeing in North America, which is, by the way, also impacting our legacy perimeter, our own perimeter in the same business, in the industrial construction in North America. And this will certainly drive a volume increase for Encore. Also considering that they have a very significant amount of capacity in place, of spare capacity in place. So in a way from this point of view, even better than our own perimeter. They will be -- they are certainly played better than us, I feel talk about the 2 companies, if I may, to capture this growth. But at the same time, we have also -- and this is maybe the prudent part of our -- we hope, of course, the prudent part of our assumptions. We have also considered that the price normalization that we are -- which is ongoing, as you know, in our perimeter is also still ongoing in their parameter. Even if we have to say that being then a little bit more exposed to the residential business, as Massimo said, 40% versus our 5%, and this is positive for us. They may have taken some of this price normalization earlier than us because of the difficult cyclicality of the different end markets in North America. I think -- I hope I was answering your question.

Yes. That's very helpful. My second question, if I may. Just a quick follow-up. You mentioned that there's still a decent exposure to nonresidential sales as well as the residential. Obviously, you have exposure in nonresidential too, albeit perhaps in a slightly different vertical. So how should we think about antitrust risk with this acquisition? Do you think there's any risk you might be able to divest certain product lines or something like that?

Thank you, Vivek, difficult question. We make our own assessment and consideration for the regulatory elements. We consider the whole space of building wire, copper and aluminum and all the rest of the products we have, we don't see us hitting any serious threshold or ceiling in antitrust levels. Of course, we have to wait a couple of months to see what the DOJ position would be. We feel pretty much confident that given the widespread products and verticals of the combined entity of the legacy companies, we will be kind of safe in this regard.

The next question comes from the line of Monica Bosio from Intesa Sanpaolo.

Hello, can you hear me?

Yes, we can hear you, Monica.

Congratulations for the deal. Unfortunately, I didn't have time to for a deep dive in Encore. So I have 2 questions. The first one, if you can give us a flavor on the organic growth rate for 2024 for Encore because I'm just asking this because looking at Bloomberg consensus, the full year 2024 consensus for Encore looks a bit lower than the full year 2023 results. So maybe it's because there are a few contribution, but just -- I'm just asking. And the second question is do you see a 20% margin as sustainable going forward also on the back of the pricing normalization. And the last is a check for Massimo on the EUR 140 million market synergies. I didn't get how much of these synergies will be achieved in the first 2 years, sorry, for this?

Monica, thank you for the questions. We try to respond on 2024. We have seen in Encore quarter 1 numbers, which will be released pretty soon to the financial markets, solid growth in quarter 1 2024 vis-a-vis quarter 1 2023. When I say solid, I mean, a double-digit growth, so very relevant, which is not a surprise to us because we've seen the same rebound in volume demand from distributors and different customer also in our legacy perimeter. So the consensus, I agree with you of Encore company for 2024 is pretty low. But I think they will surprise the market positively in the next quarters. In light of your second question, the 20% EBITDA margin, is it sustainable or not. We think it is, because we've been monitoring the profitability per quarter of this company, as we monitor ours. And we must acknowledge that in quarter 1 this year, they showed a stabilized level of profitability. Quarter 4 was, for them, probably the end of the normalization. Quarter 1 will confirm that normalization has come to an end. And if anything, they have some upside driven by the additional volume demand. So we consider the 20% certainly stable. How much we'll see on the synergy next 2 years? We will definitely achieve the last -- the vast majority, if not all, of the commercial cross-selling opportunities, namely, let's call this EUR 100 million in the next 2 years, leaving the balance EUR 40 million, which is related to some operational integration of manufacturing activity for year 3 and partly year 4.

We will now take the next question from the line of Max Yates from Morgan Stanley.

Could I just ask on the split of the business from a revenue perspective and perhaps kind of [Technical Difficulty] would be -- and kind of, firstly, how much is construction and how much is maybe other sort of medium voltage industrial cables? And then sort of secondly, well, let's start there. Just firstly, the split between, you gave us construction, how much is residential, but how much is sort of [Audio Gap] industrial, maybe medium voltage as well would be helpful.

Thank you, Max. It is industrial construction space is with a breakdown of 40% residential and 60% industrial. The residential is low-voltage building wire and copper building wire. The residential -- sorry, the industrial is still aluminum building wire and copper building wire. So they don't have a medium voltage exposure, they don't have medium voltage capability. And they don't have other cables that we call portable cords and electronics or other stuff that we sell in the industrial construction space. So they are in, let's say, 2 verticals in the industrial construction space out of the 4 we are in and they're complementary with us with this. So we are in 2 additional verticals and we are less strong in the verticals where Encore is strong. So we have a double benefit in terms of complementarity.

Okay. Maybe just then the second thing, just on the synergies. You mentioned, I think you said 40% operational, 60% commercial. Could I just check, does that mean 40% cost synergies and 60% sales synergies, so selling through their channels, additional products? Just getting a better feel of that number would be helpful.

Yes. You interpreted correctly, the 60% commercial are additional revenue and incremental margin. The 40% operational are organizational efficiency, so of course, we will merge the 2 organizations, but most of them will be represented by manufacturing synergies. I mentioned to you, they are fully verticalized upwards in rod activity. And we think that we'll benefit from the high verticalization in the rod and compounding activity as well as we can benefit from the higher verticalization, integration they have downstream on the service center, the distribution operations. So you have got it correct.

Okay. And just final one, and I think we need to sort of push you a bit on this because this is the main question, the one that we have got all morning. So you said you think a 20% EBITDA margin is sustainable. Is that a comment just for 2024? Or is that in -- when you look at this business out on a 5- to 10-year view? Because I mean if I just take a step back, 20% EBITDA margins is way higher than your renewables transmission business is going to do in your plan. So it's higher than the high-voltage business. And this margin for this business, as recently as 2019 was 7.2%. So what do you look at that gives you kind of any comfort because my understanding with this business is the moment kind of margins get elevated, like 2007, 2008, the supply side adds capacity because it's attractive, it's a regional business and margins kind of revert back down to normalized levels. So what are you looking at in this business in terms of kind of market structure, change in the industry structure that gives you confidence that we won't be back at 10% margins in 2 or 3 years? I'd love to get your kind of what you're looking at. And obviously, you know this market well from General Cable, but just help us understand because that's the main question I think we've received all morning.

Yes. I think one of the main consideration, Max, is that here we are comparing their 20% EBITDA margin in industrial construction space to our average EBITDA margin for the company. If you were to compare it to the industrial construction space, premium North America margin, you will see much less distance between the 2. We had, as you might remember, in '22 and '23 also increased our EBITDA margin in industrial construction in North America, we don't have full visibility of this number. But thanks to the stronger demand of the market and the supply chain disruption, we went well higher than this EBITDA margin in the past 2 years. So the 20% margin stability is what we see in the mid and long term. And the main driver is that we had achieved a similar margin also in industrial construction North America ourselves. First point. Second, we see strong demand. We see strong drivers. In quarter 1 this year, we've seen the market rebounding by 20%, 30% volume increase, the data center business, the reshoring activity, the new investment in infrastructure driven by IRA and by the need of modernizing the infrastructure in North America is visible now, is very visible now. And this will be helping this margin remain solid also for the future.

Okay. Understood. Maybe just a very quick final one. Could you just give us a feel for kind of what you think their market share is in the main businesses that they operate maybe in kind of it sounds like residential construction is sort of one of the strongest positions. Just so we understand the market structure a bit better, do you see them as the #1 kind of player in residential construction cable? How do they compare with sort of Southwire's market share? And what do those market shares ultimately look like?

Yes. We are -- I'm a bit hesitant to comment on this because, as I said before, we have still an open procedure with DOJ. I can only anticipate that their market share in the market is similar to that of supplier.

We will now take the next question from the line of Alexander Virgo from Bank of America.

Massimo, I appreciate the color that you've provided already. I wanted to just come back on Max's question maybe from a slightly different angle and just talk about pricing. Because I think if I recall correctly, this time last year, Encore was one of the sort of first movers on pricing in response to, obviously, the dynamics around copper and volumes. And I think you saw that flow through in their EBITDA margins through the back end of the year. So I guess, I appreciate your point on the [Audio Gap] medium term, but I guess just to understand the pricing dynamics here and whether or not something that you said to us at our conference a couple of weeks back on commercial terms and pricing discipline in your own business is something that you would seek to implement and perhaps be more rigorous upon in acquiring this asset. That's the first question. And then I wonder, just on the second question, given your comments around the verticalization here and the fact that it's already a single site, I'm just wondering where the $40 million might come -- or EUR 40 million, I'm sorry, might come from on the operational side of things. So those are the 2 questions.

Yes. Thank you, Alex. Very clear. So pricing, I think, was mentioned before by Francesco. Now we are in the same space industrial construction. We have seen ourselves from the end of quarter 1 last year, the price in this space to start normalizing. On the contrary, Encore has seen this normalization happening already in quarter 4 2022. And so [Technical Difficulty] in this price normalization pattern. To the point that in quarter 4 last year, we think the bottom was achieved of this price normalization. As a matter of fact, I cannot be explicit on quarter 1 because they still have to announce it. I can confirm pricing stability in the market also for ourselves, by the way. We noticed in November, December last year, price has slowdown in terms of amortization. And in January, February, there's been actually a kind of rebound in pricing in the copper and aluminum building wire space. So that's why I mentioned before, we think that their normalization has come to an end in both footprint, ours, and that of Encore. I hope this answers your first question, Alex, before I move to the second one.

Yes, that's helpful. That's helpful. So the Q4 pricing stable and Q1, we've seen a bit of a step-up.

Yes. Let's call stability in the way between quarter 1 and quarter 4 last year, which is a bit of a positive surprise, a positive trend for the market. We were mentioning to you that we would see another few quarters in terms of normalization. It looks like that this is not going to be the case. Now talking about vertical synergies related to the operational cluster. There are opportunity for Prysmian to benefit from the vertical integration of Encore. They are producing internally compounds. But more importantly, they are producing internally rod -- copper rod with some significant savings in terms of dollar per ton of what they make vis-a-vis what we buy from the market. So chunk of these operational synergies are related to this benefit becoming ourselves more vertically integrated, thanks to the assets of Encore. Of course, there are some investments to make, but we have a clear way, a clear path way to these synergies. Then, of course, there is some possibility to consolidate part of our production into Encore on-site operations.

Okay. That's very helpful. If I could slip one final one in on your -- the financing cost with respect to the new debt facilities just so we can model that correctly?

Yes, I will take that. Basically, as Massimo mentioned, in the presentation, the acquisition is financed by a mix of cash on our balance sheet, approximately EUR 1 billion utilization of cash. And for the remainder, meaning EUR 2.9 billion is financed by new committed facilities. Of course, this acquisition is part -- is entirely focused in North America. So it will provide additional streams of U.S. dollar and U.S. dollar earnings and cash flows. So we will finance with a mix of -- this acquisition financing will be a mix of U.S. dollar financing and euro financing to provide you a ballpark number. It will be 2/3 U.S. dollar financing, 1/3 euro financing. And to provide you an idea on the cost of this financing, the euro portion will be a cost between 4% and 4.5%. The U.S. dollar portion unfortunately, it's more expensive, as you perfectly know, will be between 5% and 5.5%.

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

I have, let's say, 3 questions, okay, if I may. The first one is on the CapEx related to Encore Wire. This is a company that basically is under a capacity expansion plan. Can you comment a little bit, first of all, the additional capacity they are raising, but also let's say, run rate or operating CapEx that the company, they can achieve after this CapEx plan that they are doing? That's the first question. I don't know if you want to go one by one?

Yes, let's handle this all for the stake of simplicity one by one. Thank you for your question on CapEx. The company has invested a significant amount of money to expand their cable capacity, I would say in the range 20% to 30% is the capacity increase in the cable space. But more than in cable capacity, they've invested in vertical integration, they've invested in upwards integration with compounding facilities. They can -- they will launch this year the new XLPE installation material, compounding material for installation. This process -- this production will come on stream in quarter 3 2024. They have a plastic compounding activity where they have integrated in. And they also invested in verticalization downstream in creating a one large distribution center still located in the same place, McKinney. So to make this efficient manufacturing machine capable to serve the market with the same efficiency. They can sell the market in 24 hours, 48 hours, which is definitely a great state-of-the-art performance. The level of CapEx has risen to a level of $150 million per year in the last 2 years. And there is another large investment in the vertical integration space, which I cannot comment on. After this level, I mean, they will go down to a more historical level of below $100 million, let's say, $60 million, $80 million CapEx per year. Capacity would be expanded to a point that in addition to the specific additional equipment, there is room for further growth by leveraging a 7-days operation as opposed to a 5-days operation that is the current way they work in that facility.

Okay. And then the second question is much more on the accountability of Encore Wire related to the hedging strategy. Clearly, for this business, a copper price component looks much higher. Let's say, does this company put in place a hedging similar to one, for instance, you have for your, let's say, business, clearly similar to the one with Encore Wire, just understand what they do, but also, let's say, which kind of hedging the company can introduce according to your practice to Encore Wire.

Thank you, Alessandro. They have a different model because they are so fast in turning copper into rod, into products that they are naturally hedged because what they buy is sold within the same month. So they don't need the complexity. They has lower hedging because they don't have the project business, they don't have other business where we have a long lead time between when we source material and when we deliver cables. So they have a very simple model, very, very efficient, very effective. And of course, we plan for maintaining this model also for them.

Okay. And then the third question is related to the synergies. So basically, you are assuming first year of consolidation in 2025 for the assets. And if I understood well, in year 2, like 2026, you are targeting around 2/3 of your synergies coming. So just if I understood well on this. And the question is considering that around 60% of that are basically commercial, which sort of cost integration cost or CapEx as you mentioned in the presentation, are you assuming?

Thank you, Alessandro. So yes, I confirm that within 2 years from the closing, the closing is slated to be in quarter 4 this year, but this is subject to, of course, to the evolution of the discussion with DOJ, which will start in a few weeks. We need to, yes, deliver this 2/3 of the synergies. 60%, let's give a number to this 60%, let's call it, EUR 100 million are the commercial synergies and EUR 40 million are the operational synergies. Some of the operational synergies are subject to some investments and it's why they might take longer. Some of the operational synergies will be straight-forward. Inside the commercial synergies, there are some CapEx because in order to benefit from the complementarity in order -- sorry, to sell to legacy Encore customer products that they don't have, we also need to expand our capacity in some verticals. Let me give you an example to clarify what I'm referring to here. We have to add the more medium-voltage capacity in our space to make these medium-voltage products a real cross-selling opportunity for the existing and the current footprint of Encore. So there will be some investment in medium-voltage, which again will come to fruition after 2 years of this -- after 2 years from the closing.

Okay. And then last question is just a curiosity. Considering that this is a company having this single plant model, is Texas state a relevant or, let's say, a key market? Just to understand which portion of sales Texas represents for Encore Wire.

I'd say that they are U.S.-based. So while we sell industrial construction also in Canada and in other distant region, they are very concentrated in not necessary in Texas only but within, let's say, 1,000 miles from where their factory is because what matters to them, which is a real value for the market, is a service level. So with this focus on regional space surrounding the site, they can serve in 24 hours, 48 hours. And our -- what is our complementarity in terms of distribution centers, we have distribution center outside of this space. So that's why we will sell their products outside of their specific geographical base, which remains, any way to connect to your question, very relevant in terms of market demand.

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

Congratulations for the deal. It seems to be very, very good.

Thank you, Gabriele.

The first one is on the difference in terms of EBITDA between U.S. GAAP and IFRS. Is there any meaningful delta between these 2 numbers, if you know?

No, there will not be any material difference, not based on our due diligence and not in any case, I would say.

Okay. Perfect. The second is on -- I remember the General Cable, let's say, deal, and I think I'm not wrong in saying that there was a bigger, let's say, efficiency -- there were big efficiency gains in the management of working capital. I understood that this is a totally different story, but I was wondering if you see any kind of, let's say, upside in the net working capital management in terms of cash and so on.

Yes, Gabriele, we want you to be conservative on the net working capital because, of course, our main goal is not to destroy what is working very well. But of course, we counted on some -- we defined some EUR 100 million worth of net working capital synergies, mainly in the area of supplier receivable -- payable. There will be upside, which we didn't include in our business case, in our business model for the valuation of the company, but it would be significant size as we had achieved also in General Cable.

Okay. And again, I don't know if you can tell me, but is there a, let's say, a level of free cash flow at Encore that you have in mind, something like, I don't know, a conversion ratio on EBITDA or something similar going on.

Gabriele, Francesco speaking. That's, I think, a very strong profile of Encore, frankly speaking. If you look at their history, you see that they have in the past few years, accumulated very significant amounts of cash in their net cash position. And this is, of course, witness to their highly cash-generative profile. Just if we want to, let me say, around some numbers and we want to speak in the U.S. dollar, which is easier is say that we assume a run rate for this business as stand-alone, which is, in principle, stable compared to the current level, okay? And as Massimo mentioned this before, now they are going through a quite intensive period of capital expenditure because they have increased their capacity very significantly over the past few years. But at a normalized level, we believe that there will not be any need of very significant CapEx. So Massimo mentioned number in between USD 60 million and USD 80 million, could be even lower, frankly speaking, on a run rate level. The tax rate in U.S. in Texas is not that high, is not even lower. It's 23%, so slightly better than, for instance, our group tax rate. The run rate of the net working capital will be stable, so this converts into a very strong cash generation, which will be added up to our well known target of EUR 900 million, EUR 1 billion free cash flow by 2027. So we think that we will strongly capitalize on this cash profile. So we presented the accretion in terms of EPS, but you may think that a very similar accretion is there also for the free cash flow per share, for instance.

We will now take the next question from the line of Vivek Midha from Citi.

A couple of follow-ups. On the sort of capital structure, the first one is on the buyback. You had commented that you wanted to finalize some of the opportunities around M&A before commenting on the buyback. If that is something we can expect in the coming months or in part are you waiting for the closing, so to comment on that.

Yes. Thank you very much for your question, Vivek. It's a very important one, and we have to make obviously, clarity around this. I would say that the capital allocation that we commented at the Capital Market Day last October is still in place as far as dividends is concerned, okay? Meaning that, of course, this transaction releverage us quite significantly, totally in our comfort zone because it's 2.4x in terms of net debt on EBITDA, but still significantly up from the 0.7, 0.8x that we are right now, but this will not affect in any case, the growth pattern of the dividend, as was announced. And by the way, we also have to consider that the cash performance -- the cash flow performance of Prysmian in 2023 and also our guidance 2024 is quite significantly above the level which was presented at the Capital Market Day. So we mentioned that the very favorable EUR 3.2 billion of cash flow accumulated, Prysmian legacy, of course, for the period 2023-2027 most likely will be exceeded. So dividends shouldn't get any change. Of course, the share buyback will be put on hold, obviously, because if you go back to our capital allocation, remember that 55%, 60% was made of share buyback and M&A. Of course, we went beyond this, significantly beyond this with these acquisitions. So there is no doubt that will put the share buyback totally on hold. But of course, here, we are talking of something that, in our view, is much more accretive and which represents a much better return for the shareholders than any buyback. Obviously, in the next few years, our focus will be also very much on keeping the path of deleveraging very fast, as we did in the past with General Cable acquisition. And also because we are very keen on maintaining our investment grade that we recently gained. So we think that these transaction is in a comfortable level in terms of leverage and the leverage path, and we will certainly be very focused on this point.

Understood. If I could quickly follow up on that. So should we expect that any future M&A we should have to wait until you're back towards that 2023 stand-alone leverage level before you consider further deals? Or do you see any scope at all for maybe small bolt-ons in the coming years?

We will not stop from looking outside, watching the market and see if there are other targets that might make sense to us. Of course, we will exclude -- we will ask the case that in one year we go for another large acquisition, that is obvious. We will still watch the market for real bolt-on or small size opportunity. In the spirit of the Encore opportunity, increasing the portfolio, making our market presence stronger, of course, with a different size. We will look at telecom, we will continue to look at telecom because we want to strengthen the portfolio of telecom. Then the size of the M&A or future M&As will depend on the timing and will depend on the leverage of these larger acquisitions.

Understood. As a final follow-up. What percentage of the end market within industrial is data center? Is it a meaningful exposure for them?

Vivek, can you repeat? I didn't capture your question.

Just a quick follow-up on the industrial exposure. How much of their sales is related to data center, if at all?

I can't answer. It's kind of a sensitive information. They are pretty exposed to this use case as well as the reshoring as well as industrial infrastructure. I mean they are a real electrification player. And so everything, there is a new building, they are in and data center belong to this class, in this space.

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

Can you maybe talk about the biggest risks with this acquisition? Is it pricing or something else? I know you talked about pricing normalizing, but do you see that as a risk still? And then on competition, recently Encore Wire have been talking about the risk of imports. Obviously, with margins still being well above the historical levels. Do you also see that happening? And do you see any synergies with regards to pricing now that you've got more market share in usually a very fragmented market? Do you think there is an element of more pricing power for low-voltage cables?

Miguel, thank you. Your questions are very interesting. I can already tell you that I cannot answer to question #3, it's extremely sensitive. Don't forget that we are in this process for the antitrust. So the last thing that I would be able to comment on is prices in synergies. But I can talk about your first point, risks. We don't see -- we don't personally see risks. We might see that what we built in terms of incremental growth of this company, driven by the capacity availability, driven by the stronger service level, their effective and efficient footprint might happen lower than we thought. Pricing wise, as I said, prices are, for what I said before, it looks like there has been the bottom of the normalization and what makes me believe that the bottom has been hit, is that at the same time that we see pricing normalizing and stabilizing at this level, we have seen a surge in demand. We've seen ourselves in the legacy Prysmian perimeter a kind of 30% uptick in order intake in the last 3 months of quarter 1 vis-a-vis what we've seen in the last 6 months of 2023. And when there is such a strong demand in the market, you can figure out where prices can go. So we don't envisage a risk in pricing at all. As far as the imports, I think we have to be more specific. Importers are present in the aluminum building wire space, while the copper building wire space is mainly covered by a local U.S.-based manufacturer. The importers in the aluminum building wire space represent a significant chunk of the market up to 40%. And yes, you're right, they are probably not the most disciplined person in terms of prices. But at the same time, there is a more and more request from United States to use local-made products. So it is true that we've seen in the last 6 months, some slight price decline in the aluminum building wire space due to the importers behavior but I think this will come shortly to an end. I hope I answered your question.

Yes. That's very good. And then one maybe last question. Now that more than half of your profitability comes from the U.S., have you ever considered moving to a U.S. listing? Could that ever be a possibility for you?

We didn't want to think of it because it would have jinxed the deal. So we will wait to consider it in the coming months.

Or years, maybe. Food for our thoughts.

There are no further questions at this time. I would like to turn the conference back to Massimo Battaini for closing remarks.

So thank you all for attending this call, and thank you for attending it without great deal of notice. I thought we have been able to convey to you the real strategic rationale of the deal and the solid elements embedded in this company. I really want to thank, in particular, Daniel Jones for his cooperation over the last 4, 5 months of this tough and intense process. I want to congratulate Encore for how rich this company is and I want really to give the credit of this to the management team, to Bret, the CFO, and mainly to Daniel Jones. I think we come across a great company. And I think together, we will drive the future of Prysmian in the North American market with even more strength and more willingness and a chance to become a great champion in that market. Thank you all.