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

Ladies and gentlemen, thank you for standing by, and welcome to the Prysmian Group 9 Months 2020 Financial Results Call. [Operator Instructions] I would like to advise you that your conference is being recorded today, Thursday, the 29th of October 2020. I would now like to hand the conference over to your speaker today, Valerio Battista. Please go ahead, sir.

Thank you very much, and good afternoon to everyone. Thank you for connecting to this conference call that unusually is from remote because due to the COVID constraints, we have taken the decision not to be in the office. But we can manage the company anyway. Okay. Let's start with Page 2, the 9 months 2020 highlights. Organic sales, excluding projects at minus 9.4% doesn't change very much with or without projects. Obviously, the situation is not easy, but it's improving because in the quarter 3, the organic sales decline has dropped to 5.2%. By segment, the telecom business has suffered a 16.9% drop as it was expected reasonably because don't forget that last year, the major drop has happened in the second half. T&I, T&I minus 13.3%, so a significant drop in organic sales. Especially in Q2, as you know, that Q2 has been the most difficult COVID quarter, and the Q3 is showing some sign of recovery depending on the trend of the pandemic in the next weeks. Onshore Wind and Renewables have shown and have recovered partly the negative trends. Adjusted EBITDA, we closed at EUR 647 million, 8.6% of sales versus the 8.9% of sales related to the EUR 773 million in the first 9 months of 2019. So the sales declined, the EBITDA margin more or less has been the same, thanks to a lot of actions we launched since the beginning of the year -- since the beginning of the pandemic. We have to consider also the strong effect of the ForEx exchange rate that mostly in the last -- after the mid of the year has hitted us significantly with the devaluation of the dollar, most of all. Q3 margin 2020, 9.1%. So in line, let me say with Q3 2019 with an energy business that has proven a sound performance and a very good profitability in power distribution, onshore wind in North America, Overhead lines and Renewables. Projects, Projects have been touched by the COVID in terms of inefficiencies in land high voltage and a little bit difficulties in execution of the project itself. Finally Telecom. Telecom is still suffering. Let me remember that in the first half, the first 6 months last year were exceptionally good as well as the second half has been bad. So we see the telecom that has been able to stabilize the margins, but the pressure is pretty strong. Net financial debt. We have been able to deleverage significantly even in the first 9 months 2019, going to a net financial debt position of EUR 2.669 billion. And the free cash flow generation of the last 12 months has been EUR 617 million, extremely good, but it's a matter of timing because last year, we were having an increase of working capital. And this year, the opposite consequently the EUR 617 million, particularly inflated in brackets by that event. Backlog is good. Backlog is good at EUR 3.8 billion of which don't forget, EUR 1.8 billion comes from the German projects that will be in execution progressively in the next years. Let's move to Page 4, the financial highlights. The sales went down 10% from EUR 8.635 billion to EUR 7.488 billion, 9 months versus 9 months. The adjusted EBITDA obviously has skidded down to keeping more or less the same adjusted EBITDA margin on the sales, 8.6% versus 8.9% and that's thanks mostly to the very strong actions we took since the beginning of the pandemic foreseeing obviously, a strong decline of the market. We have been particularly careful also with the working capital. Of course, the working capital money, and we have to be very, very careful with it. We lost a little bit the control September last year with working capital of 14.7%. Now we are back at 12.1% and is in a better shape. The net financial debt, as I already commented, we have closed at EUR 2.669 billion versus EUR 3.027 billion of 1 year ago, and EUR 2.140 billion of year-end '19. So let's go now to look at the EBITDA by business trend. And let's start with projects. The total we have already seen EUR 647 million versus the EUR 773 million of the first 9 months previous years. Not so bad, obviously, bad but not so much. In a nutshell, we have lost due to the COVID issue 10% of sales and more or less 12% of margins. In terms of EBITDA, the reduction is lower because we significantly cut all the expenses and fixed costs during this first 9 months. So projects. Projects moved down from EUR 1.247 billion sales to EUR 1.056 billion with an organic decline of 13.9%. Not very nice, but it is what it is. We have suffered some problem in production and installation for high voltage that is starting to recover now. We have to see what's going to happen with the COVID in the Q3 and Q4 -- in the Q4 sorry. In the meantime, the tendering activity is very good in submarine, especially, and we expect to increase the order backlog in the next quarter. Energy. Energy moved down from EUR 6.98 billion to EUR 5.385 billion with an organic decline of 7.8% that excluding in the last quarter is 4.2%. So it is reducing the gap on the previous year. E&I. E&I is one of the most affected business with minus 8.6% of the sales organic growth. And in the last quarter has improved in brackets to minus 4.4%. Overall, the performance of E&I has not been so bad with EUR 224 million EBITDA versus EUR 238 million, even improving a little bit the EBITDA margin. But the margin, nobody can put in the banks. Industrial network component, 7% organic decline, 4.1% in the last quarter. Let me say, reasonably acceptable. Obviously, the first impact of the pandemic has been on the sales and on E&I, then is going to move to industrial and network component because the industrial cables are coming later. The performance for Renewables and Railways are pretty good, whereas, especially in the first 9 months, the first 3 months. Automotive, aviation and mining have been suffering quite a lot. Finally, Telecom. Telecom is the most difficult business today. with an organic decline of 16.9%, minus 10% in the last quarter. Consequently it is still very much under pressure. I have to say that the margin -- the EBITDA margin is still over 15% for the time being. But 15% [indiscernible] consequently, we have to be careful because if the business is not going to recover, we have to suffer a little bit. The sales decline was expected. Obviously, has been also impacted by COVID effect. Now we are seeing a recovery in the third quarter 2020 in North American market. So let's move to the following page, Page 6. And here, you see in terms of the organic growth, the trend by quarter of the various geographical regions. As you can see, the most impacted region has been in the second phase. The most impacted quarter has been the second, as we know, with a Global Group that lost 17% of the sales, EMEA, 18%; and Latin America, minus 27% and North America minus 14.6%. Asia Pac, where China has a very important role has scaled down very strongly in the first quarter. That's mostly because of China, you see 33.4% negative organic growth in the first quarter. but they have been able to recover in the second quarter to minus 10.4% and in the third quarter, extremely good with even an increase of the organic growth. Overall, it's clear that the second quarter has been the most heated quarter of -- by the pandemic. We have to deal with it. Now the problem is if it is going to come again another very big hit in the fourth quarter because of the situation that is worsening. More detail for the E&I, you can see the monthly volume evolution of the trading. And you can appreciate that whereas North America has had limited decline, you can compare the line -- the dark blue line 2019 with the dotted light blue line 2020. The most affected regions have been Latin America starting from April. The same for U.K. and South Europe, whereas the Northern and CEE regions have been very resilient in terms of volume for the E&I. The MEAT had a very significant slowdown during the summer, whereas Asia Pac has suffered most of all in the first 4 months or 5 months. What's going to happen in the last quarter, difficult to say, but I believe that will improve, but not so much. The risk is there behind the corner. Looking at the performance of the company by geography. EMEA. EMEA minus 10.3% organic growth with a result that dropped from EUR 372 million to EUR 273 million, due mostly to the exclusivity, let me say, due to the volume because the margins have decreased partially from 8.1% to 6.8%. North America, North America has become today the most profitable region for the group with EUR 293 million EBITDA and an organic decline compared to the previous year of 6.1%. Nevertheless, the sales have not decreased in absolute term. Obviously, thanks also to a better marginality with 12.5% versus 10.9% of the same period of 2019. The PD is doing very well. We have to see what's going to happen in the last quarter for the time being the Q3 has been reasonably acceptable. The reason for keeping the margins pretty good has been mostly the actions we implemented in terms of cost management in the region. Latin America, Latin America, EUR 531 million with an organic decline of 14.4%. The first 9 months 2019 closed at EUR 69 million to the first 9 months 2020 at EUR 44 million, consequently a quite significant drop with lower EBITDA margin of 8.2%. In Q2, the region has been touched very strongly by the COVID. Now it seems that is on the way to recover. Now I mean after December. Asia Pac. Asia Pac at the end, has suffered the most of all by the COVID in the first half because of China and the scale down of the YOFC result. We have been benefiting in brackets in Q3 by the carryover effect of YOFC of the Q2 numbers that we were not having and once we consolidated, we have added those EUR 5 million if I'm not wrong. The total, the total of South America, as you can see, has closed with a minus 12.7% organic growth that is heavy, but is not unsustainable for the company. What comes out from this picture that may be pleasant or not is the sustainable resilience of energy business. That is not very exciting business in terms of margins, but very steady. That's the business that I used to name the bond because at the end with 5% to 6% EBITDA margin, I would on a basis of a very large amount of money, we can count on EUR 0.5 billion EBITDA every year. That is not so bad. You can see that in terms of sales, the sales went down, went down from EUR 8 billion to EUR 7.3 billion with a reduction of EUR 770 million, but we have been able to lose on the EUR 9 million EBITDA. That is not so bad. Last but not least, what about the General Cable? So we can consider completed the General Cable integration. We took over General Cable at the end of '17. We started -- we made the closing in June '18, one-and-a-half years later, let's say, December 2020, we can consider that our actions are completed with a better geographical balance for the group. A better product mix and complementary product mix for the group and with EUR 175 million synergies, having spent EUR 200 million restructuring cost. It's not that everything is over because we are still rationalizing the footprint in Iberia. But most of the actions have been taken and brought the results, [ at all ].Thank you very much. I leave the floor to Francesco for all the details of the financial numbers. Thank you.

Thank you, Valerio, and good evening to everybody. As usual, let me start from the profit and loss statement in next slide. As Valerio explained, organic sales posted quite a recovery in the third quarter. Excluding the project business, the third quarter was down compared to the prior year by 5% only so much closer to the prior year level that we regard as a good achievement, of course, differentiated region by region. But as a matter of fact, this third quarter recovery was taking place across all the geographies and across all the businesses with, of course, different maybe intensity, but the recovery was everywhere. Adjusted EBITDA showed quite positive resilience in terms of margins despite the difficult scenario and difficult environment we are moving. Specifically, in the third quarter, the EBITDA margin was above the level of 9% even slightly above quarter-on-quarter the level of the prior year and confirm the very high above 9% EBITDA margin of second quarter. So that's a very important confirmation and also the operating leverage was extremely positive. As Valerio explained, referring to the last 12-month numbers of September of this year and September last year, even looking at the 9 months, you see a drop of sales, which is approximately EUR 1.1 billion, so from EUR 8.6 billion last year to EUR 7.5 billion this year. And this triggered a pretty limited decrease of EBITDA before YOFC EUR 118 million, which is approximately 10% drop of EBITDA on the sales. If you think that our contribution margin before fixed costs moves in the region of 17%, 18%. I think that this is quite an achievement, which was, of course, obtained on all the cost items, variable and fixed. Unfortunately, the ForEx translation started to hit in the third quarter was almost neutral until H1 that was about EUR 10 million negative impact in the third quarter. Now year-to-date, the translation effect is EUR 15 million. And with the current set of rates, of course, we will have another impact, a negative impact for the fourth quarter. Let's keep in mind that our guidance was given under the assumption of flat average rates compared to 2019. This is unfortunately not the case. And despite this we are confirming with a good confidence on our guidance. And focusing on the top right box, bridging the EBITDA to last year quarter-by-quarter, you see that invariably across all the businesses, we have an improvement, meaning that the gap to last year is closing up. This is the case of projects. In the third quarter, only EUR 5 million below last year. It's the case of energy that, as a matter of fact, showed very strong resilience already in Q2, but even improving and even closer last year level in Q3 and is also the case of Telecom. Commenting briefly the other lines of the profit and loss. The total level of adjustments at EUR 46 million even lower than last year and will be even lower on a full year base due to the fact that restructuring costs are really starting to scale down compared to last year. For instance, last year in Q4, in Q3 and Q4, we had pretty material accruals related to the South European footprint, industrial footprint. And this is not the case in the second part, but will not be the second part of this year. Finance costs, I will briefly comment on the next slide but are definitely decreasing, very strongly decreasing, I would say. Taxes are quite stable compared to the first 2 quarters at 36% tax rate. And group net income reached EUR 140 million with the third quarter above EUR 60 million. I move quickly to the second slide to better comment the line of net interest expenses. With a certain satisfaction, I have to say, let me comment it because as you see, it's down by EUR 23 million from EUR 102 million to EUR 79 million. Net interest expenses specifically are down by EUR 7 million. And this is due to the very strong cash generation and the very low financial leverage, which was in place for the first half of the -- for the first half of the year. Another item, which explains the drop of finance cost is the very strong reduction of engine costs in geographies like Turkey and Argentina, where we are saving many millions of engine costs. Let me move quickly to the balance sheet. As Valerio already commented, the net financial debt closed better than expected at EUR 2,669 million, approximately EUR 360 million below the level of last year. And the driver of that is pretty clear in this chart is the operative net working capital, which is down by more than EUR 400 million compared to September 2019. As a matter of fact, this comes from the fact that in Q3 2019, we have quite a spike increase of working capital, mainly but not only the project business, which was recovered very quickly in the fourth quarter of 2019, whereas in Q3 2020 the trend dynamic of working capital is much more stable, is much more flattish. Of course, thanks to this dynamic of the net financial position and operating net working capital. We think we are quite confident to be absolutely in line with a very high part of our free cash flow guidance range for 3 years. Let me move to -- finally to the cash flow. Actually, I already anticipated the comment. You see that in the last 12 months from October 2019 to September this year, we generated free cash flow in excess of EUR 600 million. This is due mainly to the totally uneven or an equal distribution all the project business cash flow in 2019 with a pretty negative cash flow in the first 9 months and a very strong recovery in the fourth quarter, which is obviously included in this last 12-month picture. And that will fade out of the picture on -- in the full year of 2020, wherein this year, the distribution of the cash flow generated by the project division is much more equally distributed through for the quarters. I believe I finished with my presentation. We can move on with the Q&A session. Thanks a lot.

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

I have 3 questions. The first is on telecom. On the third quarter, the operating performance was good revenue but due to the contribution also of [ MC ] optical cable fiber, I'm wondering if you can elaborate a little bit more on the cost cutting side in the telecom and you can project by year-end and especially for the full year, some margins above 15% or if you expect a decrease due to price pressure? The second question is on E&I in U.S.A. and in particular, in power distribution, what is your outlook by year-end? And maybe for the next year. If I'm not wrong, the power distribution in U.S.A. was driven by incentives. So just an update on this situation. And the last question is on the financial charges. The trend was very good. Can you please just give us a rough indication of the expected financial charges by year-end?

Monica, thank you very much for your questions. Valerio answering. Okay. The third question, the financial. Can you hear me?

Yes, yes.

The third question on the financial charges, I am leaving it to Francesco. In the meantime, telecom cost-cutting, every day we cut the cost. Unfortunately, there are markets into which we are not able to get the appreciation of the innovative products we have in the market. And there is only a battle of -- with price. That's our headache today. But sooner or later, will be over, I believe. The margins, I doubt will go above 15% just to be very clear.

By year-end?

By year-end, because the pressure on the prices is continuously growing. Let me say that if we are going to be able to keep the margins year-end at 15% or 14.5%, I'd be happy.

Okay.

Second question, E&I and PD U.S.A. PD U.S.A. has given us wonderful performance, thanks also to the development of a number of new products we have been able to homologate in the last 2 years. The outlook by year-end is stable. If I listen to, Massimo Battaini, that is the Chief for North America is dramatically dropping. I don't believe because there are rooms to improve. And at the end is not in 2020 that the market with significant risk of the raise of incentives.

Okay. Just a quick follow-up on the margins on telecom. So 15% for the current year and I can imagine that pricing pressure will continue. Can you give us a flavor for the next year? Do you -- I know that the cost-cutting is heavy, but you say that sometimes it's not fully effective. So should we expect stability or maybe a drop on the back of continuous pricing pressure from Asian players?

Are you talking about the next year and the fourth quarter?

Yes.

For the Q4 whose contracts are already prepared and there are some spots that don't change very much. Next year, I prefer to wait. But we have to be prepared to the continuous pressure on price. Unless in our markets, mostly Europe, something is going to happen in term on antidumping.

Okay.

Otherwise, you have to be prepared for the worst.

On the financial charges, Monica, Francesco speaking. The -- if we focus on the net interest expenses, which is the first line of the financial charges. I believe it's quite -- the trend will be quite linear in the fourth quarter and I anticipate slightly below EUR 80 million. And whereas if you look at the total net financial charges, including all the other items, I believe we will be between EUR 100 million and EUR 105 million, something like this.

And the next question comes from the line of David Barker from Bank of America.

A couple of questions from me. Just following up firstly on telecom. I think on the volume side, we talked about customers destocking quite aggressively since the end of 2019. Where would you say we are in terms of customer inventory levels? And has that still been having an impact on volumes in that business? And then my second question is kind of 2 questions rolled into 1 in projects. When we think about 2021, obviously, your backlog coverage is significantly higher. How should we be thinking about margins and volumes in projects, excluding any COVID impact. And then I think my kind of follow-up is, you talked about some strong tendering activity in submarine in 4Q. Can you just walk through what these key projects are and what the timing of the awards are likely to be for the next, I guess, 6 months on major projects.

I'm sorry, but I missed the first question. I don't know if Francesco has properly got and wanted to answer.

Yes, is on -- with pleasure. Is -- was on the telecom. I believe the question was to basically clarify. Yes, where we are in terms of our customer destocking. And in general, I believe that the stocking particularly in some European countries, is taking a bit longer than we anticipated before COVID for quite obvious reasons because I think that some of the largest telecom markets are also the regions mostly impacted by the COVID pandemic. And the COVID pandemic affected all the businesses, which includes some installation and telecom is one of them. Of course, doing the installation of optical cables and fiber cables, certainly is lower due to COVID than anticipated before COVID, the destocking is inevitably taking the bit longer. And this is also why we don't see a strong ramp-up of the -- or reasonably good ramp-up of the telecom volumes as we may have 9 months ago.

In a nutshell, if I may, Francesco. Customers are still pretty well filled with stock. It's not the case. I don't know if Philippe who is on the line would like to more properly comment but...

Yes. I can add a quick comment, Valerio, if you want. Just to say that there is what Francesco said is absolutely correct. The destocking takes longer than planned because of COVID. And on top, there is another phenomenon that we observed in a few countries, which is the fact that due to COVID, the priority has been given to connecting the homes and the users, which means less work on the backhaul of the network and more work on the access which means smaller cables with less fiber into these cables. So the double effect is indeed having an impact on the destocking.

That's a very clear sign that we have that the increase of the drop cable, the few fibers is extremely high. Reason why our capacity is under pressure there. But unfortunately, the high fiber count capacity is not that's because also due to the COVID impact, many customers, many utilities need to connect as much as possible the customers to the system.

Great. And the second question just on projects. Did you guys get that?

On projects, which was the question, sorry?

No. Essentially, I was asking, your backlog coverage for 2021 is obviously higher than 2020. Can we think about getting to more normalized levels of margin in projects next year after a kind of step down this year?

Yes and no, in the sense that I don't see a trend that may over saturate the capacity. The capacity is going to be saturated. I don't see consequently a significant increase of the prices, also because as soon as prices are going to be better, competitors are going to increase the capacity very quickly. So it's not the asset I would like to leverage on. Prices difficultly -- we are lucky if also for projects prices are going to be stable. I believe that Hakan is on the line.

Yes. I am.

Hakan, what's your opinion?

Let me say for the coming year, the last quarter order intake is going to be important for us. Therefore, I would not comment without seeing the outcomes of the projects that you were mentioning that we are currently awaiting an award or practically discussing. I agree with Valerio that there is a significant increase in the capacity announcement of the competitors, which is going to also have an effect on the pricing. But I think there are significant projects right now in the fourth quarter that we are expecting, let's say, that it's going to be clear who is going to be awarded. And after that, I think it will be much easier to comment on the 2020, let's say, results.

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

My first question is a follow-up on project business. I mean if you look at the backlog, which is at all-time high, can you provide us some indication of how should we think about top line of project business in 2021? Given year-to-date, it is down double digit and probably you will end 2020 with double-digit decline in project organic sales growth. So if we look at 2021, can we come back to 2019 levels? Or will it take longer for you to come back on 2019 sales level in the project business. So that's the question number 1.

Okay. Akash, thank you very much. Obviously, under the "control of Hakan", let me tell you that 2021, I would avoid to comment on the next year, but the project has another backlog sufficiently strong, not completely full, and that is not good, but happens. I believe that in 2021, it would be the first year into which after the drop of the previous decade, the projects we started to -- we consider giving us some satisfaction in terms of performance. Hakan, do you agree or not?

I certainly agree, Valerio. And I would like to repeat what you have said also before. The project, let's say, order entry is high. But if we see the German Corridors that are in multiple years dispersed, the remainder capacity is still to be filled. And from that perspective, we are very much dependent on the fourth quarter order entry to comment on the coming year. I would repeat myself. But if I look to the tender activity, I can say -- I can repeat what Valerio said that we are seeing opportunities to improve the coming year, as Valerio stated.

High hope in other words, that in the next quarters, some order will come for the extruded capacity that will protect our 2021 and following year's performance. Provided that our competitors are not going to be so greedy to drop the price to take the orders.

And my second question is on full year guidance. So you are reiterating EUR 800 million to EUR 850 million EBITDA guidance range. And I'm particularly surprised at the lower end of the guidance range because that would imply EUR 153 million EBITDA. And given that at the height of lockdowns, you did EUR 197 million in Q1 and more than EUR 200 million in Q2. Why we are -- why you are not saying that we should be ending the year at the upper half of the guidance range towards the upper end?

Okay. Akash, let me give you the satisfaction. I believe that provided that the COVID second wave is not going to create dramatic disruption despite the almost EUR 20 million, EUR 25 million scale down due to the exchange rate effect, we are going to close in the surrounding of the EUR 850 million -- EUR 840 million, EUR 850 million. Is that sufficient for you?

Yes.

And the next question comes from the line of Sean McLoughlin from HSBC.

A couple from me, if I may. Firstly, on General Cable. You've got the EUR 175 million of synergies and it sounds like that is a final target. I'm wondering what is the scope potentially over the next 6 to 12 months for further improvements? For example, in Iberia, as you say, where integration efforts are ongoing, should we, in fact, consider EUR 175 million as a final number?

Okay. So later you have to put the end -- the word end at transition. It's clear that is not completely over. Just in case we are going to close in November 1 important plant of General Cable in Spain. That, by any way, is not going to change the numbers. And 2 years after the -- all the other situation have changed so much that continue to count the synergies and [indiscernible] by is a little bit loss of time. That's why I don't see any significant goal to transfer to you for the next 6, 12 months on the General Cable integration.

Understood. Then I suppose building on the General Cable, I mean, it's impressive to see the strength now of your North America business, the profitability of your North America business. I'm just wondering what is the opportunity that you see for maybe cross-selling regionally in the Energy segment to other regions to drive profitability across other regions?

The cross-sellings in North America are quite evident. We are selling the products of the Prysmian perimeter into the General Cable could match out in the ground and vice versa. I'm very happy with the cross-selling opportunities we generate. For instance, we are selling to some of the customers of the Prysmian perimeter the overhead drives made by General Cable.

And then lastly, just on your wind exposure. I think that the market is looking at a peak year in 2020 for installations. Do you get any sense that, that there's further growth in the U.S.?

I think so. Because in U.S., I'm still waiting for the first large-scale offshore wind farm to be built. When -- and that depends on the administration, obviously. When the American population and the regulators will see the advantage coming from the offshore wind energy generation, I believe that there will be a new way, similar to the ones we have in Europe, for developing the offshore wind. In the meantime, of course, U.S. has the benefit to have a very large land side that can be filled with the turbines for the onshore. But the performance of onshore wind is lower than the offshore wind in term of stability and in term of power because of the stability.

And the next question comes from the line of Max Yates from Crédit Suisse.

I have about 2 questions. Just the first one is on the German Corridor project. I just wanted to check if your conversations with the customer, are those still from a delivery standpoint on track? And are you still expecting approximately EUR 100 million of revenues to come from the ramp-up there in 2021?

Okay. German Corridors are on track. That's my knowledge. If I can have different -- more recent information to be free to enter into the matter. But German Corridors are running in line with expectations. Let's say, the first kilometer of cable laid in the German territory. And then we may have a more precise and detailed forecast.

Yes. I do -- yes, I'm sorry.

No, no. Go ahead.

I agree. I would like to answer the question in a different way. We have no indication so far that the German Corridors are having any delay. And -- but I want to underline that permits are really right now after the announcement of the awards of the projects are the focus of the utilities and the TSOs and also ours. But so far, we did not see any hiccup. And we internally are -- as Valerio has said, we are already progressing positively with our, let's say, trials and also industrialization of these cables.

Do not forget that every month, day or year that German Corridors are not operative utilities that have built a lot of offshore wind farm capacity in the North Sea are going to lose money or not enjoying the green energy available.

Yes. Okay. And just my follow-up was on the offshore wind contracts that we've seen in the U.K., this is obviously going to be an important regions for offshore wind. It's not somewhere where you now have played a big role so far in terms of contracts. Is that anything to do with the customers? Is it more because of pricing? Or is it just you were focused on other projects? And I guess I'm thinking about the next round of U.K. CFDs, which is obviously going to just subsequently generate a larger proportion of cable orders.

Max, I understand the pressure to your question, I'm a little bit upset because really U.K. is the land of -- where everyone is going to play the game. We are fine with it. We have simply to understand that an offshore wind farm in U.K. has different risks and different margins from an interconnection one. If we can find an interconnection, we prefer to do the interconnection. If not, we are going to go for an offshore wind farm in U.K.

Okay. So it is a profitability decision that's...

Yes. But Max, it's also a matter of saturation of the capacity. Offshore wind farms in U.K. are more standardized systems, XLPE, 320, 220, 175, 150 kV And obviously, we like to compete and to stay there. But there is always someone that is ready to drop the price to catch the market. We like to participate, but it's not our best performance focus.

Could you give us a sense of if interconnections a 20% EBITDA margin project, where you think some of these more competitive sort of wind contracts coming out at in terms of profitability on offer for the cable companies because it's important because this is quite a big product barrier?

I understand, Max. But I would like not to transfer to the market indication on our EBITDA margin.

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

I have 3 questions, if you may, each quick question. The first one is on the U.S. You mentioned before that the company already achieved an improvement in terms of product mix or upselling. On top of hopefully, this long awaited wind -- offshore wind farm, do you see the opportunity maybe also on the land side, on the high voltage? Do you see any potentiality project that may come in the, let's say, medium term? The second question is on the net debt. I understood that you confirmed and probably also you see the high end of your guidance on free cash flow side. Can you help us to understand in absolute term considering that probably you're going to pay, let's say, part of your antitrust fine in Europe. And I don't know if you are also going to see -- to [ register a big shout ] from the acquisition, the small acquisition you made. Can you help us understand if net debt could be, let's say, touchable such below the around, let's say, EUR 2 billion, considering all the factors I told you. And the last point is on the anti-dumping investigation. Clearly, this is an outcome that will be visible in -- was it probably first quarter, second quarter of next year. Do you believe that at a certain point some telcos that currently are not your customers could decide to diversify their supply and maybe starting also to ask to piecemeal on some optical fiber cables.

Okay. First question. The first question is a very interesting question. I believe that the volumes we have been able to catch in the market, we are going to be able to keep at least that market share. Then, obviously, if there is a scale down of the market due to the expiration of the incentive that will touch us too. On the other side, I see I said that some additional opportunities for the extra high voltage land interconnection, especially in Germany because is there is no way that it will be a continuation of -- the installation of gigawatt towers in North Sea, and the power has to be bring down South. Consequently, other "subline or German corridors will come in the next years." About debt, I leave the floor to Francesco Facchini.

Yes. Alessandro, to cut it short, if we -- I think if we point our free cash flow to the high end of the guidance just for simplicity sake, EUR 300 million. And we account for all the impacts that you have mentioned, name by name further cash-outs that most likely we will face on the trust. We factor in the full cash effect of the Canadian acquisition that I believe will take place by year-end. Of course, we'll consider the already distributed EUR 70 million dividend. And the IFRS 16 impact for the period 2020. And then we have also to consider some impact on our net financial position coming from the currency devaluation, which is touching our cash positions, I think it's realistic to expect an NFP which is broadly in line, maybe slightly lower than December 2019. December '19 was EUR 2,140 million. I think that a good target would be to stay slightly below that.

And the next question comes from the line of Luigi De Bellis.

I'm sorry. Maybe that there was a third question by Alessandro on antidumping.

Yes. Thanks.

Is that correct? Antidumping. Antidumping, I have some doubt maybe that some of the customers will think about the source they're going to utilize for that network. I've been in touch with 1 of them, and they told me that the price is the price. Then if there will be a dumping case and an increase of the tariffs varies for the supplier for sure. But for the time being, we don't see any movement in that direction. Philippe, do you confirm it has not?

Yes. Alessandro, I would express the point in a different way because even if there is a very -- if antidumping measures are decided, it will not eliminate competition. By the way, it's not the intention because there are many suppliers who are present in Europe, first. And second, there are also many tiny suppliers entering into Europe also with low prices. The intention with that is to reestablish a normal field of competition, which I mean, will not eliminate the price pressure we can have, but will eliminate the suppliers that are using unfair practices like government subsidies or selling below their cost, for instance. This is what we expect. So I'm not expecting too much of the major change on the price pressure, but one could hope stabilization of prices, in any case, they are already extremely low. And more than this, standardize practices in the market. That's what I would expect the most from this personally. And then, of course, as you know, most of the operators in the Western countries are already our customers. They will keep on doing tenders. They will keep on putting us in competition, which is the normal game. And I hope we can gain more market share in the future again. But it's not necessarily directly linked to the antidumping.

And the next question comes from the line of Luigi De Bellis from Equita SIM.

I have 3 questions. The first 1 is on the project business. Can you elaborate on the bidding pipeline for the coming quarters and trying to figure out the size of the market for 2021 compared to 2020? And trying to elaborate if it's more skewed on submarine or land wind farm or interconnection? And the second question on the projects, based on your visibility, how is the saturation of the plants in the submarine industry as of today after a good order flows in 2020? And the last question on the telecom business. Can you elaborate on the visibility you have on demand in this business now? In particular, do you expect to return to a positive top line organic growth from Q4 or early 2021? And how do you see demand volume of optical fiber in Europe, China, U.S. going into 2021?

Okay. Thank you very much, Luigi. Let me try to give you an answer on the first question. Coming quarters, projects. There are many projects coming, many tenders. Then I've seen that there are -- there is 1 or 2 players that are extremely greedy in looking for tenders, looking for acquiring business at very low margins or at least for us at very low margins. We follow cautiously. We are not going to open any kind of war on price because the prices once are destroyed are not going to get back. So I see a good flow of order income. The margins are not going to grow. Hopefully, we are not going to destroy the margins in the next quarter. Saturation of plants. Saturation of plants is -- I'm sorry, there is a strong noise. I don't know where it's coming from. Saturation of plants in 2020 seems to -- in 2021 seems to be pretty good. We have only some room in the extruded capacity. And it depends on the next adjudication of the coming tenders, the already coming tenders, if we are going to have this saturation fully booked or not. I think, yes, because our competitors have already filled their mouth, the stomach. The demand in telecom. The demand in telecom, I don't see, frankly speaking, a very big rebound. What I've seen -- what we have seen and I ask the help of Philippe, a quite significant rebound of the demand only in U.S.A. for the rural broadband. That is a very important matter in terms of the trend. Why? Because the pandemic has created the demand of connection of broadband, even in the rural area in order to let the people talk, to let the people go school remotely and that's a good sign. Unfortunately, the density of fibers for the cables required for those cable -- for those network is lower. Consequently, there will be a pretty good saturation of the telecom cable, not very strong for the fibers. I don't know if Philippe has a different view on it.

Yes. I agree with what you said, Valerio. I think we are informed in terms of visibility of a solid U.S. market. We believe the U.S. market is growing. The view is short in Europe, and I would say that the view is improving in Lat Am. Basically, I would expect a market growth in 2021, mainly driven by the U.S. But with a big question mark about COVID because 2020 was impacted by COVID. And I think here now, we are at the very end of October, and it seems that COVID will impact also 2021. So it's very difficult to predict.

And the next question comes from the line of Lucie Carrier from Morgan Stanley..

I have just a few left. One, I was hoping if you could comment maybe on the margin quality you are seeing in your backlog for the industrial business? And also how long this backlog is bringing you to -- i.e., how long is the visibility you have on this division?

Lucie, sorry. Just to clarify, the margin quality in our Industrial business you said?

Yes. Correct. Because I know sometimes depending the mix you have of business, it has quite a lot of impact on the margin.

Yes. Well, I -- we don't see any significant change in the level of the margins for the Industrial business. Why? Because from one side, we have seen a strong decline of automotive business that is at a very low-margin business. On the other side, we are not seeing yet an increase of the heavy industrial business like crane, mining slowing down. But overall -- oil and gas is out of the game. And overall, the margin quality is pretty stable.

And just maybe a follow-up on telecom. It was on the earlier question, and apologies if I misunderstood, but I think you were saying you're not expecting, so not expecting the margin to be above 15% by year-end in telecom. By year-end, do you mean the fourth quarter? Or do you mean actually the full year 2020? Because obviously, after 3 quarters, you are above that 15% threshold, if I'm not mistaken.

Okay. It depends. My answer was a little bit more generic, meaning that I don't see the telecom business margins going up. If we are lucky, we should be able to keep where they are for the full year and hopefully in the first quarter last year. You have to remember that the very bad result of the tender in the second quarter this year in China, the China telecom one, has reduced further dramatically the prices of fibers. And that's one way or another is going to spread all over the world drop in the margins.

And the next question comes from the line of Gabriele Gambarova from Banca Akros.

2 questions. The first is just a curiosity on the Leonardo da Vinci. You are going to get it in July, the cable laying vessel. And I was wondering if it is already booked. So if it will start generating revenues from day one. And the second question is gain on projects. Is it possible to know the utilization rate in the third quarter? I mean it was a reasonably normal quarter, I would say. So I was wondering if it is possible to understand -- I mean, what was the capacity utilization?

Okay. Thank you very much for the questions. First of all, Leonardo da Vinci. Leonardo da Vinci, we have seen the ship completed, that has been transferred to Norway for the completion, the final completion. The ship have to be given to us by May -- April, May, if I'm not wrong, to complete all the tests and by July has to be ready for operating. It's already booked. It's already booked just in case -- Hakan can correct me, but I doubt to be wrong, the ship is going to start the installation of Viking.

Yes. Correct.

The utilization rate of all the assets in submarine, I would say that for the paper cables, it's 100%. For the extruded cables is lower, is something like 80%, 75%. The ships are fully booked. Hakan, can you confirm it or I'm wrong?

Valerio, for the reverent of the Q3, I understood, correct? So for Q3, you're correct -- absolutely correct on the -- on your assessment. But if the question is beyond Q3, it's a different question.

Okay. Is your question beyond Q3 or Q3?

No. It was just for Q3. But if you want to give me any information on Q4, I would be more than glad, if you can.

It's better not to do it. I prefer to confirm the actuals, good actuals that to foresee any fantastic future.

Okay. Maybe last question. Is it possible to understand how many revenues may -- I mean, the incremental revenues coming from the Leonardo da Vinci, more or less?

That's a good question because we are internally debating still. The question in other words is going to -- Leonardo da Vinci to substitute the current ship or to be added to the existing ships. My opinion is substitution. Consequently, the revenues would be slightly higher from the ship from an installation point of view, but not leveling, not growing significantly because my idea is not to keep the current journey cooperative.

Thank you. This was our last question. Please continue with the closing remarks.

Okay. Thank you very much to all of you for participating to the 9 months conference call of Prysmian Group, and good lure to everyone. Bye-bye.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please stand by.