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

Good morning, everyone, and welcome, and thank you for attending this full year result of '24 earnings calls. As you see from this chart, a strong EBITDA delivery, EUR 1.927 billion, in line with expectations with midpoint of the guidance, a very high 11.3% EBITDA margin in line with the 9 months year-to-date last year and probably the record high of the EBITDA margin achieved by the company. After 9 months of slow organic growth, in fact, it was minus 1.4% organic growth in 9 months '24, we delivered a significant organic growth in 2024 quarter 4, mainly driven by strong demand in a strong delivery and transmission in Power Grid and in Digital Solutions. Great performance in free cash flow with EUR 1 billion -- above EUR 1 billion free cash flow. Moving to the more detailed information, you see a significant surge in EBITDA, 18.4% over 2023. It should take EUR 200 million coming from the perimeter change, and you should deduct this EUR 200 million from the EUR 1.927 billion achieved last year, you end up with EUR 1.728 billion which is by coincidence exactly EUR 100 million improvement over 2023 on a like-for-like basis. Free cash flow also growth from EUR 700 million plus to EUR 1 billion, plus 40%. I'd like to draw your attention to the EBITDA margin in the right side of the page with this 11.3% EBITDA margin, you see a significant growth over '23, but more importantly, over '22, which was our baseline for the last time capital market -- our last Capital Market Day. So 200 basis points additional in profitability mainly across all business units. A quick comment on the climate ambition and the climate actions 21% (sic) [ minus 21% ] reduction in Scope 3 versus baseline, confirmed that minus 37% in line with expectation in Scope 1 and 2 and paving our way towards the 55% to 60% reduction by 2030. Recycled content in raw material surged to 16.2%, not really helped by the perimeter expansion, but helped by strong effort across the legacy Prysmian in driving suppliers to a more waste and more recycled content into the raw material that we buy. Transmission performance, I think numbers speak for themselves. Strong organic growth in the quarter, 34%, driven by some additional installation activity and some additional capacity activity that occurred in quarter 4. EBITDA margin in the quarter at the 15%, similar to quarter 3. And turning to the full year result, you see almost 20% organic growth over 23%, a significant improvement in EBITDA margin of 14.6%. The [ exit ] speed is very high, 15%, and we are now super confident about beating the 16% goal that we set for 2025 in this business and capitalize on additional organic growth that will benefit from the capacity that has been expanded, which will come to fruition in 2025. Moving to Power Grid. The organic growth in quarter 4 was significant. We -- was not coming from a significant organic growth 9 months '24. It was in fact below 2%. Nice to report another quarter with a great EBITDA margin, 13.5%. So we deliver a full year in line with quarter 4, 13.4% for the full year, 2 percentage points above the average of 2023. Maybe there will be a question later about the sustainability of this margin, and I will answer the question, but my comment I can share now is that, yes, we see strong demand in the United States. We have a strong exposure to United States. And -- so we would like to consolidate. We think we'll be able to consolidate a level of EBITDA margin between 12% and 13% also in 2025 and possibly leverage on the capacity expansion that is happening in this space. In I&C, we had 10.2% performance in EBITDA margin in quarter 4 vis-a-vis 10.8% in quarter 4 2023. The EBITDA margin in quarter 4 '24 softened a little bit. If you look at -- if you remember what we did in quarter 3 '24, it was 11.5% after the consolidation of Encore Wire. We had seen some seasonal effect which has driven some softening price in 1 segment of the I&C, which is the copper building wire. So while the aluminum building wire, the portable cords and industrial products like medium voltage had margin improvement in quarter 4. Copper building wire has softened a little bit. I think it's a temporary effect. We noticed this also in the first weeks of 2025. This season and the weather -- the harsh weather in North America didn't help at all. And -- so we think that this is simply a temporary situation driven by few circumstances, some residential demand pretty low, which is not our space, but unfortunately, it's a space of some other competitors. And so we are confident that with the said season entering to the high peak from March onwards, we will rebound and regain momentum in the market also in volume, which has been very good, by the way, in quarter 4 last year and also in prices. Full year EBITDA margin at 10.1% versus 10.7%. You have to remember that in 2023, we had the first half of '23, still benefited from the spike in I&C legacy Prysmian business resulting from the rebound of the market post pandemic and inflations. Result in Specialties was certainly not satisfactory. It's not much different than what we ended up delivering in quarter 3 in terms of EBITDA margin. We suffer -- we still suffer a lot from the automotive slowdown in volume and price, more importantly, and from some contraction in the Elevator business in the United States, again, driven by the weakness of the residential market. Full year EBITDA margin are in line with 2023, and we count on the stability with some upside for 2025 in terms of EBITDA margins. Digital Solutions. Of course, we had an easy comparable versus 2023 where we posted a negative EBITDA. So EUR 40 million EBITDA, 12.5% has been the margin of the business over the last 4 quarters is something that we see stable. Good news that we've seen finally a strong rebound in volume in North American market, which was, by the way, the cause for the collapse in the margins and the volume in the last 2 years due to destocking process. So volume has started to rebound kind of aggressively, I would say. Prices are still not where they need to be or still not in line with what we had at the time the market was very tight, so in '22. But as we gain momentum in volume, I'm confident the price will come along. 24% EBITDA margin is also what we envisaged for 2025 moving forward. We'll now comment across the board. I would like just to draw your attention on the circular economy drivers. Now we have 43% (sic) [ 43.1% ] our revenue connected to sustainable products coming from 37% (sic) [ minus 37% ] in '23 and recycled content, as I commented before, as high as 16.2%. I insist on these 2 elements because these are the elements that benefit customers. These are the elements that help customers achieve and meet their sustainability goals. And these are the elements that we leverage and capitalize on to grow and add additional revenue, in some cases, premium price to our revenues. With this, I'll leave the floor to Francesco for more financial insights.

Thank you, Massimo, and good evening to everybody. To recap, as usual, our profit and loss statement. Sales in the region of EUR 17 billion, consolidating, as you know Encore Wire for the second half. As Massimo already anticipated, organic growth for the full year is plus 0.5% with a good improvement in the quarter 4 driven by a strong surge in sales and growth in the transmission business, double digit -- a large double digit. And driven also by a pretty good trend in the fourth quarter of both the Power Grid and also the recovering Digital Solutions business. Adjusted EBITDA, EUR 1,927 million with record EBITDA margin at 11.3%. You see on the right the bridge compared to the previous year of the 4 quarters. And you clearly see in Q4 the very strong momentum and the very strong progression of the transmission business. Massimo anticipated that the Transmission reached a 15% EBITDA margin in the fourth quarter, which positioned it very well to achieve and beat at the level of margins that we had anticipated in October '23 in Naples. Power Grid consistently -- very stable and very consistent improvement versus the previous year with a steadily high level of margin. Digital solution is on the recovering path in particular in the market in North America and is benefiting this. And Massimo -- as Massimo anticipated in Electrification you see some little softening of the price environment of the margin environment in 1 segment of the North America I&C, the copper building wire and you see some weakness that Massimo commented on the specialty business. But all in all, pretty solid Q4 results. They -- maybe back a second. Thanks. The -- on the -- for the rest of the profit and loss, the adjustments below the line are largely affected by the acquisition of Encore Wire because of the transaction cost and even more because of the purchase price accounting effect. Likewise, by the way, the depreciation and amortization, you will see a line here, but also this in the second half, specifically in the fourth quarter, has been as expected, impacted by the purchase price. Accounting financial charges, you see as totally in line with expectation arising to EUR 225 million, which is discounting more than EUR 100 million effect in the second half due to the acquisition, a pretty low tax rate benefiting of some one-off effects still related to the acquisition. And a group net income which surged to EUR 729 million, which is in terms of diluted EPS level of EUR 2.52, which is compared to 2022 a CAGR growth year-on-year of 15%. You remind, I'm sure that in Naples we anticipate an objective in terms of EPS CAGR of greater than 10% for -- at that time, the period [ 2020 ] to 2027. Let me say that the first 2 years have certainly been better than this anticipated target. And let me also remark on the group net income that the group net income obviously discounts a negative effect from the acquisition because of the accounting treatment of the purchase price acquisition. To be very clear, in Q4 we are including negative effects of EUR 80 million before tax coming from the pure purchase price acquisition which is reversal of inventory step-up and the additional amortization and depreciation, which are coming with the top-up -- with the step-up of the assets, which is a normal process in the purchase price acquisition. So this to put the net income and the strength actually of the net income in the right perspective. Okay. We can move quickly to the outstanding cash generation that Massimo commented. For the first time, we broke the wall of the EUR 1 billion. I think we must be proud of that. And obviously, we benefited from a very strong and positive dynamic of the working capital. You see changes of -- positive changes, a drop of EUR 465 million driven by the transmission business. The -- and you see also the extraordinary effects on our net debt coming from the acquisition from Encore Wire acquisition, EUR 4.1 billion, and also coming from the conversion of the convertible bond, net of the share buyback which took place mid of the year and actually the share buyback in the second half for a positive impact net of these 2 transactions of EUR 406 million. Let me remark the EUR 4.3 billion, EUR 4,296 million, to be exact, debt. At year-end, is largely better than we expected, is EUR 100 million, EUR 150 million, at least better, Likewise, the free cash flow, which is EUR 130 million above the midpoint of the guidance of EUR 880 million. And this puts us already in a pretty good shape in terms of the leverage because in the region of 2x in terms of ratio, net debt on EBITDA is slightly better than we thought that we -- than we expected. Last but not least, a very quick snapshot on the effect that our acquisition financing, acquisition bridge refinancing that we did in November with the issuance of the 2 bonds for a total of EUR 1.5 million and this strengthened significantly our financial structure. You see that we extended the average maturity to 4.3 years. And you see in green, by the way, the 2 bonds, the 4-year bond for EUR 850 million due -- will be due in 2028 and the 7-year EUR 650 million bond, which will be due in 2031. So a much extended maturity, a stronger financial structure compared to the one that we had right after the acquisition and also very attractive conditions because the 2 bonds, you remember, were raised at an average cost of funding of 3.7%. And also, let me remark to finish the fact that the composition of this debt -- this gross debt in terms of mix of fixed and variable interest rate is very safe because 80% is at fixed rate. And by the way, part of that was hedged even before the interest rate increase which took place in 2022, '23. Okay. Back to Massimo for the final conclusions.

Thank you, Francesco. So with these results of '24 and the [ exit speed ], we are pleased to confirm our guidance with a midpoint at EUR 2.3 million, as far as the EBITDA is concerned EUR 2,250 million, EUR 2,350 million. Free cash flow with great stability and EUR 1 billion midpoint for 2025 and further acceleration in the Scope 1 and Scope 2 reduction. So I will remind you that in a while -- in less than a month, you will see much more about our future, about our ambition, our restatement of targets for 2028, of course. And also, we'll be very happy to welcome you in Encore -- at McKinney in Encore to see the facility and powerful service level and innovative product provided by these assets. So closing that with a stronger remarkable performance in Transmission and Power Grid. The integration from an organizational point of view and from a sales commercial in the sense of footprint on field point of view has completed -- has been completed and we will tell you more about the speed of the synergies implementation at the Capital Market Day. Great EBITDA, great -- sorry, EUR 1 billion of free cash flow and consistent increase to return to shareholders. We are going to propose a dividend of 0.8%, so a 14% increase over 2024, which is better than what we told we would do at the Capital Market Day, where we set this at 10% growth year-over-year. And so with this, I think we hand over to you for your question and clarification about the past year and the coming 2025 figures.

[Operator Instructions] And the first question comes from the line of Daniela Costa from Goldman Sachs.

I have three questions, if that's possible. I'll ask them one at a time. But maybe starting out with sort of what you're baking into your EBITDA guidance terms of top line assumptions for the cyclical divisions, particularly for Electrification and for Digital Solutions. If you can comment about the puts and takes into that guidance first.

Yes. In terms of top line, we assume more than -- single-digit growth, let's say, in Electrification, 3% to 5% and 5% to 7% for Digital Solutions. I mean this is volume-wise what we see and Digital Solutions, we should see some upside coming from prices.

And then in terms of margins, can you clarify like where Encore is right now? And I think in the past, you have commented on what you saw sort of a fair level through cycle for Encore in the future? Can that -- have your views changed on that? Or where does that number stand now?

We had, as said, in 1 segment of Encore Wire, the copper building wire, which is that, of course, the major segment of business, they performed in the market 3% to 4% price softening in November, December, not in October, in November, December. On the contrary, we have seen aluminum building wire pricing going up. There is some volatility associated to the tariffs. We think we will benefit from the tariffs that has been applied to the aluminum material imports and also to the cable imports. Since, as you know, in the aluminum building wire space, there is 40% of the American market in the end of imports. So we should be able to capitalize on additional margin improvement in aluminum building wire. In building wire -- copper building wire, we have seen this slow momentum in the market. I think this was driven by the residential market not taking off and having more competition in the industrial market, which is where we are much more exposed to in terms of Encore Wire. So I believe it was 15% EBITDA margin in 2024 of Encore Wire. We might see some moderate and temporary slowdown in quarter 1. And with the second quarter with the high season and with a strong expectation that we receive from all customers in terms of growth in 2025, we had met in the last 2 weeks dozens of customers to try to gauge and understand what the view is and the prospect is for 2025. They were all positive about the dynamic market with a lot of additional demand. So those -- this softening is definitely temporary, and we should be able to stabilize ourselves to 14%, 15% level in the high season quarters of 2025.

And the final one, just before you had commented in terms of liking to strengthen potentially in organic the Digital Solutions business with sort of a stronger offer for data centers and connectivity. And I was wondering if the recent sort of developments in that market with DeepSeek and other news flow have shifted your thinking about there in any sense and where that stands?

No, we didn't change anything, although we don't appreciate the fact that every time there is a bad news in data center, our stock price drops as if we had 100% of our revenue exposed to data center. We still have only -- or maybe not only, but we have 5% to 8% revenue exposed to data center potential with some growth happening in the coming years due to the expansion. We haven't seen any slowdown in data center expansion. We can, as you well know, Daniela benefit from the data center expansion across the 4 segments of business because also in Transmission, we received projects, and we participate to tenders for electrifying data center with renewable energy. So for us, it's a strong use case, which do justice to our synergistic portfolio; Transmission, Power Grid, Electrification and Digital Solutions. We will continue in pursuing M&A activity in telecom and other business looking for complementarity. In telecom, as you correctly said, we would like to become even more exposed to the connectivity components, not necessarily to data center, but to fiber-to-the-home and part of the data center, but to the connectivity component so that we can offer really a comprehensive solution, cable optical fiber, cables and connectivity.

[Operator Instructions] The next question comes from the line of Josh Miller from Morgan Stanley.

Just maybe a first question on the medium-voltage business, Power Grids. I think you now mentioned 12% to 13% margin level for 2025 which is clearly lower than 2024's 13.4% level. I guess -- my question is, how do you feel about supply-demand beyond 2025 to you and competition have brought more capacity online, you will be bringing even more online at the end of this year. I guess, what gives you confidence that this is the end of any potential margin normalization in that segment?

We had a significant surge in margin in this space in '22, '23 and partly -- and also '24 coming from a market that was tight. Capacity was not yet fully deployed, and the demand was strong. Now the demand is going to remain strong in '25 because the drivers for additional electricity needs will insist in making investment in the power grid, which is the asset delivers more electricity to the users remains solid. The point you correctly said is that now there is more capacity coming onstream. But on the one end, we have a stronger relationship with key customers. So most of this capacity coming on stream is for public power space or renewable onshore business, where you don't have and you don't need to have a long-lasting relationship to be a player. On the contrary, we have 50% of our business -- 50% to 60% concentrated in utilities. So the long relationship with these utilities customers and the good service that we will keep providing them in terms of security of supply, on-time delivery is what they reward a lot. So on the one hand, there will be additional capacity, which I believe will be more redirected to onshore business, which is a spot [ project ] business and more redirected to public power. Public power is the kind of distribution space for power grid. And while we will continue leveraging our long-lasting contracts and frame agreements with utilities. I said 12%, 13% because anyway, with additional capacity despite incremental demand we might see some pricing adjustment. So far, we haven't seen that. So not at all negative, actually positive. But bear in mind that 2024 was a record year with this 13.4% EBITDA March.

But you think sort of 12% to 13% is the right level for this business? Just to clarify.

What could be the right level for this business?

15% is the right level.

12%, 13% is the right level. 12%, 13%, I mean, we were 7%, I said. We consolidated a stronger comfort because the market demand is there. The additional capacity will create some maybe moderate turbulence in the market, but not with our customers because of what I said before. So 12%, 13% is what we expect to achieve to remain to see in the coming years, not necessarily '25.

And then maybe one just quick second question. Just sort of announcement in December, I think, around the U.S. capacity expansion Brayton Point. It sounds like it's now been shelved. I guess, maybe a couple of questions on the back of that. Could you just remind us about how big that was going to be all in? I guess, now what your intention is for that CapEx? Is that being reallocated to other capacity expansion projects? And then I guess on the back of that all in, how do you think about revenue capacity on a 3-year view, sort of '27, '28 for that Transmission business?

Yes. So the big investment was kind of big, it was $450 million for 1 additional line. So 400 kilometers of submarine capacity all devoted to United States. First of all, the reason why we decided to originally to pose and then to basically call off that investment was not -- has nothing to do with the political situation with Trump, but has to do with what did happen in the last 3 years. So the demand in terms of order intake in submarine or HVDC land didn't happen, didn't take, didn't gain any traction in North America. And again, during Biden as well during Trump before as well during Trump now. So the decision is that let's not create for us a difficult situation, whereby we have an asset very expensive for limited capacity, and we have to run it idle because we will have the chance to saturate it. [indiscernible] was to use the project from Europe, load into North America and then to repatriate it to Europe because the North America demand is not there. Of course, we already made a partial use of this CapEx because in the last 12 months, we decided to expand additional capacity in Europe, which will come available by the end of '26 in submarine space and the HVDC space because demand in Europe remained pretty solid and actually growing. And in order for us to remain the market leader and maintain our ambitions 35% to 40% share of the market, we needed to expand capacity where the market is, where the customers that we trust are TSOs in Europe. The backlog we have is large enough to cover revenue through 2028. So we are fully sold out despite the additional investments I just mentioned. And it goes actually beyond 2028. So I don't see a great deal of concern in European growth plan through 2028. Backlog is there. The capacity is undergoing. The macro is reliable because it's with a solid project, with solid customer, but with solid customer with project backed by [ knots ] to proceed and down payments. So we feel pretty confident that we deliver the growth that we said we would achieve and we will do more -- we'll tell you more at the Capital Market Day and also the EBITDA margin enhancement that we're committed to achieving.

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

The first one, just on Electrification margin during Q4, which is down year-on-year despite the integration of Encore. Can you share additional color here on the weakness and give us some thoughts on whether your initial expectations from Encore still stand? I would imagine synergies are progressing well. But what about the underlying business on a stand-alone basis? I remember you saying margin could be sustained at 2023 levels of 20%. Can you tell us roughly how much that was in 2024?

Yes. So the EBITDA margin of Encore Wire the acquisition and actually what we reported in quarter 3 was 15%. Basically, we lost 1 point more or less in quarter 4 over 2024 quarter 3. The reason why quarter 4 '24 is margin-wise lower than quarter 4 '23 has also to be identified in other perimeters. We had a particular situation, very positive in LatAm in -- through the whole quarter of 2023 due to the, I mean, kind of panic buying from customers in Argentina where cash were shorter. They wanted to find a place to put money and protect [ money ] from inflation and deflation. So they decided to buy cables and copper, a lot of stuff. So there was a specific spike in quarter 4 2023 in LatAm, which make the comparison between '24 and '23, unfortunately, unfavorable. So margin at Encore Wire sits on a 14% EBITDA and before synergies. And we think at this level between 14% and 15% is going to remain. Of course, quarter 1, it didn't start in kind of continuity with the quarter 4. So we had seen the same type of pricing softening in copper building wire in 1 space, but demand has remained solid. The weather, as I said before, didn't help at all. New project didn't start in light of this difficult weather situation. Synergy will add EUR 140 million. We are moving fast on synergies. Of course, last year, there was just some fixed cost synergies -- minor fixed cost synergies. This year is where we have to deliver cross-selling opportunity and operational efficiency, operational synergies. Synergy will not necessarily add margin points per se, incremental EBITDA margin point per se. They will add additional revenue with a margin that has to be identified. So all in all, I believe that we're still pretty confident about the sustainability of the margin in Encore Wire and the I&C space in the United States.

And then on Transmission, can you update us on the ongoing capacity expansion? You said just now existing capacity will be done by the end of '26 and you confirm no longer a U.S. plant. I remember you announcing this sometime in 2021, and that was supposed to add EUR 1 billion of sales by '26 to EUR 4 billion. So without that -- can you confirm again your revenue capacity once the existing plants are done by '26, is it roughly EUR 3 billion? And what are the implications of not doing the U.S. plant in terms of your backlog? Does it imply further addition down the line? Is your margin expectation still 16.5% by '26. Some color on that would be great.

I will not be able to answer all the questions because we are a few weeks away from what I can tell you much more -- with more in depth in -- at the Capital Market Day. First of all, the end of the capacity expansion is not '26, it's going to be towards the end of '27. So we will see the full available capacity turning to revenue in 2028. Our revenues will grow significantly from 2024 through 2028. I'll just tell you that we decided years ago to double the submarine capacity and increase significantly also the HVDC land capacity. So let not me spoil now the Capital Market Day with a number for Transmission revenue in 2028, but it will be consistent with a strong organic growth through the period. The capacity that we are going to lose on the back of the decision not to continue with Brayton Point is going to be more than offset by incremental capacity that we will make available to Europe. The 2026 that you mentioned is additional lines that we -- that were not part of the original plan, but will be coming available in Europe by the end of '26, early '27. And they will overcompensate the lack of the 400-kilometer not included any longer in the American footprint. Margins will go in our -- maybe I should not, again, tell you anything about this. But margin will go beyond the 16.5% that we committed to at the last Capital Market Day.

And then lastly, just can you shed some color on the CapEx expectations for '25 and '26, if you may?

The CapEx will continue in '25, in line with the level of '24. We have -- and there will be also a similar number, slightly lower in '26. This is simply related to the fact that these -- those 2 years '25 and '26, we'll see 2 additional vessels coming available on us. So the Monna Lisa delivered in quarter 1 and there would be Alessandro Volta, new vessel, delivered at the end of 2026. Beyond that level, beyond that moment, CapEx will marginally reduce because we're coming to an end -- we're coming to the end of the wave of CapEx to expand manufacturing capacity and vessel capacity in Transmission.

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

I have a few as well, and I will ask one at a time. The first one I have is on solution revenue growth in 2025. I mean we have already seen very good growth in 2024, and you said that some capacity expansion has helped the growth in Q4. So maybe if you can talk about which are the new capacity, like where is it coming from in 2025 to quantify the magnitude of it? And also, when in 2025 these things will come in if you have to distribute our revenue forecast into 4 quarters. So the first question on solution growth and capacity expansion.

The solution is your name for our transmission is NKT name for our transmission. So transmission...

Yes, I'm in transmission high-voltage.

We like to be associated to NKT. Its a good play. So revenue growth in '25, yes, I should give this number to you at the Capital Market Day. But there will be 1 additional line in Naples in our plant in Pozzuoli for submarine volume. And there will be 1 that has already come ready to production at the end of quarter 4 '24 in Gron, our plant in France for HVDC land. And there will be 1 small, catenary line for submarine production also in Pikkala. So overall, I would say that if you take the revenue of 2024 you should apply, let's say, 15% to 20% revenue growth as a result of manufacturing capacity which goes hand in hand with additional installation capacity associated with the CapEx that, as we've mentioned. I hope I clarified the scenario for transmission.

And my second question is on your margin expectations for 2025. I think in your prepared remarks and afterwards, you talk about margin expectations for various segments. And one of the variable in your margin is metal prices, given you don't adjust your margins for metal prices like your peers do. So anything that we should expect from metal prices that you may have embedded in your margin expectation that you communicated earlier? Or are these based on same metal prices?

I consider metal prices in continuity with the level of 2024. Of course, there might be some changes resulting from the tariffs, not on the LME price, but on the other components of the transformation cost, the cut of premium and stuff. And I think -- I mean, in North America, we still have to understand what would be the end of this game. As I said before, the whole of North America is not self-sufficient in terms of rod, copper rod, aluminum rod production. For those import duties applied to metal prices will not certainly favor the local capacity, which is still not aligned to the local demand. And so this will end up providing all customer -- providing all market an increase in cost of cables and so on, which is -- I think is something that we normally benefit from because we can pass more than inflation to the market. So anyway, our gross margin -- our margin expected by business unit do not reflect any of these possible changes also because we think we'll be able to remain immune if not benefit from the import duties applied to imports in North America.

And my final one is for Francesco. And so Francesco, you talked about purchase price amortization was among the items that had played role in below-the-line items. Can you quantify how much was PPA impact in your adjusted EBIT? And any color on what shall we expect in 2025?

Yes. I give you a picture of what was the impact on the profit before tax, which means basically an impact on the EBIT more than adjusted EBIT. I try to be clear. Let me start from the profit before tax and the net income. So we had basically a PPA effect of, I said, EUR 80 million, actually, EUR 77 million to be exact. EUR 37 million, say EUR 40 million to round it up is additional depreciation, which is coming from the reassessment of the asset, which is typical of the PPA and another EUR 40 million is coming from the reversal of the inventory step-up. In all the PPAs you have an inventory step-up according to market value of this inventory. And then you reverse this extra value typical in the first quarter right after the acquisition. So basically, EUR 80 million all in all. Then I -- let me also add that our profit before tax was penalized by some impairments. A question was mentioned basically point related to the Brayton Point investments. We impaired some of this, some investments that we have done, some costs that we have done at this -- in 2024. And with other small impairments, the total effect is in the region of EUR 40 million of impairments. All this is penalizing the quarter 4 to be exact. So we have total negative effects from PPA and impairment of quarter 4 of EUR 120 million, the net of tax are effects of EUR 90 million. So basically, you should read the quarter 4 profit before tax and net income considering this negative impact of EUR 90 million. And if you consider this, our Q4 net income would be absolutely in line with the 2 central quarters of 2024. Talking about specifically the adjusted EBIT, the additional depreciation from PPA is included -- is not excluded from adjusted EBIT, is penalizing adjusted EBIT. We are rigorous on this. I don't like, frankly speaking, to say that extra depreciation from an acquisition, we should exclude the depreciation from adjusted EBIT. In my opinion, would not be very serious. What is excluded on the other end from adjusted EBIT is the reversal of inventory step-up, the EUR 40 million that I was mentioning because this is a one-off effect. It's not -- whereas the higher depreciation from PPA is not a one-off effect. It's an effect that we will see also in the coming years. By the way, this year was only one-half. Next year will be for the full year, different is the reversal of the inventory step-up. Okay. I don't know if I'm clear -- I was clear, sorry.

For 2025, we shall expect somewhere around EUR 40 million in PPA and...

Yes, in 2025, you should -- no, you should expect additional depreciation in the region of, yes, EUR 35 million, EUR 40 million because this EUR 35 million , EUR 40 million that you had in 2024 was only 1/2 of PPA.

And I mean, PPA is a number that a lot of investors add back in their valuation given it's a noncash amortization coming from step-up value. So if you have to take full year number, that would be around EUR 70 million to EUR 80 million that will be included in your adjusted EBIT for 2025. Is that clear?

EUR 80 million. I would round this up to EUR 75 million, EUR 80 million, correct, of additional deposition related to PPA full year 2025 is a very good estimate.

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

I will ask one by one. The first is on the transmission side. Most of my questions have been already answered, but could you share with us, Massimo, the expected size of the transmission market in 2025 and 2026 with the breakdown between connection and submissions and submarines. And just one curiosity. The company is going to add 2 new vessels. So the installation capacity looks to me very -- pretty good. How is the situation at the market level in this moment? That's my first question.

Thank you, Monica. So the expected size of the market in '25, '26 based on the pipelines of projects that either we already bidden -- bid to or we are seeing as coming tenders is between EUR 15 billion and EUR 17 billion per year. There are still some frame agreements to large projects to come into fruition like the national grid projects. Then there are projects from Terna for the so-called Hypergrid. So it's a larger network or summary network surrounding Italy. There is the frame agreement from Ipto, the Greek company. So that project is in the pipeline, which make us comfortable saying EUR 15 billion, EUR 16 billion is the level of market in '25, '26. The market is more or less 70% towards submarine and 30% in land HVDC. Maybe one additional color that while in the past we had these long interconnectors or land interconnectors, those land interconnectors large, long like [indiscernible] will probably not be continuing with the same intensity in the coming years. But more and more, we see submarine offshore business with a stronger and longer structures of land when it comes to shore, they have to connect to substations that are much more remote than they were before. So a lot of land activity is actually combined in the submarine project because of the distance between the shore and the substation there to connect to. So overall land will represent -- represented in the past 30% of the total market. We are unique in the new -- in terms of installation capacity because we are the only one able to install with our vessels, all the cable that we produce. So we don't like to resort to two third-party installers. First of all, for cost reason. Today, the market is very buoyant and the price per day of vessels charter from the market is 3x the cost that -- 3x the price it was only 2, 3 years ago. And this is one economic reason, convenient reason for us to say we want to maintain this margin within ourselves. But the main reason is probably the quality and the risk of installation. We want to control the quality and the risk of installation. So we don't want to depend on anyone else in terms of time extension, bad weather standby, also because our vessels can really perform the best installation because we are good because we design them with the best capability to withstand winds -- current winds and worst condition to avoid and to cut the cable to walk away if storms arrive. So there are a lot of technical reasons and installation capability is one of those for us to justify our strategy, which is different from every other player in this space.

And my second question is on Digital Solutions. So which are the main parameters you are going to look at when and if the company will decide to grow externally in Digital Solutions? Could it be besides -- aside on top of the geographical positioning? Could be the sites, the margins, the multiples on the EBITDA? Any color would be useful on this side.

Yes. I mean, first of all, it's not that we have hundreds of targets available in telecom M&A. And so we have also to accept that we work on different scenarios. The main driver behind this M&A is, as I said before, the complementarity of the portfolio. So to make us a real solution provider in optical. We already have a lot of solution in our optical space. We have a significant revenue in connectivity. But we think that by expanding revenues and connectivity, we can further play the role of providing solution to a market that is more demanding. And in terms of pricing upside if you sell the whole package, there will be some upside. Then the company that we're looking at cannot be a huge company because we cannot perform another Encore Wire like acquisition until 2027, let's say. So we'll be a mid-size acquisition. And so we look at the size of the EBITDA, the sustainability of the EBITDA, the multiple that we pay with the price has to be the right one. We will not pay a multiple of 10x the EBITDA or even worth [ 12 or 15 ]. And so these are the parameters that we're looking at. And we continue with this activity. And maybe we'll tell you more at the Capital Market Day about how we see this opportunity moving forward.

Now my last two questions. One is on the specialty side. Is the company may be molding some reorganizations or disposal within the specialties space? And the very last one is for Francesco. Should we expect the free cash flow by year-end to approach the top end of the guidance, thanks to transmission? And could you just please give us some indication on the ForEx impact in 2025 on the operating trend.

So specialties, no, we don't have in mind any particular organization. We're just gradually disposing parts of the automotive business because it's certainly not core to us. It's actually not providing any business upside. On the contrary, thanks to the consolidation of our organization that we already implemented turning the 4 European regions into 1 single Europe, 1 single region. We can count on intercompany flows that will become now inside the regional flows. So making the region more focused on pursuing growth opportunities in specialties where before we had pockets of regions with great upside with great traction in the market and others that we didn't benefit from the global footprint of Europe. So no reorganization besides the one that we apply with the consolidation of Europe and Asia Pac and chances to gain more traction in specialties, especially in Europe.

Monica, thanks for your question. Well, for the time being, I would say that having provided a guidance of free cash flow between EUR 950 million and EUR 1,050 million, I confirm that the midpoint is the one that you have to look at and that I think is more realistic. Of course, I don't exclude that we will be able to be also in the highest part of this guidance. But for the time being, it's very early in the year, and I myself actually...

Fair enough.

Yes, yes, yes. And maybe just to explain a little bit better, the reason of stability, substantial stability of our free cash flow is that whereas we have a significant progression our cash from operations before working capital changes, which is driven by EBITDA, by the way, driven by reported EBITDA, where you had a very good growth embedded in our guidance, but you have also a decrease -- an anticipated decrease of our restructuring and adjustments. So we have a very strong impact. But this is kind of offset, let me simplify, by the very powerful cash-ins, by very strong cash-ins that we enjoyed in 2024 which are related with the down payments of the transmission business. And some of these down payments were actually related to frame agreement awards, which had taken place in 2023, as you will remember, the huge market awards, which came in, in 2023. Most of the collection of down payment collections took place actually in the first half of 2024. And so it's a matter of fact that even if we anticipate a strong market in transmission, in 2025, the level of down payments will be barely 1/2 of the one that we benefited of in 2024. And this is the offset of the -- and then a lot of other details that I don't waste your time with.

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

A couple from me. Firstly, just on specialties. I just want to understand a little bit more the dynamics of the margin decline. I mean, I see that automotive is less than 20% of total exposure of specialties. So could you maybe talk about specific conditions, deterioration within automotive and should we assume that everything else across OEM renewables, oil and gas, elevators, et cetera, is stable? Or are you seeing a broader impact? That's the first question.

Thank you, Sean. No. Yes. Automotive is the biggest chunk of this specialty deterioration. It is relatively small, but the margin was decent. It's been decent in '23 in the first half of '24 with a bit of worldwide crisis we suffer from load saturation, excessive transportation costs because the market has become more complicated. And to be honest, there is also, as I mentioned, in Elevator in North America, which is a kind of profitable business, a significant slowdown due to the residential market impact. As far as [indiscernible] is concerned, all the rest is pretty much the same. Yes, there are all -- there are plenty of verticals in the OEMs renewable space. One is up and one is down. We don't have any particular trend in any of these specific verticals. Of course, it looks like that we suffer a lot in terms of seasonality over the last quarter, starting from September 2024 in terms of volume and across all verticals. But the real impact in terms of EBITDA margin reduction came from these 2 segments, Automotive and Elevator.

Yes. And should we assume in fact, I mean, is there something abnormal about the seasonality? Or should we expect every year kind of a Q4 slowdown?

I think this has nothing to do with the calendar seasonality in '24. In '23 quarter 4, we had good performance in special cables. So it is more about the pace of investment of OEMs, renewable and automotive player than the season per se. In the last quarter, the last 4 months of '24, we noticed a reduction of volume, definitely across automotive with implication in prices [ in all the rest ] and Elevator. But we should see -- we are entering -- we entered in 2025 with more stability. And so we believe that as we noticed last year, we had a bit of a spike in margin on this business. The margin of this business in quarter 1, quarter 2, a level of 10.5%, 11% is what we consider more sustainable moving forward.

Second question is just coming back to Monica's question and just probing a little bit on the guidance range, this time for the adjusted EBITDA. I mean, is it fair to assume that if we do see this pickup that you've talked about, in the U.S. from, let's say, March onwards that the upper end of that guidance range is realistic?

Sean, it's really very early. As I said, we entered '25 with some continuity vis-a-vis what we've seen in November, December in the electrical -- electrification business unit in terms of I&C margins. I think there is a lot of negative impact coming from the weather because many investment -- many construction didn't start. So we'd like to reserve our right to tell you more about this at the end of quarter 1 when we see the actual result of quarter 1 on the one hand, and we have better visibility of the demand of the backlog that is going to help us in quarter 2 and quarter 3. So there is some volatility as we speak. There is also this import duties situation that is unfortunately not yet clear as to what is going to be the impact, what is going to hit everyone, whether we'll be able as we're doing it to expand the current import duty also to cables. In some cases, already the administration consumer cables as part of products coming from our side that will be charged with import duties, some cases not. So there is still a lot of clarification has to happen before we release more comfort on which portion of the range we're going to hit.

The next question comes from the line of Lucas Ferhani from Jefferies.

Just a follow-up on specialties, where you see the weakness. So for 2025, you're guiding to kind of low single-digit organic growth in electrification, I guess, as the entire segment. But what do you see for specialty? Do you see some recovery, some stabilization? Or should we see another kind of down year into 2025? And am I right that you said the kind of sustainable margin for that business going forward is 9% to 10% EBITDA margin?

No. For specialties, we see also some recovery and some stability in organic growth, of course, single-digit margin -- single-digit organic growth. The margin that we expect to maintain is the 10.5% that we see in '24, and we are going to see in '25. So 10.5%, 11% is the margin will be expect to achieve in specialties in 2025.

And then just on transmission. The comments regarding growth in 2025 from the additional capacity. I think you said revenue growth of 15% to 20%. Is that kind of volume only? Or could you have a pricing impact as well kind of helping further that growth? And also, I think you said you're comfortable -- confident on the 16% plus margin in 2025. Just trying to think about the margin potential for that business looking into kind of '26, '27, and I know you'll discuss that at the CMD. But you're still delivering projects that were not fully reflecting maybe inflation. And so incrementally, the projects you're going to deliver in '26, '27 should have kind of better pricing margin. So how do you think about the margin potential beyond 2025 in that business?

So transmission growth in '25 that reported 15% to 20% is a combination of volume and price. It's a combination of volume because the additional capacity will help us deliver more projects, both the manufacturing installation capacity is a combination of price because as I said, we will hit a 16% plus EBITDA margin in 2025. And most of this upside -- uptake in margins comes from projects with better margins, with better price in our backlog in execution in 2025. Then since we will continue expanding our size and we have also some operational leverage. And we will also have better margin projects in execution, but '26, '27. We do expect to have -- to go beyond the 16% plus EBITDA margin that we will deliver in 2025. And -- but again, I would like to give you more about this at the Capital Market Day.

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

Yes, I have three questions, quick questions. Okay. The first one, I remember in the call the comment that you gave on the aluminum tariff, can you also elaborate a little bit on the recently announced the possibility to have also a tariff from copper and which kind of implication would have for you? That's the first question.

They work pretty much the same. The aluminum tariff going to be applied to import aluminum from Canada and from other countries. And for Canada will be a 25% hit on top of the aluminum cost and from other countries will be moving from 10% to 25%, so an incremental 15 points. This is -- I mean an impact coming to the entire industry. The other big player in the United States like [ Subwire ] will depend from local production, very limited and most of our copper rod, aluminum rod comes from imports from Canada, from Middle East and other countries. So this will -- this aluminum tariff will impact the total industry, and we play in the same way, passing on this price uptake to cost uptake to the market. Rod is a bit different because U.S.A. is less reliant on imports of rod than it is on aluminum. So there is some significant local production of rod in the United States. But still, there is something that is imported from other regions. So I think what is important will have the same impact to our industry. So the cost will be added to the LME or to the [indiscernible] cost and the cost will be passed on to the market because it is common to the entire industry. Where there is a differentiator, which is what I mentioned before in the aluminum tariff will also be applied to cables imported from other countries in the United States that -- and this is where we're going to have a help because 50% -- 40% of the aluminum building wire market is in the end of importers, which will be more penalized because the tariff will be applied to the entire value of the cable and not to a portion of it like the aluminum rod. So this will make us gain some marginal improvement due to the differential cost between our internal production and the cost of aluminum and the cost of our aluminum product imported from abroad.

Then the second question is considering your free cash flow guidance range, let's say -- let's take the midpoint, can you help us also to reconcile a little bit what this would mean for the, let's say, net debt to EBITDA target for this year starting from the around 2.0 you got this year?

Yes. You should consider the dividend that, by the way, we just proposed to the EGM. And let me try to give you an indication, give me a sec on that in terms of a realistic level of that, bear with me for a second, please. Here it is. I think a realistic level of debt is in between EUR 3.7 billion and EUR 3.8 billion, I would say, consistently with the EUR 100 million range of the guidance. Let's say EUR 3.7 billion, EUR 3.8 billion. You can calculate it by yourself.

Yes. Yes. I can try. I can try. And on -- if you can also add a little bit also on the tax rate, considering now these one-off we saw this year and also lastly on financial charges for 2025.

Yes. No, that's very simple. The tax rate, I think, is a fair assumption for 2025 and also for the next few years is in the 27%. So this means that the one-off that we had in 2024 were worth approximately 3.5 points. For the -- give me a second or so. For the financial charges, you should see that you should consider -- of course, the effect of the acquisition will be a full year effect next year. So my best projection is in the region of, I would say, EUR 260 million for next year -- between EUR 250 million and EUR 270 million. So take an average of EUR 260 million. The -- so an increase which is not huge, by the way, compared to 2024, we are already at EUR 225 million. Cash-wise, is a bit different, if -- just to complement because the increase in interest expenses paid in 2025 versus 2024 is more than this EUR 40 million on the P&L. The EUR 40 million is from 2025 to 2026, so say EUR 35 million. I would say it's more or less double, so say, EUR 80 million. The reason is the difference between, of course, the cash interest and the accrued interest, which plays a significant role in the acquisition of financing.

The next question comes from the line of Xin Wang from Barclays.

My first one is on the 12% to 13% margin you commented. So I think we understand the supply demand dynamics you were explaining. But I'm just wondering, is this 12% to 13% coming out of initial conversations with customers on either new frame agreements or frame agreements renewals? Has the duration of frame agreements that is to be signed for the additional capacity changed?

Thank you, Xin. No, the -- yes, we have constant conversation with customers about the market expectation volume-wise in '25 and '26. There are -- those frame agreements are rotated frame agreements that are due to expire in quarter 2, some that are due to expire in 2 years. So they are normally over 3, 4, 5 years duration and time by time, we have some of them that needs to -- some go out for extension because they're happy with the service, they're happy with the current supplier and some then go out for [ retendering ]. So the deal is more about -- the 12%, 13% deal is more in line with the fact that there is additional capacity in the market. It is difficult now to gauge whether -- what the imbalance will be in '25 between these additional capacity and incremental demand. So should additional capacity maintain the type of imbalance that we had in 2023 -- in '23 and '24. Of course, we will not see this stabilization at 12%, probably at 13%. But should on the country have a different situation between capacity and demand, we might see some pricing pressure, nothing as much as in the utility space, as I said before, but in the Power Grid, so distributor space and renewable onshore business, which is, I said, a spot business that goes -- go on, on a project-by-project basis.

And then I also want to follow up on metal prices. I think you touched on this earlier already, so understood regarding the aluminum import. But earlier this year, we also saw CME copper price now at a premium to LME price. I think you were seeing the same. So in -- copper price inflation in the parts, we normally see cable makers can make outsized gains. Could this be the case in 2025, if tariff materializes exacerbating this copper price premium?

I think you're correct. Normally, when those prices go up, premium transformation prices, you get some upside in the market provided they didn't go up too fast. In that case, it takes a while to catch up with a new price. I think that the tendency that the aluminum and the copper price will go up in '25 and assuming a moderate and stable growth, we will be able to leverage this growth to make -- or increase in margin. I think the market demand will play also an important role in this balance between cost of material going up and the ability to pass on to the market. And as far as demand is concerned, we haven't seen any of our customer's concern about a possible rebound -- a possible negative downturn on this demand. They see the industrial cables demand going up 3% to 5%. And they also spend positive words about the possible mild recovery of the residential market, which also will contribute towards the overall growth of the electrification business in United States in '25.

My last question goes to potential for shareholder distribution. So with very strong cash generation and forward guidance also a very strong beat to consensus expectations at midpoint. Would you comment on opportunity for shareholder distribution? Can we expect another buyback as the current program is being finished?

Yes. Thanks for the question. For the time being, as we said, we propose an increase in dividend, 14% increase in dividend. You know that a buyback -- a share buyback is ongoing, as we speak. It is the one that we had announced in June last year for a total of EUR 375 million. In 2024, we completed approximately EUR 325 million, if I will remember. So the EUR 50 million remaining part is ongoing and will be most likely completed by the end of the first quarter. Let me say on the general topic that that's a matter -- your question is in the end boils down to capital allocation priorities. And we'll come back to you in the Capital Market Day in New York. At least will be a specific chapter of that presentation.

The next question comes from the line of Chris Leonard from UBS.

Just two very quick questions from me. I think you commented previously at the end of 2024, you would make a decision on that medium voltage expansion in the U.S., whether or not you're going to add more. I just wondered if you could speak to any decision there? And the second question is around that dual listing decision. I might have missed it as well, you've spoken on it earlier in the call, but if there's any elaboration on your process here and what we should expect on timing?

Thank you, Chris. Medium voltage expansion U.S., we are assessing it as we speak. We are close to making a decision. There will be certainly some million medium-voltage expansion in the U.S., probably more twisted towards the industrial construction space, industrial construction buildings rather than utilities. But of course, it will be also fungible for the utility space. We will -- the discussion we're having is about the size of the expansion, not the rationale behind an expansion per se. U.S. listing is also a running assessment, running [ the size. ] We are finalizing those considerations, the pros and cons and soon we will have a view that, of course, we will share with you. And probably we'll share this view either direction to do it or not to do it at the next Capital Market Day.

Thank you. As there are no further questions, I would now like to hand back to Massimo Battaini for any closing remarks.

So thank you all. Thank you for attending this moment. I invite you and I hope you will come to attend our Capital Market Day. It is in New York, so not really behind the corner for some of you. But of course, it's a great opportunity to understand our new ambitions and to have more insight into our electrification power in United States [ related to ] the Encore Wire side. Thank you all, and have a good day.