Prysmian S.p.A. ($PRY)

Good day, and thank you for standing by. Welcome to Prysmian Q1 2026 Integrated Results Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Massimo Battaini, Chief Executive Officer of Prysmian. Please go ahead, sir.

Thank you. Good morning to everyone, and welcome to the earnings call of quarter 1, '26. We're very excited to share our quarter 1 result that is well ahead of our expectation. And when I say well ahead, I mean, almost EUR 50 million upside over what we budgeted for quarter 1, '26. But what is mostly starting is that the growth in EBITDA between quarter 1, '25, '26 has been mainly achieved organically. If you take this EUR 80 million increase and you harmonize and utilize the ForEx, this will lead to EUR 120 million growth in EBITDA, out of which Channell represented only EUR 40 million of this EUR 120 million. Also outstanding is the EBITDA margin in the quarter, 14.2%, 1.1 percentage point higher than what we recorded for last year. So with this set of results can confirm that we are well on track to achieve the 2028 Capital Market Day target of EUR 3 billion plus and also very confident to be able to hit the upper part of our guidance for 2026, namely well above the EUR 2.7 billion of the midpoint. Before moving to the usual business by business review, I'd like to share with you some exciting news about the further expansion that we can have in the data center space through striking long-term agreements with hyperscalers. These agreements are going to be finalized in the coming weeks and instrumental and fundamental to achieving this agreement is our footprint in terms of products and assets that we have in the U.S. We are among the few fiber plant located in U.S. with multiple optical cable plants located in U.S. We're also very satisfied of being the only player worldwide that can offer data solution and power solution to hyperscalers. The demand has grown to the roof in terms of fiber and optical cables, not only coming from a strong data center expansion, but also coming from the famous and well-known case of military fiber utilized for drones application. So we are well positioned to take advantage of the growth of the market in terms of volume, profitability and long-term supply agreement will confirm how sizable this opportunity is for open. Being unique means also that we participate in all the steps of the data and power flows of cables to feed optical solution and electricity data center. You see that all our business transmission with submarine telecom and submarine power, power grid with medium voltage enhancement to the grid, electrification cables and finally, digital solution cables are intercepting -- will intercept opportunity with data center. And the last one that we want to capture is to be a player not only with the long-haul connection, connecting data center campus and cluster campus with other cluster of campus, but to be a player also inside the building, inside where the racks the service are, which is where most of the volume of cables and fiber is going to be deployed due to the AI expansion. Let me move to the business review. Transmission supported the quarter 1 with EUR 22 million upside over quarter 1 2025. The organic growth is not that visible. In fact, we had flattish organic growth, but made of 2 components, strong growth in the cable space. So the capacity coming online that bring additional volume to this business. We had lower installation, third-party installation in quarter 1 than we -- due to the specific project. And bear in mind that we have also a tough comparison to quarter 1 '25, where we had a 60% organic growth in that quarter. But look at the EBITDA margin. We are consolidating for the second quarter in a row, 20% plus EBITDA margin for this business. I confirm that we will see between 20% and 21% EBITDA margin in 2026 full year, which is well ahead of the target we set for the Capital Market Day, which was 18 -- a range between 18% and 20%. More importantly, I confirm our commitment to achieving at least EUR 170 million, EUR 180 million incremental EBITDA in 2026 over 2025, confirming that we are well ahead of our trajectory for achieving the EUR 1 billion goal for 2028. Moving to Power Grid. We have an exceptionally and extraordinarily high organic growth driven by volume and price. In terms of EBITDA margin, you see what we anticipated last quarter. We still have Midwest premium and cost inflation that we are passing on to the market because we have formula across all the agreements. But bear in mind, those formulas are structured in a way that give us an upside only after a certain time lag. So there's a time lag for the implementation of the formula, whereby the cost increase today in the market in our production is something we can pass on to the market in basically 3 months. This is, for the time being, is preventing us from restoring the 15% EBITDA margin that we achieved in the past quarters. But don't worry, the market is buoyant in Power Grid, U.S. and Europe. There is no price pressure at all. And also should the cost inflation soften in the coming quarter, you will see the positive benefit of this time lag related to the cost price adjustment formula. Moving to I&C. Here, we had a significant performance in terms of EBITDA, EUR 196 million in the quarter, which is EUR 20-plus million over last year. If you add the ForEx impact that is EUR 17 million. This is a EUR 40 million increase quarter-over-quarter. North America drives the growth. Certainly, with the nonresidential business also and mainly, I would say, with the data center expansion. We have been reported as the #1 leader, #1 player in electrification data center in quarter 4 last year and quarter 1, 2026. And the EBITDA margin that you see at 13% is well ahead of what we had in quarter 1, 2025. Specialties, we see a little rebound in EBITDA and EBITDA margins. We finally disposed the 2 factories that we had in Mexico in quarter 1, '26. There are 2 more factories to be rid of in the coming quarters. We still suffer the softening of the automotive business for the remaining market and in U.S. is particularly down due to the, I would say, continued crisis in the residential market and some oil and gas softening is what caused this EUR 10 million reduction in EBITDA over last year. We consider that EUR 4 million out of EUR 10 million came from the ForEx. Digital Solutions is our new driver of growth. First of all, we hit a 20% EBITDA margin in the quarter. And now we see head-to-head competition between the margin of transmission, the margin of digital solution. And let me remind you that before the channel acquisition, the best margin seen in this space was 14.5%. So we are now running at a different level of profitability. This quarter in itself doesn't show yet the opportunity and the upside associated to hyperscalers. It is EUR 88 million versus EUR 42 million of 2025. ForEx hit the result by EUR 7 million, while you see was in '25 or EUR 4 million, EUR 5 million. This is not the case for '26. But you see this number growing significantly in the coming quarters on the back of this pricing power that has increased, more volume opportunity and the long-term agreements. I'd like to conclude the section of the business review and the overall company view with 2 outstanding breakthrough in terms of innovation. Yes, you see on the left of the social and climate and innovation KPIs. But in terms of innovation, what we've done in this quarter is amazing. We delivered the first cable able to run 20% more power than the standard 525 KV solution. This will give customers a unique opportunity to invest in a connection whose cost is similar to the original 525 technology, but again allowing them to transmit more power. So the cost per megawatt transmitted is enhanced by 20%. Big contribution to make the energy transition financially more sustainable. And also we created unique in the world one cable, aluminum cables, aluminum metal cables whose carbon content is negative. So vis-a-vis the standard regular cable, the sale of carbon that we do -- we generate with this production always -- outweighs the carbon included in the production itself. So we have a negative footprint in the sense that we create negative carbon emission with these cables. Solution that will be certainly well appreciated by those among our customers are more keen in having green solution. And those are hyperscalers by default. Let me now hand over to Francesco for more details in our financial results.

Thank you, Massimo, and good morning to everybody. Let me start from the top line. As Massimo said, very good growth, 5% organic growth with revenues growing up to EUR 5.2 billion and a very remarkable growth in -- particularly in Power Grid, in I&C and in digital solutions. This 5%, by the way, has been reached despite, as Massimo commented, a flattish organic growth in the transmission, which is only temporary, only due to phasing of the installation activities. And in transmission, we see a very strong ramp-up both of the top line and even more, I have to say, the EBITDA in. Adjusted EBITDA for a good expansion of margins, you see [indiscernible] up by 110 basis points from 13.1% to 14.2%. Here important are certain in transmission and so in digital solution including the accretion coming from the inclusion and the consolidation of channel. As Massimo commented there was some temporary adverse effect on margins of Power Grid due to the lagged pass of the gross material increase in the Midwest premium increase that we are very confident and we expect to recover starting from the second quarter. You see the bridge from Q1 '25 to Q1 '26. As I said, important to remark the good growth, the very good growth of transmission, but this growth is definitely expected to accelerate a lot in the coming quarters. So this plus EUR 23 million will be much more sizable starting from Q2, Q3, Q4, in line with the indication that Massimo gave for the full year. Power Grid is basically flat as a result of strong growth and the temporary margin adverse effect that we have commented, even very good progression of I&C in particular and an outstanding result of digital solutions as a combination of the inclusion of channel, but also the very strong organic growth in the business. Unfortunately, a quite adverse ForEx effect for EUR 36 million, so close to EUR 40 million. But Massimo in this case, this ForEx effect is expected to decrease to attenuate in the coming quarters because you remember that last year, the dollar was very strong in the first quarter then started to weaken progressively throughout the quarter. So we will have a much lower effect than this EUR 36 million in the coming quarters. I have to say that it was also an outstanding Q1 in terms of net profit up to almost EUR 250 million, also in this case, definitely above our expectations, and this is an excellent start to achieve our targets also in terms of earnings per share for the full year. We can move to some other pretty outstanding achievement that we had in the first quarter. I'd like to comment once again definitely above our expectation, which is a free cash flow last 12 months very close to EUR 1.2 billion and even above the already outstanding free cash flow that we have achieved in full year 2025, which was EUR 1,170 million. You see that also the leverage of our net debt is massive. We go from March '25, which was EUR 4.9 billion down to EUR 3.8 billion despite having executed acquisition, you see the first bond for EUR 1.2 billion, obviously, mainly funded by the issuance of the hybrid bond for, say, EUR 1.943 billion. And this massive deleveraging was achieved through the last 12 months free cash flow. But as you see also from the disposal, in particular, of our YOFC stake. We target a net debt by year-end, let me say, between EUR 2.6 billion, EUR 2.7 billion. And that's a very strong message that I want to give because it means that year-end, our leverage will be below 1 in principle. This is definitely faster than we thought, for instance, when at the Capital Market Day last March in New York. Excellent. Back to Massimo.

Thank you, Francesco. Let me complete presentation with some important remarks. We have a strong driver of growth comes from digital solutions and transmission with the number we mentioned before. Power Grid remains solid in volume. We will see the rebound in profitability in the coming quarters as the time lag will allow us to increase price more effectively in the market. Digital solution opportunity is a big one. You cannot imagine many customers reach out to us to ask we are available to expand capacity to support long-term deals, and we are working hard to make this happen in the coming weeks. And this will definitely allow us to add another important driver of growth to the North American growth and the transmission growth that we had already and showed in the last few quarters. So for the time being, we confirm the guidance, of course, we have a much positive view about where we will end up with in terms of guidance, but we have to wait until July to see the full power of the upside that we have in hand and to confirm the trajectory of opportunity that we see coming in the next quarters. Positive also the free cash flow guidance, and we might see upside also there. Thank you for your time. We can now move to the Q&A session.

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

I have 3 questions, if possible. I will ask them one at a time to make it easier. But first, just wanted to start on fiber and to ask you to detail the dynamics we should expect over the coming quarters because obviously, we have seen spot fiber prices raising significantly. You do produce a large quantity of your own fiber and the inflation, I guess, on the inputs is a lot smaller than what we see on the spot, but you have frame agreements. So how long will it take until we kind of start seeing spot reflected on your frame agreements? What is the tailwind by the fact that you produce your own fiber? So how should we think about margin expansion over the rest of the year and into '27?

Daniela, we will see the benefit of the long-term agreement over time because we will lock capacity and part of the capacity is not in place. We have to expand the capacity. So the volume -- the vast majority of the volume uptake will happen in '27 and beyond. But in '26, you will see certainly significant margin improvement as result of the fact that the current fiber price in the market is at least $10 per fiber kilometer. Only 6 months ago, it was half of this price in the market. So we are renegotiating all our agreement. We are shifting volume from low profitability customers to higher profitability customers among the higher profitability customers are hyperscalers. We already are significant players in the long-haul connection between the data center. So we already have a relevant partnership and connection with these hyperscalers, not really related to volume capacity, but really related to our innovation capabilities. They need very high-density fiber for the long-haul district. So this strength, the strong relationship is what we are leveraging to add volume commitment and pricing improvement across the board of our solution in the telecom space. So we will see some volume uptake in quarter 2, quarter 3, quarter 4 as we unlock some of the short-term capacity, we will see certainly pricing benefit in the coming quarters.

Got it. And then switching to electrification and the topic we've been talking since the summer about potentially the copper derivatives on the Section 232. Two points, I guess, do you still think that will eventually come and when? And do you see any shifts in competitive positioning from the recent kind of changes on Section 232?

I think we don't count much on the copper derivatives not because they will never happen. They might happen, but there is not much import of copper in the U.S. What is happening on the contrary in the last few months, there's been a significant change in the 232 tariff for aluminum cables. Before mid-February, the rule was importers had to apply 50% the 232 tariff on the metal content of those cables. Metal content of the cable were declared by importers. And there's been a lot of cheating on this one. So a lot of way of circumvent this rule by declaring less lock copper content and pay the tariff. Now the administration in light of this and in order to fix the situation, shifted from 50% applied to metaconent to 25% applied to the cable value. And the cable value is transparent. It's something that we have to declare the customers. So I think now we start -- we will see some real benefit coming from tariff because those players will be charged with 25% across the whole cable value in full transparency. There will be no way to circumvent the rules. And I think we can say mildly because these are first signal coming from the market that in April, we've seen pricing or margin improvement in aluminum device space that we haven't seen in the last 6 months.

Got it. And then just finally, I guess, several things that you have been mentioning for a while like transmission margins, now the new contracts in digital that are kind of things that weren't necessarily there on your last CMD. As your thinking on when it would make sense to revisit the 2028 targets changed versus the last quarter?

In our ideal work, we would like to review the Capital Market Day target for 2028 in combination to the next M&A. Of course, should not we lend any M&A for the next 2 years or 1.5 years, we will have to review the Capital Market Day target anyway. But we are pretty confident that the original plan is what we will be able to stick to. So in the next 12 months, an M&A will give us the opportunity to revisit the 2028 target as well as to provide a long-term target like 2031. That will be our approach, Daniela in these regards.

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

I'll maybe ask 2. Could we start on the hyperscaler long-term contracts that you've mentioned? And could you update us in terms of what the sort of time frames these could be over, which you're speaking on currently with your partners? And could you also confirm that this will be across your portfolio of low and medium voltage cables alongside fiber? Or should we just expect it to be within fiber optics? And maybe I'll ask a second question after that.

Yes. Thank you, Chris. This is an opportunity that will be deployed in Digital Solutions. The rest is already covered by agreement and by specific projects in the electrification of power space. So this is specific to digital solutions as an opportunity. The time frame could be something between 3 to 6, 7 years duration of contracts with conditions that I cannot disclose, of course, until we sign a contract, which are supporting significant expansion of capacity in our fiber and optical cable footprint in U.S. So these are the ideal condition that we had mirror from transmission business where down payment help us fund and finance investment in the expansion of capacity. So this would be the same model applied to optical opportunity within Digital solutions space.

Okay. Sure. That makes a lot of sense. And as a follow-up, could you just confirm currently what your sort of contract duration is in fiber if these contracts are going from 3 up to 7 years, what is the current level?

In the current market, we play a role in fiber-to-the-home and long-haul connection for the data center. We have some 2, 3 years agreement in terms of frame agreement with fiber-to-the-home customers. We have no long-term commitment with any of the hyperscalers in the existing setup. And so it's a significant shift in terms of customer commitment, what we see today and what is we're going to see as an opportunity for the coming years from spot business or project-related business to long-term agreement with solid commitment to withdraw the volume when the capacity will be coming online.

That's really helpful. And the second question was on I&C margins in Q1 coming down off the Q4 levels. And could you maybe comment in the U.S., you saw good organic growth in the geography. Could you comment if you're seeing any pricing pressure in the low-voltage vertical? And if so, is there any way you can alleviate that for the rest of the year? And is M&A going to be a key target for you in this segment in the U.S. for this year?

Thank you for your question. No, in North America, we've seen the opposite. The margin in quarter 1 were 1 percentage point up on the margin that we reported in quarter 4. So the market in U.S. is particularly strong, continue to remain strong. And again, driven by this rebound in nonresidential, also supported by this fantastic rate of growth in the center. So don't forget that to be a player in the center space, and we are the #1 now in U.S., you need scale and service. And we have all the conditions in place to benefit from these 2 important features. We don't intend to expand with M&A our capability in U.S. in the I&C space. We already the #1. What we will do is organically, we'll add more capabilities to this plant in McKinney. You know that we talk about medium voltage expansion of capacity which is complementary to the low voltage capacity that we have already in this location. So we will become even more relevant by adding the rest of the portfolio that is needed to electrify data center space.

But just as a follow-up on M&A. So in the U.S., it's your key target geographies as you've highlighted before, but we shouldn't expect that this will be across the low voltage, and we shouldn't expect potentially across medium voltage. Am I right in understanding that?

So Chris, we can't really tell much about the opportunities. I think the opportunity is in the electrification space, but I cannot be more specific than this. But in terms of cable, we have exactly what we need. Maybe there will be something else beyond cable that can help us complement the cable portfolio and sell more solution also in the electrification space. But forgive me if I cannot go beyond this because we are in interacting with different targets, and I don't want to disclose it to the market yet.

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

I have a few questions. The first is around digital. Just looking to understand the potential scale of the ramp-up in fiber capacity you may be considering. Is there any sort of indication you can give us? And is your strategy going to be to fulfill the longer-term supply agreements for data centers? Or could you also build some further spare capacity in particular, just thinking about you've highlighted the potential submarine telco, which is essentially coming from very small volumes, but you're building up your capabilities there.

Yes. The capacity allocation to the percentage opportunity will be twofold. In the short term, we redirect existing capacity from low profitability customer to hyperscalers because we want to bridge the 2, 3 years' time that we need to bring the new capacity online. The new capacity addition will be in the range of 40% increase of what we already have in the cable optical space worldwide. And this probably gives you enough information to appreciate the scale of the opportunity. Submarine telco is what we are strengthening with Xtera. Now we can be a provider of long-haul connection, optical submarine connection. And this is another way to interact with hyperscalers and support the growth of hyperscalers. Now we see the data center market expansion relies a lot on Prysmian, thanks to our global and comprehensive portfolio of products and solutions.

That's great. My second question is a follow-up on Power Grids. You've guided for an improvement in the second quarter. Could you maybe give us a little bit more flavor on how much you expect the margin to improve in the second quarter? Is that already at the 15% or so standard metal price margin? Is it a little bit below that and then improving to that level in the second half?

Vivek. So there is a catch-up situation due to the formula. The 3, 4 months, 2 months time lag depending on different contracts allow us to increase the price. But if the costs continue to increase, you will see the benefit of the price increase in the coming quarters. And so we expect as we stand today to have at least 100 percentage point increase in the margin of quarter 2 vis-a-vis quarter 1. Things can do even better should we see a slowdown in inflation rate or at least this will be the minimum baseline improvement of 100 basis points over quarter 1. But more importantly than focusing on the specific margin by quarter is that there is no pricing pressure in the market at all. There is no one that is willing to renegotiate existing contracts to reduce the price. There is no softening in demand because both in Europe and North America, this is remaining -- those 2 markets are remaining strong market in terms of demand. Europe in power distribution and high voltage, North America, again, medium voltage and medium voltage power distribution and high voltage. So we will restore the 15% EBITDA margin. But more importantly, we would like to show continued growth as we've shown in quarter 1 in terms of organic growth.

That's great. And as a follow-up on that point because the comparables for organic growth get stronger as you go through the year by the second half, you're already growing double digit in Power Grid. So how long will we likely to sustain these levels of organic growth? How do you see the midterm growth as you go forward?

I think part of the organic growth is volume related, part of the organic growth is price related. And despite you are correct, last year second half, we had significant organic growth, but we still see this double-digit growth for the remainder of the year, driven by volume and price. Don't forget there will be additional capacity coming on stream. And also look at in quarter 1, '27, there will be a significant impact of additional capacity in the medium space, partly in I&C, partly in Power Grid. So certainly, we see continued growth in the coming quarters as we expand capacity and as the market remains buoyant in terms of prices.

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

I got 3 as well, and I'll ask one at a time. The first one is also on Digital Solutions. Maybe is there any way to quantify how large these investments is going to be given when we look at some of your competitors, they are spending north of $1 billion mark. And then could you also talk about the payback period for those investments? And how should we think about the phasing of incremental revenues in the next couple of years? That's the first one.

Thank you. I'm very sensitive information, but because we would like to sign the agreement and first for them to disclose the size of the revenues upside and the EBITDA margin, the EBITDA upside and all the rest. But yes, more or less, I can tell you that the size of the investment is massive, as you also said before, is north of the EUR 1 billion investment. This is across the fiber space with a specific investment in U.S. and the optical cable plants, 3 plants out of 4 in U.S. would be affected by this expansion and European plant will also be affected by the expansion. Payback varies depending on the size of the down payment that is still under negotiation, could be very short, could be worst case 8 years, but something that will anyway create value for the company in terms of additional EBITDA in terms of net present value of those investments. We were never committed to expansion that large with having a solid customer commitment and the confidence that the payback and the IRR are in the right place.

And when it comes to funding these investments, is it fair to assume that like we saw in transmission early on, not just at Prysmian, but also at competitors that customer gave nice down payments that act as a funding instrument for those expansions. So could that possible with hyperscalers this time around?

Yes, it is possible with our customers. I cannot name the customers, but it's exactly what we are targeting. This is exactly what is being offered. So this is a copy and paste of the model that we applied to the transmission space successfully in the last 5 years. And the marketing digital solution allow us to achieve the same. Bear one thing in mind that those customers want to have U.S. fiber, and we have a U.S. plant. So we are unique in this sense alongside Corning and Sorocaba. But we are among the 3 that can benefit from this opportunity because of our existing footprint.

And my second one is for Francesco. When I look at your P&L, nonmonetary items in this quarter was just EUR 2 million against EUR 72 million. So there's a significant reduction there. Can you talk about what is driving that? And what does that change for full year in terms of what shall we expect the amount?

Thanks, Akash. The only driver of that is the fair value of the metal derivatives that we use for the hedging. Last year, due to the dynamic of the metal price was negative. This year is fairly positive. And this is basically, for instance, compensating the other item -- the other cost items that we have in this line, which is related to the share-based compensation, for instance.

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

My first one is on the M&A opportunities. So I see that you have recently given the authorization from the Board to potentially raise up to 10% equity, which I guess now equate to almost $4 billion of extra firepower. Does that change the thinking you have for the size of M&A you can do? And what will be the focus areas there in terms of the target you're looking for?

Thank you, for your question. This is not changing the size of the target that you have in mind or give us more -- just giving us more flexibility in terms of how we can manage the financing of the deals. So it's beneficial. It's not really any impact in our aspiration and ambition in terms of M&A opportunities, which are well defined and very clear and related to sizable acquisition in geographies and business where organic growth opportunity are strong and related to assets like YOFC asset with good potential to create additional synergies.

That's super clear. My second one is on the sort of the pricing opportunities in the fiber optic cable space. So I guess you mentioned that the prices have increased massively in the last couple of months. How should we think about the proportion of pricing benefit you can see in the coming quarters? Would you be able to see the full pricing in line with what you see in the market? Or is there any difference in terms of the contract structures you have?

We've seen already in quarter 1, some pricing power because our EBITDA margin in quarter 1 in Digital Solutions has gained 150 basis points over quarter 4 last year. So there is already signs and the tangible signs of this pricing power. Of course, the full potential of this pricing power will be certainly visible in quarter 3, quarter 4. But also in quarter 2, you will see more benefit coming from the pricing power. We are renegotiating across the board. In some cases, it's an immediate price when we talk about spot business, where we have a frame agreement it takes a little bit longer. But most of the business is new business, new order intake. So we have some backlog to flesh out in different summit of optical cable geographies. But again, this will be steady growing over the next 2, 3 quarters. And the full potential, I believe, will be quarter 4, quarter 3, '25, '26 lets say.

That's great. My last one is on the transmission demand. Given the conflict in the Middle East and sort of the need of further electrification in Europe, have you started to see more demand in the transmission space? And how should we think about the capacity expansion plans beyond 2028, especially given your backlog remains at a very high level?

We haven't seen yet project coming on stream. It takes longer, but we see very active dynamics within our customers in different countries. to work on the interconnection business to create more autonomy and independence in the different countries. And of course, to shift more business in order to achieve this independence and interconnect, one important asset opportunity that one is to rely more on wind offshore. So those discussions are happening, they are very active, and we count on this for additional opportunity in the coming quarters, years in terms of market demand. We will work on capacity expansion and capability expansion. We want to add more capability or more capacity in the 525 space. So we are going to expand the 525 kV capacity in the coming years to be ready to face the full shift from the old technology that was 320 kV to the 525 and also to the 525 90 degrees, which is the brand-new technology qualified 2 months ago, which provides more power to the interconnection network for our customers.

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

Just wanted to touch on media comments related to the U.S. listing. Just to understand that would this -- I guess, given the pivot increasingly to the U.S., this is back on, first of all, and remains a priority. And secondly, would the timing be actually related or tied with M&A?

This is always a high growth for the company, never has it been different than this. We had only timing issue in the past 12 months due to the conflict with other activities of the company. I think your comment about M&A is pertinent. We will certainly take advantage if things goes in the right direction of our next M&A to couple it with the U.S. listing and create additional value for investors.

And you've also talked about kind of additional opportunities inside the data center. And I suppose is this -- how could this grow organically? Or does this require M&A?

Sorry, is about the organic versus M&A? Now this is an organic opportunity for sure because we have all the conditions to take advantage of this market growth expansion with existing assets in terms of factories, in terms of portfolio of products. So we don't need to rely on anyone else. Here, it is a matter of finalizing striking this contract, agreeing the famous down payment that will convince us to invest a massive amount of money to expand capacity by 40%, 50%. And all of this is organic, which is the beauty of this. We are in full control of the decision and the execution of the growth plans as we had full control in the execution of the growth plans in plan in transmission. So similar model, similar structure of frame agreement, long-lasting benefit and opportunity to further strengthen the relationship with those customers.

Yes. Very clear. And one last question, if I may. Just thinking about customer behavior in fiber. If we look across power equipment suppliers for data centers, I think the integrated suppliers tell us that being able to provide a broad portfolio is something that is well received by the hyperscalers. And I think it sounds like you're making a similar argument that you have a unique offering as a bundled fiber and power player. I mean your main fiber peer in the U.S. has already announced significant framework deals. I mean where would you see yourself? Or how much of an advantage does this bundled offer give you if you look across the hyperscaler procurement over the next 12 to 24 months?

Interesting and very relevant questions, Sean. In the past, we thought that in data center, we could only play a role by interconnecting data center with long-haul long-distance cables, where we have strength in terms of innovation, capability of making very compact fiber. We don't forget, we are the first that invented the 160 micron fiber vis-a-vis the 200 micron that is the standard market. Recently, we realized that we can be a player also inside the building, which used to be the space of the likes of Corning, CommScope because they could package optical cables with connectivity. In reality, there is a big room open by the further acceleration and expansion of data center. And we have the opportunity to enter the space without making any M&A move. So by simply organically connect with some of those customers. So we have the opportunity there in the optical space to expand the business inside building, which is where most of the volume will grow, which is where the growth is going to be the highest in the coming years. Alongside this opportunity in digital solution, differently from Corning CommScope, AFL and the other, we also play a significant role in electrifying data center. And by the way, the size of the revenues in electrification of data center through I&C business, power grid and transmission is currently threefold of that we have in Digital Solutions due to the value of the cables and the quantity of cables needed to bring that much energy electricity to data center. So in this sense, we are unique. So the expansion of data center without a, I can say, relies on Prysmian ability to offer the full portfolio from power cables across the board or the segment of the energy cables and the digital solution.

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

So the first question is on transmission. Can you come back on the new capacity that is expected to come online this year? Maybe should we see that over the next quarter? Is it more H2? When do you expect that phasing to come through after kind of the flattish organic growth in Q1?

Thank you, Lucas. The new capacity, basically 2 additional lines came online in quarter 1. The effect was not fully visible because as I said, we had phasing in installation, whereby the installation activity was in quarter 1, '26, specifically lower than what we had in '21 in quarter 1 '25. The new capacity we continue -- the expansion in capacity we continue in quarter 4 with a new vessel John in our fleet. And there will be one more additional line bring additional cable capacity in 2027. That's why you will see 25% organic growth in '26 over '25 in light of this cable capacity expansion and installation capacity expansion.

Despite the increase in the EBITDA, the organic growth will be double digit in the full year.

And the EBITDA growth will be 25% in the full year. I think I said this before, EUR 180 million increase in EBITDA is what we're -- we commit to achieving in '26 over 2025. A sizable amount some of our competitors is the size of what they make in 1 year. The increase...

Perfect. Super clear. And the next one is on Power Grids on that margin recovery. Given the tight kind of supply-demand situation, you're saying demand is buoyant. I'm wondering whether -- how come you're not may be able to push those price increases or go back to the customers to kind of ask for the Midwest premium to be reflected, there should be some bargaining power there. And also given the aluminum is still -- we're still seeing inflation, there's a supply risk also with the Middle East. This is likely to continue. So does that bring risk in your ability to get back to a normalized level if inflation continues and the lag?

Thank you the talking about the EBITDA margins are really simple -- very simple. It's related to frame agreements. In the past, we didn't have clauses to adjust the cost and reflect the cost increase to the price. We made this long journey of including those formulas in all agreements across all utilities worldwide. Now we have agreement in place. So in spite of the cost increase, the cost increase happened today, we still have to recognize the value of the formulas. So in some cases, the customer formula, the contractual formula is that we can pass the average of the last 3 months cost to the price of the new orders. You can appreciate that when you take formalities, you have at least a 2, 3 months' time lag between when you incur the cost of a business that you deliver this month and when you can really reflect the cost increase in the new orders. So it's a pure effect of time lag, which is kind of depressing our margin when cost inflates. But on the contrary, when the market gears towards a softening inflation, you see the opposite. You will see us holding the price higher than what the cost will entitle us to do. So this is the effect of the time lag, slightly negative in the growing trend in the soaring cost situation, super positive when costs take the other direction. This is for the contractualized business with agreement. Then, of course, in the high-voltage business, we win projects on a project basis. And so in that sense, in that business, we can be much bolder and direct in passing or setting price to reflect the current cost. I hope I gave you the proper dynamics of the different businesses in the foundry space.

Yes. And just the last one, I think is coming back on Sean's point. So in Digital Solutions, there's, let's say, normal kind of fiber and optical cable business. But in the slide, you talk about the kind of new capabilities and driving that through partnerships. So just coming back on that, why are you looking maybe -- and is that partnership more like a JV or reselling somebody else's product? Or is it more kind of M&A to develop those new capabilities?

No, no...

Those are inside the data center.

Sorry, I didn't mean to cut across. No, so we are not talking about M&A opportunity in Digital Solutions. These are simply organic growth opportunity, which we will have full control of and they are related to long-term agreement with customers. It is cables, of course, with some connectivity because also don't forget that after the channel acquisition, we also play a role in connectivity in fiber-to-e-home, also data center. But we are talking about organic growth of fiber capacity and cable capacity to provide solutions inside the building. Inside the building matters a lot because it's a new space to us, and it doesn't require M&A as we thought in the past to enter the space in the current market. Allow me to be really more specific in a few weeks after we struck contract agreement with those customers.

We will now take our next question from the line of Alessandro Cecchini of Equita.

Can you hear me?

Yes.

Okay. So I have just one question for you. Just considering the tariffs that probably are supporting your business in the next quarters also due to the change in the regulation. And I mean this kind of agreement, potential agreement with the hyperscalers. So just to understand in the high part of the range that you stated that you are confident to reach this year for the EBITDA. So how much is, roughly speaking, included this agreement or I would say, the positive impact of tariff?

The confidence in hitting the top of the range is behind -- is supported by the digital solution upside. This is, as said before, partly coming from additional volume that we can immediately unlock, partly coming from the more pricing -- higher pricing power that we have in the current market. is also benefited from what I said at the beginning, EUR 180 million increase, EUR 170 million, EUR 180 million increase in EBITDA of transmission was not in our original budget or our original guidance. So there is a combination of this. Certainly, digital and transmission are the 2 major components to this upside of the guidance. Tariffs are not included as an upside. So because we count on tariffs as we see margin improvement in I&C. So we are not betting on the tariff upside at all.

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

I've just got a quick question and I guess, sort of a follow-up on Lucas' question on supply chain risks. Just wondering if you have seen any stress on your supply chain from the war in the Middle East, which I guess has gone on for a little while now. Are you really not being impacted at all from any shortages in aluminum or plastics, for example?

Yes. Great question, and thank you for it. There is a lot of stress on the supply chain coming from Middle East situation because many suppliers in the broad aluminum space or compound space have their plans there and the so logistics distress. Luckily, we are not relying on this supply chain. We had the full self-sufficiency in Europe with the European players who used to have years ago some flows of aluminum rod from Middle East, which we disconnected years ago. So we see no impact whatsoever coming from the supply chain and logistics disruption that happened in Middle East. There is an overall inflation in the world due to the additional energy cost, the oil and gas price, as you know, very well went through the roof, and this is a reflection of an impact on the raw material cost. But again, in the flow business, we have immediately reacted and price it accordingly and pass on the cost increase to the market. In the frame agreement business is what we mentioned before. There is a time lag, but everything we have clauses and formula indices to pass this on to the market with this 2, 3 months time lag. So we feel highly protected against possible cost inflation. In terms of supply disruption, we don't suffer from it at all.

[Operator Instructions] Our next question comes from the line of Alessandro Tortora of Mediobanca.

I have, let's say, 4 questions, okay, very, very brief question. The first one, sorry, if you can just come back to the digital solutions space. You mentioned in the call that historically, the business was at best reporting this 14.5% EBITDA margin. margin expansion in Q1, you should be already there basically by year-end. So the question is, first of all, this is, let's say, something correct because we have an expanding margin for the div.gac. And second, clearly, the U.S. market is driving this margin expansion. But can you comment a little bit about the pricing environment in Europe also because strangely, we see Chinese fiber price, non-Chinese fiber now more expensive than the one we have in Europe -- so this is the first, let's say...

Thank you, Alessandro. Yes, we see this pricing power happening as we speak. This will have an impact across the board. This is not just for hyperscalers. Of course, hyperscalers are the ones willing to pay more to avoid that the shortage of cable in the market hampers their speed of expansion. But also in the normal fiber-to-the-home business, as I said before, we used to buy fiber from the market at $4, $5 1 year ago, even 6 months ago. And now the cost is much higher. We have our supply chain secured through 2028. So the supply we need from the market is at the right price because we signed this agreement months ago. And so we should have the full potential benefit of the new level of price in the market, both in U.S. as well in Europe but also in LatAm Chinese players are busy serving the local demand of data center, military applications with the capacity in place. They are not in Europe any longer because they don't have spare capacity. So the environment has completely changed in a positive way, if I may say.

Okay. Then let's say the third question is on the CapEx side. I understood that there are the ongoing negotiation with some hyperscalers. So if we, let's say, take this almost, let's say, around CapEx for this year should we think about, let's say, over the years that this is probably something that is going to stay at the level for everything we are discussing. So this is, let's say, the third question. And sorry, that's just to conclude, just a question on, let's say, this line I see on the restructuring cost for items, which is, let's say, pretty high, EUR 24 million in the quarter. Can you comment a little bit what is it because I don't have in mind on top of, let's say, automotive any significant restructuring, okay?

So I take the first the CapEx level for '26 will increase over '25, partly to reflect the fiber opportunity. But also, as I mentioned before, we have a series of investments that we're going to deploy in U.S. in transmission and other regions to support the organic growth across regions and business units, which will maintain this level of, let's call it, almost EUR 100 million and go beyond EUR 100 million per year CapEx in the coming years. I'll leave to Francesco to cover the restructuring of...

It is actually mainly related to the Alessandro, it's actually mainly related to the disposal of the plants of the automotive business, particularly related to stock devaluation and inventory devaluation that we took as a result of these disposals.

Okay. So let's say, in the coming quarters, we should think about, let's say, much...

A lower run rate than this '24, definitely much lower, I would say.

Thank you all very much for your questions. I will now turn the conference back to the room for closing comments.

Thank you very much for attending these earnings calls. I wish you a good rest of the day, and see you next time. Thank you all.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.