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

Thank you, and good morning, and welcome to the First Half '25 Result Call. I'm very excited to show the results achieved in quarter 2 '25, above EUR 600 million. This set a new record for the company EBITDA. The last best quarter was quarter 2 '24, that was quarter after the consolidation Encore Wire, EUR 540 million, but EUR 605 million is definitely an outstanding performance that has beaten and outperformed the past result. It is true there is some EUR 10 million plus from [indiscernible] perimeter change, but there is also another [indiscernible] impact in our quarter 2 '25 results versus the previous EUR 540 million of quarter 2 '24. Amazing is the 14.5% in margins, indicating a significant accretion of margin across all business transmission, PowerGrid, but also INC and Digital Solution. The organic growth in the first half posted a nice 4%, which is basically coming across all the [indiscernible] business. EUR 1 billion is the free cash flow over the last 12 months, confirming that we are solid in delivering the free cash flow guidance that by the way, we updated for the full year. To be [indiscernible] faster consolidation of [indiscernible] perimeter from June, only took less than 2 months after signing and also on the CO2 emission and the target date significant reduction of CO2 emission in Scope 1 and 2 versus 2019 or 30%, heading for 40% for the full year scope. Moving to some achievement. I think we never celebrate our achievement. Here, we want to make sure that we all understand that not only are we focusing on the results on the company employment on the growth, we are also setting the foundation for the future opportunity for growth. In the first bucket of comments achievement in the different [indiscernible] business in [indiscernible], Mona Lisa and [indiscernible]. So an important milestone in confirming our track record in delivering this functional capacity, both manufacturing installation on time and on cost, several agreements in Power Grid space. Stargate data center larger project adjudicated to us in U.S. for [indiscernible] project in terms of electrification cables and also digital solution cables. And very important, the consolidation expansion of connectivity space within Prysmian, leveraging channel and [indiscernible]. But I'm much more proud of what it is underneath, a lot of innovations. The first cables 245 for dynamic solution for floating wind offshore platform, a solution for connecting substation to the grid with medium voltage plug-and-play cables with connectors edges, fire-resistant range of products, new range of product for the U.S. And probably the most striking 1 is the hollow core fiber technology. We partnered with [indiscernible] U.S., the developer solution. We are industrializing it. This will allow to produce and sell cables -- fiber optical cables, whose core is empty. So they can be light data, transfer the highest speed in air that in glass allowing data center to be stretched over the territory without insisting on the same power grid. So making the data center expansion facilitated. So this innovation are key to confirm our leadership in technological space and supporting the first growth of the company in the coming years. Let me move now to the individual business. Translation is the start of the [indiscernible]. I'd like to comment on the first half result, EUR 250 million EBITDA for the full first half versus EUR 150 million last year. So EUR 100 million more in the same period. With an important and significant growth in EBITDA margin from 14% to 17%. This, again, remarks the solidity of this business, remarks our confidence in achieving the 18% to 20% targeted margins by 2028 as per our Capital Market Day. And with EUR 250 million per semester, we see the journey to EUR 1 billion goal by 2028, EUR 1 billion goal EBITDA we'll be rich. Thanks to the solid expansion of the capacity, and thanks to the solid execution of the project of better margin that we have in [indiscernible]. In Power Grid, we are also happy to confirm the stability of margins. Margin had gone up 15.6%. EBITDA margin in quarter 2 is higher than what we reported for quarter 1 '25. The growth is substantial 5%, leveraging the capacity that we unlocked towards the end of 2024 and similarly that the market demand in U.S. in terms of grid enhancement is pretty strong and solid and driven by solid secure effects. INC, also in INC quarter 2, you see the significant jump in EBITDA margin, indicating a highly accretive contribution of Encore Wire to the performance of [indiscernible] business in the entire group, 10.6% of the reported numbers for 2024 quarter 2. Overall, [indiscernible] year-over-year is at 14.1% this year with a significant improvement over last year. The growth was not certainly significant in this quarter 2. By all, the environment is pretty bumpy and our focus is on profitability. We didn't lose market share, actually grown market share, thanks to our solid service level coming from Encore Wire. Quarter 2 last year was particularly stronger. We really want to focus on service and profitability and maintain our leadership in the market and so setting prices in the U.S. market. Specialty we have some organic growth, not bad. The EBITDA margin is not yet at the level of the [indiscernible]. We are still suffering from the softening that we've seen in the automotive space. We are close to finally disposing the last 2 factors that we want to get rid of in the automotive space. This will happen before the end of quarter 3. We also had a negative impact coming from exchange rate, but more important decline from a softening in the residential, [indiscernible] business in the U.S. All the rest is solid, driven by significant amount of projects across all the verticals, shipyards the [indiscernible], fires products and crane and mining and so. Digital reflects the benefit of the perimeter change, twofold. The EBITDA margin surged from 13.3% last year to 16.8%, and this accounts only for 1 month out of 3, where we consolidated a channel that namely was June. And the EUR 20 million improvement in EBITDA partly come from channel for more than EUR 10 million plus per the June month, and there are still the organic growth of the company. [indiscernible] channel is outperforming as [indiscernible]. As we've seen markets rebounding in the fiber-to-the-home cable business in U.S. channel is enjoying a significant rebound in volume and also profitability in the connectivity space in U.S. The combination to will make us a stronger provider of fiber to the end solution to the market with exposure also to the [indiscernible]. EFG KPIs, I'd rather commented 2 on the top right side of the page, 44% is a big share of the total revenue, which is linked, which is associated to sustainable solutions, so recycled content or material products [indiscernible] for previous [indiscernible] that can enhance our position in terms of supporting customers to grow us their goals in making them, allowing them to achieve the sustainability goals. Remarkable is also the 19.9% -- 20% of recycled content in our product. This is driven paradoxically by the [indiscernible]. The U.S. market had an excess of waste of copper available. China that used to buy this waste didn't buy because of the additional cost, and we took immediate opportunity. Encore recycled up to 30%, 40% of waste into the virgin material in the McKinney Facility. So Encore has proven to be taking advantage of the cost benefit of recycling waste, but also taking advantage of the recyclability part, the DAG part of this topic. Let me hand over to Francesco for more financial insights into the P&L and the free cash flow.

Thank you, Massimo, and good morning to everybody. A very robust effect of half 1 results, as Massimo anticipated revenues were not far from the EUR 10 billion level, EUR 9.6 billion in the first half, and the first half organic growth at 4%, recapping the main messages on growth, certainly a very strong transmission business, where the growth confirmed the strengths that we have already seen in the first quarter, a nice improvement in terms of growth in the power grid business, both in Europe and in North America, I would say. A good growth also organic and in Digital Solution with particularly strong North America and also definitely an improvement in terms -- sequential improvement at least in the electrification, namely in the INC, where we posted some good growth compared to the first quarter. So all in all, 4%. I think even better in terms of EBITDA performance, Massimo anticipated a record second quarter at EUR 605 million with margins at constant at standard metal price at 14.5%. And also half year, you see the accretion at standard metal price is very significant from 12.6% to 13.8% plus 1.2% is an accretion, which is mainly driven by transition, which is achieving already in the first half, the 17% level in terms of EBITDA margin. But also power grid with margin stays stable, actually even slightly improving at a very good and very high level. And of course, it's an iteration, which is also benefiting of the significant changes of perimeter that we benefit all in this first half, the Encore Wire consolidation, of course, comparable to the first half 2024. And last but not least, the fast and quick closing, we had on the channel acquisition, which is starting to contribute and to enhance our profitability quite nicely in the month of June since the month of June, and which will be a definitely better upside on the digital solution in terms of margin for the second half. Below a line -- below the adjusted EBITDA line, very few comments, basically new to adjustments, EUR 2 million, benefiting from the gains that we realized on the 8% stake that we have sold so far of YRC. This 8%, by the way, excludes the farther 5.5% that we disposed of in July here, of course, the cut-off date is end of June. We have definitely a level of financial charges at EUR 145 million, which reflects the new perimeter. It is substantially in line with our expectation and tax rate in line with the 27% that we're anticipating at the Capital Market Day. All in all, this results in a very strong boost on our group net income. You remember that the first quarter reached EUR 150. This means the second quarter at EUR 276 million, giving the EUR 426 million year-to-date June. I think we are very well set to achieve the first year of our 4-year plan for group net income and EPS growth, which is -- I'm sure you remember metric that we were setting a very important metric, we were setting. You remember that we were setting a range for the 4 years between 15% and 19% CAGR. And I'm very confident that in this first year of the 4 years, we may even achieve this. We may even exceed this range with EPS growth, which may open will be higher than 20%. Let me now flip to the very solid cash flow delivery that we had in the last 12 months, a solid and pretty much stable at the level of EUR 1 billion compared to Q1, last 12 months and also full year 2024. This is even more solid if we think that in this EUR 979 million, we discounted pretty much a peak in terms of CapEx. You see this EUR 940 million, there are very high level of -- CapEx will progressively decrease our full year base to the level that we have already anticipated to you of approximately [ EUR 747 million and EUR 50 million. ] For the simple reason that this year CapEx are distributed much more evenly, much more linearly than last year. And this will drive our cash flow up towards the new level of guidance that we have decided to upgrade and that Masimo will comment in a while. Let me maybe remark here that the -- you see that this is a bridge of that from June last year to June this year. And you see the accounting treatment of the hybrid bond. You see the cash inflow close to EUR 1 billion, EUR 989 million net of some transaction costs. This means that IFRS, as you -- I'm sure you are aware, the hybrid bond is treated as equity. So basically, it's a reduction to our bet. This is, of course, a different treatment and view that, for instance, rating agency is having where 50% of the hybrid bond is treated as debt. Just to clarify the accounting treatment, which may be, may be not so easy or not so simple for you to understand. Excellent. I think I'm over, and I hand it back to Massimo.

Thank you, Francesco. Let me move to the guidance, and I'd like to draw your attention to the chart on the right-hand side of the page. You see how we built it starting point, the previous guidance was set at EUR 2.3 billion, plus/minus EUR 50 million. We are happy to upgrade the premium perimeter guidance by a number that you can figure up is EUR 40 million. And then there is a perimeter set added on top, unfortunately offset in our assumption by the ForEx. As said before, we are happy about the performance of channel. The consolidation of June is extremely accretive to the group. And the trend of EBITDA that we see in the coming months is comforting as of this important acquisition for United -- American perimeter for device, telecom space and giving us a significant upside. ForEx, maybe we've been too cautious on this assumption, but we think that was the right way to define the new guidance with a possible offset between China and ForEx. We said this, I mean, today, after having seen last night changes in the tariff system of the U.S., we're buying now the 50% that was expected to be applicable to copper [indiscernible] and rod imports from all the other countries from overseas and only to raw material and not derivatives to finish product after what happened last night, whereby the tariffs are going to be applied to rod only and not to copper, but also to all cables imported from overseas, I must say that I feel much stronger today for what this guidance is expected to deliver for '24 -- for '25 and also I would like to say that I see upside coming from the new target system. Also in light of the possibility of the same approach that has been set for copper will be also applied to aluminum, where for the time being, we have only [indiscernible] applied to raw material and not to product -- finished product imported from overseas. So we feel much more relieved. We feel that administration is taking the right decision to finally protect and preserve local jobs and growth of U.S.-based manufacturers, and we are 1 of them. 99.5% of what we sell in the U.S. is produced locally. And finally, this will do justice to our investment in the U.S. base territory. We will also -- we have also upgraded the free cash flow guidance from the EUR 1 billion mark minus EUR 50 million, plus EUR 50 million to EUR 1 billion minimum, EUR 1.075 billion max range, EUR 1.040 billion midpoint. So moving to the closing remarks, I'd like to confirm the positive and outstanding performance delivered by all segments of business in quarter 2. Also, INC see that posted some negative growth versus quarter 2 last year. [indiscernible] can grow by 5.4% in quarter 2 '25 over quarter 1. So sequentially, there has been a significant growth and improvement in EBITDA margin in AC North America. Margin expansion across the EUR 1 billion level of [indiscernible] confirmed and the upgraded guidance certain important milestone for us in confirming that the targets that we set for 2028 at the customer today a few months ago, and we didn't reach and possibly, we might see some upside. So the EUR 2.3 billion -- [ EUR 2.340 ] billion EBITDA paves the way for the EUR 3.1 billion level of target for 2028. The EUR 1 billion plus free cash flow of this year is in line with what we want to achieve by 2026 -- '28, with EUR 1.6 million free cash flow. EPS in fact, actually has outpaced already the target that we set for 2028, and the innovation that you showed -- that I showed you in this second page of the presentation, highlight important for -- is to move towards solutions in order to strengthen our portfolio and our customer relationship and our opportunity for growth. So thank you for this preliminary presentation, I'll leave the floor to your questions.

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

If it's possible, I would like to ask 3 things. But maybe the first one, just expanding on the comments just now regarding the potential from the copper tariffs announced yesterday. Can you talk through like what do you think this is going to do? How much are imports now? How could this cause sort of the shortage in fears about shortage that we had like in 2021? What would you see as potential on core margins upside from that. I'll start on that one and then I'll ask the other.

Thank you, Daniela. So tariff -- the original assumption was that tariff would have been applied to [indiscernible] and rod imported from overseas. Not of course, the local production will raise prices to the level of imports. So the rising impact would have been that we would need -- we would have needed to pass EUR 1.3 billion of -- as copper cost to the market, creating a potential shock to the local demand. This was our concern. With a new situation only rod imported are going to soften this. And as far as we're concerned out of the total rod that we need in the U.S. we only buy less than 10% of the rods from Canada. So we will have a marginal impact in cost in this import of rod in the U.S. But on the contrary, all the imports of cables medium voltage, low voltage, high voltage, copper cable is that imported from overseas Korea, India, [indiscernible] will be penalized by 50% applied not only to the copper content of the cable, but to the entire cable value. So this, on the 1 hand, we will not see a significant inflation impact due to the copper cost rise in the market. You must have seen that already in comics, which is the metal value of copper in U.S. has increased by 50%, even ahead of the [indiscernible] publication in the last few weeks versus the [indiscernible] European value. And so thus, inflation would not hit the local demand. And in the contrary, the local producers like we are, we benefit from cost of cables imported from overseas much higher than today. So this will certainly benefit our guidance, our forecast for the full year, but we will see in the coming weeks how this will come into [ today. ]

But just quickly on that, how -- what percentage is imports? Is it around 30% of the market in copper? I know in aluminum is higher, but how much do you think it is a copper?

The copper demand in U.S. across the whole industry is 1.6 million tons out of this 1.6 million tons of copper, 75% rod is produced locally. 25% is imported. But 50% of the cathode is produced locally and 50% of the cathode is imported. So in the previous version of tariff, the [indiscernible] was penalized with 50% tariff. Now this is not the case any longer. And only the other imports in the U.S., which is only 25% and not only will suffer this 50% impact...

Cable imports.

But the cable input is what [indiscernible] because at the end of the day, we don't rely much on rod imports on cathode, not at all. On [indiscernible] import only 10% of the total need for our business. So Encore Wire, as mentioned before, will benefit from it because there will be no unnecessary cost to be passed to the market. And on the contrary, not necessarily in the empowered space, but across power grid voltage, we will have importance of power grid cable [indiscernible] penalized by the 50% applied to cables.

All right. Super helpful. My second question was going to be, I think, in electrification, in the U.S., you have a sizable share of data centers. We've heard many companies having very big double-digit growth in data centers. But when we look at your electrification business altogether, the organic growth was still 1.5%. Can you maybe divide it up between data centers and the rest? Why wasn't the growth higher than the high rate center exposure?

Thanks for the question because this help me -- allow me to explain the dynamics of the market until yesterday. We noticed the origination market was kind of sluggish has been very soft over the last 24 months. But the nonresidential market due to this potential negative impact of tariffs on the cost of the products has started to soften also. Data center, which are considered nonresidential business have made the total nonresidential market growing in '25 over 2024. But if it was only for the nonresidential is to the data center, we would have seen a slight deterioration in market demand. So data center is growing where our exposure at the center is larger the organic growth that you've seen and you see is in the first in quarter 2 sequentially over quarter 1 high, it's 5.4% growth, and this is driven by data center. And the softening in nonresidential business demand that we noticed in quarter 1, quarter 2, we think will revert into a positive trend given the recent last night new resolution on the copper costs. Tariffs copper at 50%, we're certainly settling the entire project cost with necessary implemental cost. This will, in my view, relieve investors, relieve the companies, data center -- no data center, infrastructure investment in U.S. and remove some heavy uncertainty that has weighted on the U.S. market in the last 6 months.

Got it. And just finally, on the backlog in transmission, which is sequentially slightly down. Do you just expect that we will end up the year with a backlog above higher than we started.

This is the expectation. There's not been much order intake in the industry in the first half of this year, but we expect a significant of business from National Grid and [indiscernible] from [indiscernible] and from turn from other TSOs in second half. So what we expect to gain in second half will not fully offset by the revenue that we had to deliver. Second half, so expect to see a slight improvement on the system [indiscernible] level of backlog, which is, by the way, not as low as we want it to be because the high backdrop is nice on the 1 hand, but prevent us strong committing from being able to compete on tenders because our capacity is [indiscernible] to 2029. So a level of backlog between EUR 14 billion and EUR 16 billion is what we [indiscernible] is more healthy to have us to be competitive in terms of flexibility or [indiscernible] and respond to the new project intake.

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

I had 2 questions. Firstly, on grid. So organic growth bounce back from a negative Q1, we're at the mid-single-digit organic growth level, but ultimately, you've guided for out to 2028. I mean is this the new normal, or could we see an acceleration of that organic growth in H2? And I just wanted also to understand regionally what drove that rebound in Q2? That's the first question.

Thank you, Sean. But for the first time, we're talking about other regions in the U.S. The organic growth has been pretty high in Europe. Europe investment across all utilities has grown massively. We should consider this growth in Europe well above the 5% global growth of the group. Across all countries, we're seeing this revamp needs of intensifying and electrifying final users, which push additional pressure on the existing rates, especially in high voltage grid, but also in power distribution grid. But to be honest, [indiscernible] demand has been pretty solid in this quarter 2 over quarter 1, is also by design by quarter 2 is strong because the season -- the summer season allows installation, contractor to worker to a different extent than what happened in Q1. As far as [indiscernible] is concerned, we expect the second half to benefit from additional capacity expansion. This will come to fruition in the beginning of quarter 4. Then as far as the growth rate for [indiscernible] 4, we had to gauge. As I said before, we are in the middle of a transition from a tariff system that was not supporting a local producer. If we had in this space to pass on to the market significant cost of copper increase, which is not the case any longer. So I'd rather hold my judgment second half until we see how this will be deployed in the market with the new system with tariff, tariff will be deployed in the market. I'm pretty positive about second half organic growth across the regions.

I mean staying in grid, I just wanted maybe any comment on broader overhead transmission project risks in the U.S. following Greenbelt Express project had its government loan guarantee canceled? I mean are there any other projects maybe that you're involved in that [indiscernible] these kind of risk, or how should we think about the transmission market in the U.S?

We run a large project with -- in energy in the indi overhead line transmission of line project reimburse, which was benefiting from -- and this is kind of a renewable product because it's connecting grids of different states, 3 states. There was also benefit started from the incentive that have been removed, but the project that stood up also without incentive. In fact, the product started without incentive benefit. End customer confirmed, it will continue with execution on this project for which we already received a good down payment, advance payment a couple of years ago when the project was launched. As far as new project is concerned, I don't see this happening. On the contrary, the 1 big beautiful build. There are a lot of, let me say, facilitation to spur the demand of power grid cables to strengthen the grid. It is true that the investment in renewable solar and wind will not benefit from tax credit any longer. But equally it's true that there is a strong push to make the grid more robust, facilitating permitting, facilitated a local production and is [indiscernible] local production to support the [indiscernible] grid expansion in U.S. So I also see positive market trends arising from this 1 big beautiful builder, that's been just implemented a few weeks ago.

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

One question. My question is on INC growth in the quarter. You had like minus 3.2% negative in Q2. And I'm wondering if you can provide some color on what did you see in different regions in Europe versus U.S. and within U.S. what was the growth rate in Encore and outside Encore? And then when we look ahead into Q3, do you see prospect of double-digit growth in some regions in INC as indicated by 1 of your peers recently.

Yes, one of the driver of the negative growth in quarter 2 '25 is unfortunately a difficult tough comparison towards quarter 2 2024, especially in U.S. quarter 2 2024, including pro forma cost the perimeter of Encore Wire. There was a significant demand, which benefited Encore Wire back in [indiscernible], sequentially. As mentioned, the INC growth in quarter 2 over quarter 1 is high, is 5.4% across the board. It is high in U.S. This is actually stable in Europe or the demand of INC business. We now to dig also from comment from our distributors [indiscernible], which see stabilization of demand in Europe for the time being. And luckily, we can compensate some stabilization. And you see with additional demand data center space also in Europe. Then what we see in quarter 3 and 4 and quarter 4 is probably a new scenario because this scenario discounted or this organic growth over '24 or discounted that significant uncertainty in U.S. market arising from this a huge cost that come from the application of aluminum tariff and wrong tariffs. With a new scenario, I mean, a lot of those inflation or the inflation that we expected to see in the market, which could and [indiscernible] part of this slowdown the nonresidential business exclusively [indiscernible], will disappear, will fade away. So it is probably too early to say what will be the scenario in terms of organic growth in 3 and quarter 4. But I feel I said before, much more positive than it was '24.

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

First is a follow-up on INC. So given the current corporate situation, do you think it seems like you're saying you've been getting market share and you're expecting to see a better H2 going forward? Then should we be able to expect both the pickup in growth rate and also better margins on the back of the corporate tariffs.

We will see finally a lack of [indiscernible] demand in U.S. because the huge cost coming from 50% applied to commerce. And the commerce cost is pretty high. We are talking about $10,000 per ton, which has become $15,000 per ton as a result of the regional tariffs will disappear. So we expect the market to rebound in terms of demand. Data center were already even [indiscernible] in quarter 1, quarter 2, a strong driver of growth in U.S. So I expect to see more organic growth in quarter 3, quarter 4, as I said before, let's wait and see. It will certainly be another figure of opportunity. If they apply this principle of not penalizing the rod cost, but penalizing the cable imports with -- from overseas with higher type. This principle has been applied to copper, will also be extended to aluminum. So if in what situation of this material copper and aluminum, we had tariffs applied to cables has happened over last night for copper. We will have a simple situation and much less cost to pass to the market and all the [indiscernible] being disadvantaged versus the lot of producer. This will certainly drive our organic growth massively, let's wait and see. I hope this will also happen for the aluminum space.

That's helpful. My second question is on your new guidance. So you updated that by EUR 40 million, and is that more of a reflection of the better INC and -- yes, from INC earnings in the first half. So I guess what are your gross margin assumption for INC great for the second half to support this guidance? And do you have any growth acceleration in H2 already baked into the guidance?

I think the EUR 40 million upgrade of the legacy Prysmian guidance is based on the growth information, which is coming in pretty well, ahead of our expectation, is also based on the growth in power grid we've seen in quarter 2 sequentially year-over-year. And also based on the fact that there are some additional volume opportunity that we think we'll be able to capture in quarter 3 and quarter 4. As I said before, doesn't reflect at all the new change in tariff dynamics because we didn't know this until midnight yesterday. That's why I said we might see some upside from what we posted today as guidance for the full year.

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

I hope you can hear me well.

Yes.

I have 4. The first is the power grid in the USA. I'm just curious, what is now the balance between demand and supply. Are other players capacity is at the [indiscernible] capacity coming on stream? And do you see any effect going forward in the market, in terms of higher competition of pricing, that's the first. The second one is on the pricing in the digital solution, how it is going on this side. And I was wondering if you are still supplying part of the U.S.A. demand from the European plants. The third question is maybe on the data center, which are growing to rest within the Industrial & Construction. Can you just share with us some number, what is the growth that you see coming in terms of revenues by year-end? And very, very far, and I am sorry, is for Francesco. The ForEx impact, the impact at the adjusted EBITDA level is very clear. If he can share with us the potential impact, if any, at the free cash flow level.

Thank you, Monica. Supply demand in U.S. is certainly more balanced with supply than it was 1 year ago, and some competitors likewise as a complete in the expansion capacity, but demand is still growing because there is a lot to do in power grids, and the 1 big bid for is pushing utilities to invest more in standing at a grid and making also the expansion at the center, feasible, achievable because as far as today is concerned, this percentage expansion is somehow constrained by the lack of electricity delivered to the new location. Price evolution is early to say, but I said before also in this space, we will benefit from tariff or copper tariff applied to cable imports and not only to raw material. Digital solution demand is super strong. We are still using European capacity, which was a great opportunity for us to gain market share because activating this floor using existing capacity in Europe, we could respond to the market surge in demand faster than the local players like [ Conscope ] and [ Kornick. ] It is true that we will probably see and as of today, we will see 15% import tariff applied to this flow. But the benefit on the share gain will outpace the possible margin contraction resulting from this 15% tariff application. Data center demand is so strong that is overshadowing the software in the rest of the nonresidential business. In terms of growth, we will perform in twice as much revenues than what we had in '24. And this is not due to the expansion of the center per se. It's also due to the fact that we are a full fledge player in data center. We sell the full range of cables from digital solutions to electrification to [indiscernible] and somehow also in transmission. So this is a unique position, secure, thanks to our synergistic portfolio. And the data center use case is the best use case that proves how crucial for us is to have these synergies, the portfolio -- such a growth portfolio. Francesco?

Monica, thanks for the question. The ForEx impact, the free cash flow level depends on the -- of course, on the conversion rate of EBITDA into free cash flow. So to simplify, let's say, that if versus the original guidance of the ForEx impact on EBITDA is around EUR 80 million, you can assess in between EUR 40 million, EUR 45 million in terms of impact on the free cash flow. Of course, also in this case, it is taken into account already in the new guidance upgrade of free cash flow that we have given.

We will now take the next question from the line of Xin Wang from Barclays.

So maybe I'll ask 1 on Digital Solutions. On channel, obviously, it's already contributing to strong top line and margin. Can you replicate their model to legacy Prysmian Digital Solutions business so we get further upside.

Thank you, Xin. We already have this model of combining connectivity with cables outside of the U.S. In Europe, we have a stronger connectivity business, which supports the cable business. In [indiscernible] also, we have the same solution. So channel was the best opportunity to complement our cable business in U.S. with connectivity in what we consider the U.S. -- the largest by far and fast growing further to the market in the world. So there is no need to replicate it because you already have it, but this will boost the opportunity in U.S.

Okay. That's really good to hear. Does that mean that we can expect static EBITDA margin for the segment any time soon.

You had to take a proper balance between marginal channel of about [ 55%. ] Margin at Prysmian is around [ 12, 13, 14. ] 30% would not be the profit weighted average to margins, but they will certainly go above 20% mark. That's coming on 12% is a significant accretion of the global margin of the group.

Okay. Good to know. And then the other 1 is technical along. So I want to confirm on the hybrid borrowing, this EUR 1 billion, the borrowing costs will go out as dividend instead of financial expenses. So there is no change to how we think about financial targets this year, is that right?

It is absolutely correct. They will be out and retire dividend, so they will not impact the interest expenses in the profit and loss. They will not impact free cash flow also because basically, they will impact the debt because the coupon will be distributed and treated as a dividend. So it will impact that but not free cash flow. The only new answer is that the hybrid interest will impact on the other end, the EPS, are impacting EPS. And by the way, the estimate that I'm giving of course, I considered these because being treated as preferred dividend, the net earnings are adjusted to [indiscernible] of hybrid bond interest expenses, but only for EPS calculation, not for net income.

Okay. That's very clear. Maybe the last one, if you can comment on this. So you mentioned -- so when people ask about the backlog of tendering activities in transmission, you said obviously, H1 market activity was not so satisfying. But H2, we can expect some level of activities from national grid and IPO or IPO. Obviously, we all know there is 1 problematic projects right now that 1 of your peers is having. And yesterday, they commented on the call that the other possible Plan B is to work with [ Itso ] on another project. Do you think that compromise your competitiveness in future tenders with Itso? How do you view yourself positioned for Itso tenders versus other market particularly?

No, it's for us kind of not easy to comment about competitors projects, but our position at Itso is pretty strong, and we don't see any impact coming from other competitors in our relationship and leadership with the Itso business.

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

I've got a few. First, on low voltage. I remember last time we spoke, you returned to making a 15% EBITDA margin in the U.S. Is that apply to only Encore Wire or also Prysmian U.S.? And then just a measure of comparison, can you share how much you're making in Europe at the moment? I would imagine a little bit lower than the U.S. And maybe big picture, how is the competitive landscape in Europe? Does that come from also foreign players? Or is the market more fragmented on a local level, in other words, why doesn't Europe do the same as in the U.S.?

Well, the EBITDA margin in U.S. is 15%, including Encore and including the Legacy Prysmian. Second quarter too, we resourced -- thankfully restored, thanks to the solid market demand and our pricing leadership were 50% EBITDA margin across the entire INC space in U.S. Europe is around in [ 10s ] on different countries, a country at 7%, a country at 15% to see where is U.S. I had also talked about LatAm. LatAm is a country where we are close to the level of margin that we have in the U.S. So the account in LatAm, where we had 13%, 14% EBITDA margin in average were 12%, and so we will, of course, try to maximize the margin across the board. But you're right, the competitive landscape scenario in Europe is different than the U.S., and it will never be close to that U.S. because there is fermentation and because the market is not protected. But still, the differentiation comes from sustainable solution, innovation on will help us outpace the others in terms of margin increase in the AC space in Europe or in other regions outside of the U.S.

And so if you're making 10% in electrification in the U.S. make 15%, what is dragging the margin then?

First of all, you should not choose electrification and INC. INC will make U.S. 15%. And globally, as you see, this has been confirmed. But I told you that are different geographies where the margin is not as high 15%.

Clear. And then in high voltage, if I may follow up here. You mentioned limited order intake year-to-date. How do you explain that? Is that just timing? Is -- are there projects being canceled or not new tenders going on? And how do you see the supply-demand balance evolving from here? Are you still being to keep it expanding until '28?

It is a matter of size of project and length and complexity of tenders. And you should not -- you should never read the market as a flat market in terms of ordering [indiscernible] per months, even the spread across the year. So [ apples ] in other years that you have a lot of intake in year 1, in first half, sorry, and lower intake in the second half and the other way around. This year, there will be a significant level of work in second half of this year as opposed to first half because this is the phasing of the tenders organized by customers. We will -- we haven't seen any particular [indiscernible] whatsoever. We're going to still a significant big balance between capacity and demand. And as you see, the foreign players are not winning shares in this market because there is a significant technological barrier. And b, as the technological leader in the market, we like enjoying creating even further [indiscernible] for importance like Chinese or India or other companies. The lack of installation capability is the main reason why this European business had not been awarded the 2 Asiatic players. And among these installation capabilities, we are the most capable, thanks to; a, vessels and our continuous effort in innovating in the space of [ burial ] debt see that installation capabilities. I hope I answered the question.

Yes, you did. Just wanted to confirm also you're still keen to expanding until '28?

What projects have been launched in '22, we will continue. And in fact, we have accelerated adding additional expansion of capacity in summary and land space to cope with the demand that continue -- that continues to remain strong.

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

I have 3 questions, let's say. The first 1 is a follow-up on the Digital Solution profitability. Can you give us an idea of the driver behind the margin expansion we saw even sequential the Q2 versus Q1. I remember that profitability was around 10%, and now we're talking about 10%, 15% because considering the organic growth, it seems much moderated, I don't know, if you say mix or maybe some savings pricing. So just to understand driver behind this 14, 15 because, if understood well, with such a profitability and also probably with a good demand outlook, you mentioned combined profitability for digital solutions closely to 20%, including -- sorry, channel. That's the first question.

So there is an expansion of margins at Prysmian level, thanks to the organic growth in over quarter 1. So sequentially, it was pretty high. It was almost 10% growth in [indiscernible] 2, and this is also matching what I said before, we are supporting U.S. demand with European production, making organic growth stronger than the other players, local players. And the second component to this EBITDA margin improvement that comes from the channel acquisition. So we are blending in quarter 2, 1 month of channel at 35% EBITDA margin, weighted typical 12%, 13%, 14% margin of the legacy premium. So this has enhanced the margin of the quarter 2. And since from now onwards, the channel will be falling budget in our monthly numbers, you will see the EBITDA margin that was set at 16.8% in quarter 2 down towards a 20% EBITDA margin in the coming quarters.

Okay, okay. And then the second question is your comment on the data center-related sales, including [indiscernible] also the comment on twice the revenues we bought last year. So basically, considering, let's say, the old perimeter that we are talking about, I don't know, much around 10% of your group sales even though, let's say, group sales increasing by copper. But let's say, around 10% of your group sales could be linked, let's say, to all these data center expansion, let's say, kind of proxy which...

There is a bit too much. It was last year around EUR 600 million of the revenues associated with Data Center. This year, we did a base, we will be getting past the EUR 1 billion level. But you should see this inclination with the nonresidential space, where while last year, there was a strong growth especially in quarter 1 and quarter 2 in terms of infrastructure investment for no origination business, so airport commercial center [indiscernible] this year due to the inflation, the tariffs, the aluminum cover tariffs there's been a softening in the [indiscernible] reservation. Only when you couple the traditional nonresidential with Data Center, the global nonresidential in the market shows an increase. So Data Center is adding significant growth. Part of this growth is eroded by the softening in the mine in the typical and the original and [indiscernible] residential space. But overall, I said before, the nonresidential, including [indiscernible] is growing by a mid-single-digit growth.

Okay. And is it fair to say that, let's say, all of these data center growth driver for you. Can we say that it is cheaply related to the U.S. market in the sense that Europe -- as you mentioned before, this is kind of stabilizing and on the INC demand also in Europe, but it is fair to say that so far -- is data center [indiscernible] for you is chiefly a European driver -- sorry, an American driver?

Data Center setting a strong driver for our growth in U.S. We are much better positioned in U.S. in other geographies. But we are working on it. We have a significant share in the U.S. and limited share in the other European country [indiscernible]. But we are especially running one-off projects, one-off activity to create more engagement with the contractors in Europe, which are the real channel to market, to Data Center's expansion conversely from distributors who are the China to market in U.S. So we are adjusting our word-to-market channels in order to be also in Europe, a significant player in the server space.

Okay. And sorry, the last question is just on the EPS growth, let's say, target for the current if you can help me to understand the capital gain, the amount of the capital gain also including the last disposal you made from [ YFC ] that would be the bottom line and the expectation for financial charges for the full year?

Yes, I start from the second, Alessandro. The expectation of the financial charges for the full year is in between EUR 270 million and EUR 275 million. So as I was commenting in the second half, which is slightly declining, slightly decreasing compared to the first half. On YFA, we sold so far 80% stake, actually not so far year-to-date June, 8% stake, moving from 23.5 -- 23.3 down to 15%, then we sold on top another 5% in July. On the part realized by June, the gains were around EUR 30 million, say, EUR 29 million to be exact. And on the, I'm checking, on the second -- on the path, which was already done in July, the gains are, let me say, EUR 45 million more or less. No, of course, not included in our half results yet.

Sorry, the remaining 5%, the capital gain was 45%.

Correct. Because they sold at a much higher price.

Okay, okay, okay. So let's say, we can assume so far with your disposed stake, this EUR 29 million plus EUR 45 million.

Correct.

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

I have 2, if I may. The first is on the transmission pipeline. One of the U.S. high-voltage companies commented on the call that they've seen a softening in the European HVDC project pipeline? Do you see affordability concerns for customers? What are you seeing here? How are you seeing the European pipeline developed?

We haven't seen yet there is a possible softening there, but it is so that after a big wave of the [ world ] that's happened '22, '24. Will have to realize that capacity is not yet at the level they need to have -- to have a shorter distance between the [ world ] and the [indiscernible] executed -- start of execution report. So I think now the mark is adjusting down, adjusted -- that is adjusted to the level of capacity and taking stock of the fact that the capacity fully saturated across all players on '28, '29. And so we confirm the EUR 15 billion level of market in the coming years, as we said, a few months ago.

That's very helpful. And my final 1 is just a follow-up. I really appreciate all the color on the copper tariffs, the the impact on copper imports. I'm a bit curious around the rod -- the copper rod imports. You mentioned that about 25% of the market. I'm just curious how much spare capacity do you see within the industry for the existing U.S. broad mills, i.e., if there's any reduction in those imports of copper rod can all that shortfall being met by the U.S. mills that they're existing or indeed any new addition to the market? Or do you see any risk of shortages?

U.S. players, rod producers are investing to expand local capacity. On the 25%, as you said, is the gap between the demand and the current capacity. We are also planning to invest in new or capacity in Encore Wire as part of the plan for synergies. So gradually, this 25% gap is meant to fade away over time.

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

I'll have a few as well, maybe we did 1 at a time. Just the first one is also on copper and also the discussion in the paper on copper scrap. Do you see that also as a win because that can be used that generally comes at good prices, and now they are forced to keep it domestic. So can you talk again about kind of copper recycling and your use of copper -- crops and whether that could be also a competitive advantage on price?

The copper scrap is sold to the market at a discount over COMEX. So when the comments went up from $10,000 to $15,000, there was still a discount over the level of [ COMEX. ] So the real bang is that we have regardless of the level of [ comics, ] some, let's call it, should I disclose it, but anyway, it's $300 saving per tons of copper produced at Encore Wire already described. Of course, as we edged towards higher recycled copper in our rod facility at McKinney. These $300 per ton saving is going to increase. We used to have an average over 15% recycled waste in our copper rod. Now thanks to the excess of waste available in U.S. market, this level has risen to 30%. So this level of savings is growing. And yes, that was probably -- is that clear, Lucas?

Yes, that's clear. And then the second one was just on the [indiscernible] fiber technology. Can you talk a little bit about the agreement essentially in your kind of buying the IP and then you can produce sell the cable? Will that work as a JV? Can you take us a little bit into how that will work financially and also generally on the size of the market there, my understanding is that it's only really required in peak application and portable addressable market is probably quite small. So just wanted to have your view on those 2 points.

[indiscernible] market. This is a new market. For tending this technology was not available. This company, Relative Developer Solution, and the other commercial partner to us. They have sold tables to Microsoft other players, hyperscaler at which were not -- they were not able to produce apart from what they could do in their lab. So we became the industrial part to this company. So we are industrializing their solution, their process for hollow-fiber in our factories in Europe. So the combination of these 2 companies as in the relative net will provide the market with industrial cost-competitive solution to sell hollow fiber to hyperscalers, enabling them to distance the data center further out. Then what will be the market size, it is early to say, we have to wait see what will be the cost of this industrialized solution. [indiscernible] is a lot of interest from Data Center because the current latency of the fiber solution provide -- I mean set significant constraints in terms of selecting the possible areas where data center could be built. So we will let to figure out this market size in the coming years, but certainly, the profitability of this solution is pretty high as we speak, pretty high.

That's very helpful. And then the last 1 just on what you're doing exactly in the specialty business in the automotive segment. I think if I understood correctly, you said you were kind of in the last process of divesting some of our automotive exposure. Do you mean kind of winding it down, we're no longer producing some of those kind of more commoditized automotive cables, or are you actually selling some of the factory capacity. We are selling the assets, the equipment and the customer attached to -- a contract attached to this business for 3 plants out of the 7 plants that we had in our perimeter. There's 3 plant disposal. 1 is up already in quarter 1. The other 2 will be completed in quarter 3. And what would be roughly your exposure to automotive after that in terms of revenue [indiscernible]

We had before some EUR 600 million, EUR 700 million revenue -- worth of revenue in this space. With this disposal, we will do this EUR 700 million down to EUR 450 million, only on business that is worth keeping like the 1 that we have in the U.S.

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

Just 2 quick ones for me, if I may, please. The first is regarding the U.S. dual listing. I just wonder you can give us a time line about when you might consider repositioning on that given acquisitions now have been bedded in with the Encore Wire in the business for more than a year and channel is going well. Equally, the U.S. market looks like it's going to be very strong on the back of commentary on the copper tariffs. So I just wondered what your thinking is there on your dual listing?

Thank you, Chris. This is still a project on hold. We are super focused on the resolution of what we have to complete the transmission growth is solid, but we are still few steps to achieve -- to target the EUR 1 billion goal for '28. We're just entering to the channel integration as we speak. And by the way, they are -- will continue through year-end. And so the real integration will be more executed in '25. So we also invested much more time in engaging U.S. investors than we did in the past. So try to capture in a way the benefit of U.S. dual listing without performing U.S. dual list. It remains an opportunity at the proper time, we will make the relevant decision.

Okay. Super clear. And the second question was just on the guidance range. And I think you have the upper end. Is there anything you can help us on the sort of moving parts of what might take you to the upper end of that guidance range of EBITDA?

As said before, 24 hours ago, we didn't think to modify it and to consider the upper end really, within reach. Now let us assess what the dynamics -- the new dynamics of the market of U.S. will be following the announcement of last night, and we will be more specific in the coming months. But as I said before, we feel much stronger than 24 hours ago as far as delivering the guidance and some upside.

As a follow-up to that. Was there much in the upper end of the current guidance range that was attributed to sort of INC and electrification business, or are you more focused on power grid and transmission?

I think we see -- I see electrification in power grid. There would be the possible upside over this current guidance, having transmission be fully recognized in this guidance already and digital solutions as well. Apart from the channel business that we had 1 month at the trajectory and the trends and the outlook for the coming quarters is positive, but we have to wait and see what happen. So the 3 possible later upside channel, power grid and electrification.

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

I like to thank you for spending this time with us. Various [indiscernible] to your question and try to answer your question with giving you the sense of what's happening in the market. There's a lot of things that's happened at once, but I see very positive about quarter 3 and quarter 4. Looking forward to talk to you in the coming quarter. And for those of you who are going to have a summer break, please enjoy the break. Thank you very much.