PRY.MI FY2025 Q2 Earnings Call Transcript
Date: 2025-08-02
Source: Financial Modeling Prep

Massimo Battaini: Thank you, and good morning, and welcome to the First Half '25 Results 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 in the first quarter after the consolidation of Encore Wire, EUR 540 million, but EUR 605 million is definitely an outstanding performance that has beaten and outperformed the past results. It is true there is some EUR 10 million plus from Channell perimeter change, but there is also an adverse ForEx 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 segments, Transmission, Power Grid, but also I&C and Digital Solution. The organic growth in the first half posted a nice 4%, which is basically coming across all the segment of 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 noted, the fast consolidation of Channell perimeter from June only took less than 2 months after signing. And also on the CO2 emission and ESG target, you see a 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 achievements. I think we never celebrate our achievements. Here, we want to make sure that we all understand that not only are we focusing on the results, on the company improvement on the growth, we are also setting the foundation for the future opportunity for growth. There are in the first bucket of comments achievement in the different segment of business in the global front, Monna Lisa and Pikkala. 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, a larger project adjudicated to us in U.S. for techs and projects in terms of electrification cables and also digital solution cables. And very important, the consolidation expansion of connectivity space within Prysmian, leveraging Channell and Warren & Brown. 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 the substation to the grid with medium voltage plug-and-play cables with the [ connectorized ] edges, fire-resistant range of products, new range of products for the U.S. And probably the most striking one is the hollow-core fiber technology. We partnered with a start-up in U.S., the developer solution. We are industrializing it. This will allow to produce and sell cables -- fiber optical cables whose core is empty, is void so that the light data are transferred at the highest speed in [ air-melting ] glass, allowing data center to be spread over the territory without insisting on the same power grid. So making the data center expansion facilitated. So these innovations are key to confirm our leadership in technological space and supporting the further growth of the company in the coming years. Let me move now to the individual business. Transmission 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% target in 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 within be reach. Thanks to the solid expansion of the capacity, and thanks to the solid execution of the project of better margin that we have in our [indiscernible]. In Power Grid, we are also happy to confirm the stability of margins. In fact, margins have 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 signaling that the market demand in U.S. in terms of grid enhancement is pretty strong and solid and driven by solid secular trends. I&C. Also in I&C, quarter 2, you see the significant jump in EBITDA margin, indicating a highly accretive contribution of Encore Wire to the performance of I&C business in U.S. and in the entire group, 10.6% of the reported numbers for 2024 quarter 2. Overall, year-over-year is at 14.1% this year with a significant improvement over last year. The growth was not seen certainly as significant in this quarter 2. But 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 in terms of setting prices in the U.S. market. Specialties, we have some organic growth, not bad. The EBITDA margin is not yet at the level of last year. We are still suffering from the softening that we've seen in the automotive space. We are close to finally disposing the last 2 factories 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 importantly decline from a softening in the residential elevator business in the U.S. All the rest is solid driven by significant amount of projects across all the verticals, shipyards, the defense, fires products and crane and mining and so on. 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 our Channell that namely was June. And the EUR 20 million improvement in EBITDA partly come from Channell for more than EUR 10 million plus per the June month, and there are still the organic growth of the company. [indiscernible] Channell is outperforming our expectations. As we've seen markets rebounding in the fiber to the home cable business in U.S., Channell is enjoying a significant rebound in volume and also profitability in the connectivity space in U.S. The combination to the 2 will make us a stronger provider of fiber to the home solution to U.S. market with exposure also to data center. ESG KPIs, I'd rather comment on the 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 or recycled content or material products whose carbon footprint is lower, product that can enhance our position in terms of supporting customers towards their goals in making them -- allowing them to achieve their sustainability goals. Remarkable is also the 19.9% -- 20% of recycled content in our product. This is driven paradoxically by the tariff. The U.S. market had an excess of waste of copper available. China that used to buy this waste didn't buy it because of the additional cost. Encore -- we took a major 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 ESG part of this topic. Let me hand over to Francesco for more financial insights into the P&L and the free cash flow.
Pier Francesco Facchini: Thank you, Massimo, and good morning to everybody. A very robust set 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 strength that we had 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 -- a sequential improvement at least in the Electrification, namely in the I&C, 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 Transmission, which is achieving already in the first half 17% level in terms of EBITDA margin, but also Power Grid with margin staying stable, actually even slightly improving at a very good and very high level, and of course, an accretion, 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 Channell 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 the line -- below the adjusted EBITDA line, very few comments. Basically neutral adjustments, EUR 2 million, benefiting from the gains that we realized on the 8% stake that we have sold so far of YOFC. This 8%, by the way, excludes the farther 5.5% that we disposed of in July. Of course, the cutoff 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, these results in a very strong boost on our group net income. You remember that the first quarter reached EUR 150 million. 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, a metric that we were setting -- a very important metric we're setting [ in New York ]. 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 an EPS growth, which, in my opinion, 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 the 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, these 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 740 million, EUR 750 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 versus toward the new level of guidance that we have decided to upgrade and that Massimo will comment in a while. Let me maybe remark here that the -- you see that this is a bridge of debt 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 debt. This is, of course, a different treatment and view that, for instance, the rating agency is having where 50% of the hybrid bond is treated as debt. Just to clarify the accounting treatment which 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.
Massimo Battaini: 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, so plus/minus EUR 50 million. We are happy to upgrade the Prysmian perimeter guidance by a number that you can figure up is EUR 40 million. And then there is a perimeter effect added on top, unfortunately offset in our assumption by the ForEx. As I said before, we are happy about the performance of Channell. The consolidation of June is extremely accretive to the group. And the trend of EBITDA that we see in the coming months is comforting us on this important acquisition for United -- for the American perimeter for the U.S. 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. Said this, I mean, today, after having seen last night changes in the tariff system of the U.S., whereby now the 50% that was expected to be applicable to copper cathode and rod imports from all the other countries from overseas and only to raw material and not derivatives to finished products after what happened last night, whereby the tariffs are going to be applied to rod only and not to cathode, 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 tariff 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 tariff 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 one 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.-based 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, to 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 segment of business in quarter 2. Also I&C that posted some negative growth versus quarter 2 last year, in reality, has grown by 5.4% in quarter 2 '25 over quarter 1. So sequentially, there has been a significant growth and improvement in EBITDA margin in I&C North America. Margin expansion across all segments, the EUR 1 billion level of free cash flow confirmed and the upgraded guidance set an important milestone for us in confirming that the targets that we set for 2028 at the Capital Market Day in New York a few months ago are within reach. And possibly, we might see some upside. So the EUR 2.3 billion -- EUR 2.040 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 billion 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 how important for us 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 you -- I'll leave the floor to your questions.
Operator: [Operator Instructions] We will now take the first question from the line of Daniela Costa from Goldman Sachs.
Daniela C. R. de Carvalho e Costa: 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? Could this cause sort of the shortage and 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 another.
Massimo Battaini: Thank you, Daniela. So tariffs -- the original assumption was that tariff would have been applied to cathode and rod imported from overseas, but of course, the local production will raise prices to the level of the imports. So the -- driving impact would have been that we would need -- we would have needed to pass EUR 1.3 billion of extra copper cost to the market, creating a potential shock to the local demand. This was our concern. With a new situation, only rod imports are going to solve from 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 these 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 that are imported from overseas, Korea, India, Mexico and so on, 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 one hand, we will not see a significant inflation impact due to the copper cost rise in the market. You must have seen that already the COMEX, which is the metal value of copper in the U.S., has increased by 50%, even ahead of the [indiscernible] application in the last few weeks versus the LME European value. And so thus, inflation would not hit the local demand. And on the contrary, the local producers like we are, we benefit from cost of cables importing 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 play.
Daniela C. R. de Carvalho e Costa: Got it. Just quickly on that, how -- what percentage is imports? Is it around 30% of the market in copper? I know in aluminum, it's higher, but how much do you assess it is in copper?
Massimo Battaini: 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 cathode was penalized with 50% tariff. Now this is not the case any longer. And only the rod imports in U.S. which is only 25% and not only will suffer this 50% import. I don't know if I've been able to explain.
Daniela C. R. de Carvalho e Costa: Cable imports. Yes.
Massimo Battaini: But the cable imports is what matters to us because at the end of the day, we don't rely much on rod imports, on cathode, not at all. On rod import, we have only 10% of the total need for our business. So Encore Wire, as you 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 Encore Wire space, but across power grid high voltage, we will have importers of power grid cables, high-voltage cables penalized by the 50% applied to cables.
Daniela C. R. de Carvalho e Costa: 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 data center exposure?
Massimo Battaini: Thank you for the question because this help me -- allow me to explain the dynamics of the market. Until yesterday, we noticed that the residential 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 I consider nonresidential business, have made the total nonresidential market growing in '25 over 2024. But if it wasn't only for the nonresidential, excluding data center, we would have seen a slight deterioration in market demand. So data center is growing. Our exposure to data center is larger. The organic growth that you see in I&C is in the first -- in the quarter 2 sequentially over quarter 1, high, it's 5.4% growth, and this is driven by data center basically. 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 tariffs. Tariffs -- copper at 50%, we're certainly settling the entire project cost with unnecessary incremental cost. This will, in my view, relieve the investors, relieve the companies, data center, [indiscernible] 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.
Daniela C. R. de Carvalho e Costa: 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?
Massimo Battaini: This is the expectation. There's not been much order intake in the industry in the first half of this year. We expect a significant worth of business from National Grid in second half, from IPTO and from Terna, 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 in the second half. So we do expect to see a slight improvement on the EUR 16 billion level of backlog, which is, by the way, not as low as we want it to be because the high backlog is nice on the one hand, but prevent us from competing -- from being able to compete on new tenders because our capacity is fully sold out through 2029. So a level of backlog between EUR 14 billion and EUR 16 billion is what we recognize more healthy to be competitive in terms of flexibility to work and respond to the new project intake.
Operator: We will now take the next question from the line of Sean McLoughlin from HSBC.
Sean D. McLoughlin: I had 2 questions. Firstly, on grid. So organic growth bounced back from a negative Q1. We're at the mid-single-digit organic growth level that 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 just wanted also to understand regionally what drove that rebound in Q2. That's the first question.
Massimo Battaini: Thank you, Sean. For the first time is we're talking about other regions than 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 grids, especially in high-voltage grid, but also in power distribution grid. But to be honest, also in the United States, the demand has been pretty solid in this quarter 2 over quarter 1 is also by design that quarter 2 is strong because the season -- the summer season allow installation, allow contractor to work to a different extent than what happened in quarter 1. As far as U.S. 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 3 and 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. 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 on second half until we see how this will be deployed in the market with the new system of tariff -- tariff will be deployed in the market. But I'm pretty positive about second half organic growth across the regions.
Sean D. McLoughlin: I mean, staying in grid, I just wanted maybe any comment on broader overhead transmission project risks in the U.S. following Grain Belt Express project had its government loan guarantee canceled? I mean, are there any other projects maybe that you're involved in that face these kind of risk? Or how should we think about the transmission market in the U.S.?
Massimo Battaini: We had -- we have one large project with Invenergy in the -- the so-called overhead line transmission, overhead line project in Grain Belt, which was benefiting from -- and this is a kind of renewable project because it's connecting grids of different states, 3 states. There was also benefit in this project from incentives that have been removed, but the project has stood up also without incentive. In fact, the project started without incentive benefit, and customer confirm it will continue with the execution of this project for which we already received a good down payment, an advanced 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 One Big Beautiful Bill, 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, facilitating the local production and incentivize the local production to support the power grid expansion in U.S. So I also see positive market trends arising from this One Big Beautiful Bill that's been just implemented a few weeks ago.
Operator: We will now take the next question from the line of Akash Gupta from JPMorgan.
Akash Gupta: I have only one question. My question is on I&C 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 I&C as indicated by one of your peers recently?
Massimo Battaini: 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 quarter 2 last year. But sequentially, as mentioned, the I&C growth in quarter 2 over quarter 1 is high, it's 5.4% across the board. It is high in U.S. It is actually stable in Europe, the demand of I&C business. We noticed it also from comments from our distributors [indiscernible], which see stabilization of demand in Europe for the time being. And luckily, we can compensate some stabilization in I&C with additional demand in 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 all this organic growth over '24 or discounted a significant uncertainty in U.S. market arising from this huge cost coming from the application of aluminum tariff and rod tariff. With the new scenario, I mean, a lot of those inflations or the inflation that we expected to see in the market, which could and have partially slowed down the nonresidential business, excluding the data center, 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 -- in quarter 3 and quarter 4. But I feel, as I said before, much more positive than I was 24 hours ago.
Operator: We will now take the next question from the line of Uma Samlin from Bank of America.
Uma Jun Samlin: First is a follow-up on I&C. So given the current corporate situation, do you think -- it seems like you're saying you've been gaining market share and you're expecting to see a better H2 going forward. And then should I -- should we be able to expect both a pickup in growth rate in I&C and also better margins on the back of the corporate tariffs?
Massimo Battaini: We will see finally a lack of deterioration of the demand in U.S. because the huge cost coming from 50% applied to COMEX. And the COMEX cost is pretty high. We are talking about $10,000 per ton, which has become $15,000 per ton as a result of the original tariffs will disappear. So we expect the market to rebound in terms of demand. Data center were already even -- despite the tariff in quarter 1, quarter 2, a strong driver of growth in U.S. So I expect to see more organic growth in quarter 3 and quarter 4. But 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 tariff. This principle has been applied to copper will also be extended to aluminum. So if in both situation of this material, copper and aluminum, we had tariff applied to cables as happened over last night for copper, we will have a simpler situation and much less cost to pass to the market and all the importers being disadvantaged versus the local producer. This will certainly drive our organic growth massively. But let's wait and see. I hope this will also happen for the aluminum space.
Uma Jun Samlin: That's super 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 I&C and -- yes, from I&C earnings in the first half? So I guess what are your gross margin assumption for I&C and grid for the second half to support this guidance? And do you have any growth acceleration in H2 already baked into the guidance?
Massimo Battaini: I think the EUR 40 million upgrade of the legacy Prysmian guidance is based on the growth in Transmission, which is coming in pretty well, ahead of our expectation. It's also based on the growth in Power Grid that 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, it doesn't reflect at all the new change in tariff dynamics because we didn't knew this -- we didn't know this until midnight yesterday. That's why I said that we might see some upside from what we posted today as guidance for the full year.
Operator: We will now take the next question from the line of Monica Bosio from Intesa Sanpaolo.
Monica Bosio: I hope you can hear me well.
Massimo Battaini: Yes.
Monica Bosio: I have 4. The first is the power grid in the U.S.A. I'm just curious, what is now the balance between demand and supply? Are other players -- is other players' capacity coming on stream? And do you see any effect going forward on the market in terms of higher competition of pricing? That's the first. The second 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 above the 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 final, sorry, is for Francesco. The ForEx impact, the impact at the adjusted EBITDA level is very clear. If you can share with us the potential impact, if any, at the free cash flow level.
Massimo Battaini: Thank you, Monica. So Power Grid demand in U.S. is certainly more balanced with supply than it was 1 year ago. Some competitors likewise us are completing the expansion capacity, but demand is still growing because there is a lot to do in power grid. And the one big beautiful bill is pushing utilities to invest more in strengthening the grid and making also the expansion of data center feasible, achievable because as far as today is concerned, this data center 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 flow using existing capacity in Europe, we could respond to the market surge in demand faster than the local players like CommScope and Corning. 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 of 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 [ softening ] in the rest of the nonresidential business. In terms of growth, we will perform in '25 twice as much revenues than what we had in '24. And this is not just due to the extension of -- expansion of data center per se. It's also due to the fact that we are a full-fledged player in data center. We sell the full range of cables from Digital Solution to Electrification, to Power Grid and somehow also in Transmission. So this is a unique position, secure, thanks to our synergistic portfolio. And data center use case is the best use case that proves how crucial for us is to have these synergistic portfolio and such a growth portfolio. Francesco?
Pier Francesco Facchini: 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, 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.
Operator: We will now take the next question from the line of Xin Wang from Barclays.
Xin Wang: So maybe I'll ask one on Digital Solutions. On Channell, 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?
Massimo Battaini: 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 APAC also, we have the same solution. So Channell 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 fiber to the home 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.
Xin Wang: Okay. That's really good to hear. Does that mean that we can expect 30% EBITDA margin for the segment anytime soon?
Massimo Battaini: You had to take a proper balance between marginal at Channell of about 35%. Margin at Prysmian in the legacy Prysmian perimeter around 12%, 13%, 14%. 30% would not be the proper weighted average of the 2 margins, but they will certainly go above 20% mark. That's coming from 12% is a significant accretion of the global margin of the group.
Xin Wang: Okay. Good to know. And then the other one is technical one. So I want to confirm on the hybrid borrowing, this EUR 1 billion, the borrowing cost 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?
Pier Francesco Facchini: It is absolutely correct. They will be out and treated as dividend, so they will not impact the interest expenses in the profit and loss. They will not impact the 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 debt, but not free cash flow. The only nuance is that the hybrid interest will impact, on the other hand, the EPS -- are impacting EPS. And by the way, in the estimate that I'm giving, of course, I considered these because being treated as preferred dividend, the net earnings are adjusted to account also the hybrid bond interest expenses, but only for EPS calculation, not for net income.
Xin Wang: 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 or 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 IPTO or IPTO. Obviously, we all know there is one problematic project right now that one of your peers is having. And yesterday, they commented on the call that the other possible plan B is to work with IPTO on another project. Do you think that compromise your competitiveness in future tenders with IPTO? How do you view yourself positioned for IPTO tenders versus other market participants?
Massimo Battaini: No, it's for us kind of not -- easy to comment about competitors' projects, but our position at IPTO is pretty strong, and we don't see any impact coming from other competitors in our relationship and leadership with the IPTO business.
Operator: We will now take the next question from the line of Miguel Borrega from BNP Paribas Exane.
Miguel Nabeiro Ensinas Serra Borrega: 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. Does 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.?
Massimo Battaini: Well, the EBITDA margin in U.S. is 15%, including Encore and including the legacy Prysmian. So in quarter 2, we restored -- [ technically ] restored, thanks to the solid market demand and our pricing leadership at 50% EBITDA margin across the entire I&C space in U.S. Europe is around -- it depends on different countries -- a country at 7%, a country at 15% similar as U.S. I rather also talk about Lat Am. Lat Am is a country where we are close to the level of margin that we have in the U.S. So there are countries in Lat Am, where we had 13%, 14% EBITDA margin. In average, we have 12% in Lat Am. 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 that U.S. And it will never be close to that U.S. because there is fragmentation and because the market is not protected. But still, the differentiation coming from sustainable solution, innovation and so on will help us outpace the others in terms of margin increase in the I&C space in Europe or in other regions outside of the U.S.
Miguel Nabeiro Ensinas Serra Borrega: And so if you're making 10% in Electrification and the U.S. makes 15%, what is dragging the margin then?
Massimo Battaini: First of all, you should not confuse Electrification and I&C. I&C will make in U.S. 15%. And globally, as you see, this has been confirmed. But I told you there are different geographies where the margin is not as high as 15%.
Miguel Nabeiro Ensinas Serra Borrega: 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 keen to keep it expanding until '28?
Massimo Battaini: 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 order intake per month evenly spread across the year. So it happens in other years that you had a lot of intake in year 1 -- in first half, sorry, and lower intake in 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 project cancellation whatsoever. We -- there is still a significant imbalance 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 being -- as the technological leader in the market, we like enjoying -- creating even further barrier for importers 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 [to 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 depth, sea depth installation capabilities. I hope I answered the question, Miguel.
Miguel Nabeiro Ensinas Serra Borrega: Yes, you did. Just wanted to confirm also, you're still keen to expanding until '28?
Massimo Battaini: Projects have been launched in '22, we will continue. And in fact, we have accelerated adding additional expansion of capacity in submarine and land space to cope with the demand that continue -- that continues to remain strong. I agree.
Operator: We will now take the next question from the line of Alessandro Tortora from Mediobanca.
Alessandro Tortora: I have 3 questions, let's say. The first one 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 Q1 -- Q2 versus Q1? I remember that profitability was around 10%, and now we're talking about 14%, 15% because considering the organic growth, it seems much moderated, I don't know how to say it, mix or maybe some savings or pricing. So just to understand driver behind this 14%, 15% because if I understood well, with such a profitability and also probably with a good demand outlook, you mentioned a combined profitability for Digital Solution closer to 20%, including Encore -- sorry, Channell. That's the first question.
Massimo Battaini: So there is an expansion of margins at Prysmian level, thanks to the organic growth in quarter 2 over quarter 1. So sequentially, it was pretty high, was almost 10% growth in quarter 2. And this is also matching what I said before, we are supporting U.S. demand with the European production, making organic growth stronger than that of other players, local players. And the second component to this EBITDA margin improvement that comes from the Channell acquisition. So we are blending in quarter 2 1 month of Channell at 35% EBITDA margin with the typical 12%, 13%, 14% margin of the legacy premium. So this has enhanced the margin of the quarter 2. And since from now onwards, Channell will be fully embedded in our monthly numbers, you will see the EBITDA margin that was set at 16.8% in quarter 2 turning towards the 20% EBITDA margin in the coming quarters.
Alessandro Tortora: Okay. Okay. And then the second question is your comment on the data center-related sales, including Channell, and also the comment on twice the revenues we got last year. So basically, considering, let's say, the old perimeter, we are talking about, I don't know how much, around 10% of your group sales, even though, let's say, group sales inflated by copper, but let's say around 10% of your group sales could be linked, let's say, to all these data center expansion. That's, let's say, kind of proxy we can use...
Massimo Battaini: There is a bit too much. It was last year around EUR 600 million of the revenues associated with data center. This year, with this pace, we will be getting past the EUR 1 billion level. But you should see this in combination 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 nonresidential business, so airport, commercial center and so on. This year, due to the inflation, the tariffs, the aluminum and copper tariff, there's been a softening in demand in nonresidential. Only when you couple the traditional nonresidential with data center, the global nonresidential data center market shows an increase. So data center is adding significant growth. Part of this growth is eroded by the softening in demand in the typical and the original data center nonresidential space. But overall, as I said before, the nonresidential, including data center, is growing by a mid-single- digit growth.
Alessandro Tortora: Okay. And is it fair to say that, let's say, all of these data center growth driver for you, can we say that is chiefly related to the U.S. market in the sense that Europe, as you mentioned before, is kind of stabilizing the I&C demand also in Europe, but it is fair to say that so far, this data center -- that driver for you is chiefly a European driver -- sorry, an American driver?
Massimo Battaini: Data center is certainly a strong driver for our growth in U.S. We are much better positioned in U.S. than in other geographies, but we are working on it. We have a significant share in U.S. and a limited share in the other European country or APAC. 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 expansion and conversely from distributors who are the channel to market in U.S. So we are adjusting our go-to-market channels in order to be also in Europe, a significant player in the data center space.
Alessandro Tortora: Okay. And sorry, the last question is just on the EPS growth. Let's say target for the current year above the 20%. If you can help me to understand the capital gain, the amount of the capital gain, also including the last disposal you made from YOFC that clearly would be the bottom line and the expectation for financial charges for the full year.
Pier Francesco Facchini: 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 the second half, which is slightly declining, slightly decreasing compared to the first half. On YOFC, we sold so far 8% 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 part, which was already done in July, the gains are, let me say, EUR 45 million, more or less, not -- of course, not included in our [ half ] results yet.
Alessandro Tortora: Sorry, the remaining 5%, the capital gain was EUR 45 million?
Pier Francesco Facchini: Correct, because they sold at a much higher price.
Alessandro Tortora: Okay, okay, okay. So let's say we can assume so far with your disposed stake, this EUR 29 million plus EUR 45 million?
Pier Francesco Facchini: Correct.
Operator: We will now take the next question from the line of Vivek Midha from Citi.
Vivek Midha: I have 2, if I may. The first is on the Transmission pipeline. One of the U.S. high-voltage companies commented on their 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 develop?
Massimo Battaini: We haven't seen yet this possible softening, but it is true that after a big wave of the works that's happened in '23, '24, TSOs will have to realize that capacity is not yet at the level they need to have -- to have a shorter distance between their work and start to execute -- start of the execution of the project. So I think now the demand is adjusting down -- is adjusting to the level of capacity and taking stock of the fact that the capacity is 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.
Vivek Midha: That's very helpful. And my final one is just a follow-up. I really appreciate all the color on the copper tariffs, the impact on copper imports. I'm a bit curious around the rod -- the copper rod imports. You mentioned that's about 25% of the market. I'm just curious, how much spare capacity do you see within the industry for the existing U.S. rod mills, i.e., if there's any reduction in those imports of copper rod, can all that shortfall be met by the U.S. mills that are existing or indeed any new addition to the market? Or do you see any risk of shortages?
Massimo Battaini: U.S. players, rod producers are investing to expand local capacity. Only 25%, as you said, is the gap between the demand and the current capacity. We are also planning to invest in new rod capacity in Encore Wire as part of the plan for synergies. So gradually, this 25% gap is meant to fade away over time.
Operator: We will now take the next question from the line of Lucas Ferhani from Jefferies.
Lucas Ferhani: I'll have a few as well. Maybe we'll do them one 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 scrap and whether that could be also a competitive advantage on price.
Massimo Battaini: The copper scrap is sold to the market at a discount over COMEX. So when the COMEX went up from $10,000 to $15,000, there was still a discount over the level of COMEX. So the real advantage is that we have, regardless of the level of COMEX, some, let's call it -- should I disclose it? But anyway, it's $300 saving per tons of copper produced at Encore Wire using the scrap. Of course, as we edge towards higher recycled copper in our rod facility at McKinney, this $300 per ton saving is going to increase. We used to have an average of 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 saving -- the level of saving is growing. Yes, that was probably -- is that clear, Lucas?
Lucas Ferhani: Yes. No, that's clear. Then the second one was just on the hollow-core fiber technology. Can you talk a little bit about the agreement? Essentially, you're 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 the total addressable market is probably quite small. So just wanted to have your view on those 2 points.
Massimo Battaini: Let's start from the market, this is a new market. For the time being, this technology was not available. This company, Relativity Net, developed a solution, and they are the commercial partner to us. They have sold cables to Microsoft, other players, hyperscalers, which were not -- they were not able to produce apart from what they could do in their lab. So we became the industrial partner 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, us and Relativity Net, will provide the market with an 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. Certainly, there's a lot of interest from data center because the current latency of the fiber solution provide -- I mean, sets significant constraints in terms of selecting the possible areas where data center can be -- could be built. So we will have 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.
Lucas Ferhani: That's very helpful. And then the last one just on what you're doing exactly in the Specialties 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 where you no longer producing some of those kind of more commoditized automotive cables? Or are you actually selling some of the factory capacity?
Massimo Battaini: We are selling the asset, the equipment and the customer attached to -- the contract attached to this business for 3 plants out of the 7 plants that we had in our perimeter. There's 3 plant disposal. One has happened already in quarter 1. The other 2 will be completed in quarter 3.
Lucas Ferhani: And what would be roughly your exposure to automotive after that in terms of revenue or EBITDA?
Massimo Battaini: We had before some EUR 600 million, EUR 700 million revenue -- worth of revenue in this space. With this disposal, we will reduce this EUR 700 million down to EUR 450 million only on business that is worth keeping like the one that we have in the U.S.
Operator: We will now take the next question from the line of Chris Leonard from UBS.
Christopher Leonard: Just 2 quick ones for me, if I may, please. The first is regarding the U.S. dual listing. I just wonder if you can give us a timeline about when you might consider repositioning on that given acquisitions now have been [ embedded ] in with the Encore Wire in the business for more than a year and Channell 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.
Massimo Battaini: Thank you, Chris. For us, this is still a project on hold. We are super focused on the execution 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 are just entering to the Channell integration as we speak. And by the way, that 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.
Christopher Leonard: Okay. Super clear. And the second question was just on the guidance range and thinking of 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?
Massimo Battaini: As I 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 in the 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.
Christopher Leonard: Sure. And as a follow-up to that, was there much in the upper end of the current guidance range that was attributed to sort of I&C and Electrification business? Or are you more focused on Power Grid and Transmission?
Massimo Battaini: I think I see Electrification and Power Grid would be the possible upside over this current guidance, having Transmission be fully recognized in this guidance already, and Digital Solution as well. Apart from the Channell piece that we had 1 month, the trajectory and the trends and the outlook for the coming quarters is positive, but we have to wait and see what happens. So there are 3 possible area of upside, Channell, Power Grid and Electrification.
Operator: Thank you. There are no further questions at this time. I would like to hand the conference back to Massimo Battaini for closing remarks.
Massimo Battaini: I'd like to thank you for spending this time with us. It's been very useful to hear 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 happen 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.