PRY.MI FY2025 Q4 Earnings Call Transcript
Date: 2026-03-02
Source: Financial Modeling Prep

Massimo Battaini: Welcome all, and thank you for taking your time to attend the earnings call for 2025 full year results. I would like to highlight the main achievement '25. You see a record results across all KPIs, strong performance in EBITDA with EUR 2.4 billion, which is itself a EUR 500 million growth in terms of EBITDA over the '24 performance. A strong net income, EUR 1.3 billion, of course, supported by the disposal of the YOFC share, but still remain an outstanding net income result. And our cash generation with a 50% conversion vis-a-vis EBITDA, EUR 1.2 billion, again, a record result in free cash flow generation. EBITDA margin growth over 2024, depreciation, we wait for the next slide and strong growth in EPS also with 18%, which is well above the range that we committed to achieving at the Capital Market Day that was 15%/17%. I will jump to the next one to deploy to display the significant acceleration in our performance. You see stability with slight growth in '22, '23 and a first step up of EUR 1.9 billion EBITDA and EUR 2.4 billion this year. This EUR 500 million a significant hike in EBITDA, mainly coming from perimeter change, the full recognition of Encore Wire impact in '25, the new acquisition Channell and the strongest ever performance came from -- that comes from transmission with EUR 200 million growth in EBITDA. To be honest, there is another EUR 80 million benefit in terms of organic growth in the '25 result that is hidden by the ForEx that was EUR 80 million, EUR 75 million to be specific adverse in '25 versus '24. I will not comment on the guidance now, but you see that EUR 2.7 billion already position us, I would say, slightly ahead of what is the target that we have to achieve by 2028, considering that we still have 2 years to go. Free cash flow, similar trend, significant acceleration. EUR 1.2 billion is a very good conversion rate for the current EBITDA. 1.350 is again another step up. This definitely position us ahead of the target of 2028. Let me move to the important contributors to the growth of the company in the last 18 months. This is an 18-month worth of effort in reshaping our portfolio, making it more suited to our goal of become a stronger solution provider. You see in '24 in electrification, Encore Wire gave us the access to electrification space in the United States. And thanks to that access, now we have a unique asset and a unique opportunity to leverage the expansion of data center. We followed this with the digital solution expansion portfolio with connectivity with Warren & Brown in '24 in Asia Pac and Channell in U.S. and also outside the U.S. And lately, we had this 2 important acquisition, although small, The Xtera and The ACSM. Xtera gives us access to the submarine telecom long-distance connection, helping us complement the strength that we have in the submarine energy business with submarine telecom opportunities. ACSM is again an important step-up in verticalizing our capabilities and in sourcing one of the most critical phase of the execution of the project, the survey assessment and the route preparation, which will help us become more efficient on the one end, but even also able to stand the possible risk that start -- that comes from the [indiscernible] that always rely on customer survey and not our own survey. We also work on our portfolio in terms of disposing shares of YOFC, which is not considered any longer a crucial asset for us. And we made a couple of actually factory reduction in the automotive perimeter to help us avoid the dilution coming from the difficult time that automotive is living worldwide. Also outstanding remarkable achievement in the -- I mean the new one on the sustainability journey. Our newly defined target is to move to sustainability linked revenues. So the revenues that are associated to low-carbon products, sustainable solution, 44% is the target is the achievement for '25, our target for '28 that we declared at the Capital Market Day is 55%. So more than EUR 11 billion, EUR 12 billion revenues in '28, and who knows whether this will be EUR 11 billion or EUR 12 billion or more depending on the perimeter change, will be solutions that can offer benefit to our customers in terms of sustainability. Significant hike in the recycled content from 16% to 21%, and we continue our consistent journey of reducing Scope 1, 2 and 3 to achieve and meet our commitment to be net zero by 2035. We are also particularly proud of this record 50% achievement in share of our employees that hold shares in the company, which is a sign of consistent and growing confidence in the future of our company. Yes. Let me start with the start of '25. there are many KPIs, but I will draw your attention to the right-hand side of the page, 30% organic growth, which equates to almost EUR 800 million of revenues in 1 year in terms of capacity expansion and execution of the projects. Second, EUR 582 million EBITDA, EUR 220 million additional to 2024. The step increase is amazing. And third, the EBITDA margin, 18.3% full year '25, supported by 21% in quarter 4 explains and give confidence and actually show that we are going to beat the target that we set for 2028 that was set at 18%, 20%. We are already there in '25 with an exit speed that goes beyond the range that we set for 2028. Amazing also the growth of the backlog, EUR 17 billion with EUR 2 billion worth of projects being awarded to us. They are not in the backlog because they are waiting for the not to proceed that will come in the next few quarters. Power Distribution, we continue with a sustained growth in the quarter was pretty strong, 13% in the full year, still very strong, 8% certainly supported by 2 large regions, U.S. and North America and Europe. EBITDA margin full year is slightly down on 2024 because the quarter 4 is slightly down year-over-year on quarter 4 '24. Again, the same point that I mentioned last time, there is this Midwest spike in cost due to the tariffs, unfortunately, that we could not pass to customers in the overhead transmission space in U.S. because this is a fixed price business. Now we are moving to different -- we're trying to define different solution. But until we have flushed out the whole backlog, which was set when the Midwest was lower than this, we will suffer some contraction in the overhead transmission line that has a repercussion on the total power grid space. Electrification is showing a sluggish I&C growth overall, but with a promising growth in quarter 4 in North America with almost 6% year-over-year growth, which is supported by what we see already in quarter 1, 2026. So we suffer a lot in terms of organic growth in '25 in the space in North America because the whole market with the exclusion of data center, so the residential and the nonresidential market was 6% down in 2024. This is a public number of the spend occurred in U.S. in Construction business. The expectation, the outlook for '26 is much more promising and the start of the year as well as the exit of the last month of 2025 are extremely promising. The EBITDA margin full year grew by 900 basis points over '24. And this is again the level and the value of the accretion due to the acquisition of Encore Wire in our perimeter, full perimeter. Specialties is nothing that was not foreseen, but it is still disappointing. We have full year '24 reported EUR 110 million EBITDA and now EUR 280 million. There is a EUR 10 million ForEx headwind, of course. But besides this, there is a weaker demand in automotive, in Elevator, U.S. and in Oil and Gas. So contraction of margin in this business has caused this let me say, EUR 20 million organic decline. The rest is the ForEx effect. The profitability full year remained pretty consistent with the past. And we have finally disposed the asset that we want to dispose in automotive towards the beginning of this year, January and February. So we should not see any longer the dilution coming from automotive, and we hope to see the rebound of the business in the rest of the verticals that we play in the different regions. Digital Solutions speak for itself. It's a significant growth organic, 7% full year, supported by the rebound of business in the United States with stability in Europe and other countries. And then there is a perimeter change that inside the EUR 268 million equates for more or less EUR 100 million is the Channell. You see how accretive Channell is with a quarter impact, which brought the EBITDA margin 5 points higher than what it was 24 and overall EBITDA margin at 17.3% for the full year. Core Channell will continue. It will also, as we did in the optical business, U.S. benefit from the rebound in the market. And now we can finally work on the integration and leverage the bundling of connectivity cables and leverage the synergies that we have to achieve, thanks to the cross-selling opportunity. Let me hand over to Francesco for more insight into the financial details.
Pier Facchini: Thank you very much, Massimo, and good morning to everybody. I'll be quick the profit and loss statement. As Massimo said, EBITDA closed at EUR 2.4 billion, exactly in the midpoint our guidance with a great margin expansion at standard metal price and expansion of 130 basis points up to 14.2%, driven inorganically by the full year inclusion -- the full year effect of the accretive Encore Wire acquisition in terms of margin and also by the inclusion of Channell acquisition since June 2025, organically, mainly driven by the outstanding margin expansion of the transmission business on a full year basis around 400 basis points, 4 percentage points. drawing your attention on the right part of this slide, you see the bridge of our '24 to '25 adjusted EBITDA with a total growth of close to EUR 500 million, EUR 470 million despite the adverse ForEx effect worth EUR 75 million. Business by business, transmission was the strongest part of this growth, almost EUR 230 million, driven by an almost 30% organic growth and as I said, an excellent margin expansion. Power Grid also performed well, EUR 24 million growth, of course, clean of the ForEx effect, performing very well in power distribution and in high-voltage AC across all the regions with only an adverse effect in North America overhead line business. But despite this performed a significant growth also top line organically grew by around 8% on a full year basis. Electrification grew by EUR 176 million, of which I&C contributed more than EUR 200 million, whereas specialties dropped driven by weak oil and gas, elevator and automotive. As Massimo mentioned, a very promising exit experience start of the year in the I&C business in North America after the challenging first half, the first 2 quarters with pretty tough market conditions. Digital Solutions, up almost EUR 130 million. Obviously, here, we benefit of the inclusion since June of the Channell acquisition, but I'd like to stress that also organically and mainly in the U.S. EBITDA grew significantly on a like-for-like base. The little adverse perimeter effect of YOFC. We gradually exited in the second and third quarter. And as I said, the ForEx effect. The other outstanding achievement is obviously net income close to EUR 1.3 billion. Of course, this includes the gains from YOFC net of tax in the region of EUR 345 million, but still taking out this effect, the growth from 2024 is really outstanding. And by the way, the EUR 3.31 a share of EPS, growing 18% since last year that Massimo already mentioned, I want to be very clear, is totally cleaned of the YOFC gains effect. So it's a normalized growth of our earnings per share. We can move to the cash flow generation and one more outstanding achievement of this 2025, close to EUR 1.2 billion free cash flow generation. This was also benefiting of some extraordinary low level of paid taxes in U.S. benefiting of a couple of positive one-off effects. But as you see, we performed really well in terms of working capital changes, down by almost EUR 200 million, mainly in the transmission business and despite the adverse effect of the rising metal price that unfortunately may be there also for this year 2026 impacting our cash flow. You see that we deleveraged down to EUR 3.1 billion debt with the acquisition, which is almost entirely or entirely the acquisition of Channell, including the earn-out of EUR 1,069 million, which is almost fully covered by the issuance of the hybrid bond close to EUR 1 billion. And you see here totally taken out from the free cash flow, the effect of the disposal proceedings, EUR 675 million, out of which EUR 565 million are related to the YOFC disposal. That's it. Back to Massimo for the outlook.
Massimo Battaini: Thank you, Francesco. The outlook is pretty straightforward, and it is actually very outstanding in terms of confidence and commitment of the company to make it happen. EUR 2.7 million (sic) [ EUR 2.7 billion ] midpoint in the EBITDA guidance, which sets EUR 300 million EBITDA increase over the ending point of '25. But in reality, considering there is EUR 80 million perimeter adverse impact between -- sorry, the EUR 80 million ForEx effect adverse. It is actually a EUR 380 million EBITDA increase. if you neutralize the ForEx. You see on the right-hand chart that the bridge explained that there is a significant organic growth. On top of it, there is a perimeter effect that is more or less EUR 80 million. So by coincidence, is that size that needs to be in place to offset the ForEx impact. I think it's very -- I would say brave, but we are very confident to achieving it. It's much better than what we've seen across the other peers, not necessarily in the cable space, but in general. And we are very committed to achieving it. The free cash flow even stronger. Again, 50% conversion rate, EUR 1.3 billion, EUR 1.5 billion well ahead of what we need to be or where we need to be in '26 to underpin the 2028 Capital Market Day target. So we're confident to achieving both and continue the journey with organic growth and the M&As. The sustainability-linked revenues will move from 44%, 25% to 48% midpoint. One important remark in our EBITDA, there is not any possible benefit, any coming from the tariff situation. We haven't seen it yet in the past months. As I told you, we will take a little bit for the importers to change behavior in the market and allow us to gain share. And we didn't want to build any speculative benefit coming from the tariff situation, which has changed in a certain extent, but not much at all. We will see upside possibly coming from tariff in the coming months or coming quarters. Having said so, I close saying that we confirm the strong drive in transmission business also for 2026. The China integration is a successful integration, considering that after concluding the earnout payment that we have paid this company with a multiple of less than 7 and the synergy will kick in, in '26, adding additional accretion to the Digital Solutions EBITDA margin. The outstanding cash generation in '22 will -- '25, sorry, will be supported in '26 with additional cash flow. The dividend will increase from EUR 0.80 to EUR 0.90. And of course, this is what we see organically, but you know that we keep working on the M&A. When this will happen, we cannot tell you yet, but there will be something happening in the next short term, let me say this. Thank you for your attention. I'd like to move on to the Q&A session.
Operator: [Operator Instructions] We are now going to proceed with our first question. And the questions come from the line of Akash Gupta from JPMorgan.
Akash Gupta: I have 2. The first one is on guidance. At the midpoint, you target roughly EUR 300 million increase year-on-year in EBITDA. I guess EUR 140 million of that could be coming from transmission to get to EUR 1 billion by 2028. And I think you said EUR 80 million is coming from perimeter. So maybe if you can talk about how should we think about the remaining EUR 80 million between the 3 segments, Grid Electrification and Digital Solutions on an organic basis? And same on guidance, your free cash flow guidance imply 50% FCF conversion at the midpoint, which is higher than what we have seen historically. So any color on that? That's the first one.
Massimo Battaini: Thank you, Akash. Yes, you're right. So let's call it EUR 300 million net, but organically. In terms of the offset of the ForEx, it EUR 380 million. So EUR 150 million, yes, more or less will come from transmission. Remaining is EUR 80 million. And so this brings us to EUR 230 million, and there is another EUR 150 million organically coming from the rest of the business. So there is some organic growth in Digital Solutions because we will continue to leverage on the strong demand in the United States which is driven certainly by broadband deployment, but even more by data center expansion. They are desperate for additional volume, additional supply in optical space, likewise in the energy space. And there will be strong growth in power distribution. So despite the dip in EBITDA margin that you've seen in quarter 4, which was totally anticipated, the market demand in U.S. for medium voltage and high voltage is extremely strong. We can't cope with this demand. If you have more capacity available, we would sell it. And luckily in January 27, we will have the first wave of new medium voltage capacity coming on stream in the Encore side. this will be a powerful combination, the service level of Encore with the power of medium voltage cable for I&C, industrial construction, Power Grid. So Power Grid will also grow. And electrification, as I said, we exit quarter 4 with a strong rebound in I&C North America, not followed by Europe. Europe is pretty weak in I&C currently. But North America rebound in quarter 4 is what also we noticed in quarter 1. I don't think that has nothing to do with the tariff. If anything, it's due to the contraction that the market suffered in 2025 that finally is resulting in a surge in demand in 2026. So to cut the story short, there will be organic growth trend in our EUR 2.70 billion coming from all businesses of course, with much more visibility in transmission, but with strong market demand in I&C North America, in Digital Solutions North America and in Power Grid Europe and United States. I'll leave hand over to defer to Francesco, the answer on the 50% conversion.
Pier Facchini: Yes. Thank you, Massimo. No, definitely, let me say, an ambitious, still totally realistic target on which we are very confident. Let me, first of all, remark that already 2025 is very close to the 50% conversion rate. This improvement in free cash flow at the midpoint is around EUR 180 million versus the 2025 actual. We come, first of all, from the additional EBITDA. So if you take the EUR 300 million additional EBITDA net of tax contributes around EUR 220 million, EUR 230 million. And then we will certainly have higher cash taxes. I mentioned that 2025 was kind of supported by a particularly low level of cash taxes in U.S. This will come back in 2026. And this means that we are committed to further improve our working capital. As I said, in 2025, most of the improvement came still from transmission. This will be a little bit different in 2026. And we should think that in 2026, we have pretty significant room to recover and to gain efficiency in terms of working capital. And this will be key in order to deliver the EUR 1.35 billion free cash flow guidance.
Massimo Battaini: And to give you a little bit of more nuance, there is not any reduction in CapEx that support the free cash flow generation. If anything, '26, we continue with a strong CapEx deployment across all businesses because this time, we continue with transmission, we continue with Power Grid. We need to add digital solutions. We are at capacity in fiber and cables. And so we will maintain a level of EUR 800 million CapEx also for 2026 to support the organic growth across all the 3 businesses that I mentioned.
Pier Facchini: Let me also add one point that I missed that the debt with this kind of cash generation in '25 and expected for '26 our net debt will be in the region of EUR 2.6, 2.65, including, by the way, the 2 already announced acquisitions, which are worth an effect, increasing our debt by EUR 210 million to EUR 220 million. And this means that year-end 2026, our leverage will be lower than 1 based on the midpoint of the guidance. And that's really a great situation to be in, and I would say, a better situation than we expect.
Massimo Battaini: Much more better than expect.
Operator: We are now going to proceed with our next question. And the questions come from the line of Daniela Costa from Goldman Sachs.
Daniela Costa: I have 3 questions. I'll ask them one at a time. The first one, just wanted to ask on power grids and on this, what you call the temporary metal headwinds. Should we -- maybe can you quantify how much the hit was? And then should we expect that they will no longer be there from 1Q onwards?
Massimo Battaini: Thank you, Daniela. Yes, the temporary effect is temporary because due to the Midwest spike and translation where the margin -- sorry, where the price is fixed. Yes, I can't tell you the number was for the full year, but basically impacted quarter 3 and quarter 4 was a $30-plus million worth of cost or margin contraction. the hit is visible at the group level because you know that Power Grid in North America accounts for, let's say, 2/3 of the total EBITDA margin of the group. It will be there also in quarter 1 because the Midwest keep increasing, and we still have significant volume associated to backlog that we landed in quarter 1 and quarter 2, '25 when the Midwest was pretty low prior to the time. So we see it in quarter 1 and milder in quarter 2. Gradually, we will come out because what we are reporting today, the project that we are landing today for execution in quarter 3, quarter 4 have a fantastic margin, as you can imagine. But until we flush out the order backlog, we will be in the same situation. That's why we call it temporary.
Daniela Costa: Got it. And then just on -- I think you very clearly don't have in your guidance the tariff benefits. We have already seen, I guess, on the market data in copper wire and cable imports into the U.S., like the November data was down massively on the imports. We don't see very strong growth in your U.S. electrification business yet in Q4. Can you explain, is it because it's a different mix, maybe you're more indexed to things which haven't been included in the codes which haven't been included in the tariff yet? Is it just timing with distribution? Sort of how should we think about that data versus what you are printing in the U.S.?
Massimo Battaini: Yes. To full answer, in the copper space, there are no tariffs at all. The tariffs are applied to metal and not to the derivative products. And this seems not to be the intention of the administration. So the market is still free as it was before. Everyone is bearing the extra cost of the copper. The cathode premium and the copper comments and the market is the same as before. So this is the space where we never expect -- where we didn't expect to have any potential gain from the tariff. On the contrary, in the aluminum wire, we still have this 232 tariff to the metal content of cable imported from importers. But for the time being, we haven't seen a real change in behavior. They -- basically is volume the cost of the 50% in their margin, their price, the importers, the distributors importing cable from overseas. That was my point. I don't know how long they can continue with this margin contraction. They haven't increased significantly the price. Yes, it is true, they have increased a little bit the price, but we still have a significant price gap like 5%, 10%, 15% between our price in the U.S. and their price coming in. And so maybe they will not be able to bear the current margin pressure for too long, which is what we hope. But as why we didn't speculate on the possible advantage coming from the tariff. We have seen, to be honest, in the last 2 months, a different trend in the aluminum building wire space inside [ Encore ], whereby we've been able to raise prices, we didn't lose volume, and we didn't lose share of wallet. So this is a first sign of possible advantage, but again, give us 2, 3, 4 more months to see if this trend materializes as a strong trend.
Daniela Costa: Got it. And then just on some of the recent M&A you did. It seems like you've been -- these 2 deals, bolt-ons on submarine telecom cable or submarine fiber cables, which is an area you weren't very present on in the past. Can you talk through about sort of the synergies you see on that area, the potential for growth there is out there? Why -- yes, maybe give us a bit of context of sort of like how relevant it might become in the future in the group.
Massimo Battaini: Thank you, Daniela. Interesting question. The space we were in, in submarine telco was only the regional connection without repeaters. And the market is -- made the market 100, only 10% of the market is confined into regional short distance connection. So without repeaters, we cannot play in the big market, so the long-distance connectors. The market has grown a lot on the back of the expansion of data center and AI buildup. So we will, with the repeaters provided by Xtera, be able to amplify the optical signal in our cables and be a player also in the long-haul connection. So we have access, thanks to this technology to a market that was before forbidden to us. We have all the rest of the know-how, the cable we have, the installation capability we have. This was the piece that we needed to be considered a player in the market. And we will -- so today, we make not big number, we make EUR 100 million revenues in this submarine space, telecom space without repeaters. The addition of terra will help us grow significantly this scale in the submarine telco.
Operator: We are now going to proceed with our next question, and it comes from the line of Vivek Midha from Citi.
Vivek Midha: I have 3, and I'll go one at a time. So the first question is just a follow-up on your comments around the aluminum cable business in the U.S. potential for upside there driven by tariffs. Some of the press reporting from the Financial Times had suggested the U.S. government had been considering rolling back some of the metal derivative tariffs given the difficulty of implementation. In your conversations with the administration, do you get any sense that the current situation could change?
Massimo Battaini: No, we have no sign of possible changes to the current discipline as far as the 232 tariff is concerned. The only change would be the reciprocal country tariff, as you say, due to the Supreme Court ruling. And -- but this will have a minor impact to our competition and also to our situation in U.S. So I think we're still positive about the fact that being local with a strong asset in terms of capacity and also lead time. And bear in mind, I'm not saying this for the sake of saying it, data center requires significant service with scale -- large scale capacity. If you could take share in the market of the others is because we can respond, thanks to the spare capacity we have in McKinney to this demanding data center requirement in terms of volume and service. So we are really not worried and we don't care much about importance. First of all, the aluminum middle wire is a small space in the total I&C space in the United States. Secondly, the strength that we have, thanks to acquisition are unique. that no one inside the United States, any of the players in the United States can copy nor anyone from our side.
Vivek Midha: Very clear. My second question is around the very healthy demand in the U.S. for fiber, particularly from data centers. Could you give us an indication of what you expect the potential growth in the U.S. could be? And also just a view on where you stand versus your capacity? Are you capacity constrained in the U.S. given that you're investing in capacity right now?
Massimo Battaini: Yes, the demand remains as strong as it was in 2025. So we continue with the same pace. And if anything, we see even more demand from data center because now they are worried about the ability of customer or suppliers to supply energy cable and optical cables. And we're entering into some deals with those hyperscalers to provide security supply and receive some down payment in return. Energy demand is strong in cable demand for energy cables is stronger. Cable demand for optical cable is even stronger. We are about to unlock investment in fiber capacity and cable -- optical cable capacity because we, as everybody else in the United States are at capacity. If you search -- if you wanted fiber in U.S., you don't find it. If you wanted fiber inside the U.S., you don't find it either. not only from U.S. player, but also from Japan, from China, from anyone. So the market is extremely tight. And this is the best condition for us to leverage on the one hand, pricing power and also technological leadership that we have in the optical space, which is well recognized by the hyperscalers.
Vivek Midha: Very clear. My final question is on the technology side, again, the data centers. Do you have any more views or color on the potential implications to your business from the transition to 800V DC architecture? Any sort of views around the impact on the length of cable required, the value of the cable and so on?
Massimo Battaini: Yes. It's a technology that we developed already, the 800-volt direct current solution. Yes, it is true if there is shifted from AC to DC, which is kind of a no-brainer because they will save a lot of losses that the current AC solution incurred. There will be a reduction in volume. But at the same time, the growth of the data center is so large that even if specifically per megawatt, we see a reduction, there will be more compensation coming from the additional demand. Anyway, we own this technology. We were one of the first to develop. So we'll be happy to see and to participate to this conversion, which will never be deployed at scale, by the way.
Operator: And the questions come from the line of Monica Bosio from Intesa Sanpaolo. I hope you can hear me.
Monica Bosio: I have 3 questions. Sir Massimo, Sir Francesco and Cristina. The first question is on the data center revenues. Massimo, you anticipated that the weight of the data center revenues will achieve 10%. But what is the time frame do you have in mind for this weight? And what kind of margins should we figure out for the data center? This is the first question, and then I will move to the other.
Massimo Battaini: Yes. So yes, we achieved already in '25, a level of EUR 1 billion direct sales and EUR 0.5 billion in direct sales. We believe that at the current pace, we will hit the EUR 2 billion target in so 10% of the total revenue. Yes, the margin is a bit of a complex situation. It is very high margin in digital solutions with a sophisticated optical cables. It's also very high margin in medium voltage, so powerful cables to interconnect buildings and connect data center campus among them. It's, of course, lower margin in low-voltage cable, but it's lower revenue to medium voltage. In electrification with assets like Encore, we supply low-voltic cable to data center, and we make 15%, 16%, 17% EBITDA margin. So it's a very accretive margin in one word.
Monica Bosio: Okay. And if I may ask, maybe I didn't get within the I&C U.S.A. business in the fourth quarter, can you outline the margins in North America because the exit speed was strong, but I didn't manage the margins?
Massimo Battaini: I didn't mention the margin, I believe, but it was as strong as quarter 3. Quarter 3 was particularly strong due to the spike of tariffs that played in our favor when the copper tariffs were removed. But given the strong demand in quarter 4 and despite the normalization of the copper price due to the tariff removal, we still have -- I mean, when I say high, it means in the high teen digit numbers.
Monica Bosio: Perfect. And the very last, it's more qualitative. Let's say that the consensus is close to the midpoint, even a little bit higher to the midpoint of the new guidance. What are the main assumptions behind the upper part of your guidance range that could move towards the upper part?
Massimo Battaini: Are 2 strong variables that in a way or the other have an impact on our results. One is the ForEx. Should it strengthen, we will have, of course, more chance to beat the midpoint and go beyond even the top of the range. And second, more organic growth, which is what we think is what we see in January and February. But as I said before, I mean, 2 months doesn't tell us the whole story. So we have to wait a few months to see if there is a stronger growth continuing in the coming months. And as I said before, we didn't bank on any tariffs. So if that came in, we will be in a different scenario. If the tariff benefit, as one imagine, I think some of you imagine hundreds of millions of benefit from tariff, and I think this is a bit ambitious as a consideration. But if tariff were to impact the business in U.S., there will be significant upside beyond the current guidance.
Operator: We are now going to proceed with our next question. And the questions come from the line of Uma Samlin from Bank of America.
Uma Samlin: My first one is a follow-up on your tariff comments earlier. I think if I heard correctly, you said that you haven't seen much of behavioral change from the imports, but you have started to raise prices without losing much market share there. So what's your strategy going forward in terms of the balance between market share and pricing? And if you are raising prices without losing market share, then can we expect a margin tailwind here?
Massimo Battaini: We sit today on a very good margin in I&C in North America. This margin is split between different segments. Copper business is extremely high regardless of tariff. In the aluminum business, it was not that high in quarter 4. As I said before, we raised the prices and the market follow, and we didn't lose market share. This all depends on the balance between price and market share depends on the market demand. The market demand has said rebounded. We foresee talking to our customer and talking also to data center customer, a stronger outlook for 2026. So all the conditional there for us to benefit from a continued strong growth with high margin in the -- across the board, all the I&C segment of business.
Uma Samlin: That's super clear. My second question is on M&A. I guess you're interested in doing a bit more deals in the next year or 2. And what are the types of targets you're interested in? And what are the key markets you have in mind?
Massimo Battaini: We have explored and we are still assessing different geographies and different opportunity in 3 main regions and start from priority 1, U.S., priority 2, Europe, priority 3, LatAm. Different size of business, different size of opportunity in which businesses, I mean, we have electrification is, of course, interesting space in U.S., but equally also power grid. In Europe will be also electrification and Power Grid and LatAm is pretty much the same. So the businesses that are involved in this M&A are the ones that I mentioned. Then priorities are not priorities, we have to find the right one. and proceed with the negotiation on the rest, but these are the areas where we focus on business-wise and geography-wise.
Operator: We are now going to proceed with our next question. And the questions come from the line of Sean McLoughlin from HSBC.
Sean McLoughlin: My first is on transmission. The margin trajectory continues to surprise. You're already over 18% in 2025. I mean what kind of -- well, first of all, what is driving it? Is this just execution? Is this just better operational leverage on your increased capacity, what kind of further improvements can we expect in '26? And how far ahead could we be coming versus your 2028 targets? That's the first question.
Massimo Battaini: Thank you, Sean. You mentioned 2 key factors, certainly the operational leverage and the execution, which is an important driver of margin increase. The third one is the projects margin that we have in our backlog is better than what we executed in '25 or '24 or '23. And so we will continue leveraging the 3 factors. And yes, where we could be in '28, I mean, at a certain point, we will go up with a new Capital Market Day, not because we organically want to change '28, but because hopefully, there will be a perimeter change. At that point, we can -- we will unveil and reveal the expectation for this EBITDA margin in transmission business. But of course, as you said, if you achieved already the, let's say, 20-ish level of EBITDA margin in quarter 4 2025, the expectation that we go well beyond what we committed to at the Capital Market Day. And by the way, there's another player here that in Europe mentioned very ambitious margins in transmission by 2030. So we want to beat that player, just to give you a sense of the ambition.
Sean McLoughlin: Fantastic. And if I could just continue on transmission. Just if there's any sign of change from your transmission customers in terms of absorbing the 30% increase in copper prices over the last 3 months, thinking out over the next years, if there's been any change in terms of CapEx ambitions, project time lines as a result of that?
Massimo Battaini: I think the transmission -- TSOs, transmission system operator has to digest the wave of order and the significant surge in order intake orders that they sent to the market in '23. So we don't see a slowdown in itself. We see that for the next 5 years, we are flat out in terms of capacity and we are flat out in terms of delivery of the backlog and the level of market we see will remain around this EUR 15 billion in the coming years. And of course, project cost has increased due to the copper, but also some projects are in aluminum, I don't get me wrong. I think the point is we are all focused on the execution and the transmission system operator. And that's why we don't anticipate to see another wave of EUR 30 billion market intake as the one we've seen in 2023. But if the market continue with this EUR 15 billion per year, we will be able to read beyond 2028 with sustainability of EBITDA margin, sustainability of EBITDA and possibility to further expand the capacity to absorb this continued demand in transmission business. You never know to cut across, one day, we might have more transmission opportunity also in U.S. I appreciate that the wind offshore is off the table in U.S. But thanks to data center, transmission interconnectors are becoming the key priority to spread the electricity capacity across different network and allow data center expansion to continue.
Sean McLoughlin: Just lastly on M&A. I saw a press quote earlier where you were quoting saying you're ready for large targets. I guess higher free cash flow is driving this ambition. Just in terms of -- is this a change maybe from previous communication, you talked about deferring large M&A out for the next couple of years. So should we infer that you're now a little bit more ambitious on larger targets sooner?
Massimo Battaini: Yes. Good question. To be honest, yes, for sure, it's a change, but we have many factors making us open to this change, like the disposal of YOFC that has been a particularly successful operation. Second, the performance in EBITDA in 2024 -- '25, sorry, and the performance in free cash flow. So we are deleveraging faster than anticipated. And so as you know, as we delever faster, we have more power ammunition to address large M&As. Larger, as we said, as we always say, is something similar to Encore Wire. I don't think of something that is like a cost of acquisition. And so we are ready. We are ready and also be aware that between starting the M&A and having the opportunity to come on stream will take 6, 8 months, but we are ready to go for that one. Sorry, I said CommScope to say -- CommScope is a large M&A that we had analyzed 1 year ago, but was too large. And so we will not go for EUR 10 billion M&A, that's to clarify. But the EUR 3 billion, EUR 4 billion M&A is something that is within reach.
Operator: We are now going to proceed with our next question, and the question comes from the line of Chris Leonard from UBS.
Christopher Leonard: Two from me as well, please. And starting on the M&A point. Could you -- I know you said Europe was maybe second in line in terms of geographies of priority for you. Could you maybe comment if you can see the opportunity for margins to improve and expand across the power grid and electrification business within Europe without M&A? Or do you think M&A and the consolidation in the market that M&A could offer would be an important driver for you to improve that European margin?
Massimo Battaini: I think your comments are correct. Now organically, we can do a lot in terms of increasing the EBITDA margin because the demand is so strong that we are working in expanding capacity. So there will be pricing power, more pricing power, there will be more efficiency and more operational leverage. Of course, the M&A remain the main catalyst to -- for a significant step change in profitability. because when you combine 2 companies, there are plenty of synergies, cost synergies and commercial synergies that will help the EBITDA margins enhance pretty fast.
Christopher Leonard: That's really helpful. And just the second one was a follow-up on the fiber market and optical cables in the U.S. Can you speak maybe about -- I know you're investing more here, but could you speak about any kind of metric for what your capacity is today in the U.S. and what you're seeing in terms of what the potential increase could be? And secondly, I think historically, you said you're -- in the data center market, you're slightly different to Corning here in the U.S. And I wonder because now there's a lot of capacity booked out, is there scope for you to maybe win share to move inside the data center? I think previously, you said you were more outside the data center on the fiber business. But yes, any color there would be helpful.
Massimo Battaini: Yes. So we will not share much about our capacity and the increase. But definitely, the market has grown by a factor of 30% between '25 and '24, and we would like to maintain our share of wallet. So you can derive what will be our capacity effort increase to meet and maintain the market share. Data center is not that we are not in the data center. We are not in the inside building. So we are -- we deploy a lot of optical cables to connect the individual buildings of a campus among them. Inside the building, there's a lot of connectivity, less cables. In that space, there is -- there are basically 2 players Corning and CommScope/Amphenol and AFL. We have opportunity to grow in this space, but not in hyperscale data center, but in enterprise data center.
Operator: We are now going to proceed with our next question. And the question comes from the line of Alessandro Tortora from Mediobanca.
Alessandro Tortora: I have 3 questions, if I may. The first one, if you can come back a little bit to the, let's say, profitability expectation on the Digital Solutions business considering that in 2026, we will have the full consolidation of Channell, but also the synergies that you mentioned also because now you were expecting also some organic improvement into, let's say, the legacy business. The second question is related to your comment on the approach that discussion you're having with the U.S. hyperscalers. So we also saw in the past the recent past, some deals signed by [ Meta ] with Corning. Is it something considering your product portfolio that you could do in the sense, do you see, let's say, the same business possibility for you for just signing some multiyear frame of agreement? So this is, let's say, the second question. And the third question is on the perimeter effect. Can you just, let's say, tell me exactly because if I understood well, you will have the consolidation of Channell, then ACSM, the Spanish one, also Xtera should be there. So just to understand the perimeter, how the contribution, let's say, between the acquisition you made.
Pier Facchini: Okay. I take this. The first one on profitability of Digital Solutions for 2026. Well, it's not only Channell. Certainly, Channell will -- is a great accretion. By the way, Channell obviously will impact on a full year base on 2026, having 5 months to the 7 months of 2025. But we definitely expect a growth organically also driven by the very strong U.S. market that we are seeing, which is not only volume, we expect also pricing to improve. So we have a double dual component of this profitability enhancement that we expect for Digital Solutions. And of course, the synergies also coming from the Channell deal. which are definitely interesting in terms of cross-selling opportunities. Maybe this is more potential expansion of our top line than margin accretion on the synergy side. The second one on U.S. hyperscaler. U.S. hyperscaler, I think that certainly for the inside the data center, we would need to strengthen our product range. The discussions that we are having is more for outside data center. So driving basically all the fiber connections to transmit data to data center. But this is also the so-called long-haul business. This is also a very strongly growing business. So not only inside where definitely to improve our product range, we would need maybe also a perimeter change, but we are organically mainly focused on long-haul growth, also talking directly with the hyperscaler.
Massimo Battaini: As we are going to have -- we are having discussion about frame agreements or capacity reservation fees or kind of the stuff down payment to provide security supply to the hyperscalers customer. Not necessarily only in the optical space as correlated with -- by the way, was Meta, not Microsoft and -- but also the energy [indiscernible].
Alessandro Tortora: Okay. And yes, sorry. And on the perimeter effect, just if you can help me, let's say, to reconcile the contribution you expect this year?
Massimo Battaini: So your question is about the split of the 3 components okay. It's -- I don't know, the Channell is pretty simple. You take the EUR 100 million we mentioned for '25, 7 months and you extrapolate it to full year, you will basically end up with -- I give you the answer, EUR 60 million additional EBITDA coming from Channell. And then there is a kind of EUR 25 million coming from the combination of the 2, ACSM and Xtera, also take into account another change of perimeter adverse, which is the YOFC disposal, which accounts for EUR 10 million. And so you end up with a number that we mentioned, EUR 80 million plus from Channell, 25 from Xtera, ACSM minus the YOFC share.
Alessandro Tortora: Okay. Okay. Sorry, because I forgot, let's say, one point to ask. Can you help me, let's say, to understand the level of pricing effect we are going to see this year in, let's say, in the power grid I&C due to the recent increase in copper prices because I see some wire now mentioning basically every week raising prices. I recall that you have some kind of price set in the field. So just to understand if you're talking about a high single-digit price component at top line level for you in this division.
Massimo Battaini: Price is difficult to say because it depends on the cost. So we have a formula in the power grid that distribution the cost effect to price. So given -- but in terms of demand, we see strong power grid demand in North America as well as in Europe. And so the level of pricing will be pretty robust, not only due to the cost pass on, but also due to the demand. I&C, as I said, is still weak in performance of Europe. We see stable in quarter 1, '26 over quarter 4, '25. But in I in United States, the market is pretty buoyant. As I said before, there is a combination of 2 factors, the rebound of the nonresidential business in U.S. compounded by the strong demand in data center, making the I&C and medium voltage business for I&C customers in U.S. very strong.
Operator: We are now going to proceed with our next question. The questions come from the line of Jean-Francois Granjon from ODDO BHF.
Jean-Francois Granjon: Just one question regarding the CapEx. Could you mean an update on the CapEx spend expected for 2026? You have communicated on the accumulated CapEx until 2028 to EUR 2.6 billion. So what will be the range on the CapEx expected for 2026? If would you expect an average between EUR 6 million to EUR 7 million or a different amount for the CapEx expected in 2026?
Massimo Battaini: I didn't capture exactly the question about '26 or the future, sorry. EUR 80 million Sorry, Jean, if you want -- if you can repeat the question, the number for '26 is EUR 800 million, which is a slight increase over 2025. '27 number would be pretty much the same. We will probably exceed a little bit given additional organic growth needs that we see in these 3 years, the Capital Market Day overall cumulative numbers because the demand in transmission is stronger than expected in Power Grid equally. And in telecom it's definitely -- Digital Solutions is definitely much stronger than anticipated in the original CapEx commitment for the Capital Market Day. If that hold the sense of your question, sorry.
Operator: Thank you. We have no further questions at this time. So I'll now hand back to you for closing remarks.
Massimo Battaini: Thank you for attending this call. It was a very -- it was a pleasure to share with you the exciting results in '24 and more importantly, the outstanding commitment for the 2026 target for our company, which we ensure we will honor and we commit to achieving and possibly, let's wait a few months to understand how the market will respond in the United States, especially. And for further update, we'll meet you in the end of quarter 1.