Western Alliance Bancorp

NYSE:WAL

Good day, and thank you for standing by. Welcome to the Prysmian Q1 2025 Integrated Results Conference Call.

[Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Massimo Battaini, CEO. Please go ahead.

Good morning, and welcome, everyone, to the earnings call of quarter 1 '25. We are really off for a great start in 2025 with an EBITDA that hit EUR 527 million EBITDA, well ahead of last year, even if you consider the EUR 95 million extra [ perimeter ] due to the Encore Wire consolidation in quarter 1 '25. The EBITDA margin, which you see at 13.1% is reported according to the standard metal prices. So those are the metal prices based on the average of metal, copper and aluminum and lead prices in the 10 years preceding 2019, which you know very well because they are normally reporting in the appendix of the analyst call.

The organic growth was fantastic, 5% EBITDA, certainly driven by transmission, but also supported by stability in I&C, in Power Grid and growth in Digital Solutions. Free cash flow also outstanding at EUR 1 billion for the last 12 months. ESG performance in line with expectation, minus 37% Scope 1 and 2 reduction versus the baseline. I remind you that our target for 2025 is to achieve at least 38%, so well on track to achieve it. Net zero is confirmed accelerated by the end of 2035. Revenue linked to solutions sustainable is high as 43%, and we have a significant improvement in the recycled content of copper, recycled content of material which is 19%, 200 basis points up on the average of last year, thanks to a significant availability of copper waste in our U.S. perimeter, which Encore Wire took advantage of.

Moving to transmission. I mean, all KPIs are super great, super satisfactory. The organic growth, in particular, 60%, never been that high. It is certainly driven by some extra activity, not necessarily coming from the extra capacity. We had only additional capacity in terms of 1 installation vessel, Monna Lisa, that joined our fleet at the beginning of this year. But as far as manufacturing concern, we are more or less the same as last year. The capacity will happen in the second part of this 2025. EBITDA-wise, there is a significant surge from EUR 60 million to EUR 124 million. EBITDA margin from 13% to 16.9%. Talking about current metal prices, you see the margin underneath the bar chart, we are at the famous 16.6%, which is already itself ahead of what we committed to achieving in 2025.

16.9% is sustainable. Yes, it's super sustainable. We will end up at the end of this year with a margin slightly ahead of the 17% plus for the full year. The important reason for the EBITDA increase of $60 million is on the one hand, we really had this quarter an impeccable execution during the installation and manufacturing activity. We benefited from projects with better margin than last year. Last year, on the contrary, we had some cost overruns that hit particularly badly quarter 1 2024.

Sequentially, you see despite this not supposed to be the stronger quarter in the transmission space, quarter 1 '25, sequentially, we are also act both in absolute EBITDA and in margin terms ahead of quarter 4 2024. The backlog remained pretty high, EUR 17 billion. We count on some additions that we should see this year coming from frame agreement, National Grid. But in quarter 2, quarter 3, we see what will happen in this regard.

Power Grid, we are pretty flattish, a slight decline in organic growth more related to the tough compensation with quarter 1 last year. We also had to account for some, I mean, bad weather impact in the famous U.S. footprint in quarter 1, which also affected the I&C business. And maybe some wait-and-see situation within the U.S. space given the current tariff and dynamic happening in the market. But EBITDA-wise, we are in line with the quarter 1 '24. In terms of EBITDA margin, I think here is the way it is where you can best appreciate the more effective way to read the profitability. If you look inside the bar chart, you see an improvement in EBITDA margin at standard metal prices from 14.8% quarter 1 '24 to 15.2%. If you look at, on the other hand, at the current metal prices, they moved from 13.5% to 13.3%. So this is the effect of dilution in quarter 1, '25 due to the incremental value of metal in our revenue.

So that's why the standard margins are the best to appreciate the real inherent and genuine profitability of the business. Sequentially, we confirm profitability stability, 15.4%, 15.2% and also stability in EBITDA absolute [indiscernible].

Industrial and Construction, also here pretty flattish in terms of organic growth. The comparison year-over-year is a bit difficult to appreciate because quarter 1 '24 is without -- was without Encore, while the EUR 173 million of quarter 1 '25 are with Encore. But if you normalize Encore and you consider pro forma quarter 1 '24, you should read EUR 114 million as EUR 208 million. So we confirm that we are EUR 35 million below quarter 1 '24 pro forma. All of those EUR 35 million belong to January and February U.S. March situation is completely different. The EBITDA margin has significantly improved to the point that maybe we can also anticipate or share with you what April looks like. April margin are well on track back at the level of 15% plus, which is what we used to have in quarter 3 last year, the first quarter of the acquisition.

So U.S. situation seems to have been resolved. It was a one-off impact due to the bad weather due to the surge in metal prices. Due to the weakness of the market and some pricing behavior of different competitors, March has restored the previous trend and April has probably one of the best months ever in the Encore Wire perimeter I have seen a while back. Specialties, sequentially we show a significant improvement, EUR 59 million in quarter 4 '24 turning into EUR 74 million. EBITDA margin as standard metal price growing a couple of points. Year-on-year, we are still down on the strong quarter 1 that we had last year, and we have also this comparison in quarter 2 where quarter 2 was pretty strong, but the EUR 74 million quarter 1 '25 is paving the way for strong growth in quarter 2 in the coming quarters.

Digital Solutions, finally a significant improvement. Digital Solutions organic growth posted 3.4% year-over-year, EUR 32 million turning to EUR 42 million. EBITDA margin significantly improved from 10.8% to 13.2%. We are still not benefit from the pricing recovery in the market or we have some mild pricing recovery in our backlog. But in the order intake for this month or these weeks, we see significant high level of prices, which we will turn into revenue and EBITDA in quarter 2, quarter 3 and onwards. The market is super strong in the United States. So demanding that we're struggling with our local capacity, we are complementing our local output with imports from different places to maintain our share of wallet with the American customers and follow the demand growth in the market.

As said before, we have significant improvement in the circular economy KPIs ambition on track to deliver the 3% target for 2025 and the social ambition is well positioned in line with our goals of '25 and the Capital Market Day goals. Let me move to Francesco for the financial insights.

Thank you, Massimo, and good morning to everybody. The usual recap of our profit and loss. Revenues reached almost EUR 4.8 billion, of course, including the change of perimeter coming from the consolidation of Encore, which was not there in Q1 2024. Organic growth, pretty positive, very positive, I would say, at 5%, certainly driven by transmission, but with also a good solid stability in I&C and Power Grid and a growth actually in Digital Solution, as Massimo said, very strong in North America. Good news also from the start of the year on the EBITDA, the adjusted EBITDA, EUR 527 million. You appreciate, as Massimo commented, the margin expansion, if you look at the percentage of revenues at standard metal prices from 12.4% to 13.1%. There are many good elements in this margin expansion. Certainly, the biggest factor is the strong expansion of margins in transmission, but also margins in the power distribution and the power grid space are holding up pretty well.

In terms of net income, the landing point group net income is EUR 150 million (sic) [ EUR 155 million ]. It is certainly affected by the growth of the financial charges to EUR 73 million, which are, however, in line with our expectation and fully reflecting the impact of the acquisition. And we have a temporary negative effect, which is on this nonmonetary item coming from the negative fair value of metal derivatives, which is sometimes a quite usual element in our profit and loss. It is temporary, but it is weighing a bit on our Q1 2025.

We can move quickly to the cash flow as us the bridge from March '24 to March '25 of our net debt, which is, of course, resulting in the last 12 months free cash flow. So you see the move of net debt from EUR 1.7 billion before Encore acquisition, of course, to the current EUR 4.8 billion, EUR 4.9 billion, affected by the acquisition effect, almost entirely Encore, affected positively by the net of the convertible bond conversion, which took place in the -- between June and July last year and the share buyback for a positive net effect of EUR 357 million. And you see the pretty powerful free cash flow that we have generated in the last 12 months, which is at EUR 1 billion level and substantially in line with the full year 2024. Of course, this still benefits a lot from the working capital changes, a drop of close to EUR 500 million. We may have some different distribution year throughout the quarters because you appreciate that the cash flows of the transmission business, in particular, are depending on milestones are depending on down payments. So they don't -- they never distribute equally over the quarters. But this is a very good start on track with our EUR 1 billion midpoint of the full year guidance.

Thanks a lot, and I give it back to Massimo.

Thank you, Francesco. Let me move to the guidance. We are still in the position to be pretty confident about this guidance with a midpoint of EUR 2.3 billion despite some, as you know, turmoil in the American footprint. But the signs -- the signal from the market customer-wise in U.S. are pretty strong. They see a market demanding in terms of investment. They see the market demand in terms of cables for electrification and for special business, telecom business I commented before. So we are in a position to confirm the midpoint of the guidance. Of course, we have 2 effects. One that's in the -- we expect to close the deal with China towards the beginning of June. So it will be before the end of quarter 2. So we'll have the full impact of the semester. China has now revised guidance that we will probably share with you in July. This is a great positive news and opportunity. On the other hand, we have some headwinds, as you can expect in terms of ForEx dollars, euro exchange rate.

For quarter 1, we've been pretty much immune. But at the current level, we can -- if this current level of exchange rate continue for the remainder of the year, we might see some additional headwind. We will be in July in the best position to revisit this guidance, including the business trend impact, which is positive from what we see, including the channel perimeter change and probably including some adverse impact from the ForEx exchange rate. Free cash flow confirmed at EUR 1 billion for the full year.

So we are super, super satisfied by the performance of transmission, which is also our important pillar for the Capital Market Day. Our journey from EUR 2.1 billion pro forma '24 to EUR 3 billion plus in '28 relies a lot on transmission and the fact that in quarter 1, we have expanded the business, we had expanded the margins. We had still a significant backlog that will help us navigate the next 4 years without resorting to additional order intake to confirm our target makes us super confident that we achieve the EUR 3 billion level mark for 2028. The cash flow generation is always, as usual, an important strength of this company and will continue to remain an important strength to this company.

[ Channell ] acquisition of [indiscernible] is on track. We look forward to initiating starting integration from June onwards and making a common ground, making -- creating a common opportunity to make -- turn the telecom business in the United States into a digital solution business with connectivity and cables. And so the '25 outlook is confirmed. And in July, we'll have a revised view for the full year.

Thank you for your time. I think we can open to Q&A session.

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

It's actually [indiscernible] here on behalf of Daniela. So a couple of questions. First one on Power Grid. If you could provide some color on medium voltage versus HVAC performance? And also if you can comment a bit on what you saw in U.S. versus Europe? And then on the wait-and-see you saw in the U.S., was that more on HVAC or on medium voltage?

And then the second question is if you have done any prebuy during the quarter? And if you've seen any prebuy from customers? And so what we should expect as a consequence for free cash flow conversion?

So Power Grid, some more color. The organic growth is a little bit negative because last year in quarter 1, we had a significant strong demand in volume and price in the overhead transmission business in U.S., which has now in quarter 1, but also in quarter 3, quarter 4 last year, not as strong in price, but also in volume as it was in the past. Medium voltage wise, the demand is still very strong to the point that you know that we have approved 2 months ago, a significant investment in medium voltage in U.S. and McKinney to both serve the I&C space and the power distribution space. The wait and see was about the fact that in quarter 1, we had some negative impact from the usual bad weather. We had a couple of factors that went on stock for 2 or 3 days. Customers could not really start installing cables due to the soil condition. The wait-and-see was about the situation. In March, as soon as the high season, the season started, we saw this rebound in mid demand of our transmission line, we have a kind of full coverage of 2025 in terms of backlog. So we are doing pretty well in this space in the United States.

As far as U.S. is concerned, demand remains scattered with strong demand in North Europe, strong demand in U.K., strong demand in Spain, weaker demand in France. So a different situation. But overall, we are -- this year, we will have the new capacity installed in Europe coming on stream, and this line is already full saturated through the rest of the year. So there is a stronger situation across the board. Remember that in the space also, we have medium -- sorry, low voltage cable that remains a weak segment of business across all geographies. On the other hand, in the same space, we have the high-voltage business, which is, I'd say, super strong, super demanding to the point that we are not able to catch up with this demand. And we are about to decide to make a second investment in Europe for additional capacity.

I&C U.S. versus Europe. U.S., I mean, you know that we were scared by U.S. performance in January and February. But we knew that was something specific one-off related to a negative combination of many factors, the weather, the low season, the behavior of some competitors in U.S. and the sharp increase of copper price. The situation has completely changed. In March, behavior of the other players became more reasonable. We placed many price increase in the market in March. They all being followed suit by all other competitors. And in April, we continue along this trend. Europe remains also here a scatter situation. We have a generic demand good in terms of industrial commercial project. some stability with some good spike of demand in the residential market.

Prebuying, I mean, we have not seen prebuying in U.S., which is where you expect things to be exposed to tariff impact. But we have seen customers that are working away from the usual importers channel in afraid of being hit by tariffs in the future. So there's been no additional demand in the market. There has been some of the customers that used to buy from importers shifting their demand towards local players, Prysmian and the others of course.

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

I have 2 questions as well, and I'll ask one at time. The first one is that I see that you are now moving to margin in constant metal price, which I guess makes sense as it removes impact from swing in metal prices. But can you tell us what does the new normalized margin will be in constant metal prices? I mean, previously, you said you target 18% to 20% in transmission, 12% to 13% in grid. So how do they translate into a new margin definition? And where does electrification margins are going to sit on constant metal prices definition? That's the first one.

Okay. As far as transmission is concerned, the impact of standard metal prices versus current metal prices, not that much because in transmission, there's a little quantity of metal and there is much more quantity of other material and installation activity. You've seen this in the quarter 1, where margin at current was 16.6%, margin at standard was 16.9%, so no big deal. So we confirm that in the mid to long-term target, so the Capital Market Day target when we mentioned to you that we will be averaging around 18%/20%, you should add probably 0.5 point to this target to recognize the effect of the standard metal margin in the transmission space.

On the contrary, in the I&C space, the differential is pretty high. I think we should consider a couple of points in incremental a couple of points, 200 basis points additional if you convert it from current metal prices, current being quarter 4, quarter 1, '25 into standard metal price. The level of copper in metal -- standard metal prices is $5,500. The level of aluminum is $1,500. The level of lead is a minor metal but we still buy it is $2,000 per tonne. And so you can make the comparison to the current metal prices. Additional hint. So the famous Encore Wire, 15% EBITDA margin at current, we're really close to 19% as standard.

And my second one is on opportunity for market outperformance in the U.S. in electrification market. I mean, when we were at the Capital Markets Day, you talked about how Encore is complementing your offering and making you a full line supplier for all the types of cables that are required by distributors. So we'll be soon approaching to 1-year anniversary of close of Encore deal, and I wanted to get your thoughts on have you started to see any increased traction from distributors that may help you gaining market share given now you can supply literally all type of cables on both copper and aluminum conductor.

So any thought on market outperformance that we should see in the remaining part of the year?

Thank you, Akash. If I understand the question, it is about the opportunity to sell more to distributors. and the opportunity to leverage the synergies. We're talking about the same stuff. We have already geared up the commercial organization, which basically is what we adopted from the Encore Wire acquisition, the agent to print of Encore Wire is the new commercial organization in the entire I&C space in the United States for Prysmian. We already gear up this commercial organization to sell all products, not just the Encore Wire products, so the copper and aluminum building wire, but also medium voltage cable, industrial cables, portable cards electronics. Most of the stuff we already either relocated in terms of production and McKinney or we are at least relocated in terms of service, in terms of distribution center to McKinney. This is helping us deliver from McKinney across the entire I&C portfolio of products, the best service rather.

So what we noticed that customer has recognized even recently that despite some, let's say, contingent difficulties in the first 2, 3 months in terms of maintenance -- maintaining the same service level. In the last 4 months, our service level has been impeccable. They all appreciate the 24 hours delivery. Most of the month revenues, the month revenue are from stock, most means 70% are from stock with 24 hours. This advantage that used to be applied only to copper and aluminum wire now is applied basically to the entire portfolio, almost the entire portfolio of products that we deliver to the I&C space. So this is the rationale. This is the -- what we are going to leverage to achieve the cross-selling opportunity and the pricing improvement associated to the integration of the [indiscernible]. I hope I answered the question, Akash.

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

If I could just ask a first question to clarify the electrification business and Encore Wire you're saying that you've already achieved sort of 15% margin in April. I'm just wondering if that's also true. Are we seeing an improvement in the legacy I&C margins as well, excluding Encore? And if so, has the demand -- has that been driven by higher demand for copper wire or aluminum wire? Or is that actually also from better pricing behavior that you commented on for all competitors?

March and April benefit from all those factors, Chris. There is additional volume in the market given the start of the high season is quarter March and quarter 2 certainly set the start of the high season. So more volume in the market, more demand. As I said before, there is some customers already shifting their supply chain from imports to local players. So this is also determining and impacting the additional demand. We have better prices, no doubt. We had better price because on the one hand, copper and aluminum have stabilized a little bit in terms of level of price increase. And we could, with the price improvement set in the market fully offset their cost, which this was not the case in January and February for copper and aluminum wire and actually go beyond setting their cost. So this level of profitability is now back to the level we had before.

It is not just Encore to answer your question. It's also the rest of the I&C perimeter, which tends to be less visible, less -- how to say, it's more difficult to carve it out because most -- so some -- so the entire copper production of legacy Prysmian has been moved to Encore. Most of the aluminum building wire that we used to -- we still produce in our site, legacy Prysmian, we are delivering to customers through Encore. So the 2 perimeters are fully becoming very blended. And so the overall margin is in line with what I tell you about the Encore Wire margin.

Okay. That's very clear. And maybe the second question tying into electrification, but also maybe on Power Grid. What are you seeing for early indications of higher pricing on aluminum? And is that being able to be absorbed across the market? And what -- if you can maybe update us as well on the sort of percentage exposure to aluminum on the new I&C divisional structure with Encore included and equally on Power Grid, just to give us a flavor of that shift to more local players and how that will impact revenue growth?

Yes. I will address first Power Grid, where the Midwest premium, so the extra cost represented by tariffs is part of the formula in the existing frame agreement contracts with the customers. So this is a simple pass-through. As far as the aluminum impact into the electrification, so I&C space, we've seen the Midwest premium reflecting the impact of tariff even before tariffs have been put in place. So from end of January onwards, we had seen Midwest premium increasing. We have been able to pass it on to the market because this is a common situation across all competitors. Sat ourselves, we all needed to source aluminum from production plants that are located outside of the U.S. And so tariff has become a normal part of the cost.

Of course, this will create more inflation in the cable space, in the activities where cables are required for investment in expansion of the grid for investment in connection of building and so on to the grid. But so far, we don't see -- we don't -- we didn't notice any slowdown of market demand due to the incremental costs associated to metal increase due to tariffs.

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

So my first question is on Power Grid. I'm not sure if you asked already, but we've seen very resilient margin compared with some concerns on margin softness discussed in the U.S. market last quarter. Do you still view the 12% to 13% as the right margin range, please?

We've seen resilience, yes. Maybe it was too negative last time when I mentioned a range of stabilization of margin between 12% and 13%. I think in standard terms in standard metal prices, we see this level of between 14.5% and 15.5%, so 15% midpoint stable over the coming quarters because the drivers are the same drivers. And in Power Grid, not necessarily this year, but very -- very significantly next year, we will see an uptake in margin represented by the additional HVAC volume delivered to the market from our additional capacity. 15% level is what we expect to see in the coming quarters.

Okay. Great. And if I can just follow up on the Power Grid. So my next question is, was there any frame agreements due for renewal in the quarter? If so, was there any change on the pricing duration of the agreements or any terms...

There are frame agreements under renewal every quarter in U.S. as well as outside the U.S. But as we all understand, even if they went up for tender, it is very difficult for a customer to shift from supplier A to supplier B, especially supplier A has been excellent in terms of service level, in terms of reliability of delivery in terms of quality, in terms of technological capabilities. So we, in the current frame agreement, have been renewed in quarter 1 and what we see for quarter 2, we haven't seen any particular price pressure from the market. It is true that there are capacity coming on stream from all players, but it's equally important to know that once you gain an important leadership position in terms of share of wallet with a customer, there is a lot of resilience from this customer to shift from a different supplier from you to a different supplier.

So we haven't seen pricing deterioration in the new frame agreements. On the contrary, our ability to keep adding stuff to the cables like the monitoring devices like the accessories, like the partial discharge measures. So there are a lot of stuff that you're adding to cables to make our offer kind of unique. So this is helping us when the market is weak, and the possible pricing pressure. When the market is strong as it is to further build additional volume opportunity.

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

I have 3. The first is still on Power Grid, sorry. The start to the year was with a minus 2% organic decrease due to the tough comparison base. So should we expect the organic growth could turn positive from second half when the new capacity will come in force? And if I'm not wrong, within the Power Grid segment, the weight of the low voltages is quite low, 20%, 25%, if I'm not wrong. Low voltages are weak. When should we expect a recovery also in low voltages within the Power Grid segment? This is the first question.

The second one is on transmission, plus 50% organic growth in first quarter was materially above the market expectation. Should we expect similar progress also in the next quarters? You guided for a 17% margin. I'm just wondering what could be the incremental adjusted EBITDA in absolute terms by year-end for transmission?

And the very last is on the competitive environment in Industrial and Construction. Now pricing is -- you increased the pricing. The volumes are up. But any color on the competitive environment and the pricing discipline within the segment would be useful.

Thank you, Monica. Tough question, comprehensive question, well done. So let me try to answer one at a time. So Power Grid, organic growth negative by 2%. The growth is, as you said, is a tough comparison due to the overhead transmission business, particularly strong in some projects in U.S. in quarter 1 2024. We see organic growth in the coming quarters in the wake of additional capacity, but also the additional -- of the strong season ahead of us. It will be -- it will not be a 10% organic growth will be in the range of single-digit organic growth increase. Bear in mind that in quarter 4 last year, we had a significant growth in power grid. So whether we'll be able also in quarter 4 this year to maintain additional growth over year-on-year over quarter 4, we will see. But quarter 2, quarter 3, you will see organic growth turning into positive.

Low voltage has been very weak since ever. So the reason is not that simple for us to understand to quantify. But certainly, the demand of electricity driven by all the use cases that you are very aware of is affecting much more high voltage AC space and medium voltage space than it is with low voltage. It's not that the demand is declining. It's not just growing, while the demand for medium voltage and HVAC is stronger in order to transmit more power, more quantity of energy to feed the electricity to the different users. So I don't expect recovery in the low voltage space.

Transmission, yes, super fantastic. We are super satisfied. 60% is -- was not conceivable a few quarters ago, but we did very well in terms of execution and in terms of benefiting from the high-margin projects and the additional installation capability, thanks to the new vessel. This confirms that our strategy to invest both in manufacturing capacity and installation is really paying dividends differently from what many competitors, actually all other competitors have decided to do so to focus only on manufacturing. Installation is an important part of the EBITDA margin increase, an important factor that drives organic growth increase.

Full year EBITDA, we know it. It is well defined because we have the backlog in hand. Last year, we delivered EUR 360 million. I didn't mention at the Capital Market Day what the EBITDA target is for 2028, but I gave you many indications to allow you to figure results. So we have to exceed the EUR 100 million target by 2028. So our journey from EUR 360 million in '24 to EUR 100 million plus in 2028 goes through a significant increase in 2025, in the region of EUR 180 million, EUR 170 million, driven by the same factor that you've seen in quarter 1, execution, capacity increase across the board, so manufacturing and installation and better margin in our portfolio.

I'll do my math. On the power...

Right. Sorry, I wanted to -- so you want me to answer the third question or you want to go back to Power Grid?

Yes, sure. Sure, Massimo. Sorry.

Okay. So third question was about the competitive environment in I&C. Yes, we had some undisciplined behavior, let me say, in January and February, which were fully recovered in March and April. So the whole market became more disciplined. As said, the pricing increases that we set in March were all stuck into the market. So we had maintained the price increase set every single time and competitors followed them. This also is recognizing our power in the market in terms of leadership in pricing and also recognizing our long -- our large position versus our partner channels, distributors. And also recognizing that some of the smaller distributors that used to buy products from imports are shifting to demand to the local suppliers. And this is indirect benefit of the possible threat represented by tariffs, which are not yet in place anyway.

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

My first one is a follow-up on the electrification margins. You mentioned that the behaviors in March and April have sort of returned back to what you saw last year. Does that mean that your electrification margin is likely to return to a similar level of last year, something around like 9.5% to like 10.5% of margin profile?

And another one is on Encore that do you see any scope for the Encore margins to return to the previous like 20% if you see any pickup in U.S. construction?

And my second question is on the funding of the channel acquisition. Would you be able to give us an update on the plans in terms of the mix of treasury shares and the sale of the shares of the [ YOFC ]? That would be great.

Thank you, Uma. So the -- let me comment the Encore Wire margin. The March and April is in line with last year. When I mean last year, if you take -- I mean, the first 6 months were not known to you because we didn't consolidate Encore until July. Quarter 3 last year, the EBITDA margin of Encore or I&C North America were more or less the same at 15%. So when you mentioned this 20%, I don't recognize it. The margin of Encore were even higher than 20%, but we are talking about 2022, '23 and also our I&C margin were pretty high driven by the significant scarcity of products due to the disruption of supply chain and scarcity of raw material that we had due to the inflation that U.S. was exposed to in late '21 and the whole of 2022.

So from that moment onwards, EBITDA margin at Encore and Prysmian perimeter has stabilized at 15%, let me say, from mid -- from first, second half '23 onwards. And we had this dip in margin in November, December, January, February. November, December '24 and January, February '25. March and April has restored the level of 15%. So we are back to where we were, thanks to the strong demand, thanks to the behavior of our competitors. And so thanks probably to some tariff indirect tariff benefits. margin means the 19% standard metal margin that I mentioned before. So I don't want you to get confused. From now onwards, we will report standard margin. So margin standard metals. So the original 15% of Encore based on current margin will turn into 19%. The 19% is the level that we confirm from now onwards. Funding of Channell acquisition, I'd like to hand over to Francesco for more detailed explanation.

Thank you, Massimo. As we said, Massimo, by the way, anticipated, we are -- we certainly add to the closing in end of May, beginning of June, we will see. It will be a balanced mix of debt and equity or equity like. And the important thing to register is that it will be absolutely consistent with our investment grade, okay? That's the important point. Of course, there is a timeline. It's not that we have to do this entirely at closing time. It's important to keep this financial position balanced throughout the year. We mentioned the instruments we will resort to certainly the hybrid bonds, the subordinated bonds, which is currently pretty strong in terms of market after some, let me say, weakness that we saw in the market, I mean, a few weeks ago. I think that now the market is back and pretty much in good shape.

You saw, by the way, that we have activated some, let me call them equity such as, for instance, we decided to go for a placement of our YOFC stake. This is also a way to finance the transaction, which is, as a matter of fact, equivalent to equity in principle. And of course, this is also an instrument to do that. What I can assure you is that we will certainly minimize the influence -- this doesn't mean that they will be 0, i.e., of course, but we will certainly minimize any dilution for shareholders, keeping our financial structure totally in line and consistent with investment grade.

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

I've got a few. So first on transmission, I was wondering if you could give us more detail on the margin performance of Q1. You mentioned execution and better mix. Is it because of some specific projects that started to kick in? Or is it because you're delivering ahead of your initial budget? And how much visibility do you really have ahead of the quarter? I ask because these projects usually have an estimated margin. And 1 quarter ago, you were guiding to 16% or slightly above 16% for the full year, and now you're saying 17%.

Thank you, Miguel. When we plan -- when we provide our forecast, we said to be conservative because we want to make sure to be it. So that is probably the reason why we planned for sustain and we delivered 17%. But being specific on quarter 1, yes, we had an execution in line with the expectation, in line with the margins of the projects. We have some better margin projects in our back like Tyrrhenian Link and some others. So let me not be specific because I mean our customer also listened to the questions. And we have great visibility of this transmission business because the EUR 17 billion backlog provides us these benefits, not only for the coming quarter, but for the remainder year through 2028. That's why I can confirm that if you continue with this current pace, which I don't think we will be difficult to do, we will achieve a 17% plus EBITDA margin for the full year.

And then big picture, you saw yesterday Ørsted canceling Hornsea 4 complaining about higher costs, et cetera. And I know you've been involved with Hornsea 2 and 3. The political environment is also a little bit different in Europe. So how likely are we to see further cancellations in the European pipeline, not yours specifically, but more generally? And can you give us some thoughts about the size and number of awards going forward? Would we see your backlog, for example, growing again? Or do you think it has peaked?

We have seen what you mentioned. There is certainly some pressure on some offshore business more than anything else. It's a business that is not relevant to us, but you're right in terms of project pipelines, the inflation might cause some read the time line of the permitting of some of these projects. So far, we still see a significant long and reliable list of pipeline of projects ahead of us. We are confirming -- we still confirm the market size for '25 being in the region of EUR 15 billion plus. There are many awards. There is the IPTO Greek player playing the frame agreement. There is, there is National Grid with Eagle 3, Eagle 4.

We will -- we have meant to improve our backlog, slightly improve it, because we don't want to exaggerate as we probably did in the past. too big of a backlog doesn't allow us to play the proper role across all the customers for the new projects. But undoubtedly, given the current EUR 15 billion intake that we see for the market in '25 and given that we will consume probably EUR 2.5 billion, EUR 3 billion of our current backlog for the execution of the revenues in the coming quarters, you will see at the end of this year an increase -- marginal increase to our overall backlog.

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

Could I ask about the trends you're seeing for electrification, especially I&C in April so far? Are you still confident about kind of the improvement you've seen in March?

Yes. No, yes. When I commented March, I also commented in April because April is for us now a month that we already closed. The margin progression was strong in March over January and February. In April was even stronger than March. So April has confirmed that the disciplined behavior of competitors, the sustained demand for the market, the high season has reestablished a very high EBITDA margin in the United States.

So in current terms, metal terms at 15% in standard metal terms close to the 19% that is the level that you used to have in the quarter previous year when we first consolidated Encore [indiscernible]. So April is reassuring, comforting and setting the scene for -- hopefully for a good quarter 2.

And generally, when we look at the full year, given the start you had, I remember, I think, in Q4, when talking about I&C margin into 2025 in current terms, you're talking about maybe 10.5%, 11% or maybe even 1 above 11% possible. Where do you think kind of you end up now for the full year given the information and the visibility you have now on margins?

I think we have to distinguish where you talk current standard metal cost. Standard metal cost -- standard metal prices, sorry, the level of 13% is for the total group margin is what we can think of achieving. So if you take quarter 1 is 11.6%, there is definitely a good 1.5 to 2 points increase for the full year. For the remainder of the year, the full year average, we will see. But the coming quarters 2 and 3 and 4 suggesting in line of what we've seen in April that we can achieve the level of 13.7%, 13.5% for the full year.

And a quick follow-up just on offshore wind. Obviously, we've seen the stop order on Empire Wind. Obviously, you're working on Coastal Virginia. There hasn't been any announcement there yet, but can you give us an idea of how much left do you have to do on that project? Is it the cable manufacturing now done? Is it just installation and roughly kind of in EUR 100 million, what would that be in terms of revenues?

There's not much what is left to be done. We had completed the production. We have finalized installation is a few tens of millions what is left to be done in terms of value.

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

So my next question is on the financial item. So net income is lower this quarter and part of the reason was this EUR 55 million loss on commodity derivatives. Can you maybe elaborate on this, please? Was there a change in how you do hedges in Q1? Or maybe there's some level of speculation on metal prices. How should we think about this line item going forward?

Thanks for the question. It's quite the contrary. We are fully hedging -- and for this reason, we don't manage for some technical accounting reasons to achieve a hedge accounting treatment. And exactly for this reason, we have some metal from some significant metal derivatives, which has always been the case in the past, which fluctuates on our profit and loss in terms of fair value of these derivatives change. And this is a temporary impact on our profit and loss, by the way, noncash impact on our profit and loss, and it will basically stabilize or disappear throughout the year. So no concern on that. No speculation at all. Just to be very...

Okay. Excellent. So my second question is on the high-voltage demand. So in April, Texas approved USD 10 billion spending on 675 kV transmission lines. Given Texas is basically your home base in the U.S., I assume Prysmian is very well positioned to address this demand when it comes through. I think it's still early stage, but do you have thoughts already? Would you need to build any capacity? And how fast can you get your facilities qualified for 675 kV?

We have qualification for the level of technology, of course, in the U.S. and also elsewhere. We see U.S. committed to investing more in the grid. HV is one important piece of the grid. When we talk about HV in U.S. is both underground cable and overhead transmission. And we are pretty positive about the opportunity that we'll see in this space. Also consider that part of this market is served by Koreans. And should the tariff be one day implemented, all the market -- most of this market will be restricted and limited fine to local players. So that would be an additional opportunity to take advantage of our local presence in U.S. and local technological capabilities in the U.S.

That's very good to know. My last question, if I may. So power blackout, these were very rare in direct markets in the past, but are happening more often recently. What can Prysmian do to enhance grid resilience? What are the commercial opportunities out there for Prysmian?

What we can do is very simple. We can offer more cables because what is actually missing is utilities investing more in connecting the local grid, the country grid with the adjacent neighbor country grids. This was a weakness. We know that it was a weakness in the energy footprint of Spain. It is less -- is more reliant on local generation than it is on the integration, the interconnection with adjacent countries. This is a completely peculiar situation of Spain different from many other countries in Europe, which have at least 30% of their energy demand connected and supplied by other countries. So the opportunity for us is important because there will be more interconnectors if they wanted to resolve the problem in a structural way, there will be more cable interconnecting in Spain with other countries, either via land, so underground cables or submarine cables. It's a new opportunity for additional stream of revenues.

The one thing we didn't probably touch on is digital solutions. Can you maybe update us on the demand and pricing trends in Europe and U.S. markets? Has the first 4 months progressed as you expected? How should we think about coming quarters?

Yes. Thank you. The demand in U.S. is very strong that has taken us by surprise. We haven't realized that there was a significant surge in demand. We struggle to respond with the local capacity, and we are using other factories, European factory basically to supply and top up the local production in U.S. The demand remains strong because it has been very weak over the last 2 years due to the destocking mode that the U.S. customer entering into after the big buying that happened in 2022. So coming quarter, we see this demand remaining pretty solid. And hopefully, we will see pricing improving because the demand overweight the available capacity.

So there will be tightness in the supply chain. Europe is, on the contrary, not as strong stable. Most of the countries in Europe are more advanced in terms of fiber-to-home rollout. And we don't have yet in Europe with the additional stream of activity result coming from the data center expansion. There are data center implementation in Europe, not to the level of what we see in the United States. So stability in Europe, pricing also stability in Europe, volume opportunity in U.S. with pricing opportunity in U.S.

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

3 questions, okay, if I may. The first one is if you can come back a little bit on Channell, if you can comment on, let's say, about the triggers behind the earnout mechanism. I recall a very high profitability of Channell almost 40% EBITDA margin. So if you can help us understand if, let's say, the payment of the earnout is more linked to top line acceleration you see for the current year. So that's the first question.

Let's say, the second question, if you want to go ahead, please.

So Channell earnout mechanism is, as you said based on a project base price of $150 million plus a range of up to EUR 200 million. All this is related to the EBITDA performance in 2025 for the full year performance of 2025. Based on our range of EBITDA, EUR 150 million can grow as high as EUR 1.150 billion. They are doing well. They did well in quarter 1. They are, let's say, well positioned to benefit from the market rebound also in the connectivity space. We anticipate a good quarter 2 also, and then we see what quarter 3 or quarter 4 will look like. At that, we will have them embedded in our perimeter. So that will be -- that is the mechanism of the earouts if that's -- I don't know whether that's enough, Alessandro.

Sorry, the line was not fantastic. You said in terms of EBITDA up to EUR 150 million, sorry.

No. The price mechanism is based on EUR 950 million minimum price on top of which there are EUR 200 million of price increase if they achieved certain thresholds, certain targets of EBITDA. So the earn-out price is based on EBITDA achieved at the end of 2025. For the time being, the EBITDA is doing better than last year. Quarter 2 is expected to be also positive, and we see what happened in the second half of this year.

Okay. And then second question or the second and third one. If you can give us a full year indication for D&A for the full year considering the EUR 150 million level in Q1 and also on financial charges for the full year.

The D&A is quite simple. I think if you make 4x is a pretty good projection because we have now the full impact of the amortization related to the price allocation of Encore. So it should be quite linear. And for the financial charges, the indication that I can give is for a total of EUR 260 million, EUR 270 million for the full year, not very different from a 4x also. It could be lower in this case.

We will now take the last question from the line of Luigi De Bellis from Equita SIM.

I have 3 questions, if I may. The first one related to the transmission business. Could you elaborate on the potential pipeline of new project visibility evolved to 3 months ago on your target market, so mainly TSO and Europe.

The second question, the new tariff introduced by U.S. Administration have created a weak [indiscernible] in global manufacturing. Do you see any risk of increased competition from Asian players in Europe for a specific segment of your business? And on the other side, could you elaborate on the trend you mentioned of shift of your customer in U.S. positive indirect impact from tariff.

And the last question regarding data center, how is demand is evolving looking to your side? And have you observed any changes in the trend based on your current visibility?

So transmission pipeline is, we have the usual visibility. We have at least 3 years worth of projects in the pipeline. With names or name with definition of the routes and all the rest. So we see through 2028. Of course, important to understand when those projects will become tenders and they will become order intake. So we have a great visibility of 2025 in terms of tendering activity because it is actually active and happening as we speak. And we also have visibility of some tenders that will be released into the market in 2026.

As far as the tariff is concerned, yes, there is a little bit of uncertainty as to what is going to happen at the end of the 90 days that those 90 days commenced on the 10th of April. So through the 10th of July, there is the suspension of the tariffs and then we see what happened next. What we noticed is a behavioral change in local customers, as I mentioned before, trying to shift away from the current supply chain offshore supply chain, so shifting to local producer. I didn't see any increase in aggressiveness in Europe coming from those players redirecting their supply to European customers. This -- haven't seen any changes, any indication coming from the market.

As far as data center demand we see still no changes. Demand is pretty strong. We are gaining position in this space because now we leverage the portfolio, the synergistic portfolio, especially in U.S. And in Europe, we are weaker than we would like to be that we should -- so we should be more effective. So we are working more with close with potential contractors because while in the U.S., the data center market is traded through distribution, and we have a strong position there in Europe is traded through contractors. So we are gaining position. We are gaining share in this space, thanks to our new relationship with these contractors. But in terms of overall demand, we don't see changes.

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

Thank you for your time. I hope we appreciate together this satisfactory quarter 1 performance and look forward to talking to you at the end of quarter 2 with similar outstanding performance. Thank you very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.