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Operator: Good day, and thank you for standing by. Welcome to the Prysmian's 9 Months 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.
Massimo Battaini: Good morning, everyone, and welcome to the earnings call of 9 months 2025. I'm very excited today to share with you this fantastic success. Quarter 3, EBITDA, '25 is the best quarter ever. It is over EUR 100 million higher than the same quarter last year, '24, in spite of the EUR 30 million -- almost EUR 30 million adverse impact. So you should raise on a like-for-like EUR 670 million versus EUR 540 million. Remarkable also the EBITDA margin that reached the outstanding level of 14.8%, 1 percentage point higher than the 9 months comparison to last year. The organic growth in the quarter has been outstanding also with a 9% increase that brings the overall 9-month growth for '25 at 6%. We also continue our successful journey towards sustainable targets. 39% has been the CO2 emission reduction in Scope 1 and 2 versus deadline and recycled content of material in our cables risen to 21%. Let me now enter into each business unit to explain you the strength and the performance of the individual business. Transmission, first of all, strong backlog, EUR 16 billion. We had it in line with what was in the past despite additional revenue consumption. And on top of this EUR 16 billion backlog, we have been pretty successful in the order intake in quarter 3 with EUR 3 billion worth of projects awarded in this quarter. They will turn and convert into backlog in the coming months as this project will be awarded in notice to proceed. Amazing has been the growth of Transmission, 40% in the quarter, which confirmed a solid growth in the 9 months, almost 39%, 40% also for the 9 months and outstanding is the EBITDA that has risen from EUR 90 million last year, same period to EUR 150 million. And by the way, this EUR 150 million, probably already is in 1 quarter, what one of our competitor makes in the full year. Extremely rewarding for us is the EBITDA margin achieved in the quarter, almost 18%. You'll remember that we set goals for 2028 for value, we need to achieve a range of 18% to 20% EBITDA margin by 2028. So we are well ahead of that trajectory. 17.8% is 2.5 points higher than same quarter last year and if you take the 9-month view is the same. We are 3 percentage points higher than last year. Thanks to outflows as a cushion, thanks to better margin in our backlog and thanks to entire team, regions in the Transmission BU working hand in hand to maximize the results and maximize the execution of the CapEx and the relevant projects. Let me now move into to Power Grid space. The organic has been significantly high 15%, basically driven by all countries, with North America actually outpacing this 15% growth, more than 20% was the growth in the United States. When you look at EBITDA, you see a moderate growth in EBITDA, but you have to take into account 2 effects in this EUR 6 million only increase in EBITDA in quarter '23 -- in quarter '25 or '24. There is a ForEx impact of close to EUR 8 million. And there is a Midwest impact driven by tariffs that hit one element, one family of products in our portfolio business in U.S., the overhead business. It's a project-driven business, where we have a firm price and we've been hit by projects landed in quarter 1 and quarter 2, where we could not stand a chance to increase and adjust the price to reflect the Midwest premium impact. So you see a temporary blip in the EBITDA margin, 15.2% last year, 14.7% this year. This will be recovered in the coming months as we flush out the old project backlog and we will end the new project. The rest of the Power Grid business in U.S. is immune to Midwest premium because we have formula in frame agreement to transfer the cost to the market. The organic growth in the 9 months has also been pretty successful with a solid 6%. Moving to Electrification. In spite of this moderate growth in I&C Global, you have to see behind this strong organic growth in United States, 10% year-over-year growth in quarter 3, remarkable growth in EBITDA in U.S. in quarter 3. Despite a weak start with July still affected by negative tariffs, thanks to August, September, we had performed a 15% EBITDA increase quarter 3 '25 over quarter 3 '24 in the U.S. in the I&C space, namely more than EUR 30 million in absolute value. Unfortunately, this has been offset by ForEx and has been offset by some pricing normalization in LatAm, where we had spikes last year in quarter 1, quarter 2, quarter 3 in Argentina, which has normalized over the period -- this period of time. The EBITDA margin, we achieved sustainable 14.5% level. And when you look at the 9-month view, you see the upgrade and the accretion of the EBITDA margin associated to the -- attributed to the acquisition of the accretive and profitable perimeter over Encore Wire. Specialty, I cannot say that we are happy. Actually, we are disappointed about this, nothing that was not foreseen. We are still struggling with the automotive performance. The demand is very weak. Price pressure is very high. We are still working on the disposal of a few plants and a process is -- unfortunately, I have taken longer than expected. We will resolve this in the next months. And we also continue to see some level of softening in the elevator space in the U.S. attributed to the weakness of the residential market in the U.S. Moving to the last business unit Digital Solution, we reported a significant organic growth stand-alone legacy Prisma, 13% in the quarter. And you see the EBITDA left from EUR 45 million to EUR 88 million, thanks also to the perimeter change. There is the inclusion of more or less EUR 40 million coming from the Channell integration. This is the first quarter where we have the full consolidation in the treatments of the Channell perimeter. Amazing is the EBITDA margin. We never had better than 14% EBITDA margin in the business in the past. Now we raised this level of margins sustainable in the future to 20% with additional scope, with additional connectivity in the U.S. space. Before I hand over to Francesco for more financial insight, let me draw your attention to maybe one only of these KPIs in the first one on the top of right-hand side of the page, revenues linked to sustainable solution. We raised this revenue from 43% last year to 44%, 45% already. In 12 months, we will show another improvement over this level. We have a target of 55% by 2028 as per our Capital Market Day. This is our important way, it is an important way, it's an important KPI to read our ability to innovate to drive EBITDA margin improvement. And the 14.8% EBITDA margin achieved in quarter 3 is a real reflection of the efforts that commercial, R&D, operation and rest of the team has put in innovating our portfolio, innovating our solution to increase share of wallet on the one end and improve profitability. And now Francesco.
Pier Facchini: Thank you, Massimo, and good morning to everybody. As usual, let me recap our profit and loss and summarize some messages that Massimo has already passed. The -- an outstanding quarter, this 3 quarter. Starting from the revenues, EUR 14.7 billion with an organic growth in the third quarter, very robust, over 9%, which was driven by an outstanding growth in Transmission and a very strong improvement in the growth of Power Grid by the way, across the board, as Massimo said, both in North America, but also pretty strong in Europe. The highest quarter ever in terms of EBITDA. You see the bridge on the right of this page, quarter-by-quarter. I would focus on quarter 3, EUR 644 million, an increase of over EUR 100 million versus Q3 2024 in spite of pretty significant adverse ForEx effect of EUR 27 million, which is mainly in the Power Grid and the Electrification business, but also Digital Solutions business. In terms of margin, I don't have much to add to what Massimo said. At constant metal in the quarter, we grew 1 percentage point from Q3 2024, mainly driven by the growth of the margin, but also of the revenues in transmission, which is obviously changing the mix in the positive sense. It was driven definitely the increase of margin by the full inclusion of Channell in our third quarter results. And I would add also a pretty robust Q3 in I&C in North America, in particular. On the lower part on profit and loss, you see group net income, which is almost doubling compared to the first 9 months of 2024, over EUR 1 billion, EUR 1.022 billion. Of course, this was heavily impacted, positively impacted by the disposal of our 23.5% stake in YOFC, which generated gains in the region of EUR 350 million. But let me say that even taking out this obviously one-off effect on our net income, the net income was very robust. And I like to confirm what I did already in the first half of the year that in terms of growth of our EPS, we are definitely above the level that the CAGR, you remember the midpoint of this CAGR was 17% for the period '24, '28 that were setting last March in New York as a target. I would say we are more in the region in the first year of a 25% EPS growth for the full year versus 2024. Okay, I flip quickly to the cash flow generation. That's the usual bridge of our net financial debt from September '24 to September '25, it's a strong deleverage, which was obviously fueled by the cash proceeds coming from the YOFC disposal. You read the number on the right of this page, EUR 566 million, which were definitely much higher than we expected, thanks to the incredibly strong share performance of the company, specifically in the month of July and even more August. In terms of last 12 months free cash flow, we are a bit below the level that we saw in the last few quarters. You remember that we were last 12 months, half 1, slightly below EUR 1 billion, let me say. And this is not very concerning, in my opinion, because it's almost entirely attributable to a different distribution of cash flows in our Transmission business. To be more specific, last year, specifically in the first 9 months, Transmission was generating very strong cash flows because it was benefiting of a very, very large down payments and milestones that this year are more skewed on the fourth quarter. So no concern. I think that we will come back and we will regain our nice level of EUR 1 billion plus, by the way, in line with the guidance that Massimo will comment in a while. Also in terms of net debt, the boost of -- other than our strong cash flow, the boost of the transactions like YOFC will generate a faster deleverage than we originally expected. And I anticipate a net debt by year-end in the region of the EUR 3 billion, which was -- which is definitely much lower than the, thanks also to YOFC, of course. Back to Massimo for the outlook and the final conclusion.
Massimo Battaini: Thank you, Francesco. So let me walk you through the upgrade of the guidance. On the right-hand side chart, you see the evolution of our guidance for the EBITDA. We started the year with a EUR 2.3 billion midpoint for full year guidance. We raised it to EUR 2.40 billion in light of the perimeter change, which was particularly set by the ForEx. So the EUR 40 million additional is the organic growth of the EBITDA of the legacy Prysmian perimeter, excluding the Channell benefit. And now we are happy to raise it to EUR 2.4 billion, so another solid EUR 60 million additional EBITDA coming from the strength of quarter 3 and the expectation of the quarter 4, of course. Free cash flow also you don't see the upgrade here, but we had a EUR 1 billion low range EUR 1.075 billion, now we raised EUR 25 million, the bottom range and by EUR 50 million in the top range. So making a net increase of circa EUR 40 million in free cash flow for the full year. Let me move to the final remark and wrap up the meeting and leave time for you to address comments and questions. So definitely, a quarter, which reported an excellent performance, as flawless execution in Transmission, also supported by a good order intake. The benefits of the accretion of the EBITDA margin coming from the Channell acquisition and a strong driver of the business growth coming from North America, Power Grid, I&C and Transmission with now North America really posed to benefit from the tariff benefit in the coming quarters. So thank you. I'd like now to open the Q&A session and get more insight into the business.
Operator: [Operator Instructions] We will now take the first question from the line of Vivek Midha from Citi.
Vivek Midha: I hope you can hear me well. My first question is around the I&C margin in the third quarter. Would it be possible for you to give a little bit more color around where the profitability of the U.S. low voltage business stands and how that progressed over the course of the quarter? You mentioned that July was lower and August, September improved. And then also on that, you mentioned just now about the benefits of the tariffs in the U.S. coming through in the coming quarters. Could you maybe give some color around how you expect that to phase in over the coming quarters?
Massimo Battaini: Yes. Thank you, Vivek. So the I&C space in the United States, we had many turbulence in the very months -- in many months of 2025 due to the different dynamics interpretation of tariffs in the market. In July, we were still in the old scheme where tariffs were applied to metal, so imported metals, imports of metal and not on import cables. From August 20 -- from August 13, all the tariffs were set in a way that's also the meta content of cable imported were charged with 50% in addition to this called country tariff. So from August 13 onward, we had a full recognition of the fact that we are looking for local producer. So given that circumstances, in August, September, we've seen a reverse in trend. While in July, we saw pricing pressure because we had cost that importers didn't have from August -- from beginning of August onwards, we had certainly more even and normalized competition. Another pressure is on importers. So the I&C margin in quarter 3 in U.S. is the best ever margin achieved by Encore Wire best ever. Despite July was weak due to the former setting of tariffs. We are at least 1 percentage point ahead of the same quarter last year, 2023, which, by the way -- 2024, which, by the way, was a strong quarter, as you recall. Now how we are going to benefit from the tariffs in the coming quarters? We don't know what is going to happen. Certainly, the supply chain from imported is a long one because they're shipping cable from every place in the world. It's normally -- we consider it a supply chain of treatment. So it will probably take another 1.5 months or so before this -- the quantity of product has been shipped and our in stock in U.S. will gradually run down. And so we should be seeing hopefully, certainly from quarter 1 onwards, less lower pressure from importers and more opportunity for us to gain share of wallet. So we think that in the aluminum building wire space, the market started already and will more progressively shift from importers, whose price is not going to give them any more benefit into for -- into local suppliers. So we will certainly have a share of wallet opportunity. Whether this will turn in additional profitability, we will see. We'll have to gauge it. It depends more -- it doesn't depend on tariff. It depends more on the possible dynamics of shortage of cable availability in U.S. vis-a-vis the local demand. Local demand is expected to grow beyond that in '25, driven by the usual data center expansion, but also by some expectation that the residential market in light of the further reduction in interest rate will rebound a little bit in quarter 1, quarter 2 next year and also thanks to our solidity of the nonresidential market. I hope I answered your first question, Vivek.
Vivek Midha: Absolutely. Just to clarify to make sure I heard correctly. I think you said was it was from -- at some point in the quarter, that was the best ever margin in Encore Wire, given that they had some very, very good margins after the pandemic. Did I hear that correctly, best ever margin?
Massimo Battaini: Yes. July was not the best margin but August, September was few points higher than the same period 2024. So yes, you're right.
Vivek Midha: Okay. And my second question is around the Power Grids margin. Just a clarification. Thank you for the color on the Midwest premium impact. Could you maybe confirm then was the margin in the power distribution business and high voltage AC, i.e., the business outside overhead, stable relative to the second quarter?
Massimo Battaini: As you noticed, the blip in the EBITDA margin was really minor. The rest of the product -- the rest of the family side of Power Grid, so high voltage AC, power distribution and network components were not suffering any sort of margin contraction. It's only the overhead business in U.S., where we win projects is similar to the transmission space. We win one-off projects. We win projects and the price and the project is firm until you completed there's a cushion. And the Midwest premium has risen in the last 2 quarters due to the additional aluminum tons supplied to metal imported in the U.S. We could not transfer this to those firm price project. While we've been completely successful transferring this Midwest premium increase to the rest of the business, call it I&C, low voltage, medium voltage distribution, no way. We have no issue there. We have formula to reflect the cost inflation coming from Midwest premium, copper rod, all the rest to our customers in the existing frame agreement. In this specific niche on the portfolio Power Grid, we didn't have this chance. We actually renegotiated some contracts, but vast majority at firm price. So when we get past the end of this year, it is a backlog of old projects that suffered this price pressure -- sorry, this margin contraction due to cost increase will fade away and will enter 2025, '26 with a different speed. That's why I call this blip in 1 -- in '26, sorry, quarter 1, this will be fully reverted back to the original level of margin, 15% plus.
Operator: We will now take the next question from the line of Daniela Costa from Goldman Sachs.
Daniela Costa: I'll ask two, one on Electrification and the other one on Transmission, but given we just talked on Electrification, just following up on the comments there you made before. I think when you think about sort of this potential impact that you'll be better positioned versus the importers going forward on the Section 232, what's your view in terms of like will your intent be to mainly just grab share because they will be much more expensive? Or are you also planning to leverage pricing? Has that gap becomes so wide now out there?
Massimo Battaini: Yes, it's a complicated answer because the tariff -- due to tariffs, first of all, been only applied to imported cables in the aluminum space. We expect the same treatment, the same approach to happen from December onwards where also for copper products imports, there will be the same logic. So the metal content of cable or copper cable import in U.S. will be charged with the same 50%. So -- but this still has to happen. Our interaction with the administration suggests that also for the copper space, this will happen. Should this happen, we'll have Electrification, Power Grid overhead, high-voltage businesses, where we see our position in the U.S. strengthened by the fact that importers have additional cost to live with, to bear with. Some of those importers decided to eat this cost to digest it. So they didn't increase the price. By now, after 3 months, we noticed the attitude or the chance to hold the same price and getting charged with is 50% of metal content and on top of country is becoming; too overwhelming for them. So we expect to see a reduction of imports of cables across the board for all importers in U.S., in high voltage, low voltage, medium voltage and electrification. So this reduction of supply to the U.S., driven by the extreme cost impact due to tariff will certainly create some imbalance in the market. So we think that the first immediate benefit will be the share of wallet. It is too early now to say whether on top of the share of wallet, we also have a price benefit. But be reassured that every time we had a chance to increase price and to improve profitability without losing share in the market, we go for it as we've done in the last 9 months. The market was not that strong, but we haven't seen a particular EBITDA margin erosion in any space in the United States, despite tariffs were not in favor of local producer. So price we will see. Certainly, share of wallet is within reach.
Daniela Costa: And moving to the question on transmission. I mean, as you've mentioned, you're pretty much there sort of at the 18% and there's upside, as you said, to the 18% to 20% or that you're comfortably in there in the 18% to 20%. But the backlog is not dramatically different to the backlog we had at the CMD. So I guess you had visibility on sort of like what the gross margin on those projects were. So can you elaborate what you changed in execution and whether this is something that we kind of see has more longer lasting? And in that case, what is the ultimate ceiling of transmission margins?
Massimo Battaini: To be honest, we also have to be more accurate in setting the target for '28. So the 17.8 today is based on standard metal. Should we base also the 18%, 20% target on the same standard metal, so the historical metal 10 years ago, we should naturally raise 18%, 20% to 18.5% to 20.5%. So in my view, the natural ceiling is 20.5% is the top of the range. It's the top of the range because it is true that the backlog is what it was 6 months ago. We've definitely been more successful or better -- sorry, more successful than anticipating in the execution, let me say. And some of the risks that were in our execution and that we quantify and we assigned to provisions didn't materialize or we handled them with lower cost than anticipated. So it's again back to this execution. The strong team, strong assets. So don't forget, we have now plenty of new assets. And the new Monna Lisa is a new super performing installation asset with different capabilities and Leonardo da Vinci. Alessandro Volta, the asset will join our fleet in December '26 has a different set of capabilities as well. So we have different tools for installing/burying cables underground. We have new factories. We have new vertical lines in Pikkala that has come to -- that came on stream at the beginning of this year. We have a new production line in Arco Felice. We have a fantastic new asset. Our cohesive team working with a strong focus on execution, and this is what has driven the significant uptake in EBITDA margin in quarter 3. And this has given us confidence that the 20.5% top of the range is also achieved over by 2028.
Operator: We will now take the next question from the line of Max Yates from Morgan Stanley.
Max Yates: Just my question is on capacity utilization in your Encore facility. So you've kind of mentioned there may be the opportunity to take share and take customer wallet share from -- as a result of the tariffs. So could you just give us a sort of indication of if 25% of the market is going to be challenged by these tariffs, how much can you ramp up your Encore facility in the next 1 to 2 years to maybe take advantage and knock out some of that competition that then has to put through higher prices. So where is capacity utilization and sort of how much room do you have?
Massimo Battaini: Our strategy is pretty simple. We have spare capacity in the range of 30% in Encore Wire. We are not there in idle wire because we like to have spare capacity. It's there to guarantee the service. But in case we need it to respond -- to fast respond to market demand, we can utilize the Saturday and the Sunday shift to expand this capacity and leverage this available at incremental output. Of course, in the short term, this will be the answer. But as soon as we see stronger structural demand growth, we will resort to the short-term action to gain share and then we back up this action with additional investment, which might take 12 months, 18 months, it depends on what we're going to do in terms of where we want to spend capacity. Of course, it would be [indiscernible] which line. So short term, we respond with the shifts -- available shifts on Saturday and Sunday to avoid to compromise in the long term, the service level, we will immediately activate the CapEx deployment to increase the structure of the capacity. So we are the only one with this benefit, thanks to Encore. We didn't have it in Prysmian because Prysmian run facility at full capacity on 7 days a week. And the same does the other -- the same to the other players in the United States. So with this opportunity, we can certainly leverage the tariff in a better way than the other people and hopefully to gain share in the market.
Max Yates: Okay. And maybe just a second question around what the competition are doing in North America? Because I guess when we look at Encore margins, they're clearly at very attractive levels. Obviously, your biggest competitor, Southwire is private, so it's harder to keep a track on kind of what they're doing. But when you speak to your sort of salespeople, what do they say about what the competitors are doing on capacity? How much availability do they have to ramp up? And are you seeing kind of new entrants or people expanding capacity that maybe you didn't see before given how attractive margins are now in this North America business?
Massimo Battaini: Yes. The margin attracted new entrants from outside are really not coming because of the challenge. So there could be new entrants from inside, I doubt it. The copper building wire market is in the hand of 2 players, Southwire and Cerro and the aluminum in the hand of us and Southwire, the rest are importers. So behavior in the market is pretty simple to define. Southwire is very disciplined when it comes to price. Of course, they are suffering more than in the past because they are too exposed to the residential market. They have a significant exposure to residential market. This market has been sluggish and flattish over the last 2 years. And so they're probably not enjoying what we've been enjoying on the contrary of our side because with the electrification space, again, from Encore Wire, we have a huge exposure larger than before to the nonresidential space. And on top of the nonresidential space market, we have access to data center, stronger than anyone else because we have a product range, very broad, large and complete, from telecom to Electrification, to Power Grid, to Transmission, which is unique, not common to a telecom player like Corning on Costco, not even common to Sourthwire. So they are disciplined. They always follow our price. Sometimes they are the first at price increase in the market. For example, in the last 2 weeks, we've seen copper increasing -- increases that forced us to increase the price, but Southwire anticipated us. They came with a price increase in the market first. So we are happy about the level of competition. Whether they have spare capacity, I don't know. But what matters to this market is the service level. So if you have gained so much share in the center space, is because we serve these demanding companies, the likes of Microsoft, Meta and so on with our 24-hour service. It is because with 3, 2 days spare idle capacity we can respond with massive output increase that other people cannot respond to. So we are well positioned to leverage now the settlement achieved by the tariffs in the market to leverage our strength, our portfolio and the asset of McKinney and gain additional share in the market.
Operator: We will now take the next question from the line of Sean McLoughlin from HSBC.
Sean McLoughlin: Can I just build on the previous answer. Maybe could you specify what kind of growth you've seen in data centers, maybe across the different divisions? And my second question is related to fiber, particularly if you could maybe split out the growth in Digital Solutions in the U.S. versus other regions. And particularly, if we're looking at fiber shortages in the U.S., what kind of positive pricing impacts do you expect this might have over the coming quarters?
Massimo Battaini: Thank you, Sean. In data center space, we've seen our revenues 9 months to date versus 9 months last year, doubling in value. And this is pretty much across 2 main spaces, Electrification, U.S. and Optical Digital Solutions U.S. So now in the optical space, 40% of our volume -- trade volume in U.S. belongs is for serving this data center business. And in Electrification, I say that we have 25% of the total Electrification business, I&C business U.S. attributed to the data center expansion. This is not the same that we've seen in other regions yet. We are still working in Europe, in LatAm and APAC to become more relevant, to become more engaged with the go-to-market with a proper supply chain to win more share in data center space also as well. As far as fiber is concerned, you are totally right. There is a shortage of fiber in U.S. to the point that we are really backfilling our capacity in the U.S., we have a factory in U.S. producing fiber with fiber production coming from Europe, price improvement happening -- has happened in quarter 1. Quarter 2 is happening as we speak. And so we count on this pricing and profitability enhancement in the coming quarters to set a new level of EBITDA for Optical Digital Solutions business U.S. next year.
Operator: We will now take the next question from the line of Monica Bosio from Intesa Sanpaolo.
Monica Bosio: I hope you can hear me. The first question is on -- from a strategic standpoint, Massimo. If I'm not wrong, in occasion of a recent interview, you anticipated that Prysmian could be ready for a big acquisition in 2026 in LatAm or Europe. Can you please give us more flavor on this side? And just a question, would you see as reasonable and external growth in the digital solutions space or in other areas? That's the first question. The second one is related to Sean's question in the Digital Solution space. So pricing is coming -- so what kind of margins could we expect on a steady state in the Digital Solution space and more in general, given the exponential growth of the data center, do you see any supply constraints or disruption that could bring to some stops and growth along the trajectory?
Massimo Battaini: Thank you, Monica. So yes, our position regarding M&A is the usual one. We consider M&A, the natural to top up our organic actions, organic plans. We think we are well positioned based on our track record of M&A to leverage additional opportunity. We will be ready for large ones. And by that one, that means something closer to the size of Encore from 2027 onwards, not in 2026. We have some more financial flexibility also in '2026 due to the disposal of YOFC shares, the treasury share. So we have still some room for minor midsize acquisition in '26. Another point is to work in identifying the specific targets, the one that we can start the highest level of synergies. And certainly, we are looking at North America, LatAm and Europe as main priorities to expand leadership, expand portfolio and become more relevant within the customer base. I didn't capture the question about the standard growth in Digital Solutions. You mean internal -- the organic -- so there is growth in U.S.A. in Digital Solutions, again, partly driven by the rollout of Fiber to the Home and also complemented by rollout of data center expansion. There is not that much level of growth in the other countries because they are much more advanced in the fiber-to-the-home implementation. France is almost at the end. The U.K. is almost at the end. Spain is made way too. So Europe will not probably give us satisfactory organic growth. North America will continue for 5 years at least to support organic growth of Digital Solution space.
Monica Bosio: Yes, my question was -- sorry, Massimo, my question was given the pricing that is coming in the U.S. in the digital solution, this could be a lever for further margin improvement. What you...
Massimo Battaini: Okay. So the margin was coming to the point of mind. We reached a 20% EBITDA margin. So I think it's the level we consider sustainable. There will be upside in U.S. There will be probably stability or slight reduction in Europe. So I would not bank on significant expansion beyond 20%, which is already very accretive vis-a-vis the past trend. Of course, there will be additional synergies that we want to leverage, thanks to the acquisition of Channell. Because now we own a satisfactory portfolio of connectivity products with the ones that we had in Europe, with acquisition that we made, a small acquisition that we made in Australia, the Warren & Brown and Channell. Now we can leverage the full portfolio and eventually further enhance the profitability of the business unit.
Operator: We will now take the next question from the line of Alasdair Leslie from Bernstein.
Alasdair Leslie: I had 2 questions on Transmission. So you talked about 2028. I was just wondering whether you could help us a little bit in terms of kind of calibrating how transmission scales up here in maybe the next 6 to 12 months? I mean how should we think about top line growth margins both in the balance of 2025, but maybe also 2026 as well? Any early thoughts there as consensus only has around 15% like-for-like growth in '26. It feels like maybe that's now too conservative? And maybe also just a little bit more detail around the phasing of capacity coming online, please. I don't know whether you can kind of update us on those lines of Pikkala. The first one, I think you highlighted again, that's up and running. But the second 1 maybe an update there. Can that be brought forward a little bit? And maybe if you can, what's the kind of run rate on that submarine cable now in Pikkala? I think you were talking about starting with 32 tons and wanted to double that. So where do we stand now?
Massimo Battaini: Your question is too detailed. I don't like to share all this stuff with -- not with you, but with the other people connected to the earning calls. I'll tell you a simple explanation what is going on. You draw a line from '26, '25 through 2028. You take the, let's call it, EUR 580 million EBITDA this year and take almost EUR 1 billion by 2026. This growth from EUR 550 million, EUR 580 million to EUR 1 billion is supported linearly by additional capacity increase across many sites. There is Pikkala with 3 lines. There is drone for HVDC interconnects with 3 lines. There is Naples with 1 additional line. There is capacity in Abilene, United States for HVDC capability. The capacity will grow linearly from this level of 2025 through 2028 from EUR 550 million, EUR 580 million EBITDA this year to EUR 1 billion. To complement this cable capacity across different submarine interconnectors, offshore and land interconnectors, you have the installation capacity that will grow hand in hand with the manufacturing capacity. So you draw this line, you can figure out what the organic growth for next year will be and for '27 and for 2028. Bear in mind that while we grow, expand the business organically with capacity and with expansion of installation capability, we also benefit from -- as we did in quarter 3 this year execution and better margins in our backlog. So move from the 17.8% margin today to 20%. I hope this clarifies the trajectory. And forgive me if I can enter into these tons kilometers details that really we don't like to share with our peers.
Operator: We will now take the next question from the line of Uma Samlin from Bank of America.
Uma Samlin: My first 1 is fairly short term. You mentioned that for Encore, you saw record margin profile in September and August this year. So what are you seeing in terms of Encore demand and pricing so far in October? If you could comment on that, that would be really helpful. And also for your raised '25 guidance, how much have you accounted for in terms of the tariff impact on I&C in Q4? And how should we think about this benefit going into 2026? That's my first one.
Massimo Battaini: The record margin August, September is certainly an important -- is certainly important trend in the market. It is not really related to the tariff to the reduction of imports related to the fact that there is clarity in the market about where the market stands in terms of tariffs. October is coming in with a strong volume with some pricing or margin pressure due to the cost of copper cost increase that has been kind of sudden and sharp. And of course, us supplier, all keen on passing into the market. So October is coming up in a nice way as well. The big chunk of the 2025 upgrade -- guidance upgrade comes from North America due to the strength in Power Grid and I&C but also it comes from Transmission business. So those 3 family of products, I&C North America Power Grid, North America and also Europe, to a certain extent. And transmission is what has driven the 60-meter increase in 2025 guidance upgrade.
Uma Samlin: Yes, super helpful. My second question is a slightly more longer term. Is that -- how should we think about the sustainability of the tariff benefit that you're seeing now? Do you expect to see further consolidation of the market? And what kind of long-term pricing benefit do you expect there?
Massimo Battaini: It is a million-dollar question because we've never been in a situation like this where finally the U.S. market is -- that's historically been super protected against importers will be even further protected. So give us a couple of quarters to really assess what the situation would be. I think that things went in the way we think that we go, there will be significant reduction on the imports of cable in U.S. in favorable of local producers. As said before, we have capacity available to respond to the sharp market demand. And we have a CapEx and capital allocation available to be released to support the organic growth of the market in U.S. As we've done in the past, we'll do in the future, the market becomes more solid, more protected in the end of a few players. It's already kind of highly consolidated. And we made the last moving consolidation with the acquisition of Encore Wire.
Operator: We will now take the next question from the line of Nabil Najeeb from Deutsche Bank.
Nabil Najeeb: My first question is on data centers. Your direct sales into data centers have, of course, been very strong. And I think you previously said that you're on track to double data center-related revenues. Can you give us a sense of how you might look at the overall opportunity within data centers? I wonder if you've got any thoughts on the share of data center CapEx, you can maybe capture across low and medium voltage cables as well as fiber and connectivity. And the second question is on the New York listing. Do you have any updates on your plans there? I think earlier, you wanted to focus on the integration of Encore and Channell, which seems to be well underway. There were also some headlines that pressed on a potential revival of these plans. So just wondering if you can comment on that.
Massimo Battaini: So data center, we've seen a significant growth in '25 or '24. We think that growth will continue. We have a visibility of long pipelines of projects and we become stronger and stronger, as time goes by because we add the innovative solution to our product range that can really benefit the data center. In the optical space, they require high-density cables with very compact standard diameter. And we just -- we cannot announce it today, but we have a breakthrough that we disclose to the market shortly in terms of size of fiber for compact cables for data centers. So we will be really benefiting from data center expansion. I think the growth, per se, will probably slow down because this year, we've seen a 150% growth over last year. So the pace of growth will probably slow down, but it still remaining -- this will still remain an important driver of EBITDA expansion and EBITDA margin increase in U.S., for sure, massively and also in other regions. U.S. listing is not an abandoned project. It's something that we parked for a few -- for the moment. I think you are correct. The integration of Encore is proceeding well. The Channell integration is also proceeding well. We will reopen the discussion in 2026. The project is extremely valuable to us. It will give more -- it will give us access to this company to many U.S.-based investors. So it is a priority for us. At the moment, we made the proper decision.
Operator: We will now take the next question from the line of Chris Leonard from UBS.
Christopher Leonard: Yes, hopefully you can hear me. Just digging in maybe on the margin differential again between North America and Europe. And I wonder Electrification division for Q3 if weakness in Europe was dragging margins down? And could you maybe speak to the potential for you to bridge the gap in the future and grow European margins? And is there anything in your strategy you're looking at to try and improve that? And maybe is M&A into '26 or '27 an avenue that you would pursue within Europe?
Massimo Battaini: Yes. You're right, there is a significant difference in and between North America and Europe. Why in other regions, for example, a time a similar margin to U.S. So -- but Europe is not one margin fits all. It's a strong margin in the Nordics, weaker margin in the South Europe. Now how to bridge this gap? We are trying to implement similar mindset as the one we have in Encore Wire, also in Europe. So to leverage -- or to value the service more than the other part of the factory. So to make sure that we become more appreciated by customer for the short-term lead time, for the short-term service than anything else. Differentiation in sustainability and innovation in this space is also important. We have guide to cover, and we are really working across all drivers -- fixed cost organization, factoring footprint and possibly consolidation of the market in Europe to bridge this gap. Bear in mind, there is a structural difference between the fragmentation of the U.S. market, which is minimum and the fragmentation of the European market, which is extremely large, both on customer side and supply side. But we are working hard to reduce and minimize as possible as we get. Hope I answered your question, Chris.
Operator: We will now take the next question from the line of Akash Gupta from JPMorgan.
Akash Gupta: I got a couple as well. The first one is the clarification on your remarks earlier. I think you said that Encore had all-time high margins. And clarification, is this all-time high since you acquired or in their history? And given question -- given in 2022, they made more than 30% EBITDA margin. So just wondering if you can provide some context to these record margins at Encore?
Massimo Battaini: Thank you, Akash. There is an important clarification of cash. Yes, you're right. This is not the all time ever. It's no time not since we acquired, it's no time since the level of EBITDA margin at Encore normalized, level of margin at Encore normalized after the spike in '22 and '23 towards the end of 2023. And since then, so let's say, quarter 4 '23 onwards, we had this kind of a stable EBITDA margin of 15% with some peaks and troughs, especially in 2025. So the EBITDA margin highest ever mentioned quarter 3 is the highest since quarter 4, 2023.
Akash Gupta: And my second question is on your guidance range. I think if you recall last year, you had a bit of softness towards end of the year in Electrification because of some weaker volumes in end of the year, which also continued in early this year as well. So just wanted to understand the framework behind the guidance range that have you incorporated a similar scenario as well for this year? And maybe if you can also talk about what will take you to the upper end of the range and what will need to happen to come at the bottom end?
Massimo Battaini: Yes. Thank you, Akash. So yes, you're right. Last year, we had a soft volume performance in November, December due to seasonality, but also due to some shortage in demand. October started very strong in volume. And we have visibility of a part of November. Don't forget that this is a very short-term business. We have weighted the month and we gained the orders of the month through the month itself. But prospect is positive, probably volume in October is the first reflection of some slowdown in cable imports, so that there is more demand for local producer. Volume is positive. We think that quarter 4 this year will also be extremely satisfactory versus quarter 4 last year. And so this expectation for quarter 4 I&C has played an important role in the guidance of a grid, but also the performance of Power Grid that at the global level, was in the quarter, 14% organic growth, by North America much more. And the growth we expect to see from North America in quarter 4 is in line with what we've seen in quarter 3. So also Power Grid U.S. has played its important role in convincing us to upgrade the guidance to a midpoint '24. And we think we will end up around the midpoint. So to be in the top part of the range we have to think of something that we don't think is realistic. So an extremely important shift change in the market to a local producer, importers decided to work away pricing going to a different level. So a scenario that we don't see realistic. So the tariff will play an important role benefiting us, but this will gradually kick in, in the market. So I don't see this spike possibly happening in quarter 4. Gradually, we will gain, as I said before, more share of wallet, more relevance and the importers will be neglected. They will be really considered the last resort also because they won't have the only leverage that they had in the past to enter the market, the price. The price will go because the cost they have to bear is immense. So this is how I see how we drafted the guidance and how I see we will end up vis-a-vis the different business movement.
Operator: We will now take the next question from the line of Alessandro Tortora from Mediobanca.
Alessandro Tortora: I have 3 questions, okay. The first 1 is on the Channell performance on a stand-alone basis. If you can comment a little bit on the organic performance of the company, but also the underlying profitability? This is the first question. The second 1 relates to the around EUR 3 billion net debt indication I got in the conference call. So if you can help understand the underlying assumption on CapEx and also, if you are assuming, let's say, significant advance payment in the last part, I may recall to the [indiscernible]? And then the last question is on the -- let's say, sorry, I don't recall lately, but if you can also give me some ideas on the tax rate level for this year because it was let's say, low in the 9 months and also on the level of financial charges.
Massimo Battaini: Channell benefits from the strong rebound of the telecom market. The Channell performance in quarter 3, 2025 is well ahead over quarter 3, 2024 as also North America, our performance in optical cable business, '25 is ahead of that of last year. The market has rebounded. So Channell benefited from organic growth -- benefited organic growth upside, but also profitability side, the level of EBITDA that used to be in the range of 40% in 2024 has risen to a more solid 43%, 44% for quarter 2 this year. So we had this twofold the benefit coming from Channell, which, again, given the strong demand of optical business, U.S. supported by use cases like data center and fiber-to-the-home, we believe that it's going to be sustainable in the coming years. I will hand over to Francesco for the NFP, and tax rate question.
Pier Facchini: Yes. The assumptions are pretty simple on the EUR 3 billion debt. First of all, let me highlight that the EUR 3 billion debt, of course, assumes -- is based on the treatment of the hybrid bond as equity, just to be very clear on that point, which is according to IFRS. So nothing new, but better to clarify. The assumption is that we are in the midpoint of the guidance of the free cash flow that Massimo highlighted. And of course, in this assumption, there is the down payment of AGL 4, no doubt. By the way, I commented that the reason why we are confident to recover the level of the free cash flow on a full year basis after the drop down to EUR 859 million last 12 months, September is exactly a very strong cash generation of Transmission business, which is more skewed on the fourth quarter than compared to last year. Nothing else on the extraordinary transactions which has been completed. And so this will not impact -- will not have a different impact from the one that you see in September. You are right. The tax rate is very low. The reason why it's very low is a technical reason, I would say, an accounting reason, which once again has to do with the disposal of YOFC, basically, the big gain of EUR 350 million has a pretty low level of taxation. And so I expect this to be stable also in the full year around 22%. It's a good point that you make because it's not certainly our sustainable long-term rate, it would be too naive to be true, Yuri. I go back to the indication that I gave at the Capital Market Day where our sustainable tax rate is more in the -- between 25% and 27%, I would say. And the financial charges are reflecting, obviously, the acquisition than in the past. The new financing are progressing quite steadily at EUR 70 million, EUR 70-something million a quarter. So an easy projection is in the region of EUR 285 million, let me say, between EUR 280 million to EUR 290 million for full year versus the EUR 216 million year-to-date September.
Operator: We will now take the final question from the line of Xin Wang from Barclays.
Xin Wang: I'm not sure if I'm the only one confused here, but I want to clarify one thing. So on the tariff impact, I think you explained how the aluminum tariff works, which is in July, it's applied to metals, not to cable. Therefore, you saw cost pressure in July. And then by 16 or 18th of August, is expanded to cables and you saw the best margin of Encore. And then you said we expect the same logic to apply to copper. Does this mean that we haven't really seen the tailwind from the copper side this quarter yet? And do you expect this to come in the coming quarters, please?
Massimo Battaini: Yes, you are totally correct. The 232 section tariffs applied to metal has been expanded to import cables as far as aluminum cables is concerned from 18th of August, and our interaction with the administration suggests the same logic will apply to copper. This will probably take another quarter to be implemented. So we expect this to happen from somewhere in quarter 1, 2026 onwards. Then, of course, the copper space is not that relevant as aluminum space. So 80% of the aluminum I&C market is in the hand of importers. In terms of copper wire market, they are barely importing copper cable in U.S. in electrification, in I&C, but there are cable imported into the U.S., copper made in middle-market space and by distribution in HVAC. So we will not see a significant benefit of the total tariffs applied to import cables in I&C space, we will see some benefit in Power Grid and high-voltage should this approach be implemented at some point in the coming months. I hope I clarified the difference between the 2 family of products, aluminum and copper.
Xin Wang: Yes. No, the first part is very clear. The second part, I just want to clarify, this is what I heard. Potentially, when we look at the benefit from copper and aluminum tariffs being on the I&C front or the Power Grid or Transmission front, you expect aluminum imports to be a more structural benefit that takes some time to flow through. Obviously, part of that is because aluminum import penetration is higher than copper and also is less exposed to the spot market.
Massimo Battaini: Yes, correct. So the aluminum space -- I mean, aluminum cables are lighter than the copper cable. That is why U.S. is importing as other regions are importing more aluminum cable than copper cables. The aluminum space is inside the electrification space and that's the construction. The aluminum cables are also inside the Power Grid. For example, overhead lines are mostly made of aluminum conductors. And so a chunk of our transmission business that we own in U.S. compete head-to-head with importers bringing overhead transmission line from India, from China and other countries. And now also these importers that entered into the Power Grid space through overhead transmission line will feel the extra cost of the 50% tariff applied to metal content. And the conductor lines is only made of conductor, not insulation. So there are other benefits to come through. But again, I really suggested to pause a bit on tariff, it's not too big of a deal. We just had finally settlements in aluminum that will be copy pasted by copper approach in the next months, we will really need a few months to gauge the entire benefit. But be aware that we are really structurally poised to benefit from it. We have capacity available. We have a larger engagement with all major distributors and utilities in the U.S. So we have a strong connection with all customers. So we will be the beneficiary of the tariffs in a way or the other. And this is already starting to open in August and September for the I&C space, and this will carry on in the future.
Xin Wang: It is very clear. We can totally afford to be a little bit more patient. My last question is on the high-density fiber cable and system. You talked about the opportunity out there because your peer Corning obviously is also talking about the same thing. I know you have made a technical breakthrough. But you -- but do you -- can you already share some thoughts on if there is any customer dialogue starting already? Or how do you think about the investment that is required out there? And on top of this, I think you made progress with Channell acquisition, but you previously also said you intend to grow -- to expand the portfolio offering on Digital Solutions. Do you have any progress to share, please?
Massimo Battaini: So we keep working on innovation and Corning does the same, of course. So we have extremely -- we think that we have at least two breakthrough vis-a-vis Corning, but please don't make me share what we think of the other competitors. We have strong effort in innovating in fiber making very thin fiber solution and very compact cable solution. We're working on the local fiber, which is a new generation of fiber to increase speed of transmission of data, which is key for data center rollout. And we're working on very super compact cables that is also key for data center because there are little spaces in ducts, and they want to squeeze as many fiber as possible in the short space. So innovation is our key driver of profitability and volume and share enhancement in Digital Solutions space. You mentioned also Channell. Channell give us a range of products in connectivity and is completely complementary to that we are in Europe. And so now we will do a cross-selling. We would like to use the Channell product and sell them in European market using our go-to-market channels and do the opposite, the complementary use in our European portfolio connectivity and bring it to U.S. benefiting from the Channell to the market that Channell has. So the go-to-market Channell, Channell is go-to-market that this company we acquired has, which we didn't have before. So cross-selling our connectivity ranges, European one in U.S. and U.S. one in Europe is what we expect to deliver to our EBITDA in the coming quarters.
Operator: We will now take the next question from the line of Luigi De Bellis from Equita SIM.
Luigi De Bellis: Just one quick question for me. Could you share your current strategic view on the submarine telecom business? So are there any plans to renew the interest in expanding or investing in this area, considering market trend or potential synergies, if any, with your existing transmission and telecom activities, but also different business model, if I'm not wrong, so if you can share some view, please?
Massimo Battaini: Let me share what I can because talking about strategy -- strategic decision, I cannot share much. We have a business inside the Transmission space, that is a telecom submarine. We are a small player because we can only play in regional connections, so short length, submarine telecom connection. We noticed that the market has certainly increased a lot in size because the data center expansion plays a significant role in expanding the market between -- especially in terms of long-haul submarine telecom interconnects, so planting interconnects between U.S., Europe and so on. Some players, the key players in the market have neglected the regional space. So we are thinking of expanding our presence in our portfolio in the regional, so short distance, midsized, short distance submarine telecom connection through organic moves and additional investments. I have to stop here. But we want to make this another opportunity for supporting transmission growth with another stream of revenues, more solid and more growing than what we are currently in our portfolio. I hope I gave you the sense of the strategic direction without giving too many details.
Operator: There are no further questions at this time. I would like to hand back over to Massimo Battaini for closing remarks.
Massimo Battaini: So thank you for your time and for your attention. We really want to give the sense of what's happening, a strong quarter and by more than some quarter a good selling for quarter 4 and what we think is going to turn out for us an opportunity in terms of Channell, organic growth, transmission growth in the coming quarters. So thank you very much for your time, and talk to you soon.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.