According to the most recent estimates by the International Monetary Fund, the global economy is expected to grow by 6.0% in 2021 after contracting by 3.3% in the previous year. These estimates represent an improvement compared to October, when the decline was expected to amount to 4.4% in 2020, followed by expansion of 5.2% in 2021. This improvement reflects the faster-than-expected growth in the second half of the previous year for most countries following the easing of restrictions. In addition, the stronger forecasts also reflect expectations of positive effects on growth due to the execution of the vaccination plan currently underway in many countries.
At the geographical level, the United States — with estimated growth of 6.4% — are expected to return to the levels of activity seen at the end of 2019 as early as this year, whereas in the Eurozone and the United Kingdom this recovery is expected to occur in the following year. The Chinese economy — the only major economy to close 2020 on a positive note (+2.3%) — is expected to pick up pace, with estimated growth of 8.4% in 2021.
In 2020, the extraordinary impacts of the Covid-19 pandemic also had an effect on the Prysmian Group’s results, above all in businesses relating to the construction sector (Trade & Installers) and characterised by significant installation activities. The gradual recovery of business, accompanied by timely cost management, an extremely flexible supply chain and a highly-focused level of customer service, enabled management to protect the Group's performance and limit the impact of the pandemic on the Group’s margins.
These positive trends were consolidated in early 2021, with the Energy business exceeding pre-pandemic levels in terms of both volumes and results and with Telecom volumes up considerably at the global level, although there remains a high level of uncertainty, exacerbated by the effects of the pandemic on the availability and prices of raw materials.
Within this macroeconomic scenario, Prysmian Group expects that in 2021 demand in the construction and industrial cable businesses will recover compared to the previous year. In the submarine systems and cables business, the Group is committed to confirming its leadership in a market that is expected to grow, in 2021 and in subsequent years, thanks to the development of the offshore wind farms and interconnections required for fostering renewable energy in support of the energy transition. With regard to this segment, the Group expects an improvement compared to the previous year’s results, with a more marked growth starting in 2022, when also the German Corridors projects will reach a more advanced stage of execution. In the Telecom segment, the Group forecasts an increase in volumes of the optical cable business in North America and Europe and a persisting price pressure, particularly in Europe. According to estimates, this could generate a decrease in margins, despite the action plan implemented to contain cost and improve production efficiency.
Prysmian Group continues to pursue long-term growth drivers mainly relating to the energy transition to renewable sources, the upgrade of telecommunications networks (digitalisation) and the electrification process. The Group may also rely on broad diversification by business and geographical areas, a solid financial structure, an efficient, flexible supply chain and a lean organisation — all factors enabling the Group to face the emergency with confidence.
In light of the foregoing considerations, the Group confirms, with renewed confidence, the guidance announced in March 2021 calling for an Adjusted EBITDA within a range of €870-€940 million in 2021. In addition, the Group expects to generate cash flows of approximately €300 million ± 20% (FCF before acquisitions and disposals) in 2021. These projections are based on the absence of significant changes in the evolution of the health emergency and of possible further discontinuities and slowdowns in the global economic activities. In addition, these forecasts are based on the Company’s current business scope and do not include antitrust-related impacts on cash flow. In 2021 as well, the translation effect resulting from the conversion of the subsidiaries' results into the reporting currency used in the consolidated accounts is expected to generate a negative impact on the Group’s operating income for approximately €20-25 million.
The (expected) cumulative amount of the negative impact of exchange rates in the two-year period 2020-2021 is estimated at around €55 million.