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In 2018, the global economy grew compared to the previous year, despite the emergence of signs of cyclical deterioration in many advanced economies and emerging countries. In the Euro area, growth slowed down as of the second half of the year, partly due to financial instability factors but also to the deterioration of companies’ expectations and the weakness of demand.
The US continued to show a robust growth rate, driven by internal consumption and investments. Amongst the main emerging economies, in China the slowdown of economic activity, which started in early 2018, continued also in the last months of the year, despite the fiscal stimulus measures introduced by the government. The consolidation of such trends seems to be confirmed in early 2019, and some economies are expected to worsen.
The expansion of international economic activity is indeed hindered by multiple uncertainty and risk factors: the consequences of the negative outcome of the US-China trade negotiations currently underway, the rekindling of financial tensions in emerging countries, the decision, as yet to be finalized, on how Brexit will take place.
Within this macroeconomic scenario, Prysmian Group expects that FY 2019 demand in the cyclical construction and industrial cable businesses will be slightly higher than in 2018. The medium voltage utilities cable business is also expected to show a trend of moderate recovery, with uneven performances at the level of the various geographical areas. In the Submarine systems and cables business, Prysmian Group is aiming to reaffirm its leading position, also in light of a market that is expected to remain stable at the levels of 2018. The results of this business will be positively influenced by the recovery of the negative effect of the Western Link provisions (Euro 95 million).
At organic level, said results are expected to decrease in 2019 due to the limited collection of orders in 2018. In the High Voltage Underground systems and cables business, the Group expects virtual stability, with a gradual improvement in expected performance in China and South-East Asia due to the new manufacturing set-up.
Finally, for the Telecom segment the Group expects that growth will remain solid in 2019, driven by the increase in demand for optical cables in Europe and North America, whereas a slowdown is expected due to a reduction in volumes on the Australian market. The effect of converting subsidiaries’ results into the consolidated reporting currency is assumed to be neutral on the Group’s operating performance. In light of the above considerations, the Group expects to achieve an adjusted EBITDA for FY 2019 in the range of Euro 950-1,020 million, significantly up compared to Euro 837 million reported in 2018 (which included the Euro 95 million negative effect of the Western Link project). Estimated synergies that can be achieved in 2019 amount to Euro 120 million (Euro 85 million incremental in 2019). Moreover, for 2019 the Group forecasts a cash flow generation of approximately Euro300 million, with a foreseeable maximum fluctuation of 10% (FCF before acquisition and disposals). This amount includes the planned cash outflow of Euro 90 million for restructuring and integration activities.
2019 objectives do not include further impacts of the Western Link project and do not take into account the effect of the implementation of IFRS 16. Moreover, the cash objective includes the negative effect of the Western Link criticalities occurred on 19 February 2019, and does not take into account any impacts from the dispute with the Brazilian Antitrust Regulator.
Prysmian Group continues to optimise its organisational and production structures with the aim of achieving by financial year 2021, a level of cumulated synergies generated by the integration of General Cable of Euro 175 million (compared to Euro 35 million realised at year-end 2018), a higher amount compared to the previous target of Euro 150 million by 2022 and one year ahead of initial expectations. This forecast is based on the Company’s current business perimeter.