Prysmian S.p.A.

Valerio Battista - CEO Massimo Battaini - SVP, Oil & Gas Pier Francesco Facchini - Chief Financial Officer

Sean McLoughlin - HSBC Andreas Willi - JPMorgan Max Yates - Credit Suisse Michael Kaloghiros - Bank of America Merrill Lynch Lucie Carrier - Morgan Stanley Monica Bosio - Banca IMI Alessandro Tortora - Mediobanca

Thank you very much and good afternoon to everyone. Welcome to the conference call on the first nine months of 2016 financial results of the Prysmian Group.

First of all, few highlights on the first nine months. Adjusted EBITDA that closed at €527 million, 9.3% on sales, margin expansion in all the businesses, except obviously Oil & Gas.

The focus on cost efficiency and the relevant manufacturing footprint optimization is going on. This year, more or less, we're going to close four plants, more or less in line or slightly better than the previous years, we will see later.

Organic growth organic growth has been 1.8%, despite the difficult market or a slightly difficult market in the third quarter. That has been driven by the solid trends of the telecom business and the energy projects.

Net financial position €1.017 billion comparable with the €822 million, if we exclude the OCI and Gulf Coast acquisition. Let me remember that we invested €220 million cash for those acquisitions.

The LTM, the 12-month free cash flow has been in line with the previous year at €302 million, not so bad, could have been better. Let's flip to Page 4, key financials.

Sales, € 5,660 billion comparable to the €5,569 billion of the previous nine months one year ago, with an organic growth of 1.8%. Surprisingly, the numbers are very similar, but we have to consider that the capital price went down in those 12 months, roughly $1,000 per ton and obviously that's deflate dramatically in the turn out.

But the EBITDA results consequently have been better. €527 million you see in the first nine months for 2016 versus €473 million one year ago.

The €473 million had been helped by €24 million upside coming from the release of the provisions for the Western Link project, whereas this year, we have been able to conduct €28 million contribution in term of EBITDA coming from the acquisition of the majority stake of consolidation of OCI. You can see that the margins that are at 9.3%, progressively growing after Draka acquisition year-after-year and going back to the roughly 10% which is historical record of the Group.

Networking capital for the first nine months closed at €701 million. That, excluding the OCI, especially working capital could have been seen at €490 million versus the previous year at €607 million.

So, there is an increase because of the real numbers about €607 million versus €701 million, but it must be an increase due to the consolidation of the OCI. Net financial position as a consequence of it, partly, is €1,017 million versus the €955 million of the September 2016.

Apple-to-apple, without the acquisitions of the two companies, the net financial position should have been €823 million, but it's a theory, the practice is that we're at €1,017 million. Flipping to Page 5.

Page 5 says that, in terms of EBITDA margin, we have seen an improvement of the margins all over the businesses with the exception of Oil & Gas. That's very clear because energy projects went up from the 15.4% last year that has to be read as 13% without the €24 million of Western Link write-up of the foreseeing losses of the provisions to 14.6%.

E&I, E&I is up slightly from 4.5% to 5.4%, thanks mostly to two effects; one is the OCI consolidation that has better margins than the rest of the E&I of the Group and the second one is obviously that we reduced bit of sales that you see it in the organic growth that is minus 1.9%, we reduced the part of this savings in the very low margin markets and customers. Industrial & Network Component went reasonably well in term of EBITDA margin, 9.3% comparable with the 8.1% of the previous year.

Oil & Gas compared quarterly has declined significantly from 6.2% to 4.1%. So, Oil & Gas stays as one of the significant issue we have in our business segment in term of profitability.

Last but not least, the telecom that is really ramping up from 12.6% to 14.9% this year, so increasing the EBITDA margin which at the same time the effects are having absorbed, the effect of the OE Chapter 11. Without it, the margins would have been 15.8%.

That seems to be even too high, frankly speaking, but it is what it is. Next is, overall the compounding 9.3% comparable to the 8.5% of the previous year.

So organic growth limited 1.8%, but quite significant improvement of demand. In term of EBITDA, the euros, the Energy Projects went up from €153 million to €172 million, an extraordinary performance.

That is very important in term of organic growth 21%, almost 21% and consequently also in term of performance. Moreover, if you consider that without the write-up of the Western link project last year, the comparison comes from €129 million.

E&I went up from €99 million to €123 million with a negative organic growth of 1.9%, but having enjoyed the OCI contribution of €28 million. Industrial & Network Components, with an organic growth negative of 2.5%, that I was commenting before rose a little bit EBITDA from 92% to 95%.

The organic growth is negative also because we decided deliberately to cut the sales in certain markets in certain customers, similarly to what we're doing within E&I, cutting sales with very low margins. The specific data we're talking about certain customers into the Chinese market.

Oil & Gas, no way, minus 31.6% organic growth and a sharp decline of the EBITDA from €21 million to €9 million. Finally, Telecom, very good organic growth, once again that is a more stable trend business with 8.4% organic growth and the EBITDA that moved up from €106 million to €129 million.

Overall, the organic growth, as I said, is only 1.8%, but is -- 1.8%, it is the same of the first half. Obviously, not so bad, considering that the third quarter has not been our very buoyant quarter.

Page 6, in the meantime, as you know, we're progressing in our rationalization after the acquisition of Draka, in reality one year after. And as of today, we have been able to close and shutdown 15 plants.

We've started, if you remember, with 98 plants as of beginning of 2011 at the time of the acquisition. Today, we have 85 plants after having included the two plants of OCI, respectively the Heboplant and the plant for aluminum.

The game is not over. I see a further, not acceleration, but a further action to be done that in my opinion mainly is to reach a number in the range of 20 to say that the game is over.

Let's flip to the segments, Page 8, Energy Projects. Energy Projects is an extraordinary growth with almost 21% organic growth moving from €993 million to €1,172 million.

That's driven mostly by submarine but even the high voltage [indiscernible] reasonably good systems. We have seen in the submarine strong revenue growth, thanks to the execution of the projects we have in hands.

We're progressing pretty well on the Western Link installation. It is expected to be completed by the summer, end of the summer next year.

That's the goal. The investments in execution capability of the installation assets is giving us a better margin in term of project execution because obviously we have more in-house assets and capability to execute projects.

Finally, we expect revamp of the order intake, because 2015 has been a very good year in term of order intake. 2016 is going to be the year of execution and 2017 hopefully seems to be another good year of order intake.

High voltage, the [indiscernible] high voltage for the time being is based on this traditional business to which has been [Technical Difficulty] 2016 and partly 2015, the France-Italy is definitely large project. We're executing now with no major issues.

It's going to be completed next year and we expect something has to come, mostly on the underground high voltage. We expect that the super link to come, but it will be most probably other income of 2018.

Other regions and markets like North America, APAC, Middle East is going not so bad. And last but not least, I expect that Russia will come back next year or in the next years.

Energy Infrastructure; Energy Infrastructure is the most challenging business as you know. The organic growth has been negative for 1.9% and this was due only to €125 million despite the acquisition of OCI.

The margins on the contrary has been better because OCI enjoys better margins than the rest of the business. The adjusted EBITDA on sales closed at €123 million versus €99 million of the previous year, with €28 million contribution from OCI.

Some of you will say that the contribution of OCI was expected to be higher; that's true. We have to say that OCI has a seasonality that is differentiated in the first and the second half, especially OCI has traditionally a better first half than the second.

In particular, last year, OCI gave us good contribution from ORP, a subsidiary that produces aluminum that obviously is not repeatable -- was not repeatable this year before it was a matter of aluminum premium that obviously went down -- went back to the historical level. So, we do not expect to be repeatable and we were not expecting this year to have such a high contribution as it has been last year.

On the other side, obviously, OCI is right how suffering a little bit of the decline of the demand in the Middle East market for the construction market, simply because the oil price and the threat of VAT and other taxes to be introduced in the region are pulling a little bit the grade into the markets and the investments. On the other side, trading still is not brilliant in Europe.

It's still good in North America, it's almost a disaster in South America. And Central East Europe is even reducing the speed quite significantly.

On the power distribution side, the trend is not so bad. We have seen, as foreseen -- exactly as it was foreseen at Q3, that is definitely lower than the first half.

That's because of the Central Europe, especially Germany where the investments driven by the expected increase of the tariffs in the distribution price had been completed. Now there is, in my opinion, one year of stability in term of volumes back to square one, back to the traditional reduced level of the speed for the power distribution, especially Germany.

We have to wait, probably some quarters before to see again acceleration of the power distribution. On the other side, power distribution is going very well in the Nordics.

It's growing pretty well in U.S.. It's ramping up and accelerating in Asia.

Margins are not exciting in Asia, but especially Indonesia is driving a quite significant acceleration of the demand. So, let's flip to the Industrial & Network Components.

Industrial & Network Component closed the nine months with €1,021 million and mostly is down from the €1,137 million of the same nine months one year ago, with an organic decline of 2.5%; not very good. On the adjusted EBITDA, vice versa, went up from €92 million to €95 million, with an EBITDA margin going from 8.1% to 9.3%.

Now, obviously on the sales, there is an effect of the capital price or the metal price, by the part of it, we have recurrent trends in the different subsegment of Industrial & Network Components technically. Specialties and OEM went not very good and declined a little bit.

That's mostly because we decided to reduce the exposure to a renewable in China because the market was really so demanding in term of prices that we decided to not to participate anymore with the big volumes we were selling in the previous quarters. Elevator is doing very well, it's improving.

Automotive is slightly improving also because we have closed one plant, a significant plant for automotive in high-cost countries in Europe and we have started to produce in lower cost countries. There is still a long way to go but automotive in this quarter has improved a little bit margins compared to the same period of one year ago.

Finally, network components following the HV trend, the HV progressive trend have delivered better margin than the same nine months of the previous year. Oil & Gas; Oil & Gas posted sales for €225 million versus €331 million of same nine months one year ago with an organic decline of 31.6%.

That is very, very healthy. The adjusted EBITDA on sales -- EBITDA, sorry, went down from €21 million to €9 million only.

As of today, the EBITDA margin of Oil & Gas is similar to building wire just [indiscernible]. Next slide, let's look more in detail today, two subsegments, the SURF.

The SURF has been the resilient part of the Oil & Gas with umbilicals and DHT. Resilience, let's say resilient, obviously umbilicus went down because the investments in Brazil has been reduced dramatically, but not so much has could have been.

Obviously, we have been obliged as you probably know to assert a new frame concept with our customers in Brazil with lower prices and lower volumes too. The DHT has been almost stable, but we took over and introduced the Downhole Technology.

Consequently, it's not positive at all. The core oil and gas cables, the real cables of the oil and gas for the oil and gas industry have seen the continuous decline.

There are no projects. The projects, if any, are at very, very competitive lower priced.

Consequently, restructuring, restructuring, restructuring, that's the way we're going, we're approaching this part of the business. The sole positive sign is that the organic decline of the Oil & Gas in the Q3 2016 has been a little bit lower than the previous quarters, also because obviously the comparison is easier.

Of course, last year in the second half, the market for us went a little bit down. Consequently, starting from the third quarter and fourth quarter, we expected to see a lower decline in the trend of this business.

Telecom; the other good chunk of our businesses. Sales of €865 million versus €847 million last year, with an organic growth of 8.4%.

The adjusted EBITDA on sales -- sorry and percentage of sales has been €129 million comparable to the €106 million of the first nine months 2015. As you can see, the EBITDA margin of 14.9% is an excellent level of profitability.

That, without the OE Chapter 11, could have been 15.8%. That seems to be even too high level of margins which are the pros and cons of this business.

The pros is that, the business is growing. It's growing almost everywhere in the world, with U.S.

growing very well, Europe not yet except France, at least for us. Rest of the countries have not yet taking off, but we expect they do.

Australia is doing very, very well and that's the cons, because obviously it can't be forever, but still one year to go in our opinion. Finally, the fiber effect is quite important.

Here, the investments and technological actions we launched three years ago for the fiber capacity revamp in term of competitivity are paying off -- are really paying off. The fibers are much more effective in term of production and in term of cost effectiveness and that is giving better margins to the cables and to the systems.

Everyone is short in capacity of fiber and that's a good sign. For the time being, we see a possibility and we're acting in order to do it to raise a little bit price in U.S..

We have not yet into long term contracts and the -- even the some stupid competition, let's say, to be able to raise the prices in Europe, but it is what it is. MMS is continuing to progressively grow.

It could be even better. Frankly speaking, we're short in capacity even there.

Our MMS division is performing very, very well in Europe, it is performing reasonably well in Asia, could be bigger in term of sales because the demand is there, unfortunately we have no capacity. We have completed the acquisition of Corning [indiscernible] 24/7 executing the orders of our customers.

So, not so bad, but the problem is that the capacity today is not [indiscernible]. Outlook; we confirm the outlook we gave at the end of the first half.

So, in the upper part of the range we gave to the market, that was a €670 million to €720 million, with a midpoint of €695 million I told you in July, we're looking for a number that's up to €700 million, how much higher than €700 million, it depends on the market, that's not depend only from us, depends largely even from us, obviously. But, I confirm that has to be retained with €700 million.

Not very, very in the high range because in the third quarter, we have seen some sign of weakness in certain business, mostly in the business that we don't like very much because of size of this business but depends largely, that's my opinion, of the uncertainty in the political and economic uncertainty around the world in the big economies. Today, we're going to have the U.S.

election and we will see what's the reaction of the market will be. As you can see, from €623 million to €700 million, let's see €700 million just a random number, the contribution came from Energy Projects, from Telecom, first of all, from the new perimeter CI, from the efficiency that is continuing to pay off, whereas the adverse comes from E&I, little bit, Oil & Gas, significantly and forex, the exchange rate that penalize about for us or is going to penalize year-end for roughly €20 million.

That's all, thank you very much. I'll leave the floor to Francisco for the details on the financials.

Good evening to everybody. Big 16, just to wrap up our profit and loss statements, as Valerio said organic growth 1.8%, exactly in line with the first half, with likely different mix, meaning an acceleration -- even an acceleration in the Telecom business which give you over 10% in the third quarter, a steadily strong growth in the Energy Projects business and the slightly softer trend in the Industrial & Network Components and in the Energy & Infrastructure and persisting weak market in the Oil & Gas.

Adjusted EBITDA recorded a margin expansion across all the businesses, with an adjusted EBITDA on sales of 9.3% from 8.5% in the prior year, with the exception in terms of margin growth of Oil & Gas. The third quarter was reasonably stronger, with an adjusted EBITDA of €180 million versus €159 million in the third quarter of 2015 is a plus €21 million, mainly coming, I would say, -- entirely coming from Energy Projects and Telecom.

The growth year-to-date from €473 million to €527 million which is a total €54 million growth as you see came roughly one half, €28 million from the incremental contribution of OCI consolidation of results. The remainder €26 million, once again, entirely from Telecom, Energy Projects, compensated on the negative side by a drop of EBITDA in Oil & Gas and broadly stable EBITDA in the Energy Projects sector.

The adjusted EBIT grew as well by €34 million from €364 million to €398 million, lower than the adjusted EBITDA. The only reason is D&A, depreciation and amortization growth which is entirely related with OCI position.

It is actually the effect of the purchase price allocation that we have performed on the purchase price of OCI. So, the rest of the D&A is absolutely stable compared with prior year.

In terms of net income, the Group net income, we're reporting quite significant improvement from €141 million in the nine months 2015 to €188 million. And apart from the growth of the operating results, this is also driven by a very steep decline in the financial charges from €77 million to €58 million and an improvement -- a slight improvement in the tax rate that we estimate now for the full year at 28%.

We can flip to Page 17 to comment the adjustments on the EBITDA and on the EBIT. You see that restructuring charges are slightly lower than the prior year, €27 million versus €32 million, actually roughly €20 million of this €27 million, €19 million to be sector related to plant closures.

All announced mainly in France, the Netherlands and Denmark. Page 18, financial charges, as I said, sharply down.

The relevant line is as usual here the net interest expenses which is down by €15 million from €59 million to €44 billion, with an expectation for the full year of this line, net interest expenses, around €58 million to €60 million versus €73 million on the previous year. So, once again, a very significant decline confirmed for full year and the effect here is the big benefits coming from the Eurobond issuance last year in the second quarter last year, €750 million bond issuance which financed significantly more expenses, hence, these are the results that we're seeing.

Page 19, the balance sheet, the increase in the net fixed assets are entirely resulting from a new perimeter acquired, meaning OCI for €350 million approximately. The increase of operative net working capital versus September is limited to €90 million from €607 million to €701 million.

That you see the perimeter impact is over €200 million, so meaning that excluding perimeter changes, we actually reached decrease in working capital of more than €100 million. This is very good.

It is mainly coming from the metal price which is helping us this year and which actually came into place mainly the fourth quarter last year, year-end comparing September to September and then a quite good stock decrease versus September of the prior year. You see clearly that the working capital increase versus December 2015 is quite big as usual.

Order of magnitude €300 million and this is mainly coming from the working capital swing our Energy Projects business. NFP is absolutely in line with our expectations, likely above the €1 billion and with the target our below one-time leverage in terms of NFP on EBITDA for year-end.

Cash flow on Page 20, the good news is that as Valerio already commented, last 12 months September is still about €300 million threshold, meaning quite in line with half one last 12 months free cash flow. The nine months free cash flow is negative for €145 million versus a negative of €50 million last year.

Much stronger contribution coming this year from the operating profitability that you clearly see in the line cash flow from operations is offset by the much larger working capital swing once again related mainly with the Energy Projects business. For the fourth quarter, we anticipate cash flow which is mainly slightly lower than -- which is maybe slightly lower than the free cash flow that we had last year which was very much helped by the drop of the metal price that I mentioned, but is in line with our expectations and will drive the NFP where we expected to be.

I think we can move on to the Q&A.

I have three questions. The first is my usual question on the organic growth.

In the nine months, your organic growth was 1.8% which was a little bit better than my expectation. Can we expect the similar growth trend for the full year with the similar patterns for the different business units?

And the second question on submarine, given the pickup of the offshore windfarm projects and considering also the different deal, it seems that the submarine market is still growing. So, I was wondering if the threshold of €1 billion revenues will be exceeded and if you're going to invest in capacity production going ahead?

And last question, the third question is on Telecom. I was wondering when do you feel that Europe might start to benefit from the general plan in Telecom and might start to contribute to Prysmian's results in Telecom?

And a very last question is on the net financial positioning, if I've understood well, are you still confirming your target of net financial position of €650 million, is it correct?

Okay, Monica. Thanks very much for your questions.

I try to give you some answers. Organic growth of the first nine months, 1.8%, what we expect for the full year.

Basically, a number that is 1% plus. How much, as of today, is difficult to say.

But we see, you asked also for business units, what you can expect in the last quarter is an acceleration or a very high level of organic growth for the submarine projects. E&I will not be much better than it is today, maybe even lower.

Telecom, a slight reduction, going from 8.4% to something like 5% -- 4%. A slight reduction, because obviously there is a different seasonality and we don't see very much expected acceleration of Australia that may reduce a little bit of speed.

So overall, we think that may be a reasonable target something like 1%. Correctly speaking, I don't see any potential upside.

The growth should continue to come from projects and partly on a lower expense from Telecom. Second question you posted the project and submarine, I leave the floor -- I would like to leave the floor to Massimo.

So, the submarine situation. Yes, you're right, we're going to reach the €1 billion target by the end -- actually we're going to be beating this target by the end of this year, thanks to the full execution of the backlog that we have in our hands.

We will -- we don't -- there is a pickup in the market in the offshore wind park business, but this is balancing some slowdown in the interconnections. So, in the end, the market in 2016 is a little bit weaker than what we've seen in 2015 and weaker than what we're going to see in 2017, where there is an impact to the usual level of €2 billion, €2.5 billion.

This year, they're going to take -- is going public to be close to €1.5 billion, €1.6 billion, but you can take it as an average over the last three years or the four years, including those presenting, the average is still the same, €2.2 billion, €2.3 billion. So, I just want to make a point that we're not constrained by capacity or by a decision not to grow or to maintain the current level of capacity.

We're maintaining the current level of capacity, because we want to maintain our current level of market share which is 40%. But if the market -- should the market grow to €2.5 billion, €2.8 billion or €3 billion in a stable and steady way, we will of course consider the additional investment in capacity and will follow the market growth.

But for the time being, despite this possible spark in offshore wind parks in the next few months, we don't see a stable growth in the market beyond €2.5 billion.

Monica, be sure that if in case the markets will grow, we would follow. We're the market leader and we like to stay as we're.

Telecom, when Europe will start, that's a very good question that we're asking us since quarters and quarters. For the time being, we see only France very strong in term of demand and we're very happy with it.

Obviously, we're, because we're definitely the market leader in France. We don't see UK, we don't see Spain.

Italy, for the time being, is more stocking than others. And the Central Europe need more time in order to take off.

I expect the next two, three years ramp up of the telecom demand in Europe, because that's a must, it's a must for the population, it's a must for government, so it's a must for the telecom companies. I'll give you just an information.

As you know, Google was launching the Google Fiber in U.S.. As you even know, they decided to step back probably from this investment, but since that the incumbents, Verizon and AT&T, are going to substitute them.

So, that's a must. One way or another, they have to invest.

Europe is even behind the U.S. for the time being except with few counter-exceptions and that has to follow.

Net financial position, there is only an answer, €650 million.

I think your assumption, your understanding is correct. By the way, the €650 million is implying fourth quarter which is weaker than the fourth quarter free cash flow that we had last year.

Of course, the drop of the debt last year was in the fourth quarter, €200 million, but you have to consider the impact of the acquisitions that we -- particularly, OCI which was standing out in the fourth quarter. So, actually the free cash flow was close to €450 million last year.

I don't expect to reach €450 million this year, because this would be the much lower number than €650 million, but I expect to be not far from the €400 million. We don't have the big positive effects of the metal price reduction that we had last year.

Maybe we will not have the same drop of the inventory that we're able to perform last year in the fourth quarter. We still a have like last year quite challenging collection planning in the Energy Projects business such as the usual challenge that we have every year.

So, we have I believe no reason to believe that we will not be able to achieve this. So, all-in-all €650 million is a good assumption.

My first question is on the working capital level within OCI, why is this so high because it also kind of depresses a bit the returns you can achieve there from the acquisition? Is there something you can do to bring the working capital level down to more?

And just a clarification on the organic growth when you gave these numbers just a minute ago, these were Q4, not full year commentary, I assume, if you could just confirm that? And lastly on the UK, if you could just talk a bit about what you see in the market post-Brexit on volume, but also on price in terms of imported cables versus some of your domestic production in the UK, what happens to pricing in the UK?

Working capital OCI, you have seen that is very high, we have seen too, obviously. We're working on it, with a certain -- not so hard touching point, because it's a public company.

Even if we control 51% of it, is starting to use. We're not acting too hard for the simple reason that the market there is used to be served in a certain way.

The stock is very high in term of finished product and that's in order to serve properly the market. Don't worry, we're looking at it.

We need a little bit of time, not to be too harsh in touching them. Chapter two organic growth, I was talking about the full year organic growth, not the Q4 organic growth, that was the question, if I'm not wrong.

Question number three, economy and the market post-Brexit in UK, is growing reasonably well. Obviously, there is a problem of the pound devaluation that is a transformational effect for us.

But on the other side, there is a very clear sign that the market has not collapsed, at least for the time being and seems not to be. So, we expect a reasonable 2017 too from UK.

The control of the market is helped by the weak pound because obviously, old important are not so advantage -- not so anymore strong advantage coming from the exchange rate. That's it.

We don't see any significant effect. For the time being, UK is going well.

It's one of the best European market in term of P&I and we're happy with it. We're expecting the effect in Europe, even in UK on a lesser extent of the introduction of the construction product directed to the CPR that should reuse the pressure of the importers even in UK.

Did I answer to your question Andreas?

My first question on Energy Projects, I try to get a better model to be honest and I try to understand how I should look at your organic growth versus margin developments in that division. If I look at just Q3, you've got nice double-digit organic growth, you've got flat margin year-on-year.

So, just want to understand like the moving parts basically because lot of the organic growth is coming from installation sales which is lower margin or maybe the mix of sales is less devoted. Can you just help us understand the year-on-year developments in Energy Projects margin just for Q3?

Okay. We didn't understand very well the question, honestly speaking.

I understood that you are talking about the Energy Projects, the organic growth and the related markets. You don't see [Technical Difficulty] the margins grow sufficiently in line with the organic growth, is that the question?

I can ask just differently maybe, just to understand the margin in the different part of Energy Projects, maybe we know that internal connection is a very nice margin. Can you maybe give us qualitative comments about the offshore margins, the installation margins and the high voltage margins, can you just help us in understanding the mix in that division?

Okay. Now, I understood better.

The high voltage to Western margins are lower than the margins related to submarine obviously or it has been always. We can consider the margin -- EBITDA margin and if we don't have the -- or we don't reach the EBITDA by subsegments.

We talk about contribution margin by the subsegments, because it's too difficult to split the fixed cost between inside the projects in the submarine and the terrestrial High Voltage. We can say that the submarine, including installation has a margin that is more or less -- almost the double of the terrestrial High Voltage, that's because the installation of the submarine, we handle with our ships, whereas the installation of the land terrestrial works [indiscernible] are made by third-parties and the electrical installations we handle by ourselves.

But it's much less high value assets than the submarine. So, we see pretty stability in terms of margin for both for submarine and for the rest.

In the submarine, in reality, partly prices pressure, partly the reduction of the issues of the certain activities has let us to not to reduce the margins, let's say, at least not to reduce, if not to increase. Obviously, once you're going to pay the installation to our third-party, you lose a significant part of the margins on [indiscernible] that is in charge of this.

That's one of the reasons why the margins in the submarine is increasing in the projects.

Second question, still on Energy Projects, coming back to your comments about 2015 being a good year for order intake, 2016 seeing more execution than more order intake. You've had like good growth this year, I mean, looking in a one year based on your backlog, do you -- I mean, how should we think about that division, could you still see a bit of growth?

I think you're still getting some benefit from the new installation vessel in 2017. How should we look at growth in that division in 2017?

In 2017, we're going to give our guidance a little bit more in advance now it's a little bit too early. Now, Massimo can give you some idea.

We can have that commented to 2017, the in-sourcing of capacity with extra lessons would not generate extra savings. We will maintain the top level stable, more or less stable, because as we said before we're not after additional sales for additional market share in the current market situation and [Technical Difficulty] better profit in line with what Valerio said a minute ago.

We will use the in-sourcing capacity, the in-sourcing capability to improve our margin despite the overall scenario like price erosion in the market place.

Yes. Maybe the last one on telecoms, I mean, you've done a very good job, margin is really impressive in the division, I think, listening to your comments, just tell me that your outlook for margin in the division is maybe a bit higher than it was at beginning of the year.

I think we would, back then targeting like 12%, 13% margin. Now your commentary is maybe a bit higher, I mean, can you just comment on your margin outlook for telecom division in the next couple of years, please?

We completely clear, we have to consider that in the right, in the telecom division that in the pro forma profit of YOFC. That is growing significantly, is growing towards our profits, but while she has increased the contribution to the telecom business in term of EBITDA, she is performing very, very well.

So I see more or less the level of performance in term of EBITDA percentage of the telecom quite good level to be considered as a good target even for the next quarter. The market is going to offset significant price increase of fibers that is not the case for the time being.

Okay. And just maybe to understand the positives coming from Australia, the couple of settings that stood out which is, I mean, very good to have, but as you said it might not last forever, I mean, is it material to your margin this year or even if that comes down in 2017, the margin should be --?

The Australian project is material in our numbers this year, obviously, it's going to be material even next year, hopefully. In terms of margin percentage of the group will not dramatically change the number, may slightly decline the EBITDA percentage performance of the Group once the project will be over.

I just have two follow-ups. The first one was regarding your comment on the subsea side, kind of mentioning maybe smaller growth pattern next year.

I remember you had said that already about a year ago regarding 2016 and explaining that you already at full capacity and 2015 had been a strong year and therefore 2016 might would be as strong. And year-to-date we're tracking a 20% organic growth in energy project and you're talking positively also about the fourth quarter.

So when we think about next year, why couldn't we see next year still sustain pace of growth in energy project, is it because you think that the market might retreat, is it because you're in a situation where you, I would say, where you have executed a bit too fast your order book.

Okay. I leave the floor Massimo, because your question is obviously tough question.

Lucie, I think, I will little bit repeat myself in the sense that, okay, in 2016, we have a great growth, we're benefiting from divisional absence of installation, we're benefiting from the project the Western Link, weight in our turn over is little bit lower than what it was last year. But coming to 2017, as we've said, we reached €1 billion turn over, actually we've beaten this €1 billion turn over, you will see this at the end of this year.

I think, she will continue well and will end up a little bit, not a little bit, much better than €1 billion turnover. So in the current market scenario, there is no room for further intake of orders without creating too much pressure on prices, too much pressure on the project prices and on the relevant EBITDA margin.

Next year, we envisage a good year in terms of order intake. Whereas this year, as I said, we ended up -- we were going to end up with €1.6 billion, €1.7 billion intake, not sufficient to allow further growth beyond our €1.1 billion target.

So, in the end, even if it's next year, there will be an additional order intake in addition to this year, it will still remain in the region of €2.5 billion. If you make 40% of this €2.5 billion, you will end up with €1 billion turn over.

So there is no room in the current market situation to sustain an additional increase in turn over. So, unfortunately the 20% pace in growth in the submarine business and the Energy Projects business will fade away in few months, unless the market share in this.

At the current stage, we don't say that we have full visibility on next year in terms of projects and order intake. We don't see the market going beyond the €2.5 billion intake.

So that's the reason why we will remain more or less at the similar level of turn over as this year.

Obviously, Lucie, my job would be to squeeze as much as possible Massimo in order to improve and I am confident of that.

I am trying to manage your expectation.

But I'm not so much, because in reality if the market stays of the size of the current size or we decided to kill the margins and this must be the right choice. Or we have to leave with our sales in the range of €1 billon, €1.2 billion maximum for the time being.

I think you should start looking at stable turn over that with additional opportunity for margin growth. So, we will not probably support the growth in turn over with additional sales.

But the margin will -- we have actions in place to further improve our margins. Thanks to the sourcing of this turn over capability and so on so forth.

So the organic growth will not be as satisfactory as is being this year. But the project growth will continue positive trend.

But if I just may clarify, this is your statement, because you are assuming that the size of the market is pretty much going to remain stable. And so you are keeping your market share, so your sales are fairly stable and when you say, you are not going to be able to kind of reproduce your 20% growth, I think that's well understood, but shall we -- I mean, is there a risk that the sales comedown?

No, we don't see this. As I said, we have €2 billion, in excess of €2 billion in our backlog which is a good perfection thanks to two years turn over.

As I said, the order intake this year, the market order intake in 2016 is being quite weaker, but the tendering activity still remains productive and positive. As I said, next year we will see, we expect €2.5 billion order intake.

And so we will be able to maintain our backlog at the level €2 billion which is the highest level for the backlog to have in order to be flexible and win additional projects. Hence, our sales are expected to remain stable at €1 billion plus.

Because I just wanted to clarify that from your previous comments, can you comment on the price range or the profitability range you are seeing currently in the tendering activity in subsea considering also that one of your competitor now has changed ownership and I mean here ABB has now gone to 20.

We don't see any negative impact of this merge in the market, we don't see extra competition. We like actually the fact that there has been a merger between two European competitors rather than anything, Chinese or Korean entering the European market.

This will help us protect the margin because there would be, to a certain extent, less competition in the market.

And just final question, there was a follow-up on the -- on what you said, Valerio, earlier on your Chinese business in fiber, on YOFC how much feasibility do you have on that business going forward considering that you don't control it and that should not directly involve in that Chinese market.

Okay. They are going very well, the Chinese market is really huge, it is, today, more than 50% of the global market.

The market is going to stay and consequently we expect the performance of YOFC to continue to modestly grow. That's our view, we're very happy with our participation and we're fine with it.

We expect to -- for YOFC our stability in terms of performance. They are growing in other regions in Asia and consequently, we're doing that.

I don't see any significant issue.

Just two questions from me. You mentioned on your footprint that you've closed four plants this year and you had another five plants to close in the midterm.

And just based on the costs that you've taken out this year, how much of that benefit should we see next year come through in your EBITDA in terms of cost savings?

Okay. We have closed the four plants this year and the effect in cost saving [Technical Difficulty].

Our target is fixed cost, just keeping the fixed cost steady, despite on the basis of €700 million to [indiscernible] year-on-year increase. If you look at our story more or less our stock in the last four years have been stable or slightly declining.

That's the goal, to be able to offset any kind of inflation on the fixed cost, whereas obviously on the side of the margins is much more difficult to see it because you had a very much more fluctuating base in term of raw material prices mix and whatever. Overall, the efficiency that are able to catch every year in the last three years at least from the foot print rationalizing, is something around about €15 million year-on-year.

So it's not so bad. And that is the speed that I expected to have even next year and the years to come.

And just a quick follow-up question, just on M&A, if you could give a couple of comments on how you see the acquisition pipeline and what deals you see out there and how far along you are in sort of any potential negotiation, should we expect potentially something in the next three to six months or is your pipeline sort of not at particularly active levels?

The pipeline is in -- we have a number of deals that we're working on. Honestly everything is seems to be pretty expensive today for my judgment and that's doesn't help.

We have obviously the balance sheet to do it, but once you try to touch something that has a value is very expensive. And once you claim it expensive, it's not so easy to create value for the shareholders in the following years.

So we have some, let's say two or three interesting deals, but nobody says that we will be able to close it.

Two questions, firstly, your view on China, particularly post-Baosheng, I know that you know that the 13th five-year plan is published, there is an indication of somewhere around $1 trillion of transmission and distribution spending in 2020. So it's a huge market, but I understand, it's difficult.

So just to understand your current thoughts on the Chinese market. And secondly, a related question, I think it's your first subsea win in China, I mean, how do you view the global subsea market?

Is it still very much a European market or how much are extra European markets starting to impact this overall, I would say, €2.5 billion figure? Thank you.

Okay, Sean. Thank you very much for your question.

I got that point. China post-Baosheng -- post-Baosheng.

It has been five years or more or less the partner, at the end we found an agreement, we told them we don't want to stay out of the business. Even customers are asking us to stay, but obviously it's not so easy.

To be very honest, the deal is going to close, expected to close in December and more or less at the same time should we be able, hopefully, to have a clear idea if we can compensate such a reduction of our presence in China with another transaction, is something we're very clear, we're tendering for, we'll see. If will be successful, we can expect since 2017 second half to be back in the market, obviously, will not be easy.

It is not a very, very interesting market in terms of prices and margins, as everything in China is very challenging and competitive, I used name it the university of competition and but it's useful, it's useful to stay there and that's the reason why we would like to create our second life into the HV China.

The global submarine market, that's a very good question, a question that frequently I put to Massimo and my colleagues, because I'm a little bit disturbed by the fact that the market is so practically centered in Europe. It is true, Europe has a very important meet of interconnection and exchange of energy, obviously that's driven also by the desire of you to have a global network.

I'm strongly convinced that this is the right thing to be done independently from the Prysmian business, but for the population. That is what has never happened in other regions like U.S., like Middle East, like in the Asia.

But time-by-time and especially following the example of euro, most probably other regions we follow, because of the better utilization of the available energy, especially the green energy is an asset for the population that cannot be disrecognized. Now for instance we're going to see Saudi-Egypt link that is a limited first tentative to create a link in a different region to exchange power using the best source time-by-time.

I believe that we [Technical Difficulty] we enjoy the European market. Did I answer to your question?

Yes. That's fine.

I guess, sort of the time, it's quite a long time scale, I guess, before we see a number of other markets really stepping up, so it will continue, I guess, on a three-year basis to still be in European market?

That's for sure. It will need over, probably, years and years.

Most of all by the generation of green energy that will drive seriously, an interconnection between the regions and the continents, because the generation will be probably far or possibly far from the content and that will drive the interconnect technology.

I have four questions if I may, maybe very brief. The first two question on the underground voltage, if you can comment a little bit on the order backlog level that I see which is particularly low.

So if this is sort of let's say, alarm level for the Company given the €400 million or less level, I see? The second question is on the project division, let's say, developer division, what I would like to understand is that what could be basically the profitability that you expect in 2017 assuming that more or less in order in the division will be, let's say, overall unchanged.

Taking into account that next year you should benefit from lower impact, from the projected dilution of the project in the UK. The third question is just coming back to the capital allocation that you mentioned before, I understood that the targets with, let's say, some value and also expensive, but assuming that they will remain expensive, does the Company have a plan B, maybe the reason that could be for example, less expensive that these targets.

And the last question is very simple, is on the tax rate you guided for 28%, are there any specific reason why solo and this is a level that you consider sustainable? Thanks.

Okay, Alessandro. A lot of good questions, starting with underground high voltage, the underground voltage is good to have another backlog around about €400 million, but this is not the first time and you have to consider that in term of turn over, China was a bit significant, not in term of margins but by Baosheng was a quite important subsidiary in term of volumes.

The familiar related to your point, the 2015 and June 2016 backlog has benefited from the Italy, France projects. But this was a one-off in the market, that's why you've seen this stock in order backlog trend in 2015 December.

And so our €400 million backlog, we will still consider very healthy level of backlog for the margins [ph.] .

Let's not say very healthy, but a sufficient. And we do not see a strong acceleration, there has been an acceleration due to France, Italy, 200 couple millions upside that is not going to come every day, this was unfortunate.

I don't see any significant decline, looking for some projects that are going to come not as big as Italy-France that is one-off, but there are other interconnections in Europe that has to come. So we're not scared to [Technical Difficulty] €400 million.

Your second question is much more sensitive, the profitability especially the profitability in 2017, obviously there is an effect on the project. That at the end is a consequence of what you talk, what you said, the Western Link is going to exit and that may help.

But already today there is not any significant impact in term of margins of the Western Link execution. We see potentially a slight improvement of the margins in the [Technical Difficulty] because of the in-source, also of the in-sourcing activity -- installation activities, even if Massimo doesn't like very much to returning.

No. We're just complementing the comments in summary.

And there will be a summary, there would be contribution margin in four months. Although I remember that Western Link will not seize until September next year.

So the Group profit over next year will see with Western Link low level of profits?

Only the last quarter next year will not be subject to the Western Link issue index.

And to add there, they will be on the relative side the consolidation of the contribution margin, the profit coming from China, from Baosheng, so there will be unfortunately a change perimeter in terms of reduction of perimeter levels which we believe to be able to offset with submarine outside but there will not be an overall excessive growth in profits next year.

Okay. About the last two questions, I would like to leave the floor to Francesco, who's much more prepared.

On the capital allocation, our priority is clearly to employ capital on acquisition, on strategic acquisitions. We're more focused now on a few opportunities that Valerio was mentioning which may be named bolt-on which [indiscernible] geographies for some business.

So less likely we will see a transformational deal. Of course, at the same time we always [indiscernible] conditions on the capital market and returning cash to shareholders by definition always an alternative.

But in the timeline it's an alternative which comes after the priority which is growing the Company with acquisitions now mainly bolt-on which [indiscernible]. On the tax rate, yes, we're enjoying a 0.9% decrease this year, a couple of points compared to expectation that we had until the first half.

It is coming from the capital effect. First of all, we're enjoying the better geographic mix meaning that growth of our earning before tax in countries benefiting of lower nominal tax rates.

That's been a fact that which should be in place which can change from year to year. Secondly, we're also enjoying some fiscal policy which has been put in place by the Italian government for instance, [indiscernible] that we have applied for where we have obtained first ruling regarding Prysmian S.p.A.

for the patents and where in the next five years quite a stable contractual benefit we will we have a tax saving which is, by the way, a secure tax saving, because it's agreed in our willing with the tax authorities. As an example, I can go back a few years of saying that in 2011, the Monti government at that time introduced another interesting relief which is called [indiscernible] which is a benefit even to enterprises with a quite high level of equity of capitalization.

So this deduction is -- for Europe, this deduction which is calculated on the increase on equity year-on-year. Also, in this case as we have a virtuous policy in terms of not distributing 100% of our net result, distribute roughly 40%, 50% of our net income.

In terms of dividend, we're enjoying the benefit of this. These are just two examples.

Okay. Very detailed answer that I'd have asked you, let's say, on this.

And yes, just if I may a quick follow-up on the guidance on the free cash flow, let's say, in the last quarter, clearly when you said €650 million net debt. Let's include the proceeds or the cash in for the--

No, I don't, borrowing the sale.

I don't include the proceeds, I also don't, of course, include any other change of perimeter in terms of for instance, new investments in China, in high voltage China that Valeria mentioned. So we're excluding both.

The time line of this is uncertain. We're not in the position to foresee if this will be in the fourth quarter or the first half of next year.

Okay. Thank you very much for having been to participate into the nine months financial results conference call of the Prysmian Group and good bye till the next to everyone.

Bye-bye.