Prysmian launches strategy for the energy and digital transitions. Connecting to impactful sustainability. Connect, TO LEAD TO LEAD
2 Connect, TO LEAD CONTENTS Focus On Prysmian’s top executives reveal its new “Connect, to Lead” strategy to position the group for continued Energy Transition and Digital Transformation leadership. p. 3 Prysmian launches strategy for the energy and digital transitions, unveils new 2027 targets p. 4 Prysmian’s organizational redesign: the four new business segments p. 8 Prysmian’s journey through challenages and innovation An interview with Valerio Battista p. 10 Connecting to value creation Q&A with Massimo Battaini p. 12 Connecting to impactful sustainability An interview with Maria Cristina Bifulco p. 16 Connecting to value creation Q&A with Pier Francesco Facchini p. 20
3 Continue reading on the following pages Focus On In this issue of INSIGHT focusing on Capital Markets Day 2023, four of Prysmian’s top executives including CEO-designate Massimo Battaini offer a deep dive into why they have reshaped the company into four new segments to seize market trends and opportunities: Renewable Transmission, Power Grid, Electrification and Digital Solutions. “Connect, to Lead” will reshape Prysmian’s business to structurally align with the new market dynamics; selectively expand capacity through self-funded investment; and raise the bar on empowering the group’s people – creating more value for all the group’s stakeholders. Prysmian’s top executives reveal its new “Connect, to Lead” strategy to position the group for continued Energy Transition and Digital Transformation leadership. Prysmian Group’s Capital Markets Day on October 5, 2023 launched “Connect, to Lead,” a new strategy accompanied by financial and social targets designed to win in new growth areas. It calls for a selective acceleration of investments to meet growing demand, and set a 2027 target for adjusted EBITDA of around €2 billion, up by about a third compared to the €1.49 billion achieved in 2022.
4 Connect, TO LEAD PRYSMIAN LAUNCHES STRATEGY FOR THE ENERGY AND DIGITAL TRANSITIONS, unveils new 2027 targets “Connect, to lead” aims to capitalize on the company’s strong market position and to win in new growth areas as it evolves from a leading cable player to a global cabling solution provider. It will see the reshaping of the business into four new segments to align with market dynamics: Renewable Transmission, Power Grid, Electrification and Digital Solutions. Prysmian Group launched its new strategy to lead the green energy transition and digital transformation, and unveiled new targets for 2027 at its Capital Markets Day on October 5. Massimo Battaini Prysmian’s CEO designate
5 GREAT EXPECTATIONS 900M/1B Free Cash Flow growth expectation BY 2027 INSIGHT | Focus On said CEO-designate Massimo Battaini. “Our market leading position, track record of technological leadership and innovation, loyal customer base and unrivalled team are the foundation from which we can build on these trends,” he said. Its financial targets for 2027 include adjusted EBITDA of around €2 billion, up by about a third compared to the €1.49 billion achieved in 2022. The new strategy calls for a selective acceleration of investments to meet growing demand. Over the period 2023-2027, capital expenditure is expected to rise by 1.7 times compared to the previous five years, to €2.7 billion. About two thirds of these investments will be in the Renewable Transmission segment, where they will go towards additional manufacturing capacity, two new vessels and a barge . Free Cash Flow is expected to grow to €900 million-€1 billion in 2027 from €559 million in 2022. Return on Capital Employed (ROCE) is seen increasing to 25-28% in 2027 versus 20.1% in 2022, confirming the high returns of the planned strategic investments. The cables industry is becoming increasingly strategic due to long-term market trends which require resilient, high-performing, sustainable and innovative cable solutions. Prysmian has identified four main market drivers: the renewable energy generation, growing electricity demand, enhanced power grids and massive data growth. Building on the success of Prysmian’s previous strategy based on market consolidation, the new four pillar strategy focuses on organic growth arising from these market trends. The four pillars of the new strategy are: self-funded capacity expansion, with investments to support organic growth through consistent cash flow generation; a balanced and innovative portfolio, to foster technological leadership and sustainability; people empowerment, to grow business know-how and capabilities through the best people; and the new business segmentation into four new segments to seize market trends and opportunities. "Prysmian is uniquely placed to benefit from the opportunities presented by the structural changes arising from the convergence of the energy transition and digital transformation”
6 Connect, TO LEAD On the sustainability front, the Group has set key performance indicators for 2027. These include a target to enable access to green electricity to 210 million households and to enable fast digital access to 25 million households by 2027. It is aiming for 60% of revenues to be linked to sustainable products and for women to hold 25% of top management positions and to make up 50% of desk workers hired by 2027. Prysmian also confirmed its Scope 3 Net Zero target for 2050. The Group intends to continue to lead innovation in the cable industry developing thinner, lighter, faster, and greener products while creating tangible value for customers and in the communities and territories in which it operates. “In Prysmian, we deeply believe that sustainability plays an important role in nurturing our leading position in the sector, and means that we can support our customers and enable them to play their leading role in their space,” said Chief Sustainability Officer Maria Cristina Bifulco. “Also for this reason, for us sustainability is not only about Environmental, Social and Governance, but rather: Environmental, Social and Innovation with Governance overseeing all the other dimensions to guarantee the highest level of transparency and rigor.” The company is bringing forward to 2027 some of the targets of its Social Ambition previously set for 2030. These include the aim for having between 45-50% of employees holding shares in the business, the goal to hire more than 500 additional women in STEM roles, and the plan to guarantee between 35-37 hours of training for each employee annually. As part of Prysmian’s commitment to develop talent in underprivileged communities, more than 1,400 children and 400 women and girls will be supported by our social programs between 2023 and 2027. "We have set ambitious financial and sustainability targets for the next five years, which I am confident we will achieve through our new strategy based on organic growth,” said Battaini. “This will see us reshape our business to structurally align with the new market dynamics, selectively expand capacity through self-funded investment and deploy increasingly cutting-edge and sustainable technologies, while continuing to empower our people. We believe these are the key drivers to unlock the potential of our business and create value for all our stakeholders.” SUSTAINABILITY AND INNOVATION Cristina Bifulco, Chief Sustainability Officer and Investor Relations Vice President "In Prysmian, we deeply believe that sustainability plays an important role in nurturing our leading position in the sector." SUSTAINABILITY KEY PERFORMANCE BY 2027 60%revenues by sustainable products 25%of women in top management positions 210 million houses to access green electricity
7 Current CEO Valerio Battista said he was proud of the business built over the past 15 years, which he described as an organization that had delivered value and that had retained its cohesive culture as it has expanded into new markets through transformational mergers and acquisitions. “The outcome of our strategic choices is a strong business that is leading the industry, and that has the technology and resources to take advantage of the exciting opportunities ahead. As we enter this next chapter, I pass the baton to Massimo Battaini, who is the right leader to drive our company and the industry forward." Connect, TO LEAD Winning in new growth markets Capitalizing on our leading positions 2027 Global CABLING SOLUTION PROVIDER leading the energy transition and digital transformation TODAY Leading CABLE PLAYER grown through market consolidation
8 Connect, TO LEAD PRYSMIAN’S ORGANIZATIONAL REDESIGN: the four new business segments These new segments are Renewable Transmission, Power Grid, Electrification, and Digital Solutions, compared to the current segmentation of Projects, Energy and Telecom. The organization of the new units mirrors the four major market drivers identified by Prysmian: renewable energy generation, power grid enhancement, electrical applications growth and the digital transformation. Here is a look at the four new segments: Renewable Transmission will include the Submarine Power and the Land High Voltage Direct Current (HVDC) business units, which are currently part of the Projects segment. It will also consist of O&G Offshore Specialties, Submarine Telecom, High Voltage Network Components and Monitoring Solutions. Prysmian is determined to remain the market leader in this area, holding on to its historical 35-40% share. It will achieve this goal by leveraging its technological expertise, not just in cables but also in installation, and will combine this with its strong track record. This segment is the company’s main growth pillar, and is set to almost triple adjusted EBITDA to around €600 million by 2027. The focus here will be to execute Prysmian’s €20 billion order portfolio, and to expand capacity with state-ofthe-art equipment. The group will also build on our operational excellence, learning from mistakes and introducing more robust production tests to pre-empt problems. About two thirds of the €2.7 billion overall capital expenditure planned in the new strategy will go into this segment, for additional manufacturing capacity and for two new vessels and a barge. Power Grid will include the High Voltage Alternating Current (HVAC) business unit, which is currently in the Projects segment, and Power Distribution and Overhead Lines, currently in the Energy segment. It will also be made up of Medium-Low Voltage Network Components and Medium Voltage Monitoring Solutions. This market is growing fast, and the segment is the second largest contributor to Prysmian’s core profit growth, with adjusted EBITDA in this unit seen doubling to around €410 million by 2027. Customers are rushing to secure cables availability, often through advance payments and pre-booking capacity fees. They are also becoming more and more sensitive to sustainable products. Our strategy in this segment is to grow our market share, which ranges from 40% to 50%, while consolidating our position as a solution provider. We will continue to invest in innovative products that are grid resilient, safe and sustainable, such as the E3X grid-enhancing technology. We will also capitalize on strong partnerships with utilities and distribution system operators, leverage on Pry-Cam products and selectively expand capacity in the most profitable and high-growth markets in North America, where solar and wind applications are playing a key role, and in the European Union, where growth is driven by grid enhancement. Electrification will include Industrial & Construction (former Trade & Installer) and Specialties (formerly in Industrial & NWC), which are currently in the Energy segment. Prysmian Group’s new strategy unveiled at its Capital Markets Day on October 5 will involve a reorganization of the business into four segments from the existing three, to be able to most effectively seize market trends and opportunities. RENEWABLE TRANSMISSION ELECTRIFICATION POWER GRID
9 The adjusted EBITDA of this segment is seen at around €700 million in 2027, down slightly from €797 million in 2022, as a price effect in Industrial & Construction North America is partly offset by growth in the I&C applications of Solar, DCs and Industrial Construction and by growth in Specialties. The surge in electrification demand, which is seen doubling by 2050 , is pushing the market towards a radical and fast transformation. Here the distinctive value of the group’s market leadership lies in its broad and comprehensive cable offering. Prysmian operates in all sectors: from railway to aerospace, defense to marine, mining to medical, residential to industrial. Prysmian’s strategy in this segment is to keep leading the market, leveraging its multi-purpose cable offering to capitalize on growing electrification demand. The company will seize the opportunities in this space by leveraging its global scale and operational proximity to distributors’ partners to provide a fast and efficient service level. Prysmian will also continue innovating in cables for wind towers and solar panels and will deploy Eco-Cable products across all geographies. Prysmian will leverage its relationship with scale distributors to have access to large industrial projects, and will remain the reference player for original equipment manufacturers by co-developing solutions to satisfy specific product requirements. This is the current Telecom segment and will include the business units Fiber and Optical Cables, Connectivity, and Multimedia & Inside Plant cables (MMS). It will also consist of Copper Telecom and OPGW. Digital Solutions is expected to see a sharp drop in adjusted EBITDA in 2023 to €200 million, compared to €271 million in 2022, and then growing and reaching an expected €290 million in 2027. There is growing demand for high-quality and highperforming communication cables. Prysmian’s strategy here is to maintain leadership in the optical space, with a strong focus on North America, working selectively in the EU. The group also wants to leverage growth in data centers and internet of things applications with its multimedia solutions offering. The company’s next moves will be to capitalize on its unique fibers portfolio and on optical cables breakthroughs to continue leading the market. Prysmian is also leveraging the one stop shop opportunity and the convergence between energy and telecoms, and is strengthening relationships with alternative network operators and new entrants such as Google, Amazon and Microsoft. DIGITAL SOLUTIONS CURRENT SEGMENTS NEW SEGMENTS Market trends Projects Renewable Transmission Renewable energy generarion Power grid enhancement Electrical applications growth Digital transformation Power Grid Electrification Digital Solutions Energy Telecom
10 Connect, TO LEAD Prysmian’s journey through challenges and innovation An interview with Valerio Battista 2005 2007 PRYSMIAN ESTABLISHED IPO
11 INSIGHT | Focus On What do you consider some of Prysmian’s key milestones since it was established? We must continue to work on building value, and especially in distributing the value we create. Prysmian is a widely-held public company. The journey that brought us where we are now started in July 2005, at the time of the spin-off from Pirelli and founding of Prysmian. From the beginning, we knew global scale and innovation would be crucial to becoming market leaders. In 2007, we made our initial public offering (IPO), an important step for accessing the capital markets. In 2010, we went further to become Italy’s first fully public company , and this makes us unique, even today. This decision was a clear reflection of our commitment to long-term profitability, growth, transparency and corporate governance. In 2011 we acquired Draka and in 2018 we purchased General Cable. These acquisitions helped us expand our geographical reach and broaden our portfolio. We then applied our knowhow to successfully integrate each business, ensuring we retained the best aspects of the companies while not losing our core DNA. Finally in 2022 we saw a step change in the improvement in the performance of the group, thanks to what we did, what we are still doing, and a market that is electrifying. How has the company transformed over the last decade? We are a very different company from where we were a decade ago. Since 2010, our group revenues have increased four-fold to about €16 billion in 2022 , and the number of our employees has risen around three-fold to 30,000. That means 30,000 families around the world count on what we decide to do. That is the biggest responsibility we have. Our plants are all over the world, largely in the US and Europe, but also in South America and Asia. We have focused on creating value for our stakeholders, including our shareholders. From the €2.7 billion market capitalization at the time of the IPO, today the company has reached over €10 billion market capitalization. You are due to step down in 2024 and the board has designated Massimo Battaini as the next CEO. What are your hopes as you pass the baton to your successor? I am not young anymore, I have been running the company for the last 20 years, and I have the responsibility to create successors. The company needs someone younger but still experienced. As we enter this new and exciting phase, I am handing over to Massimo, and I am confident that he is the right leader to drive our company and the industry forward. 2010 2018 2011 2022 BECOMING FULLY PUBLIC GENERAL CABLE INTEGRATION DRAKA INTEGRATION PERFOMANCE STEP CHANGE 2023 Building tomorrow's solutions I am very proud of what we have built, a company that has delivered value and that has kept a cohesive culture as we have expanded through transformational mergers and acquisitions. The outcome of our strategies is a robust business that is leading the industry, and that has the technology and resources to take advantage of the many opportunities ahead. ” We have done our job reasonably well so far, and now is the time to look to the future.
12 Connect, TO LEAD Connecting to new frontiers and to our solutions Q&A with Massimo Battaini What do you consider some of Prysmian’s key milestones since it was established? The Energy Transition and the Digital Transformation are deeply reshaping the market and generating new structural and secular trends as the world moves toward decarbonization and sustainability. We are in the middle of these two megatrends. Over the last 15 years Prysmian has been building a leading position and growing capabilities to seize these opportunities and finally the time has come to reap the benefits of what we have sown. You outlined the company’s new strategy on October 5. Can you tell us a bit about it? The name of our new strategy is “Connect, to lead”. We want to lead the market while we connect the world, enabling the Energy Transition and the Digital Transformation. And we want to transform ourselves from a leading cable player into a global cabling solution provider. We can achieve this with two levers. Firstly, by capitalizing on our leadership position in spaces like submarine cables, interconnectors, power distribution and optical solutions. Secondly, by enhancing
13 our right to win in new attractive spaces, like data centers, internet of things, grid monitoring, connectivity and electric vehicle charging. While our previous strategy was based on inorganic growth through mergers and acquisitions, this strategy is centered on organic growth, but it relies heavily on the strengths built through past M&As, so the two strategies, albeit different, are very much linked. Of course, we will not be ruling out possible bolt-on M&As and expanding our geographical reach and market share. But these are not included in the five-year plan since they are not entirely in our control. As you launch this new strategy, what are you going to bring to the table as the new CEO? I will guarantee continuity with the past through our usual managerial discipline and strong stand for our culture. But I will also bring a new focus, to guide the group through a new pathway of growth. It is an exciting time for this company. Over the last 30 years we have never seen such a strong interest in our industry. It is clear that the world is on a one-way trajectory. Decarbonization and the resulting structural market trends are driving this change. What are the main drivers of the cable market at the moment? We recognize four new drivers in this market, which represent a unique opportunity for us because they fully overlap with our portfolio, our geographical distribution and our customer base. Firstly, there is Renewable Energy Generation. Today, fossil fuels account for 70% of electricity generation, while renewable sources only contribute 30%. By 2050 that is going to flip (30% fossil fuels, 70% renewables). This will lead to a four-fold increase in renewable power capacity by 2030, driving significant investments in transmission capacity, including long and powerful cable lines. On the back of this increase in renewable energy generation, the high voltage submarine and interconnector market is exploding. Prysmian has an important role to play here. Not only can we enable the transmission of renewable energy, but we can also enhance the cost-effectiveness and sustainability with new cabling solutions like 525kV P-Laser, which is fully recyclable. The second trend relates to Electrical Applications Growth. Electricity demand is surging, as fossil fuel-based applications are shifting to electricity. The shift in buildings is pretty evident, as heat pumps and induction hobs drive the complete elimination of natural gas from new buildings. Data centers and 5G are other relevant examples of the expansion of electricity demand. All these changes are prompting demand for a wider spectrum of cables and more specialized cabling solutions. The third driver is Power Grid Enhancement. We need something to connect generation to applications, and this is the crucial role of the power grid. Grids will now also have to deal with the intermittent electricity typical of renewables. The massive expansion of the grid in the next years will require safe and resilient cables that are also low carbon, to reduce emissions linked to the network. INSIGHT | Focus On CONNECT, TO LEAD. 30% / 70% Fossil fuels BY 2050 Renewables "We want to lead the market while we connect the world, enabling the Energy Transition and the Digital Transformation." #1 #2 #3
14 Connect, TO LEAD Finally, there is the Digital Transformation. The data boom is fueling big investments in telecom networks and digital infrastructure, and this in turn will create additional demand for electricity. Optical and data cables demand is set to increase as premises move to fiber, data centers expand and 5G is deployed. An additional element to add on these trends is the energy and telecoms convergence. Cables have to be smarter to deal with the complexity of the new grid. They need something they did not have before: digitalized solutions. This is relevant to us because we have a strong position in both of these sectors. Why did you decide to present your strategy now? From the start, we had a clear vision. We wanted to grow this company, expand our footprint and become the market leader. We knew that one day we would capitalize on our strengths. That day has now arrived. Our strategy marks the end of the first part of our journey, but also the start towards new pathways to greater growth. How is Prysmian going to address the new market dynamics? “Connect, to lead” is based on four pillars: self-funded capacity expansion, a balanced and innovative product portfolio, the empowerment of people, and a new business segmentation. What are the plans for capacity expansion and what precautions are being taken to guarantee solid returns? We plan to almost double our capital expenditure, from €312 million in the past 5 years to €540 million in the next five years, and to selffund it with our own generated cash flow, without resorting to the debt or equity capital markets. In terms of precautions, firstly we will prioritize and select our capacity expansion projects on the basis of a solid business case, related to specific market attractiveness and customer commitments such as down payments. Secondly, we will execute these capital expenditures with the classic Prysmian discipline and rigor, to avoid cost overruns and guarantee the appropriate time to market. How does the portfolio reflect Prysmian’s focus on innovation? Our portfolio reflects our obsession with innovation. This is not just traditional innovation, aimed at improving electricity performance. It is a new innovation approach, working on electrical performance enhancement while moving towards more sustainable cabling solutions. We want to help our customers decarbonize the grids and achieve their sustainable goals, and we want to lead sustainability throughout the whole value chain of this industry, embedding it in our innovative products such as E3X robot systems, Pry-Cam monitoring products and our Sirocco Microduct cables. What role do people play? We consider people central to our strategy. We continue to invest in our people, with new programs to make them feel engaged and included in the company. Our special focus on safety at work is a tangible example of how much we care for people. Turning to the redesign of the organization, what does the new segmentation consist of? Our structure will evolve from the current three segments to four new segments which exactly mirror the market trends: Renewable Transmission, Power Grid, Electrification, and Digital Solutions. This new segmentation encourages greater focus on the market trends, enhances the effectiveness of our go-to-market, and provides more visibility of how we operate in the different spaces. Are there any synergies in Prysmian’s product portfolio? We presented the four segments as separate entities, but we recognize sizeable synergies across the four segments. The most obvious one is the One Stop Shop: customers like buying the whole range of products they need from one supplier. In North America, we serve large distributors with the full spectrum of telecoms, industrial & construction and specialty cables, while in Europe we serve utilities and transmission system operators with both high voltage transmission lines and power grid solutions. We are also benefiting from the solution provider opportunity, so combined energy and telecoms solutions, and from operational efficiencies which help us to enhance the profitability of individual segments. And we have a market hedging opportunity. The four business units, coupled with a differentiated geographical base, give us a great set-up to help temper the cyclicality of the individual segments. Let’s take a look at each segment, starting with Renewable Transmission.
15 What is your strategy for this segment? This market is booming, and our strategy on this front is simple: we want to remain the market leader, holding our historical 35-40% share. Leveraging technological leadership, not just in cables but also in installation, is the key to success here, along with our consistent track record. We need to execute the backlog, as we are sitting on €20 billion worth of orders in hand. We will also build on our operational excellence, learning from mistakes and introducing more robust production tests to pre-empt problems. Turning to the Power Grid segment, what are your plans on this front? This market is growing fast due to the surge in electrification demand, and our customers are rushing to secure cables availability, often through advance payments and pre-booking capacity fees. Our strategy here is to grow our market share, which currently ranges from 40 to 60%, while consolidating our position as a solution provider. We will invest in innovative and sustainable products, capitalize on strong partnerships with utilities and distribution system operators, and selectively expand capacity in the most profitable markets. And regarding Electrification, how is Prysmian going to exploit the growing opportunities in this space? Firstly, by leveraging our global scale and the operational proximity to our distributors' partners to provide a fast and efficient service level. Secondly by continuing to innovate in cables for wind towers and solar panels and deploying EcoCable products across all geographies. We will also leverage our relationship large scale distributors to have access to large industrial projects. What is your strategy going forward finally for the Digital Solutions segment? Here we are seeing demand for high-quality and high-performing communication cables because the challenges presented by the data boom are significant. In our strategy, we are determined to maintain leadership in the optical space, with a strong focus on North America, and working selectively in the EU. Our next moves will be about capitalizing on our unique fibers portfolio and on optical cables breakthroughs. INSIGHT | Focus On The pillars Balanced and innovative portfolio People empowerment Balanced portfolio and continued innovation to support technological leadership and sustainability Best people, know how and capabilities to grow the business Business segmentation Segments redesigned to seize market trends and opportunities Self-funded capacity expansion Investment to support organic growth through consistent cash flow generation
16 Connect, TO LEAD Connecting to impactful sustainability An interview with Maria Cristina Bifulco
17 Sustain, to lead As Prysmian launches its new business strategy, has it also any targets for improving sustainability? In Prysmian, we always like to over-deliver, including in our sustainability strategy. We believe that nurturing an attractive, inclusive, equal working environment is essential for the success of the company. We unveiled our Social Ambition in 2021 with a broad range of targets in this area to be achieved by 2030. Thanks to our strong focus on execution and our commitment, we are now able to bring forward some of these key performance indicators (KPIs) to 2027. First of all, we are anticipating to 2027 our target of having between 45 and 50 % of our employees holding shares in our company. This is not just about financial investment; it is also about aligning our team and our success. We are also bringing forward our target of hiring, promoting and developing further +500 women in STEM roles to 2027. We have always recognized the benefits of gender balance, and the importance of creating a pipeline of talented women to lead in the future. By 2027, we are aiming to provide between 35 and 37 hours of training annually to each employee, compared to the current 29 hours. We will achieve this by leveraging our Prysmian Academy, which has already provided more than 800,000 hours of training to employees of all levels, as well as using our Sustainability Academy, to raise awareness on key Environmental, Social and Governance (ESG) topics. This is on top of the many safety training sessions we provide. Sustainability for Prysmian also means going beyond the business. We feel responsible to give back and to reward talent while expecting no direct benefit, and to support training for talented women and children from underprivileged communities. By 2027, we will invest in STEM education for more than 400 women and young girls and over 1,400 children. These initiatives are already underway in Brazil, Colombia, Mexico, Oman, and the Netherlands. It is not good enough to just talk about what you do, you need to set targets and track your performance against those targets, and not only over the long-term. That is why we also set ambitious KPIs for the short and medium-term, to be able to be measured on our commitments over the coming years. How is the company progressing towards its emissions reduction targets? Having announced our Climate Change Ambition in 2021, we were the first cable maker to receive validation from the Science Based Targets initiative that year. And we also upgraded our targets this year to actively drive the industry forward. We are fully committed to achieving 90% decarbonization of Scope 1 and 2 emissions by 2035 and are actively engaged with our suppliers and customers to achieve Net Zero, through the decarbonization of 90% of Scope 1, 2 and 3 emissions by 2050. We are on target for a 47% reduction in Scope 1 and 2 emissions by 2030 and we already reached a 28% decrease at the end of 2022 versus INSIGHT | Focus On 400 1,400 young women children BY 2027 STEM FOR MORE THAN Governance Innovation Social Environmental
18 Connect, TO LEAD the 2019 baseline, ahead of schedule. We have been able to reach this also thanks to our innovation approach, anticipating targets thanks to the total removal of the SF6 gas. We are the only cable maker to completely eliminate this gas. We have allocated up to 100 million euros of capital expenditure by 2030 to decarbonize our own operations and implement circularity across the entire value chain to achieve these ambitions. What are some examples of products that have been developed from the Design for Sustainability initiative? P-Laser, which is the first fully recyclable insulation technology. This provides an ideal solution for delivering enhanced network reliability, while simultaneously delivering operational and environmental benefits. Then there is Eco-cable, the industry's first "green label" based on six measurable and internationally recognized sustainability criteria including recyclability and circularity, transmission efficiency, and conscious environmental impact. The Eco-cable label very recently received Bureau Veritas certification, to further reinforce our rigorous approach. How does the company come up with ideas for improving sustainability? Today, 30% of our total revenues are generated from products with enhanced sustainability performance, reflecting demand from our customers. This has been possible thanks to our strong belief in the open innovation model. We have collaborated with clients, the world's leading universities, and industrial partners to develop innovations that can pave the way for industry decarbonization. An important part of our climate change commitment is helping our customers to decarbonize their operations. For this reason, we introduced our innovative “Design for Sustainability” program, which is focused on developing new thinner, lighter, faster, and greener products with a higher value in terms of sustainability. We carefully observe our products in use to come up with ideas for solutions that avoid and reduce emissions, like using additional recycled content, which can support the broad circular economy. P-LASER ECO-CABLE
19 Other examples include our E3X robot system, which enables existing lines to be upgraded to complement new builds, reducing the need to install new transmission lines. The Sirocco Extreme optical fiber cable reduces the environmental footprint of optical networks, avoiding emissions thanks to reduced excavation works required at the network concentration points, leading to less soil needing to be removed and processed. The Alesea virtual assistant for cable inventory management enables us to reduce emissions across the supply chain for big renewable projects, keeping cables waste and scrap at a minimum, thanks to real-time information on cable drum location, drum use and the amount of cable available. PryID creates a digital twin for quick verification and accurate product mapping, allowing more efficient workflow management thereby reducing movement of workers and materials. We are also developing Megawatt charging solutions for electric vehicles, which would reduce the use of fossil fuels. These are concrete ways of putting our Design for Sustainability framework in practice while solving both our customer challenges and reimagining how our products are used to create reliable electrical and digital infrastructure. How would you summarize Prysmian’s approach and track record on sustainability? As the leader in our sector, we aim to be proactive, to drive improvement and to promote initiatives across the value chain and beyond the value chain. From that perspective, we see ourselves as pioneers. We were among the first companies to publish a standalone sustainability report. ESG KPIs have been part of management's remuneration policy since 2018. In 2020, we added Sustainability to the Board Skill matrix, and created a Board Sustainability Committee. We launched our Climate Change Ambition and Social Ambition in 2021 and in 2022 we published our first integrated report. Over nearly 20 years we've adopted a 360-degree approach to sustainability, ensuring it is fully embedded in the organization: the processes, the culture, and compliance. But it is important to note that throughout this process we have not been alone. We have embarked on this journey together with our customers, shareholders and of course, our colleagues. We are proud that our investor base strongly supports our drive towards sustainability. Nearly half of our shareholders prioritize ESG factors and see Prysmian as a company than can play an impactful role. We think sustainability is essential to keep our leadership position, and also to allow our customers to be leaders in their own space. This is the reason that at Prysmian we believe in the “Sustain, to lead” approach. This is not just about Environmental Social and Governance, but rather Environmental, Social and Innovation, with Governance overseeing all the other dimensions, to guarantee transparency and rigor. INSIGHT | Focus On
20 Connect, TO LEAD Connecting to value creation Q&A with Prysmian Group's CFO Pier Francesco Facchini Prysmian has unveiled a new segmentation of its organization. Why is this a key element of its new strategy? The new segmentation will be effective from 2024 and will consist of four parts: Renewable Transmission, Power Grid, Electrification and Digital Solutions. It is crucial for several reasons. Firstly, it will allow us reporting granularity which is much better connected to the four large market drivers, and therefore we can more clearly explain our equity story. Secondly, it will mean that we adopt an internal structure and an organization which better mirror the market drivers. As such, it will sharpen our focus on capturing the opportunities offered by these market trends. How does this new segmentation look in terms of EBITDA? The new segmentation allows us to achieve much more homogeneous clusters in terms of EBITDA margins. Based on 2022 figures, Renewable Transmission has an adjusted EBITDA of €220 million, with a 13.5% margin; Power Grid has an adjusted EBITDA of €200 Sales organic growth 202227
21 INSIGHT | Focus On million, with a 5.6% margin; Electrification has an adjusted EBITDA of €797 million with a margin of 8.9%; and Digital Solutions has an adjusted EBITDA of €271 million with a margin of 14.5%. Can you outline the new financial targets for 2027? In terms of adjusted EBITDA, overall we are targeting around €2 billion in 2027, with an intermediate target of around €1.775 billion in 2025. This is compared to €1.49 billion in 2022. We are expecting an EBITDA compound annual growth rate (CAGR) of 5-7% between 2022 and 2027. This will be purely organic with no acquisitions planned. Total sales are seen at over €19 billion in 2027, compared to about €16 billion in 2022. What are the main growth pillars? There are two main growth pillars: Renewable Transmission, which is expected to see high double-digit organic growth in sales as we execute our €20 billion order portfolio, and Power Grid, which is projected to see sales growth in the mid-single digits, driven by grid enhancement. Electrification meanwhile is expected to see sales growth in the low single digits while the Digital Solutions segment is expected to see a decline in sales in 2023 followed by a recovery from 2024 through to 2027. How are the new core profit targets split between the new segments? Renewable Transmission, our main growth pillar, is set to almost triple adjusted EBITDA by 2027 to €600 million. The key point here will be fulfilling our €20 billion order portfolio, and capacity expansion, with High 2-digit Renewable Transmission Mid 1-digit Power Grid Low 1-digit Electrification Low 1-digit Digital Solutions Leadership consolidation through solid organic growth Adj EBITDA (€M) 1,488 1,625 ±50 ±75 ±100 1,775 2,000 2021 2022 2023 Guidance 2025E 2027E 976 5-7 % 2022-27
22 Connect, TO LEAD EU expansion in particular key for growth in the next few years. We expect an EBITDA margin of 16.5% in 2027 for this segment. The second largest contributor to our EBITDA growth is the Power Grid segment, which is expected to see adjusted EBITDA doubling to around €410 million by 2027, with a significant step-up already in 2023 to around €350-360 million. Its EBITDA margin is seen rising significantly to 9-10% already in 2023 and to be stable in the years 2024-2027. Growth in this sector will be driven mainly by volume growth in North America with solar and wind applications playing a key role, and in Europe, driven by grid enhancement. Electrification’s net decrease of about €100 million in adjusted EBITDA by 2027 is based on the assumption of a -€225 million price effect in Industrial & Construction North America in 2023-2025 compared to the 2022 baseline, partly offset by the growth in the Industrial & Construction applications of Solar, DCs and Industrial & Construction and by growth in Specialties. The years 2024-25 are expected to be the lowest in terms of Electrification EBITDA, recovering to up to €700 million in 2027. Digital Solutions is expected to see a sharp drop in adjusted EBITDA in 2023 to €200 million, and then EBITDA growth is seen in the high single digits from 2024, reaching an expected €290 million in 2027. Can you tell us about the investment plan and how it will support Prysmian’s growth objectives? We are planning significant expansion in capital expenditure compared to previous years, 1.7 times as much, at about €2.7 billion over the 2023-27 period. Capital expenditure in the Renewable Transmission segment will amount to about €1.77 billion, around two thirds of the overall plan. This will be mainly €740 million for additional manufacturing capacity and €500 million for two new vessels and a new barge. For Power Grid, capital expenditure will be used mainly for capacity expansion in North America and Europe. For Electrification, it will go on selective capacity addition to capture growth in Specialties, Solar, DCs and Industrial Construction. Finally, for Digital Solutions it will go on our Fiber cost reduction roadmap and optical cables capacity for the US. What other key financial targets have you set? We are confident that the €2 billion EBITDA target is in our reach, and this is expected to result in a new scale of free cash flow, seen at €900 million to €1 billion in 2027, and of Return on Capital Employed (ROCE), which is seen at 25-28% in 2027. How do you plan to allocate the strong cash generation that you are expecting in this five-year period? Cumulated free cash flow for 2023-2027 is seen at about €3.2 billion.
23 INSIGHT | Focus On Over the five-year timeline, we are thinking of allocating this capital firstly with a focus on bolton acquisitions, to better capture the main market drivers, both in terms of business and geographies. For this, our business priorities are Power Grid, Specialties, Optical Cables and Connectivity, and our geographic priorities are North America, the Middle East and the consolidation of specific markets with a good profit pool. At the same time, we plan to initiate a share buyback program in 2024. In total, capital allocated to bolt-on acquisitions and the share buy-back is expected to be within 55-60% of the €3.2 billion of cash flow generation. We expect to see a ca. 10% annual growth in the dividend compared to 2023 as a baseline, starting from 2024. Total dividends for 2023-2027 are expected to be about €1.050 billion. We are also expecting to further deleverage and see a decrease of about €300 million in the Net Debt compared to 2022. We are very keen on the investment grade rating that we recently acquired, and that we regard as a key strength, particularly now in these increasingly difficult financial markets. The capital allocations will be released progressively and in strict accordance with the real achievement of our plan. There is no way that it could unbalance our financial structure, we will release it step by step. How would you summarize the new goals for the next five years? They are ambitious targets, but also realistic, because they are based firstly on a very strong and long visibility in the renewable transmission segment. They are also based on an assumption that the price normalization in North America will further continue to the end of 2024 and last but not least, they are based on quite reasonable assumptions that we have made in terms of volume growth versus particularly strong markets. 3.2$ billion Cumulated free cash flow expected 2023-2027 to better capture the main market drivers. PLANNING THE FUTURE 55-60% of which to be allocated to bolt-on acquisitions
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