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General Cable Corporation (NYSE:BGC)

February 08, 2013 10:00 am ET

Executives

Len Texter - Director of Investor Relations

Brian J. Robinson - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Gregory B. Kenny - Chief Executive Officer, President and Director

Analysts

Christopher Dankert

Noelle C. Dilts - Stifel, Nicolaus & Co., Inc., Research Division

Gary Farber - CL King & Associates, Inc., Research Division

Brent Thielman - D.A. Davidson & Co., Research Division

Richard Wesolowski - Sidoti & Company, LLC

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research

Yilma Abebe - JP Morgan Chase & Co, Research Division

Operator

Good morning. My name is Denise, and I'll be your conference facilitator. I would like to welcome everyone to the General Cable Corporation's Fourth Quarter 2012 Update and Initial View of 2013 Conference Call. This conference call is being recorded at the request of General Cable. Should you have any objections, you may disconnect at this time. [Operator Instructions]

Thank you. General Cable, you may begin your conference.

Len Texter

Good morning, everyone, and thank you for joining us for General Cable's fourth quarter update and initial view of 2013 conference call. I'm Len Texter, Director of Investor Relations at General Cable.

Joining me this morning are Greg Kenny, our President and Chief Executive Officer; and Brian Robinson, our Chief Financial Officer. Many of you have already seen a copy of our press release from last night. For those of you who have not, it's available on First Call and on our website at generalcable.com.

Today's call will be accompanied by a slide presentation, also available on our website. If you have not downloaded a copy, we recommend that you do so, as we will refer to the presentation throughout our prepared remarks today.

The format of today's call will first be an update by Brian Robinson on our expectations for the fourth quarter. Secondly, Greg Kenny will provide comments on the company's initial view of 2013 followed by a question-and-answer period. Please keep in mind the format of today's call is to provide additional information on the specific items expected to affect fourth quarter results, as well as our initial view of 2013.

The company will release its reported results for the fourth quarter on February 25 before the market opens, followed by its normal earnings conference call, which is scheduled to start at 10:00 a.m. Eastern the morning of February 25.

Before we get started, I wanted to call your attention to our Safe Harbor provision regarding forward-looking statements and company-defined non-GAAP financial measures as defined on Slide #2, as we will reference adjusted operating income in our call today.

To begin, please turn to Slide #5. With that, I'll turn the call over to Brian Robinson. Brian?

Brian J. Robinson

Thank you, Len. Good morning. We have a couple of items to get to, but first I wanted to let you know that our businesses in North America and ROW finished the year with a positive operating performance broadly consistent with expected seasonal trends. We are especially pleased with ROW, as this performance was in the context of a change in long-term regional management. We are equally encouraged by the stronger-than-expected performance of recent acquisitions, including Alcan Cable North America, Prestolite and Procables. Alcan Cable China is also off to a fast start; however, its earnings contribution for the fourth quarter was muted by purchase accounting inventory step-up adjustments.

Our businesses, on an adjusted basis, in Europe and Mediterranean, were collectively slightly weaker than expected, which was exacerbated in the fourth quarter by the absorption of $12 million of expenses related to the revised estimated profitability of certain submarine turnkey projects. As a result, the company now expects adjusted operating income for the fourth quarter in the range of $45 million to $47 million, excluding certain items.

On Slides 6 and 7, we have outlined certain items that we are excluding from our adjusted results, as these items relate to specific events and transactions experienced in the fourth quarter of 2012. These items are excluded from our adjusted results in order to present the business in a format consistent with how management reviews underlying business trends.

On Slide 6, the company expects to report onetime charges due to an equipment failure at its submarine power cable manufacturing facility in Germany that resulted in damaged cable and equipment repairs. While our team responded quickly to address the equipment failure, the machinery used in this business is massive, as you know, and when the equipment fails to function as intended, the impact can be pronounced. More broadly, the lack of regulatory clarity continues to hamper the offshore wind industry in Germany, as legislators recently postponed key decisions on renewable energy growth targets and electricity grid expansion plans into the latter part of the 2013.

As we've communicated throughout 2012, due to the ongoing regulatory uncertainty and the complexity of offshore construction, the timing of the company's submarine turnkey projects remains highly variable. While we anticipated some project scheduling changes as previously communicated to you in the third quarter, the level of project delays and deferrals experienced during the fourth quarter were unexpected, effectively pushing production and installation into late 2013, 2014 and 2015. The company has initiated steps to potentially recover certain costs that are expected to be incurred due to the project delays and deferrals through legal action and insurance coverage. Our initial view of 2013, which Greg will take you through shortly, does not incorporate any potential cost recovery.

As you can see on Slide 7, the company expects to record several year-end adjustments in ROW, particularly as it relates to the collectibility of certain customer accounts receivable, a portion of which are in dispute, as well as the net realizable value of certain other assets. These items in ROW were identified as part of our additional due diligence in the region tied to the change in regional leadership. The company also incurred a one-off tax charge in connection with the restructuring of its legal entities to integrate the Alcan Cable Canada business, which will result in a much more tax-efficient structure going forward. The company does not expect to experience this level of adjustments in ROW going forward, nor does the company expect to incur restructuring-related tax charges or financial statement and forensic investigation costs on a regular basis, as these items relate to specific events and transactions experienced in 2012.

Turning to Slide 8, our adjusted operating income is expected to be in the range of $45 million to $47 million for the fourth quarter. Putting aside the absorption of the $12 million due to the revised estimated profitability of certain submarine turnkey projects, adjusted results would've been at the low end of our previously communicated guidance range of $55 million to $65 million as our businesses performed well during the fourth quarter despite the challenging operating environment.

With those comments, I'll turn the call over to Greg for some comments on our initial view of 2013 and full year business trends, which are summarized on Slides 10 through 12. Greg?

Gregory B. Kenny

Thank you, Brian, and good morning, everyone. Despite the impact of these items in the fourth quarter of 2012, demand growth drivers in important markets in North America and ROW are fundamentally unchanged. For 2013, global unit volumes are expected to be in the range of 1.4 billion to 1.5 billion pounds, with recent acquisitions contributing between 350 million and 400 million pounds. We expect to continue to benefit from pockets of relative strength in cable demand tied to North American aerial transmission projects, U.S. housing, oil and gas extraction, the -- and in electrical infrastructure, as well as mining and construction in emerging markets. Overall, we continue to expect a slow recovery in key end markets, with some potential for improvement moving into the second half of 2013.

For 2013, we're expecting to generate operating income in the range of $300 million to $340 million, as our recent acquisitions, along with our businesses in the Americas, Africa and Asia-Pacific, continue to show improvement. The midpoint of our 2013 operating income range represents an improvement of approximately 25% over our expected 2012 adjusted operating income despite an assumed headwind on 2013 earnings of a potential currency devaluation in Venezuela. Management has estimated the impact of this potential devaluation to be around $20 million.

The improvement in the base business at the midpoint of our 2013 operating income range is expected to be around 12% over the expected 2012 base business adjusted operating income. Europe and the Mediterranean is expected to contribute in the range of 3% to 6% of overall operating income in 2013 despite our Iberian and submarine turnkey project businesses, which are expected to operate around breakeven.

The Spanish end market is expected to remain difficult in 2013. Our recent actions taken in Spain over the last 4 years to reduce our ongoing cost base and deliver growth in our exports from Spain should help offset continuing weakness in the domestic market. Overall, we remain focused on driving costs out of the business, integrating recent acquisitions and capturing synergies, as well as capitalizing on various opportunities around the world, including the approximately $1 billion of incremental revenue potential from recent acquisitions and investments. Over a cycle, these opportunities are expected to generate operating margins consistent with historical company averages, or perhaps even better.

That concludes our prepared remarks. I'll now turn the call back to the operator, who will assist us in taking your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Shawn Harrison with Longbow Research.

Christopher Dankert

Shawn's stuck on a flight so this is Chris Dankert calling in for him. First off, can you give some granularity as to what your volume guidance represents on a regional basis, and then what you're seeing in regard to U.S. construction and what level of activity is baked into guidance? And then I've got a follow-up.

Gregory B. Kenny

We'll provide an update on our forward view in 2 weeks or so, on the 25th, when we're finished -- the work we have to do here. But broadly, our strongest market is North America, and I would say in general, the Americas. The Asia-Pacific is okay. There's excess capacity, but we continue to work on our greenfield as well as operational improvements in that region. And in Europe, France remains profitable and strong. We're probably bottoming in Spain. And then the North Sea, we've talked about, is some of those projects pushed out, as well as the complexity of that. But broadly, U.S. construction will drive a variety of products, including not only the utility cables to connect the homes, but what I would say on-the-job as well as data cables. So that's a strong positive for us, and then we're well leveraged against that with our Alcan acquisition, as well as all the other products we make. Prestolite, as you know, is tied to the transportation industry, and that's been a strong area for us as well.

Brian J. Robinson

Chris, our intention is to provide more specificity around the 2013 guidance in a couple of weeks when we report our complete results as it relates to 2012.

Christopher Dankert

And then I guess -- I mean, I assume you're going to break out EBIT margins by region at the later call, then, so I'll pass on that one. But are you able to give kind of an updated view on the growth rates the next 2 to 3 years by region, just considering the new acquisitions and what kind of impact that has on the business? And then kind of what exchange rate is baked in from the currency write-down as it regards to your operating income in Venezuela?

Brian J. Robinson

Yes, so I would say here, from a guidance perspective, I would -- we have not given guidance more than sort of 1 year at a time. So I would go back to some of the comments that were made in the script around 2013. At the midpoint of our guidance, from an earnings perspective, is an improvement of about 25% over where we think we're going to come out on an adjusted basis in '12. And then we see the base business, from an earnings perspective, again, working with ranges here, but being in the range of a 12% improvement over 2012. With respect to Venezuela, it's quite complex because it's -- there's an assumption around the exchange rate and then, obviously, what happens in the local pricing environment. But the short answer is, we have assumed broadly a -- similar to what we saw back in 3 years ago, I guess it was, that we may see the devaluation or the value of the bolivar almost cut in half. So it's not -- just not -- it's one where you can't just simply plug it in mathematically, because what we're able to do in the local market to offset this will also be important. So -- but in dollar terms, it's worth about, in our math, about $20 million headwind to 2013.

Gregory B. Kenny

So we're overcoming that headwind with our base business in terms of operational improvement and excellence as well as some of the market drivers that are improving in the Americas, certainly.

Operator

Your next question comes from the line of Noelle Dilts with Stifel.

Noelle C. Dilts - Stifel, Nicolaus & Co., Inc., Research Division

First on the offshore projects, could you just give us a little bit of a sense of how big is your backlog right now for those projects and just what are some of your embedded assumptions now in terms of project delays? I just want to get a better sense that you've fully kind of captured the potential weakness in this market.

Gregory B. Kenny

The backlog is around $200 million or $250 million for submarine offshore.

Brian J. Robinson

Yes, I think the -- Noelle, what we would say is the backlog, the number Greg mentioned is actually, I think, the overall revenue of the German business. The backlog is broadly in the $600 million, $650 million ranges we've been disclosing, including high-voltage underground. So, yes, the point is really the back -- a lot of this is around the project, the deferrals and delays, which pushes out the project activity until the latter part of '13 into '14 and '15. So I mean, so from a backlog perspective, it hasn't -- I would say it's maybe a little bit lower, but it's broadly what it's traditionally been.

Noelle C. Dilts - Stifel, Nicolaus & Co., Inc., Research Division

Okay. Okay. And then, can you comment a little bit more on Venezuela? You've said, obviously, you're assuming -- you said that you're still assuming some high spending associated with the Great Housing Mission but at a slower pace. Can you quantify the deceleration? And then there's also this -- we're at a strange period in Venezuela where there's a potential shift in leadership. How are you thinking about that?

Gregory B. Kenny

Yes, the -- it's -- there was a lot of spending last year. There continues to be large focus on the Housing Mission and infrastructure. Their laws changed down there and there was sort of an extended vacation through January and early February with the holiday period. But broadly, we see Venezuela as, if factoring in this -- this hasn't happened, but a notional devaluation. We'd love to have a happy surprise. But I think demand will be weaker than last year, which was very strong, but we are in a good position, and as I said it it's -- if the devaluation doesn't happen, we'll probably outperform the number we were discussing. And if it did happen, we'll have to go take a charge to our -- accounting charge if that happens. But right now, we're anticipating a weaker year. But we might surprise ourselves if there isn't a devaluation.

Noelle C. Dilts - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And last question, have you upwardly revised your expectations of contribution from, say, from Alcan and some of the other acquired operations? Or are they pretty consistent with, say, 6 months ago?

Gregory B. Kenny

They're actually continued. We've got some very strong operational synergies. The U.S. construction market is benefiting. Certainly, the Alcan business is leveraged there. China, as always, is complex and tricky, but I would say we're feeling -- continuing to feel better as we go ahead and prove the synergies about the Alcan business. Prestolite is also operating approximately at our case but strong. And then we have Procables, which is also operating at our case. It's early, but I wouldn't say -- there's probably some upside as we develop the year, but it's around our business case, or in the case of Alcan, slightly better.

Brian J. Robinson

Noelle, it's Brian. Just to come back and clarify. On the overall backlog, it's about a $650 million number, which I just wanted to emphasize, includes the underground terrestrial piece in Europe. So it's about a half-offshore, half-terrestrial product.

Operator

Your next question comes from Gary Farber with CL King.

Gary Farber - CL King & Associates, Inc., Research Division

A couple of questions. One, just on the ROW operations. Can you speak to any of -- besides the management change, are there any sort of operational changes you've made or anticipate making in that area?

Gregory B. Kenny

I -- what we're trying to do is obviously, we're introducing a whole series of new products in Brazil. So we have to make sure that we get that well launched. We have a -- we're into a start-up in Mexico, and then turning that into a profitable engine for us is an area of focus. Peru is also a start-up but moving through breakeven. So -- and then Brazil is always lumpy with respect to transmission, which is one of the major markets there. But Latin America is okay in terms of it's one of the better markets in the world, but again, we just need to go ahead and get these greenfields to which are -- to where we want them to be, as well as the new product launch in Brazil. That's under the direction now of the Americas, because there's some strong trading synergies as well as technical synergies between the products that we make in North America, being both sold down there or helping that team get into those markets, so we put that under the direction of Greg Lampert. That's about a $4.5 billion business pro forma for 2013. So from Canada to Chile is under the direction of Greg Lampert, and we'll maintain a Latin-facing operation or consolidation point in Dural [ph] , as well as obviously, there's North American operations in Highland Heights. In Africa, we have got a gentleman named Carl Zimmer focused on that. We have a number of operations there. It's only about a $250 million business, with the primary footprints being in Zambia and South Africa but trading throughout the region. We also have a business in Angola supported by Portugal. Angola has strong links to Portuguese contractors. Asia Pacific is an immense area. So when we thought about ROW, we wanted to get more focused around the different areas, so we named an Executive Vice President, Peter Campbell, to be responsible for Asia Pacific, which -- the trading range there goes from the Gulf all the way to Fiji, New Zealand, Australia and then as far north as China. As you know, we've added Alcan China. So we have a very strong profile. We have a start-up in India, which he's working hard on and is beginning to write orders, as well as obviously a very strong business in the Philippines, and we've seen the Thai business turn nicely. So that's about an $800 million business, plus we have some minority investments and an important growth area in many time zones. So what we thought is, to add some strength of focus, we put Peter Campbell on the operating committee, Greg Lampert is on the operating committee. This is the senior management team that's collectively responsible for the company. And then in ROW, we found -- been tracking and now have promoted Sonya Reed to really take responsibility for our global talent human resources processes, which is obviously the -- over a long term, the greatest differentiator in these businesses. So Sonya has also joined the operating committee. So we just to have to -- in the ROW world is just continue to work on these greenfields, brownfields, obviously, deal with complex countries and regions and growth rates that are generally above what we're seeing elsewhere in the world. So I like where we are, and I like the team that's focused on those different regions, and we'll just keep working on it.

Gary Farber - CL King & Associates, Inc., Research Division

Any changes, though, also to your financial systems or anything like that over that you've -- have you made any changes to that, or no?

Brian J. Robinson

Yes, Gary, we've done extensive work, and as I indicated, that was -- a lot of that additional diligence was resulted in these additional items that we reported in the quarter. But yes, lots of changes, lots of work going on with respect to reporting lines. There are as you -- not discussed so widely in this call or in this release was the Brazil inventory errors, which we are correcting the system in Brazil. So yes, they are changes, both reporting-wise and system-wise, that are heavily in process, well advanced.

Gary Farber - CL King & Associates, Inc., Research Division

Okay. And is it possible at this point to provide any sense of where you think the net debt stands roughly today for the company?

Brian J. Robinson

Yes. We're going -- I think on that one, we're going to wait until 2 weeks, Gary, just because we want to just make sure -- we're still working through -- we put out this release to get the information out, but we're still working through a number of areas and I'll defer to that on that one until the 25th.

Gary Farber - CL King & Associates, Inc., Research Division

Okay. And just 1 or 2 more. Just on the devaluation in Venezuela. In your assumptions, is that spread out through the year you've assumed it? Or it's sort of the back-half weighted?

Brian J. Robinson

Yes. I would go back. It's really spread. I would also say, in terms of the precision of -- to your earlier comment, there's lots of speculation about whether it's -- where this might end up. So we have looked at it, ranged it. It could be a 50%, it could a -- could be cutting the value in half. So we had to factor that range in as well as -- again, there's also this element of what actually happens in the local market. So I just want to be -- I want to caution you and others not to simply take an assumption that says that the rate may go to half and therefore the earnings are going to do x or y. All we're saying is we don't know exactly what's going to happen. We believe there's a good probability, and most experts would say there will -- there would needs to be a devaluation. And we're saying, when we plug all our range of likely outcomes there with what we can do in the market, the headwind into 2013 is the $20 million.

Gary Farber - CL King & Associates, Inc., Research Division

Great. Okay, and just one last one, North America. Is it possible to give some sort of kind of rough estimate as to the breakdown of your markets between residential -- that could benefit from a residential versus a nonresidential recovery as a percentage of North American revenue or of just overall revenue?

Gregory B. Kenny

That may be good work for us to come back, Gary, with the -- in 2 weeks. But as we've said in the past, our -- anything that the utility -- any sales to the utilities, especially for low-voltage cables, they have a house they need to connected it to the grid. So that could be copper telephone or optical glass or drop wire. And then, of course, you need power to that home. We also, within Alcan, there's pieces of that business that focus on industrial applications, non-resi as well as resi, and we've talked about that being kind of in the $50 million to $100 million. Also, Alcan makes low-voltage cables for utilities. So broadly, Gary -- and then on-the-jobs, and then when you build a house, you often need data cable in it. You may have portable power on the job site, but it's -- and then we've -- as we, as you know, have gotten into the business of -- that was more commercially aimed and in some of the THHN that flows with -- this is building wire, copper, that flows with our Carol package and our industrial package. But housing is a good thing, I would say. Primarily, we benefit by the connection to the grid and the cable on the job site, portable power. We don't make Romex, for example, which is a trade name, but nonmetallic building wire. We don't sell that in the United States -- which is directly used in the house. But housing's is a good thing and it probably lifts many of our businesses, but it's second order effect in many cases.

Gary Farber - CL King & Associates, Inc., Research Division

And is that a level that you're going to start -- I guess, when do you start to see the benefit?

Gregory B. Kenny

Well, I think some of our view about the base business improvement next year is certainly tied to improvement in the U.S., next year being 2013.

Operator

Your next question comes from Brent Thielman with D.A. Davidson.

Brent Thielman - D.A. Davidson & Co., Research Division

You said the acquisitions would provide or expect to provide 350 million, 400 million pounds for 2013. Can you say how that compares to what they did in 2012? In other words, sort of are you assuming some growth in the guidance within the acquisitions themselves?

Gregory B. Kenny

Yes. I mean, in terms of just improvement, so we have a part-year effect in 2012 and then -- are you asking whether we see those business accelerating through next year? Again, we're in a seasonal business, but are you asking are they accelerating, or are you asking -- is that year-over-year? I didn't follow precisely the question.

Brent Thielman - D.A. Davidson & Co., Research Division

Yes. I guess I'm wondering if you're projecting growth within those businesses themselves and if that's incorporated in the guidance, in terms of metal pounds.

Gregory B. Kenny

Yes, Brent, we didn't own them all last year, but I would say both of them, Alcan and Prestolite, we expect both of them to improve on a unit basis versus the 2012 run rate of which we only owned a little bit of. But if you take full year 2012 with our ownership and prior to our ownership versus 2013, both businesses are improving, both from an operating income perspective and from a unit growth perspective.

Brian J. Robinson

That's well summarized. I would also include Procables in that as well.

Gregory B. Kenny

Exactly.

Brian J. Robinson

So the global Alcan, Prestolite and Procables.

Gregory B. Kenny

Are actually showing unit growth, pro forma 2012 full year versus 2013.

Brent Thielman - D.A. Davidson & Co., Research Division

Got it. And then again from a metal pounds perspective, do you happen to have a breakout of what sort of the organic investments you've been making will add in 2013? You had a few projects there?

Gregory B. Kenny

The -- why don't we take that into -- you're talking about things that we have done over the last couple of years, as they mature?

Brent Thielman - D.A. Davidson & Co., Research Division

Well, I guess I'm thinking specifically over the last year, things that'll maybe have a bigger impact on 2013, if at all.

Gregory B. Kenny

Yes. Well, as we've talked about over the last 2 years, we've been building factories in India, Mexico, Peru, South Africa, as well as entering the construction -- I should say, the industrial and datacom markets in Brazil. They -- when typically when these open, you're not getting -- you're waiting for these businesses to book orders and book them profitably as you take market position. So you're operating at a loss and then you move through breakeven and then fully mature. So we'd expect them to continue to be better from both a volume as well as a profit standpoint in 2013. But I don't think we're ready to go ahead and give specifics on this call.

Brent Thielman - D.A. Davidson & Co., Research Division

Okay. Understood. And then, Brian, maybe I have to wait until the 25th as well, but any sense, especially with the restructuring of the legal entities, what we should be thinking about for tax rate going forward?

Brian J. Robinson

Yes, what I would say is -- you're right, Brent, in the sense that's, that's one of the areas we're still working through. But I'm comfortable, I would say modeling for 2013, I would use about 36%. And if we update that, we'll do so. But that is one area that's still in process, but I would use that. 36%, I think, is broadly a good number for now.

Operator

Your next question comes from Rich Wesolowski with Sidoti & Company.

Richard Wesolowski - Sidoti & Company, LLC

Would you mind specifying how much of the $16 million in the submarine charge that was excluded from adjusted operating income was the equipment failure? And then give us an idea, qualitatively, the difference between the remainder of that $16 million, the project delays, and the $12 million estimate revision that was included in the adjusted operating income?

Brian J. Robinson

Sure. Sure. And then again, this is our best attempt at trying to break out what pieces of it we can isolate around unique events in the fourth quarter. But in the $16 million, Rich, would be -- the majority of that, let's say 75% of it, would be around damaged cable that was caused from the equipment failure. And then there's a smaller part of it which has got some of the repair cost and then some delayed deferral sort of elements to the number. So those we looked at and said we could -- again, we made our best attempt to say this is what we see as sort of quarter-to-quarter discrete items, if you will. The $12 million is -- to look at it, I guess the way I'd describe the $12 million is if we look at our projects over their life, we believe that, again, because of the timing moving around which causes idle vessel costs, as an example some of the cost that we're dealing with -- and we're obviously trying to go use the vessels in other ways, which will help provide upside. But in short, the $12 million is, over the life, we're saying we expect to have a lower margin on these jobs, and the $12 million is the project-to-date true up, let's call it, of the margin on the job. So what we're trying to give is sort of a -- to be fair and consistent, to say, "This is how we see the underlying business," let's call it, and then the $16 million is what I would describe as those items that we can identify as more quarter-discrete.

Richard Wesolowski - Sidoti & Company, LLC

As originally bid, was the profitability of the submarine backlog expected to be markedly different from that of the company as a whole?

Brian J. Robinson

I would say that there's obviously, as its bid -- as you know we've been careful to say -- we were new in the business, we were going to grow our way into the business. And so, I think our -- with you all, that's the way we've described it. I would say there are just -- there are so many complex and moving pieces do this to the equation that I guess what I would say is they were -- there's a number of projects, and again, I would say we would describe them sort of on a basket approach as getting them to a sort of a corporate average kind of thing.

But I mean I guess, said another way, we didn't -- I guess we didn't bid jobs that we saw as being -- that would be at a loss. Circumstances have changed, either in the industry or on the projects, in terms of timing.

Richard Wesolowski - Sidoti & Company, LLC

I understand the facility's not operating at capacity, of course. But are you booked to capacity? Do you have room and the desire to win more work in 2013?

Gregory B. Kenny

Rich, the -- we have -- the backlog is -- there's a lot of movement in Germany with the changes going on in terms of being able to bring power down to where it's needed off DeWitt [ph] offshore. How do the utilities get reimbursed for that? And clearly, there's also projects all along the North Sea and the Baltic Sea. But if you look at about our German business, it's in the $0.25 billion range of revenues. Submarine power is more than half the revenues. And those would -- that would be linked to wind farms and things like that where you have to think about timing, weather conditions, ship availability, project releases, as well as you have all the other folks like Siemens and Alstom and others that help to develop bring -- and people who make the platforms, as well as the generating equipment, et cetera. So this is a big symphony that has to go off. But I would say, there's always movement around what's open at a time. We also have NSW, a submarine fiber-optics business, and we have a Submarine Oil and Gas, which are lighter-duty cables that have fiber optics and control. And those 2 businesses together are in the $70 million range. So, yes, we have open capacity, but it depends on what it is. And then you've got installation inside of this. We -- this has been a hard entry for us exacerbated by a market that's moved out and high fixed costs, and project execution is complex. So we continue to feel good about the business, but we're hesitant to get strongly bullish because there are things we can't control. There's a lot of things we can control. But Rich, we'd like -- we still believe NSW or our submarine cable business can be a successful contributor and get a decent return on capital. We've got to go prove it, and we'd like to see our communications business and our submarine offshore oil and gas grow, which uses some of the same types of equipment, though less heavy gauge. So we're still very focused. We've got our team up there, and we're going to stay at it. But it's been a hard couple of times as we've seen that whole industry move out for things that you see in the press and have seen reported by other competitors.

Richard Wesolowski - Sidoti & Company, LLC

And then lastly, would you mind discussing the cash flow profile of the company in a broad multiyear sense with the investments in the greenfields behind you? Is this $80 million to $100 million forecast for 2013 CapEx representative of what we can expect for the next 2 or 3 years?

Gregory B. Kenny

Well, we've often talked about the headroom we have in our facilities. They're broadly running below where they were in the last cycle, in the '06, '07, '08. So we've got unutilized capacity. It always depend upon what. We'll be spending -- we expect to spend less than depreciation. I don't see -- I think really, just driving the assets, operational execution, there's a, I think, a bottoming trying to happen in Europe. There's a recovery underway in the U.S. and Canada, particularly in the U.S., in construction. So we're just going to work the assets hard, and that's the net working capital as a percentage of sales, and then getting these fixed assets operating in the new greenfields where we want them to be. And of course, getting NSW write-in, so to speak, and then diversifying that business base as we have done. So broadly, Rich, no guarantees, but I'm not -- and you've seen us do 3 acquisitions, which I think our shareholders -- in the last 4 months, which I think our shareholders will be very pleased about short-term and longer-term over the cycle. So that's not to say we wouldn't do acquisitions and we wouldn't see a view to doing a greenfield or brownfield. But my broad view going forward is just work on return on capital, that's sort of operating income in the capital employed in the broad sense, drive operational excellence and get a return for our shareholders on these greenfields as well as the NSW investment, with a strong kick, I think from Prestolite, Procables and Alcan, as well as a U.S. recovery that's probably ahead of the rest of the world right now.

Operator

Your next question comes from Tony Kure with KeyBanc.

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

A couple -- I want to hit on a couple of things. Not to beat the dead horse of the Venezuela devaluation, but just want to talk about the mechanics behind it. And I appreciate the guidance or the expectation or sort of the insight into the $20 million, but typically, and you help me out with this, if they -- last time they devalued, didn't -- I understand there's a balance sheet hit, but isn't there sort of a 1-quarter lag where, if you are allowed to raise prices commensurate with the devaluation in dollar terms, that you could actually, within a quarter or 2, make that up? And if so, are you assuming that doesn't happen this time?

Brian J. Robinson

Yes, I don't -- I would say that we haven't been that finite, I guess, in our -- in the way we've described it or thought about it, Tony. I would say, as you know, it's a very sensitive subject. We have to be very careful around it and the pricing situation of the country. So I think I would say, again, we would -- there are a number of just other factors going on in the business which we have to manage every day. So we really modeled it across 2013, a devaluation piece sort of on -- across the year. You're right, and we had this in the slide. You are correct. And again, 3 years ago when the devaluation happened, we had the onetime charge to recalibrate the balance sheet. We also had more noise at that time, if you remember, because there was this preferred rate versus the official rate, which caused some of the -- some geography issues in our P&L. And so we were -- at the time, we were describing the business on more economic terms.

Gregory B. Kenny

So there's products that are price controlled in a sense for certain types of projects and government programs. And obviously, then there's market -- their market pricing. So we're factoring in everything from what is -- what happens with the devaluation to where is it lawful to let supply and demand set pricing. But we have a great team down there, and right now it is what it is, and there hasn't been a devaluation.

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

Okay. So I guess, just to summarize, you're not assuming you'll have the ability to raise prices?

Gregory B. Kenny

Tony, we would have some view, if we watch it over time, and it's probably happen at -- some parts of the market, you're required to sell at a sort of a defined price. Other market prices are supply-and-demand set. So I would expect that we should be able to recover increased costs with a price increase. So, Tony, it's not just the arithmetical, "Take last year's number, divide it by 2." We're looking at a dynamic equation, including some parts of the market where, by law, you're required to serve it at a certain level. It's a price-controlled market.

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

Appreciate that. And then just moving onto the delays and deferrals on the turnkey project. Can you just maybe get a little more granular? Are you actually expecting 0 operating profit contribution in your 2013 guidance from the submarine turnkey? Or are you expecting some contribution, and those things maybe hit, I don't know, fourth quarter of 2013?

Gregory B. Kenny

No, this is -- again, it's a business that is seasonal by nature, because you need to be able to lay cables. It's percentage of completion, but the activity is primarily in the -- it certainly isn't in January in the North Sea, though there is obviously parts being made. We have an internal view that -- well, put aside some of the contractual claims that we would have on some of these delays in insurance recoveries and things like that. Our base view is that the submarine offshore business is around breakeven operating. And we'd like to find a path to beat that. But I think we need to be cautious, because not everything is under our control. But we see the business should be as this industry sorts out and we continue to work through some of the operational issues, which are again complex with many contractors and customers. I would see some ability to do better than that, but we need to go prove it. And again, things happen in this project business, so we're seeing it as basically noncontributory this year. But we're going after some -- if we do some -- if we get the right kind of facts and circumstances, we could perhaps do better than that. And this is, again, not including any recoveries that we might get on various contractual claims we have relative to delays, et cetera.

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

Okay. Great. That's helpful. And just one more on Europe. Just looking at some -- what some of the competitors are saying, similar story with the weakness there. But as I think about where your midpoint of your guidance for operating income is for EMEA 2013 is about $14 million. Prior peak was $160 million. If -- now we've added incremental pieces to the portfolio, is it realistic to think that maybe bigger picture beyond 2013, that 2013 would certainly be the bottom and you would have significant ramp potential on the operating income and volume side after 2013 passes?

Gregory B. Kenny

Yes, we -- I feel better looking forward. I think we're trying to bottom. You can begin to see, in Spain, some investors coming in and picking up assets. There is an overhang of housing in Spanish Spain. We've these assets a while, including Silec, which is a major asset and is contributing. But the -- I would say that Spain, the pricing issues, obviously people are pricing at very low levels to keep their factories absorbed. We've seen some restructuring in Spain and Europe generally. I'd expect to see more. We continue to drive cost out of our Spanish envelope and then pickup business outside of Spain. But it's not -- the margins are not great. Silec is, again, strong on the heels of really a French economy that didn't really have this boom and strong spending on infrastructure generally, or consistent spending in part with a balance sheet of EDF and its -- ERDF and others. Northern Europe is pretty good. And then NSW, I -- we can see a path to profitability, perhaps this year, which would be a happy outcome in 2014. But broadly, I would say that I don't expect a huge snapback in Europe, particularly Spain with the overhang. But I would guess that we're bottoming now, in my judgment. We also are contending with Europe. And Mediterranean includes investments in Egypt and Algeria. And frankly, those are, while they're profitable, they're not strong, given investor concern about new money in some of those countries. So some of that -- we need some of the issues in those regions to settle down. But broadly, Tony, I'd like to think that we're bottoming in 2013, and inevitably, there's always -- it comes slowly in Europe because of the cost, but there's often restructuring. But it does take more time in other markets because of the inflexibility of -- or the cost to actually downsize from the social programs, et cetera. So I'm cautiously optimistic. Our team is motivated there. Emmanuel, who runs the business, is focused and motivated, and he's got a good young team. So I'm hopeful, and we're very committed to that market. It's also the center of a lot of our know-how around some of these complex products and chemistry. So I like our chances.

Operator

Your next question comes from Brett Levy with Jefferies.

Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research

You've been very busy on the acquisition front. Should we expect that to slow down at all? And then kind of, as you continue to progress or make progress there, any particular product areas, geographies that are of most interest? So I mean more of a strategic question. And then lastly, the third part of the question, is there kind of a target range of leverage or credit rating that you want to stay kind of within as you to continue to make these acquisitions?

Gregory B. Kenny

I think we're comfortable with our access to -- where our cash is, where our lines of credit. We're broadly comfortable. We're undeterred, certainly, by the market conditions. As a bit of contrarian, we like things where it brings some great names, and certainly Prestolite and Alcan and Procables are great examples, where we already have high knowledge of the area, products were additive or complementary to what we do. And I think you're seeing, in our view on those businesses, I think we also caught the U.S. in a recovery, happily, and completed those. So the Americas is an area where we are extraordinarily strong. The -- I would say we have the ability and continue to look at things. But it's always that risk/reward, and we'll always make that judgment. But we don't need to do anything. We already have the size, scale and the operating model that allows us to leverage what we do from a purchasing, operational excellence, et cetera. So there's nothing that we have to do. We always will look at what's going on in the market. But yes, I would say broadly we will remain active. But what we need to do is, obviously, see the world continue a recovery around infrastructure, keep getting better internally and get the assets that we've built where they are contributing shareholder value. And we've talked about those investments. So I like where we are. We will remain alert, but I wouldn't say a strong acquisition plan is in our thinking. But if I see opportunities like a Prestolite or Alcan, we'd be interested. We have a big communications business in the company, which we don't talk about as much, but we're in the $800-million plus to $1 billion range of electronics, fiber optics, all-player [ph] networking, and that's an area that we quietly have continued to build. It's also an area of historical strength. But I would say, work our capital hard, operational excellence, and go get a return on what we've got, but stay alert and vigilant to other things. But it's not -- I don't see anything transformative in the horizon. We are transformed, really, when you think about how far we've come as a company over the last 10 or 15 years. So we just need to get into play as well as we can.

Operator

Your next question comes from Yilma Abebe.

Yilma Abebe - JP Morgan Chase & Co, Research Division

On your free cash flow guidance for 2013, anything in there as it relates to working capital use or benefits? Any assumptions there?

Brian J. Robinson

No, nothing major. I mean, it's sort of at the noise level, maybe not -- it's mainly around the cash earnings and the CapEx.

Yilma Abebe - JP Morgan Chase & Co, Research Division

Okay, okay. And then my final question, any guidance on a debt reduction, at least what you wanted to do in 2013?

Brian J. Robinson

Yes, and I wouldn't -- I would say we're working on a lot of different ideas, or actually plans, around an efficient path to move cash around globally. But I -- really, maybe the thing we -- that's on the radar screen in 2013 would be, you'll remember that the convertibles are still outstanding, the $355 million of converts that are due in November. And we've essentially pre-funded those through the high yield that we did last year. So we -- it really put that and the idea of buybacks on hold as we took a viewpoint that we should get through the restatement process and get all the updated financial statements reissued, which we'll do -- which we expect to do here in a couple of weeks. And so then we'll be back to the considerations around the net debt, the converts and buybacks and other -- in terms of capital deployment.

Operator

Okay. There are no further questions at this time. I turn the call back over to General Cable for additional or closing comments.

Len Texter

Thanks for joining us this morning. That concludes our conference call. A replay of this call will be available on our website later today. We appreciate your continued interest in General Cable.

Operator

This concludes today's conference call. You may now disconnect.

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