In the first half of 2024, Nexans (NEX.PA) has reported a significant improvement in its financial performance, with notable increases in EBITDA margin, net income, and operating gross sales. The company has also successfully completed the acquisition of La Triveneta Cavi, which is expected to contribute positively to earnings and generate considerable synergies.
With the expansion of their Halden plant and a solid backlog, Nexans is poised for continued growth and is actively exploring M&A opportunities. Despite an increase in net debt due to bond issuance for the acquisition, Nexans maintains a strong cash position and has upgraded its EBITDA guidance for the year.
Key Takeaways
- Nexans reported an 11.6% EBITDA margin and a 32% increase in net income for the first half of 2024.
- The company saw a 6% increase in operating gross sales and generated €79 million in strong free cash flow.
- The acquisition of La Triveneta Cavi is expected to be immediately accretive to earnings and generate €20 million in synergies.
- Nexans celebrated the expansion of their high-voltage subsea cable plant in Halden, doubling the plant's capacity.
- Adjusted EBITDA increased by 16% compared to the first semester of 2023, with organic growth of 6.1%.
- Net debt rose to €810 million, primarily due to bonds issued for the La Triveneta Cavi acquisition.
- Guidance for adjusted EBITDA has been raised from €670-730 million to €750-800 million.
- The company anticipates margin improvements starting in 2025 and reaching above 17% by 2027.
Company Outlook
- Nexans expects a slight slowdown in the second half of the year due to seasonal effects.
- The firm backlog stands at approximately €4.7 billion.
- Nexans is actively pursuing M&A opportunities, particularly in Asia Pacific.
- The company is working towards achieving investment grade status next year.
Bearish Highlights
- Net debt increased due to the acquisition of La Triveneta Cavi.
- There is a potential risk of delay or cancellation for the Great Sea (NYSE:SE) Interconnector project.
Bullish Highlights
- The acquisition of La Triveneta Cavi is expected to boost earnings.
- The company is expecting significant revenue and margin contributions from the Great Sea Interconnector and other contracts in the coming year.
- Nexans has a strong backlog and is negotiating big projects with awards expected before the end of the year.
Misses
- No specific misses were discussed during the earnings call.
Q&A highlights
- Executives discussed the balance of organic growth and earnings in the distribution market.
- There is a positive outlook on the accessories business, with a 5% growth in volume and a 2.4% margin improvement.
- Nexans is finalizing plans for the divestment of the distribution and automotive harnesses businesses.
- Upcoming Q3 results will be announced on October 30, with an Investor Day in London on November 13 and in New York City on November 20.
Nexans' financial performance in the first half of 2024 reflects a company in a strong position for future growth. With strategic acquisitions, plant expansions, and a focus on generating additional cash flow for M&A activities, Nexans is actively shaping its future in the energy sector. The company remains cautious about potential challenges but is confident in its ability to navigate them successfully.
Full transcript - Nexans (NEXp) Q2 2024:
Operator: Ladies and gentlemen, good morning, and welcome to Nexans' First Half 2024 Earnings Conference Call. As a reminder, this conference call is being recorded. [Operator Instructions] I would now like to turn the call over to your host for today's conference, Mr. Christopher Guerin, Nexans' CEO. Please go ahead, sir.
Chris Guerin: Thank you. Good morning. Welcome, everyone, and thank you for joining us today for our H1 2024 result presentation. This is Chris Guerin, CEO of Nexans. With me is Jean-Christophe Juillard, Deputy CEO and CFO; and Élodie Robbe-Mouillot, VP, Investor Relations. I will turn you over to now Élodie for the conference call rules.
Élodie Robbe-Mouillot: Thank you, Chris. Before we start, I would like to remind participants that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We invite you to visit our website where you can find, and on our URD, which includes a description of the group's risk [indiscernible]. I'll now turn you over to Chris, who will go over the first half highlights.
Chris Guerin: Thank you, Élodie. Let's go to Page 4. So as you can see, we are starting with a very, very strong financial performance at 11.6% EBITDA. So very pleased to report the strong financial performance for the first half year, driven, of course, by as you will see later, Electrification business organic growth, and as well further enhanced by the successful integration of La Triveneta Cavi that started the first of June, a strategic move for us in the European footprint of product offering. We achieved as well a 6% operating gross sales, a 16% increase in adjusted EBITDA, 32% for net income. And as you can see, we're reaching €412 million EBITDA on a margin of 11.6%. We have, as well generated a strong free cash flow of €79 million and maintenance of a solid balance sheet with a leverage ratio of 0.7. Based on this result and our positive outlook for the second half of the year, we are upgrading our guidance, I will let J-C explain the magnitude of this upgrade. Last but not least, as you can see on this slide, we have still a very strong backlog. I'm sure you will have question on organic Great Sea Interconnector, happy to answer what we can. And as well, a very strong engagement of our team. We keep progressing on the engagement rate, and we reached 78%, which is a record of our engagement rate for Nexans. If we move to page -- to Slide #5. You can see and we are very proud about it, the evolution of the EBITDA semester after semester. And you can see that with the €4.12 million we have achieved in 6 months for the one that you remember what we achieved for the full year of 2019. So in 6 months, we are doing what we were doing before in 12 months. So it's a very strong progression. Normalized free cash flow is about €189 million, and with a very good cash conversion. On the return on capital employed, we reached 22%, including the [indiscernible], including the goodwill of La Triveneta Cavi. So without the goodwill, it's about 27%. And for the group, return on capital employed, it's 20%. And without the group, it really would have been 22%. If we move to Page 6, so as I mentioned, we completed in early June, the acquisition of La Triveneta Cavi, renowned leaders in the European cable industry. This strategic move is not just an acquisition, it's a significantly -- that aligns perfectly with our ambition to become a pure player of electrification. It's our third acquisition with reaching a revenue in total with Centelsa, REKA and La Triveneta €1.4 billion. If we go to La Triveneta specifically, the acquisition value -- enterprise value of €500 million, is said to be immediately accretive to our earnings per share and we delivered. This is the new information that we have not announced before, an equivalent of €20 million synergies. This calculation is based on the successful track record of the integration of Centelsa 2 years ago and REKA last year. And you know that we have exceeded our expectations both in terms of overall value of synergy with Centelsa, REKA and as well as speed of synergy implementation. So with the €20 million that you see, we are pretty optimistic to achieve this number and to beat that number in the coming months. If we move to Page 7. In this first half of the year, we celebrated the grand opening of the newly expanded section of our high-voltage subsea cable plant in Halden expansions with all customers, more than 50 customers joined us with as well partners and journalists. It marked as well the 50th anniversary of Halden. So this project initiated in November 2021, this construction of this state-of-the-art facility incorporates some of the most sophisticated cable production technologies available today with the capability to deliver subsea cable up to 525 kV for HVDC on 420 kV for [HV]. This expansion more than doubled our plant capacity for HVDC extruded cable. It's also introducing a monumental 153-meter second extrusion tower, allowing us to insulate 4 cables simultaneously. And this tower is not only a marvel for industrial engineering, but now stands as the Norway's tallest building and its first skyscraper. It's not New York, but almost. If we move to Page 8, a very strong bit as well for amplify, which is linked to our strategic initiatives, specifically the acceleration of our the solar offers and all renewable offers. So it's a strong bid for us for the amplify as well for SHIFT Prime, which is, if you remember well, the premiumization of our offer that's yielded substantial and structural results and that helping this, of course, this is a great performance in terms of EBITDA because everything we do on the SHIFT program is purely structural and not linked to any contractual effect. This outstanding result underscores the relevance of our strategic levers, transformation playbook and the commitment of our team to drive value creation and of course, innovation. Let me hand over to J-C for the description of the results business by business.
Jean-Christophe Juillard: Thank you, Chris. So moving on Page 10 and I will start with the organic growth of Nexans for the first semester '24. So as you can see here, very strong organic growth for the semester compared to semester of '23, 6.1%. As usual, if you exclude the metallurgy decrease, which is part of our strategy to focus on our needs and reduce external sales and the organic growth is at 9%, excluding the other activities. You see the split between the businesses. The growth expansion of the top line is mainly coming from Electrification. It's completely coming from Electrification, I would say, where you see a 14.1% growth as well as an increase also in margin. I will explain in the next slide which business are driving this Electrification push. In terms of looking at the business on Non-Electrification, we have a slight decrease after, if you recall, a strong 2023 organic growth, mainly coming from automation and mining, where shipbuilding is -- other businesses like shipbuilding are performing extremely well. So it's, I would say, a mixed bag of strong trends, positive and other ones slightly declining. Also on the harnesses business after 2 years of very strong organic growth we are seeing, we think today, I would say, a plateau in terms of sales. For the group, the margin is expanding almost 1 point at 11.6%. I remind you that the objective of the equity story '21-'24 was 12%. So we are reaching the high part of the commitment we took 3 years ago at 11.6% on this first half. If I move now to the next slide, I will start with the Generation & Transmission. Last year, in the first semester of 2023, we had a difficult semester in terms of margin on that business, where we reached, unfortunately, a very low point of 8% margin. We said that we will gradually recover on that margin. We've done a second semester of 2023, where we moved from 8% to about 10%. And we said that gradually, this will be improving with, I would say, still a plateau in 2024 and starting '25, we will see 2 points additional to the margin every year. So we confirm that, as you can see on the first semester of 2024, where the margin is 11%. We have a 64% organic growth on the business, mainly explained by the additional capacity in Halden with the 2 new lines that are now in operation in the beginning of 2024, serving basically the big increased backlog, as you see, €6.7 billion record backlog for Nexans, another growth of 30% versus June of 2023. Page 12, if we look at Distribution, this is the second part of the business, which is in Electrification after G& T, that is now performing quite well. we have decent organic growth at plus 2%, mainly driven by accessories, which has a very strong margin, driven by Europe also where we see a stronger increase in demand in Europe by utilities, plus 9% organic growth in Europe. Overall, 2% organic growth and a very strong boost in the margin, as you can see, where the margin percentage increased by 2 points to 16%, and the total adjusted EBITDA from June '23 increased by 20%. So we are very happy, and we continue to see this strong momentum in terms of margin and top line in the distribution business. And we believe that the visibility and the expectation for the coming year remains quite strong in Distribution. Usages on the next slide, on Page 13, a moderate organic growth, plus 1%, with also, I would say, a different performance according to the geographical area. Europe, slightly down, minus 4%. We see a strong improvement in top line and organic growth in South America. We see a strong 15% growth in Middle East and Africa. North America is flat -- slightly decreased, minus 1%. You see also that the margin remains stable, I would say, we continue to see in the margin level what we started to see in 2023, which is a normalization in North America, both in terms of volume and a little bit in terms of pricing. And therefore, this is compensated by improvement in the region I said. I told you about, but again, we are continuing to see this normalization in North America, which is eating part of the additional performance in Usages from the other geographical area. We believe we will talk about that, I'm sure in your question, but we see second semester -- third quarter and the second semester of that should remain at a good level with a normalization in North America ending in June. I will take you now on the next section, which is the key financials, and I will start on Page 15 with our profit and loss. So as Chris mentioned, adjusted EBITDA up 16% versus first semester of 2023. Organic growth of plus 6.1% as explained previously. We have an operating income at €291 million with flat reorganization cost. Income before tax, €247 million, an increase in financial result, net financial result due to the cost of debt, which has been increasing versus first semester of last year. Income tax also increasing because of higher profit for the company. And the net income reaching €176 million versus €134 million in the semester last year. And you see on the graph that the contribution of €47 million of the Electrification businesses and the growth of the EBITDA to reach 11.6% EBITDA margin for the semester. On Page 16, we have a look at our net debt and our balance sheet. And you see that, I mean, of course, leverage slightly increased from 0.4x to 0.7x, mainly due to the bonds that we issued to finance the acquisition of La Triveneta Cavi, €575 million, that we oversubscribed 2.5x. Strong cash from operation, I would say, not a change in working capital, which is flat. I mean, we've seen over the past year, significant improvement in our change in working capital. We were close to almost 0 working capital on sales At the last closing, we are at 2%, so a slight increase, but again, we believe that the normalized level of working capital and sales would be rather below 6%. So continue to have a very low working capital. CapEx continue to be high, I would say, versus a normalized CapEx of the company because of the strategic CapEx, we continue to invest in high voltage. We have in the first semester, the completion of the new line of Halden that started to generate revenues and margin, as I described before. And we are in the middle of the building of our new vessel Electra and we spent €84 million in the first semester and the CapEx for the building of the vessel. So out of the €191 million of total CapEx, €105 million are related to investment in G&T. The rest of the bridge for the net debt is mainly the dividend payment that we had for €101 million in May. And that put our net debt at €810 million for the semester -- at the end of the semester, which is again a leverage of [0.5x], remains very strong balance sheet and low leverage with a lot of room in our covenant. If I move now to Page 17, and we look at our cash, you see that we have a strong cash position in our balance sheet. Remains at, I would say, the same level of December '23 at €1.1 billion. Strong liquidity, €1.9 billion. If we include the undrawn revolving credit facility for €800 million, you see the maturity of our debt and our gross debt at €1.9 billion with 2 new bonds, '29 and 2030, one to refinance -- bonds that came to maturity in April of 2024 and the €350 million bond and the €575 million, maturity 2029 to finance the acquisition of La Triveneta Cavi. So that's including the financial statement presentation as well as the business overview. I will now move to the outlook on Page 20. So on the outlook, we want to capitalize basically on the strong performance on the first semester, the good visibility that we have on most of our businesses for the second half of the year, and we are increasing the range of the guidance for adjusted EBITDA on €670 million to €730 million, which we announced in February, to a new range of €750 million to €800 million. That, of course, includes the contribution of 7 months of La Triveneta Cavi that will contribute for roughly €40 million of EBITDA. So if you just take the midpoint of the previous guidance, which was €700 million and the midpoint of the new guidance, €775 million, then you know that €40 million of that is coming from La Triveneta. I would say at similar scope, the increase of the guidance is €35 million from the strong performance of the business. In terms of normalized free cash flow, same thing, we included, obviously, the performance of La Triveneta, and we increase the low part of the range and the high part of the range from €200 million to €300 million, to €275 million to €375 million, both of those KPIs, whether adjusted EBITDA or normalized free cash flow will be a complete record for Nexans in terms since the IPO in 2021. That being said, now I will turn to Chris for a word of conclusion.
Chris Guerin: Yes, just a word of conclusion to remind everyone that we will have our Capital Markets Day in London, November 13. And we will do, the following week, on November 20, U.S. Investor Day, as we have a pretty strong base in U.S., in New York City. Wallah, let me now turn for the Q&A.
Operator: [Operator Instructions] We will take the first question from the line of Akash Gupta from JPMorgan (NYSE:JPM).
Akash Gupta: I have two to start with. The first one is on guidance and the implied second half based on the new range. So when we look at implied second half, it kind of implies significant slowdown in -- or noticeable slowdown in the second half versus first half. So maybe if you can elaborate on where this slowdown is coming from, and also, what particularly you have assumed for G&T where we are hearing some delays from EuroAsia financial close? So that's the first one to start with.
Jean-Christophe Juillard: Okay. Thank you, Akash, I'll take the question. So indeed, but you know Nexans quite well. And typically always in the second half, we have the seasonality effect and typically in the second half, our EBITDA is always lesser than the first half. I mean just take the month of July and August in Europe, for vacation time, you lose 2 weeks. You take it again, December, you lose a couple of weeks. So we, on average, losing a month of activity versus the first half. So by structure, I mean the second half is -- I'm talking outside of G&T, which is obviously a long-term project, which is different, but at least for Usages and even for Distribution and Industry & Solutions, there is a cycle between first -- different cycles, different first half and second half. So that's number one. Number two, to answer your question on G&T. So what we are seeing in G&T right now is that we will be at the same level of margin for the second half and the first half, roughly around 10% to 11%. The idea is to remain -- the improvement will start in the next years, mainly in 2025, when we'll be completed with our legacy contract [indiscernible] that was impacted starting 2022 with inflation and the ramp-up cost in Halden and Charleston. So that's one thing. While we also took some cautious view regarding Great Sea. You understand that Great Sea and you know that Great Sea is not we still don't have the financial close on the project. We're expecting the financial close of Great Sea happening by the month of August. So we are confident that this project will start for good and will happen. Unfortunately, right now, we're still waiting for the financial close. So in the guidance, there's a little bit of cautious here to ensure that even if we don't get Great Sea, we can achieve the guidance without any issue. So really, this is factored also into the guidance of the year. So we're a little bit conservative when it comes to that. So that's explaining maybe -- so a couple of reasons explain why you see a second half slightly below the first half in terms of EBITDA performance.
Akash Gupta: And my second one is on G&T. So I think Chris mentioned that the new tower can take 4 cables inside. So does it mean that you have some flexibility to increase capacity if you need to, in that case, you don't need to build a new tower to add 2 more lines in Halden factory?
Chris Guerin: No, no, very limited, very limited. I think right now, the extension we can do is mainly in Charleston. But today, then will be quite fully loaded in coming years. We still have some room in Charleston in 2026 for further award that we are working on. But no, we’ll be at our marks, I would say.
Operator: We will take the next question from the line, Alexander Virgo from Bank of America (NYSE:BAC).
Alexander Virgo: I just wondered if you could give us a little bit more color on the ramp-up in margins in GT. Obviously, doubling or introducing a new factory and allowing for La Triveneta effect, et cetera, is one of the reasons why perhaps the operating leverage isn't as strong as one might expect. But I just wondered if you could give us a sense for how we should about that margin moving from here. I appreciate your comment there that H2 margins 10% to 11% or so is a starting point. But just thinking about how we model that over the next couple of years? That obviously would be helpful.
Jean-Christophe Juillard: Yes. So definitely, I mean, the answer to your question, Alex, is similar to the one I gave to the question of Akash before. I mean, we're still in 2024, completing or advancing on most of our revenue on the legacy contract, the contract that we've seen a stronger margin decrease last year, mainly in the first semester of last year, and we have to execute and complete. So this remains a bulk of the revenues in 2024, explaining why the margin is not improving that much, at least versus second half of '23. We will be, again, the revenue of next year, I mean, providing we have obviously Great Sea Interconnector signed in August. This will be an important provider of revenue and margin next year as well as the [TenneT] contract and [indiscernible] contract. And definitely, we will move to executing new part of the backlog with higher margin explaining why starting 2025, the margin will start to move up above 11% and then gradually, again, around 14% to 15% in '26, to be above 17% in 2027. So this is just, obviously, planning, we have no execution issue. This is basically the ramp-up of the life of the projects that explains margin improvement semester of the semester and year after year. So that's basically how we see it. Why 2023 was lower than '24? We had some one-off in 2023. We don't have the one-off in 2024. We just have the execution of the low-margin project which is explaining why we are slightly better than 2023 in terms of margin, and this will continue over the years, as I explained.
Alexander Virgo: Okay. That's helpful. And perhaps I could push you a little bit on Great Sea. So what if we don't get it signed in August. I appreciate that it's no longer really in the guidance, which is very helpful. but I'm thinking about sensitivity for next year. And how much -- how delayed can it be, if you like, before we need to start thinking about a material impact on the business?
Jean-Christophe Juillard: Yes. So we've been very careful on this project. We've recognized margins in the first half of the year. We recognized sales and margin despite the financial close did not yet happen, but we have received cash. So basically, what we've been doing is we have been recognizing margin up to -- cost and margin and revenue up to the level of cash we've received from the customer. And this cash is nonrefundable. So we're just taking no risk at all, at least up to now. The changing point would be in August when basically the financial close need to happen for us to receive more cash and to continue progress on the project. So I would say for 2024, what has been recognized is guaranteed, both as I explained in terms of margin and obviously, in terms of cash because it's nonrefundable. The risk is on the second half, but it's not in the guidance. And for next year, I mean, the contribution of Great Sea for next year is important, I have to say, but we have time also to find other ways to mitigate part of the shortage, if it happens that Great Sea is not confirmed in August, we have many other projects that we can move into the production lines and basically mitigate part of the contribution of Great Sea. So that's basically how we're working on the Plan B if, unfortunately, this project does not materialize in August.
Chris Guerin: Yes. And actually, if I may add as well on J-C’s comment is – of course, we monitor very closely this project on this ongoing financing like any other project. We see a sign of progression in line with terms and conditions of the contract and we think – we are very confident that the authorities will come to a positive decision. And we are very committed to that project. I would say step by step, it’s not in the guidance, in the further guidance of the group for 2024. And I think we will have further comment on the next quarterly results because here, we will see if this discussion ended positively or not, and we’ll give you more guidance for 2025 at that time.
Operator: We will take the next question from line, Daniela Costa from Goldman Sachs (NYSE:GS).
Daniela Costa: I wanted to clarify sort of some of the prior comments and also link it with the backlog. So you said sort of the backlog is €6.7 billion, I guess, one, you're including €1.4 billion in there, that is EuroAsia. And how much is also in the €6.7 billion that is frame agreements not yet called off. So effectively sort of how much is what is really firm? And of that, what is for delivery next year that it's not EuroAsia?
Jean-Christophe Juillard: So what we have in the firm, we do not have, like you say, EuroAsia, which is €1.4 billion. We have some of the frames, the course of TenneT, which are in the adjusted backlog, but not on the firm backlog.
Chris Guerin: So we have, if I may, we have two cores that are in the backlog and 1 [indiscernible] project, which is not yet in the backlog.
Daniela Costa: Sorry, just to make sure I understood. So of the €6.7 billion, €1.4 billion is EuroAsia, so €5.3 billion is backlog including frame agreements and frame that it's not EuroAsia. Of that €5.3 billion, how much is firm versus frame agreements?
Chris Guerin: Let me check. It's about €4.7 billion which is firm...
Daniela Costa: Yes. And you say it extends -- some of these extends up to 2030. So what's the utilization you have for next year if EuroAsia doesn't come through?
Chris Guerin: The EuroAsia project is produced in our unit in Japan. It's not in Halden. So it's really -- Halden is fully loaded for next year as well as Charleston. So the impact will be the negative impact of any delays on consolidation will concern our Japanese plant, which was most bold in the last 2 years because of lack of project in America.
Daniela Costa: And when you mentioned you can bring some projects to try to fill that up. What are the big tenders out there that are MI that could come?
Chris Guerin: First, we can pull up some projects in some buffer planning that we have in Halden and Charleston. It's very limited. It's fillers than -- I would say, big hole. And after for MI, I will not comment the project that we are working on to compensate for a question of confidentiality.
Daniela Costa: Just 1 final clarification also on the point that you mentioned earlier that you received cash from EuroAsia. Did you receive it in the first half in terms of inside your normalized free cash flow, how much is included from advances of EuroAsia?
Jean-Christophe Juillard: Yes. We did receive up to June about €120 million.
Operator: We will take the next question from the line of Bastien Agaud from Berenberg.
Bastien Agaud: On your backlog, what kind of margin should we assume at the top of your order book given the strong pricing power that you have following the shortage of manufacturing capacity?
Jean-Christophe Juillard: Sorry, you mean the margin on the backlog? The margin of the backlog...
Bastien Agaud: [indiscernible] what kind of margin do you have in terms of projects with high margin?
Jean-Christophe Juillard: We have to -- the way we segregate it, we divide our backlog, basically, we have all the projects, which are wind offshore projects, which are roughly projects typically in the backlog around between 12% to 15% EBITDA margin. And then we have the Interconnector project, which requires long length -- deep sea long length installation, typically EuroAsia, Celtic and [indiscernible] we had in the past and so on. Those projects are higher margins. They are above 15%. And depending on the project, they can reach up to 20%. So -- and the backlog is about today the €6.7 billion is split between about 50-50 between the 2. So that's basically how you can drive the margin of the backlog of Nexans.
Bastien Agaud: Okay. And I have another question on M&A. Yesterday, you appointed someone for your Distribution & Usage division in North America. Should we assume that in terms of M&A, your next target will be probably in the U.S. or we shouldn't assume this right across?
Chris Guerin: Yes. We hired a great guy in Canada coming from Southwire, Tim King. And no, I think we have not changed our, I will say, investment thesis, Bastien. We have 3 of them first to acquire companies in a market where we’re already present and when we know we can premiumize better our offer. That was the case of Centelsa, REKA and partly La Triveneta. The second is acquisition in bigger countries where we have a lower presence. So of course, that could be U.S., but U.S. is much more consolidated and now with 2 top players like [indiscernible] is generating more than the 50% to 60% market share there. So of course, the small-sized player will have difficulties to compete in the long term with these 2 great companies. And on the third is any kind of great investment or acquisition we may do in Asia Pac with a double-digit growth that can help the evolution of our business portfolio. So that’s the 3 cases that we are following, no change, no change. We’re still very active because you can see that economy is not as flourish as before in general, and the stronger companies will win, and this is why we have great opportunity coming up in the coming months in acquisition.
Operator: We will take the next question from line, Alasdair Leslie from Bernstein.
Alasdair Leslie: A few questions on Distribution. We obviously saw a great improvement in the margin, but just on the growth -- and I kind of appreciate the selectivity focus, but the growth is still a little bit muted in H1. You kind of flagged 9% growth in Europe, but 2% overall. I was just wondering if you could expand on the trends in the markets outside of Europe. I think you mentioned in the slides the project delays in North America, South America, so that those come back in the second half. And just generally about sort of -- I don't know to what extent obviously, just growth is limited by capacity constraints. I was just wondering if we have to wait for the kind of Morocco facility to come on stream to see kind of real acceleration there perhaps more in line with demand. And then just finally, just on these new framework agreements in distribution. I just wondered how many of the older ones are still due to roll off? Is there still a sort of drag from some of these older contracts or we've seen this kind of improvement in pricing sort of fully come through now?
Chris Guerin: Yes. Thank you. I would say that there is -- we are not yet at the full saturation of the capacity -- but in the organic growth that you see in our results, what I can mention is that if we are willing to take, I would say, 2 points more incremental growth, it will be dilutive to the earnings. So this is what we balance every week and every month in terms of order intake. It's just a question, growth for growth, is that if you are able to deliver this 16% EBITDA, which is a record in our history for distribution market, it means it's a very, I will say, fine-tune recipe to go to a good utilization of your process, a good, I will say, fulfillment of your process as well saturations. But as well making sure that you don't bring too much complexity and you select only the accretive product and accretive, I will say, customers because I could generate easily 5% to 6% growth in that market. But in that case, my EBITDA will be closer to 10% to 12%. So that's a very fine balance that we need to work with. And secondly, in terms of your question for your frame agreement, I will say that 50% to 60% of them have been renewed. We still have 40% that has to be renewed.
Jean-Christophe Juillard: And if I may add just to go in the detail a little bit of how this margin is built up in H1 '24, I mean it's been a really strong increase in Europe. I mean in Europe, we've seen plus 9% growth in terms of revenues. And the margin, the EBITDA margin from last year to this year moved from 8% to 12.6%. So we gained 4.6 points on margin on the business, which is the largest one, has made of the sales, that also grew by 9%. So I would say that the momentum that we're seeing today is quite exceptional. And also why we see where we get a lot of value within the accessories business, like not the cable itself, but basically all the accessories that connect the cable, for instance. We see a strong, nice improvement both in terms of volume on that business, that has been growing -- that grew 5% over the period versus last year. And the margin on that business also improved by 2.4% to reach more than 20% EBITDA margin. So I mean, we see both momentum, I would say, on the cabling itself with a strong push from Europe as I described, both in terms of volume and margin, but also on the accessories business for the same reason.
Alasdair Leslie: That's fantastic detail. Could I just ask what sort of portion of the Distribution businesses, accessories, just broadly?
Jean-Christophe Juillard: Roughly 20%. Yes, I was going to say it’s about €300 million, €400 million. Yes, 20%.
Operator: We will take the next question from the line of Eric Lemarie from CIC.
Eric Lemarie: Yes. I got three, actually. The first one on the competitive environment. Did you observe any change in this competitive environment in Europe and North America? Any Chinese or other international player interested to do some business in your areas? Second question on the Great Sea, could you tell us maybe what was the contribution of the Great Sea on H1 margin for G&T? And the last question on U.S. politics. If Trump becomes President of the U.S., do you see any specific risk on the renewable sectors and notably the offshore wind sectors?
Jean-Christophe Juillard: Eric, I will take the Great Sea question, and I will let Chris answer the other question. So the contribution of Great Sea in the first half has been €60 million of sales, €25 million of EBITDA contribution, €110 million of cash, €120 million of cash received and a net cash position of €71 million.
Chris Guerin: Yes. Regarding the evolution of – I’m talking of Generation & Transmission, Eric. Yes, of course, we see a lot of expansion on capacity creation in China so far, very, very strong. We have more than 7 players in China doing a subsea cable for offshore wind farm. That can generate on the long term, 2032, I will say, an oversupply if China is able to deliver in Europe, of course. But this is, of course, I would say, it’s not, I will say, a threat in the short term. For the European player, but it’s clearly a threat in the long term. And the long term is starting in 2032, I believe. So I think there will be new – more than 8 new production lines coming up in coming years in China on top of what have been – will be quite significant. And it’s clearly China are building more capacity than what their domestic markets requires in terms of cable. So we have, of course, to be extremely vigilant on the evolution of the Chinese players. You have seen as well that ALS is coming up in Europe. You’ve seen as well that Sumitomo is building a plant in Scotland. So because they have been attack as well in their area from – by the Chinese players. So – we have to make sure that Europe is not becoming the Eldorado of the Asian players. Regarding President Trump impact, I have many times the question, we need to acknowledge, difficult to answer, of course, but we need to acknowledge 1 thing is that when we’ve decided – when we decided to invest $150 million in Charleston to upgrade our capacity to turn it subsea for offshore wind farm connections, it was under Donald Trump’s presidency. And what we’ve seen as well is that under President Trump’s mandate, we’ve seen a positive acceleration of all the permit on everything, which is regards to administrative release offshore wind farm development. So there is the speech, but there is as well the reality that the state are – the owner of the project and are still willing to invest massively in coming years in U.S. So I don’t see a slowdown with all the commitment that New York State took recently, New Jersey, Massachusetts, is Donald Trump is winning in coming months.
Operator: [Operator Instructions] We will take the next question from line, Lucas Ferhani from Jefferies.
Lucas Ferhani: And the first question on high-voltage, just on the organic growth at the end of last year, when you set the guidance, you were targeting 40% organic growth for the full year and now 64% in H1. Where do you think you'll end up in the full year versus what you had said? And just also on the margin progression in Generation & Transmission. So H2 will be similar to H1, so about 11%. And then I think you said earlier on the call, an additional 2 percentage points per annum in '25 and '26. Did I hear that right?
Jean-Christophe Juillard: Yes. I will take, Lucas, the past quarter question on G&T. Yes, we are above -- there's a little bit of mechanical impact of why we are 64% versus 40% that we announced last year for this year. It's the fact that we started to do progress on the Great Sea Interconnector in 2023, but we didn't want to recognize margin at the time. And we started to recognize the margin basically when we got the cash down payment at the end of December. So there is a onetime effect of you release basically all the cost incurred on the balance sheet to the P&L, which is basically taking a onetime impact on the sales, which has been helping also growing the first semester of -- versus what we said. The answer to the question regarding what will be the second half of the year and what will be the full year in G&T growth? I mean, again, it depends on basically the materialization or not of the Great Sea Interconnector project in August because the contribution of that project which is quite significant in the second half. So depending if we think we will get it, and it will happen, then we should remain in a similar -- I mean, between 55% to 65% organic growth for the year. If this project does not materialize, we'll have to stop on the sales recognize at the end of June, and it will be slightly lower 50%.
Lucas Ferhani: Sorry, on the margin point, if you can confirm that.
Jean-Christophe Juillard: So the second question you had was on the margin provision on Distribution. Was it like..
Chris Guerin: Can you answer to your question?
Lucas Ferhani: Yes. Just on G&T, I think I heard you at the beginning of the call, I think you said an additional two percentage points per annum in '25 and '26 and H2 should be similar to H1. So you could end up this year at 11%.
Jean-Christophe Juillard: Yes, between 10% to 11%, I said, yes.
Lucas Ferhani: So that means you should reach kind of about 15% by 2026. I think expectations were slightly higher. Is there a reason maybe behind that? Is there any chance?
Jean-Christophe Juillard: I don't know why you said that -- I mean, maybe expectations were higher, but that's not what I said. Starting 2027, we will be at 17%. We will gradually increase the margin progressively. It's just a question of execution of the backlog that we have today. I mean, obviously, the big question remains Great Sea Interconnector and how this will play over the next years, this will be part of the picture or not. But assuming it is what we think is going to happen, you will see 2%, 2.5% increase per annum. And then by 2017, we -- 2027, sorry, we should be aiming to be at 17% margin.
Lucas Ferhani: Perfect. No, that's super clear. And if I can add 1 just on M&A and disposal. On the M&A side, is the focus more on LTC at the moment? Or if there are opportunities out there? Will you still kind of continue to potentially add something even as early as H2? I mean the leverage is higher, but it's still on a decent level. And on the other side, is there any update you can give on the disposals in Industrial?
Jean-Christophe Juillard: Just 1 word on the leverage. So the leverage is higher. We have a little bit of home like you said, we continue to pursue the objective of becoming investment grade starting next year. So obviously, that will put some cap at our leverage level, probably around 1.5x net debt-to-EBITDA. So we like to say, we have a little bit of room. And we have also, I mean, starting the second part of next year, we will be generating much more cash flow because of the completion of our strategic CapEx. So between the gap in the leverage and we can still feel plus additional cash flow generation, we could be making -- we will be making starting second half of next year, then definitely we'll have room for M&A. And then we have obviously the potential proceeds from divestments which are ongoing -- M&A.
Chris Guerin: Yes, we have finalized the carve-out of the distri business and ready to test the water in the coming months for the divestment of distri business, and of course, keep moving on the divestment on the automotive harnesses. Regarding acquisition side, we have a team for the integration, working on [indiscernible] the team for acquisition -- our M&A guy is in front of us. So looking in his eyes, he looks to be very active and a lot of work right now. So not sure he'll take some vacations during summers. So yes, more to come. I cannot comment more.
Lucas Ferhani: Perfect. Sorry, if I may, a last one, just on the high-voltage backlog, I think it's flat sequentially, it's still on high levels. But I'm just wondering if you had anything from customers and on the pipeline that you have, it seems and one of your competitors highlighted that there's a bit of a wait-and-see attitude from some of the customers that additional capacity is coming that they give a lot of visibility already and maybe taking a bit more time to add to kind of the orders. Just wondering what are you seeing on the high-voltage of this?
Chris Guerin: We have some projects under negotiation or standstill period that I cannot comment right now, but you should see awards coming up before the end of the year, not small. Material one. Very, very, very big one.
Operator: We will take the next question from the line of Jean-Francois Granjon from ODDO.
Jean-Francois Granjon: I just want to comment on the Great Sea Interconnector to proceed the risk -- taking into account the current discussions with the governments, do you see some potential delay or cancellation of the project? I think there is some question regarding the financing and the participation to the European community, et cetera. So do you see just a delay? Or do you see a risk of cancellation of the full project?
Chris Guerin: It’s a question where you cannot get an answer, Jean-Francois. First, because we are not part of the stakeholder in the negotiation. What I can tell you without disclosing confidential information that, that there was a call with the European Commission. Cyprus government has been extremely positive in the last days. All stakeholders expressed their willingness to keep moving that project. I think the topic is more on the regulatory in Cyprus. But I’m sure that before mid of August, they will find a solution between them. I cannot comment more, Jean-Francois. Sorry for that. We are not part of the negotiation.
Operator: There appears no further question at this time. I'll hand it back over to your host.
Chris Guerin: Thank you. Thank you, everyone. We have a pretty extensive connection of people, more than 300. Thank you. So as a conclusion, just a quick reminder. The Q3 results will be on the 30th of October. And of course, we are welcoming you in London on November 13, for our U.S. Investor Day in New York City on the 20th. We wish you a great summer break. Thank you very much.
Jean-Christophe Juillard: Thank you.
Operator: Thank you for joining today's call. You may now disconnect.
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