Nexans S.A. (NEX.PA) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to Nexans' Half Year 2025 Earnings Conference Call. As a reminder, this conference is being recorded. [Operator Instructions] I would now like to turn the call over to your host, Mr. Christopher Guerin, Nexans' CEO, to begin today's conference. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to Nexans Half year 2025 Results Presentation. I'm joined today by Jean-Christophe Juillard, Deputy CEO and CFO; and Elyette Roux, Executive VP for Power Grid and Accessories. I will turn you over to Audrey Bourgeois, our Investor Relations, for the conference call rules.

Thank you, Chris. I would like to remind participants that statements made during the conference call, which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Readers and listeners are strongly encouraged to refer to the disclaimers, which are an integral part of our universal registration document, along with the audio replay of today's call that will be posted on our website, nexans.com. I now turn to you, Chris, who will go over the H1 2025 highlights.

Thank you, Audrey. We are very pleased to share with you what we believe which is not just a strong set of results, but the clear manifestation of a company that knows where it's going and why. Our first half 2025 performance is not the product of a momentum, it reflects the structural strength of the model that we shaped over the last years, essential, focused, selective recession proof with very strong portfolio discipline, capital efficiency, operational simplification. As you can see, we keep delivering consistent performance in inconsistent times. I will talk as well, we're now entering in a new phase amplified by artificial intelligence that I will mention later in the presentation. So let's go to Page 4. Let's be clear, it's not, as I said, a good set of results. It's about transformation of the group, consistency on delivering. It's about teams, Nexans teams across 41 countries, executing with discipline on facing global headwinds. What we can say, of course, is a great organic growth of 4.9% for the group, but an exceptional electrification organic growth nearly to 8% for Electrification. The group adjusted EBITDA is at 11.7%. JC will detail a bit more this, but the Electrification adjusted EBITDA reached 13.7%. Thanks to down payments, we had an exceptional cash conversion in the first semester with a 64% cash conversion ratio and as well a record return on capital employed, 21.6% for the group, 27.5% for Electrification. Of course, I will come back in a bit more details about our recent strategic acquisition, RCT and as well, of course, the successful divestment of Lynxeo. Let's move to Page 5. I love that slide because you can see that steadily we keep outperforming semester after semester. So we reached EUR 441 million of EBITDA, EUR 450 million at constant scope, and exceptional free cash flow at EUR 282 million had been reached for the first semester. And as I mentioned, return on capital employed at 22%, which marked a record for the group. Constant scope is about 24% as well Electrification that has been already mentioned. Let's go to Page 6. I think it's important to make a pause here because in the last 4.5 years, we have been able to rotate an equivalent of EUR 2.8 billion of our activities, so EUR 1.4 billion of acquisition in one hand and EUR 1.4 billion of divestment on the other hand. So we are very, very close to becoming a pure player of electrification. Of course, some work still ongoing for auto eletric, but as well, we are very active on the M&A part. It takes time, but because we want to make sure to target the right company profile for our long-term growth, but of course, we need to support Jean-Christophe to spend a bit some money because as you will see, he is full of liquidity. Let's go to Page 7. So in page 7 Cables RCT is more than a transaction. It's for us a fast track into scalable growth in Southern Europe. EUR 133 million in annual revenue and so on top of what we will do. But what is it very interesting and has been as well a very attractive element for this acquisition is that we have already an equivalent of 25% of potential increase, thanks to production capacity that has been prefunded by the former owner, so really to be loaded. So that's an exceptional element for us, specifically in Spain because you've seen the news flow, Spain is extremely dynamic and resist from any form of recession. It's important as well. You can see that in the photo with the compounders. We have a very strong expertise with RCT on fire safety cable, which is, of course, creating higher value and higher barrier to entry. So for us, this acquisition is a financial win for Nexans. Perfect strategic -- sorry, perfect strategic fit, plug and perform. It's important to mention that because -- of course, it's an HR topic, but with the new employee ownership plan, we achieved a fantastic record of participation rate, 46%. The average of the SBF 120 companies is about 38%, so we had 46% participation rate. To be noticed that in the formal plan for our employee, we were at 33%. So that shows that the engagement and the trust in the leadership team, vision, strategy of Nexans towards all our employees all across the globe. And I am very proud now to announce that our employees hold almost 5% of Nexans capital, which is more than twice what we see in average in the SBF 120. I know that this slide could be a bit complex to read. But believe me, demonstration will come live very, very soon, certainly for the full year publication. We are very advanced on artificial intelligence, like we did mention during our Capital Markets Day. So our transformation program is not only a transformation program, that has become a very intelligent operating platform, amplified by AI and by generative AI. So what we are doing with AI is, first, it's all about costing. So automating multivariable costing simulation at plant level in real time to reflect raw material, labor, energy price situation, so for us to result in a faster and more accurate cash flow generation and as well cost improvement. Dynamic pricing. In these sectors, we are not the king of pricing management, I will say, compared to other sectors. So here, it's about leveraging machine learning models to optimize price elasticity and detect margin leakage across thousands of SKUs and thousands of customers. Advanced segmentation using clustering algorithm to reclassify clients and product dynamically, not only a question of size or geography. Predictive demand planning, that's a big, big topic specifically on Grid and Connect world. So it's applying AI to detect the weak signal in order books, in market patterns, in customer patterns to enable an early anticipation of demand swings, ups and downs and, of course, resource allocation, I'm talking here capacity and inventory. So with the integration of generative AI here, we are doing really a step further. So what you see in the slide that is just my personal condition because I am the developer of SHIFT for years that I would say, a traditional manager use only 5% of the data available in the system. SHIFT model is using for the last years an equivalent of 20% of the data available in the system. Over that, it's beginning too complex to analyze. And the AI allows us to now run simulation across 90% of the data available in the system. And we are not using AI to replace people. We are using AI to enhance performance and to turn all these data that are truly gold into cash. Now let me turn for all the macro views on business view turn to JC for the business overview and as well, Elyette, that will comment on Power Grid.

Thank you, Chris. So I'm now on Page 11. So if we deep dive a little bit on the performance of the first semester versus last year '24, the semester of 2024, as Chris mentioned, you see quite a strong group organic growth at 4.9%. But when you look at Electrification, basically, the improvement is much more significant, close to 8% organic growth. You see also that the margin is slightly improving in terms of percentage, but don't forget that at group level, we have, versus last year, the divestment of AmerCable, which was accretive, and we have the change in scope due to the addition of 6 -- 5 months of La Triveneta Cavi that is under a transformation, but is still, I would say, below the average in terms of margin for the group. If you keep the same perimeter, the margin is above 1.5% higher, so close to 13%, so which is a very strong performance, I would say, in terms of margin. Other activities, a nice growth to report also 8.4%, mainly driven by the fear on the tariff on copper and the fact that some of our customers accelerated orders in case tariff was implemented by the U.S. So that, I would say, boosted the growth in Metallurgy business. And non-Electrification reported a negative organic growth on first semester of '25, mainly again due to two main reasons. The first one is the automotive segment, which is in the automotive area still lagging behind. And the automation business, robotic business in the Industry & Solutions Group, which is also still not recovering from the low point of last year. But again, globally speaking, a very strong organic growth. I will deep dive now into the businesses. So if I move to Page 12 and you look at PWR-Transmission. A good thing, as we reported in the first half of strong organic growth above 20% in Transmission. We continue to enjoy a strong boost, thanks to our high backlog, record level backlog in transmission, so 21.7% growth. Also, you can see an adjusted backlog versus June of '24, which is increasing by 16% to reach 7.8%. We are still contemplating a book-to-bill of 1 for the year of '25, meaning that order intake will basically be in line with the revenue recognition. So a backlog that should remain at the end of the year above EUR 8 billion. So a strong H2 in terms of order intake. Very important because there is a lot of scrutiny here on the profitability of our Transmission business. So we committed in 2024 that we will continue to ramp up the margin evolution on that business. And I said multiple times that the improvement will be gradual semester by semester. And when we will clean up from the low-margin project, mainly in the U.S. at the end of 2025, that you will see a nice improvement in 2026 in the margin. But midpoint of 2025, you still see that we're improving the margin by almost 1 point and plus EUR 20 million of EBITDA in the business. So we are on track. We continue to improve the profitability of that business, which is critical for us to regain basically the level of 17% to 18%, which we were before 2023. If I move now to the next page, and I will turn to Elyette, who will talk about PWR-Grid.

Yes. Thank you, JC. So as we said in Q1, we have accelerated in the PWR-Grid growth with generating above 9% growth year-on-year in Q2, which rose to H1 at 5.6% year-on-year growth. This is based on acceleration both in North America, South America and the accessories business as well as we announced the acceleration in Europe. So all the trends on the PWR-Grid are green for now in the question of grid modernization extension, but also connections of renewables and data centers that is driving a structural trend for PWR-Grid business as well as we have continued to accelerate in our smart solutions, including services, high-value products like accessories that I will present just in the next slide. And this is enabling us to have a high-level adjusted EBITDA to 15.9% for this semester, with an increase of 2.4%. This level of EBITDA will remain high in the coming quarters. And just to remind you that we will continue to accelerate in Q3. So talking about acceleration and talking about record high for PWR-Grid, we are now in this semester, coming semester, going to launch a breakthrough innovation called Easy Joint powered by AI. So AI actually for our customers this time. and thanks to skills power. So what is it about? First thing is that, we are addressing the global market with this innovation. We are launching this system and solution into more than 40 countries, 4-0. The main customers behind are, of course, the grid operators that needs to modernize and extend the grid. Just to mention some countries, not the names of the customers, but the main countries targeted first for this innovation are Germany, Poland and Morocco. And we will do that across the globe for one reason is that, you remember we talked about securing the grid all around the globe, and this is thanks to increasing reliability of the grid with one very simple thing in terms of results, very actually innovative in terms of making it happen. We are decreasing by 5x the steps to install connection into two cables together. Remember that during our CMD in November last year, I explained that 90% of the grid failures are linked to the connecting accessories. And also remember that the majority of all grid failures on the accessories are due to bad human installation. So that's why we are combining this with AI. So our AI solution has been learning from our own experience in the field. So as you know, we are owning training centers worldwide. And thanks to this knowledge and expertise, we have been able to train the AI to basically recommend the right installation of also joints worldwide for any type of customers, and we are combining it with certifying installation trainings to be able to deliver a license to operate to our grid network installers. So this is for September, live, and we continue to follow up on this great shift in technology for the grid. Thank you and back to JC.

Thank you, Elyette. So let's move on now to the next section, the financials on Page 17. So I will not comment the organic growth because we just did. But adjusted EBITDA at 11.7%, you see the contribution on the graph on the right part of the page, you missed PWR-Connect.

Sorry, I missed PWR-Connect.

Sorry, Chris, thank you very much. So sorry about that. Let's move back to Page 15, PWR-Connect. So on PWR-Connect, we see, I would say, a nil organic growth. It's more for us a phasing effect because we are expecting a very strong Q3. So overall, I would say we had a mixed performance across the region. Europe and APAC has been slightly down versus the first semester of last year, where North America, South America and Middle East and Africa have been performing very well. For instance, North America plus 19%. You know For us, it's Canada, when we talk about North America. And Middle East and Africa, plus 10%, where Europe has been down about 3.5% in terms of organic growth. We have been able to maintain the margin despite, I would say, the acquisition of LTC, which is, as I mentioned earlier, a little bit dilutive in terms of margin, but we remain at 13.7%. And just, as I mentioned earlier, if you look at the same scope of '24, the EBITDA margin in H1 excluding LTC, meaning is at 15.1%. So we're moving from 13.6% in '24 to 15.1%, excluding LTC. And LTC, we are working to bring the synergies to transform the business like we've done for other businesses, and this is well on track. So soon LTC will be back at the contribution level than the average of the Connect business. And again, what is important to retain from that is that we see at the end of July already almost halfway through the first -- the third quarter, a very strong organic growth in Q3 in Connect. So now let's move to Page 17 on the financial section, and I will start with the profit and loss statement. I will not comment the organic growth. Adjusted EBITDA at EUR 441 million at 11.7%, a record level. As Chris mentioned earlier, for adjusted EBITDA of the group, it's above the 2019 full year EBITDA and much, I would say, higher than what we committed in the guidance in February. You see the contribution of the businesses to that increase in EBITDA. A big chunk is the recovery of PWR-Transmission, as I mentioned, but also contribution from PWR-Grid and PWR-Connect. One word maybe about the net income. Looking at the other operating items, you see EUR 232 million. This is the capital gain that we've had on the divestment of Lynxeo and AmerCable in the first half of the year and a small impairment on non-electrification, bringing EUR 243 million of, I would say, exceptional one-off gain in the net income. And the net income, therefore, reached EUR 374 million at the end of the first semester. Moving to the next slide, and we look at our net debt and the cash flow generation. You see that consecutively of the disposal of the asset, we have today no leverage on the balance sheet. Net debt is close to 0. So no leverage. Net leverage on the balance sheet of Nexans from 0.85x net debt to EBITDA to 0. You see the strong contribution, obviously, of the adjusted EBITDA. We also enjoyed quite significant positive change in working capital, mainly coming from PWR-Transmission and the down payment we received in the first half like contracts -- new contracts like the Malta-Sicily, for instance, I will note the Charleston plant. That brings the cash flow from operation at EUR 478 million. Capital expenditure CapEx remains a little bit higher than, I would say, the typical maintenance CapEx, mainly due to the completion of our vessel -- the last vessel of PWR-Transmission Electra that would come to operation in the first quarter of next year, but we still have some significant CapEx linked to that. And we have also started the investment into our Nexans green recycling facility in France to increase our recycling output in the next 4 years as we committed in the last equity story. And again, EUR 613 million coming from the cash received from the divestment of Lynxeo and AmerCable, basically the payment -- the acquisition of the asset in Spain, net is EUR 613 million. And again, at the end of June, no debt on the balance sheet. If I move to Page 19 now and we look at our liquidity. So we have cash on the balance sheet in excess of EUR 2 billion versus EUR 1.2 billion at the end of December, again, coming from the divestment. A very high liquidity level, if I add up to the cash on the balance sheet, the EUR 800 million have all the untapped revolving credit facility. So EUR 2.8 billion, I would say, total liquidity, which gives us a lot of room for basically growing, replacing the divestment with new M&A in the future. Leverage ratio, as I mentioned earlier, 0, and we are extremely well positioned to seek and upgrade in our guidance -- in our rating, sorry, seek and upgrade our rating to investment grade, I would say probably by the end of the year, early next year 2026, with the cash on the balance sheet, the debt level and also the increased level of margin of the business, which is overperforming. If I move now to the last section and I will talk in a minute about the upgrade. I move to Page 21. So adjusted EBITDA guidance with a very strong result of the first half. We've decided to narrow the guidance that was EUR 80 million range, we narrow it to EUR 50 million. And we also increased it on the upper part of the guidance to come EUR 810 million to EUR 860 million guidance, which is EUR 835 million at midpoint. And we've increased the cash flow by EUR 50 million from the -- on the low point and the high point of the range. If I move now to the Page 22, just to give you a little bit of flavor to understand the margin, the guidance movement and the guidance evolution. So obviously, in the new guidance, EUR 860 million to EUR 810 million, we have excluded the divestment of Lynxeo, which is EUR 45 million. Lynxeo, as you know, the transaction is now closed. The asset is outside of Nexans' portfolio. So that's reducing basically -- impacting negatively the year by EUR 45 million. And the opposite of that, we have the acquisition of the little asset in Spain, which contributed EUR 4 million and then after that, we foresee EUR 66 million roughly of improvement coming both from organic growth. And again, we, foresee, as I mentioned earlier, very strong organic growth, both in Grid and Connect in the third quarter, very strong double-digit as well as continuing to see very strong organic growth in PWR-Transmission. So I would say, in the Q3 presentation, you will see some very strong organic growth performance in the business. And we continue, of course, as Chris explained, to work on our transformation with SHIFT and structural improvement will be significant in the second half. One of the key assets that will go through the transformation is La Triveneta Cavi, as I mentioned, which is still about 1.5 point dilutive versus the average of Connect, and we are catching up on putting this business back on the track of the average of Connect and Nexans. So between structural and organic growth, basically, we will more than offset the divestment on Lynxeo, and we will more than offset and therefore able to raise the guidance and increase the midpoint by EUR 25 million. That will conclude my presentation. I will now turn back to the operator for Q&A.

Before we go to Q&A, I think you've seen that we announced as well the fact that Jean-Christophe will leave the company in the coming months. So my dear, Jean-Christophe, it's not easy to capture in words everything you brought to Nexans, to me personally and to the team over those 7 years. You have been by far more than a CFO. You've been Deputy CFO, but as well a good friend, a very true companion on the journey, in every pivotal moment of our transformation, it has not been easy every day, but you have combined precision, perspective, operational discipline, strategic insight. I was just astonished by all the dynamism and the professionalism that you bring to Nexans. Together, we navigated into very high complexity. We made together bold choices. We built a business model that now stands as, I think, a benchmark of excellence at least that's seen in the numbers. Your loyalty, steadiness and ability to embody high governance standards, while always taking close to realities on the business have made you a deeply respected pillar for both, of course, inside the company and outside the company. So a big thanks, Jean-Christophe, for your trust, your dedication, and for everything you achieved with me side by side on the team, and wish you of course the very best for your next chapter Jean-Christophe. But I have no doubt it will be very exciting because given your profile, you are full of opportunities. Thank you, Jean-Christophe.

Thank you very much, Chris.

Now we are ready for Q&A. Thank you.

[Operator Instructions] We will take our first question from Akash Gupta from JPMorgan.

I would also like to start with paying my tribute to JC. I think you have been quite remarkable in your performance at Nexans and the turnaround that we have seen over 5 years, so definitely you will be missed going forward. The first question I have is on the guidance. And when I look at H1 versus H2, so you did EUR 441 million in first half and that includes EUR 45 million from Lynxeo that will be no longer part of Nexans in the second half. And at the midpoint of the guidance, you're implying EUR 394 million in the second half. So more or less, you are expecting a similar strong H2 on an underlying basis than H1. So the question I have is that if you look at the normal years, we do see some seasonality where H2 is somewhat weaker than H1, so maybe if you can help us elaborate what is driving this trend? How much visibility do you have on this strength in second half? And how much is the optimism both on your internal areas, structural areas of improvement as well as, let's say, market demand? That's the first one.

Thank you, Akash. I will take the answer. So there's a couple of elements that makes us quite comfortable about the raise of the guidance and our ability to have in H2, a strong H2. The first one is that, when we did the first guidance in February, we had no visibility on GSI, and I'm sure you will have a question later on GSI. But right now, we are covered on GSI through, I would say, past the summer and the beginning of September, which give us already in the year of 2025, a much stronger visibility and you know that GSI contribution in the year '25 was, from the beginning, quite material, I would say. So that's one of the big risk, which is not completely over yet. Obviously, we still have some exposure, but it's largely mitigated from the cash we've received to date on the project, which is again EUR 250 million and significant payment received in the first half that takes us through again the end of the summer, beginning of September for 2025. The second thing is that we are in July, and as I mentioned, we foresee a very strong third quarter both in Grid and Connect. When I say very strong is really above, I would say, what we have reported and what we have seen so far in the past on a Q3 basis, so much, much higher, which gives us obviously some very strong confidence on our top line. We foresee and when I say that, we see double-digit organic growth in both Grid and Connect. And we foresee also a Q4, which is lower but still good. So basically, we are optimistic on the top line performance of Grid and Connect, and we continue to see growth also maintaining at the level in transmission. So again, an organic growth component, which is usually, you know that we are always a little bit cautious when it comes to organic growth because we are not driving the business based on volume but value. But here, we foresee good signal, again, for the second half. And last but not least, I mean, as I mentioned also, we will start reaping the transformation benefits from the La Triveneta Cavi, which is running still today roughly at 10% EBITDA margin when the average of Connect is at 15%, so we have -- and this is a EUR 700 million to EUR 800 million business. So here, we have significant, I would say, room for improvement in terms of margin percentage, and we will start to see some quite nice benefits from that in the second half of, 2025 and then we'll continue the improvement. Hopefully, we will not be that strong yet in H2, but PWR-Transmission will at least maintain or slightly improve also its margin. So globally, I would say, in electrification, the trend of the activity of the business is strong on the top line, and we continue to do all the transformation work within the business and the combination of both give us basically this quite optimistic view about the full -- the second half and the full year.

Yes. Akash, if I may add just an element on JC's comment is, we discussed that with some investors on your side a few months ago, but it's our baseline, the legacy baseline of Nexans for Grid and Connect, so without acquisition is structurally improving semester after semester, thanks to the transformation product. The recent M&A are not yet at their level of EBITDA. But of course, we'll keep progressing. So this is why we are, as mentioned, confident in the profit generation in the coming semesters.

And we knew that when we acquired assets like LTC, we paid, we believe, a rather low multiple level for our Connect European business. But obviously, because we acquired an asset with lower margin and lower growth level, but with the transformation ability that takes a couple of years, bringing you the synergy, we can bring it back to the average and benefit from the low multiple we paid and at the same time, get it in 2 years to the level of the average and create a lot of value. So this is a model, and this is what you will see in the coming quarters.

And my follow-up question is on recovery in Connect. So I think you had a small decline in Q2 and you are expecting a strong Q3 with strong start in July. Maybe if you can elaborate on what is driving this trend in Connect, and maybe provide some color on geographies? I think you did in -- for Q2, that you had a decline in Europe and Asia and growth in Americas and the Middle East. And maybe a follow-up to that Connect, is this growth driven by new product launches from you, which is helping you gain more market share? Or is it just simply the destocking, restocking cycle that your customers may have destocked and now they need to restock? So just to better understand what is driving strength in Connect.

I will start, and I will let obviously, Chris, who knows the business by heart, elaborate on the product and the business itself. The low point definitely in terms of organic growth has been reached in Q2. We had in Europe for -- I'm talking Europe, sorry, Connect Europe. We've had almost close to minus 4% organic growth, which is basically -- since this is a larger size, it represents about 40% of our Connect business worldwide. So therefore, it pushed back down basically the average of Connect and get to the 0.2% that you see in the first half. But Europe is Europe and the key countries in Europe, we see a quite nice rebound in the third quarter and fourth quarter, which helped basically driving the overall performance when other areas that are strong like North America and South America and MEA, Middle East and Africa, will remain very strong at double digits. So that basically a rebound of Europe and the maintaining of the other one will explain how we see this top line increase and then there is other factors.

So some element on the margin performance because we know that some areas are a bit in a downturn situation like in Europe. But I think what is important is that PWR-Connect in H1 is not -- the financial result is not the result of a destocking effect or short-term swings. It's really structural improvement. But of course, we implement for several years. The first is the innovation on the optimized product portfolio. We phased out low-margin references, and we really now focus more and more on value-added solution and premiumization through energy efficiencies, critical buildings, building connectivity. Second, we rolled out almost everywhere, not yet there, but disciplined pricing strategy supported by SHIFT, and now AI will allow us, as I mentioned, to better, I will say, analyze the profit leakage in details to really capture a greater margin and of course, operational performance, industrial performance, a lot of improvements in manufacturing as well as thanks to the Industry 4.0 deployment. So overall, it's margin gains that have been structural and sustainable. And of course, as mentioned, this year, revenue growth will reaccelerate progressively.

We will take our next question from Daniela Costa from Goldman Sachs.

I have two as well. I will ask them one at a time. But maybe actually for JC starting out with sort of the balance sheet, and there was a couple of mentions, obviously, M&A still in your agenda. Can you update us a little bit about how active is the pipeline at the moment? You've done some things already this year. So should we expect that cash redeployment to happen already this year? Is it more of a longer run process? And should we assume the balance sheet will go or the new cash will go all into M&A or there is also a possibility of considering increasing cash to shareholders? I'll start with this.

Yes. I'll take the question, Daniela. Thank you. We are active on M&A. We have multiple, I would say, targets that we are progressing on. We are quite comfortable that we should be signing something by the end of the year and maybe closing beginning of next year. So part of the cash allocation will go to that M&A and definitely not to the level of the total cash available we have because we have a lot. And the second part of your question is, would we consider basically special dividend payment or share buyback to return cash to shareholders? The answer to the question is, yes, it's a possibility to be discussed and agreed by the Board, but it always remains a possibility. But for sure, this is what we said in our equity story and capital market equity story anyway, but the main purpose and the main objective of cash allocation will remain M&A, and this is what we want to deploy our capital for.

Got it. And then just a more broader question, Chris, backlog to be above EUR 8 billion by the end of the year. Just within this point, can you talk to a bit of the areas where you see more active tendering, any jurisdictions in particular? And also, on that point of visibility that you have for next year, how relevant was GSI into next year makeup of numbers versus 2025? How sizable will the capacity that you will have to allocate and keep available for GSI be?

Today, I will say there is still a very strong dynamic in terms of tendering activity. I will say mainly in Europe, for offshore wind farms. So we expect to win some significant deals in the coming months that will push our backlog above EUR 8 billion. So I will say not much concern. I would -- no main news flows in regarding tendering activities for power transmission, BGC and GSI for the allocation for '26.

So GSI definitely for 2026 is a key element of our financial trajectory. It continues to ramp up from '24, '25, '26, as we said. So will not give you exact numbers, but I can tell you that it's meaningful. But you know that if it does not materialize in the coming weeks or before September, we are working with the authorities on plan B, which is to switch to the cable and the production to another project with IPTO that will basically replace the impact and the production of GSI. So between the plan A, which is getting where we want to go with GSI and the plan B, which is in progress right now in cases, we are, I would say, quite confident about our ability to deliver '26 one way or the other.

We will take our next question from Chris Leonard from UBS.

Can I please ask three questions, and I'll take them in turn maybe starting on the Great Sea Interconnector contracts, which you just mentioned, Chris. Could you maybe update us on how your discussions are going currently with the customer IPTO as to whether or not the work will continue on plan A, let's say, after August or early September? How confident are you currently that you might see that being extended going ahead with plan A? I'll start there.

I will say that what I can tell you is that we maintain full operational focus on executing GSI as planned. There is no delay in terms of production, I would say. So the project remains very active. Manufacturing continuing in Halden and in Futtsu in Japan. So of course, we acknowledge the geopolitical context, but IPTO has confirmed no change in copper commitment. So for the moment, our exposure is secured by the advanced payment on the strong margin. So I cannot comment much more is we have some plan B in case of, but the plan A is still on.

Okay. That's clear. And the second question is on grid, and speaking in the release about margins still have further to go here. And is that in reference to second half? Or is that in reference to looking at outer years after 2025?

So like I said just earlier, we will continue to increase the level of EBITDA. So you've seen that there was a slight difference versus last year performance, which was a phasing and mix effect, so nothing structural behind. And like I said, I repeat, it will continue to increase in the coming semester and years.

Okay. And last question just on M&A. Obviously, just discussed it there when you've got the firepower. And clearly, leverage can be used if the right deal comes along. Maybe it would be helpful if you could just talk through sort of the hurdles and what you're looking at in terms of targets, financially what you'd need to see to add these acquisitions across Grid and low-voltage Connect. If you could give any sort of framework or rationale for what you're looking for, for potential targets, that would be super helpful?

Yes, sure. I can do that. So typically, our investment M&A thesis remains the one we explained in detail in our Capital Markets Day in November last year. Grid and Connect will be the focus, no M&A in Transmission, of course, due to the high CapEx level and the fact that it's a saturated market, consolidated market. Grid and Connect, we like both. We're looking at geographies, whether we remain in geographies where we are already present, and we just increase our market share by becoming #1, becoming #2, that's something we've done. For instance, with Rekan in Finland, we're doing in Spain and Europe. So we are very present in Europe, and we are increasing basically our strength in Europe. Our other thesis would be to move to a new country. So we're looking, for example, in countries like in Southeast Asia, where we are not present. We are in China. We are in Oceania, but we are not in Southeast Asia. So definitely, this could be a very interesting investment for us. In that case, we would seek a larger player because we want to make sure that we have sufficient footprint to be, I would say, a leader in the country. Other opportunities could be U.S. where we are not present in medium and low voltage. So typically, that's the second thesis, so moving in a new geography, I would say, but with a sizable investment. And the last thesis we have on M&A is moving basically slightly outside of cable, pure cable manufacturing. We call it internally adjacent to the core business, could be -- and that's to basically offer more complete bundle services to the customer, not just through cable, but through packaging, through IoT, through services, connectors, accessories, so basically, enlarging, I would say, our offer by bringing something more than just a cable to the customer. So that's basically -- that would be smaller size, probably smaller size in terms of revenue investment, probably slightly higher in terms of margin. And especially if you start to see digital in the acquisition, that would be a perfect fit for basically the solutions we want to bring to our customers.

And then maybe a follow-up on that, thinking about the margin trajectory into 2026. If you do, do a big acquisition, obviously, you've spoken about La Triveneta Cavi in the Connect business being sort of margin headwind before synergies come through. Would you expect a similar story to be there if there's a sizable acquisition that happens in second half this year being a sort of headwind to some margin near term before synergies come through on those acquisitions for 2026 or '27?

Yes, sure. So we don't foresee any similar -- short term, any similar big size acquisition at lower margin level like the one we've done last year for La Triveneta Cavi. We have some target in that area, but they are not the one we are focused on right now. So the type of acquisition, we are looking at more midsize today between EUR 200 million and EUR 400 million. A bunch of them are more adjacent to the core product. So we're not foreseeing the situation we've seen in '24 with a big acquisition in Connect, low voltage with lower margin, low multiple and takes two years to bring the synergies. This is not what we are actually foreseeing in the moment so that we should see no impact in 2025, for sure, and 2026 margin in the plan.

We will move to our next question from Nabil Najeeb from Deutsche Bank.

I've just got one, please. Can you comment on the impact of copper tariffs in the U.S. for you, particularly as it relates to your facility in Charleston which, I guess, sources its copper from Canada?

Yes, yes. So first of all, all the copper for all the, I will say, contracts have been already booked. And there is an exemption if it's export cable, that means if the cable produced in U.S. will be export and that will be what will happen in the coming years because the project that we will do manufacture in Charleston will be for the European market. So you get the copper from Canada, and you will have the exemption of the tariff because it's export to Europe.

Our next question comes from Lucas Ferhani calling from Jefferies.

I have a couple. Maybe just to start on the acceleration of growth in Grid and Connect. I think you talked about, in the past, growth could be dilutive to margin, and so you're not necessarily trying to push growth. Are you able now to combine kind of growth and margin? Does that growth come also at good margin levels?

Yes, of course. Let me refer on if you kind of look to our Capital Markets Day. We said that the 2 first equity story was about transformation, cleaning up our portfolio base, both customers and SKUs is what we have been able to achieve between 2019 and 2024. Now we say that our portfolio of customers on SKUs is full of good cholesterol, good fat. And now it's good to grow with those customers. So as we mentioned as well is, we have been challenged by the fact that by some investors say, you can grow up to 7% in average for growth for Grid and Connect, that's true. But we consider that in average 3% to 5% is the optimum point to ensure growth that will not be dilutive to EBITDA and cash. So that's always this kind of sensitivity table that we are using, making sure that all points of growth are accretive to EBITDA or does not dilute the average. So that's the logic.

We will take the example of La Triveneta that we acquired last year. We saying Connect will grow in Q3, La Triveneta will not grow because we need to transform La Triveneta before it grows, whereas other assets that are now, I would say, profit driver or innovation drivers, Northern Europe, even countries in Central Europe are about growth. That was not the case maybe a year or two years ago because they were not transformed. So every point of growth will come with accretive level of margins, so we'll combine both. But you'll never see 10% or 12% growth, I would say, on a run rate basis for a full year, but we'll have good growth with good margin improvement.

And then the second one is on the industry. Where do you see roughly the EBITDA for just the auto harness business next year? And what's the latest there on the disposal?

So disposal is progressing. So I said that already last time we had a call in the first quarter, so we are progressing. This is something we're targeting to see happening by the end of the year or early next latest, so we will comment on the progress that we are able to do that. We can't really disclose too much at that stage. But this is progressing. In EBITDA, I mean, it's obviously -- I will not give you a percentage because that's also something we don't disclose. But typically, you can understand this is in line with the average of the automotive business, which is very dilutive with dilutive versus the average of Nexans, I would say. But I would not comment specifically on the margin.

And the last one is just on the other line. It's much stronger in the first half, achieved really kind of breakeven, sometimes slightly negative, so I want to kind of get the impact of that benefit from U.S. tariff? And also, is there just a lower level of kind of internal costs with the Lynxeo separation? And on that point on the U.S. tariff, kind of what are you expecting in H2? Do you think this will come down? Obviously, there's still uncertainty. But should we see maybe a different step or actually the H2, sorry, contribution from other is actually weaker than H1?

I mean I understand that this one is difficult to read because it's a mix of different things. You have the contribution of the Metallurgy business. And as you rightly said, the non-allocation of some of the overhead costs. Overhead costs roughly are lower, globally speaking, in '25 than in '24 because as you mentioned rightly, there was some reorganization costs and some separation cost and transformation costs that happened to prepare our assets for divestment in '24 that do not repeat in 2025. So that's one element. Also, the margin of the Metallurgy business has been higher by a couple of points versus last year mainly because, again, there was so much fear about tariffs in North America that some of our customers are spooked, and were willing to pay higher pricing to make sure they had -- they secured copper in the first quarter or at least in the first half. So the combination of that explains also why we have a good growth and a good number in other, and that's more than offsetting compared to last year the corporate costs that are not in charge. For the second half, you should see basically similar level in other lines than what we see in the first half.

Well done on the past few years, JC, and good luck for your next adventure.

Thank you very much. Appreciate it.

Our next question comes from Miguel Borrega from BNP Paribas Exane.

I have got two. The first one, just trying to understand the strength in the PWR-Grid margin. Some of your competitors are obviously flagging increased competition, specifically with renewable OEMs, more capacity out there and margins should contract somewhat. Your first half was obviously very strong. But last year, you had a lot of seasonality first half versus second half. So how do you see margins going forward? And I know you're confident about your margin performance, but can you talk about some of the risks of this margin normalizing down or you just don't see that happening?

So for now, we don't see a risk of going down on this margin, like I said, the opportunity for it to go up. For one reason that has been mentioned by Chris and JC, which is that we have been working structurally on our portfolio back in what is behind the profitability of PWR-Grid. So we will continue to come with volume at higher profitability, thanks to solution services, including accessories, and this is what is enabling the structural growth of EBITDA in the next semester and coming years.

I would say Miguel -- this is Chris. I think the remark is understandable from our competition and a rise of capacity can generate a structural margin contraction. But I will say that I do not disagree with them, but I will say that Nexans is positioned differently. First, we are not competing only on volume, volume on commoditized products. We are competing on value-added system and execution reliability. We have launched a lot of -- a bunch of innovation in the last 4 years and that really helped us to uplift our margin. So I would say 3 reasons that support margin stability. Product and service mix evolution on Easy Joint presented by Elyette is an element that will improve the margin. Cost discipline associated with artificial intelligence-based pricing tool. It's progressing starting, but we see already the benefit and of course, a very high level of selectivity of project screening and capacity allocation, making sure that we position our capacity on the high return customers and sectors.

Kind of a similar question also on Connect. Can you maybe talk about where your margins are stronger versus where they are weaker? Maybe touch on how Europe compares to the rest of other regions? And maybe give some color on specific segments. And then can you give us your views on how you compare to your peers on profitability terms? Because obviously, you don't have any U.S. exposure, which is typically higher, so interested in understanding the reasons behind the step change versus historical levels and then comparing to your peers, which I believe are obviously higher.

I will say the peer comparison, Miguel, I'll leave it to you. I leave it to you to make the analysis because you will certainly be more credible in the end on digital than myself. Please make this exercise by geography, and you will have the answer. I will say, once again, it's not only the peak of volume across geographies, of course, we understand that some geographies are already fully consolidated and can generate higher margin. That's the case of U.S. But today, in Europe, we have units for the last 2 years in PWR-Connect that are generating above 20% EBITDA margin, thanks to the SHIFT transformation program, innovations and the capacity allocation, which is really perfectly managed through price discipline. So I mean before where we were not in such detail on quality of transformation, the geography were making the results. It's not the case anymore because we are shifting slowly but surely from PWR-Connect from a commodity based, I would say, market pattern to a premium pattern. It takes time, but you can see the result of this structural margin. As I mentioned, the Nexans baseline, the one the unit that were there in 2019 have been triple in terms of profitability over the years.

Maybe a quick follow-up. What's the likelihood of you entering the U.S. market in low and medium voltage?

I will say it's -- I mean the intention is very high, but we don't want to enter in a market that will cost fortune for us, and that will be diluted for our return on capital employed. Once again, I think if I link the two questions together, Miguel, because I think you have a very important point. We are not making acquisition to uplift the EBITDA ratio, okay? Because EBITDA improvements come from our transformation program, not by doing M&A. So we want to make sure that it's a good M&A for our portfolio and accretive for the long term.

JC, all the best and good luck in the future.

Thank you very much.

We will take our next question from Xin Wang from Barclays.

So the first one is on PWR-Grid. Your grid margin declined on a like-for-like basis from 16.2% in first half '24 to 15.9% in first half '25 despite better mix as you continued to move towards more accessories and service sales, as you said. Can you maybe elaborate on why?

Of course, we can comment some evolution at the comma level, but I will say that I will let Elyette comment, but it's really a question that go in a very tiny level, if you allow me to comment from 16.2% to 15.9% business of EUR 2 billion but Elyette, I prefer that you answer first.

To complement to what Chris explained and there were 2 effects. So you mentioned the mix, but there is also the phasing effect with two strong one-offs that we had last year. And basically, that's just a phasing effect that is adding to the mix. So indeed, for 0.3%, I will not comment more on this. You need to just believe that we are confident on the fact that our EBITDA will continue to increase.

Yes, it is going to stay in a range of 15% to 16.5%. That's a good range. And of course, keep pushing our accessories business, which is a very incremental, material in terms of improvement of the margin for Nexans.

That's very clear. My next question is on Connect. So MOBIWAY has been the driver for some time now as in the margin performance driver. Are you now at a position to provide what proportion is MOBIWAY sales and what premium or any targets that you have so that we can model this?

Yes, it's a good question. What I would say is that we have changed a bit our logic in terms of growth. We are launching growth patterns because it's not only MOBIWAY, it's as well associated with the fire safety product or premium products. So now our growth pattern has been redesigned in the first semester in a very professional way to make sure that we are combining attribute together and we will deploy a repeatable model from one geography to another. But not only launching one innovation. So it's a combination of customers, a combination of services, a combination of packaging and associated with product that will make a pattern altogether. But we will elaborate a bit more, I think, in the next quarter with much details. It's a very strong work we did for Connect and as well for Grid, by the way. For example, Elyette is working in depth on data centers offer. And we will come back to you in the next quarter with more detail.

And then on SHIFT to AI as well. Would you maybe give some color on the financial impact because I think the chart you've shown, the 20% by end of this year and the 90% is only the progress, it's not the financial impact.

It is indeed, it is the progress. We are not yet -- maybe next year, we will talk about the financial impact of AI. But today, the topic is making the platform live. It's data lake. It's making sure that the data are truly clean, that we can benchmark all units together because we mentioned that with you at the Capital Markets Day, SHIFT was managed unit by unit. And with the AI platform, now we will be able to do live benchmark from one unit to another in the world. So it takes time. But of course, I'm a true believer that data is really gold and can really generate a fantastic margin in the long run, but it will have a financial impact, but I think a bit more color in '26, not in '25.

And then I just want to follow-up on your strategy to increase accessories sales as well. We've been talking to some of your customers. They don't really want more joints and accessories because that's where failure happens. And that's also what you alluded to 90% of failure happens on the joint and accessories. So I wonder if you get any pushback in trying to push more accessory sales.

As we are communicating, there is no pushback at all from our customers. Actually, if you remember, we presented in the CMD that our customers are facing big time from structural trends like climate impact. I could, for instance, since you are talking about our customers, mention one of our platinum customer in Italy that is facing, because of the heat wave, unprecedented failures of connecting accessories. And this is not only pushing for more accessories consumption, but also more cable consumption because the cables are, as you know, outdated for now many, many years. So this is not always what we see from our customers. And I would say...

Because the main point of failure then when you have a climate event is the accessory. So this is the first element that the DSO needs to replace. So it's not a question, do they want to have more or not, they have no choice.

Okay. Got it. And then last one is the housekeeping. The asset impairment of EUR 43 million. Can you explain what this is related to? Is it a one-off?

I mean, it's basically, I would say, the lower margin of the business in 2025 versus last year, which is following again the difficulty, as I mentioned in my presentation, about the automotive sector and the fact that the entire sector today is struggling. Our margin has been decreasing. Therefore, that triggered an impairment test, and we had to take an impairment into our financials for H1. We believe it's the right number. We're not foreseeing any more, but the future, it depends also how the automotive industry will behave in the coming quarters and semesters before we can decide. That's the situation as a consequence, I would say, of the market in general.

That's very clear. The last thing I want to confirm is, I think you said the LTC margin is below the margin for group. I think when you might announce an acquisition, you said LTC margin is margin accretive immediately? Or did I remember wrong?

I think LTC or SCT?

LTC, was, I would say, slightly below the average of the group. But since then, that's now 1.5 years, when we closed in June of '24, but we've been working and we announced it at the signing that was at least 6 months, so that was the end of '23, so the Connect business in Nexans has already improved significantly. So today, LTC is below the average of Connect. And then we said that we are hitting EUR 20 million recurring synergy in the business to take 3 years on average to get to that level. When we get there, we will be at the level of the group, but it takes 3 years to get there. And right now, the environment where we have moderate growth or slow growth, we are focusing on the transformation of the business. But you will see the improvement of the margin, as I said, starting to come in the second half. That will contribute to the strong H2 in EBITDA we want to show and also continuing next year.

Yes, I think it's -- you should see LTC, which is below our average today as a reservoir of improvement for the next year because all our transformation team SHIFT are on LTC right now, and they will start as well LTC in Spain in parallel.

Don't forget that 6 years ago, we were on average at 8% on the Connect margin, we are at 15% today.

It appears that's all the time we have for questions. So I will hand back to you, to Mr. Christopher Guerin, for any additional or closing remarks. Please go ahead, sir.

Thank you very much, everyone, for your great questions. Now we go on the road show to meet our investors, and good luck to JC, of course. But he will be there in the coming months. And thank you for your attention. Bye-bye.

This concludes today's call. Thank you for your participation. You may now disconnect.