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

Good morning, everyone. And welcome for this presentation of Nexans 2019 financial results. Before I start, as you have noticed, we have made a slight change in our Executive Committee and we are very, very proud now to have Ragnhild Katteland, that was in charge of the Subsea business, joining the Executive Committee. So this is a bit my tradition, I'll let Ragnhild to introduce herself.

Thank you, Chris. So just to introduce myself shortly. I've been in Nexans for more than 25 years in different functions, all from technical to projects to sales, even purchasing, and then back to operations. I have been working with [indiscernible] for the last 7 years and I really look forward to developing this business further and with the strategy that we have aligned together for the last years.

And you will understand the why of the promotion of Ragnhild in a few moments. Nexans' industrial ambition has been understood. And let me thank for, at first, our history record shareholders, but as well, the new ones located in London, Paris, and since few months, New York, Chicago, Boston, that believe in the new Nexans plan which aims to make the company one of the top leaders of energy and data management in the coming years. The confidence in Nexans is clearly surging. If we go to Page 5 for my introduction, we've restored trust. And I think you can see that on the share price evolution. But more important for me, from words to [ hacks ], our planet needs more electricity, but even requires a green new deal. And Nexans is making this major move for this green new deal with our unofficial 2019 record backlog of EUR 1.8 billion, of which 80% of this backlog is dedicated to green energy transition. Let me thank as well, personally, Henrik Poulsen, the CEO of Orsted, and his executive team, for their trust and confidence in Nexans. It was 6 months of intensive discussion we had together, team to team, to disrupt the traditional commercial model of way of doing in our sectors. Meaning, Orsted winning one contract and open for bids for their supplier. We wanted to rethink and to rebuild this way of doing. That's the reason that, after 6 months of intensive negotiations and discussions, we end up with a contract, in full exclusivity, up to 2027, with the objective to connect together, all wind offshore, U.S. east coast, with the 2 companies, Orsted, Eversource, but, of course, Nexans. The magnitude of this contract, which is historical for Nexans, can be up to EUR 1.2 billion, in addition to our backlog. I think already the question, how much of this contract is in our EUR 1.8 billion backlog is about EUR 250 million for the moment. This is historic for Nexans, and I think historic, as well, for the wire and cable sectors. If companies like Nexans and Orsted rethink their way of doing, rethink their way of connecting together to really speed up the green transformation, we still have a chance to keep global warming within 1.5 degrees. And beyond this international success, we are, as well, happy [ challenge ] and committed [ challenge ] that Nexans will turn carbon neutral by 2030. Back to transformation. As you know, we have developed our own proprietary program of transformation called SHIFT, which is derived from the best practice of private equity. This program runs extremely well in all the units where it has been deployed last year. In South America, in North America and in Asia, fantastic results, and I will come back to it. Building a new Nexans, a new company, requires a change of mindset, a change of culture. I did visit 20 countries all over the world in the last 12 months. I met face-to-face more than 3,000 Nexans employees. And I formed a team committed, galvanized, and united to restore Nexans' leadership and image. The commitment of Nexans' model is, of course, beyond the numbers that you know by heart, is to become more resilient, more robust in the coming 10 years, committed to move in the value chain to service and solutions, committed to make our cables smarter. And as well, we want to reinforce our modernization. We want to reinforce the way we manage the business. And we have strongly, in the last months, enhanced the execution risk management of the company. Moving to the numbers on Page 6 on financial results. As you can already notice, we have reached in 2019 an EBITDA of EUR 430 million, which is compared to an EBITDA of EUR 325 million last year. So if we take out the IFRS 16 impact, which is about EUR 29 million, it's 18% like-for-like growth in terms of EBITDA. The good news is where is return on capital employed. We gave you a range from 9% to 11% of return on capital employed. We have reached the highest point of guidance with a return on capital employed of 11.1% in 2019. And as well, free cash flow -- positive free cash flow of EUR 25 million plus. We are, as well, very happy to recommend and to propose a dividend of EUR 0.40 per share. Moving to Page 7. This is one of my top important message. I'm 6 years in the company and this is, I believe, the first that I could remember, we have the 4 main sectors growing at the same magnitude in terms of profit. As you can notice, Buildings & Territories have been able to reach an EBITDA of plus 27% versus '18; Industry & Solutions, plus 23%; Telecom & Data, plus 16%; and this is the why of Ragnhild, High Voltage, plus 46%. Of course, everything is driven by the New Nexans plan rollout, the SHIFT transformation model, specifically in B&P on ISP sector, cost reduction measure, and of course, strategic growth initiative. Industry & Solutions, if we go a bit more in detail, been strongly improved by our transformation in North America as well as fantastic job of our team in China, with a result of plus 23%. The same in B&T sectors, solid momentum in Europe as well as fantastic turnaround in key countries in South America. Telecom & Data, it's a different -- of course, you have 3 specific segments within data. You have the LAN which has been a bit sluggish at the beginning of the year but now our activity in North America is generating fantastic results since more than 6 months. Is the same, of course, for Telecom Infrastructures. Fiber optic deployments, you know that there has been a strong slowdown in September, but now we are recovering, and we have a very robust backlog for 2020. And I need to mention because we always forget them sometimes, our special telecom activities, subsea telecoms, which is recording a 16% organic growth, but more important is confirming as well like high-voltage energy project, a full backlog for 2020 on [ ARF ] 2021. So great news on those aspects. Moving to Page 8, and I want to, of course, illustrate the fantastic results on the execution of the high-voltage project. I will talk first about subsea and I will give a word about non high voltage. Nordlink project is typically one of these projects which is representing energy transition. Let me remind you what is Nordlink project. The Nordlink project is a connection between Germany and Norway, so the 2 countries together, where Germany have the possibility now with our cables to transfer its excess of capacity of energy capacity coming from renewable energy wind and solar farms to Norway. And Norway, in the same magnitude is able to transfer its hydropower energy to Germany when Germany -- it is needed. So there is no more loss of energy between the countries or within the countries, thanks to this cable. Pretty high tech, we have to remind it, 700 kilometers of cables, land and subsea, 600 in subsea. Fully executed on time, even a bit ahead, of course, thanks to a very strong execution team, risk management of the project and this is certainly one of the key projects that will make the world change in terms of energy transition in the coming years. So great year in high voltage. Let me carry on with the backlog on Page 9. This is what we call backlog for subsea and land. So the backlog is now reached EUR 1.8 billion. Just to give you a magnitude, EUR 1.8 billion was the backlog of the total company, all projects and all sectors together last year. This is EUR 1.8 billion here just for high voltage. So this is a record backlog. And now we are very happy to announce that we have the orders up to the end of 2021. So everything now, it's just a matter of right execution. We have the orders in hand. And as you can see, we have just -- on this Page 9, I know that most our investors and analysts like this load ratio graphic. We add up one with our Charleston plant, which is entirely linked with this contract with Ørsted and Eversource [indiscernible]. So we are converting our Charleston, North Carolina plant to a full wind offshore cable dedication. This plant is under completion. This year, first semester 2020, will carry on up to the end of the year, we are starting the production of the Seagreen project in the coming -- in the coming weeks. And of course, Ørsted will come up before starting 2021, 2022 up to 2027. So we add up for the needs of the market 10% extra capacity to fulfill the demand of wind offshore. And this is what you can see on the right side of the slide. This is just interconnection projects. I'm not talking land projects. I'm not talking wind offshore projects. But when you pile them up together, it represents, from now to 2026, a fantastic opportunity for the sector, a fantastic opportunity for Nexans because we are talking about EUR 15 billion pipeline of projects to be awarded in the next 4 years. So of course, it is a fantastic momentum for Nexans. Going with the main achievement and back to the main buckets of our transformation. Let me remind you that we have 3 buckets of transformation: cost reduction initiative, SHIFT program and strategic growth initiatives. I think strategic growth initiatives, I don't need to illustrate them because you can notice them within the backlog. So let me give you a bit more detail regarding the cost reduction initiative. We have a target by 2021 to have -- to reach a cost reduction of EUR 210 million. What is the result for 2019? It is EUR 75 million. So we are fully on track with our cost reduction initiative plan. You have all the detail on the page -- on the left part of the page. Fiscal reduction and reorganization is about EUR 120 million. So we have a slight delay, a very slight delay in the land high voltage. We were supposed to close down the plant of Hanover at the end of December. We have to keep few people, 20 to 30 people, to carry on the production of one project that has been delayed because of the restructuring up to the first quarter of this year. The plant will be closed at the end of March. We have as well completed resizing the organization. We have resized the organization within a business group and business unit design. So that is already implement since September, and the restructuring and reorganization project is really on time in full and underway. We have set up as well a leaner organization by cutting by 2 layers, top management, 40 top managers left the group in the last 4 months. Regarding indirect expense, we have an objective of EUR 30 million. We are fully on track. No problem on that extent. We have as well engineering -- we are reengineering our CapEx procedure, and we think to be more rigorous in holding them -- in holding those CapEx to a higher standard of expected return. And of course, productivity is on track as well with the plan. So cost reduction for 2019, remind you, EUR 75 million of contribution in terms of EBITDA. You know that's one of my top-priority projects and on top of every subject is about the SHIFT program and transformation plan. We have done in -- for the equity story, this financial stress test of all our activities on the last 5 years that we have positioned in these metrics that you see on the left, with categorizing all our business units in terms of, are they contributive for the company or are they dilutive for the company. So you have the profit driver on one hand, like subsea business that we want them to grow, and we keep investing for that business. But you have, on the other extent, value burner. I always have the question and that's always the same question since the years, "Why are you not selling value burners?" Let me tell you, "Who wants to buy value burners, companies that are generating negative ROCE, negative cash, pumping a lot of resources?" No one. Or if ones want to buy it, it will be at very symbolic value. So the objective is to turn around all that business. And this is what we explained last year, I will not come back to it. When -- in a given segment like Buildings & Territories, when you have 1/3 of your turnover which is classified as profit driver and 1/3 is classified as value burner, it is not linked to external factors, market position, intensity of the competition. It is linked to the quality of the management. It is linked to the quality of the way you operate in your business. So SHIFT program has written down all the trade levers that you need to deploy to make sure that this business is profitable. We told you -- we gave you 2 figures. The position of the turnover of '18 on the spread per business and the target in 2021. In the middle of it now, you can see the results of 2019. You can see that in Buildings & Territories, we have been able to convert, much more faster, companies of units that were classified as transformation candidate or cash burns or value burners into profit drivers. So we are well ahead of our program. The same for the industry solution. In industry solution, our target was to have more than 80% of these activities as classified profit driver in 2021. That's done. This is done in 2019. So 2 years in advance. We have difficulties in LAN, and we have to accept it, difficulties of implementation. So I remind you that LAN is representing EUR 200 million turnover overall for a EUR 7 billion company. But we have strong difficulties that we will carry on to correct in 2020. So overall, the SHIFT program, which is -- the aim is to bring EUR 100 million of EBITDA improvement by 2021, averaged EUR 40 million improvement just in -- for the first year. So 40% of the total objective for the year. It's not mentioned on the slide, but let me tell you as well that in terms of working capital, SHIFT program has been able to reduce by EUR 60 million, the working capital for the unit that have been linked with that program. What is the question -- a question potentially on the organic growth? What is the organic growth of those units that has been under the program? Minus 1%, minus 1% organic growth. So with a minus 1% of organic growth, we have been able to improve the profitability by EUR 40 million. So that's confirming that more volume doesn't mean systematically more profit for all the business and that we have to be more selective in the way we manage complexity, in the way we manage our customer and product portfolio. Last but not least, let me talk about risk management because the sector Wire and Cable have seen difficulties in the last years, execution risk, and there is still some ongoing work for Nexans for all the player right now. So we have decided a year ago to reinforce our risk model. We have as well a question regarding the situation of the automotive market, the geopolitical difficulties and sanctions that we have in some countries. So just let me bring you back on this slide on Page 13. We have -- of course, we face some geopolitical tension in Lebanon or in Chile, where we have plants. And those plants are today running. It represents less than 1% of the turnover of the company. There was always a recurrent question regarding the Brexit. Brexit does not impact Nexans because we have only 2 sales and warehouse in U.K., no production at all, and very, very limited sales. And of course, the Nexans automotive harnesses. That has done a great job in 2019. Nexans harnesses and Automotive business is representing 8% of our total turnover. Coronavirus. On COVID-19, of course, and we have our Chinese colleague here in the room, so Julien Hueber and [indiscernible]. No, don't worry. They have been in quarantine in South Korea during 3 weeks, so don't worry, everything is fine. For the one in [indiscernible] they don't have any mask. No, don't worry, that's -- so now, of course, we have a [indiscernible] aspect of this risk. We have set up a team to manage that risk since 3 weeks under the leadership of Julien. First, to protect our employees. The first thing we've done 3 weeks or almost a month ago is to localize our 500 employees all over Asia. That we've done to make sure that we know where they are. We have been -- with the agreement of the government, we have been able to restore and restart our capacity in China, our factory in China last Monday. We have done only a slow start, only 30% of our people are able to come is because we want to make sure that everything is under -- protect them, the way to go to the factories and as well the way to operate. So we really take care about it. We have as well set up a dedicated team here in Paris to see the evolution of the epidemic on different 7-stage level of evolutions, from one region being affected to multiple regions being affected up to pandemia because we have to set up mitigation plan in case of a major risk at the worldwide level. Nexans is -- we are never enough ready, but we are working on it intensively since 3 weeks. So we have a risk index that we manage now every day. That's it for my introduction. We will take questions a bit later because we now -- let me welcome Jean-Christophe Juillard, our CFO, for the financial results.

Thank you, Chris. Thank you, Chris. So moving to Page 15, present you the financials of the year 2019. So I mean Chris already mentioned and explained the very good performance of the businesses. As you can see here on the graph, all of the businesses have significantly contributed to the EBITDA growth, EUR 124 million of additional EBITDA generated from the 4 segments. We've had also a little bit of organic growth, 4.5%, a very high organic growth -- I mean, a high organic growth in the first 6 months of the year, but 5%, slightly reduced in the second half of the year. However, this organic growth has been definitely boosted by mainly B&T, Buildings & Territories business and by the high-voltage subsea business that has been showing 7% for high voltage and close to 4% for B&T, Buildings & Territories, for the year '19 in terms of organic growth. If you look at our margin rate, gross margin rate, it remains flat versus last year. In fact, this is made of, and that's explained on the little graph here at the bottom, it's made of a mixed effect between some very positive impact on the cable business due to the SHIFT and pricing initiative and reshuffling our top line. However, we've had also a negative impact due to additional and higher volume of copper wires sold at a much lower margin, and that's mainly in Canada. So one [ tiny ] offsetting the pricing, explaining why the gross margin is flat versus 2018. You can see that our indirect costs, we've made significant work on the indirect costs through the cost reduction initiative. It's paying off. We've reduced indirect cost only by EUR 30 million. Total cost reduction was EUR 75 million. And that definitely helped EBITDA growth to EUR 413 million, 18% on a comparable basis, if you exclude IFRS 16. EBITDA rate to 9%, if you discount IFRS 16 to make it comparable to '18, you have 100% -- 100 basis point growth of the EBITDA rate at 8.4%. Moving to the next slide, on Page 16. So this is the bridge we like to present at all our communication because, again, this is following our equity story and basically, the 3 levers on where we want to report to show progress on our plan. So you can see here, EUR 75 million cost reduction. Chris talked about that. EUR 53 million achieved only in H2 second half of the year versus EUR 22 million in the first part due to the delay between the announcement at the beginning of the year and the full implementation of the cost reduction initiative. So completely ahead with our plan. We modeled in the equity story, EUR 74 million, so perfectly on target for that. SHIFT advanced. We were at EUR 12 million SHIFT. We had a very good second half of the year on SHIFT, EUR 40 million in total. And growth value initiative, EUR 12 million. EUR 55 million is the target for the 3 years of the equity story, if you recall, but most of that basically will come through the backlog of subsea, and it's rather targeted through the end of the 3 years of the plan. So we are on track as well on this. And then part of the business, we don't bet on that, we don't count on that to achieve our numbers, but in 2019, we had a positive impact on what we call conjunctural growth, which is basically the organic growth that we've seen, and that's mainly through B&T. That can come or not come depending on the year. But again, this is not -- we are not betting on that to achieve our target and our EUR 500 million. And we had some one-off also in 2018, mainly a sale of copper core exposure and also termination of executive [ connect ] pension plan. If I move to the next slide, and we look at our net income. So net income, as predicted, as guided in June is negative EUR 118 million, no surprise on that. I mean despite a quite increase -- quite good increase in our operating margin at EUR 249 million versus last year, we've had reorganization cost of EUR 250 million. If you look roughly in the inside of reorganization cost, there's EUR 200 million of that which is a European plant that we announced in the equity story, EUR 250 million for the total of the plant, EUR 200 million come in '19, EUR 50 million come in 2020. And then there is this ongoing restructuring of EUR 50 million, which is part of our -- in our business, where basically we always, depending on the business situation, the footprint in the country where we do business, always adapting our footprint to the market. So we said we have about EUR 50 million of ongoing normalized, I would say, restructuring. This is completely, again, in line with what we said we would do. So we are on track on the plan. We started a little bit of delays on some of the land high-voltage projects that has -- this has been offset with some savings on social cost of the plan with departure of people earlier than expected and without some payoffs. So all the plan is on track in terms of cost. Okay. So that definitely impacts operating income, minus EUR 11 million. Financial charges, slightly higher than last year despite a reduction in cost of our debt because we repaid one of the bond at the beginning of '19, the convertible bond for EUR 235 million. But we had some negative impact on ForEx on this line of financial charges explaining the variance. And altogether, net income at EUR 118 million, which is, again, in line with what we guided and announced in the middle of the year. One thing maybe worth mentioning, we've taken a charge, a provision, an additional provision of EUR 20 million to increase our reserve for the antitrust litigation investigation legacy. We have basically relooked at our provision during the year, especially in light of a couple of recent claims we received and we announced in the first part of the year. And we said we will not touch it in June, but we have adjusted our reserve for the year-end of '19. We believe now we are well provisioned for these legacy claims. If I move to the next slide. So this is an important slide because part of the communication we've made over the past months, we've always said that we would be significantly cash negative in 2019. As you see, we've achieved a good performance because we are breakeven, slightly positive with a cash generation of EUR 25 million. There's 2 reasons for that, 2 main reasons for that compared to what we've communicated. I mean, first of all, I mean, very good cash from businesses operation. A quite good improvement in our working capital, EUR 75 million cash improvement due to working capital changes. This is mainly due, again, to SHIFT and all the work that has been done in all the units where SHIFT has been deployed, and that's a quite good performance. And at the same time, this cash -- this improvement in the cash from operations has been sufficient to cover cash-out from reorganization, EUR 129 million. And CapEx, very high level of CapEx, as you recall, because we still are in the middle of building our second vessel, and we are converting our plant. So we have, in '19 and in '20 as well, I would say, abnormal strategic high CapEx due to those 2 programs. But the cash generation in the year '19 were sufficient basically to cover that, which is quite a good performance, I would say. If you look at the net debt pre-IFRS 16, in fact, it's stable versus '18, again, thanks to this cash generation. The only delta, I mean, is the increase due to IFRS 16 that put net debt at EUR 471 million. Moving to the next slide, on Page 19, looking at our operating working capital. So you see when you look at operating working capital as a percentage of sales, we continue to improve 11.9%, excluding high-voltage and project activities. In fact, if you add back project to look at the total portfolio, it's even lower than that. We are more in the 10.8% level. So a very good improvement. EUR 53 million of cash of the working capital, improving the cash flow of the company. ROCE, very good improvement also. We guided, as Chris said, we guided 9% to 11% for 2019. We achieved 11.1%. In fact, we guided 9% to 11%, not including IFRS 16, so in comparison, we are at 11.6%. So very good performance in terms of ROCE. Most of that coming from the operating margin improvements. Capital employed, you see a slight reduction in capital employed, but again, this is due to the strategic CapEx we are deploying in 2019. You will see, likely in '21, a very good improvement on the capital employed that will drive us back to the 15.5% target that we have for the year. In terms of balance sheet, strong balance sheet. Again, you see fixed assets slightly increased due to the CapEx that we are generating, that we are investing in 2019 and '20. Working capital improved. Net financial debt, if you take out EUR 140 million of IFRS 16, is flat. And shareholders' equity impacted by the net result of the year. You look at our ratio, interest over EBITDA, it continues to improve significantly, thanks to both reduction of interest charges as well as EBITDA improvement. And we have on the 2 covenants, gearing and leverage ratio for debt, we have significant headrooms compared to the covenant level. And the slight increase you see in '19 versus '18 is mainly due to the mechanical effect of the IFRS 16 changes on debt and EBITDA. Moving to the last slide of my presentation on the financials. Looking at our liquidity, total liquidity of EUR 1.2 billion or above our gross debt of EUR 1.1 billion. So a pretty strong balance sheet when it comes to liquidity. We still have -- we have EUR 642 million of cash on the balance sheet. We have undrawn revolving credit facility of EUR 600 million. And our net debt, again, EUR 471 million, including EUR 140 million of IFRS 16 impact. So again, a pretty strong liquidity position for the company. That being said, I'm done and turn back to Chris for the outlook.

Thank you, Jean-Christophe. So let's close the talk for 2019, and we'll give you some guidance for 2020. Let me take the opportunity for this outlook to thank our 27,000 employees. I think that was a very, very intensive year, indeed, sometimes painful for them, of course, because of the organizations. But all over the world, the team achieved a fantastic result. So thanks to all, and let me take the opportunity of this session to reward them. Regarding the 2020 guidance. If I have to give a title: anchor the change. We keep focusing on self-help actions. So we will pursue the deployment of the New Nexans plan in terms of cost reduction, SHIFT program and strategic initiatives. We will reinforce as well the way we are managing our productivity and working capital. You've seen what JC explained regarding the gain in working cap of EUR 75 million. I think Nexans still has a huge opportunity of improvement in terms of working capital, so we will tackle them on a daily basis. Jérôme Fournier is with us as well as [indiscernible]. We are reallocating significant numbers of resources towards customers support in terms of innovations. But more important as well, service and solution, because as I told you in the equity story, customer doesn't just want a cable anymore, they want a system. They want a subsystem. They want solution. They want as well to be cheaper. They want to pollute less the planet. So we are working on that with the team of Jérôme in R&D and service. We will reinforce strongly this leading position towards solution. Building a sound business -- sound and solid business portfolio while setting in-depth risk modeling. Nexans will not take risk in the current plan, neither in the next to come that could impact the -- its financial. So risk modernization has been strongly reinforced. We are challenging all our sales team, project by project, to make sure that we are taking project or business that we are rightly capable to execute. If we see there is a risk of execution, if we see that there is a golf course in terms of terms and conditions between us and some customers, we will reject those deals, simply as that. I want Nexans to be resilient for the future and to be stronger. We are, of course, in 2020, fully converting our plant in Charleston towards wind offshore. So that will be done at the end of the year. We talk a lot about profit, but let's talk as well about engagement and planet. Starting this year, every month, every quarter, all our business unit will be awarded challenge not only about their profit generation, but as well the way they manage the people engagement, I mean safety, absenteeism ratio, any action that they can add, engaging more our employees. But as well on the planet, we will challenge all our business unit on the way they are consuming energy, the way they're managing their waste and the way they are recycling our scrap. So all business starting now, and this is not in the annual report, this is in our daily life, will be challenged on these 3 p: profit people, planet. And last but not least, before the guidance, we will set and we invite all investors on the 5th of November, we will introduce the next step. What is beyond 2021? What will be Nexans in 2024? So that will be a dedicated Investor Day to explain and to show our ambition up to 2024. That will be the 5th of November. Location will be mentioned a bit later. Guidance for 2020 for -- in terms of EBITDA, between EUR 440 million to EUR 460 million. Return on capital employed, between 11% to 12%. And free cash flow is expected to be negative still because of the CapEx, specifically of the boat that going to be under construction, but as well, the Charleston conversion. Thank you very much for your attentions. Now we will open for questions.

I think we have a first question in the room. So we need the microphone.

Yes. Jean-Francois Granjon, ODDO BHF. Regarding the CapEx, what do you expect for the amount of the CapEx this year 2020? You mentioned some higher CapEx than expected. And for the free cash flow. So we understand that this -- previously, you expected a breakeven free cash flow for this year, you expected a more negative level. So can you explain why and the amount expected for this year? And another quick question. We can see a slightly -- a slowdown for the business during the second half for the overall division, except high-voltage compared to H1. So what do you expect for the beginning of this year in terms of growth, organic growth? And the last question for the guidance of the EBITDA. So you expect it between EUR 440 million and EUR 460 million. So the improvement compared to 2019 is a little bit lower than we have this year, in 2019 compared to 2018. So can you explain why do you expect lower improvement compared to last year?

Jean-Christophe, I prefer I take the easy one and you take the more difficult one.

You want me to start with the financial?

You start with financial, and I will give you a bit more flavor about the guidance for the organic growth.

If I remember all the questions, I think the first one was on the CapEx. So on CapEx, CapEx level for 2020 will be higher than the normalized CapEx for the company. And normalized CapEx stands around from EUR 120 million to EUR 140 million, depends on the year. We will be more running at above EUR 250 million for -- above that number for 2020, mainly 2 reasons that Chris mentioned. The first one is this -- the completion of the construction of our vessel, where we still have about EUR 50 million CapEx for that purpose in 2020. The second part is the transformation, the continuous transformation of our plant in Charleston, South Carolina to address the wind offshore market, and where we'll have north of EUR 100 million of CapEx for that in 2020. So that's the major 2 element of the CapEx for this year. In terms of -- I think the second question was cash flow and why cash flow was positive this year and why would it be negative next year. So as I mentioned during the different meetings we've had and roadshows and presentations, we were unsure about the amount of cash-out and the restructuring that could shift between '19 to '20. A big chunk of that cash-out was linked to social cost or social payments to employees that were leaving the company through the restructuring. And it was unsure that cash would come at the end of '19 or beginning of '20. What happened is we have seen some significant movement of cash from '19 to '20 in terms of cash-out. So definitely improving this year and -- '19 and impacting consequently 2020. At the same time, we are not expecting to be as, I would say, performing on the working capital improvement. We have significantly reduced the overdues of the company, more than EUR 25 million for the year. We have also seen a very good impact on the shift on the working capital, and we've been able to generate EUR 75 million of working capital improvement, as shown in the presentation. And I'd say that, that was above our expectation also. That definitely had cash flow this year, making it positive and better than expected. So I don't know if I answered your question. I think the last part of it. So you will probably -- you will have a shift of EUR 50 million of cash-out from this year to next year. That will put the cash-out of restructuring in the neighborhood of EUR 160 million of cash-out for 2020.

And the EBITDA guidance.

EBITDA guidance, yes. So couple of reasons. First of all, we have not put our equity story as being a linear story, we never said we'll do 1/3, 1/3, 1/3. Definitely, we've done better, for example, the first year. It's not that we're pushing everything out to the last year, we've done 20 -- more than EUR 20 million. If you take the midpoint of the range of the different levels that we explained, cost reduction, transformation SHIFT and strategic goals, and you take what we present in our equity story, we've ranges to achieve every year, and you take the midpoint of that, we are EUR 20 million, EUR 25 million ahead in '19, mainly coming from SHIFT, as Chris mentioned. Rest are pretty much on line. So I mean, basically, we have a higher '19. We'll have, I would say, a little bit of a plateau in 2020, and we see a very good '21 to reach the EUR 500 million pre-IFRS 16 number. Also, one impact -- it's not an impact, but one reason of the smoothing a little bit of the EBITDA growth in 2020 is due to subsea. In '19, we've had a lot of installation on the boat. We've had termination of some very large contracts due to the phasing, like the Nordic contract that Chris mentioned, was completed and installed in 2019, generating a lot of, basically, I would say, additional EBITDA through the end of the project when you're completing the project to really phase in all the provision that you have on the project, very good execution. The phasing is slightly different in 2020, where we don't have a major project like this one. This is just the phasing of the backlog, where we don't have projects like -- big projects like this one terminating in that year, and they will be more towards 2021. Explaining also why we have a little bit of a plateau in EBITDA for subsea in 2020 versus '21 or '19, explaining the phasing of the group EBITDA.

And regarding the organic growth, we don't guide organic growth. That's the wish and will since the beginning. We are guiding on EBITDA ratio and free cash flow. Why is that? First, because Nexans is committed to its financial target. Whatever happened in the economy in case of a slowdown, we will do it. So we are not committed to growth. We are committed to this EUR 500 million EBITDA. We are committed to the 15% return on capital employed and free cash flow positive in 2021. Then another reason for that is that SHIFT program is pruning our portfolio sometimes because we determine what is the good fat and the bad fat in customers and product portfolio business by business. And sometimes, we have to give away project or business that are not accretive or good for our financials. So that will reduce as well the organic growth. For example, if you have a slowdown from H2 to H1, it's because we have already done full deployment of SHIFT in South America and North America that prune some of the products, some of the customers to really reallocate all its resources towards the good cholesterol of the company. The reason that you see a minus 1%. But now, of course, this business are trying to grow smarter in the coming year. The SHIFT deployment is still moving. We have run more than 15 activities already, and we still have 22. So it's a full deployment. The only thing that I can tell you, Jean-Francois, to reassure you is that we have a very, very solid backlog in our business at the beginning of the year. Of course, high-voltage, we have a visibility for the next 2.5 years. Telecom, we have a visibility for the first semester. But we are prudent because you have seen that in Telecom Infrastructure fiber optic, there was a massive slowdown in September, but now it is back on track. Regarding industry, we have signed significant bill in the last 6 months that really improved our backlog for the industry. And as well, B&T, Buildings & Territories, you know that we have a 2- to 3-week backlog. This is not Nexans, this is the structure of the business. So this business is very linked to economy GDP evolution. So that's, in a nutshell, the situation for the organic growth. Any question on the phone maybe?

We have a question from the line from Max Yates.

Just my first question is around the economics around your U.S. plant and the new vessel. So the first thing I want to understand is, on the U.S. plant, as that ramps up, should we think that this adds effectively 10% to revenues because you said it adds 10% to capacity, and that comes 5% in 2020 and 5% in 2021 as it ramps up? And then I also wanted to understand, once the ship is delivered, what is the new sort of incremental revenue opportunity that is tied to that ship relative to the size of your business today? That's my first question.

Sorry, Max. Let me -- can you precise your second part of the question regarding ship, just for me to really -- what you...

Yes. So the vessel that you're currently spending CapEx on, the new ship, once that comes into operation and starts installing cables, that will obviously also generate incremental revenues from the installation. So I just wanted to understand how we should think about the revenues that can be generated by that vessel once it comes into operation. And the reason I'm asking both of these questions is because you're effectively near full utilization in your core business because of your backlog, because of the ramp-up in deliveries. So I wanted to understand, via the new U.S. plant and via the vessel, what the incremental, what the room for further growth is in terms of the business in the next 2 to 3 years with the capacity and investments that you've made today.

Okay. So let me say a word regarding Charleston. Charleston, our plant in South Carolina devoted to wind offshore. So this conversion is ongoing. We are starting production for wind offshore sea drilling project in June this year, with a full production in 2021. We will start up the few -- the first offset contract at the end of 2021. So in a nutshell, the additional capacity, it's full run. It's about EUR 200 million additional sales that will come into force in 2022, but we have a slight ramping up phase in the coming 18 months. Regarding Aurora. Ragnhild, this is your first question in that -- the type of audience. Ragnhild?

Thank you. And what a question. Aurora is really our pride. When Aurora arrives where it's planned in May next year, in '21, she will -- we are estimating that we will add half capacity of the installation. But also knowing that we are -- already today, we are hiring in other contractors if we don't have capacity ourselves. Like for the East Anglia project, we have a subcontractor doing the full installation. So we have already, today, been using our own vessel and also other vessels. But we are assuming at least half vessel available from summer next year.

What we can add as well is that we know we -- our old lady called Skagerrak, our crew on board will keep running. And to install wind offshore right now for the next project is not near shore anymore. We are not 20 kilometers from coast, we are talking about 50 up to -- to 150 kilometers from the coast. So that requires a bit different capabilities that those customers use before where they were not using vessels from the industry, wire and cable industry, but from others. So we want to convert the Skagerrak boat as well to support wind offshore cable installation in the near future, in addition to Aurora that will be dedicated to interconnection.

Okay. And -- that's helpful. And just to confirm that you said EUR 200 million of incremental revenue that's -- its full run rate by the end of 2022. That was what you said.

Exactly, Max.

Yes. Okay. So my second question is just on the transformation initiatives. So the 2 major things when I look at your charts, it looks like the land HV business in buildings and technologies. So I just wanted to understand, today, how much -- or if we look at sort of on an annual basis in 2019, how much in terms of EBITDA was the land high-voltage business losing? So how much of the remaining EUR 60 million in transformation plan should come from getting that business to breakeven or slightly positive?

Yes. EUR 24 million from that 2019, EUR 38 million last for the land high-voltage business, EUR 38 million in 2018. And I recall -- I mean, we're planning breakeven in 2020.

So the land high voltage improvement in '19 was about EUR 14 million versus '18, and we aim to have more than EUR 20 million improvement in 2020.

Okay. And just the final question was on the list of interconnection projects that you gave out to 2026. What degree of visibility and confidence on sort of those projects going ahead in 2020 do you have? And are there any sort of other major projects in 2020 that you're chasing that maybe aren't on that list? Because, obviously, if I look down the list, it looks like there's actually kind of fewer projects this year and then activity really starts to ramp up with some larger projects like NorthConnect and NeuConnect. Can we see some of those 2021 projects booked this year? Or vice versa, could we see some slip to next year? Just understanding what projects on that list do you have most confidence on going ahead this year.

Just answering on this one. For the pipeline for 2020 and for 2021, as Chris already said, we are quite full. So what we are looking at now, when we're looking at the pipeline and looking at the project to take on, we're really looking into the best optimized way to sell our assets, and of course, with the combination of the risk and profit. As far as we see today, we have enough projects in our backlog to fill both '22, '23 and onwards. So we will always continue to look into how the projects are evolving along the way. I think that we will see...

Not backlog but pipeline.

Pipeline, sorry. Yes, pipeline. So I think we don't need to be desperate today because there will be projects to be signed end this year and early next year that will fill the next capacities. If that answered your question or answered the question.