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

Ladies and gentlemen, good morning, and welcome to Nexans' First Half 2021 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 for today's conference call Mr. Christopher Guerin, Nexans' CEO. Please go ahead, sir.

Yes. Thank you, and good morning. Good morning, ladies and gentlemen, and thank you for participating in Nexans' conference call. I'm Chris Guerin, CEO of Nexans. With me here today is Jean-Christophe Juillard, Group CFO; Aurelia Baudey-Vignaud, Head of Investor Relations; Elodie Robbe-Mouillot, Nexans' Investor Relations, and I will now -- let me turn you over to Aurelia, who will go over 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 you over to Chris, who will go over the first half 2021 highlights.

Thank you, Aurelia. So as you can see, the highlight of this first 6 months is Nexans' strong performance on how it supports and also demonstrate the group's ability to generate structural value growth. Let me now turn to -- directly to Page 5, where you can see 3 major items. First, we raised our guidance on the back on a very strong record EBITDA for the first semester at EUR 222 million, thanks to, of course, demand upturn post COVID. But let me highlight a very strong positive mix and as well very strong leadership in price management. Standard sales were up plus 12% year-on-year. Supported by this price management on very selective growth and as well our SHIFT program. Needless to remind that Nexans continue to focus on value growth first more than volume. Raw material monitoring, it was very complex at the beginning of the year, but we have been able to manage both in terms of price inflation, supply chain disruption, which as well reinforced the fact that -- and let me remind you that we have a unique vertical integration on the metal that help us to support some risk of scarcity. And last but not least, exceeding our cost reduction target and exceeding our SHIFT transformation program target that I will highlight a bit later. Second element. We are, again, very successful on our transformation. And specifically, we maintain a very strong leadership in subsea high-voltage. We have, as you know, a unique position in the U.S. for the subsea cables with our unit in Charleston, on track for this -- the finalization of the investment that will be closed at the end of the third quarter. And as well during the course of H1, the notification that Nexans has been chosen as a preferred supplier for the Empire wind project in Brooklyn and Long Island where the objective of those projects is to electrifying Manhattan with wind offshore farm in the coming years. So we thank Equinor and BP for their trust in Nexans. We have as well built a state-of-the-art cable linked vessel called Aurora. I was on the vessel 2 weeks ago. This fantastic vessel is now ready to work on secure project and as well to support the new projects for energy transition that will come everywhere in the world. As I just mentioned, we have exceeded our targets on cost reduction and as well SHIFT performance, and we remain extremely focused on working capital management to generate this very sound positive free cash flow of EUR 90 million. So third element. In line with our new equity story that we announced during our investor event on the 17th of February, we start now building the blocks of our strategic ambition, which is to position the group on the electrification value chain from the production of energy, renewable decarbonated to the transmission and distribution of energy, all the way up to the usage of electricity. So let me remind you the key elements. We want to simplify the number of business that we will cover to amplify our impact. We are then leveraging our successful transformation to focus on more value growth services and solutions to answer our customer need and as well bringing much more innovation in the future to support this energy transition. So we are now really starting to unlock our full potential as an electrification pure player, and that's only the beginning of this fantastic journey. Transform and innovate. We have strengthened, of course, to support this new equity story, our R&D, marketing firepower through a new organization, reallocation of resources. We are developing new solutions, like the one we've shown you last quarter, called MOBIWAY. And now the new one that we will announce today called VIGISHIELD that will be detailed later. And in as well to amplify our marketing firepower, we have created a new executive committee position for the sales, marketing and communication that will be led starting at the end of August by Elyette Roux. Elyette has a unique background of more than 20 years experience with a great company like Schneider Electric, where she has been able to develop a very robust marketing and digital offer. Scale up to step up performance. We have progressed as well on our inorganic agenda acquisition. And we're talking with some targeted candidate. But of course, today, we are not in position to comment anything on this aspect. Now let's turn to Page 6 to go on the key figures. So these key figures that illustrates the very strong achievements of Nexans in this first semester 2021. So record EBITDA at EUR 222 million, a very solid return on capital employed improvement at 14.2% and a steady free cash flow of EUR 90 million. A quick reminder, you know that free cash flow generation was extremely strong last year due to one-off working capital over -- effect over EUR 200 million. So the EUR 90 million that you see for June can be considered as a normalized level. So once again, we are a very strong discipline on selecting our customer, determining the product that will be critical for today's -- on our future growth, keep reducing complexity and very strict discipline on the cash, working capital management. And you will see that in spite of very steady growth, we are showing one of the best working capital ratio on sales of the sector. Let's now move to Page 7 to illustrate the key element of the H1 -- on the key milestone of H1 2021. Of course, starting with our Capital Markets Day, that received a lot of very great and positive feedback from the investor community everywhere in the world, specifically in Europe and in U.S. And we are very proud to say as well that we have been awarded best investor event of the year by Investor Relation Magazine for the small and mid-cap. So that's always good to have such recognition. Also, among various initiatives, start building block of our new strategic ambition to become this pure electrification player. So this is what I said, highlighting 2 innovations that really give as well the mindset, the spirit of what we want to do. 2 innovation that have been launched at worldwide scale means in all countries where Nexans is located, MOBIWAY has been launched and as well VIGISHIELD that we will present today will be launched everywhere. And of course, we -- as I just -- what I said, we are making some progress on the inorganic agenda, of course, on the acquisition on one side, but as well on the future divestment because we are working on the creation of independent legal entities for our [ energy's ] business, ISP business and telecom business to prepare all the carve-out of those assets, for which we will look in the future, their new owner or new partner for their future development with, of course, a very strong initial ambition because as you can see, those activities are generating as well great results. So great results should bring a great future owner for those units. Moving to Page 8. So let me move to Page 8. So this is what we -- I just said in introduction, we're -- with our new Nexans transformation plan that we introduced in 2018 that support the objective of '18 to 2021. But I'm very proud to say that at the end of H1 2021, everything is almost achieved because for the cost reduction part, we achieved, at the end of this semester, cumulatively EUR 202 million of cost reduction, an objective -- a total objective of EUR 210 million. That means that for the next 6 months, we need to find EUR 8 million cost reduction, so it should not be a big problem. And regarding the SHIFT performance program, which is -- once again, let me repeat, not a cost reduction program. A SHIFT is really a private equity type management of the portfolio with a very strong focus on discipline on the mix, the quality of customers on the pricing discipline. We were supposed to bring EUR 100 million incremental EBITDA. It's done because we are at EUR 98 million at the end of H1. So it means only EUR 2 million is left. And we have on the slide on Page 8 as well the target of, I would say, mix depending of the each activity that we wanted to achieve for 2021. So this is the slide of 2018 that we show you, with this codification per business unit of profit driver, transformation candidate or value burner. As you can see now, everything has been achieved. It means in Nexans, there is no activities at all at unit level, which is losing money or having a working capital ratio considered abnormal. So everything achieved, so everything is online. Let's go back to page -- let's go now to Page 9, because you know after a sanitary crisis, there was a logistic crisis and the raw material disruption. So raw material was a very hot topic for the period. So we put back here the slide of our quarterly result with a slight update. We just remind you because we have all the questions from investor community. Raw material price inflation is a pass-through in our sectors, so that's really enabling us to protect our margin and to avoid any squeeze effect. In H1 '21, it's important to notice as well that we recorded a materially positive core exposure impact of EUR 75 million due to copper pricing inflation that I'm sure that you see will realize. Again, let me draw your attention on one unique, fully integrated manufacturing process that we have, that really support us, which is the rod casting facility. As you know, we are the unique player having still a vertical integration for copper rods. And that really support us in case of demand fluctuation and increased potential risk of scarcity. So it's a very strong competitive advantage when the next year to come because believe me, I'm coming from that field. The copper may become a very strong bottleneck and may suffer structural deficit in the future because of a very strong demand around all sectors. But our capability to recycle our waste from our production and from our customer waste back to our copper rod casting facility will certainly become a distinctive and fundamental asset to keep supply cables in case of scarcity for our strategic customer. Let's now go to Page 10. It's more a sort of a photo report here just to show you this one is now a real one. This is a Nexans Aurora vessel. We were with the team on [indiscernible] on the vessel 3 weeks ago. So very, very proud. So the Aurora will be working on various secure projects like Seagreen in U.K., Crete-Attica Interconnector in Greece and of course, Empire Wind in U.S. Let's move to Page 11, and let me show you one of these new innovation that will be -- which is announced to the market and to all our customers today everywhere in the world. First is really to address one of critical customer pain point. And we've seen that rising in the last months, which is the value of damage from a copper wire theft. Just for U.S., imagine, it's about $900 million of copper wire that has been stolen. So we can estimate that the world risk on copper wire theft is about EUR 2 billion to EUR 3 billion every year. And if the copper price keep rising like it did in the last months, and this is what I believe in the next year, of course, this risk will strongly rise in the coming future. And this is why we want to support our customer pain point. And this is what you have on the following page, Page 12. We are launching, VIGISHIELD which is a new Nexans-connected digital solution that keeps cables under surveillance everywhere on all time, 24 hours, 7 days a week. And this is -- I will -- of course, if you have any questions, we can come on that. And Jérôme Fournier and his team have worked intensively on this new innovation, which is certified and supported by Nexans team. But this is an example on how we will amplify our impact through solution and very modern innovation. Let's go to Page 13, some progress on our ESG journey, either on a governance level, environment or ecosystem. So governance is -- what I said, this is the first time in Nexans' history that we have at the Executive Committee a Head of Sales & Marketing and Communication. So that's as well to show the way of our new equity story that where marketing, sales supported by innovation team will play a major role to capture even more value growth. So we are very happy that Elyette has decided to join Nexans. On the environment, we -- because of -- and thanks to our vertical integration. We need as well to make sure that we are the first cable manufacturer to be extremely focused on environmental impact of the copper on development. So that's the reason that we have joined this Copper Mark organization. And we -- in order to thank our suppliers that have supported us during the last month, because we know that it was extremely complex for some raw material in order to as well engage them in our new equity story, we have set up a fantastic Suppliers Day, meaning with 250 key suppliers, it was a great time with them, and now we are managing every week different specific call to make sure that they will support us in the future. But let me thank them that really -- because we -- Nexans has not suffered at all from any disruption in the supplies during the last months on the -- I think, this is thanks to their support. Let's go to Page now 15. I will comment the result of each of our key activities. So let's start by High-voltage & Projects. In H1, the level of sales and EBITDA illustrate backlog phasing and as well an unfavorable comparison with H1 because in H1 2020, we benefited from maintenance and repair project that we are not planned which is, as you know, pretty accretive for the business. So the latter excluding sales will be stable and profitability close to plus 30%. So in nutshell, subsea performance will significantly ramp up in H2. I'm sure you will have questions on GC. We will come back to it. Because of Aurora, work -- will now work on the project that I mentioned earlier because Charleston plant conversion completion in Q3, and we suffered from slight delays last year because of COVID and travel constraints, but now we are catching up. And we have EUR 1.4 billion adjusted backlog. But beyond non-number, more important for me, it's a very disciplined risk reward selective process that we have engaged to manage this backlog. Empire Wind is not in that backlog because it will be awarded in the coming months. In non-High-voltage, but you remind that non-High-voltage was a very strong value burner in the last 2 years, specifically '18, '19, a bit better last year. And now we are not making any loss anymore. And now we keep improving performance month after month in non-High-voltage. And let me as well, thank the non-High-voltage team for the great turnaround that they did achieve in the last 2 years. On the Page 16, Building & Territories performance for the first 6 months of the year is clearly illustrate the success of the group in terms of selective and smart growth with a very strong focus on our key financial ratio improvement because you can see that the EBITDA margin improvement is about 243 basis points at 7% ratio against 4.7% ratio same period last year. In the building activity, was specifically across geographies, very strong in Nordics, in France, South America, as well accessories and do-it-yourself market were overall great performance and as well in Canada. Utilities activity was more mixed over the period. Europe was stable, with France recovering strongly and Germany and Sweden a bit sluggish. And South America was quite solid and North America, a bit low. But I'm not concerned by utilities because we are at the beginning of a huge investment to renew the power grid of the world, everywhere in all countries, so investment would be massive in that activities. Moving to Page 17. Let me give you a business overview of Industry & Solutions and Telecom & Data. Our first Industry & Solutions performance was excellent, robust both in sales and EBITDA, so boost by the automotive harnesses is a big difference versus last year's situation where most of car manufacturers were locked down and stopped their production. So now we have a huge recovery in automotive harnesses. Supported as well, what I told you in the first quarter by the hybridation of car demand, which is generating a higher growth. And as we are very positioned on a very successful car model, it's a fantastic activity recovery for automotive harnesses. As well, automation, which is extremely robust, thanks to the modernization of all the industries everywhere in the world. On the flip side, on the solid recovery against last year on activity that was largely hit in COVID-19, the transport were a bit sluggish in H1, notably in railway infrastructure and Rolling Stock. But I'm not concerned because you know that our customers, namely, for example, Alstom, and our Chinese customer have a very, very huge backlog in front of them. And we witnessed some first sign of recovery in Aerospace and Defense. We have seen with GC, we were in U.S. last week, and we have seen that now the plan looks to be full again. So it's a good sign for our Aerospace business recovery. Regarding Telecom & Data. First, it saw some improvement with continued upturn in LAN copper cables. A very strong recovery in optical fiber infrastructure market. So you have to as well be careful regarding the comparison of sales because in H1 2020, it includes Berk Tek that we have divested on the second semester. But you can see a very strong performance on the EBITDA ratio because we benefit as well through much better price on fiber optic raw material. I will hand over now to JC for JC to go in details of the financial.

Thank you, Chris. So if we move to Page 19, let me give you some flavor about the details of our financial performance for the first semester. So first, EBITDA performance is at EUR 222 million, up EUR 93 million for the first half -- against the first half 2021 (sic) [ 2020 ]. If we go into the detail of the construction of that EBITDA, standard sale will have EUR 3.1 billion, up 12% in terms of organic growth, as Chris mentioned earlier. The EBITDA performance is mainly supported by sort of the rebound in sales, the strong organic growth of the first half, selective growth that we continue to pursue, effective raw material management and last but not least, exceeding the targets on our transformation plan. If we look further down the line, operating margin equally improved to EUR 145 million versus EUR 83 million last year, and operating margin rate was 4.7% versus 2.9% at the same period of last year. Operating income grew to EUR 168 million in H1 2021 against EUR 4 million in H1 2020. This is explained by a strong COVID exposure impact of EUR 75 million, reflecting much higher average copper price over the period. Just to give you some flavor, average copper price increased by about EUR 2,000 per tonne in the first semester of '21 versus the average price of last year. Second important impact, we had lower reorganization costs of EUR 33 million versus EUR 53 million last year. It includes EUR 10 million impairment on some fixed assets of -- left on our Chester U.S. plant and reorganization costs linked to the group transformation. Finally, net income lands at a positive EUR 81 million in H1 2021, against a loss of EUR 54 million in H1 2020. It includes net asset impairment charge of EUR 15 million related to tangible assets in Lebanon and net financial expenses of EUR 34 million versus EUR 19 million in June 2020, mainly related to the impairment of some assets, mainly also in Lebanon. If we move to the next page, and we have a look now at typically what we present our bridge of EBITDA, looking at the main levers that we've -- of our equity story that basically reflects quite well the transformation, the progress on our transformation plan. So again, if you look at the major improvement in EBITDA, plus 37%; and an EBITDA on sales percentage up by 155 basis points, from 5.6% to 7.1% at the end of June 2021. As you may see, we reached plus EUR 75 million EBITDA improvement, which is made of EUR 37 million of cost reduction initiatives as Chris explained in the previous slide. We are almost complete now with our target of EUR 210 million as we announced at the end of 2018 in our new plan. EUR 22 million from the EBITDA improvement first half is coming from the SHIFT transformation, continue to basically accelerate and deploy SHIFT across all the units of Nexans, and EUR 15 million coming from the, what we call the, value growth initiative, where we basically invested our strategic CapEx across the other plan. This has been partially compensated by EUR 29 million of price cost squeeze and inflation and EUR 26 million on unfavorable comp mainly in the High-voltage versus last year. As Chris explained also, we had a very high level, as you know, of maintenance and installation, maintenance repairs with 3 large repairs in the first semester of 2020, which we did not have any this year. And the EBITDA margin on those repairs is quite high. So when you compare, you have a variance there. Last, in comparison to H1 2020, COVID-19 generated EBITDA loss. We recovered EUR 43 million. I remind you that last year, we estimated the COVID impact at EUR 64 million. So we recovered EUR 43 million of that. We continue to have some areas -- specific areas where the recovery is not completely back yet, for instance, at Aerospace. All in all, we demonstrated again this half year, the success of our self-help plan, key enabler to unlocking our value growth. If I move now to the next page, and we'll go to basically have a look at our balance sheet and specifically after our top debt. You see that our net debt is reaching at the end of June, a 10-year low level at EUR 112 million, which is a leverage ratio of 0.4x versus 0.7. It was already quite low at the end of December. We continue to improve our leverage through mainly, as you can see on the bridge here, very strong cash generation from the unit, continues improvement despite the low level achieved at the end of December, a continued improvement in our working capital, EUR 64 million. I would say, a lower level than the past in the reorganization cash out continue to have a little bit of high CapEx, mainly due to Aurora last payment in the first quarter of the year and continue to ramp up of the Charleston transformation that will be completed fully terminated completion operational in the third quarter of this year. And that's about EUR 50 million, I would say, of the CapEx coming from those 2 buckets. The rest, if you have financial interest and basically the dividend we pay at the end of May and explaining basically the EUR 90 million cash generation before M&A for the period. If we move now to the next slide and we look at -- I like to present this slide because I think semester after semester, it demonstrates the robustness of our plan and the transformation of SHIFT. We -- you remember for the first time last year, at the end of the semester of June 2020, we did the deep work analysis, SHIFT on working capital. We reduced our working capital to a level never achieved at Nexans, from basically 12% to around 7%. We continue to work, as you can see on this graph, very heavily on managing our inventory and our working capital. And you see in blue, despite the rebound in sales with the strong organic growth of the first half, we continue to improve our working capital that reached a onetime level record low of 4%. It's slightly below 4% of sales. This number, again, I want to be clear that our commitment is to stay within the range of below 7% -- 6%. 4% might change a little bit. But definitely, what is important is the key message is despite the rebound of sales, despite the increase in our volumes, we are controlling and managing working capital very, very strictly. If I move to the next slide, and we look at our balance sheet quickly. Return on capital employed at 14.2%. I think it's for many years now a record level for return on capital employed for Nexans, obviously, boosted by 2 main factors, the growth in EBITDA, if you compare to December; and also, obviously, the continuous improvement in our working capital, I described earlier. No need to say that our covenant on our key ratios for the debt are continuing to improve. We have extremely significant headrooms on both of them, obviously, driven by the sound and stronger balance sheet of the company. If I move now to the last slide of my presentation, a key word on our liquidity. Liquidity remains extremely high at total liquidity available for the group, EUR 1.5 billion. You know that we have repaid some key debt expenses. And 1 expensive bond that was maturing at the end of May, we paid it earlier due to the significant cash flow on the balance sheet of Nexans at the end of the year 2020. We also paid -- repaid a little bit, a couple of months earlier, the PG, Prêt Garanti par l'État, that was due in June. So our gross debt reduced significantly, our liquidity remains quite high, and I talked already about our leverage ratio that is extremely healthy. That basically concludes the first half in terms of financial presentation, and I will answer your question later on. Turning back to Chris for the outlook.

Yes, for the outlook on -- it's Page 26. And thank you, Jean-Christophe. Well,as mentioned at the beginning of the call, Nexans has raised its EBITDA and return on capital employed guidance on the back of what you've just seen with a great performance with H1. Once again, we are so confident on the quality of our backlog because we really managed that each business through the order entry on the backlog will beat their financial ratio. We don't want to have the greatest backlog in terms of volume, but we want to make sure that our backlog is healthy in terms of our future growth, in terms of as well profit generation on return on capital employed. This is why each business project, key potential orders and key critical negotiations are managed at Executive Committee level with our business unit key leaders. So our EBITDA, as you can see, were previously between EUR 410 million to EUR 450 million as a guidance for the range. And now we upgrade the lower part, but as well the upper part, and now the lower part is EUR 430 million and the upper part is EUR 460 million. I'm not sure that it happened in Nexans in the last 10 years. In return on capital employed as well supported by this raise of EBITDA. Now our target is between 13% to 15% and was previously, in the previous guidance, from 12.5% and 14.5%. Regarding the free cash flow generation, of course, we have a very strong bit in H1, and we confirm our guidance between EUR 100 million and EUR 150 million for the year. Of course, everything is linked with the current macroeconomic environment and assuming there is no major lockdown that will impact in second semester due to COVID. Now before ending the presentation and taking your question, let me resume this first amazing 6 months with a remarkable engagement of Nexans team. Let me thank all Nexans employees everywhere in the world. You -- guys, you make a fantastic job, and we need to thank you. It's important. Our record performance getting us ahead of 2021 expectation and really enabled us to confidently start building the blocks of our new strategic ambition, 2022 to 2024. So as you can see, Nexans is already on very, very solid grounds to become a pure player in sustainable electrification. It's now a new chapter that we start. And believe me, with the energized, young and innovative teams that we have, I am extremely confident for Nexans' future. Thank you. Aurelia, now we can take any questions that we may have on the call.

[Operator Instructions] And the first question comes from the line of Max Yates from Crédit Suisse.

Just the first question, I think, sort of somewhat predictably. Could you walk us through the revenue step-up in the second half versus the EUR 346 million you've just done in H1? I guess maybe in terms of building blocks, we've got perhaps half a year of Charleston, which is EUR 75 million, maybe half a year of the Aurora installing cable, which is maybe another EUR 25 million, so that would get me to about EUR 100 million up sequentially. Any kind of color? Is that the right way to think about it? Or would you add anything else to that?

Thanks, Max. Yes, I mean, basically, you get it completely right. Due to the saving impact I explained mainly on our subsea business, High-voltage, we had a lower, I would say, revenue base and profit generation in our subsea business in the first half than the second half. We are -- just to give you some the rough figures, but organic growth should be above 30% on the High-voltage in the second half versus second half of last year. So a very, very strong ramp-up of sales in high voltage in the second half, and it's mainly due, as you said, first of all, the phasing of the project. That's one. The second thing is around final completion of Charleston, there will be full production in the starting September. So I would say that's really the big backbone of differences between second and -- first and second half of this year in terms of revenue and profit generation.

And I guess, sorry, can I confirm that sort of is that sort of growth comes through the business that should result in not only kind of high absolute revenues, but also a higher margin as well in the second half? Is that fair to assume?

Yes, it's definitely for the high voltage I mentioned. Yes, it is completely fair to assume that margin will improve a couple of points in the second half in the first year. So you'll have the double effect of the higher revenue as well as a better mix and a better I would say profitability on the second half ratio. Yes.

Yes. Great. Just my second question is just on the how to think about the electrification margin. And I mean on my numbers, you'll be somewhere around 9.5% for your sort of stand-alone electrification margin business. And I guess what I'm curious to understand is when you think about the move to that sort of 12% at the midpoint target, can you get much more out of your High Voltage business? Or is kind of all of that improvement from here is still going to come from the Building & Territories division? I'm just kind of curious how much more runway you see in High-voltage & Projects from where we are this year?

Well, I mean the big part of how do we get to 10% to 12% by 2024 is obviously a improvement on the existing electrification of all the other business but high voltage -- I'm talking about outside of high voltage would be Building & territory. Now with SHIFT and so on, we committed to get EUR 150 million more EBITDA in the 3 years of the plan. So that's basically what we have been demonstrating in the first equity story, we'll continue to push that and get with innovation, services and so on to higher level of profitability on those business. And then on the High Voltage, you have the growth due the growth in volume, first Charleston that will be next year, 2022, the first year of the new plan, 12 months operational, so that you will have a step up already in '22 versus '21 in terms of revenue. Then you have the additional CapEx that we said that we're starting to build now that will be operational in '24, that will add about EUR 200 million -- EUR 250 million of additional revenue and about EUR 45 million of EBITDA. So basically, you will have a High Voltage business that instead of being something like EUR 800 million, I would say, today, will move above EUR 1 billion, EUR 1.5 billion in terms of total revenue in the group mix in 2024, with a margin level at average of 16% to 17% when the group is more at the rest of the activity, the more we are getting towards 10%. So I would say the mix of revenue is going to be skewed towards High Voltage with a better ratio and therefore, improving the total margin of the company.

Perfect. That's very helpful. Maybe just one final one for Chris. You mentioned the internal separation, which is ongoing for the nonelectrification businesses, so industrial and telecom. Could you just help us understand when that will be completed? And am I right in thinking that prevents you from sort of disposing of these businesses till they are sort of fully internally separated? So maybe just a time line on sort of that process? And whether that's right to think that disposals can't happen before that's kind of fully completed?

Yes. Sure. You know, the disposal can happen any time. But if the carve-out is indeed achieved, its facilitate the discussion with the future owner, so the carve-out will be over. We are running pretty fast, and I need to thank as well our union partners because we had set up a very intense dialogue with them since the Capital Market Day because, of course, you can imagine that when you are talking about asset rotation and that some of them will not be part of Nexans in the next 2 to 4 years, it generates a lot of emotion. So we have really communicated intensively everywhere and worked hands to hands with union partners. We were making significant progress in the carve-out, and we believe that everything will be ready at the end of this year.

The next question comes from the line of Akash Gupta from JPMorgan.

I have 3 questions as well, and maybe if I go one by one at a time. So the first one is on demand in second half of the year. I think you have already explained in high voltage projects, you expect more than 30% organic growth. But if I may ask, outside of high voltage projects, I think we have seen a strong uplift in second quarter revenues against first quarter where basically you've seen -- you posted sequential growth. As we go in second half, how do you expect some of the short-cycle demand to pan out in outside of projects?

Okay. Thank you, Akash. So yes, of course, there is the project we -- there is -- there should be no surprise because everything is already secured in the backlog. As well, let me say that industry should not suffer from any surprise, neither telecom, because we are on the ramp up in terms of demand and with the exception of some cyclicity in some sectors like wind onshore, the rest is pretty robust for the second part of the year. Utilities remain extremely strong for the next year. So roughly, I will say, that we should be in the range of 5% to 6% for H2. But I don't like to guide on organic growth, Akash. This is not my principle because once again, as I told you, again, in last quarter, sometimes we privilege to reduce the organic growth to make sure that what we have in the backlog will improve our financial ratio of EBITDA, return on capital employed on free cash flow. So if I need to be -- if I need to ask the team to be even more selective to keep improving our ratio, I will do and that will may be detrimental to some organic growth in the coming months in the business, as I mentioned, that are B&T and ISP on telecom.

And the second one is on project business. On Slide #15, you show your capacity, how much is sold and how much is unsold. And when I look at '22 for Halden, it looks like there is some capacity that is unsold. Can you tell us whether that is belonging from MI or XLPE? Which type of cable you have unsold capacity? And how confident you are to fill it up in the rest of the year?

This is mainly XLPE. You know that we -- our backlog is about EUR 1.4 billion because we are including the Orsted business because Orsted is -- we have a 7 years exclusive contract in U.S. So we need to wait that each project turns into our backlog. So our backlog including Orsted is about EUR 1.4 billion. The topic that we need to add as well is that Empire Wind project, we have not been strictly awarded yet. We have preferred suppliers, so we finalize all the negotiation with Equinor and BP. On the Empire Wind, if everything goes well, should, of course, shift into our backlog in September and will fulfill a major part of what is in that slide considered unsold. Of course, Akash, and I think Max will have the same question, there is a lot of big projects that were supposed to be awarded and will be awarded in H2, more than was supposed in H1. We are talking about the Terna project. We are talking about EuroAsia. We are talking about Dominion. So many, many projects to be awarded. I think we will have -- the sector will see a sequence of forward pretty strong in Q3, Q4 this year. And Nexans is pretty well positioned on many of those projects. And I am very confident regarding our capacity load for the next 2 years, in both technologies.

And my final one is for JC. On free cash flow, you didn't raise the guidance. And if you look at the first half, you already are at EUR 90 million, which is not that below the bottom end of the range. So maybe if you can tell us what are the factors which prevented you from raising free cash flow guidance after increase in EBITDA guidance for the year?

Sure, Akash. So basically, the range is EUR 50 million, EUR 100 million to EUR 150 million. When we communicated the range at the beginning of the year, we were -- I mean we are planning to be a midpoint of the range. To be honest, today, we have not changed the range, but I'm seeing the company going more to the upper part of the range of EUR 150 million than EUR 125 million. The reason that we have not increased the range for cash flow is that we continue -- as I showed you on the presentation, we continue to have a very strong working capital improvement of EUR 64 million in the first half. I don't see that repeating itself in the second half. So that's included in my EUR 90 million. I think that's another last, I would say, improvement we have made on working capital. But I think working capital change in the second half will be nil and therefore, not the same level of onetime cash generation in the second half. Second part, which is important, we continue, despite the fact we have completed Aurora now and we have no more CapEx due to the SHIFT sensitive in service, we are starting the new program on CapEx or the extension line in Halden in Norway. And we are starting to basically spend CapEx in the second part of this year. And I'm expecting EUR 30 million to EUR 40 million of CapEx coming from this new investment in the second half. So between the working capital and, I would say, additional strategic CapEx as we announced in the equity story, this is why we will remain in the range, but more on the upper part than the middle part of the range.

And just a follow-up to that. Does the guidance includes any big down payments from project wins in the second half? Or that could provide more of an upside to the guidance?

Definitely, that could provide. Depending on the savings, the project obviously is awarded and the down payment comes this year. It's always tricky when we are today tendering in excess of EUR 1 billion of project and depending on the world design and then the down payment follows, it could be easily in the beginning of next year or at the end of this year. So it's difficult to predict. So today, I think we are rather conservative on the down payment for this year. So I would say that if we have significant down payments this year on the big project, as Chris mentioned, you will definitely change the picture of the cash flow range for this year, but...

Yes, not factored here in the guidance.

Yes, not in the...

You know what we factor in the guidance, Akash, is what JC mentioned on the Page 22. And I think it was back to your question in Q1, where we have a lot of analysts and as well investors that say that, oh, yes, a great working capital ratio, but when the day where the sales will rise and the copper will rise, it will be difficult to keep this ratio, but we have been able to demonstrate that it's a structural change. And once again, it's not a ratio that we have at the end of each practicing closing period. Is -- we show you it's the rolling 12 months curve of the ratio. That means that months after months, we are improving. And there is no window. But I think in what we show, it's a structural change on the way we manage cash in excess. And that's why we are very proud of this result.

[Operator Instructions] And the next question comes from the line of Miguel Borrega from Exane BNP Paribas.

A couple of questions from me, if I may. The first one, just on high voltage. Can you comment on the overall market environment? I understand that everyone is now stepping up capacity. How do you see the pricing environment will evolve? Do you see any new players in this space? And then can you just comment on your EUR 1.4 billion backlog? How do you see that evolving throughout the rest of the year? You mentioned the other projects, and I'll ask the other ones next.

Yes. Thank you, Miguel. So regarding organic the overall market environment, it's as well what I say in my introduction. We are at the beginning of a huge electrical revolution supported by this energy transition change and as well the requirement to set up highways -- energy highways everywhere in the world. So the pipeline of project is about EUR 15 billion. So it's pretty huge. That competition is there, there is no doubt. But the complexity of the project is rising as well. That's the reason that we have our new leading edge vessel because this vessel will have, of course, can manage and install simple cable like wind offshore, if I may say, but will be used as well for very, very complex interconnection countries to countries project that will have to go at a very deep water depth. So the complexity on the project is as well rising the entry barriers for new entrants. So that's the good news. And when you think, of course, some -- us and some competitors are increasing the capacity. But for the moment, I don't see any risk of supply and demand issue because just the wind offshore, it's a huge new market of 200 gigawatt to be installed in the coming 9 years. 1 gigawatt cable value is about $300 million. So it's a huge market, and we benefit from this very strong and huge presence in U.S. on leading-edge advantage that we have with our Charleston plant in U.S. Just in U.S., the demand is fantastic. And as in Europe, as is in China, but China is supported by domestic players, and I think there will be strongly focused on this domestic demand in the next 5 years to come. So I'm not concerned. Regarding price dynamic, but you can see it's like a whole business, unfortunately. In general, wire and cable does not learn from the 20 years of experience. When you have a huge demand, you can, of course, yield up your price. This is what Nexans is doing specifically. We are extremely, I will say, granular on each project. I told you before, we checked each project's financial dimension, technical dimension and as well terms and condition dimension. We profiled each project to make sure that what go in our backlog is very healthy and has no risk of toxicity, either on the financial ratio or the terms and condition elements because I don't want to be the one to announce a huge issue because of profitability impact or terms and condition impact in one specific project. So -- the only thing that you can follow, Miguel, is the evolution of our EBITDA ratio in the high voltage project year-over-year, but we are very confident.

Very clear. And then just a follow-up on working capital. You mentioned it will be broadly neutral in the second half. So what does that mean for the outer years if you think you could reach an optimal level of working capital? And how should we think about that assuming that copper will stay at spot for the next year? And then lastly, on return on capital, you reported 14.2% at the group level. Can you update us on where you are just for the electrification part of the business?

So let me answer the first question, which is regarding operating working capital. So yes, I confirmed. So I said I think when you reach a level of below 6% or 7%, even 4% where we are now, is quite exceptional. 4% is very low. So again, with copper price increasing, it increased working capital as well for sure.

You can turn negative with down payment.

But I mean what we see and I would say the commitment we're taking for the future and what we are aiming with Chris managing the company is to remain always at a percentage level below 7%, think which is 5 points below the 12% to 14%, 5 to 7 points, half of what the company has been running in terms of working capital for the past 20 years. So I think that's our commitment. So obviously, in terms of volume, the working capital can move up and down based on the volume and the turnover of the company and the price of copper. But in terms of percentage as a commitment we take in. I remind you also that copper for us is a pass-through. It's important to notice. So it's price of copper. The only impact that you would see in our financials, due to the price of copper, is the one I described in my presentation, which is in net income in the what we call the [ CRIST ], which is a nonhedged part of our copper inventory, where basically you have -- we have an increase and we have a onetime gain in our net income this first semester due to the price increase of copper. But in our EBITDA, it's completely a pass-through and transparent. So it has no impact. The only risk we see on copper, is what Chris described earlier, is between the access of the raw material and the scarcity of the volume. In terms of the return of capital employed, to answer your question about electrification, the percentage is higher. It's at 15%. 15.4%.

15.4%, yes.

The next question comes from the line of Sean McLoughlin from HSBC.

Firstly, on land high voltage. And this is just building a little bit on Max's question earlier. I mean you talked about -- you've reached breakeven, but surely, that's not good enough. I mean how are you going to grow this business organically? How important is M&A? How big an element is land high voltage, particularly if we look at some of the large U.S. land high voltage contracts that seem to be coming through? That's my first question.

Yes, you're fully right, Sean, being breakeven is not a final goal on the -- so the issue that we have was mainly in Europe. So we have now been able to turn around entirely this business. We are extremely selective. This business is running well. Backlog is most secure up to the end of 2022 with some announcements that certainly will be done in second semester. So I'm confident. Regarding the U.S., we are as well preparing the evolution on the future upgrade of Charleston in order that you need to cope with, of course, the very strong wind offshore demand that we are facing and benefiting in U.S., but as well HVDC corridor. But where as well very prudent, Sean, is the price evolution on the land high voltage because when I've seen the last price that has been awarded with German corridor, that does not show, I will say -- I will not say by margin, but I would say, low margin in front of the complexity of the project, the technicality of the project, the risk of delays. And as you've seen that German links is -- will have a delay of more than 2 or 3 years. So it's very complex to manage when you have a delays of 2 or 3 years for 1 given project. So what -- how do you fulfill your capacity in the meantime. So I don't think that land high voltage really, for the moment, embrace a fantastic margin. So if I don't see the business benefit from a strong price uplift in the future, we will cap the growth. We will cap the growth and keep working on cost reduction program, competitiveness program, but I don't want to have 1 business to dilute our financial ratio. So it's -- you know me, Sean, it's -- I don't want to play volume for volume. I don't want to have the biggest backlog just because it makes it beautiful. I want to make sure that nothing will penalize the financial ratio of EBITDA, ROCE and free cash flow of Nexans in the coming years. And I want to fulfill our target for 2024. So we play carefully on the land high-voltage business so that we remain extremely selective and prudent on the yield management of the price.

Understood. And my second question is just an update on the transformation. I understand that you can't really give us much of an update on the M&A side. But just thinking about the good performance, as you mentioned, of the cyclical part of the business, I mean is this accelerating your emphasis on divestment ahead of acquisition?

Not specifically, no. Everything is -- we need to balance our acquisition traction on divestments because we have said that already in some calls, we don't want to become -- moving from a EUR 6 billion company to a EUR 4 billion company because we will have divest everything. And after -- trust us, we will be back to EUR 6 billion in 2024. So we need really to balance the acquisition and divestment process. The time and the focus of the management among today is on acquisition. Regarding the divestments, we are on the carve-out so we are preparing a future divestment. We have, of course, a lot of calls from potential owner. And believe me, it's great owners. We don't think that neither it's a conjectural, I will say, great momentum that we have for harnesses, ISP and telecom is because we have done structural transformation change in that business. So you will not see a drop of their margin evolution in the future. They will keep improving. So we are not wasting any money to wait a bit, making sure that we present to our team a great project with a great owner. And if we have to take time, we take time. So we are focused on acquisition, Sean, right now.

The next question comes from the line of Luigi De Bellis from Equita.

Yes. Two questions for me. The first one is on the copper. Can you better explain what is the practical advantages from being vertically integrated, especially compared to your competitors? Do you have appreciating advantages, if you can elaborate on this? And the second question on the telecom. Do you expect the profitability level achieved in first half to be sustainable going forward? And can you elaborate on the volume trend for telecom that you are seeing in Q3 in July?

Yes. Thank you, Luigi. It's a great question that you have on the copper. And let me remind you some key numbers from some simulations we've done recently. The world demand for copper, all applications together required in 1995 an equivalent of 9 million tonnes of copper per year. Now in those days, in 2020, 2021, we are -- the demand is about 20 million tonnes of copper per year. And our projection -- and that you sustain as well with some analyst reports that have done equivalent exercise because of the move of electrification, because of investment in transport mobility, electrical car, we believe that this 20 million tonnes of demand will convert to 35 million tonnes, potentially 38 million tonnes by 2030. So the copper demand in coming 10 years will be an equivalent of what's happened in the last 25 years. So to answer your question, what is the benefit of the copper vertical integration? Because yes, indeed, I think we are certainly one of the last one that have kept this vertical integration. So first, what advantage does it give? Not on the price itself because it's in some London Metal Exchange, in London Metal Exchange Chicago and Shanghai. So we don't have any benefit on the price itself, of course. But we have direct access on privileged contract access with mine producer that we meet regularly as we are one of their top customers in terms of copper supply. We are able to lock 3 or 4 years secure supply whatever happened in case of scarcity. So privilege access for copper. Second, supply chain advantage. Why? Because the cost of the cable, the main part of the cost of the cables is the metal, is the copper. And because as well as the rise of the value, the problem is that if you need to monitor strictly your inventories, in general, cable manufacturers have in-stock no more than 48 hours for their production. So in case of scarcity, you may have an immediate disruption of your production cable lines because lack in copper. So here, we have, with forward casting everywhere in the world, a very strict advantage to make sure that we don't have any supply chain disruption. The fourth advantage is that our competitors getting their copper rod on their wires from metallurgic players that are putting a pretty high margin, of course, on their added value because it's a very complex production. So whereas in Nexans, the copper supply is in a cost center mode, not in a profit center mode, so it gives us a competitive advantage on the cable price. Last but not least, we are not talking enough about it, but the recycling and the circular economy, all our waste from our production plant is getting back in the furnace, in the rod casting facilities. Now most of our rod casting facilities are using copper coming from the waste of our cable. It's about 30%, and we want to keep increasing this value in the future because in case of copper scarcity, believe me, the value of our cable waste will be very high, and this vertical integration will demonstrate the power of the strategic assets when the world will miss copper, then cable Nexans will stand up and supply their strategic account. On telecom. I forget the question on telecom. Expect the profitability on telecom? Yes, sorry. I was in my copper world. So regarding telecom, Luigi, we don't see any bad news in the coming months. First, because the price is fixed for most of our contract for a minimum 1 to 2 years, and we keep benefiting because here we have an advantage, which is we are not vertically integrated. So we have a great supplies of fiber optic raw material at a very, very low price. So this is exactly what I told you, at the end of 2020, we benefit from a great price from raw material and very competitive on that show that has been demonstrated in our EBITDA percentage. That's only the beginning.

We have no further questions coming through. So I will now hand back to Christopher for any closing remarks.

Thanks a lot. Thanks a lot for your attention, and we are very proud to announce such results because it's as well marks the -- almost the end of our formal equity story. So in spite of everything that happened last year with COVID, you can see that Nexans is at the of its target. And I remind you because we always forget the issue in -- of Nexans in 2018. The main question of analyst in 2018 says will Nexans able to generate constantly positive free cash flow quarter after quarter, semester after semester after semester? The answer is now, yes, we have demonstrated and we are very proud of what the team have done so far. And believe me, that's only the beginning, and it's a new equity story starting and we are very, very happy with what will come next. Thank you.

Thank you for joining today's conference. You may now disconnect your lines. Thank you.