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

Ladies and gentlemen, good morning, and welcome to Nexans' First Quarter 2023 Financial Information Conference Call. As a reminder, this conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Mr. Christopher Guérin, Nexans' CEO. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and thank you for participating in Nexans' conference call. I'm Chris Guérin, CEO of Nexans. With me, Jean-Christophe Juillard, Deputy CEO and CFO; Vincent Dessale, COO; Nino Cusimano, General Counsel; and as well Élodie Robbe-Mouillot, VP, Investor Relations. I'm turning now to Élodie that 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 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 URD, 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 quarter highlights.

Thank you, Élodie. So let's turn now on Page 3, straight on the quarterly main highlights, so 4 of them. The first one is a promising start. Value -- we are really focused on the value growth, so a growth that is mainly made of value, a structural positive mix effect on the very tight price management and as well improvement of our price power, supported by our new solutions. And as well in parallel, we continue to scale down the Metallurgy business as planned and, of course, mentioned during our Capital Market Day of 2021. So therefore, the organic growth for the quarter is about 6.5% if you exclude the Other activities versus the Q1 2022. Very well on track on the [ Autun ] plant regarding innovation and services acceleration. We have more than 100% growth in connected objects. We have already in Q1 now more than 60,000 connected objects. So as you know, it's as well linked to a new revenue business model with monthly fees with our customers. So very proud about this development, potential is still enormous. Amplification of our fire safety technology, I will dedicate a specific slide on a new video on it during that call. And that's supported by many investments, and one of them is the EUR 40 million investment we have announced in our plant in France for the upcoming 3 years in the last months. Point #3, new milestones in asset rotation, aligned with our plan. So as we already mentioned, we are in exclusive negotiation with Syntagma Capital for the disposal of Telecom Systems. And we received, a few days ago, the antitrust approval for the acquisition of Reka Cables in Finland. So the closing of Reka Cables is imminent, will be done in coming days. Point #4, strengthened credit profile. As you know, we have a steady improvement of S&P rating, BB+ rating outlook upgraded from stable to positive. And we have to say as well that we're very proud about it that we have been extremely successful for the first Sustainability-Linked Bond issuance, and that has been significantly oversubscribed. So we are talking about a EUR 400 million Sustainability-Linked Bond. Let me turn to J-C on Page 4 for the organic growth explanation.

Thank you, Chris. So if you -- if we move on Page 4, you see that, as Chris said, the organic growth of Nexans' Q1 '23 versus same quarter '22 is 2.2%. Notice to say here that, obviously, we have an impact coming from our Other activities. I remind you that part of this Other activities is our strategy to reduce our Metallurgy business, which is a strategic critical asset for Nexans, but also, I would say, a dilutive asset in terms of EBITDA margin. So our strategy is to focus on our own demand and reduce the sales of that. We have been successfully pursuing that strategy now for the past 2 years. So this is also, of course, reducing and impacting the organic growth. Reported sales of EUR 1.674 billion, you see that we have a scope impact of EUR 60 million, which is the acquisition of the Centelsa business that we did in the second quarter of last year and also a negative impact on ForEx, mainly coming from the NOK versus the euro, which has been, I would say, deteriorating. And since we have significant revenues in NOK currency, there is, I would say, a sales impact not reported in the organic growth. Important to say also that if you exclude the Metallurgy business, again, part of our strategy and make basically our organic growth comparable to our competitors, organic growth, excluding metallurgy, set at 6.5%, which is obviously a quite significant number. You'll see also that within the organic growth, we have the different -- significant difference between electrification and non-electrification. I will detail that in the coming slides. If we move now to the Page #6, and we start on Page #6 with -- sorry, my mistake, Page #5 with the Electrification businesses, zooming between Generation & Transmission, Distribution and Usages. First is Generation & Transmission, minus 10.7%. So here, it is important to explain a little bit further this, I would say, 2-digit organic growth increase, which is coming from the decision of Nexans to exit the Umbilical business. Umbilical business is an oil and gas business, manufacturing and providing cable for mainly oil and offshore platforms. We have taken the strategic decision for simplicity and to decomplexify and debottleneck our plant to exit that segment of business. And this is explaining basically all of the negative organic growth. In fact, without that Umbilical variance between Q1 '22 and Q1 '23, the organic growth of the division Generation & Transmission would have been positive of 8.5%, mainly thanks to the ramp-up -- continuous ramp-up of our Charleston plant in South Carolina. Just to give you a little bit figures, Umbilical business in Q1 '22, the sales were EUR 47 million; where in Q1 '23, the sales for that segment of business were EUR 4 million. So again, that reduction is part of our strategy to exit that business, which is also dilutive in terms of margin. Distribution. If I move to the next, I would say, Electrification business is Distribution, very nice, significant, I would say, positive organic growth in Distribution, mainly driven by the start of the grid renewal that we see in most parts of the world right now. We've seen a significant increase in demand from utilities in all of the regions where we are present for Distribution, whether it's North or South America, Europe and even Asia. So I would say this business is finally taking off. And through the frame agreement, we see that utilities are requesting more and more volume through the frame agreement in Distribution, which is obviously a good sign. And finally, Usages continues to grow, 1.5%. I know that all of you are very focused on Usages because of the commodity view you have on this business. We continue to believe that this is a fantastic, I would say, market for Nexans because of our premiumization. The fact that we are not seeking volume, but value, that we are growing the business through pricing and through innovation and services. We continue to see that growth. You see 1.5% versus quarter of last year, that was already a very strong quarter. There will be -- obviously, Europe remains quite strong. We see a little bit of decrease in North America, but at a level that continues to be extremely high, and prices remain very strong. If I move now to the next slide on Page 6, and we look at the non-Electrification business. So basically, non-Electrification business is made of the Industry & Solutions business, which is including the harnesses, Automotive Harnesses business, which is the biggest part of that Industry & Solutions segment. We see a very strong growth, as you can see on the slide, plus 22% organic growth quarter last year versus this year. Auto harnesses, the trends that we started to see in '22, despite the war in Ukraine, continue in the first half of '23, meaning that demand is extremely strong. We have been, I would say, benefiting from the fact that some of our competitors have been in a difficult situation, whether because of their presence in Ukraine or whether due to market condition. We have gained market share at good margin level, and this business is growing significantly. Also to be noticed in that segment, strong growth in the Mobility. Mobility is mainly aerospace, shipbuilding and rolling stock. We see a growth in that segment that continues and no sign of, I would say, pressure on backlog at that stage and we are quite confident that we will see later for the remaining part of the semester. Other activities, again, is made of 2 parts: the Metallurgy part that I explained, which is explaining the bulk of the decrease in organic growth, part of our strategy to reduce our Metallurgy business; and the Telecom business that we will be divesting within the second quarter, which is now moved, I would say, for the most part into the Other activity business. A small portion of that has been also transferred to the Generation & Transmission business, which is the one -- the fiber part that is included part of the high-voltage cables. If I move now to Page #7, and I turn on to Chris.

Thank you. So that's just a highlight on Generation & Transmission situations in terms of CapEx and backlog. So we were, 3 weeks ago, we were in Halden with J-C to have a complete review of the CapEx. Everything is on track. The 2 new lines are very well in progress, [ tower ] is set. We'll be ready to start beginning of 2024. The extension as well in Charleston, we were there last week, is running very well. Once again, we believe that organic growth through expansion of an existing plant is certainly the less or least expensive model because this extension will bring us another EUR 340 million revenue when it will run at full pace with limited extra fixed cost. Regarding the backlog, so as you see backlog, we know that we don't have the biggest backlog of the sectors. We are not running to be the biggest. What is important for us is to be a very healthy backlog on the line in terms of our 3 pillars that have been shown on Page 5, means margin yield, technological fit and with limited contractual terms exposure. And I -- let me repeat as well because I'm sure you will have questions that we don't want to be the first to book, and we like to be more at the best level of selection of contract. But some awards to come, and we are very confident about it in coming weeks. And here, you see the, on the right side of the slide, the main projects in backlog. When we were in Charleston last week, we have seen the full and positive start of the Revolution project and as well the loading of the South Fork project for Ørsted. So everything is running according to plan in regards to these projects in Charleston. If I turn now to Page 8, and I think it's important that the financial community get the message regarding the fact that we don't see Usages business as a commodity business anymore even, of course, is the -- or we know that the visibility is more limited than others. So let me give you, again, the big numbers, the big picture on this Page 8. So we see the building cable market that we call Usages with a global demand growing of more than 3.6% per year. So the market was about EUR 50 billion in 2019. We see that in 2030 at EUR 81 billion. There is many drivers, but if I may highlight the underlying trends, we see 5 of them. The electricity consumption will improve by 20% by 2030. The new build and the renovation acceleration, and just keep in mind that 53% of the buildings have been built before 1970, and that required a very in-depth renovation. New safety regulation, mainly in Europe and partly in South America, but getting into traction, and let me elaborate a bit more further on. Of course, the electrical network reliability and the fact that you need more and more power output for residential and infrastructure businesses and as well the new elements that are underlying this usage market, which is the electrical vehicle charging station that you need in the car park, the solar panel, the heat pumps and all these new usages that drive more electricity within the building and, therefore, more demand for cable. Let me highlight now the safety regulation. I will not comment the video that will come after the next slide. But safety cables, which is a shift from PVC to HFFR cable, keep growing with a growth -- organic growth of 13% per year. So we see the market roughly in 2021 about EUR 3 billion to shift to EUR 9 billion of potential revenue for just fire safety technology. And for the last 4 years, we have accelerated the shift in terms of production towards fire safety versus PVC cable, and that's the first momentum. The second momentum is that we have much more protection and entry barriers through fire safety cable. We have, just for Nexans, more than 150 patents. And of course, this protection is yielding margin upwards. It gives us a significant premium versus traditional PVC commodity business. We are able to add up a new service-based revenue model, as I mentioned in my introduction, with connected objects linked with the fire safety, I will say, promotion and amplification. And after, we as well, as we want to become a top leader in the electrification field, we prioritize with new -- through the new builds with high safety standards, means we reallocate more our production capacity for the verticals that require the most this fire safety element like data centers, schools and hospitals and as well big building renovations. So that's the trend that we are following. This is why we keep reinforcing our premium on our margin yield in that sector. And you will see -- I think you will be very at ease when the financial will come up later on this year, but this is obviously a good move. But let me express this technology shift through a video that we have just made for this occasion. And let me launch the video. So video... [Presentation]

Well, for the video on the fire safety, we're happy to take all or any kind of questions related to that technology. Let's now shift to Page 9. We wanted to highlight a bit the visibility that we have for the first half. Difficult to predict for all the year, except certainly for G&T, but let me elaborate for Q2, our visibility for Q2. So -- well, I think nothing to elaborate much on Generation & Transmission. Now we are fully booked and with the exception of EuroAsia in our plant in Japan, certainly part of your question. Regarding Distribution, our businesses on our equipment are fully saturated. We have already the order for Q2. So no negative trend there. In Usages, I think you all have followed that the residential is weakening in some parts of the world, mainly U.S., slightly Europe. The main -- most of it is offset by industrial infrastructure, a positive trend. So we have a slight slowdown in Q2 in terms of market environment, but pretty good visibility in terms of financial output for the semester. So we are very positive in that regard and specifically on the fact that the pricing remain very, very high. And as well, we keep developing our solution on our technology shift to fire safety that contribute positively to this margin output. Regarding Automotive Harnesses, a very strong trend. The shift to electrical hybrid cars and electrical vehicle is very, very sustainable on the long term. So we are fully booked. And you have seen as well that one of our competitors have major difficulties that give us opportunity to grow even more. Regarding the other industrial, J-C already mentioned the very strong positive start of the industry business. The backlog is very, very solid. We have more than just the first semester as a visibility. So, so far, for the first semester, pretty good, and that gives more visibility for the guidance that I will turn now to J-C.

Yes. So thank you, Chris. So in terms of guidance, we are at that stage end of the first quarter of 2023, confirming the guidance on EBITDA and on normalized free cash flow, EUR 570 million to EUR 600 million (sic) [ EUR 630 million ] for EBITDA; EUR 150 million to EUR 250 million for the normalized free cash flow. As you've seen from Chris' presentation, we start to have a very good visibility on the second quarter and, I would say, a good level of comfort on the first semester of the year. Obviously, like we continue to be in a quite uncertain environment. We have, obviously, a situation with opportunities, tailwinds and headwinds, also some areas a little bit more tricky, I would say. On the tailwind side, I mean, definitely, the transition is moving forward. As you see, the growth I described on the distribution with utilities is a very strong signal about the renewal of the grid, and that will continue. So definitely, the markets are quite dynamic. The transformation model, you will see we don't report here earnings, but you will see in the first semester release that we will have a solid improvement in the margin that continues through our transformation platform. And the order growth, which is also backlog growing significantly, I would say, in the Generation & Transmission business, that will basically continue to grow, hopefully, in the coming weeks with new orders. On the, I would say, more risk level, geopolitical and economic environment, I mean, that is true for us like it is for most companies. We've seen, as I said, a slight decrease in the extremely booming market that was North America Usages in 2022, a little bit slight decrease of volume at the end of the first quarter. We probably see also this decrease continuing second quarter. But just to be reassuring, the level we continue to see on that business in terms of volume will be much, much higher than it was before 2022. So continue to be very strong and prices have not moved downwards. So despite, I would say, softening in the demand in the residential market, the pricing remains extremely strong. And with our transformation platform, we believe that we will continue to improve margin. And last but not least, Generation & Transmission, we see some pressures on the margin of our contracts due to various situations, mainly some inflation costs that are not fully passed through on the projects that we got into the backlog before the inflation prices increased. That is impacting a little bit the margin of the business. We have also some ramp-up costs in Charleston. It's a new plant. It's performing, but there's been some ramp-up costs and impacting some of the contracts. And obviously, as you know, we are still waiting for the confirmation of some significant awards that would also, depending on the timing, could have an impact. So globally, this is the picture in terms of the guidance confirmed on both KPIs as well with the, I would say, strong visibility we have for the first semester.

Thank you, J-C. Now we can open the line for the questions.

[Operator Instructions] We will take the first question from Miguel Borrega from BNP Paribas Exane.

I would like to start with Usages. You say that you see a normalization in North America. Sales were down 19% here, but you still talked about favorable pricing. Can you break it down, volumes and pricing? And how much is pricing down sequentially from Q4, for example? And where could we see margins go in this business? I know you also have some internal measures to offset the cyclical tailwinds. But if we were to exclude your internal measures, where would you say that margins would go maybe back to where they were before around 6%? Or do you see margin not going back to a normalized level?

A very detailed question, Miguel, but we will not comment because it's too much detail to give to externally on our side. What I can tell you is that we've seen the residential market reducing, offset by the industrial demand and commercial demand. So there is still a significant demand there. In terms of pricing, I will say you know that we were the only one to say that there is a massive contractual effect due to a pricing effect on the residential market. We have not seen yet any declines of those prices. So we still have the same carryover than 2022. So why we are very confident at least for the first semester? And Miguel, to comfort a bit your risk view, is that we benefited right now to both our first structural effect output, but thanks to our 3 innovations that we have launched in North America, specifically the CANADEX product, plus all the services around it; and on top, the carryover of the [ contractual ] effect. So we have right now a pretty very, very significant profit level right now and [ awesome rates ].

I'm just a little bit confused because I think J-C talked about the slight decrease in volumes and continuing into Q2. So is that for the whole of Usages or North America specifically because sales are down 19% if you assume pricing is still positive or slightly down? Yes, so...

Yes, sorry, Miguel, I was maybe not clear enough. The 19 -- the decrease that we see in Usages is mainly, in fact, completely -- we have a little bit in South America, slight decrease, but the bulk part of the decrease is coming from North America. But I remind you that the level of North America last year when you compare to the first quarter of '22, the increase was almost a double of 100% growth in that segment in that region versus the normalized level of the past. So even if you get a 19% decrease quarter-on-quarter on Usages North America, it remains at very high level. And the prices have not changed, remained at the same level than they were in '22. So it's slightly less in volume, still very strong, but the same level of prices. So the mix is very positive -- continues to be very positive.

The next question comes from Akash Gupta from JPMorgan.

I have 2 questions, please. The first one is on North America, and I'm wondering, both for Distribution and Usages, if you can help us provide some breakdown at country level and also if possible at more regional level that whether you are more exposed to East Coast, West Coast or South or Southeast or Midwest, for example. And the second question I have is on timing of closing of Telecom Systems divestment where previously you said you expect this by end of H1, but today, I don't see any time line. So maybe if you can update when do you expect this divestment to be closed?

So the exposition -- regarding your first question, Akash, the exposition is 1/3 residential, 2/3 infrastructure and commercial and Canada mainly. So it's Northeast, West Coast. It's -- we are 80% Canadian market-focused, not U.S.-focused. Regarding the Telecom disposal, yes, we confirm H1 as the time line of the closing.

The next question comes from George Featherstone from Bank of America.

I'd just like to start, please, on G&T. I wonder if you could first give an update on how things are progressing with EuroAsia. When would we expect that sort of move from preferred supply agreement into more firm backlog? And then I think you mentioned and just called it at the end that your high-voltage margin, the backlog was a bit under pressure from inflation pressures. I just wanted to sort of understand that comment a little bit. Is this of a significant impact you're seeing? Or can you help frame it for us? That would be super helpful.

Vincent, maybe you can -- thank you, George. Maybe, Vincent, you can elaborate regarding where we stand on EuroAsia.

Yes. EuroAsia, as you have mentioned, we have indeed this preferred supplier agreement. It's a quite complex and large project involving different countries. The project is secured technically on our side because it's quite a specific one with very depth installation. The project is also currently under closing indeed with financing, which is a mix, as you know, of EU and the different actors of the region. So today, we are close to the end. To be honest, we are not the one leading the show in the construction. So we just expect indeed the closure of the deal in Q2, but we are not in control, to be crystal clear, of the process.

Regarding the margin position on G&T, let's have your comment, J-C.

Yes. So the situation, as I tried to describe in my conclusion slide on the headwinds within the business, is that we've seen some of the contracts that entered the backlog before the inflation surged, meaning 2018, 2019, 2020, basically, which are under execution as we speak, basically have not a full pass-through of all the cost components. Obviously, raw materials are completely passed through, but you have some items like civil works, for example, some situation on whether the energy that not necessarily are completely passed through or indexed, I would say, through the life of the contract. And since we've seen this significant inflation over the past 4 months, there are some impacts. We are obviously in discussion with our customers, but sensitive discussion, it's not part of the contract. There are some impacts on the margins on those projects we are basically performing or manufacturing as we speak. So that's, I would say, one of the impacts, and that's what I tried to describe on here. The second one that we see in terms of Generation & Transmission margin is the, I would say, the ramp-up of Charleston. You know that -- and I'm sure Vincent can elaborate more better on this than me, but basically, Charleston has been now since last year ramping up. It's a new plant. We have successfully produced now 2 major contracts. But since it's a new plant, there are obviously some, I would say, more testing, more situation of you set up the machine, you go through the first batch production of the project and there are a little bit of inefficiency, which is normal, I would say, for any new operating facilities. So we see that also on some of the projects that have been manufactured in Charleston. We believe it's a one-off. We believe that we are making [indiscernible] the plant will stabilize shortly, but I would say, I have to say that there will be some light impact. And the last, I would say, situation that is also putting pressure on the G&T margin is the timing of some of the big awards. You talked -- we talked about EuroAsia. We were scheduling, we were planning on having EuroAsia in the backlog at the end of the first semester 2023. Right now, this thing has been moving. It's a moving target to us. We hope that it will come soon. But I have to report that if this is further delayed, there could be some impact on the margin. So that's basically what I wanted to describe in terms of pressure on the margin on that business. One is timing. The other one are more one-off situation that will be cleaned in the coming months.

Or maybe to precise on Charleston ramp-up, to make it very simple, is that we have sized the organization of the plant in order to secure the ramp-up. And indeed, we are consequently having a kind of structure and organization, which is bigger than the one that we need from the current volume. So of course, we anticipate the full run of the plant, which will be by the end of this year, beginning of next year in order to be prepared. So somehow, you have compared to a plant like Halden, which is 45 years of experience. The efficiency is, by definition, lower. So that's basically the element. As mentioned by J-C, we see month after month good progression of the productivity and efficiency, which is, I would say, a normal ramp-up for a plant, which is the unique one in a new territory. Of course, the ramp-up of Halden next year will be completely different because we will be in an existing environment with just an add-on of activities.

Well, George, any other questions?

Yes, just a couple of things. If I can just follow up a few points on this before I move to the next question because obviously, that was a really in-depth answer. Firstly, can you just let us know the portion of your backlog that you think is exposed in terms of those inflationary pressures? Because it sounds like there was a point in which you started to include more indexation in contracts and maybe that's also in the backlog. So if you can just sort of break out the mix there. And then also, in terms of the margin for G&T this year, I think you previously said that it would be similar to last year. So is that including these comments and these effects that you've mentioned with Charleston ramp and the inflation pressure, too? Or is this something incremental to that prior comment?

Okay. I will take the first question regarding the backlog. Regarding the inflation cost, it's related to contracts that have been signed before the end of 2019. We have revised, as you know, we have been pretty vocal on it, in 2020, all our contractual term conditions and as well to protect the margin. So I would say that the part which is still exposed to massive inflation effect is now very, very limited, I would say, less than 10%. Regarding the margin effect?

So the margin effect, yes, so this is, I would say, on top of what we said last year. So the margin expected for, I mean, for the first semester will be lower than the margin of last semester.

Okay. And for the full year, too?

Yes.

Okay. And then just my sort of second question and last one. Just on Usages, going back to a couple of points, could you remind us the split you have in North America resi versus non-resi? And then also in that what I would probably call quite a significant decline of nearly 19% year-over-year, is there any distributor destocking in that? Or is it just the underlying activity slowing?

So as we already answered to Akash, we have 1/3 to residential, 2/3 on nonresidential, and we are more Canadian market-focused than U.S.-focused. There is no destocking effect specific for the Q1, and our units are fully loaded right now.

Okay. And you used to give a backlog for that business, but I noticed you've stopped providing that data. Could you give us an update on where that is year-over-year and sequentially?

Yes, we don't -- I think compared to our competition, we were -- we've seen that we were getting a lot of data that will sometimes not play in our favor. So you have the tracking of our visibility on the Q2, so we -- that we elaborate on Page 9. So that's the only information you will get. The only thing I can tell you is that we have a good visibility for the first semester.

The next question comes from Nancy Ni from Goldman Sachs.

I just wanted to -- again, sort of focusing on G&T, I think in the last quarter, we've seen a few sort of large awards from Tenet and also kind of Biscay Bay going to some of your peers. And I'm just wondering, was this sort of the result where you're not interested in these awards? Or was it that they weren't deemed sort of platinum for you to go after? And in that case, sort of which are the platinum projects that we should be tracking? Sort of if you could help shed some light on that.

Yes, thank you. So regarding the -- you know there was 2 significant awards that RTE was supposed to distribute. We get the first one, Celtic, in the stand-alone supplier agreement. That's the one we targeted, and they have decided to split the Biscay Bay into lots -- to placement and entity. So I would say that I think everybody has received the part of the cake. Regarding Tenet, I'm not able to elaborate because we are in tendering standstill period right now. The frame agreement that Tenet is putting on the sector is massive, the biggest ever, and we are part of the race. And there is some great element in that frame agreement that we pursue, and we will see if we are able to be part of this frame as well. More to come.

The next question comes from Jean-Francois Granjon from ODDO BHF.

So you have also answered to my question. But nevertheless, I will come back on the G&T business. So I want to understand, so you expect a lower margin for the first half compared to the second half last year. Do you expect also a lower margin for the full year? And for G&T, what would be the mix between offshore wind business and interconnection expected for this year? And due to -- this is a new point, I think. Due to this more cautious appreciation for the G&T, do you are more comfortable with the low end range of the guidance for the full year? And my second question concerns the integration of Reka Cables. So you mentioned the EBITDA level is lower compared to the group. What do you expect in terms of improvement for the Reka Cables in the coming quarters for the company?

Let me take the last part and that we are not able to comment Reka for the moment because closing is imminent in a few days, but I cannot elaborate more. Maybe, Vincent, regarding the mix, even if we don't -- never disclose the G&T business?

No, it's true that we don't disclose the mix. But I would say, if you take out the Umbilical, as we say, because we are exiting, the mix between interconnectors and the offshore wind farm would be quite stable this year with the assumption of, of course, EuroAsia starting, as already mentioned by J-C before.

So yes, you will see the same pattern that the one we had in 2022, which is more projects on the wind offshore, revenue from projects on the backlog in the wind offshore than on the interconnection. And obviously, if we had -- if we -- the sooner we enter into the backlog of EuroAsia, the more it will, I would say, increase the interconnection part. But that's what I said, versus the year before '22 where we had a strong, I would say, execution on interconnection contract, namely with the Crete-Attica project, we have lesser of that, and we are more executing contracts like Revolution and like we had in '22, ceiling in '22 and firm, which are more wind offers. So the mix, I would say, remains in '23, similar as 2022.

The next question comes from Eric Lemarié from CIC.

I got 3 questions, if I may. The first one, on the sales of the shares from Invexans, have you been surprised by this sales? Did you have any conversation with Invexans before this sales? And do you have any indications that they could sell more shares in the future? Second question, regarding the Umbilical business, could you remind us when does the decision to exit that business was taken? Because I missed that. And the last question, still on the residential market, could you tell us what is your global exposure to the residential market and within the residential market? I suspect you are probably more exposed to the renovation than to the new residential market. Could you maybe tell us that?

Yes. Thank you. We missed the -- there was an answer regarding the guidance -- there was a last question from Jean-Francois regarding the guidance, I forgot to answer, and before I answer -- we answer to your question. So in terms of guidance, right now, it's a little bit early to narrow and comment more on the guidance. This is why we confirm the guidance. We will likely come back with, I would say, a more precise view of the guidance during our half year presentation. What I can tell you today is that we are confident that we are well positioned in that guidance, the way we see the year as of today, which when I say that, it's a midpoint or above midpoint of the guidance.

Let's go to your first question regarding Invexans. And this is certainly why Nino Cusimano, our General Counsel, has been invited. Nino, would you...

Yes, I'm here. Sure. Thank you very much for your question. And I think the direct answer is, of course, no, we were not -- they were selling. There is a healthy segregation between what our shareholders do with their assets and the company. And for the future, our shareholders, Invexans themselves declared that they will remain a reference shareholder. So we have no reason to believe that the situation will change in the future.

Yes, we were not aware anyway. Regarding Umbilical, the Umbilical is produced in Halden plant. So there is that -- the decision has been taken 2 years ago with the expansion to decomplexify the Halden to leave more room for the offshore and interconnection lines. And because this Umbilical project, which is roughly a EUR 20 million to EUR 50 million revenue per project, is creating more complexity than it brings margin, so that's the reason that we have launched a restructuring 2 years ago. And we are now at the end of the tail of production for this Umbilical to start '24 with a double size of Halden fully loaded with interconnection subsea and offshore wind farm. Regarding residential market, we don't give all the details regarding the split between residential and infrastructure. The only thing that you maybe need to reset the model is be careful, take into account the 5 drivers that I mentioned on the Page 9, which is a higher demand of electricity, bigger size of sections demand, new safety regulation that shift to technological shift as well new pattern of growth with electrical charging station. So it cannot be seen as just a residential-only trend on the commercial and infrastructure demand. There is 5 main underlying trends that will change the model of this market in the coming years, and please take that into account. This is why we have highlighted them today in the slide.

We'll now take a follow-up question from Miguel Borrega from BNP Paribas Exane.

Just wanted to follow up on the delay of EuroAsia and if that impacts in any way the free cash flow guidance. So does it matter if you're awarded the project in Q2 or Q3 or Q4? I know it must be meaningful if you're awarded in 2024. But by quarters, does it change anything to your free cash flow guidance?

So definitely, I mean when we get this -- when we get into the backlog, this massive order, there is about 10% down payment associated with the contract. So when you talk about EUR 0.5 billion-plus contract value, there, we get the contract and impact on the cash quarter and the semester quarter, definitely. Right now, the way we've seen that, it's into my guidance for the cash for the year. We have also other big projects that we are basically bidding on. I have not -- we have not put all the down payment in the guidance. So we assume to get one big down payment through one of the big contracts on which we are bidding to part of that guidance of the cash flow, meaning a down payment in excess of EUR 100 million. Definitely, the timing on when we enter the contract will have obviously a consequent impact on the quarter of the cash flow in the quarter or on the semester. Sure.

Yes. Stay tuned on Q2, I'm sure we will have positive news on those -- on this part, but too early to say for the moment.

Thank you. I think this is the end of the call. We have no more questions. Thanks for your attention, and looking forward for our next financial comments for H1. Thank you for your attention.

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.