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

Ladies and gentlemen, good morning, and welcome to Nexans' First Half 2023 Earnings Conference Call. As a reminder, this conference call is being recorded. [Operator Instructions] I would now like to turn the call over to your host for today's conference, Mr. Christopher Guerin, Nexans' CEO. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and thank you for participating in Nexans' conference call. I'm Chris Guerin, CEO of Nexans. With me Jean-Christophe Juillard, Deputy CEO and CFO; and Aurelia Baudey-Vignaud, VP, Investor Relations. Let me turn over to Élodie for the conference call rules.

Thank you, Chris. I would like to remind participants that statements made during the conference call, which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Readers and listeners are strongly encouraged to refer to the disclaimers, which are an integral part of our 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 half highlights.

Thank you, Élodie. Let's now turn to our presentation on Page 4. Once again, as you can see, we are very proud to announce a remarkable performance, achieving a record high EBITDA and record high return on capital employed, thanks to our unique value growth execution model, despite facing some one-off, as you have seen in the Generation & Transmission business, but that we will comment a bit later. We are a strong believer that our Distribution & Usages businesses can turn into premium market in the midterm. This is why we continue to make strategic acquisitions and elevate our prime offering. I will elaborate a bit more on this part. You've seen as well our adjusted backlog. Our risk and reward model approach helped us to grow selectively in terms of assets and projects within the G&T business. So our efforts are reflected in this impressive adjusted backlog, reaching EUR 5.2 billion. That will be reinforced further with the EuroAsia project award that has been announced mid-July. At our core, we value sustainability and understand its significance in overall Nexans business strategy. Our E3 operating model ensures that our sustainability commitments will be fully aligned with the business goals, and I will comment again some new targets that we have announced at the general assembly. Let's turn now to Slide #5. Moving to our financial performance. As you can see, a step forward in terms of achievement. If you remind, in H1 2019, we were around EUR 170 million -- EUR 190 million of EBITDA; and, of course, COVID time in 2020; '21, 220; H1 2022, around 308; and now we've reached EUR 354 million of EBITDA. Just a footnote here, our EBITDA now excludes the impact of IFRS 2, which is about a EUR 7 million. JC will comment on that later during the presentation. Normalized free cash flow stands at a very high level at EUR 281 million, reflecting solid operational performance and, of course, a high down payment in the G&T business related to TenneT specifically. Driven as well by our results from operations, we continue to have a step-up in return on capital employed. We finished this semester with a return on capital employed around 21%, which is an increase of 38 basis points for the group. And as you can see, in spite of the G&T disappointment for the semester, we have an outstanding return on capital employed for the Electrification business, but at 27%. Let's turn now to Page 6, regarding our portfolio evolution. We successfully, as you know, completed the acquisition of Reka Cables in Finland last January with a multiple of around 5x EBITDA before synergy, illustrating our disciplined M&A approach. So when you look at Centelsa and Reka, we have already acquired EUR 500 million revenue as part of our strategy to grow our Electrification portfolio. And we will continue in the coming months as we see some potential slowdown in the market in some businesses, and this can bring some new opportunities in terms of M&A. We worked together with JC in Colombia a few weeks ago and I'm very, very impressed by our Nexans' team, Centelsa team on the fantastic integration of Centelsa in all terms; operational, cultural, financial point of view. The synergy target at $12 million by 3 years already 1 year in advance. So that confirmed that our integration process is growing very well, and that shift is a very powerful lever to turn around or improve company's financials. A word on innovation on Page 7. We are also continuously creating new growth drivers with offers going just beyond cables and products. Those offers are representing a growing part of our Distribution & Usages businesses and generate a structural margin generation. SHIFT program delivered for the H1 about EUR 13 million EBITDA. Overall, a step-up of the prime offer in all regions, in all verticals going forward, and thanks to our development of reputable offer region by region. More specifically, and we are highlighting that for the second time, the Nexans Fire Safety offer is a combination of our fire safety cables plus digital solution, including sustainability. And this is exactly a great example of how the combination of our cable and solutions come together to solve customer pain points in the building market. To reinforce the message on the fire safety, we have the second period of our offer through a video that we can launch right now. [Presentation]

All right, so this is the second video of our fire safety offer. We have a reputable model, which is deployed region by region for this specific approach. Slide #8, back to Generation & Transmission. The CapEx expansion plan for Halden is moving forward to be ready for the first quarter of 2024. As you have seen yesterday night, we have just announced the investment in the new cutting-edge cable-laying vessel to support our record project backlog and meet the global installation needs for both offshore wind farm and interconnection market. This unique vessel will be built on the capabilities of Nexans Aurora, but with an announced loading of 13,500 tonnes loading capacity, the ability to lay 4 cables simultaneously to meet new customer requirements, specifically for large-scale projects, and this vessel will be delivered in 2026. On Page #9, turning now to our sustainability journey, where we have a very good start for the year. I wanted to highlight that what we introduced in the climate strategy at our general assembly. The fact that we strengthened our GG emission reduction commitment, bolstered by our unique approach on the E3 performance model. As you have seen, we are committed to a minus 29% of emission reductions for the Scope 1 and 2, minus 19% for the Scope 3; and up to minus 46% for Scope 1 and 2 by 2030. Thanks to, of course, our focus on value growth more than just volume, just to give you an example, our natural resources consumption have significantly reduced for this semester versus the semester of last year. Let's now go to business overview on Page 11. As you can see, Electrification organic growth is slightly down, mostly impacted by the exit of the Umbilical business in the Generation & Transmission vertical. So if you exclude the impact of this closure or stop of the Umbilical business, the organic growth of the group would have been 3%. Non-Electrification business is growing up with strong dynamics, while we continue in the meantime to reduce the metallurgy exposure to the external market in order to reduce the dilutive impact of this business. Both profitability of the business are improving strongly with the exception of G&T, that wraps up the EBITDA margin at 10.7%. If we go now in detail slide by slide, business by business, Generation & Transmission on Page 12. So Generation & Transmission sales came at EUR 384 million for the first half 2023, which is, of course, down by 10.3% compared to the first half 2022, reflecting the ongoing exit of the Umbilical's activity. As anticipated, unfortunately, and mentioned in Q1, the EBITDA was impacted by a combination of different elements. The unfavorable mix of the project versus the first semester of last year and unfavorable mix of phasing as well, so with less Interconnectors business, the ramp-up cost of Charleston, which impacted some project progress and now is completed. So past issues of the one-off of Charleston are behind us. Some inflation cost on some legacy contracts that we had to absorb and as well some impact on the margin linked to the delays of the EuroAsia awards that was expected in the course of the first semester have not been signed in July. The H2 will remain affected by still some of those elements, even though the headwinds are expected to gradually ease and the ratio will improve, but I'm sure you would have questions on GC, we'll be happy to answer. On the Slide 13, as you can see, orders remain strong and sequentially growing with the TenneT frame-agreement award, which is one of the top largest in the history of the group. Under this frame, we'll deliver 3 turnkey 525 kV projects. This initial value is about EUR 1.7 billion with some major subcontractor work to be added once each project specific call off will be signed. So with that core can go -- what I mean is that it can go up to EUR 2 billion. What is reflected here on the backlog is that if you add up the EuroAsia that has been signed mid-July, our backlog at the end of July will be at EUR 6.6 billion, which is, of course, a record for Nexans, 88% growth versus the end of December 2022. And what I want to highlight as well is that we are certainly one of the biggest backlog subsea-driven in the world because, as we mentioned here, 97% of our backlog is subsea-driven. So Umbilical is shrinking big time because of the exit, and as well we are reducing our exposure to land high-voltage business that are lower margin generation. On Slide 14. Turning now to distribution. Sales were up 4.3% organically. This segment is benefiting from the expanding green investments. And you know we need to renew our power grid, both in Europe and in North America, and then associating cables plus accessories. What is very impressive is this record of EBITDA generation, and this is a very long time that we have not seen a double digit in distribution. So this substantial margin expansion reflects the successful transformation of our SHIFT program and the fact that the vast majority of our equipment are fully saturated, thanks to a very strong demand. We have made as well significant progress in the deployment of value-added solutions. Now we have more than 850,000 connected users coming from 0, 2 years ago. So of course, this will keep growing and generate recurring revenue and recurring margin. We are very proud about it, thanks to our innovation. On the Slide 15, Usages. Usages was down minus 2.8%, resulting from a selectivity and prioritization of structural performance. You know we don't look for volume. We want to make sure that our EBITDA can resist some downturn. We've reached a record of EUR 137 million, both in absolute value and as well as record in percentage with a 15.4% EBITDA margin for this business, which is the sum of a dynamic market and conjunctural effect for the first semester; successful transformation effort, which is the big part; strong pricing power; and as well the rise of the prime offer. And we'll get certainly some questions because we see some slowdown in some markets that may affect the second semester that gives us some prudence in our guidance. In regard to the Non-Electrification, Mobility and Mining benefited from a very solid momentum, as you can see. We have launched as well SHIFT performance for the value burners activities that have generated a significant uplift of the margin. We see a soft softening in information orders versus last year's high level, which could be a sign of as well economic slowdown for the next coming months. Auto-harness has double-digit growth with a very strong ramp-up project in the U.S. and the increased deployment of shares in the electrical vehicles. Metallurgy is down, as we already announced, and we see that Telecom is experiencing a modest decline in revenues. Let me turn now to JC for the financials.

Thank you, Chris. So if we move now to Page 18, we look at our financial performance for our P&L. You can see, and Chris discussed -- explained about our organic growth, minus 0.6%, mainly driven by 2 things: the G&T decrease because of the exit of the Umbilical. We reduced sales on Umbilical by EUR 100 million versus last year -- same semester last year. And the second one is obviously the continuous decrease of our Metallurgy business for the strategic reason we've been explaining since now 2021. So if you exclude those, basically, the organic growth is quite strong. EBITDA stands at a record level of EUR 354 million, which is 10.7% EBITDA margin, first time ever for Nexans to reach double-digit EBITDA margin and definitely completely aligned with our targets that you recall from our equity story to be between 10% to 12%. We are already there this semester closing. I just would like to mention, as Chris said in the introduction, that now our EBITDA is excluding the IFRS 2 charge. It's a charge that's for employee benefit, long-term employee plan, shares distributed to employees. It's a noncash expense. And to be, I would say, with the same treatment than best practices, we have decided now to exclude that, because obviously, this charge is becoming meaningful at a share price around EUR 8 per share. It represents EUR 7 million in the EUR 354 million EBITDA. Operating margin very strong. Reorganization costs slightly above last year, mainly coming from the cost of exiting the Umbilical business and the layoff plans. Operating items way below last year. But last year, if you recall, we had 2 exceptional events. I mean 1 exceptional event, which was the sale of our land in Hanover in Germany, which came with a profit of EUR 50 million. That obviously did not repeat in 2023. And we have also less core ex impact, about a flat result on core ex this year versus a gain of EUR 25 million last year. Net financial expenses higher as well, mainly coming from the cost of debt, which has been increasing due to interest rate high and the fact that we had also issued a new bond in the first quarter of 2023 before we repaid the maturing bond of May 2023. And therefore, we had a little bit of overlap on the cost interest. Income tax in line and basically coming from net income from operation of EUR 134 million, which is at par from last year, if you exclude the onetime gain of last year for the sale of the land. If you look on the waterfall here, you can see that basically the contribution of the businesses in the EBITDA growth, strong contribution, as Chris explained from Distribution & Usages, offset by Generation & Transmission, which is mainly the lack of EBITDA coming from the Umbilical business, as well as basically some inflation and ramp-up cost in Charleston that we occurred in the first semester of this year. If I move now to the next page, Page 19. As we always do, I'm presenting here the Electrification EBITDA change between '22 and '23 by levers, by the different axes of our basically value transformation. So basically, in terms of net costs, which is the net between cost improvement and inflation, we are positive. We have been able to pass through all of the inflation to our customers, and at the same time, get some material savings on cost, mainly in purchasing and industrial savings. AMPLIFY and SHIFT, which are the key of our transformation, are contributing both EUR 23 million for AMPLIFY and EUR 30 million for SHIFT, growing basically the most accretive margin businesses in terms of volume for AMPLIFY and SHIFT, which is a transformation of our still low performing units and as well are moving our units to innovation with more innovative products and IoTs. Strategic CapEx is also one of the levers coming from the new extension of Halden. We started to do some survey and some studies and therefore, started to generate a little bit of profit yet on this strategic new addition. Generation & Transmission, I mentioned, is mainly due to the drop of the Umbilical plus some adverse effect on some margin of the project in the first half, mainly in Charleston, but also inflation costs. And then after that, some conjunctural reversal, which are some one-offs also in G&T businesses, and D&U normalization, Distribution & Usages normalization. Margin came up at 13.3%, which is 100 basis point increase of margin for the Electrification business in the first semester of '23 versus last year. If I move now to the next slide on Page 20 and we look at the net debt evolution. So our leverage is slightly reducing from 0.4x to 0.3x EBITDA. So basically, the strong cash generation from the businesses, EUR 237 million, plus some meaningful positive change in working capital, mainly coming from the down payment received at the end of the second quarter, the TenneT down payment, where we received EUR 150 million, definitely helped basically the cash generation of the semester. CapEx remains quite high, EUR 148 million. Including that we have EUR 89 million of strategic CapEx, which is completion of addition of expansion in Halden that will be completed by the end of the year. Other meaningful cash out was the dividend, obviously, to the parent and also the acquisition on the M&A box of Reka that Chris mentioned earlier in Finland. If I move now to Page #21 and we have a look on our balance sheet. So we continue to have a quite strong balance sheet with a meaningful basically -- I mean, very good working capital level and basically a total financing of EUR 2.4 billion. When you look at the ratios, we have lot of room on our covenants, slight increase in the gain ratio, mainly coming on the net debt, and also the leverage ratio is decreasing due to the cash repayment. If I move now to the next slide and we look at our liquidity on Page 22. You see that we have a very strong liquidity position, close to EUR 2 billion. When you add up the cash at the end of June, plus the undrawn EUR 800 million revolving credit facility, EUR 2 billion. We have the next maturity date for our bond -- on the coming bond is the one maturing in April of 2024, EUR 200 million. Nothing more in the remaining of 2023, and again, a very strong cash position of EUR 1.2 billion at the end of June. Now I will move to Page 24. In the light of the very strong performance of the first half of 2023, we have decided to raise the guidance, both on EBITDA and normalized free cash flow. Obviously, this guidance includes the contribution of Reka for the second semester. So we increased EBITDA from EUR 570 million to EUR 600 million to a new range of EUR 610 million to EUR 650 million. And normalized free cash flow increased as well by about EUR 70 million on the lower part of the range and EUR 50 million on the upper part of the range, and you see the basically tailwinds and headwinds. Obviously, now that we are at half of the year, we are getting more and more comfortable about the performance for '23 and optimistic about it. That being done, it concludes my financial section and I turn on the mic to the operator.

[Operator Instructions] And our first question comes from Daniela Costa from Goldman Sachs.

I have 2. So first one, just a clarification, I guess, on some of the things that you've said in High Voltage. Can you give us some view how quickly some of these headwinds can erode. I guess there's some like inflation, ramping up of Charleston mix that you should have high visibility on, I guess, because of the backlog. So how steep can be the resolution of these headwinds? And on High Voltage as well, maybe you've explained and I've missed it just right now. Those EUR 20 million project-related expenses that you've exceptionalized. Can you just repeat that? Probably, sorry, I missed it. Why is this not considered operational and is exceptionalized? And then the second question related to just your outlook commentary. Can you maybe break it down between Usages, Industrials, Distribution? What are you assuming inside your guidance for pricing in the second half versus volume and the sort of visibility you have? I know you mentioned some slowdown commentary. But yes, just those 2 points.

Good morning, Daniela. So I will take the first question on G&T and the headwinds. You're completely right that some of the impact that we've seen in the first semester will not repeat themselves. Obviously, they are one-off in the second half. And we had specifically those, and we mentioned specifically, for instance, delays on some projects in Charleston that basically drove to healthy liquidity damages recognition in the first half of the year, but that are now fully booked in the financial that will not [indiscernible] because the project is over. So definitely, those are one-off, and they are quite -- I mean they're meaningful, more than EUR 10 million, EUR 13 million to be precise. We have also some inflation that impacted the margin of the project, on some of the wind offshore projects that entered the backlog before COVID or right at the beginning of COVID, and we're not completely immune, I would say, against open type of cost inflation. The margin of those projects has been adjusted. Obviously, when you adjust the margin of a project, you have to take the rate [indiscernible] one-time impact on your margin, impacting your P&L. And therefore, I mean, we now get to the level of margin in the second half, but we will not get the first one charge impact of the adjustment. So obviously, this is behind us as well. And then the last thing, which is making a big difference between H1 and H2 is if we were anticipating to get EuroAsia contract in the first half, which is a very strong margin provider for the company and for the business segment G&T. And since this project was only signed in the second semester, I mean, at the end of the month of July, anything is not included in the first half numbers, and this is definitely lacking into the numbers. Definitely, in H2, there will be a catch-up effect and substantial, I would say, contribution of EuroAsia in the second half of the year. So these are the main elements that obviously will give us more visibility and we are expecting a better performance of the G&T margin in the second half for the reason I just explained. However, I mean, it will remain below for the year of what we've seen in the previous year in terms of the variable level of the first half of '23.

Yes. And we can add JC that Charleston legacy contracts are a bit behind us. We have load outsourced work and we just started the production of the very, very big contract of [indiscernible] Revolution. So a lot of things should normalize in terms of production. But it's very complex to ramp up new factories in a country that has no legacy in the offshore wind farm subsea cables. So good luck for the future investments, but I think we hope that for us, it's behind us. Regarding the question regarding D&U, I think you're right to separate the 2 together because it's indeed 2 different dynamics. In regards to Distribution & Utilities, all nations are working up at the same time in regards to their very obsolete electrical grid. And we have, in all countries, specifically Europe, North America and South America, very, very high demand, which is, for us, resilience in case of recession. So the numbers that you see right now, as it's a frame agreement on call-off, maybe not on growth because it's a question of installation phasing that will remain for the next semesters. Whereas in Usage, we have seen a degradation of demand strongly in North America, which, of course, things are normalizing. We kept our pricing up. We have seen as well some degradation in Peru and Chile and as well Australia. A slight slowdown in the Q2 in Europe, nothing significant for the moment, and a strong growth in Africa and Netherlands. Of course, we remain prudent because we have some signs of downturn in some regions, and this is why we are anticipating those downturns by recession-proof actions on our cost base to make sure that it will not impact our margin. So that's the answers for those questions you had.

Sorry, just a follow-up on the first part on G&T. You talked now through most of the items on that bridge, but Umbilicals, can we just confirm how much of a drag there will be, if any, still in the second half? And also the point on the EUR 20 million exceptionalized, if you could -- maybe I missed that again.

So on the Umbilical, so definitely, most of the decrease is coming -- was in the first half. There will be a remaining decrease in revenues in the second half, but not to the magnitude of the first half.

Maybe I can give you the value of our Umbilical backlog. In Q2 last year, it was about EUR 200 million. And in Q2 this year, it's about EUR 16 million. So we are really on the way of the exit.

And sorry, the other question on G&T, I did not understand. Can you repeat please, Daniela?

No, I was just clarifying again, and I might have missed it earlier. On those EUR 20 million that are project related that you put below the line, they seem operational. So just interested on why did you exceptionalize...

Yes, exactly. No, this is one project, called Umbilical project, that we are manufacturing in Halden. It's definitely impacted in its completion due to the termination of the segment Umbilical, and therefore, between the announcement of the restructuring, I would say, of the Umbilical and the completion of the project, there are significant departing, lots of engineers, people and efficiencies. And therefore, all the, I would say, losses around the project were basically connected to the shutdown of the line of business. Therefore, I mean, typically, when we had situation like that, if you recall, when we shut down Halden in 2019, we had a couple of planned projects that were in the same situation. We were able to move those costs in restructuring. Now since COVID, basically, it's not permitted anymore to move that to restructuring. So we have basically created a line in our P&L called specific operating items, and we basically moved that outside of EBITDA because, again, we want EBITDA to be a comparable version over time. And those costs are linked to the restructuring or discontinuation of this Umbilical business, and therefore are not operational. So I mean, reporting them in EBITDA would not be comparable with what we've done in the past and is not part of our internal rule of basically reporting operational performance, but it is in EBIT, earnings before interest and taxes. And by the way, this is the same way that many other companies do it. You look at our competitors or you look at Prysmian, [indiscernible] do the same thing basically excluding nonoperational, non-repetitive -- I mean, operational but linked to restructuring items outside of EBITDA.

We now move on to our next questioner, which is George Featherstone from Bank of America.

First one, just on the G&T margin, just maybe a little bit more clarity, if we could possibly get it. Could you help us with what the underlying margin is for the business in H1 excluding the Umbilicals in the past. You've done it with the organic growth. Can you just help us with what the margin would be for the G&T business in H1 without Umbilical? And then, more broadly in that segment, there's been some messaging from a few developers that there's delay in the offshore wind market due to rising costs. I just wondered what, if any, risk you see in your backlog as a consequence of that?

Yes. So we'll start with the first one. The underlying margin would be similar to the one we reported. It has an impact on the EBITDA volume. Value of the EBITDA, basically, obviously, the fact we removed about EUR 100 million of sales, it does not have a meaningful impact on the change in the percentage of margin business.

Regarding the -- yes, we've seen some messaging showing some developers on consideration of delay of major projects. So far, based on our backlog, we are not concerned.

Okay. And then in the Distribution business, we've obviously seen a significant improvement in profitability. Clearly, demand is strong. But you've talked in the past as well about renegotiation and framework agreements. So I just wondered if there's been any impact from that yet, and how much of your business in this area is on these new framework agreements?

Well, the vast majority of our business in Distribution is supported by long-term framework agreements that have been renegotiated. But as well on top of that, we have performed SHIFT in many of our units that have not been under this program in the last 3 years. That improved, through complexity reduction, the generation of EBITDA percentage on free cash flow generation. So I will say, with the renegotiation of the frame agreement plus the equipment saturation plus the SHIFT performance, that we are on structural margin basis.

Okay. And then final one just on the portfolio. I just wonder if you could give us an update on the telecom disposal and also the plans for the auto harnesses disposal. I think you last commented on this that you might be able to do something with that business by the end of this year. Is that still a time line that's relevant?

Yes. So regarding Telecom, the transaction is ongoing and should be disclosed in Q3. Regarding harnesses, we put on hold because business is going very, very well. We plan to reach EUR 800 million revenues by 2024. You know the situation, if Ukraine doesn't ease the process, we have received some overflow, but that was not for us enough, I would say, attractive to dispose that business. So what we do is that given the volatility of Ukraine, we have duplicated our equipment in other countries in order to ease the work and carry on to shift from Ukraine to the other countries. And this implication as well reduces the risk of our business of automotive harnesses and that will certainly improve the quality of the offer that we should receive next year. In the meantime, as the harnesses will not be pursued this year, we have another activities in [indiscernible], which is very well on progress and that should be announced on the Q4 of this year as a disposal.

And up next, we have Sean McLoughlin from HSBC.

Just to, I suppose, dig a little bit more into G&T. I mean thinking of 17% to 24% target that you gave us last year. I mean, we're clearly a long way from that. And just looking at your backlog, I suppose at which point does that mix shift, let's say, structurally towards giving you a 17% to 24% target range? And at which point is, let's say, higher inflation actually baked into all your forward margin assumptions for G&T. That would be the first question.

I will take the question, Sean. So definitely, as you rightly say, we're quite a long way for that. But we have modeled basically our backlog, the current backlog we have, including EuroAsia and TenneT, the 2 latest contracts that are meaningful contracts because both of them represent more than EUR 3 billion, EUR 3.5 billion of future sales. And we have looked at, with the margin we know on those contracts and the rest of the backlog, how this backlog will basically deplete itself in the coming 5 years. So basically, what can I tell you to answer your question precisely is that starting 2026, we will be above 17%, and then we will reach gradually, more than 22% by 2028. So this is the latest we've done -- information. In the meantime, between now and 2026, we will ramp up progressively to get there, but the big change will be 2026 for sure.

I guess on the new vessel, can you give an indication of the total CapEx and when you will spend that?

Yes, sure. So the total expected CapEx for the new vessel is EUR 270 million. We'll start expanding part of that this year in the second semester for about EUR 60 million. The bulk part of it will be next year in '24 for EUR 130 million, and the remaining portion will be in 2025.

And lastly, on Distribution, you talked about the recurring revenues, 850,000 connected users today. I mean, what proportion of your revenues would you say are recurring in Distribution? And what is your target of connected users from that base today?

It's about roughly 5% and the objective is keep growing, keep growing because that's part of the strategy to make sure that we can resist to any fluctuation of demand in terms of margin generation, and what we see is that we are a bit alone proposing those offers to our customers that are very, very well accepted. So we'll keep growing above 5%. Our team has a very strong incentive to increase that data.

I mean, maybe just in terms of your penetration of -- just to put that kind of 850,000 into some context...

Sorry?

The number of connected users today, what kind of penetration is that, would you say of, I don't know, new sales or existing...