Ladies and gentlemen, good morning, and welcome to NEXON's First Half twenty twenty one Earnings Conference Call. As a reminder, this conference is being recorded. And for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. I would now like to turn the call over to your host for today's conference call, Mr.
Christopher Guerin, Nexon's CEO. Please go ahead, sir.
Yes. Thank you, and good morning. Good morning, ladies and gentlemen, and thank you for participating in Nexon's conference call. I'm Chris Guerin, CEO of NEXON's. With me here today are Jean Christophe Julien, Group CFO Aurelia Bodavignon, Head of Investor Relations and Elo Dioramoyo, NEXON's Investor Relations.
And now let me turn you over to Radia, 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 integral part of our universal registration document along with the audio replay of today's call that will be posted on our website, nexons.com. I now turn you over to Chris, who will go over the first half twenty twenty one highlights.
Thank you, Aurelia. So as you can see, the highlight of this first six months is Nexans' strong performance on how it support and also demonstrate the group's ability to generate structural value growth. Let me now turn to directly to Page five, where you can see three major items items, sorry. First, we raised our guidance on the back on a very strong record EBITDA for the first semester at EUR222 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 and very selective growth on as well as 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 reinforce 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 Charlestown 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 project is to electrify Manhattan with Wynn Offshore Farm in the coming years.
So we thanks Equinor and BP for their trust in NEXONS. We have as well built a state of the art cable laying vessel called Aurora. I was on the vessel two 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 €90,000,000 So third element, in line with our new equity story that we announced during our Investor Event on the February 17, 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 solution to answer 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 and D, marketing, firepower through a new organization, reallocation of resources. We are developing new solution like the one we've shown you last quarter called MobiWay, and now the new one that we will announce today called VGShield that I 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 August by Elliot Rho. Elliot has a unique background of more than twenty years experience with great company like Schneider Electric, where she has been able to develop very robust marketing and digital offer. Scale up to step up performance, we have progressed as well on our inorganic agenda, acquisition, we're talking with some targeted candidates.
But of course, today, we are not in position to comment anything on this aspect. Now let's turn to Page six to go on the key figures. So these key figures that illustrates the very strong achievements of NEXONCE in this first semester 2021. So a record EBITDA at €222,000,000 a very solid return on capital employed improvement at 14.2% and a steady free cash flow of €90,000,000 Quick reminder, you know that free cash flow generation was extremely strong last year due to one off working capital over effect over €300,000,000 So the €90,000,000 that you see for June can be considered as a normalized level. So once again, we are very strong discipline on selecting our customer, determining the product that will be critical for today's on our future growth, keep producing complexity on 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 seven to illustrate the key element of the H1 on the key milestone of H1 twenty twenty one. Well, 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 reconnection. Also among various initiatives, start building block of our new strategic ambition to become this pure electrification player. So this is what I've said, highlighting two innovation that really give us well the mindset, the spirit of what we want to do, two innovation that have been launched at worldwide scale, means in all countries where NEXONSE is located, MobiWay has been launched and as well Vigisil that we will present today will be launched everywhere. And of course, are as just what I said, we are making some progress on the inorganic agenda, 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 R and D business, ISP business and Telecom business to prepare 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, course, a very strong industrial 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 eight. 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 2018 to 2021. But I'm very proud to say that at the end of H1 twenty twenty one, everything is almost achieved, because for the cost reduction part, we achieved at the end of this semester cumulatively EUR202 million of cost reduction, an objective a total objective of EUR210 million. That means that for the next six months, we need to find €8,000,000 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. 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 €100,000,000 incremental EBITDA. It's done because we are at €98,000,000 at the end of H1. So it means only €2,000,000 is left.
We have on the slide on Page eight as well, the target of, I will say, mix depending of the each activity that we wanted to achieve for 2021. So this is the slide of 2018 that we'll 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, means in NEXANCE, 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 nine let's go now to Page nine, because after 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 slight update. We just remind you, because we have all the question from investor community. The 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 twenty twenty one, it's important to notice as well that we record a materially positive core exposure impact of EUR 75,000,000 due to copper pricing impression that I'm sure that you see will highlight.
Again, let me draw your attention on one unique fully integrated manufacturing process that we have that really support us, which is the round casting facility. As you know, we are the unique player having still vertical integration for copper rods. And that's really support us in case of demand fluctuation on increased potential risk of scarcity. So it's a very strong competitive advantage for 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 broadcasting 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 of sort of a photo report here just to show you. This one is now a real one. This is a NEXON's Aurora vessel.
We were with the team on Ragnil on the vessel three weeks ago. So very, very proud. So Aurora will be working on various secure projects like Sigreen in UK, Cretatica Interconnector in Greece and of course, Empire Wind in U. S. Let's move to Page 11, and let me show you one of this 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. We've seen that rising in the last months, which is the value of damage from copper wire theft. Just for U. S, imagine it's about $900,000,000 of copper wire that has been stolen. So we can estimate that the world risk on copper wire theft is about EUR 2,000,000,000 to EUR 3,000,000,000 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 VGShield, which is a new Nexans connected digital solution that keeps cables under surveillance everywhere on all time, twenty four hours, seven days a week. And this is I will of course, if you have any question, we can comment that. And Jerome Fonier and his team have worked intensively on this new innovation, which is certified and supported by NEXON's team.
But this is an example on how we will amplify our impact through solution on very modern innovation. Let's go to Page 13, some progress on our ESG journey, either on the governance level, environment or ecosystem. So governance is what I said, this is the first time in NEXON's history that we have at the Executive Committee, the Head of Sales and 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 Elliott has decided to join NEXONSE.
On the environment, we because of 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 Compermark organization. And we in order to thanks our supplier that have support us during the last months, 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 meeting with two fifty key suppliers. It was a great time with them and 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 we because NEXONSE, has not suffered at all from any disruption in the supplies during the last months.
And 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 on project. In H1, the level of sales on EBITDA illustrate backlog phasing and as well an unfavorable comparison with H1 because in H1 twenty twenty, we benefited from maintenance and repair project that we have not planned, which is, as you know, pretty accretive for the business.
So the latter is good. Sales will be stable and profitably close to plus 30%. So in nutshell, Subsea performance will significantly ramp up in H2. I'm sure you will have question on GC, we'll come back to it. Because of Aurora work will now work on the project that I mentioned earlier, because Charlton plant conversion completion in Q3, And we suffer from slight delays last year because of COVID and travel constraints, but now we are catching up.
And we have €1,400,000,000 adjusted backlog. But beyond the number, more important for me, it's a very disciplined risk, reward selective with the 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 Land High Voltage, you remind that Land High Voltage was a very strong value burner in the last two years, specifically 2018, '20 '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 thanks the Non High Voltage team for the great turnaround that they did achieve in the last two years. On the Page 16, Building on Territories performance for the first six 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 two forty three basis points at 7% ratio against 4.7% ratio same period last year. In the building activity was shown 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 am not concerned by utilities, because we are at the beginning of huge investment to renew the power grid of the world everywhere in all countries. So investment will be massive in that activity. Moving to Page 17. Well, let me give you a business overview of Industry and Solution and Telecom and Data.
First, Industry and Solution performance was excellent, robust both in sales and EBITDA. Boost by the Automotive harnesses is a big difference versus last year's situation, where most of car manufacturer were locked down and stopped their production. So now we have a huge recovery in Automotive Analysis, supported as well was that what I told you in first quarter by the hybridization of car demand, which is generating a higher growth. And as we are very positioned on very successful car model, it's a fantastic activity recovery for Automotive and SCs, as well automation, which is extremely robust, thanks to the modernization of all the industry everywhere in the world. On the flip side, on this solid recovery against last year, on activity that was actually hit in COVID-nineteen.
The Transport were a bit sluggish in H1, notably in Railway Infrastructures 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 now 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 and Data, first, it saw some improvement with continued upturn in LAN, Copper, Cables, a very strong recovery in Optical Fiber and Infrastructure market. So you have to as well be careful regarding the comparison of sales, because in H1 twenty twenty, it includes Bertech and 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 to much better price on Fiber Optic raw material. I will hand over now to GC for GC to go in details of the financials.
Thank you, Chris. So if we move to Page 19, I'll give you some flavor about details of our financial performance for the first semester. So first, EBITDA performance is at EUR222 million, up EUR93 million for the first half again, first half twenty twenty one. If we go into the detail of the construction of that EBITDA, Standard Steel was at EUR3.1 billion, up 12% in terms of organic growth, as Chris mentioned earlier. The EBITDA performance is mainly supported by so 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 €145,000,000 versus €83,000,000 last year. And operating margin rate was 4.7% versus 2.9% at the same period of last year. Operating income grew to €168,000,000 in H1 twenty twenty one against €4,000,000 in H1 twenty twenty. This is explained by a strong Core X exposure impact of EUR75 million, reflecting much higher average copper price over the period. Just to give you some flavor, average copper price increased by about EUR2000 per tonne in the first semester of twenty twenty one versus the average price of last year.
Second important impact, we had lower reorganization cost at EUR 33,000,000 versus EUR 53,000,000 last year. It includes EUR10 million impairment on some fixed asset of left on our U. S. Chester plant and reorganization cost linked to the group transformation. Finally, net income lands at a positive EUR81 million in H1 twenty twenty one, again a loss of EUR54 million in H1 twenty twenty.
It includes net asset impairment charge of EUR15 million related to tangible assets in Lebanon and net financial expenses of €34,000,000 versus 2019 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 June 2021. As you may see, we reached plus EUR 75,000,000 EBITDA improvement, which is made of EUR 37,000,000 of cost reduction initiatives.
As Chris explained in the previous slide, we are almost complete now with our target of EUR $210,000,000 as we announced at the end of twenty eighteen in our new plan. Euros 22,000,000 from the EBITDA improvement first half is coming from the Shift transformation, continue to basically accelerate and deploy Shift across all the unit of NEXONSE and EUR 15,000,000 coming from the, what we call, the value growth initiatives, where we basically invested our strategic CapEx across the three of the plan. This has been partially compensated by EUR 29,000,000 of price cost squeeze and inflation and EUR 26,000,000 on unfavorable comp, meaning the high voltage versus last year. As Christophe explained also, we had a very high level, as you know, of maintenance and installation maintenance repairs with three large repairs in the first semester of twenty twenty, 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 twenty twenty, COVID-nineteen generated EBITDA loss. We recovered EUR43 million. I remind you that last year, estimated the COVID impact of EUR64 million. So we recovered EUR 43,000,000 of that.
We continue to have some areas specific areas where the recovery is not completely back yet, for instance, 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 go to basically have a look at our balance sheet and specifically at our debt, You see that our net debt is reaching at the June a ten year low level at €112,000,000 which is a leverage ratio of 0.4 times versus 0.7. It was already quite low at the December. We continue to improve our leverage through mainly, as you can see on the bridge here, very strong cash generation from the unit.
Continuous improvement despite the low level achieved at the December, a continued improvement in our working capital, 64,000,000. 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 50,000,000, I would say, of the CapEx coming from those two buckets. The rest, if you you have financial interest and basically the dividend we pay at the May and explaining basically the €90,000,000 cash generation before M and 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 NEXONSE 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 a strong organic growth of the first half, we continue to improve our working capital that reached 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 $7.06 percent. 4 percent might change a little bit, but definitely, what is important and the key message is despite the rebound on sale, 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 two 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 and our key ratios for the debt are continued to improve. We have extremely significant headroom 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, 1,500,000,000.0. You know that we have repaid some key debt expenses and one expensive bond that was maturing at the May, we paid it earlier due to the significant cash flow on the balance sheet of NEXONSE at the end of the year 2020.
We also repaid a little bit couple months earlier the PG, pre guarantee Paleta 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.
I'm turning back to Chris for the outlook.
Yes, but yes, for the outlook on its Page 26 on thank you, Jean Christophe. 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 manage 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 for our future growth, in terms of as well profit generation on return on capital. In fact, this is why each business project, key potential orders and key critical negotiation are managed at Executive Committee level with our business unit key leaders.
So our EBITDA, as you can see, were previously between EUR410 million to EUR450 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 $430,000,000 and the upper part is EUR $460,000,000. I'm not sure that it happened in NEXONCE in the last ten 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 12.514.5%.
And regarding the free cash flow generation, of course, we have a very strong beat in H1, and we confirm our guidance between €100,000,000 and €150,000,000 the year. Of course, everything is linked with the current macroeconomic environment, assuming there is no major lockdown on that will impact in second semester due to COVID. Now before ending the presentation and taking your question, let me resume this first amazing six months with remarkable engagement of NEXON's team. Let me thanks all NEXON's employees everywhere in the world. 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 enable us to confidently start building the blocks of our new strategic ambition 2022 to 2024. So as you can see, NEXONCE is already on very, very solid grounds to become a pure player in sustainable electrification. It's now a new chapter that will start. And believe me, with the energized, young and innovative teams that we have, I am extremely confident.
For Nexon's future, thank you. Ria, now we can take any question that we may have on the call.
You. And the first question comes from the line of Max Yates from Credit 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 €346,000,000 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 $75,000,000 maybe half a year of the Aurora installing cable, which is maybe another 25,000,000 So that would get me to about $100,000,000 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 completed right. Due to the phasing 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 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 on final completion of Charleston that 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 I can I confirm that sort of as 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 half. So you will have the double effect of the higher revenue as well as a better mix and a better, I would say, profitability in the second half. Bratio, yes.
Great. Just my second question is just on the how to think about the Electrification margin. And I mean, 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 still going to come from the Building and Territories division?
I'm just kind of curious how much more runway you see in High Voltage and 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 improvement on the existing electrification of all the other business, but I'm talking about outside of High Voltage building and territory. Now with Shift and so on, we committed to get EUR 150,000,000 more EBITDA in the three 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 the 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, twelve months operational, so that you will have a step up already in 2022 versus 2021 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 2024. That will add about 200,000,000 EUR $250,000,000 of additional revenue and about EUR 45,000,000 of EBITDA. So basically, you will have an High Voltage business that instead of being something like EUR 800,000,000, I would say, today, will move above EUR 1,000,000,001.1 in terms of total revenue in the group mixed in 2024, with a margin level at an average of 16% to 17% when the group is more at the rest of the activities and more we are getting towards 10%. So the I would say the mix of revenue is going to be skewed towards High Voltage, which 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 non electrification 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 until they are sort of fully internally separated? So maybe just 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. Albert, the disposal can happen any times. But if the carve out is indeed achieved, it's facilitate the discussion with the future owner. So the carve out will be over we are running pretty fast on the we need to thanks 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 NEXONCE in the next two to four years. It generates a lot of emotions.
So we have really communicate intensively everywhere and work 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.
Okay. That's great. Thank you both very much.
The
next question comes from the line of Ashish Gupta from JPMorgan. Please go ahead.
Yes. Hi. Good morning, and thanks for your time. I have three 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 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 outside of projects?
Okay. Thank you, Akash. So yes, of course, the project we there should be no surprise because everything is already secure in the backlog. As well, let me say that Industry should not suffer from any surprise in ISR 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 would say that we should be on the range of five 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 capital employed and 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 maybe detrimental to some organic growth in the coming months in the business, as I mentioned, that are B and T and ISP and Telecom.
Thank you, Chris. And the second one is on project business. So on Slide number 15, you show your capacity, how much is sold and how much is unsold. 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 or XLP, which type of cable you have unsold capacity, and how confident you are to fill it up in the rest of the year?
Hello, this is mainly XEP. You know that our backlog is about €1,400,000,000 because we are including the Orsted business, because Orsted it's we have a seven 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 €1,400,000,000 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 finalized all the negotiation with Equinor and BP. And 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, know, 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 in was supposed in H1. We are talking about the TERNA project.
We are talking about Euro Asia. We are talking about Dominion. Many more ways, many, many projects to be awarded. I think we would 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.
I am very confident regarding our capacity load for the next two years in both technology.
Thank you.
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 $90,000,000 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 increasing EBITDA guidance for the year? Thank you.
Sure, Kash. So basically, the range is $50,000,000 1 hundred dollars to 150 When we communicated the range at the beginning of the year, we were I mean, I was planning to be 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 150,000,000 than 125 The reason that we have not increased the range for cash flow is that we continue, as I showed you on presentation, we continue to have a very strong working capital improvement of €64,000,000 in the first half. I don't see that repeating itself in the second half. So that's included in my EUR 90,000,000.
I think that's another last, I would say, improvement we have made on working capital. But I think working capital changes in 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 ship sensitive in service. We are starting the new program on CapEx of the extension line in Alden in Norway, And we are starting to basically spend CapEx in the second part of this year, and I'm expecting EUR 30,000,000 to 40,000,000 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 1,000,000,000 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 payment this year on the big project Chris mentioned, you will definitely change the picture of the cash flow range for this year.
They are not factored here in the guidance. They are not in the You know what we factor in the guidance, Akash, is what you see 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, 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 closing period, is we show you it's the rolling twelve months curve of the ratio. That means that month after month, we are improving. And there is no window dressing in what we show. It's a structural change on the way we manage cash in EXANSE, and that's why we are very proud of this result.
Thank you.
And the next question comes from the line of Miguel Borrega from Exane BNP Paribas. Please go ahead.
Hi, good morning everyone. 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 the space? And then can you just comment on your €1,400,000,000 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 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 15,000,000,000, 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 would 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 a 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 on demand issue, because just the wind offshore, it's a huge new market of 200 gigawatt to be installed in the coming nine years.
One gigawatt cable value is about $300,000,000 So it's a huge market and we benefit from this very strong and huge presence in U. S. And leading edge advantage that we have with our Charlestown plant in U. S. Or 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 some focus on this domestic demand. In general, wire and cable does not learn from twenty 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 check each project's financial dimension, technical dimension and as well terms and condition dimension. We profile 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 on 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? You think you've reached an optimal level on 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? Thank you.
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% to where we are now is quite exceptional. The 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 Cliff managing the company is to remain always at the percentage level below 7%, I think which is five points below the 12% to 14%, five to seven points half of what the company has been running in terms of working capital for the past twenty years. So I think that's our commitment. So obviously, in terms of volume, the working capital can move up and down based the volume and the turnover of the company and the price of copper. But in terms of percentage of the commitment we're taking, 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 financial 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 COEX, which is a non hedge part of our copper inventory, where basically you 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 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%.
Thank you very much.
15.4%. Is it precise?
15.4%, yes. The
next question comes from the line of Sean McLoughlin from HSBC. Please go ahead.
Good morning. Thank you for taking my questions. Firstly, on land high voltage, and this is just building a little bit on Max's question earlier. I mean, talked about you've reached breakeven, but surely that's not good enough. I mean, how, you know, how are you going to grow this business organically?
How important is m and a? You know, how how big an element is is land high voltage, particularly if we look at some of the large US 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. So the issue that we have was mainly in Europe. So we have not 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 twenty twenty two with some announcement that certainly would 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 the unit to cope with, of course, the very strong wind offshore demand that we are facing on benefiting in U. S, but as well HVDC corridor. But where I'm as well very prudent, Sean, is the price evolution on the long 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 will 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 Linx is will have delays of more than two or three years. So it's very complex to manage when you have delays of two or three years for one given project.
So what how do you fulfill your capacity in the meantime? So I don't think that Land Rover Dodge really for the moment embrace a fantastic margin. So if I don't see the business benefit from a strong price of lift in the future, we will cap the growth. We'll cap the growth and keep working on cost reduction program, competitiveness program, but I don't want to have one business to dilute our financial ratio. So it's you know me, Shona, it's I don't want to play volume for volume.
I don't want to have the biggest backlog just because it make it beautiful. I want to make sure that nothing will penalize the financial ratio of EBITDA, ROCE and free cash flow of NEXON in the coming years. And I want to fulfill our target for 2024. So we play carefully on the non high voltage business, making sure that we remain extremely selective and prudent on the yield management of the price.
Understood. Thank you. 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 and A side, but just thinking about the good performance, as you mentioned, of the cyclical parts of the business.
I mean, is this
accelerating your emphasis on divestment ahead of acquisition?
Specifically. 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 €6,000,000,000 company to a €4,000,000,000 company because we will have divested everything. And after trust us, we will be back to €6,000,000,000 in 2024. So we need really to balance the acquisition and divestments process.
The time and the focus of the management today is on acquisition. Regarding the divestment, 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 a great owners. We don't think that neither it's a conjunctural, I will say, great momentum that we have for Arnaces, 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.
Thank you.
The next question comes from the line of Luigi DeBellis from Equita. Please go ahead.
Yes, good morning. 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? You have purchasing advantages, if you can elaborate on these?
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? Thank you. 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 simulation we've done recently. The world demand for copper, all application together required in 1995 an equivalent of 9,000,000 tons of copper per year. Now in those days, in 2020, '20 '20 '1, we are the demand is about 20,000,000 tons of copper per year. And our projection on the Sustain as well with some analyst report that have done equivalent exercise because of the move of electrification, because of investment in transport, mobility, electrical car, we believe that this 20,000,000 tons of demand will convert to 35 potentially 38,000,000 tons by 02/1930.
So the copper demand in coming ten years will be an equivalent of what's happened in the last twenty five years. So to answer your questions, 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, 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 customer in terms of copper supply. We are able to lock three or four years secure supply, whatever happen in case of scarcity. So privileged 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 of 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 40 hectares for their production. So in case of scarcity, you may have an immediate disruption of your production cable lines because lacking 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 road 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 EXANSE, the copper supply is in the cost center mode, not in the profit center mode. So it give us a competitive advantage on the cable price. Last but not least, are not talking enough about it, but recycling on 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 West will be very high. And this vertical integration will demonstrate the power of the strategic assets when the world will miss copper, then Cable and Exxon will stand up and supply their strategic account. On Telecom, I forgot 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 minimum one to two 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 twenty twenty. 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. Thank you very much.
We have no further questions coming through. So I will now hand back Christopher for any closing remarks. Thank you.
No. Thanks a lot. Thanks a lot for your attention. 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 Nixonce is at the rendezvous of its target.
And I remind you, because we always forget the issue in of NEXANCE in 2018. The main question of analysts in 2018 is, will NEXANCE able to generate constantly positive free cash flow quarter after quarter, semester of semester after semester? The answer is no. 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