Ladies and gentlemen , good morning and welcome to Nexans' first quarter 2021 financial information conference call. As a reminder, this conference call is being recorded. Please note that your lines will be on listen- only mode; however, you will have the opportunity to ask questions at the end of the call. They can be done by pressing star one on your telephone keypad to register your question. If you require a assistance anytime please press star zero and you will be connected to an operator. I would now like to turn the call over to our host for today's conference call, Mr. Chris Guérin, Nexans CEO. Please go ahead, sir.
Thank you. Thank you. Good morning. Good morning, and thank you for participating in the Nexans conference call. Hope you and your families are well and safe. I'm Chris Guérin, CEO of Nexans, with me here in Paris headquarters, Jean-Christophe Juillard, CFO and Aurélia, Head of I nvestor Relations team. I will now turn over to Aurélia. We will go over the conference call rules.
Thank you. I would like to remind participants that statements made during the conference call [audio distortion] 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 uniform registration document, along with the audio replay today call that will be posted on our website, nexans.com. I now hand over to Chris, who will go over the first quarter 2021 highlights.
Thank you. Let's turn it on to page. As you can see, Nexans took a head start this year in the first quarter of the year. These three main points: first, an organic growth of +1.4% in Q1 against Q1 2020. I think some this is for the year. The top-time recovery was supported by, first, a very healthy backlog across all businesses, notably in Subsea High-Voltage , with an adjusted backlog of EUR 1.5 billion in revenue that our, main operations, housing, facilities are fully loaded in 2021. We, you know, keep this, very intense customers and business selectivity along the lines of to really focus on value growth.
This is the reason as well that we had to decline some, equivalent of 1.5points-2 points of growth in the Building sectors to make sure that all the orders that go through our production are very healthy in terms of margins. I will come back to this point. We had as well to notice price increase to set up a price increase to offset higher inflation. We believe this is only the first sequence. Unexpected further inflation in the coming quarters, notably in metals, polymers, PVC, all types of components that are supporting CapEx.
We'll go over this in details further in the presentation. Just a quick reminder, these increases are customer pass-through for the group. The second main point for this quarterly results is that the group is taking the final step of its transition. Since beginning of 2019, Nexans has undergone major changes, improving its performance thanks to significant fixed cost reduction on our in-house optimization program called SHIFT. We strengthened our balance sheet during the quarter.
Nexans proceeded to the early repayment of what we call the PGE, which is a French State-Backed loan. As well, 2021 bond. We were rated by S&P and now look greatly positive on S&P long-term rating. Along these lines, the key strategic investment done by Nexans, the group is, as you have seen in the recent news, the best-positioned U.S. offshore wind market and was selected as preferred supplier by Offshore Wind for the offshore wind project outside New York City.
Third main point of this quarterly results, and last, over the first quarter, Nexans started laying groundwork for the next strategic ambition 2024, as we announced it to you, to the market on the last February 17th. As I told you, our new purpose is to simplify our businesses, to amplify our impact, and to turn into an electrification pure player, directing on our focal point on generation of energy, transmission, distribution, and use of this energy. Transform and innovate, in the quarter, we have signed five innovation and digital partnerships.
I will come back to it. As well, of course, scaling up to step up performance, not only through an active merger and acquisition pipeline on digital investments for which we have started preparation work. In conclusion, for this selection, again, the Q1 is a head start to the year, both in terms of operation, with a standard sales of EUR 1.5 billion, as mentioned, which is representing 1.4% of revenue growth, and the current sales of EUR 1.7 billion, up to 50% alongside with the role that they all increase inflation, specifically copper price, and I'm very proud to announce that we do confirm our 2021 guidance.
If we turn on page four, let me come back to this partnership that has been signed during the Q1. You will find a snapshot of the risk management, innovation, digital partnership that we signed over the quarter with leading players in their domain, such as Bureau Veritas, that is supporting our efforts to reinforce and reduce the risk management in the Wind Offshore business, because, you know, that some of our customers may have a problem in the past due to cable installation, not with Nexans.
That's the reason that with Bureau Veritas, we really want to reinforce our leading edge experience in that domain. Schneider Electric is supporting us in turning Nexans in the Industry 4.0 in all our manufacturers, and this partnership has taking already billion of the year. Microsoft, Orange Business , and [CPO] are helping us to scaling up in the Internet of Things, artificial intelligence, and digitalization.
If I move to page five, Nexans' unique turnkey, [Subsea] High-Voltage project, we do, you know, we do everything from front-end engineering design, monitoring, installation, and protection. When the project is running, we provide our clients after-market services for the high-voltage generation and transmission cable distribution. Earlier engagement with Subsea wraps this, in general project architecture, offering better solutions to our clients, or more important for them, to mitigate risk for all parties. Thanks to this collaboration, our engineers can focus on R&D for design capabilities or installation capabilities, match customer project needs.
Still, and we keep repeating, and we will keep repeating for the next year, we also analyze each project on its risk and reward analysis, combining the three fundamental dimensions: the financial model of the project itself, the technological risk, and the term and condition of each project, in order to really build a very healthy backlog with limited risk of execution in the coming years. In terms of manufacturing, we have an unparalleled worldwide footprint with four plants across the globe, very well balanced because, of course, unique and big plants in Norway, where we have announced another investment for the year to come, supported by a plant in Belgium for long-haul voltage.
Our leading hedge unit in the U.S., Charleston, and as well Japan, make it very balanced. Most of them are doing MI or XLPE, AC on DC technology. While guaranteeing, of course, the quality of the cable with a full testing practice with dedicated labs, along our installation capabilities, we have almost now, two purpose-built vehicles. Our all-ladies Skagerrak, this vessel, which is more than 30 years old, and soon to come, as I'm sure you've seen the picture, Aurora, it gives a 10,000 tons dual-turn table on a low-carbon footprint that will really enable us to face very challenging projects in depth work.
Nexans' unique model enables us as well to unlock opportunities, best position for the group, notably in the buoyant U.S. offshore market, where close to EUR 100 billion investments of carbon-free electricity are expected by 2035. Like Joe Biden confirmed, President Biden called 30 GW offshore wind capacity that should be ready by 2030. This number is likely to reach 110 GW by 2050. As of today, we are the only high-voltage cable manufacturers with a plant in the U.S., and as recently announced, we have been selected as preferred supplier for the development of the Empire Wind project, with Equinor and BP.
Let's move now to page six. Of course, you have seen that the beginning of the year, of course, is pretty dynamic in terms of demand, but we have faced raw material inflation and sometimes supply chain disruption. Hopefully, Nexans has been able, like last year with the start of COVID, to anticipate that move, specifically on the supply chain issue, and none of our factories suffer from any disruption, which is, I think important to say. Regarding [audio distortion] let me elaborate the segment into the two pages, page six and page seven.
You have to know that, we have a true model on close to 83%, 83%-85% of our business as indexation, methodologies and formulas, on all pass-through techniques, on both metals and polymers. This is, of course, in metal and polymers that we have to face a soon, efficient. We have, this is as well the market practice, structural contract engineering practice that enables us to pass through the majority of this inflation. Of course, if we talk about the 15% remaining , it's daily negotiation with our sales team to inflate that cost to customers.
If we go to page seven, because I know you will always, someone will always challenge me around the organic growth, we want growth, but we want soft growth. We want to make sure that anything that is entering our order backlogs is very healthy in terms of final modernizations on technological, on risk aspects, and as well good fat of our factories. The reason that SHIFT transformation level is supported by in-depth analytics to really determine what is the good part and the bad part in terms of product for our business portfolio, but as well determining what are the critical customers for our future and the ones that are a bit less critical for our future.
That's the reason that we have classified them in four main categories. Either we are serving platinum-type customers, gold-type customers, high-voltage customers that are selected based on their volume or margin, but along 20 different criteria, both quantitative and qualitative. We do the same with the product. The objective, and this is what you see on the slide, is really keep growing the green part. In parallel, we are doing negative growth for the red part because we consider that the customers that are not qualified as platinum, gold, and silver may be actually dilutive for the margin.
They could be good in terms of organic growth, but dilutive in terms of margins. This is very low-priority customers, and if they want to get access to cable, they need to pay cash. We believe this is very great model, because potentially, in the years to come, scarcity of raw material will be an issue. You have to make sure that you are able to keep growing your businesses, keep improving your margin, but in a very, very disciplined way. The third element is SHIFT Prime. We know, of course, SHIFT Prime is based on our new strategic ambition. It's also that we provide a lot of preparations and really need to be kicked off right now.
We have all our units in Building & Territories, high-voltage electrification ecosystem under the SHIFT Prime umbrella to really deploy superior service, better with results. [audio distortion] I will not comment on what I've really exposed on February 17th, but all our sales and marketing team are incentivized to generate higher value. We're very proud as well to launch, during the quarter, worldwide from France, Belgium, Austria, New Zealand, Canada, all South America, our new packaging tools for our customers, called MOBIWAY. This is mainly for the building sectors, which requires a lot of innovation. You'll see such innovation every quarter now, in the quarter to come and the years to come. MOBIWAY has been during Q1 and, of course, with a very impressive result. J.C., I propose that you come on the results per sector.
Thank you. Thank you, Chris. As you said, Chris, overall positive organic growth Q1 2021, + 1.4%, but with some slight difference when we look at the different businesses. Let's start on page eight, Building & Territories. In Q1 2021, this segment demonstrated the sequential improvement, and sales are up 3.3% against last year Q1 2020, when we exclude the closure of our plant in Chester. On organic standpoint, sales were down 2% year-on-year. Building continued to focus on selective growth, reducing the some clients, as Chris explained, and mechanically decreasing volumes, but overall improving margin and cash generation.
Sales were strong in the quarter against last year Q1 2020. Activity was mainly dynamic in South America, partly in Brazil and Peru, and also in Africa and the Middle East, mainly in Turkey. Both these regions benefited from the upturn in the construction market and client inventory buildup. However, in Europe, sales were strong. In Spain, resilient in France despite pursued lockdown and still challenging its value. On the territorial side, we witnessed a mixed activity across various geographies, robust demand in China, robust demand in France, strong sales in South America, and weaker demand in the Nordics against last year, due mainly to weather conditions.
As you can see on the chart on the right of the slide, across our main regions, sales were up in the Americas with +15%, excluding Chester plant closure in North America, and 19% on growth in South America. Also in Africa and the Middle East at +8%. Organic sales growth was strong in Europe, -2%. This region represents close to 47% of the business in terms. In Asia-Pacific, despite strong sales in China, organic growth ended at -4% year-over-year.
Based on the backlog visibility we have in the business territories, along the lines of the raw material increase, we expect further gradual and sequential growth throughout the rest of the year. Last, we are very proud of our recent success of electrifying 41 villages in Côte d'Ivoire, Ivory C oast, and also of the launching worldwide for the construction market, of our groundbreaking innovation, MOBIWAY, that Chris explained earlier on. On page nine, we move now to Industry & Solutions.
As you can see, sales in Q1 2021 against the same period of last year were up 6%, reflecting the rebound we have seen over the last quarter, specifically in auto harnesses and automation. In automation robotics, the recovery was quite strong at +46% year-on-year, boosted mainly by demand in Europe. In automotive harnesses, as you may recall, starting early mid-March last year, our clients, Audi and Daimler, shut down their plants in Germany, which impacted immediately our sales. Now, and ever since the third quarter of 2020, this business has demonstrated strong recovery, supported the catch-up demand in China and the dynamics in the electrical vehicle market.
Organic sales growth is up 18% in the first quarter of 2021 year-on-year. For the transport activities, sales were strong in the rail infrastructure and rolling stock market, + 4.8% year-on-year, thanks to new subway lines in China and Europe, while on the other side, aerospace and defense continued to be quite severely challenged by the COVID-19 environment. Over the quarter, backlog in this segment of business grew by 6%. Nexans signed several multi-year contracts, demonstrating commitment to continue to enable this business to run and thrive while structuring it as a standalone business.
Let's move now to page 10 and look at the Telecom & Data . Organic growth was slightly down by -4% in Q1 2021 compared to last year, mostly due to the fiber cable market, still challenged by Chinese competition and the lack of backbone orders. Conversely, land and grid systems demand was quite strong in the quarter at +19% year-on-year, supported by the rebound in Asia and in Europe and also major projects in the Middle East. Strong activity in Special Telecom , which continued positive trends in the quarter, organic sales +3% in Q1 2021 versus Q1 2020.
All these activities supported by strong backlog growth of +8% over the period, give us visibility for the second quarter. Quick reminder. When you look at the number, Nexans closed the sale of Berk-Tek in October 2020, which included in the Q1 2020 sales, but excluded the Q4 2020 and, of course, in Q1 2021. Let's move now to page 11 and have a look at the high-voltage and project business. If you recall, in Q1 2020, in our subsea business, we benefited from two exceptional repair projects, which by nature are unpredictable. They boosted significantly our Q1 sales last year in subsea by more than 65%.
In Q1 2021, we continued to execute our strong backlog as scheduled, but did not have any a major projects, repair projects, suffering from an unfavorable comparable effect. Organic sales in Q1 2021 landed down by 25% against Q1 2020. Thanks to our solid, healthy EUR 1.5 billion adjusted backlog in subsea and the fully loaded plant in Halden in 2021, we expect gradual sales acceleration throughout the rest of the year 2021. Starting in the second half of the year, we'll be boosting the effect of both Charleston and Aurora that will be fully operational, both assets booked with a good mixed projects.
In the high-voltage activity, it was strong and aligned with project engineering and pursuit recovery. We still expect likely positive performance in 2021. As mentioned earlier, our full EPCI 30 mode on top of the turnkey activity created in the preferred supplier agreement signed with Empire Wind gives us strong evidence for the performance of the high-voltage business group throughout the rest of the year 2021. That gives you a quick outlook about our Q1 sales. Now I turn back to Chris for the Q1.
Thank you, Jean-Christophe. Before we take your questions, let me go on slide 12 with the key takeaways. Q1 2021 with the heads of the year showing gradual and sequential growth through the rest of 2021. Nexans has successfully managed the raw material inflation through price increase as well as I told you, pursued cost-effective activities in Building & Territories segment mainly on the rail industry to further grow performance. For high-voltage, the best position is the U.S. wind offshore. Let me remind that our backlog year-over-year is +20% in terms of backlog.
Maybe what you cannot see through the lines is a recovery in the last months in telephone infrastructures because we see an increase in the last three months of +44% of orientation backlog performance. Nexans is very well tracked with us in transformation plan to achieve its operational and financial target while laying the groundwork for our next ambition, which is to electrify the future. We do confirm our 2021 guidelines, and I remind you, three main criteria, EBITDA between EUR 400 million and EUR 450 million.
J.C., I think we can say that we are very well positioned on the higher end of that guidelines. Return capital employed between 12.5%-14.5%, and the free cash projection between EUR 100 million-EUR 150 million, of course, before merger and acquisition and steady operations. That's in sum up the situation of Q1. A quick, strong heads up, very high level of effectiveness, a very healthy backlog with a growth of 20% year-over-year, which gives us a pretty strong, I would say, confidence for the quarter to come, confidence in growth. The most important for me, confidence in EBITDA generation and free cash regeneration. Thank you very much for your time. Let's now open the area for the first questions.
As a reminder, if you'd like to ask a question on today's call, please press star one on your telephone keypad. To ask your question, please press star. You'll be advised when to ask a question. Our first question comes on the line of Lucie Carrier from Morgan Stanley. Please go ahead.
Hi everyone. Thanks for taking my question. I have three questions, we'll go one at a time. The first one, I wanted to follow up on the news this morning. we've seen that Ørsted has, potentially, an issue with, some cabling on offshore wind in Europe and, the U.K., and potentially, you know, an extra cost of about DKK 3 billion. I just wanted to check, whether you have any involvement potentially with that. That was my first question.
Yes, thank you, Lucie. We heard about it. From what we understand, it's not about cables, but it's about cable protection system. We are not, concerned by this project mentioned by Ørsted.
Okay. Thank you very much for that. My second question was around the Auto harnesses business because we are seeing production being suspended in the second quarter on the back of semiconductor activity, including for some of the German, we have like Daimler. I know that you're historically exposed to that, I just wanted to know how we should feel about the rest of the year in auto, considering the delays seem to be seeing on some of the products.
Yes, thank you, Lucie. So far, given all the forecasts that we have for the next quarter, at least the quarter two, we have noticed no disruption at all, and we have a very smooth supplier right now, with no lag in times due to semiconductor issues. Our customers confirm their forecast. Of course, we are just like we mentioned, our first customers are BMW, Daimlers, and, General Electric, and as well, Porsche. No, no fast food.
Okay. Perfect. Lastly, maybe I just wanted to get some color from you in terms of how we should figure out the margin dynamic, on the back of the crisis that you are battling. Is that something that is for you neutral, or do you actually expect to retain some of the benefits that you price increase on the back of raw material inflation? And maybe if you could help us understand that by division as well, please.
Yes, of course. The first, requirement to our salespeople is, we should not have any, negative hit, due to, raw material inflation. This is the basis. Of course, thanks to our SHIFT program on our qualification system per product and per customers, we have them as well to gain some benefit from these inflations. The fact, you know, that to make sure that our lines have not been disrupted in Q1, it requires a lot of effort from our procurement team in terms of access to materials on negotiation with our suppliers.
I don't want to dilute this effort with a lower margin. That's the reason that we put a very, very strong incentive for all our salespeople to get some benefit in terms of margins thanks to customer selectivities, selectivity service, and as well order index selection affected the bidding to make sure that our mix is constantly improved in terms of EBITDA generation. That's the case, of course, for everything which is on the repairing mode. We sits at bidding mainly because, you know, we are able to revise the price in general every month.
Territories, it's indexation, because it's a framework agreement for two years. Of course, we go back to our customers regarding raw material issues on to export fully this indexation agreement that we have in the contract. Telephone, there's no specific issue there. Right now, on ISP as well, it's through indexation program on the renegotiation, sorry, some project regarding the voltage. No risk at all because everything is edged and indexed.
Thank you very much.
Do you want to add?
No, I just like to add that 1.4% organic growth in Q1, if you put it rather, it could have been higher. Let's be this way. If we were ready to take any volume and any increase, we would have had a much higher Q1. I think that what is very important for Nexans is the balance between, basically managing our profitability or EBITDA and managing our cash.
We prefer to have 1.4% organic growth with a good improvement in our margin and a good cash generation than dilute ourselves and go to 3% or 4% organic growth. I think this is the one of the key drivers of how we manage the business, and also makes a difference between what we do and others do in the cable environment. We are very firm about that and continue to do that and use the improvement in margins due to this, I would say, selectivity. Thank you.
Thank you, Lucie.
Sure. Thank you. I was not hearing the organic growth number.
No, no. I thought you had the word to say it.
Thank you, Lucie.
The next question in queue comes on the line of Miguel Borrega from Exane BNP Paribas. Please go ahead.
Hi. Good morning, everyone. I'll have three questions, please. The first one is just on Building & Territories. Can you comment on where, on what and where are the main pockets of growth in this business? You mentioned a strong catch-up in orders. Can you give us maybe a little bit more color on that?
Yes. Definitely. What we've seen in Building & Territories is interesting because in 2020, basically, what we've seen is that building suffered the most. Territories were quite resilient, in terms of orders and in terms of volume. We lost a lot of volume on the Building side. What we've seen in the first quarter of 2021 with the rebound is exactly, obviously, the opposite. Territories grew moderately, but Building did very, very well, catch-up very well in terms of volume, but also, in terms of margin.
I think significant improvement in margin, also, of course, due to the fact that we selectively picked our orders. In terms of pocket for growth, we see a lot of growth in South America. We've seen a lot of growth in South America. We are very confident in South America for the second quarter. Definitely, a very significant hump up versus what we've seen even in the second half of 2020. I would say that Asia and mainly Australia and New Zealand continues to be very strong.
Where it was in Q1 last year, it was pre-COVID, we had a stronger Australia because of the fires that happened and the lower demand in cable at the time. Obviously, when you compare Q1- Q1, you do not see that in growth, but we are very positive about Q2 in Australia and New Zealand. Europe has been a little behind the first quarter, but we see now very strong backlog in Europe for Building. We are quite confident about Q2 for Europe and see what we did not see in the first quarter happening in the second quarter of the year.
Basically, I would say that North America as well-
North America is huge.
...New North America is also a very nice recovery. I think most of this recovery that we will be seeing in the second quarter of the year, and we can say that because we look at the level of our backlogs altogether that we have today and much higher than it has been even in 2019. We are quite confident for the second quarter and the rest of the first half.
Thank you. The same one, a little bit more technical. Can you give us a sense of impact from copper price on your margin? I understand that you pass through, so your profit team has been into, but on the margin side, is there sensitivity that you can comment on?
No, there is no impact. Everything pass through. On the margin as well, there's no impact. On the cash, no impact. I mean, there's nothing really on the copper side. I mean, again, we see in the copper side, definitely, where we could, have a risk is on, is on the scarcity of the, of the product itself, the material. The issues in copper doesn't impact us, much.
Okay. Lastly, if you live on that EUR 150 million uplift you were not within notification, how much of this is under control? Putting it in another way, are you expecting some of these improvements to come from a more favorable tendering by being selective in such projects, or is it purely internal measures?
it's internal. I mean, we are not getting definitely, the, the key, message on our equity story is that the EUR 150 million that we need to deliver by 2024 is completely internal. We are not getting, on any, I would say, external-
Positive environment.
...positive environment, obviously, a huge disaster like we've had is really impacting everyone, that there will be an impact on our plan. I would say at a constant market environment, this achievement of EUR 150 million by 2024 is in our hands only through SHIFT and innovation.
Thank you, Jean-Christophe.
Thank you, Miguel.
The next question comes on the line of Sean McLoughlin from HSBC. Please go ahead.
Good evening. We have some questions from me as well. Firstly, on growth selectivity. You say you stepped away from about 1%-2% of sales in Q1. I'm just wondering which division segment in particular, you walk away from sales. Just thinking about the next quarters, you know, given the strong cyclical rebound that we're seeing in general, I mean, how might this shape up in the quarter? Are you actually missing out on some of this rebound because of activity?
Yeah. Yeah. Good mention, Sean. Again, growth selectivity, you know, the selectivity in general is applied to all our businesses, including voltage because it's a different net for high voltage, project selectivity is as well a part of our decision process. Regarding specifically to your questions of the first quarter, the business that have been most impacted with the selectivity is the infrastructure sectors, because, you know, beginning of the year, we see this inflation, which was a topic for us, but more the access to material. We wanted to make sure that we serve our top clients first. That's the reason that we cap some units in terms of cost.
We cap them as well, you know, depending on their position in our matrix. If you remind, profit drivers, cash chains, or value burners, so some there is less and less value burners, but some of our units that are delivering an EBITDA below 6%, have been capping growth as well. We want to make sure that any growth that we are doing is good in terms of EBITDA generation. It's not only pure volume, but as well, value.
This is mainly the construction sector that's impacted for the first quarter. Regarding next quarter, of course, the rebound will be there. There is no progress, to benefit from it. It's already in backlog because our backlog year-over-year is +20%, all across the business. No remote on the side. I think where we are remaining extremely vigilant is raw material accessibility. Running orders, there is no problem. On EBITDA, if I can color a bit, I've seen the result of some orders, companies in the capital goods market.
I think that's a question you should ask as well to our colleagues in the wire and cables. In general, wire and cables are a bit upstream because they are a bit ahead of some raw material issues because we are upstream versus other subsectors. What happens in terms of difficulty of raw material access and inflation in the wire and cable industry, first quarter can be applied on, as well, impacted some other capital goods sectors. That's the reason that we, you know, I will do my old charts, but 15 years ago, we were always looking at the wire and cable activities to be a first signal of demand because of the metallurgy asset or as well as potential scarcity of resources.
Thank you. Very careful. my second question, on slide 11, I can see you have a fair bit of spare capacity in Halden for 2022 and 2023. I mean, I'm assuming that this is going to be mostly for the European market. I'm just wondering what you're targeting there in terms of where you expect that order intake to come from?
For 2021, we have no spare capacity, huh. This year is fully loaded. We can take some spot maintenance project, but it's extremely limited free capacity in 2021.
2022 and 2023, we have, as you say here, we are very active on a quite significant pipeline. For example, you've seen Empire Wind that we are on which we are preferred leader. We are also advanced on other tendering, significant tendering. We have really no, I would say, concern about our ability very shortly to fill this capacity for the future.
On Empire Wind, we are just notified as preferred supplier. It's not at all in the backlog. We have nowhere in the numbers, neither in this capacity charts. We need to be awarded officially. Big awards are coming, like EuroAsia, shortly.
Perfect. Thank you.
Thank you, Sean.
The next question comes on the line of Artem Tokarenko from Credit Suisse . Please go ahead.
Good morning. Thank you very much for taking my questions at 3:00, please. My first question is around the project pipeline and high-voltage business. Could maybe talk a little bit about the bigger projects which you see this year, and maybe you could talk a little bit about whether you still expect the U.K. [CFD] to happen this year or there is an increasing risk that it can slip towards next year. On the bigger projects like NorthConnect and EuroAsia and Greenlink, what progress is tracking at the moment? That's my first question.
Artem, we have discussed it, already, last year. Our tendering activity last year were just huge, record high, so 2021 will be a year of awards. Our tendering activity remains extremely brilliant, very dynamic. What will be the sequence in terms of award notification? You will have certainly EuroAsia to come before the end of the semester, in Q2? You may have as well Terna in the CEC. You may have NorthConnect a bit later.
Of course, Greenlink, you in the U.S., there is a huge project as well, wind offshore project with Dominion. There will be a lot of projects to be awarded in the next months. What we believe is that the two first could be EuroAsia on Terna. There is as well some awards to come from Iberdrola on East Anglia. As well, as I mentioned, potentially Dominion. Q2 will be normally pretty intense in terms of awards.
Understood. Thank you very much. My second question is around your previous outlook for double-digit revenue growth in high-voltage business in 2021, considering the 25% decline in revenue in Q1. Does the outlook still hold for the full year?
It does. Completely. Again, what we've seen in the first quarter is really linked to the exceptional level of Q1 2020. Again, when we look at the first quarter of the past few years, Q1 2020 has been about 60% above the average. Again, it's mainly due to two, I would say, quite exceptional levels, which are those two repairs that basically brought significant revenue. We talk about EUR 40 million revenue in the quarter itself, just for those repairs.
Some years, we have zero repairs. Some years, we have two repairs on average. We usually have one or two per year. That year, we got wo in the first quarter of 2020. Those - 25%, again, do not reflect at all, the pace we're having on executing our backlog. It doesn't give any indication about our commitment to achieve a significant ramp-up in sales for 2021. We are completely aligned to achieve that.
That's very thank you very much. My last question is around, you guys are following, I guess, two questions here. Firstly, on the existing pipeline with Ørsted, are you seeing any delays or it's all progressing as planned? Secondly, in terms of the 30 GW target which you mentioned, do you see enough budgets, at the moment being in an early stage, sort of, to accommodate that target in the next 10 years? Thank you.
Thank you. There were some delays on Ørsted's side that we keep discussing with them because, you know, they don't want it, we have more or less take our pay system with them. They don't want to lose their production slots. There is a discussion regarding the phasing of their project for so I'm not able to comment it right now. A bit later during the second quarter. Regarding the 30 GW, no, there's not yet enough project in early stage. [Bion] teams are really speeding up everything which is about permit release on ship. It's going much faster than what it was two years ago. We are very confident there.
Understood. Thank you very much.
Thank you.
Thank you
The next question comes on the line of David Parker. Please go ahead.
Good morning guys . Thanks for taking my questions. I've got three pretty quick ones. Firstly, just a bit of math on the high-voltage business in the second half. Obviously, you have Aurora and Charleston, which will have a first full half of contribution. I believe in the past, you said that it's worth around EUR 200 million a year. Mechanically, in the second half, you're kind of going from EUR 320 million of project sales, adding EUR 100 million gets you to EUR 420 million. You're talking about kind of improved underlying growth in the business as well. Is that the right way to think about it? I guess on that basis, we're looking at kind of 35%-40% of growth annuity for high-voltage. It's my first question, and I'll ask my other two afterwards.
Yeah. Good morning, David. Did you say you want to?
Yeah. Definitely, I mean, this is right way to it. I mean, the total additional capacity for Charleston when fully ramp-up and in full execution with full backlog is EUR 150 million. On top of that, we have the installation that could get to, as you said, close to EUR 200 million, EUR 180 million-EUR 200 million. The capacity, the manufacturing, additional revenue generation for manufacturing cables in the plant is EUR 150 million.
Definitely, what we're seeing here in 2021, it's starting in Q2, you will see the first very significant increase in sales due to Charleston. Then it will increase again in Q3 and Q4. For the year, we are aiming at about EUR 90 million, EUR 80 million-EUR 90 million additional sales only due to Charleston. Again, Q1 was not Q1 of this year was not yet in the ramp-up phase of Charleston.
We have very limited revenue. We really start next quarter, and then the two following quarters, Q3 and Q4. That's basically how we'll increase total sales of the subsea business. You have a little bit more also installation due to Aurora. Altogether, we will be close to EUR 100 million additional sales versus 2020, due mainly to those two elements.
Perfect. Thank you. I've got some forgive me for the next couple of questions might be a bit more difficult. You just referenced your EuroAsia Interconnector, potentially being a target for the second quarter. You said a lot about the kind of technical climates for that project and the pricing. How do you feel that you are positioned and how kind of critical is it that you win this contract, your backlog over the term?
It's easier to comment, you know, because I'm not in customer shoes. We are very well positioned in terms of quality, qualification for this project, which is in-depth 103,000 m, thanks to our MI capabilities. We will be the only players on this EuroAsia project, because it's a very technical, very ambitious project. So far, only Nexans and Prysmian are able to really manage this project in the coming years. How the customer will decide is too early, it's late for me.
Okay. Thanks. Then final one to follow up from Lucie's question at the start. I appreciate the issues only come up today. On this Ørsted issue, the kind of the protection system issues, just to clarify, you don't have any responsibility for the protection. Also, is there any potential that you'd have to change any design over the midterm of how your inter-array cables are actually designed? Is it more just the protection?
David, to go back to this point, we get news of this Ørsted issue at the same time as you.
Understood. We need to get you. I'm busy.
No, It's not really. We're not going at all. It's not a project that we do with Ørsted, the one with the project which is concerning this cable protection system. We have no information at all so far. Our team is calling Ørsted to get some information. What I tell you is that doing cable is for wind, it is really fast. Installing it properly, protecting them as well is extremely complex. This is as well why Nexans have spent a lot of time with insurance companies that are a bit concerned by the increasing costs are linked to bad installation of cables, for wind business.
That is exactly why we have made this partnership with Bureau Veritas, really to show our leading capabilities in terms of installation on the reliability of cables, on how we can keep improving in that direction to reduce the risk that a customer, significant customer like Ørsted may face in some projects. So far, I don't have enough information to comment to us as announced this morning.
Got it. Thank you very much.
Thank you, David.
Thank you. Have a good day.
The next question comes on the line of Daniela Costa from GS. Please go ahead.
Hi. Good morning. Thank you for taking my question. I have one question. Sorry if you digress, but I've heard you give us a little bit of an update regarding the divestment area. If it is able to expect any flow regarding that within 2021 still. Thank you.
Good morning, Daniela. We are preparing the carve-out, with the teams on the unions, respectively, in each country for the three main buckets of divestments. Our team right now is 100% focused not 100%, but because they're preparing this process, but mainly focused on acquisition process. We are pretty active in that field. In terms of financing, acquisition will come first before in 2021.
All right. That is still the focus is on the building segment there?
It's the focus is on electrification, Daniela.
Okay. Thank you.
Thank you. Next question.
Operator? Hello.
I believe your operator is having some technical difficulties. I'm just stepping in on her behalf. The next question comes from the line of Akash Gupta from JP Morgan. Akash, please go ahead. You're now unmuted.
Thank you. Yeah. Good morning, everybody. Thanks for your time. Most of my question has been answered. Just one technical question left. If I look at on your slide seven where you show you have divided your customers into four categories, is it fair to say when you talk about being selective in a business, then this customer might be part of others' category? Or could it be also part of the other three, Platinum, Gold, and Silver?
Didn't get the question, Akash. Can you repeat? We're on page seven. It's about.
Yeah. You divide your customer there into four categories. You say you are scaling down business with these others. When you say in your segment comments that for a segment, sales were impacted by selectivity, is it fair to say that those customers were part of this other, others' category?
Yeah. That's right. This is exactly right, Akash. Consider the green part of this page seven a plane. We considered our capacities like a plane, that required, of course, a lot of resources to make it fly. We want to make sure that we are filling the plane with the right customer profile. They are not all in business class. There is some economic class. We don't want to be a low-cost company.
That the low-cost company is more on the red part, if I want to give an image of what we are doing. That's, of course, when I say, Akash, that, we have refused if I don't like the words. We have declined some orders in, mainly the building sectors, that could improve our organic growth by 1.5 points or 2 points is mainly on the red area on that slide, yes. What I call the bad fat. It's not only customers because it's as well product families because there is some product families that we use to produce since years that we consider not attractive in terms of free cash flow generation for the company and that we have decided to stop.
Maybe just to follow up on that. When you say your wind turbine activity was down nearly 20% on strengthened for the project selectivity, I guess some of those projects might be going in that others' category. Is that correct?
No. It is the it's Akash, the matrix that you have on page seven is this is the matrix that we use. We it's a good point that we should adopt that we use for B&T sectors, Telecom sectors, and Industry sectors. We have a different on ISP. We have a different selectivity process, as I mentioned, for high-voltage which encompass financial dimension, risk dimensions, and as well technological dimension.
I mean, I was meaning about industry. When I look at your industry and solutions, and you say their wind was down 20% year-on-year, and that was because of project selectivity, the question I had was that is it because some of these customers are going in that others' category where you don't want to do the business bit? Maybe help me understand. Is that the case or not?
I don't think, could be a part of it. I think for the most part, in the wind activity, it's because we have seen some, very, very high, activity, in 2021 and a very strong Q4 as well. We have seen a slight decrease in the volume. There could be a part of it, like you're right, due to selectivity. Since we are number one and number two with the biggest, OEMs, customers, we remain with that level of positioning as preferred supplier. We have not seen any changes. It's more a cycle of the business rather than, I would say, changing how we work with those key suppliers like GE, Vestas, Gamesa, and so on.
Thank you.
Sorry, Akash, I didn't get the question at first.
Thank you. Next question.
Operator?
I think we have the last one. The next question. Oh, apologies. The next question comes on the line of [Geoffroy de Mendez] from Société Générale. Please go ahead, Geoffroy.
Yes. Good morning. Good morning, everyone. Thank you for taking my question. My first question is very simple. I was wondering if you could give us the impact on the B&T margins from the shutdown of the Chester plant, how much, basis points you’re expecting the margin for the division to improve, in 2021?
Well, I mean, I didn’t calculate exactly the impact on the entire division. What I can tell you, it was a business that was running about EUR 200 million of sales, and was, loss-making. Slightly negative EBITDA, so negative margin. I mean, out of a total of, B&T sector of, about EUR 3 billion, you can do the math. I it will not be that significant.
Okay. Thank you very much for the details. My second question, comes back to your comment on the order intake in Telecom, Chris, which I thought was very interesting. Could you give us a split between the volume and the pricing effect of the 44% increase you've seen there? The follow-up question will be, when do you expect this order intake to transform into revenues?
This is mainly volume driven. It's per quarter last year was still very good before COVID-19 impact. Very good. It was good. Not very good. It was good. What we've seen is really a big increase starting January, in terms of order intake, of +44%. It will impact the second quarter and the third, on the third quarter, mainly. This is mainly volume-driven. No price on the price remains extremely challenging in that sectors due to Chinese competition. I think you've seen the news regarding anti-dumping. There will be no provisional measures from European Commission before year-end. It's still very intense in terms of competition. The market is getting better in terms of demand.
Great. Thank you very much for the details. Yeah. Thank you Chris .
Thank you. Geoffroy. Next questions. Maybe last, no?
The next question comes on the line of Jean-François Granjon, from Oddo BHF. Please go ahead.
Yes. Good morning. I have three questions, please. In the press release, you mentioned an improvement for the mix margin for the backlog. Could you give us some more color about that? The second question concerned the raw materials. Do you see any risk, despite the pass-through policy for the next quarter? Due to the strong growth for the copper pricing, could you give us some more color about the impact for the stock effect and for the working capital? The last question, I just want to come back on the next M&A. Can you make an update on the future on potential review for potential acquisition during the next month or quarter? Thank you.
Regarding I will take the last question first. No. You know, M&A process is always a complex exercise because there is no company officially announcing divestment. Nothing is public. We have engaged already several discussions with some of our 20 candidates. If you remember, Jean-François, we talk about 20 candidates. Our objective is not to make a 20 acquisition but more on the about three to four different magnitude of them, between EUR 200 million, EUR 500 million, up to EUR 1 billion.
Process is going through. I cannot elaborate more because I don't want to disclose anything on that regard. Regarding the backlog, yes, the backlog is two good news. First is the volume aspect of the backlog. It's +20%. When you link this backlog growth with the selectivity that we just reviewed in detail with Akash, that means that it's not only a growth by itself but it's what we call internally, a smart growth.
It's a 20% increase of backlog only with Platinum, Gold, Silver customers on products. That means very easy, healthy in terms of free cash flow generation for the company. That's the reason as well, Jean-François, that we consider to be extremely confident for the rest of the year, given this aspect of very strong Q1. We know we do not show you the margin. They are excellent. As well, this backlog profile, if I may say it, both in volume and quality of this backlog for the months to come.
We are extremely confident. We don't like to be overconfident. We are extremely confident for the rest of the year. Regarding the raw materials, I will start. I will let you, J.C., comment on the pass-through on the stock effect. Regarding raw materials, I think we have to be extremely prudent. It's more a mid-term comment. Inflation can come before scarcity. I think COVID-19 have impacted the logistics systems worldwide, not for a few months but for minimum a year and a half. It will need certainly between 12- 18 months before the worldwide supply chains getting a bit more regulated. I mean back to normal, if I may say.
After, where I'm extremely prudent on, specifically on the raw material itself, on copper because, you know, there is a big boom towards electrification. When you listen, President Biden's plan, when you listen European Commission investments on the [Chinese EV-related investments] Plan in regards to electrification, everything converged to the same raw material: copper, aluminum, and some specific polymers. If this is the perspective I see, if everybody is investing at the same time for a decarbonated production of energy, a renewal of the transmission and distribution network, plus a boom in the usage of electricity worldwide, everything is converging to the same raw materials. I think inflation can come before a risk of scarcity.
That's the reason I want Nexans to be extremely prudent in terms of organic growth on this, selectivity aspects aspect because I don't want the team to come back to me saying, "Sorry, Chris and J.C., we have not been able to reach our target because we didn't have the raw material." No. You need to reach the target, whatever the supply chain procurement situation. Full stop. This you have to fill up your objective. That's the reason I think we the year 2021 is a year of inflation. The year 2022 and 2023 onwards could be a years of scarcity. We will have time to come back to this, I will say, prospective illustrations. Maybe, J.C., to be specific to Jean-François questions.
Yes. Just to specific on the pass-through. As we said, copper and aluminium that represent about 50% of our standard cost are complete pass-through. Basically, we have no exposure here at all. Everything is pass-through and hedged at the time when we purchase the materials. The rest after that, you have PVC, plastic and other components. What if we look at, basically, the sales of Nexans, about 80% close to 85%, 82% of our sales are indexed. Meaning that as soon as there are increases, basically, it's reflected in our pricing.
Then we have the remaining, which is not indexed, where we have, obviously, to be extremely diligent and review our pricing list, and pricing of our catalog on a very regular basis to make sure that we reflect, quite immediately, I would say, the inflation on the other component but metal, to the price of our product. I think, I mean, we are doing that very carefully. So far, we have not seen any impact in our margin due to that. To your question about increase in copper and aluminum will increase working capital, the answer is yes. Mechanically, it will increase working capital. Again, it will have no cash impact. It will have no margin impact.
It will have, I would say, a non-cash increase in our working capital, both on the receivable and on the payable side and inventory. It will remain balanced on our balance sheet. No increase. On the stock effect, which is the COREX, yes, to answer your question, if there is an impact due to the increase of copper on the stock effect on the COREX, the answer is yes.
Obviously, since this is calculated on an average price of the copper, when the average price increases, basically, you have an impact on our P&L. This impact is below EBITDA, is in operating margin, and is not impacting, basically, our EBITDA number. We are definitely we'll see an increase in our, net income in H1, due to, I would say, the mechanical effect of the copper price increase, versus the average at which it's on our balance sheet, sitting on our P&L for H1, for sure.
Thank you. Thank you very much.
Sure. You're welcome.
Thank you, Jean-François.
It's, it was the last question Aurélia?
Yes.
Thank you for attending that call. Just to conclude by, we are extremely, confident, for our, guidance, 2021, certainly on the high range, the high part of this range, even if we don't J.C. don't want to comment too much. We want to demonstrate as well to all our shareholders and, investors that, this is supposed to be the last year of our, equity, story of, introduced in 2019. We want to make that year a strong demonstration for Nexans to demonstrate how Nexans is robust now versus the last 10 years. It's a new Nexans with a new ambition plan. We are extremely happy with this head start. Thank you very much for your time.
Thank you very much.
Thank you for joining today's call you may now disconnect your handset.