Ladies and gentlemen, good morning, and welcome to Nexa's First Quarter twenty twenty one Financial Information Conference Call. As a reminder, this conference call is being recorded. Please note that your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. I would now like to turn the call over to your host for today's conference call, Mr.
Christopher Guillaume, Nexon's CEO. Please go ahead, sir.
Thank you. Thank you. Good morning. Good morning, and thank you for participating in NEXON conference call. Hope you all and your families are well and being safe.
I'm Christopher Guerin, CEO of Exane, with me here in the Paris headquarters and Christophe, Julia, Rocifo, on our Investor Relations team. I will now turn over to Aurelia, who will go over the conference call rules.
Thank you. 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 encouraged to refer to the disclaimers which are an integral part of our uniform registration documents along with the audio replay of today's call that will be posted on our website, medcon.com. I now turn it over to Chris, who will go over the first quarter twenty twenty one highlights.
Thank you, Elias. So let's start on Q1. As
you can see, NexSens took a head start of the year in the first quarter of the year. The three main points shows a negative growth of plus 1.4% in Q1 against Q1 twenty twenty, I think some of this for the year. The top line recovery was supported by first a very healthy backlog across all business, notably in subsea oil pit with an adjusted backlog of €1,500,000,000 and we renew that our main operations, Halep facility are fully loaded in 2021. We keep this very intense customers on business selectivity along the line to really focus on value growth. This is the reason as well that we have to decline some equivalent of 1.5 to two point 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 would like to this point. We had as well to price increase to set up a price increase to offset higher inflation. We believe this is only the first six months and expect further inflation in the coming quarters, notably in metals, polymers, PVC, all type of components that supporting KIPS. But we'll go over this in details further in presentation. But just a quick reminder, a reminder to increase our customer pass through for the group.
The second point for this quarterly is that the the group is taking the final step of its. Beginning of 2019, Nexans have undergone major change, improving its performance as to significant fixed construction on our in house optimization program called Shift. We strengthened our balance sheet during the quarter. Nexans proceed to the early repayment, what we call a PGE, which is a French state backlog and as well a 2021 bond. And we were guided by a Sandoz and outlook relative positive on ECB long term rating.
Along these lines, the key strategic investments under Nasons, the Group is, as you have seen in the recent news, best positioned U. S. Offshore wind market and was selected as preferred supplier by Underwind for the offshore wind project outside New York City. Third main point of this quarter, and last, over the first quarter, NexSys started laying groundwork for the next strategic ambition, 2024, as we announced it to you to the market on the February. So as I told you, our new purpose is to simplify our businesses to amplify our impact and to turn into electrification pure layer, directing on our focal point on generation of energy, transmission, distribution and usage of this energy.
Transform and innovate, in the quarter, we have signed five innovation digital partnership, I would like to add. And as well, of course, scaling up to set up performance and the time lease through an active maiden acquisition pipeline on division, sorry, high basins for which we have started preparation work. So in conclusion for this section, again, Q1 is a head start of the year, both in terms of preparation with a standard sale for EUR1.5 million, which is representing 1.4% of in growth, and the current sales of EUR1.7 billion, up to 50% alongside with the raw material increase inflation, specifically corporate and number one that we do confirm our 2021 guidance. Now if we turn on Page four, let me come back to this partnership that has been signed during the Q1. So 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 Bureitas that is supporting our new efforts to reinforce and reduce the risk management in the wind shop business, because some of our customers may have a problem in the past due to cable installation, not with XHANCE, that's the reason with VURO GERITAS, we really want to reinforce our leading edge experience in that domain.
Schneider Electric is supporting us in turning Nexcellence in the Industry four point zero in all our main countries on this partnership path as they're taking already a big year. Microsoft, the branch business, the CPO, of course, are helping us to scaling up in the Internet of Things, artificial intelligence, and digitalization. If I move to page five, Nexans unique Turkey EPC high voltage project. We do everything from content engineering, engineering, engineering and production. And when the rate is running, we provide our clients aftermarket services for the high generation of transmission cable solution.
Earlier engagement with this key wraps this in general product architecture, offering better solutions to our clients and are more important for them to meet the needs of all parties. Thanks to this early collaboration, our engineers can focus on R and D for design abilities, our instilling capabilities, match customer project need. But, you know, when we keep repeating, and we'll keep repeating for the next year, we also analyze each project on its risk and reward analysis combining the three fundamental elements, the financial model of the project itself, the technological risk and the demand condition of each project in order to really build a very healthy backlog with limited reserve execution in the coming years. In terms of manufacturing, we have an unparalleled worldwide footprint with four plants across the globe, so very well balanced because of course unique on big, big plants in Norway, where we have announced another investments for the years to come, supported by the plants in Belgium for long average, but our leading edge unit in U. S, Charlton and as well as Japan make it very, very advanced.
Most of them are doing MI or XP, AC and DC technology. While guaranteeing of the quality of the cable with a full testing piece with dedicated labs, Along our intuition abilities, we have now almost now two purpose build, our old lady's cariha, this vessel, which is more than 30 years old. And soon to come, as I'm sure you've seen the picture, overall, it is a 10,000 tons dual turntable on the low carbon footprint that will really enable us to face a very, very challenging project in-depth work. NetSens unique model enables us to unlock opportunities, best position for the group notably in The U. US offshore market where close to $100,000,000,000 investment of carbon free electricity are expected by 02/1935.
Like Joe Biden confirmed, President Biden confirmed 30 gigawatt offshore wind capacity that should be by twenty third, and this number is likely to 110 gigawatt by 02/1950. As of today, we are the only high voltage gable manufacturers with the plant in US, and I recently announced we have been selected as preferred supplier for the development of the on pyruvate product with the JV clinic winner on PP. Let's move now to Page six. So of course, you have seen that the beginning of the year was pretty dynamic in terms of demand, but we have faced whole macro inflation, sometimes supply chain disruption. Hopefully, next year, we started to anticipate that move, specifically on the supply chain issue, and none of our factories suffer from any which is I think important to say.
So let me elaborate this into the 26 page on Page seven. First, you have to know that we have a true model close to 83 percent to 85% of our business as indexation methodologies on formulas on the whole path of techniques on both metals and polymers. So this is of course in metal polymers that we have to pay servicing efficient, but we have this is as well the price, thermal contact engineering practice that enable us to pass through the majority of this inflation. And of course, if we put about the 15 remaining percent, it's a daily negotiation We from our sales team to inflate that cost
to customer. If you go
to page seven, because I know you will always, some managers always challenge me around the organic growth. We want growth, but we want some growth. So we want to make sure that anything that is honoring our order backlog is very interesting in terms of financial mobilizations on the technological and on risk aspect, and as well good fat of our factories. So the reason that transformation is supported by in-depth analytics to really determine what is the good fat on the back of in terms of product of our business portfolio, but as well determining what are the critical customer for our future and the one that are a bit less critical for our future. Another reason that we have classified them in the four main categories.
There we are serving platinum type customers, gold type customers, high growth type customers that are here not all selected based on their volume or margin, but around 20 different retailers, both quantitative and qualitative. And we do the same with the product. So the objective and this is what you see on the slide really keep growing the green part. But in parallel, we are doing a negative growth for the red part because we consider that the customers that qualify as platinum, gold and silver may be actually dilutive for the margin.
They could
be good in terms of our gross, but dilutive in terms of margins. So this is very low priority customers and if they want to get access to cable, they need to pay cash. And we believe this is very, very great model because, potentially, in the years from, scarcity of raw material will be an issue. So you have to make sure that you're able to keep growing your businesses, keep improving your margin, but in a very, very disciplined way. The third element is Prime.
We know, of course, Ship Prime is based on our new strategic ambition. It's also that we provide a lot of preparations and really need to be kick off right now. So we have all our needs in building catalyst and hybrid electrification ecosystem under the Ship Prime umbrella to really deploy superior service better results. Brandfind sells some pressures. Will I will not comment on what I've already exposed on the things in February, but all all our sales and marketing team are incentivized to generate higher value.
And we're very proud to during the quarter worldwide from France, Belgium, Australia, New Zealand, Canada, South America, our new packaging tools for our customers called MobiWay. This is mainly for the building sectors, which require a lot of innovation. And you see such innovation every quarter now in the quarter to come, so on the years to go. So MobiWay has been up during Q1 and of course, with a very impressive result. GC, I present you comment on the results.
Thank you.
Thank you, Keith. So as you said, Peter, overall, growth of q one twenty one plus 1%, but with some difference when we look at the the differences. So let's start on page eight, the billing and territories. So in q one twenty twenty one, this segment demonstrated the sequential improvement and sales are up 3.3% against last year, q one twenty twenty, when we exclude the closure of our plant in the Westchester. On an organic standpoint, sales were down 2% year on year.
Berlin continued to focus on sales growth, reducing the strong guidance of March and negatively increasing volumes, but overall improving margin and cash generation. Sales were strong in the quarter against last year q one twenty twenty. Agility was mainly dynamic in North America, partly in Brazil and Peru, and also in Africa and The Middle East and in Turkey. Both these really benefited from the upturn in the construction market and client inventory buildup. However, Europe, sales were strong in Spain, resilient in France despite the assured lockdown and still challenging in sales.
On
the tariff side,
we witnessed a mixed across activity across various geographies, robust demand in China, robust demand in France, sun sales in South America, and weaker demand in The Nordics, again, that's due mainly to weather condition. As you can see on the chart on the right of the slide, of our main regions, sales were up in The Americas with plus 15% excluding Cheshire plant closure in North America and 19% on growth in South America and also in Africa and Middle East at plus 8%. Our adjusted growth for South Europe, minus 2%. This region represent close to 47% of the business segments. In Asia Pacific, despite strong sales in China, organic growth ended at minus 4% year on year.
Based on the backlog visibility we have in the business, 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 Cote D'Ivoire, very close, and also of the launching worldwide of the for the construction market of our brand groundbreaking stimulation MobiWay that Chris explained earlier on. On Page nine, we move now to understand solution. As you can see, same Q1 twenty twenty one, again, same period of last year, we are up 6%, reflecting rebound we have seen over the last quarter, specifically in auto harness and automation. In auto major robotics, the recovery was excellent at plus 40% year on year, boosted mainly by demand in Europe.
In automotive, you recall, starting early mid March last year, our clients, Audi, W and Daimler, shut down their plants in Germany, which impacted immediately our sales. Now and ever since the third quarter of twenty twenty, this business demonstrated strongly reported 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 twenty twenty one year on year. For the transport activities, sales were found in the railing sector and Rolex market plus 4.8% year on year,
thanks to new Seguela in
China and Europe, while on the other side, aerospace and defense continued to be quite fairly challenged by COVID nineteen environment. Over the quarter, backlog in this segment of business grew by 6% and exercised several multiyear contracts demonstrating commitment to continue to enable this business problem and thrive while structuring it as a standard business. Let's move now to page 10 and look at the telecom data. Organic growth was slightly down by minus 4% in Q1 twenty twenty one compared to last year, mostly due to the fiber level market, still challenged by Chinese competition and the lack of backbone orders. Firstly, Land and Systems demand was quite strong in the quarter at plus 19% year on year, supported by the rebound in Asia and Europe and also major projects in the list.
Also, strong activity in Special Edom, which continued positive trend after organic sales up 20% in Q1 twenty twenty one versus Q1 twenty twenty. All these activities supported by strong backlog of plus 8% over the period give us visibility for the second quarter. Quick reminder, when looking at the number, we can exclude the sale of Pertek in September 2020, which included in the Q1 twenty twenty sales, but included in Q4 twenty twenty and of course, in Q1 twenty twenty one. Let's move now to Page 11 and have a look at the High Voltage and Project business. If you recall, in Q1 twenty twenty, in our Subsea business, we benefit from two exceptional repair projects, which by nature are unpredictable.
They boost significantly our Q1 days last year in Subsea by more than 65%. In Q1 twenty twenty one, we continued to execute our full backlog as due, but did not have any EMEA projects repair project suffering from an unfavorable comparable effect. Organic sales in Q1 twenty twenty one landed down minus 35% in Q1 twenty twenty. Thanks for a solid healthy €1,500,000,000 adjusted backlog in Subsea and a fully loaded plant in Alban in 2021, we expect gradual sales acceleration throughout the year 2021. In addition, starting the second half of the year, we'll be boosting effect of both Charleston and Aurora that will be fully professional, Both assets booked with a good mixed projects.
In the high voltage activity, it was sound and aligned with protection under recovery. We still expect likely positive performance in 2021. As mentioned earlier, our full PCIe T Mobile on top of the client tender activity created in the pre certified agreement signed with BioWin gives us confidence for the performance of high voltage business growth throughout the rest of 2021. That gives you a good outlook about our Q1 sales. Now I turn to Chris for the call.
Thank you, Adi.
So before we take your questions, we go on Slide 12 with a key takeaway. So Q1 twenty twenty one, we had double year in gradual and controlled through the rest of 2021. Next, as a success, fully managed oil inflation through price increase as well as a growth to pursue cost of activities in billing and battery sector mainly on the wind industry to grow performance. And for iWORK, the best position is The U. Wind offshore.
So let me remind everyone that our backlog year over year is plus 20 in terms of backlog. And the mix we cannot see a through line. This is a recovery in the last months in telecom infrastructures because we see an increase in the last three months of plus 44% of all intake and backlog. Voxel is very well track to manage 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 '21 guidance, and I remind you, three main criteria: EBITDA between EUR 400,000,000 and EUR $450,000,000.
And you see, I think, as we can say that we are very, very well positioned on the higher end of guidance. Return category employed between 12.514.5% on the free cash flow generation between 100,000,000 up to €150,000,000 of course, before merger and acquisition and safety operations. So that's in sum up the situation of one. So a strong head start, very high productivity, a very healthy backlog with a growth of 20% year over year, which gives us very strong, I would say, confidence for the quarter to come, confidence in growth, but the most important for me, confidence in the division region and free cash flow generation. Thank you very much for your
And
our first question comes from the line of Judy Garnier from Morgan Stanley. Please go ahead.
Hi, good morning everyone. Thanks for taking my question. I have three questions. We go one at a time. This one, I do want to follow the news this morning.
We would think that also it has potentially an issue with some cabling on offshore wind in Europe and The UK. I just and potentially, cost extra cost of about 3,000,000,000 of Danish kroner. I just wanted to check whether you have any involvement with that. So that was my first question.
Yes. So thank you, Lucy. We we heard about it. It's from what we understand, it's not about cables, but it's about cable protection system. And we are not concerned by this project mentioned by Arstad.
Okay. Thank you very much for that. My second question was around the auto analysis business because you're seeing quite a lot of production being suspended in the second quarter on the back of semiconductor, actually including for some of the German OEMs like Daimler. I know that you historically excluded that, so I just wanted to know how we should feel about the rest of the year in order considering the delays you're seeing on some of the product?
Yes. Thank you, Lucie. So far, and given all the forecast that we have for the next quarter, at least quarter two, we have at least no disruption at all. And we have a very smooth supplier right now with no no lag in times due to some of issues. So and our customers confirm their forecast.
So, of course, we are just like we mentioned, our our first customers are BMW, Daimler's, General Electric, and as well Porsche. But no, no, so far so good.
Okay. Perfect. And then lastly, I just wanted to get some color from you in terms of how we should think about the margin dynamic on the back of the increases that you are paying. Is that something that is for your neutral or 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. So the first requirement to our salespeople is we should not have any negative heat due to raw material inflation. So this is the basis. But of course, thanks to our shift program on our qualification system per product and per customers, we add them as well to gain some benefit from these inflations. And the fact that to make sure that our line are not been disrupted in Q1, it requires a lot of effort from our procurement in terms of access to materials on negotiation with our suppliers.
So I don't want to dilute this effort with a lower margin. So that's the reason that we put a very, very strong incentive for all our salespeople to get some benefit in terms of margin, thanks to customer selectivity service and as well order index selection at the beginning to make sure that our mix is constantly improving in terms of EBITDA generation. That's the case of course for everything which is on the growing mode. Receipts are bidding, bidding mainly because we are able to raise the price in general every month. Territories, it's many indexation because it's a prime agreement for two years.
And, of course, we go back to our customers regarding raw material relations on to which is for this indexation agreement that we have in the contract. Telling there's no specific issue there. Right now, ISP as well is through indexation from on the renegotiation renegotiation, sorry, of some project. Again, potential risk at all because it's in its index.
Thank you
very You see, you want to add? No.
I I just like to add that 1.4% organic growth in Q1 is good rather, it could be higher. Let let's be this way, if we were ready to take any volume and increase, we have had a much higher Q1. Again, I think that what is what is very important for Nexans is the balance between basically managing our profitability or EBITDA and managing our cash. And we prefer to have 1.4% organic growth with good improvement in our margin and a good cash generation, then dilute ourselves about 2% or 4% organic growth. And I think this is one of the key driver of how we manage the business and also makes a difference between what we do and other do in the capital environment.
And we are very firm about that and continue to do that and and using improvement in margins due to this due to this, I would say, selectivity. Thank you. Thank you, Richard.
Sure. Thank you. I was not arguing the
the numbers. No. No. We hope.
I I think it's what to say. Thank you, Richard.
The next question in queue comes from the line of Miguel Borrega from Exane BNP Paribas. Please go ahead.
Hi. Good morning, everyone. I also have three questions, please. The first one, just on building inventories. Can you comment on where what and where are the main pockets of growing this business?
You mentioned a strong catch up in orders. Can you give us maybe a little bit more color on that?
Yes. So definitely. But what we've seen in building a territory is interesting because in 2020, basically, what we've seen is that building suffered the most territories was quite resilient in terms of orders and in terms of volume. And we lost a lot of volume on the building side. And what we've seen in the first quarter of twenty twenty one with the rebound is exactly the opposite.
Cateries grew moderately, but building did very, very well, catch up in terms of volume. But also in terms of margin, I think significant improvement in market also, of course, due to the fact that we selectively picked up on us. In terms of Get For Growth, 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 ramp up versus what we've seen in the second half of twenty twenty. I would say that Asia and mainly Australia and New Zealand continues to be very strong. What it was in June, it was pre COVID. We had a stronger Australia because of the fires that happened and the sort of demand in cable at the time. Obviously, when you compare Q1 to Q1, you don't see that in growth, but we are very positive about Q in Australia and Ireland.
Europe had a little bit in the first quarter, but we see now very strong backlog in Europe for building. So we are quite confident about Q4 Europe and see what we didn't see in the first quarter happening in the second quarter of the year. So basically, I would say that North America as well
North America is huge.
And North America is also a very nice recovery. So I think most of this recovery that we will be seeing in the second quarter of the year. And we can say that we look at the level of our backlogs altogether that we have today and much, much higher that it has been even in 02/2019. So we are quite confident for the second quarter and the rest of the first half.
Thank you. The second one, a little bit more technical. Can you give us a sense of impact from copper prices on your margin? I understand you pass through, so your profit impact should be neutral. But on the margin side, is there sensitivity that you can comment on?
No. There is no general impact. Everything is possible on the margin as well. There is no impact on the cash flow impact. So I mean, there's nothing really on the copper.
I mean, again, we see in the copper side, definitely, where we could have a key is on the the of the process material. But the the increasing copper does impact of loss.
Okay. And lastly, could you could you live on that 100,000,000 k a if you were not bidding notification? How much of this is under control? So putting in another way, are you tracking some of these improvements come from a more fatal rendering by being selective in such projects, or is it purely internal measures?
It's internal. I mean, we are not betting definitely, the the the key message on our equity story is that the hundred 50,000,000 that continue to deliver by '24 is complete internal. We are not betting on any, I would say, at all Positive environment. Positive environment. Obviously, the huge disaster like we've had in the impacting event that there will be an impact on plan.
But I would say at at a constant market environment, the achievement of €50,000,000 by 2024 is in our hands on to achieve very much the innovation. Thank you. The
next question in queue comes from the line of Jean Claurelaine from HSBC. Please go ahead.
Good morning. I have some questions from me as well. Firstly, on growth selectivity. So you say you stepped away from about 1% to 2% of sales in Q1. I'm just wondering which division segment in particular brought your workplace from sales?
And then just thinking about the next quarters, given strong cyclical rebound that we're seeing in general, I mean, might this shape up in the quarter? Are you actually missing out on some of those rebound because of the activity?
Yes. Hey, good morning, Real growth selectivity, activity in general is applying all our businesses, all our businesses, including voltage because it's a different for high voltage, but product selectivity is as well a part of our decision. Regarding specifically to your questions of the first quarter, the the the business that have been most, I would say, we'll say, impacted with the selectivities in the construction sectors. Because, you know, beginning of the year, we see this this inflation, which was a topic for us, but more the access to manual. And we want to make sure that we set our top client first.
So that's the reason that we weak some in terms of focus. But we kept them as well, you know, depending on their position in our metrics. If you remind profit drivers, cash volumes value burners, some there is less and less view burners, but some of our units that are delivering an EBITDA below 6% have been cutting growth as well. So we want to make sure that any growth that we are doing is good in terms of stabilization, and if not only pure volume, but other value. So this is mainly mainly the construction sector that impacted for the first the first quarter.
Regarding next quarter, of course, the reason will be there. There is no progress made from it. It's already backlog because our backlog year over year is plus 2% all across the business. So no comment on the side. I think where we are, again, extremely vigilant is raw material accessibility, but running orders.
Maybe vision, if I echo all it, I've seen I've seen the the the result of some orders or companies in the capital goods market. And I think that's a question you should ask as well to our colleagues in the wire and cables. But in general, wire and cables are a bit upstream. Yeah. Because because they are a bit there's a they are a bit ahead of some raw material issues because we are upstream versus other subsectors.
So what happens in terms of difficulty of raw material access and inflation in Y and K oil industry, first quarter can be applied on as well impacted some other capital goods sectors. So that's the reason that we I will do my old charts, but fifteen years ago, we were always looking the wire and cable activities to be a first signal of demand because of the material asset or as well of potential scarcity of associate.
Thank you. Very good care. My second question, on Slide 11, I can
see you have a fair
bit of spare capacity in how then for 2022
and 2023.
I mean, I'm assuming that this is going to be mostly for the European market. So I'm just wondering what you're targeting there in terms of where you expect that order intake to come from.
So for 2021, we have no spares capacity. This year is fully loaded. We can take some only some spot maintenance project, but it's extremely limited free capacity in 2021.
And 2023 '20 '20 '2 and 2023, sorry, we have, as you say here, but we are very active on the very quite significant pipeline. And for example, you've seen project Empire Winds that we are which we are preferred leader and we are also advanced on other projects, significant event. We have no, I would say, concern about our ability very shortly to complete the capacity product here.
On on BIOVIN, we are just notified as preferred supplier. It's not at all in the backlog. And we we we have we have nowhere in the numbers, neither in this capacity or chart,
to be awarded officially. And big award coming shortly. Perfect. Thank you.
Thank you, Chef.
The next question comes from the line of Artem Toukarenko from Credit Suisse. Please go ahead.
Yes, good morning. Thank you very much for taking my questions. I have three, please. My first question is around the project pipeline and high voltage business. Maybe talk a little bit about the bigger projects which you see this year.
Maybe you could talk a little bit about whether you still expect the UKCFT Are there any recent risk that can slip towards next year? And then on the bigger projects like Connect and Eurasia and Greenlink, what's latest process you've got in that moment? That's my first question.
You know, Artem, we have discussed it already last year. Our pondering activity last year were activity last year were just huge record high. So 2021 will be a year of awards, but our thundering activity remains extremely brilliant, very, very, very dynamic. So hopefully, the the the sequence in terms of one notification? Do you you will have certainly a ratio to come before before the end of the semester.
So in q two, you may have, well, TERNA in the. You may have connected a bit later. And of course, Greenlink, in The U. S, there is a new project, a miniature project with Dominion. So there will be a lot of project to be awarded in the next months.
What we believe is that the two first could be Eurasia and Terna, there is as well some awards to come from Iberdrola and East Anglia and as well as I mentioned, potentially dominance. So Q2 will be normally pretty intense in terms of overall.
Understood. Thank you very much. And my second question is around your previous outlook for double digit revenue growth in high voltage business in 2021. Considering the 25% decline in revenues in Q1, does that help with the whole total year?
Yes. Completely. Again, what we've seen in the what we've seen in the first quarter is really linked to exceptional level of q one twenty twenty. Again, when we look at the first quarter of the past few years, q one twenty twenty has been about 60% above the average. And, again, it's mainly due to two, I would say, quite exceptional results, which are those two repairs that basically brought significant revenue without the total revenue in the quarter itself, but that's also the repair.
Some years, we have zero repairs. Some years, we
have two different average. We have
one per year. That year, we got two in the first quarter of twenty twenty. So those minus 25 do not affect at all the pace we're having on executing our backlog, and it doesn't give any indication about our commitment to achieve a significant ramp up in sales for 2021, and we are completely aligned to achieve that.
That's very clear. Thanks very much. And my last question is around, you guys are showing that I guess two questions here. Firstly, on the existing pipeline with Ostad, are you seeing any delays or it's all progressing as planned? And second, in terms of the 30 gigawatt target, which you mentioned, do you see enough projects at the moment being in an early stage sort of to accommodate that target in the next ten years?
Thank you.
Thank you. So some there were some delays on Northstar side that we are keep diffusing with them because, you know, they don't want it. We we have a more or less of take off the system with them, so they don't want to lose their production slots. So there is discussions regarding the phasing of their projects for. So I will be I'm not able to comment it right now, a bit later during the second quarter.
Regarding the 30 gigawatt, no, there's not yet enough product in heritage, but Biogen teams are really speeding up everything, which is about the on sheet. So it's going much, much faster than what it was two years ago. So we're very, very confident.
Understood. Thank very much.
Thank you. The
next question comes from the line of Ed Potter. Please go ahead.
Good morning, guys. Thanks for taking my questions. I've got three, three quick ones. So 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 full the first full half of contribution.
I believe in half, you said that it's worth around $200,000,000 a year. So mechanically, in the second half, you're kind of going from €320,000,000 of project sales, having 100,000,000 gets to $420,000,000 and you're talking about kind of improved underlying growth in the business as well. Is that the right way to think about it? And I guess, on that basis, we're looking 35%, forty % of growth next year for high voltage? It's my first question, and I'll ask my other two afterwards.
Yes. So definitely, I mean, this is one way to determine the total additional capacity for Charleston when fully ramp up and in in full execution with full backlog is hundred 50,000,000. On top of that, we have the installation that could get to, as you said, close to 200,000,000, one 80, two hundred million. But the capacity of the manufacturing, additional revenue generation for manufacturing in the plant is a hundred feet. So definitely, what we're here in 2021, it's starting starting in q two.
You will see the first very significant increase in sales due to Charleston, And then we increase again q in q three and q four. For the year, we are aiming at about 90,000,000 80 to 90,000,000 additional sales only due to Charleston. But, again, q one was not q one of this year was not yet in the upper phase of Charleston, so we have very limited revenue. So we'll really start next quarter. And then there's two following quarters of q three and q four.
So that's that's basically how we'll we'll increase total sales of the Subsea business. And then you have a little bit more also installation due to Aoha. So altogether, we will be close to a hundred million additional sales versus 2020 due mainly to those elements.
Okay. Thank you.
And then I've got
some forgive me for the next couple of questions. That'd be a bit difficult. But you just referenced your rate interconnect potentially being a target for the end of the second quarter. You've a lot about the kind of technical requirements for that project in the pricing. How do you feel that you are positioned?
And how kind of critical is it that you win this contract to your battle over the term?
It's good to comment, you know, because I'm not in customer shoes, but we are very good position in terms of qualification for this this project, which is in-depth 102,000 meters. Thanks to our MI capabilities. We are we are we will be only players on this on on this project because it's a very, very technical very, very technical product, very ambitious project. But so far, only on the on the on able to really manage these these projects in the in the coming years. So all the customer will decide is too early to come.
Okay. Thanks. And then final one is a follow-up from Lucy's question at start, and I appreciate the news has only come up today. But on this offset issue and the kind of the protection system issues, just to clarify, you don't have any responsibility for the the protection. And, also, is there any potential that that you'd have to change in design over the midterm of how your inter interRA cables are actually signed, or is it more just the protection?
David, to go back to to this point, we we get those of this offset issue at the same time
Understood.
So so we need to I'm I'm busy.
No. No. No.
It's not really we we not control. So it's not a project that we we do with Orsted, the one with the project which is concerned is cable production. We have no information at all so far, but our team is calling Orsted to get some some information. So what what I tell you is that doing cable is is for which is really fast, but in selling it properly, protecting them as well is extremely complex. And this is this is as well why Nexans have spent a lot of time with insurance company that are concerned by the increasing costs are linked to balance deletion of cables for washing business.
That's exactly why we have made this partnership with Bureau of Metas. We need
to show
our linkage capabilities in terms of installation and production of tools on how we can keep improving in that direction to reduce the risk that a customer, significant customer like Orsted may face in some project. But so far, I don't have any information to comment to us as announced this morning.
Got it. Thank you very much.
Thank you, David.
Thank you. Good day.
The next question comes from the line of Daniel Ostaff from GS. Please go ahead.
Hi, good morning. Thanks for taking my question. I have one question and sorry, in particular, don't have I've heard. Give us a little bit of update regarding the for the divestment areas. And if we if it is able to expect any flow regarding that within 2021 still?
Thank you.
Hi. Good morning, Daniela. So we are preparing the cloud with the teams on the unions, particularly in each company for the streaming bucket of divestments. But our team right now is a % focused not %, but because they're preparing this process, but mainly focused on acquisition process. So we are pretty active in that in that field.
So in terms of enhancement, acquisition will come first before, like, in 2021.
Alright. And that that is still, like, the focus is on the building segment there?
It's the focus is on electrification then. Know?
Okay. Thank you.
Thank you.
Next question. Operator?
Hello?
Hello?
Hello. I believe your operator is having some technical difficulties, so I'm just stepping in on her behalf. The next question comes from the line of Akash Gupta from JPMorgan. 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 tech technical question left. So 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 then this customer might be part of others category, or could it be also part of the other three, platinum, gold, and silver?
I didn't get the question, Akash. Can you repeat it? So we're on page seven. So it's
about So you divide your customer there into four categories, and you say you are scaling down business with these others. And when you say in your segment comments that for for a segment sales were impacted by selectivity, so 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, the plane. So we considered our capacities like a plane that required, of course, a lot of resources to make it fly. So we want to make sure that we are filling the plane with the right customer profile.
So they are not all in business class, there is some economic class, but we don't want to be a low cost company. So that the low cost company is more on the red part, if I want to give an image of what we are doing. So that's of course, I say cash that we have refused, if I don't like the words, but we have declined some orders in mainly the building sectors that could improve our organic growth by 1.5 points or two points is mainly on the red area on that slide, yes. What I call the bad fat, but it's not only customers because it's as well product families, because there is some product families that we used 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.
And maybe just a follow-up on that. So 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's Akash, the metrics that you have on Page seven is this is the metrics that we use and we did some good point that we should add up that we use for B and 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.
No. I mean, I I I was meaning about industry. So when I look at your industry and solutions and you say that wind was down 20% year on year, and that was because of project selectivity. So 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 with? So maybe help help me understand.
Is that the case or or not?
I don't think it could be a part of it, but I think for the most part in the win activities because we have seen some very, very high activity 2021 and a very strong Q4 as well. And we have seen a slight decrease in the volume, but there could be a part of it like you're right due to selectivity. But since we are number one with the number one or number two with the biggest OEMs customers. We remain with that level of positioning as preferred supplier and we have nothing any changes. So it's more cycle of the business rather than, I would say, changing how we work with those key suppliers like GE, Vestas, GammaFun, so on.
Thank you.
Sorry, I guess I didn't get the question at first. Thank you. Next question. Operator?
I think we have the Yes. Oh, apologies. The next question comes from the line of Geoffrey Vidlicia from Societe Generale. Please go ahead.
Geoffrey?
Yes, good morning. Good morning, everyone. Thank you for taking my question. My first question is very simple, and I was wondering if you could give us the impact on the B and C margins from the, let's say, close the shutdown of the Chester plant. How much basis points you're expecting the margin for this division to improve in 2021?
Well, I mean, didn't calculate exactly the impact on the entire division. What I can tell you, it was a business that was running about EUR200 million of sales and was loss making, so slightly negative EBITDA, so negative margin. So I mean, out of a total of B and T sector of about EUR3 billion, You can do the math, but it will not be that significant.
Okay. Thank you very much for the details. And my second question comes back to your comment on the order intake in telecom, Chris, 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? And then the follow-up question will be when do you expect this order intake to transform into revenues?
But this is mainly volume driven. And it's first quarter last year was still very good before COVID-nineteen impact. Very good, 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 plus 44%. So it will impact the second quarter on the third quarter mainly.
This is mainly volume driven and no price on the price remains extremely challenging in that sectors due to Chinese competition on the I think you've seen the news regarding anti dumping, there will be no provisional measures from European Commission before year end. So it's still very intense in terms of competition, but the market is getting better in terms of demand.
Great. Thank you very much for the details. And yes, thank you.
Thank you, Trevor. Next questions, maybe last one.
The next question comes from the line of Jean Francois Ganjon from ODDO BHF. Please go ahead.
Yes. Good morning. I have three questions, please. In the press release, you mentioned an improvement for the mixed March for the backlog. Could you give us some more color about that?
The second question concerns the raw materials. Do you see any risk despite the pass through policy for the next quarter? And due to the strong growth for the copper pricing, could you give us some more color about the impact for the stock OT and for the working capital? And the last question, I just want to come back on the next M and 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. M and A process is always a complex exercise because there is no company officially announcing divestment. So nothing is public, but we have engaged already several discussion with some of our 20 candidates. And if you imagine, Francois, we talk about 20 candidates. Our objective is not to make a 20 acquisition, but more about three to four different magnitude of them between 200,000,000, 5 hundred million up to 1,000,000,000.
Process is going through, but I cannot elaborate more because I don't want to disclose anything on that on that regard. Regarding the backlog, but yes, the backlog is it's two good news. First is the volume aspect of the backlog, it's plus 20%. But 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 is that it's 20% increase of backlog only with platinum, gold, silver customers on products. That means very healthy in terms of free cash flow generation for the company.
And that's the reason as well, Jean Francois, that we consider to be extremely confident for the rest of the year, given this aspect of very strong Q1, we do not show you the margin, but they are excellent. And as well, this backlog profile, if I may say, both in volume and quality of this backlog for the months to come. So we are extremely confident. We don't like to be overconfident, but we are extremely confident for the rest of the year. Regarding the raw materials, so the I will start.
So there is I will let you, Jisi, comment on the pass through on the stock equity. Regarding raw materials, I think we have to be extremely prudent. It's more a midterm comment, but inflation can come before scarcity. I think COVID-nineteen have impacted the logistics systems worldwide, not for few months, but for minimum a year and a half. So it will need certainly between twelve to eighteen months before the worldwide supply chain is getting a bit more regulated, mean, back to normal, if I may say.
After where I'm extremely prudent on specifically on the raw material itself on copper, because there is a big boom towards electrification when you listen President Biden plan, when you listen European Commission investments on Chinese Qing Xinping plan regards to electrification, everything converged to the same raw material, copper, aluminum, and some specific polymers. So if this is the perspective I see, if everybody's investing to, at the same time as for decarbonated production of energy, renewal of the transmission on distribution network, plus a boom in the usage of electricity worldwide, everything is converging to the same raw materials. So I think inflation can come before a risk of scarcity. And that's the reason I want Nexans to be extremely prudent in terms of organic growth on this selectivity aspect, because I don't want the team to come back to me saying, sorry, Chris and GC, we have not been able to reach our target because we didn't have the raw material. Now you need to reach the target, whatever the supply chain procurement situation, full stop.
You have to fill up your objective. So that's the reason I think the year 2021 is a year of inflation, the year '22 and '23 onwards could be years of scarcity, but we will have time to come back to this, I will say, prospective illustrations. Maybe, J. C, to be specific to Jean Francois, questions?
Yes. So just to specific on the pass through. So as we said, copper and aluminum that represent about 50% of our standard cost are complete pass through. So basically, we have no exposure here at all. Everything is pass through and hedged at the time when we purchase the material.
The rest after that, you have PVC, plastic and other components. And what if we look at basically the sales of Nexans about 80 close to 85%, eighty two % of our sales are indexed. So meaning that as soon as there are increases, basically it's reflected in our pricing. And 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. But I think, I mean, we are doing that very carefully.
And so far, we have not seen any impact in our margin due to that. To your question about increase in copper and and aluminum will increase working capital, the answer is yes, mechanically, will increase working capital. But again, it will have no cash impact, it will have no margin impact. It will have, I would say, a noncash increase in our working capital, both on the receivable and on the payable side and inventory, but it will remain balanced on our balance sheet, so no increase. On the stock equity, which is the corex, yes, to answer your question, if there is an impact due to the increase of copper on the stock equity 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 and L, but this impact is below EBITDA, is in operating margin and is not impacting basically our EBITDA number. We are definitely will 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 a balance sheet sitting on our P and L for H1 for sure.
Thank you very much.
Sure. You're welcome. Thank you, Francois. This was the last question.
Javier, 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 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 the introduced in 2018. And we want to make that year a strong demonstration for Nexans to demonstrate that how Nexans is robust now versus the last ten years. So 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 handsets.