Ladies and gentlemen, good morning, and welcome to Nexans' third quarter 2022 financial information conference call. As a reminder, this conference call is being recorded. Please note your lines will be on listen-only mode for the duration of the call. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. I would now like to turn the call over to your host for today's conference call, Mr. Christopher Guérin, Nexans CEO. Please go ahead, sir.
Thank you. Good morning, ladies and gentlemen, and thank you for participating in Nexans conference call. I'm Chris Guérin, CEO of Nexans. With me are Jean-Christophe Juillard, Deputy CEO and CFO, Elyette Roux, Corporate VP Chief Sales and Marketing Officer, and Elodie Robbe-Mouillot, VP Investor Relations. I will turn it over to Elodie for the conference call rules.
Thank you, Chris. I would like to remind participants that statements made during the conference call which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Readers and listeners are strongly encouraged to refer to the disclaimers which are an integral part of our URD, along with the audio replay of today's call that will be posted on our website, nexans.com. I'll now turn you over to Chris to go over our third quarter 2022 highlights.
Thank you, Elodie. I propose that we move straight to slide number 5 in regards to the Q3 highlights. As you can see, I'm very delighted to come here today. Nexans solid financial trajectory on top-line momentum, supported by our disruptive SHIFT transformation program and of course, our solution offering that Elyette will comment. Of course, both together, the transformation on our new service and solutions enable Nexans to deliver sustainable result, structural result, and now we are equipping our units to be recession-proof in case of recession in 2023. For the first 9 months of 2022, Nexans electrification business generated an outstanding organic growth of 16.2% versus 2021 same period. What is important to remind you that it's a majority of this organic growth is coming from value generation more than volume consumption.
The third quarter organic sales growth was +10%, 10.3%, in line with the trends observed in the first half of the year, with 16% for the electrification business only. It's important to notice because, you know, we are still managing the crisis in Ukraine, that our automotive harnesses is up 37% for the quarter, supporting by growing market share and, confirmed by the fact that Nexans has very, very well managed this Ukrainian crisis versus competition, and that enable us to get more share from car manufacturer. Today, our solid and structural performance is a bedrock upon which, we have decided to upgrade for the second time. Yes, second time of the upgrade in 2022, our full year financial guidance, and I will let, JC comment this part.
We are consistently progressing on our strategic intention to become a pure player of electrification. We have reached now a record in the generation and transmission backlog with visibility further enhanced by our recent subsea awards. Elyette will comment after me how we are accelerating through SHIFT Prime, the growth in connected object, objects and users, fostering new recurring revenue model based on, of course, the value-added product and solution, but as well subscription model. Another important pillar of our strategy is obviously sustainability and corporate responsibility. Our E3 innovative model, E3 revenue, it stands for economic, environment, and engagement, is now deployed across almost all unit to find a good balance and equilibrium between those three elements. Let's move to page number six. You've seen that Nexans has been very vocal on energy debates on many forefronts.
We were the main sponsor of the Climate Week NYC. We also as well our third annual Climate Day in New York City to talk about US energy transition, which is booming right now, and with more than 900 people connected, and as well customers being with us in the room in New York. We have as well done the same exercise in Canada with what we call Change the Current. It's this new type of events that Nexans will do in many places of the world to make sure that energy transition and electrification is at the forefront of all the debate on the economic exchange. We hold as well our Suppliers Day to strengthen the strategic relationship with our suppliers.
We have not only asked to be competitive, we ask them as well to bring new innovative solutions on a new way to manage sustainability between the two companies. Talking about sustainability, let's move to slide number seven. We keep progressing on our sustainability agenda. Big focus on carbon, especially on deploying our E3 model across all the units, which is for the moment ahead of schedules. You see here some progress from our strategic stream. Nexans joined the Circular Plastics Alliance in Q3. Circularity of our product has been developing, and we'll keep being a strong point for us, where we combine our R&D expertise with manufacturing capabilities. More important, we keep amplifying our recycling capabilities. More to come on this topic in 2023.
We are accelerating our CO2 emission reduction, and I have to be as well transparent. The fact that we are more value-driven than volume is helping us to find a new way to accelerate this CO2 emission reduction. On that, notably in Canada, where we have been able to reach already our 2030 CO2 emission target in Canada. It's a fantastic result for the team. There is as well one recognition, and we are very delighted for that that we need to highlight. This is the EcoVadis awarding us Platinum. Platinum means we are part of the top 1% of companies in our field having this recognition for the third consecutive year.
Let's move to page number eight to talk about the very high dynamic that we have in generation & transmission. You can see that we continue to convert a very healthy and risk-controlled contract for our generation & transmission backlog, which reached a new record high this quarter as we announced new subsea awards, notably BorWin6, a wind offshore project off the coast of Germany. We have also converted the installation of the Revolution Wind project as part of our Ørsted frame agreement in the US up to 2027. We had only before the production supply only. Now we have both production and installation. You know that we have been selected as preferred bidder for EuroAsia Interconnector. Today, right now, negotiations are still ongoing. More to come in the coming weeks.
The third element, which is as well very important for us because that confirm our leading position in US, being the sole US-based cable manufacturers, we remain a top-of-mind partner for ever-growing US-based offshore wind farm industry. Like, and confirmed with the new EPCI contract that we signed for Empire Wind 1 with Equinor and BP. The project pipeline remains extremely strong. The most important is that project are not equal in terms of quality, means margin yield, technological risk or, contractual term exposure. Nexans remain highly selective to fit our state-of-the-art assets with the right, what we call platinum project. I'm sure you will have questions on this, on these specific elements.
Now let me now turn to Elyette, that will explain how we implement our SHIFT Prime program to deliver a structural growth in the long run. On these elements, I think, please, I want to have your full attention because that's a very important element for the benefit of our 2023 result, to make sure that we are not facing conjectural, I will say, increase, turn everything to a structural mode. Elyette, now it's for you.
Yes, thank you, Chris. SHIFT Prime. For those of you that are not familiar with this transformation program, SHIFT Prime is a methodology designed by Nexans to premiumize our offers and convert innovation through marketing into EBITDA. We have built this recipe to launch and scale innovation through marketing in order to increase the value generation for our customers and to generate by 2024 EUR 50 million incremental EBITDA. SHIFT Prime is all about value creation thanks to superior service level, brand equity, smart innovation, including enriched offers and digital services, and partnership with key players. SHIFT Prime is powered by a new sales and marketing operating model, including design labs, and with the objective to provide a platinum experience to our platinum customers and partners. As we have explained in our CMD, we are moving from cable to solutions.
We are seeing growing traction for our new solutions, connecting both our users and our offers in power distribution and usages. Starting with our Nexans digital apps, connecting customers with our products and providing additional services for energy savings and CO2 emissions reduction. Our MOBIWAY range, our new smart packaging family to simplify cable installation, will keep growing in 2023. Finally, our ULTRACKER digital suite that we announced this year, providing services on our connected objects like cable drums, is enabling optimization of planning and operations before, during, and after cable installation. Finally, we have more than 380,000 connected users globally and thus a solid foundation for new recurring revenue model. Now, as you can see on slide 10, we have two concrete examples of innovation monetization through recurring revenue with our platinum accounts in power distribution and usages.
Let me drive you through the first one. In power distribution, utilities can benefit from the peace-of-mind asset management offer. It encompasses the ULTRACKER suite, which already reaches 20% penetration rate at our platinum utilities. Through monthly subscription and MOBIWAY smart packaging in leasing, it includes end-to-end field services such as scrap management or training. We ambition up to 2% recurring revenue on platinum utilities DSO sales by 2024. Now on the second example, in usages, we are deploying a smart packaging leasing offer with our MOBIWAY range, connected with digital apps and loyalty program for our customers in the residential market. While we are connecting with ULTRACKER in the tertiary market. There, we ambition to generate up to 5% of recurring revenue through platinum distributor sales by 2024.
In a nutshell, with this new business model, Nexans is developing a consistent recurring revenue based on services and solutions that contributes to a platinum experience with our customers in the electrification value chain. Now, I will hand it over to Jean-Christophe, who will comment on business sales in the first nine months of the year.
Thank you, Elyette. We're moving now, ladies and gentlemen, to page 12 of the presentation. You have here on page 12 a snapshot of our Q3 and nine months organic growth and sales performance. I'll start with the nine months. We report a 6.7% organic growth for the group, nine months 2022 versus last year. If you look outside of metallurgy, you know that purposely as part of our strategy, we aim to decline this metallurgy business. If you look at the growth of the, I would say, the other part of the business excluding metallurgy, the organic growth for the nine months is close to 15%.
On a quarterly basis, Q3 versus Q3 of last year, the organic growth is 10.3%, and excluding metallurgy, the growth is more than 18%. Quite a strong momentum from this third quarter that continues in line with the first two quarters of the year. Interesting also, very important for our strategy is our electrification businesses. They grew 16.2% on a nine-month basis, which is again carried on all our element on the electrification chain, all have been growing significantly in the quarter and the year. Now, if we deep dive a little bit into the business segment, and I start with on page 13 with generation and transmission, our former high voltage and project business. Sales have been increasing by close to 17% nine months versus last year.
The growth is obviously coming from a good project saving and the new capacities in our plant in the US, Charleston, and also the addition of our new vessel, the Aurora. At the same time, you know that we are right now increasing capacity in high voltage with expansion in Halden as well as in Charleston, and both are progressing according to plan. Important to notice also in the high voltage segment, the adjusted backlog is reaching a record high of EUR 2.4 billion at the end of September 2022, which is a growth of 55% versus September last year. Again, extremely important, as Chris mentioned earlier, the mix is positive in terms of profitability and risk assessment. We have now a very strong visibility in the pipeline of project on high voltage until twenty.
Late 2024, and new significant awards are expected before year-end. If I move to the next slide and we look at page 14 distribution, which is a former territory business, medium voltage cable, mainly with utilities. Growth is supported by the successful renewal of several framework contracts with large DSOs, such as ENGIE, for instance, and also, I mean explaining the growth is a growing grid investment across North America and Europe. In that distribution sector, more than 80% of the organic growth is coming from value. If we move to the next page, usages, 16.5%, nine months 2022 organic growth, reflecting the outstanding performance in all our markets and also, supported by growth in value and not volume.
Strong demand, new product launch and amplified solution basically explain, as well as pricing actions, the performance. Of course, as we had and we explained that in detail in the first semester, you know that part of the great result of the first half of the year in the Usage low voltage business was coming from some conjunctural impact. We continue to see strong momentum. We continue to see strong momentum in the third quarter, as the market is really continuing to be booming in North America, where we've seen a 55% growth in that market from the first nine months 2022, so the year to date 2022 versus last year.
Obviously, we don't know when, how long this will last, but we continue to enjoy this very beneficial situation. If we move to page 16, and we look at our non-electrification businesses, mainly Industry & Solutions, Telecom & Data. Starting with Industry & Solutions, a nice rebound versus the second quarter, 13.4% organic growth, nine months 2022 versus last year. As Chris mentioned, auto harnesses has been very strong, 22.8% growth for the nine months.
Many supported by growing market shares despite the Ukrainian crisis, and basically, all our customers in that segment recognize the strong performance of Nexans. Automation is one of the segment in the industry that has been also doing very well, 19% growth. Shipbuilding, 28% growth. Mining, 16% growth. On the other side, not performing as well, rolling stock, mainly impacted by the situation in China, has been declining by 5%. Backlog remains very good and is up 37% on the period. Telecom and data. This is a segment I would say out of the portfolio that has been a little bit softer than the rest of the group. Land cable had a good momentum in Europe, but Asia was quite affected by lockdowns.
Telecom infrastructure was supported by some business momentum, mainly in the UK. The third quarter performance is really reflecting customer inventory building in Europe. Specifically, telecom backlog is down mainly because consuming, we have been consuming the extraordinary backlog over the first part of the year, a year ago, and now it's coming back to a more normalized situation, and it should pick up again in the last quarter of the year. That's for the brief description I would say of the organic growth and sales of our businesses. I'll move now to page 18. That good performance of our revenues basically pushed us to increase the guidance for 2022. As you see, we have both increased the guidance and narrowed the guidance.
We moved from 560 to 590, as previously announced in July, to a new range of EUR 580-600 million EBITA. Normalized free cash flow, which is a cash flow adjusted, I remind you, from strategic CapEx, from one-off tax impact, as well, as divestment of land and PPE. Normalized free cash flow is increasing from 200-250 to 225-275 million EUR. This is again, the second time this year that we are doing an upgrade, demonstrating the strong performance of Nexans and our very high confidence in basically doing a great year 2022. Now that's over, I turn the floor to Q&A.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will take our first question from Miguel Borrega from BNP Paribas Exane. Your line now has been opened. Please go ahead.
Hello. Good morning, everyone. A couple of questions from me. The first one, just on the pricing environment in Europe. I remember you saying that you were a price follower of one of your competitors and you did not see pricing as sustainable. Has there been any changes from your competitors? Are they adjusting prices by any chance? Will you follow at some point? That's my first question.
Yeah. Good morning, Miguel Borrega. It's Chris Guérin. Yeah, you know that we are talking here about North America only. We have one of our top competitors named Southwire, which is certainly a price leader on the number one in the market over there. We have not yet seen any sign of change on the price dynamic, neither in terms of demand in North America. For the moment, everything is as it was in H1.
That's great. My second question on industry and solutions. Obviously, the business is performing very well, specifically in auto harnesses. Have you reconsidered selling this business? If not, what would actually change your mind? Given that it is doing so well, any update on the carve out?
Yeah, I will. There is no. You know, we will not change the strategy from one year to another. In that case, it's not strategy anymore, it's tactics. Once again, let me reinforce the fact that our strategic intention is supported by a 10-year forecast of demand on the market analysis on the electrification. The main message that we had during our capital market day is that we are a strong believer that the next 10 years are the years for pure player. Pure player of telecom, pure player of automotive, pure player of industry, pure player of electrification. So it's not a question of financial optimization. We will not change our way of doing on our objective to divest just because our business are doing good.
We already say that all the business that we want to divest are doing good. That is not the problem, but they need an owner, a future owner that will keep develop them, make acquisition in their field, make more CapEx than what we do. On our side, our aim is to reduce the complexity of how we manage the company, reallocate the R&D resources on our CapEx, capabilities to electrification only to like it was our motto, to simplify the way we run the company, to amplify the impact. No change. Carve-out is still processing. As we told you, Miguel, and to all your peers as well, is that, harnesses and telecom are the two candidates for soon divestments because they already carve-out, and this really will take a bit more time because of its complexity.
Thank you. Just my last question on the backlog for projects is now EUR 2.4 billion. Can you give us an update where this may go? Just taking into account the projects you were recently awarded or, as a preferred bidder? Thank you very much.
First of all, the new project that entered the backlog in Q3 is BorWin6. The two projects that will be tendered and will be awarded to us or not to us, but we are positive about expectations are EuroAsia, that we discussed, which is not in the backlog today, which is EUR 1.2 billion contract. And then there will be the award of.
Right.
Celtic. That's another one that will be coming at the end of the year, not necessarily to Nexans, but that's another project. Definitely the activity in terms of tendering is high. There's a couple of big projects coming up that could have a significant impact on the backlog, depending on our, I mean, obviously, EuroAsia, we are preferred supplier, so that's a hedge, I would say, versus the other. Potentially, I would say a backlog could significantly grow between now and the end of the year and reach a record level for Nexans.
Well, what is important, if I may add as well, is that compared to some others, whatever will be the number at the end of the year, which will be certainly significant, 90% of this backlog will be subsea driven. Which is on only 10% land driven. I think it's an important information because we always put everything in the same bag, subsea interconnection, offshore wind farm, short distance, long distance, and land high voltage interconnection. Nexans is focusing, doesn't want to discount its capacity, so we want to focus on first subsea interconnection and long distance DC type cables for offshore wind farm. This is our top priority. Okay. Next questions?
Operator?
Where is the line going?
We will take now our next questions from Daniela Costa from Goldman Sachs. Your line now has been opened. Please go ahead.
Hi. Good morning. If I may ask, three questions. First I wanted to follow up on your commentary that you aim to transform the conjunctural growth you have this year, which by the looks of what you just mentioned on the prior question, you will have some in 2Q as well into structural. Check if that is enough, you think, to offset maybe the cyclicality? We see backlog is down on telecoms and it's down on construction. Do you think 2023 earnings will still end up year-on-year? That's my first question.
The second question I wanted to ask was on cash usage and sort of how shall we think about like dividend into the end of the year, given your raised free cash flow guidance, and of course, we already knew about the CapEx plans before. Just any color you can add on that. The third one is just wanted to check, there's been some news flow out in some of the Ukrainian press regarding a problem on some underground cables that you're connecting, I think in Scotland. Can you confirm if there's potentially any sort of one-off risks coming from that? I know it's underground, so it's probably like less margin impactful, but it sounds like it's 800 kilometers of cables.
Just wanted to make sure that there's nothing that sort of potentially can impact one of the results from an execution point of view. Thank you.
Thank you, Daniela. JC, you can.
I will start with the first question regarding the conjunctural part and potential growth of our earnings for 2023, Daniela. Right now, just for the situation, we don't see any slowdown, as I mentioned, for Q3. Q4, definitely, the last quarter of the year is always a specific quarter due to the fact that most of our distributors and customers are reducing their inventory and stock for the end of the year. There will be definitely a slowdown, but we don't see it today, as of today, we don't see this slowdown as being, I would say, a change in dynamics in the business, but just again, an adjustment for the end of the year.
Distributors will reduce the inventory, but they are continuing to sell and to do a very healthy business.
We'll see how it evolves through the beginning of next year. So far, I would say the signals are still okay, are still strong. I would say, obviously, there's a lot of questions about potential recession in 2023. We are in Nexans, we started now to prepare ourself for a downturn next year with strong measures and actions ready to be engage in terms of fixed cost reduction, in terms of accelerating the transformation of our Value Burners. We talked a lot about Value Burners in the past. We are doing acceleration on turning them around. Obviously, Elyette, as she explained, is also pushing a lot of actions that will deliver next year. We believe that if recession is not too, I mean, mild recession, I would say.
No one obviously knows what will be next year. If recession is mild recession, we believe we will be in a situation to continue to deliver and to continue our transformation. Obviously, you will—if all the conjunctural impacts stop next year from the first day of the year. Obviously, the growth of earnings will not be the same we've seen from 2021 to 2022, definitely. Again, we—I mean, in our vision today and in our view today, we continue to see a more moderate growth of earnings. We don't see a flattening or a decrease of the earnings for 2023. That's how I can answer the first question.
I think your second question was regarding the cash increase, guidance and if we had any, I would say insight regarding dividend. Definitely, I mean, as we announced, as we explained and announced during our CMD last year, our objective is to grow our earnings, our dividend, sorry, according to our earnings and our cash flow generation. There will be, right now, obviously, we have not yet decided what will be the dividend for next year, too early. Definitely, our I would say objective is to grow the payout ratio. We said that we will have a payout ratio above 20% growing year after year. We will continue to grow the payout ratio and therefore increase the dividend payment for next year.
Regarding the third question, it's about our project, Viking, in a wind farm in the Shetlands. We are talking about medium voltage type cable, so it's not high voltage. That's right that customers on Nexans have seen some visual anomalies detected on some part of the drums that have been supplied. We don't want to take any risk. Quality is our top objective for those projects. We have suspended the installation, and we have a team here right now checking all the drums one by one. If there is anomalies, of course, everything will be replaced. We are talking about it's a small order.
It's not significant, and there will be no effect that can impact 2022 result.
Very clear. Thank you.
Thank you.
Thank you, Daniela.
We will take our next questions from Josh Featherstone from Bank of America. Your line now has been opened. Please go ahead.
Morning, everyone. Thanks for taking the questions. My first is a bit of a follow-up from kind of some of the things we've heard already. Clearly you've seen demand has been sustained at a relatively high level for a pretty prolonged period now, ahead of the growth rates for the business that you'd outlined at last year's CMD. Just wanted to understand if you've done any work around how much of the growth that you've seen across the business this year is really structural and related to those electrification trends that you've called out before, that's perhaps at a higher level than you originally anticipated, versus the sort of continued rebound effect related to demand recovery coming out the pandemic? That'd be the first question.
Yeah, Josh. We'll take it. Yes, Chris. You have to split it in three different parts in the electrification ecosystem. As we mentioned during our capital market day, there is the foundation of a hypercycle in the electrification for the next 20 years. Can be slowed down sometimes because of recession, but the foundation of a hypercycle are there because of the shifts of the fossil fuels to renewable energy, because of the unprecedented needs to renew the electrical grid, and that's fundamental. Each nation need to modernize their grid rapidly. We are in Europe and in U.S. specifically, we are suffering from 15 years of underinvestment in the electrical grid.
There is as well the electricity consumption that keep growing on the usage part because electrification is the fastest way to decarbonation. That's for sure. The last 10 years were all about tech. The next 10 years will be all about electrification and decarbonation. The foundation are extremely structural. Now regarding the resiliency of our business portfolio, what we can say is that the first part is generation and transmission. Here we are in the high voltage world subsea. Everything is contracted, everything is hedged. It's just a matter of execution on recession. It's on it, I would say it's recession-proof because customers will not delay that project because of a recession. There is a big fight right now from all customers for production slot.
You can consider that this part of our portfolio is extremely robust, and I would say anti-fragile. The second aspect is distribution. Distribution with the utilities market. Here is the unprecedented requirement to renew the grid. If you take the last major economic recession in 2009 with the subprime, these sectors has been extremely resilient. First answer is that this sector is resilient. Second, our frame agreement are not sufficient to support the demand of the customers. They keep asking more than 20% more cable right now that we are not able to cope with because of lack of capacity. I do not see neither distribution be fundamentally affected by recession.
The only part that can be affected by a recession is certainly the usages because it's directly linked to construction. We see already a slowdown in construction in the U.S. We see some slowdown as well in part of Europe for the construction. In parallel, what we didn't have in the last 10 years, the renovation is booming. The shift from PVC cable to fire-resistant cable, so premium cable is very high. We believe that there is a buffer from potentially downturn of new construction by the renovation. Of course, we are listening like you, our top customers, Legrand, Schneider Electric, Rexel, Sonepar, all those customers that are very well ahead in terms of information of what is going on.
For the moment, all of them remain extremely positive. From the information that we have today, I believe that Q1 will remain strong. Question mark on Q2 for this sector that can go down very, very fast. We don't have much information. You can see that the backlog in these sectors, even if we don't have a big visibility, it remain stable overall. For the moment, no sign of recession, but the most important is to get prepared.
Okay, thank you very much. Second question would just be turning to that orders backlog. Clearly, it does remain high, but it's shown some decline if you look on a year-on-year basis. I guess obviously there's some price effect in there too. Is this a function of lower lead times and the supply chain improving the deliveries? Or is it a signal that perhaps the business has reached the cyclical peak and will moderate back to more normalized levels in the coming quarters?
No. First, you know, we have more than 30% of our order intake, which is taken during the months on ship, during the months, the same months. That you don't see that, you are not able to see that in the backlog. The fact that we have amplified our complexity reduction model everywhere in the units, of course, improves significantly the internal lead time and the customer lead time. That means that we are able to move from a make to stock to or make to order to a make to availability. That means that the inventory turn is going much faster than before. You're right. I think it's the right comment. The backlog for these sectors is certainly not an indicator as such.
The main indicator is the order intake, which is for the moment still robust.
Okay. Thank you very much.
Thank you. We'll now take next questions from Sean McLoughlin from HSBC. Your line now has been opened. Please go ahead.
Good morning. Thank you. If I could just understand a little bit more about the negative organic growth you're seeing in telecom, which seems, I guess, to be the only weak part. I mean, firstly, how are you seeing that trend into the rest of the year? How is the pricing environment as a result of weaker demand? That's my first question.
Yeah, Sean. Thank you. Good morning. Price environment remains stable in the telecom sector. The backlog that doesn't decrease that you see in this field is related to special telecom. We have shipped major project in the last quarters. Now we need to bring back new orders, but as well, we had to put some internal orders in our special telecom activity for our high voltage subsea business. Which is an interco move that you don't see that in the backlog. What I can tell you is that we will announce certainly very important award in the special telecom field at the magnitude of the business, of course, in Q4 and Q1.
On the activity for special telecom between interco business plus external business, it will be fully loaded next year. No problem there. It's the same dynamic as generation and transmission. The foundation are very, very strong, so fully loaded on telecom.
Thank you. Another question on offshore wind. We're hearing in the US that some projects might require higher PPAs than the very aggressive bids that we've had against the rising equipment prices are causing potentially some delays. I just wanted to understand from your perspective if you're seeing anything around this.
We heard about it. We know that some other customers that we do not supply had some delays, but I will say so far with Ørsted and Equinor, we have not heard anything, and the dynamic is very, very strong. Charleston is running full speed. We have to make sure to execute on time our OTIF, our delivery for those projects. We have no discussion of any kind of delays at this moment.
Perfect. Thank you. My last question, if I may. Just wondering about the recurring revenues, I mean, realistically, how quickly can this grow and what percentage might. What is the potential of recurring revenues as a percentage of sales as you go forward?
Elyette, it's for you.
Yes. Hello. As you know, as part of the SHIFT Prime program, we are actively working now for some years to grow our base of connected objects and users to engineer this new recurring revenue model, which is supported by our continued innovation and all the different launches that we've done in the past months related to product and solutions. Basically, what you know is that we have also grown our connected objects by more than 30,000 today globally. This is really like the foundation for accelerating the growth in a recurring revenue model in the coming years.
Although the potential is huge because, you know, we have now a digital factory of more than 50 people. To be honest, sometimes I don't understand them, because it's a very new profile for Nexans, a real geek. Very working in this cool mode, you know. All these new techniques that which is new for our cable industry and the benefit for the customers in terms of IoT development is huge. That's a fantastic opportunity for us to go to premiumization because we want to turn our passive components into active components. Of course, this is part of our structural change, we want to develop new kind of revenues and of course, margin lever, thanks to subscription model.
More of those connected objects will be connected to our drums, to our product, and more revenue will be generated at that level. Of course, the level of margin is not at all the same than what we have on the physical product. We are now turning into phygital mode. The demand from customer is very high. The leadership of Nexans on this field is really now recognized. With Elyette, the difficulties we have is to answer to all demand. We need to scale up very, very fast our digital team and marketing team in that regards.
Thank you.
Thank you. We will take our next questions from our participant, Massimiliano Severi from Credit Suisse. Your line now has been opened. Please go ahead.
Yeah. Hi, good morning. Thank you for taking my questions. My first question would be if you could help us clarifying how much of the 22% organic growth in usages in Q3 comes from the conjunctural effect of pricing in North America versus what comes from more structural measures like SHIFT Prime that you already implemented.
JC, you want to take it? Yes. What I can tell you is that if we look at just to give you some different figures. If we look at 2021 and 2022 in comparison year to date, for the full year, and the estimation, I would say for the full year of 2021 versus 2022. 2021, we did EUR 231 million of sales in North America. We're expecting to do about EUR 340 million this year. EBITA margin was 11%, and now it's 25%.
I don't have the exact number to your question, but you can do the math and see how basically we have increased EBITDA margin by 14%, where basically revenue is increased by about EUR 100 million.
Thank you very much. Extremely clear. My second question would be maybe on distribution. North America is up 57% also here, but you mentioned that the conjunctural effect is mainly usages. I was wondering, in North America, this big increase that we see, is it on frame agreements that last couple of years? And how much of the sales in distribution are covered by frame agreements versus more spot pricing?
It's more than 80% of the sales are covered by frame agreement.
Here, the pricing in North America, I would expect it to be more resilient than usages.
We don't have the same inflation on the price in those sectors compared to building part.
Okay, makes sense. Perfect. My last question would be on the generation and transmission side, if you could help us understand better what is exactly hedged in the high voltage contracts, 'cause raw materials are clearly hedged, but there are escalation clauses covering also employees' cost inflation, and energy cost inflation, or you have to go back to customers to actually make sure that you get paid for that inflation as well.
There's not one straight answer to this question because it depends on the project. It's a project-by-project situation. What I can tell you is that definitely everything which is raw material is a pass-through, so that's for sure. After that, energy cost, labor cost, transportation cost, and other types of costs, it really varies, changes from, say, business to business. Obviously on the older contract, we don't have many escalation clauses on all those cost lines. We are going back and basically talking to the customer when appropriate. On the new ones, obviously all this year, as you know, is a big tender year.
On the new tendering we're doing since now a few months, obviously since the market has changed significantly, we are including basically escalation clauses, more escalation clauses on our cost structure in the new project. I would say that today our backlog is pretty well protected versus most inflation situations.
Perfect. Thank you very much.
Thank you. We will take our next questions from Jean-François Granjon from ODDO. Your line now has been opened. Please go ahead.
Yes, thank you. Good morning. The first question concerns the backlog of usage on the slide. We see limited decrease by 5% for the backlog. Can you give us more color about that? Do you expect so more limited depreciation or downgrade for the coming month for this business? The second question concerns EuroAsia. Do you expect to gain the award at the end of this year or next weeks? Could you give us some more color about the timing? The third question, the question is already asked, but could you come back on the trend for 2023?
Are you okay with the fact that you could have a moderate growth, but growth for the top line and for the earnings? The last question, could you give me an update on the timing for the M&A, for the acquisition expected and for the disposal expected? Thank you.
Thank you. Jean-François, in regards to the usages, is what I said just before, we are strongly improving our internal lead time for shipments, so we have a. The backlog is one of indicators, but does not reflect the fact that when you receive an order on the first day of the month and that you supply on the third week of the same month, it's not reflected in the backlog. So this part of sales within the month supply is increasing big time. That's good for us. With that's the impact on the working capital, and that means the inventory turn is going much faster. To be extremely clear, on this usages part, 2022, we have everything in backlog up to December in terms of visibility.
The big question will come for 2023, of course. We'll have more information on Q4. We see all the orders that we need to produce up to the end of the year. The second question was EuroAsia. EuroAsia, difficult for me to comment because we are in the negotiation right now. I can't, I cannot give you much information because customers say we have publicly announced that you are preferred bidder, but we don't want any further information in the status of the negotiation. Very active on many aspects, technical, financials, legals, going on. It's a huge project. It takes time, I cannot give you more information than that for now.
We have other project in parallel in the same kind of process.
And you, uh-
Uh, the-
Sorry, Chris, sorry. You confirm the fact that you will be able to reach EUR 4 billion for the full backlog in the coming weeks?
Yeah. This is the aim, yeah. This is the aim, but of course, we have to take into consideration that we are really very advanced in Q4. Still a lot of open points, more on the technical aspect, and because it's a huge project. Yes, we aim to close all the deals that we are negotiating right now by the end of the year.
Okay.
That question was for you, JC.
Can you remind me, Jean-François, please, what is your last question?
The two last question is the trend for 2023. Could you expect some limited or moderate growth for the top line for the earnings in 2023 despite the context? The last question concern the timing for the M&A, the acquisition and the disposal.
I will take the M&A, you take the growth. Yeah.
If you want.
Yeah.
For the growth, definitely we, as you know, we're not betting on top line. We will prepare our 2023 with moderate, very moderate growth on the top line. Because again, this is not the aim of Nexans. This is not our strategy. Our strategy is, as you know, value oriented. The real question is, will we be able to continue to grow on the earnings side, on the EBITDA side, on the cash flow generation? This is what I answered earlier, I think to Daniela's question. Definitely, unless we have a very strong recession coming up, that obviously will impact us, like it will impact everyone.
Right now we are putting all the action in place to be, I would say, as resilient as possible for 2023. We have demonstrated that our model based on value is more resilient than obviously betting on volumes and top line growth. We have strong action in place. I mentioned some of them. We continue to have businesses which are performing below the average of the group in many areas, about EUR 1.8 billion of sales still below the average earnings of the company. We are actively working on them to reusing SHIFT to turn them around and be ready for 2023. There will be significant value coming from that action.
We continue, as Elyette described, to push a lot on transformation, moving up the value chain, in all the segment of SHIFT Prime. At the same time, we're getting ready if situation gets bad to work on our costs as we did successfully and preserve our cash flow as we did successfully during the worst crisis, which was 2020. Top line, I will not bet on top line, but definitely we will maintain, and we are aiming at continuing to grow earnings next year.
Yeah. To give a bit more color on what JC said, to give you an example, Jean-François, last July we said to our teams, "We don't want you to spend hours or days on working on budget, on scenario of what could be the growth generation next year. We prefer that you spend your time in launching actions on work streams to be recession proof. How do you absorb the energy inflation? How do you absorb the labor inflation? What type of competitiveness levers do you launch? How can you accelerate all the actions on SHIFT Prime and as well, new innovation that we plan to launch in 2023 to face this recession." Our team is not in the budget mode, trying to work out what could be next year.
They're already in action mode to prepare in case of recession.
Okay.
In regards to M&A, we believe that it's the right time, a good time for divestment. When it's a good time for divestments, maybe not a good time for acquisition. If any, we can look at the small medium sized acquisition if we see any opportunity. We are still focusing on divestments. Recession, of course, could be an important, I would say, opportunity next year on the acquisition side, if suddenly the multiples are a bit affected from some of our peers because of the recession impact. In that case, we are welcoming recession for our acquisition strategy. We are more in a divestment mode for the moment.
Okay, perfect. Many thanks.
Thank you, Jean-François. Next questions.
Thank you. We will take our next question from Akash Gupta from JP Morgan. Your line now has been opened. Please go ahead.
Yes. Hi, good morning, everybody, and thanks for your time. I have a few as well. The first one is on high voltage and more on the capacity expansion side. I think it was the last year Capital Markets Day when you announced intention to double capacity, and since then you have been quiet on that front, despite some of your competitors have announced further capacity increase given the strong pipeline of high voltage projects. So my question for you is that, given the booming demand for high voltage, when do you think you may need to further increase capacity? And I think the question here is more in the likelihood of strategic CapEx being continuing in 2024, 2025 period, or do you not see that as a scenario? That's question number one.
Yeah. You know, thank you, Akash. First, we were one of the first to announce and as well in NKT, and to be transparent on the capacity expansion, because both company have seen first this big boom on the high voltage. There is a time of announcement, there is a time of execution. We are running now into execution of doubling our capacity in Norway and reinforcing our capacity in Charleston to be ready at the end of 2023. Everything is on track. That's the good news. It's not easy, you know, right now to build a subsea expansion plan because of the inflation of raw material. Because of the scarcity of labor.
I think right now where we are very proud is that everything is on track. We are careful to further announcements because of the dynamic of inflation on material that we see everywhere in the world. Once again, you know that by year, Akash, is that the sectors have EUR 20 billion pipeline in front of them, in front of us. So it's a in terms volume-wise, it's extremely positive, and we are very, very happy about it. But the way we classify each project on the customers, we consider that one-third is really top platinum ones on the three pillars, which are margin yield, technological fit, and contractual term exposure.
We want to have the right equilibrium and balance in terms of capacity versus those specific project, not all the others, because there is a lot of project, and you've seen that in the past where Nexans do not want to bid because of the risk. It's the balance of not having the biggest backlog, but extremely subsidy-driven, extremely healthy in terms of these three pillars. As well, you have to take into account the fact that the demand is there is no doubt about it, but the offer could be a big constraint. In each project, the first question that we ask ourself is do we have the raw material access to supply those customers?
Because in coming years, not now, 'cause China is down, but in coming years, 2024, 2025, raw material scarcity will be a big, big, big topic. We have to make sure that we find the right balance between the two.
Thank you. Maybe just a follow-up to that. Is it fair to say that you may be willing to lose some market share in the medium to long term because you want to be more selective?
Yeah, Akash Gupta, the word market share has never been used in Nexans' wording for the last four years. Never. You know, I'm coming from the sales field. We've learned as well, you know, we have not been so good between 2009 and 2018. Everybody was talking about market share that time. I say, "Now market share word is banned in Nexans." Because market share doesn't mean if it's accretive or not accretive for our free cash flow. What we are challenging, where we are challenging our sales force today is making sure that EUR 1 at the sales on the top line convert to a very high re-ratio of conversion ratio of free cash flow. This is it.
This is the only thing that matters, is conversion to free cash flow. Growth for growth, not anymore in Nexans.
Thank you, Chris. My final one is also on high voltage. In the US, we had seen passage of Inflation Reduction Act, which gives domestic production tax credit. Do you think your Charleston factory could benefit from additional tax credit for local manufacturing? Are you having any conversation with customers in that regard?
Too early to say. I think it's a good question that you need to keep for next time because we will have a more elaborate answer. That's for sure. We see now a very strong dynamic in U.S. to be local for local, both on carbon footprint and both for tax exemptions. Being local right now for Nexans is a key leverage to get more business there. Nexans is shining in U.S. thanks to our presence there. There is no doubt about it.
You know, we are alone for the next 4 years or 5 years, and it gives us the opportunity to sign much more contracts than what we have in the backlog in the coming years to take this opportunity of this implementation.
Thank you.
Of course, all U.S. legislation will help us in that regard. Thank you, Akash. We have a last question.
We will take our next questions from Rajesh Singla from Société Générale. Your line now has been opened. Please go ahead.
Hi. Good morning. Thanks for taking my question. Maybe a couple of them. The first question is, like, you had made a very interesting comment in your discussion earlier that it's a good time for divestment, not a good time for acquisition. Do you think that we are already at a peak of the cycle in the cable industry, that's why it's not a good time for acquisition because we are getting all the assets at a very high valuation multiple, and we are looking for a challenging time in 2023, that's why it's not a good time for acquisition? Maybe your insights, a bit more insight into that.
Well, yes, of course. Taking the electrification ecosystem in the generation and transmission, what you can see there, you're talking about EuroAsia, TenneT link, all these projects that have been negotiating with the customers on this. Essentially, Nexans and Prysmian on the forefront is for those big interconnection subsea business, you need a very, very solid balance sheet. And as well, you need the leading-edge vessels that are our two vessels in Nexans and the vessel of our colleague in Italy. There is no doubt that the complexity of the project is very favorable to the two big players that we are and putting a lot of pressure on the others.
There is no doubt about it. Regarding the usage on the part, a lot of our competitors are benefiting from the conjunctural effect 80% or 90% of their profit. They don't have this structural power that we are putting in place for the last two years because, you know, it takes a lot of energy. Everything we do on marketing in service and solution takes a lot of energy. If they are not recession-proof, of course, their profit will collapse at the same speed that they have inflated in the last month. That will give us some benefit. On the last part is we've seen a lot of regional players start to suffer in terms of raw material access.
We were last week with the top management of Codelco to finalize our major agreement of the next 5 years of privileged access on first supplies on copper, when copper really becomes scarcity. The combination of the conjuncture effect plus the stringent difficulties on the raw material access should affect the multiple. The foundation of electrification remains extremely robust. We are now in the momentum of 20 years investments. I will say only the big player will survive.
Mm-hmm. Thank you. My next question is probably on the Building and Territories segment, if I can. If you look at the pre-COVID and post-COVID, we are talking about, say, EUR 280 million kind of EBITDA in Building and Territories segment versus EUR 130 million EBITDA in 2020. There is a very significant jump in EBITDA in Building and Territories, like, around. Margins have also improved by 400 basis points. Earlier you mentioned that a significant part of the growth or most of the growth in 2022 was driven by conjunctural effect, or I would say, like, pricing effect, though there is no major volume growth you witnessed in 2022.
How much of this 400 basis point improvement in margin and this pricing effect could continue in 2023? I believe if you can share some insight, like how much of this EUR 150 million jump in EBITDA in Building and Territories is driven by volume growth and how much is driven by your transformational impact, and how much is temporary in nature, to that extent?
Yeah. Thank you for the question. No, definitely, I mean, the key thing is this year number when you compare to, I would say normalized number for usage, building and tertiary is definitely pushed by conjuncture. Just to remind you, I mean, the conjuncture is very well known and very localized, exceptional, I would say. Situation is really linked to North America, namely Canada, mainly usage and residential. It's very specific. We know exactly where it's coming from. I gave earlier in the call the numbers of how revenues and EBITDA have been growing in that specific market, specific business of Nexans.
Overall, broadly speaking, I mean the business in the U.S. is doing very well in Nexans, structurally speaking, thanks to our transformation, thanks to all the work we've done now for three years. We look at South America, Centelsa, for example, the new acquisition we've made is overperforming EBITDA. EBITDA has been growing by 200 basis points versus when we acquired the business. Other countries like Peru, like Chile, even our existing business in Colombia are doing very well. Brazil is doing fantastic. We start to see recovery in Lebanon. That was a very difficult market for many years due to the local situation over there. APAC, Australia, New Zealand, fantastic year. I mean, it's a global, I would say, improvement in the margin.
Little bit of good demand for sure, but globally, it's mainly coming from all the efforts that have been paying off. I think the only part that you need really to put aside is what I gave, the number I gave for the North America, Canada part that might not repeat itself in next year. I think all of the other parts of the business and the growth of the top line, but again, the growth of the top line is the growth of the top line, but the organic growth itself is mainly pricing, and the growth of the EBITDA is structural.
This will continue unless we have obviously a collapse next year that is, like, the one we've seen in 2020 with -11% top line situation. I mean, I would say with even a very conservative approach on the top line, all the structural changes will continue to pay off except, that conjunctural part that obviously we cannot control. Yeah. I think it's important to as well highlight the fact that our salespeople are not incentivized on sales development, not by volume. They are incentivized on the margin generation, on the free cash flow associated to the margin. That changes completely perspective. It's what I say to Akash. The market share is not a topic.
Certainly, the market share of our platinum customers or platinum project is a topic. There is no doubt about it, but not the overall market. The most important for us is to make sure that they are injecting structural pricing, which is supported by solution and innovation, that will not collapse because the demand is down. We are reinforcing our collaboration with our platinum customer. It's important as well to mention that in 2019, pre-COVID, the revenue was supported by 17,000 customer. Right now we are running with only 4,000 customer. Of course, that give us a more key account management model approach. Being much closer to those customers, developing more sales, more innovation on making sure that each euro of sales that are on top of our result is converted into free cash flow.
That's a very important element. That's all about SHIFT program. This is why it's a major differentiator versus our competition.
Okay, maybe a follow-up question on this. In the last couple of years, we have seen a significant damage to the supply chain and all these margin expansion. A significant part of this margin expansion could be attributed to the shortages across the segments what we have seen so far. Assuming that the supply chain is easing and probably will have a better supply chain in the next couple of years, do you see the downside risk to the margins what we generated in 2022?
To be honest, I don't see a tension going down on the supply chain. Of course, there was a sort of a bullwhip effect post-COVID. But now we are entering in the phase of very critical supply chain risk of disruptions because of raw material access. You know, just the geopolitical situation of Europe put a big tension on the aluminum. Most of the alumina, the powder that we need for to produce aluminum is coming from Ukraine and Russia and some other countries. So, access is very complex.
The production of aluminum is requesting a lot of energy and because of the energy inflation, some of our suppliers are reducing their capacity because they are running at a loss. No, I don't see the supply chain back to normal in coming years. For the moment, it's okay, I would say, but do not forget that the Chinese economy is down. When China will wake up, it will recreate a lot of tension on the raw material. It's for example, China, we know that China will suck the equivalent of 60% of the copper demand worldwide for their energy transition. Here there will be a big problem when China will wake up.
Sure. Thank you. Thank you very much.
Thank you. I think a lot of questions. Thanks a lot for your attentions. As you see, Nexans is still always on top in terms of financial result. I would not say bullish, but we say that we are running very, very well, supported by our structural transformation. Get prepared for recession in 2023, so making sure we are always there for our financial result achievement. More information to come in the next month. Thanks for your attention. Bye-bye.
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