Ladies and gentlemen, good morning, and welcome to Nexans' First Half 2023 Earnings Conference Call. As a reminder, this conference call is being recorded. For the duration of the call, your lines will be on listen-only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad. I would now like to turn the call over to your host for today's conference, 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, Jean-Christophe Juillard, Deputy CEO and CFO, and Elodie Robbe-Mouillot, VP, Investor Relations. Let me turn 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 Private Securities Litigation Reform Act of 1995. Readers and listeners are strongly encouraged to refer to the disclaimers, which are an integral part of the recording, 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, who will go over the first half highlights.
Thank you, Elodie. Let's now turn to our presentation on page four. Once again, as you can see, we are very proud to announce a remarkable performance, achieving a record high EBITDA on a record high return on capital employed, thanks to our unique value growth execution model. Despite facing some one-off, as you have seen in the Generation & Transmission business, that we will come on to a bit later. We are a strong believer that our Distribution & Usages businesses can turn into premium market in the midterm. This is why we continue to make strategic acquisition and elevate our prime offering. I will elaborate a bit more on this part. You've seen as well our adjusted backlog. You...
Our risk and reward model approach, help us to grow selectively in terms of assets on project within the G&T business. Our efforts are reflected in this impressive adjusted backlog, reaching EUR 5.2 billion. That will be reinforced further with the EuroAsia project award that have been announced mid-July. At our core, we value sustainability, understand the significance in overall Nexans business strategy. Our E3 operating model ensure that our sustainability commitments will be fully in align with the business goal, I will come out again some new target that we have announced at the general assembly. Let's turn now to slide number five, moving to our financial performance.
As you can see, step forward in terms of achievement, if you remind in H1 2019, we were around EUR 170, or EUR 190 million of EBITDA, of course, COVID time in 2020, 2021, 2020, H1 2022, around EUR 308. Now we reach a EUR 354 million of EBITDA. Just a footnote here, our EBITDA now exclude the impact of IFRS 2, which is about EUR 7 million . J.C. will comment on that later during the presentation. Normalized free cash flow stand at a very high level, EUR 281, reflecting solid operational performance and of course, a high down payment in the G&T business related to TenneT, specifically. Driven as well, by our result from operation, we continue to have a step up in return capital employed.
We finish this semester with a return capital employed around 21%, which is an increase of 38 basis points for the group. As you can see, in spite of the G&T disappointment for the semester, we have an outstanding return capital employed of, for the electrification business part at 27%. Let's turn now to page six. A word regarding our portfolio evolution. We successfully, as you know, completed the acquisition of Reka Cables in Finland last January with a multiple around 5x EBITDA before synergy, illustrating our discipline M&A approach. When you look at Centelsa on the, on Reka, we have already acquired a EUR 500 million revenue as part of our strategy to grow our electrification portfolio.
We will continue in the coming months as, you know, we see some potential slowdown of the market in some businesses. This can bring some new opportunities in terms of M&A. We were together with J.C. in Colombia a few weeks ago, very, very impressed by our Nexans team, Centelsa team, on the fantastic integration of Centelsa, in all terms, operational, cultural, financial point of view. The synergy target at $12 million by three years, already one year in advance. That confirm that our integration process is running very well, and that SHIFT is a very powerful levers to turn around or improve company financials. A word on innovation on page seven. We are also continuously creating new growth drivers with offers going just beyond cables and pure product.
Those offer are representing a growing part of our Distribution & Usages businesses and generate a structural margin generation. SHIFT program delivered for the H1 about EUR 13 million EBITDA. Overall, the step up of the prime offer in all regions, in all verticals are going forward thanks to our development of repeatable offer, region per region. More specifically, we are highlighting that for the second time, the Nexans Fire Safety Offer is a combination of our fire safety cables, plus digital solution, including sustainability. This is exactly a great example on how the combination of our cable and solutions come together to solve customer pain points in the building market. To reinforce the message on the fire safety, we have the second episode of our offer through a video that we can launch right now.
By 2030, electricity consumption will have increased by 20%. Urbanization and new uses of electrification in buildings, such as electric vehicles, solar panels or heat pumps, are accelerating. This considerably increases the density of electricity per square meter in buildings, and therefore, the risk of electrical fires. It is now possible to anticipate these fire risks with reliable solutions, ensuring the safety of electrical networks and people. Nexans offers a range of innovative and sustainable solutions for fire safety through high-performance fire protection technologies in compliance with global standards and regulations. Low fire hazard cables limit the spread of fire and corrosive smoke, responsible for 80% of deaths in a fire. Fire-resistant cables withstand high temperatures for up to two hours to preserve the integrity of critical fire safety system functions and secure evacuation.
Above our deep experience in fire safety, our offer goes beyond cable, with a comprehensive range of services and solutions to support clients' projects, from design to installation and to end of life. Nexans APP helps customers better anticipate projects by providing a cable selection calculation tool. Nexans cables offer optimal ergonomics. They are easier to pull, flexible, and easier to strip. Precise cutting is enabled by patented metric marking. MOBIWAY range helps half the installation time for all types of electrification projects. Digital solutions, like ULTRACKER, allow real-time geolocation of cable drums and supply flow management. Nexans provides a range of anti-theft solutions to protect cables and fights counterfeiting using innovative cable authentication technology. Nexans ensures complete project follow-up by offering drum return services. Nexans fire safety offer allows you to anticipate risks, secure assets, and protect life by providing solutions going far beyond fire safety cables.
Voila! This is the second video of our fire safety offer. We have a repeatable model which is deployed region by region for this specific approach. Slide eight, back to Generation & Transmission. The CapEx expansion plan for Halden is moving forward to be ready for the first quarter of 2024. As you have seen yesterday night, we have just announced the investment in the new cutting-edge cable laying vessel to support our record project backlog and meet the global installation needs for both offshore wind farm and interconnection market. This unique vessel will be built on the capabilities of Nexans Aurora, but with an enhanced loading of 13,500 tons loading capacity.
The ability to lay four cables simultaneously to meet new customer requirements, specifically for large-scale project, and this vessel will be delivered in 2026. On page number nine, turning now to our sustainability journey, where we have a very good start for the year. I wanted to highlight that what we introduced in the climate strategy at our general assembly, the fact that we strengthen our GHG emission reduction commitment, bolstered by our unique approach on the E3 performance model. As you have seen, we are committed to a -29% of emission reduction for the Scope 1 and 2, -19% for the Scope 3, and up to -46% for Scope 1 and 2 by 2030. Thanks to, of course, our focus on value growth, more than just volume.
Just to give you an example, our natural resources consumption have significantly reduced for this semester versus the semester of last year. Let's now go to business overviews on page 11. As you can see, electrification organic growth is slightly down, mostly impacted by the exit of the umbilical business in the Generation & Transmission vertical. If you exclude the impact of this closure on stop of umbilical business, the organic growth of the group would have been 3%. Non-electrification business is going up with strong dynamics, while we continued, in the meantime, to reduce the metallurgy exposure to the external market in order to reduce the dilutive impact of this business. Both profitability of business are improving strongly with exception of G&T.
That hike drives up the EBITDA margin at 10.7%. We go now in details, slide by slide, business by business. Generation and Transmission on page 12. Generation and Transmission sales came at EUR 384 million for the first half of 2023, which is, of course, down by 10.3% compared to the first half 2022, reflecting the ongoing exit of the umbilical activity. As anticipated, unfortunately, on mentioning Q1, the EBITDA was impacted by a combination of different elements. The unfavorable mix of the project versus the first semester of last year on phasing, unfavorable mix of phasing as well, with less interconnector business.
The ramp-up cost of Charleston, which impacted some project progress and now is completed, so vast issues of those of, of the one of Charleston are behind us. Some inflation costs on some legacy contract that we had to absorb, and as well, some impact on the margin links to the delays of the EuroAsia awards that was expected in the course of the first semester, so not been signed in July. The H2 will remain affected by still some of those elements, even through the headwinds are expected to gradually ease on, the ratio will improve. I'm sure you would have questions on J.C., we'll be happy to answer.
On the slide 13, as you can see, orders remain strong on the sequentially, growing with the TenneT frame agreement award, which is one of top largest in the history of the group. Under this frame, we'll deliver a three turnkey, 525 kV project. This initial value is about EUR 1.7 billion with some major subcontractor work to be added on each project-specific call-off will be signed. What I mean is that it can go up to EUR 2 billion. What is reflected here is on the backlog, is that if you add up the EuroAsia that has been signed mid-July, our backlog at the end of July would be at EUR 6.6 billion, which is, of course, a record for Nexans.
88% growth versus the end of December 2022. What I want to highlight as well is that we are certainly one of the biggest backlog subsidy-driven in the world. As we mentioned here, 97 of our backlog is subsidy-driven. Umbilical is shrinking big time because of the exit, and as well, we are reducing our exposure to long high voltage business that are lower margin generation. On slide 14, turning now to distribution. Sales were up 4.3% organically. This segment is benefiting from the expanding green investment. You know, we need to renew our power grid, both in Europe and in North America. Associating cables plus accessories.
What is very impressive is this record of EBITDA generation. This is a very long time that we have not seen a double-digit in Distribution. This substantial margin expansion reflect the successful transformation of our SHIFT program on the fact that the vast majority of our equipment are fully saturated, thanks to a very strong demand. We have made as well, significant progress in the deployment of value-added solution. Now we have more than 850,000 connected users coming from 0 two years ago. Of course, this is keep growing and generate recurring revenue and recurring margin. Very, we are very proud about it, thanks to our innovation team. On the slide 15, Usages. Usages was down -2.8%, resulting from a selectivity on prioritization of structural performance.
You know, we don't look for volume. We want to make sure that our EBITDA is, can resist some downturn. We've reached a record of EUR 137 million, with both in absolute value and as well a record in percentage, with a 15.4% EBITDA margin. For this business, which is the sum of a dynamic market on conjunction effect for the first semester. Successful transformation effort, which is the big part. Strong pricing power and as well, the rise of the prime offer. We'll get certainly some question because we see some slowdown in some markets that may affect the second semester. That give us some prudence in our guidance.
In regard to the non-electrification, mobility and mining benefited from a very solid momentum, as you can see. We have launched as well, SHIFT performance for the value burners activities that have generated a significant uplift of the margin. We see a soft softening in information orders versus last year's high level, which could be a sign of as well, economy slowdown for the next coming months. Auto harnesses, double-digit growth, with a very strong ramp-up project in the U.S. on the increased deployment of shares in the electrical vehicle. Metallurgy is down, as we already announced, and we see that telecom is experiencing, sorry, a modest decline in revenues. Let me turn now to J.C. for the financial.
Thank you, Chris. If we move now to page 18, we look at our financial performance for our P&L. You can see Chris discussed, explained about our organic growth minus 0.6%, mainly driven by two things. The G&T decrease because of the exit of the umbilical. We sales on umbilical by EUR 100 million versus last year, same semester last year. The second one is obviously the continuous decrease of our metallurgy business for the strategic reason we've been explaining since now 2021. If you exclude those, basically the organic growth is quite strong. EBITDA stands at a record level of EUR 354 million, which is a 10.7% EBITDA margin. First time ever for Nexans to reach double digit EBITDA margin.
Definitely completely aligned with our target that you recall from our equity story to be between 10%-12%. We are already there this semester closing. I just would like to know, to mention, that Chris said in the introduction, that now our EBITDA is excluding the IFRS 2 charge. It's a charge that for employee benefit, long-term employee plan, you know, shares distributed to employees. It's a non-cash expense, to be I would say with the same treatment and best practices, we have been decided now to exclude that, because obviously this charge is becoming meaningful at a share price around EUR 80 per share. It represents EUR 7 million in the EUR 354 million EBITDA.
Operating margin, very strong. Reorganization cost slightly above last year, mainly coming from the cost of exiting the umbilical business and the layoff plans. Operating items way below last year, if you recall, we had two exceptional event. I mean one exceptional event, which was a sale of our land in Hanover, in Germany, which came with a profit of EUR 50 million, that obviously did not repeat in 2023. We have also lesser forex impact, about a flat result on forex this year versus again of EUR 25 million last year.
Net financial expenses higher as well, mainly coming from the cost of debt, which has been increasing due to interest rate highs, and the fact that we had also we issued a new bond in the first quarter of 2023, before we repaid the maturing bond of May 2023, and therefore, we had a little bit of overlap on the cost interest. Income tax in line, basically, we coming from a net income from operation of EUR 134 million, which is not far from last year, if you exclude the one-time gain of last year for the sale of the land.
If you look on the waterfall here, you can see that basically the contribution of the businesses in the EBITDA growth, strong contribution, as Chris explained, from Distribution & Usages, offset by Generation & Transmission, which is mainly the lack of EBITDA coming from the umbilical business, as well as basically some inflation and pump cost in Charleston, that we occurred in the first semester of this year. I move now to the next page, to page 19. We always do, I'm presenting here the electrification EBITDA change between 2022 and 2023 by levels, by the different axes of our basically value transformation. Basically, in terms of next cost, which is the net between cost improvement and inflation, we are positive.
We have been able to pass through all of the inflation to our customers, and at the same time, get some material savings on cost, mainly in purchasing and industrial savings. Amplify and SHIFT, which are the key of our transformation, are contributing both EUR 43 million for Amplify and EUR 30 million for SHIFT. You know, growing basically the most accretive margin businesses in terms of volume for Amplify and SHIFT, which is a transformation of our still low-performing units, and as well are moving our units to innovation with more innovative product and IoT. Strategic CapEx is also one of the levels coming from the new extension of Halden. We started to do some survey and studies, and therefore started to generate a little bit of profit yet on this strategic new addition.
Generation and Transmission, I mentioned, is mainly due to the drop of the umbilical, plus some adverse effect on some margin of the project in the first half, mainly in Charleston, but also some inflation stuff. After that, some conjuncture reversal, which are from one of also in G&T businesses, and D&U normalization, Distribution & Usages normalization. Margin came up at 13.3%, which is a 100 basis point increase of margin from the electrification business in the first semester of 2023 versus last year. If I move now to the next slide on page 20, and we look at the net debt evolution. Our leverage is slightly reducing from 0.4x- 0.3x EBITDA.
Basically the strong cash generation from the businesses, EUR 237 million, plus some meaningful positive change in working capital, mainly coming from the down payment received at the end of the second quarter. The TenneT down payment, we received EUR 150 million, definitely helped basically the cash generation of the semester. CapEx remains quite high, EUR 148 million, including that we have EUR 89 million of strategic CapEx, which is a completion of additional addition of expansion in Halden, that will be completed by the end of the year. Also a meaningful cash out with a dividend, obviously, to the parent, and also the acquisition on the M&A box of Reka, that Chris mentioned earlier in Finland. If I move now to page number 21, and we have a look on our balance sheet.
We continue to have a quite strong balance sheet with a meaningful, basically, I mean, very good working capital level and, basically, total financing of EUR 2.4 billion. When you look at the ratios, we have a lot of room on our covenants, slight increase in the gearing ratio, mainly coming on the net debt, and also the leverage ratio is decreasing due to the cash return. If I move now to the next slide, we look at our equity on page, sorry, liquidity on page 22, you see that we have a very strong liquidity position, close to EUR 2 billion.
When you add up the cash at the end of June, plus the undrawn EUR 800 million revolving credit facility, EUR 2 billion. We have the next issue maturity date for our bond on the coming bond is the one maturing in April of 2024, EUR 200 million. Nothing more in the remaining of 2023, and again, a very strong cash position of EUR 1.2 billion at the end of June. Now, I will move to page 24. In the light of the very strong performance of the first half of 2023, we have decided to raise the guidance both on EBITDA and normalized free cash flow. Obviously, this guidance includes the contribution of Reka for the second semester.
We increase EBITDA from EUR 570 million-EUR 600 million to a new range of EUR 610 million-EUR 650 million. Cash flow, normalized free cash flow, increase as well by about EUR 70 million on the lower part of the range and EUR 50 million on the upper part of the range. You see the basically tailwinds and headwinds. Obviously, now that we are half of the year, we are getting more and more comfortable about the performance for 2023 and optimistic about it. That being done, it concludes my financial section, and I turn on the mic to the operator.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question on today's call, please press star one on your telephone keypad.
That is star one for your questions today. Our first question comes from Daniela Costa from Goldman Sachs. Please go ahead.
Hi, good morning. Thanks for taking my questions. I have two. First one, just clarifications, I guess, on some of the things that you've said in high voltage. Can you give us some view on how quickly this, these, some of these headwinds can erode? I guess there's some, like, inflation ramping up of Charleston mix that you should have high visibility on, I guess, because of the backlog. So how steep can be the resolution of these headwinds? On high voltage as well, maybe you explained and I've missed it just right now. Those EUR 20 million project related expenses that you've exceptionalized, can you just repeat? I'm probably sorry I missed it.
Why is it not, this is not considered operational and is exceptionalized? Then the second question related to just your outlook commentary. Can you maybe break it down between usages, industrials, distribution? What are you assuming inside your guidance for pricing in the second half versus volume and the sort of visibility you have? I know you mentioned some slowdown commentary, yeah, just those two points. Thank you very much.
Thank you, Daniela. Good morning. Good morning, Daniela. I will take the first question on G&T and the headwinds. You're completely right that some of the impact that we've seen in the first semester will not repeat themselves. Obviously, they are one-off in the second half, and we get visibility on those. I will mention specifically, for instance, delays on some projects in Charleston that basically drove to LD, liquidity damages recognition in the first half of the year, that are now fully booked and in the financial, that the will not repeat themselves in the second half because the project is over.
Definitely those are one-off, and they are quite, I mean, they're meaningful, more than EUR 10 million, 13 to be precise. We have also some inflation that impacted the margin of the project. On the project, some of the winner shop projects that entered the backlog before COVID or right at the beginning of COVID, were not completely immune, I would say, against all type of cost inflation. The margin of the project has been adjusted.
Obviously, when you adjust the margin of the project, you have to take the right of the margin of the previous year to adapt and one time impact on your margin, impacting your P&L. Therefore, I mean, this is now we now get to the level of margin that we second half, but we will not get the first one-shot impact of the adjustment. Obviously, this is behind us as well. Then the last thing, which is making a big difference between H1 and H2, is we were anticipating to get the EuroAsia contract in the first half, which is a very strong margin provider for the company and for the business segment, GNT.
That since this project was only signed in the second semester, I mean, in the end of the month of July, it is not included, anything is not included in the first numbers, and this is definitely lacking into the numbers. Definitely in H2, there will be a catch-up effect and substantial, I would say, contribution of EuroAsia in the second half of the year. These are the main elements that obviously will give us more visibility and we are expecting a better performance of the GNT margin in the second half for the reason I just explained.
However, I mean, it will remain below for the year on what we've seen in the previous year because of the very low level of the first half of 2023.
Yeah. Well, one we can add up, this is that Charleston legacy contract are a bit behind us. We have load out source work, and we just starting the production of the very, very big contract of our state called Revolution. A lot of things should normalize in terms of production, but it's very complex to ramp up new factories in a country that have no legacy in the offshore wind farm subsea cable. Good luck for the future investments, but I think we hope that for us, it's behind us. Regarding the question regarding D&U, I think you're right to separate the two together because it's indeed two different dynamic.
In regards to distribution and utilities, all nation are waking up at the same time in regards to their very obsolete electrical grid. We have in all countries, specifically Europe, North America, and South America, a very high demand, which is for us, resilience in case of recession. The numbers that you see right now as it's a firm agreement on call off, maybe not on growth, because it's a question of installation phasing, but will remain for the next semesters. Where are in usage? We have seen a degradation of demand strongly in North America, which is of course, things are normalizing. We kept our pricing up. We have seen as well some degradation in Peru and Chile and as well, Australia.
A slight slowdown in the Q2 in Europe, nothing significant for the moment, on the strong growth in Africa and Lebanon. Of course, we remain prudent because we have some signs of downturn in some region, and this is why we are anticipating those downturns by recession-proof actions on our cost base to make sure that it will not impact our margin. That's the answers for this question.
Thank you. Sorry, just to follow up on the first part on GNT, you talked now through most of the items on that bridge, but umbilicals, can we just confirm how much of a drag there will be, if any, still in the second half? Also the point on the EUR 20 million exceptionalized, if you could maybe I missed that again.
On the umbilical, definitely most of the decrease is coming more in the first half. There will be a remaining decrease in revenues in the second half, not to the magnitude of the first half.
Maybe, Mika, I can give you the value of our umbilical backlog. In Q2 last year, it was about EUR 200 million, and in Q2 this year, it's about EUR 16 million. It's we are on really on the way of the exit.
Exactly. Sorry, the other question on GNT, I did not understand. Can you repeat please, Daniela?
I was just clarifying again, and I might have missed it earlier. On those EUR 20 million that are project related that you put below the line, they seem operational, just interested on why?
Oh, yeah.
You exceptional that.
Exactly. This is one project called umbilical project that we are manufacturing in Halden. It's definitely impacted in its completion due to the termination of the segment umbilical. Between the announcement of the restructuring, I would say, of the umbilical and the completion of the project, there have been departing loss of engineers, people, and inefficiencies. All the, I would say, extra costs on the project were basically connected to the shutdown of the umbilical line of business.
Therefore, I mean, typically, when we had situations like that, if you recall, when we shut down Halden in 2019, we had a couple of land projects that were in the same situation. We were able to move those costs in restructuring. Since COVID, basically, it's not permitted anymore to move that to restructuring. So we have basically created a line in our PnL called specific operating items, and we basically move that outside of EBITDA, because, again, we want EBITDA to be a comparable measure over time, and those costs are linked to the restructuring of this discontinuation of this umbilical business, and therefore, are not operational.
So not, I mean, reporting them in EBITDA would not be comparable with what we've done in the past and was not, is not part of our internal rule of basically reporting operational performance, but it is in EBIT, in earnings before interest and tax.
Got it. Thank you for clarifying. Thanks.
Thank you, Daniela.
By the way, this is the same way that many other companies do it. You look at our competitors, or you look at Christian, at Schneider Electric and Legrand, do the same thing, basically excluding non-operational, non-repetitive, I mean, operational, but linked to restructuring, items outside of EBITDA.
Thank you. Next question.
Thank you. We now move on to our next questioner, which is George Featherstone from Bank of America. Please go ahead.
Hello, morning, everyone. Thanks for taking the questions. First one, just on that G&T margin, just to maybe a little bit more clarity, if we could possibly get it. Could you help us with what the underlying margin is for the business in H1, excluding the umbilicals impact? You know, you've done it with the organic growth. Can you just help us with what the margin would be for the G&T business in H1 without umbilicals? Then more broadly in that segment, there's been some messaging from a few developers that there's delays in the offshore wind market, due to rising costs. I just wondered what, if any, risk you see in your backlog as a consequence of that?
Yes. Hi, George. We'll start with the first one. The underlying margin would be similar to the one we reported. It has an impact on the EBITDA volume, value of the EBITDA, basically, obviously. The fact we removed about the EUR 100 million of sales, it does not have a meaningful impact.
Mm-hmm.
On the change in the percentage of margin business. Do you want to take that, too?
Yeah, we've seen some messaging on some, or from some developers on the consideration of delay of major projects. So far, based on our backlog, we are not concerned.
Okay, thank you. In the distribution business, obviously, in a significant improvement in profitability, clearly demand is strong. You've talked in the past as well about renegotiation of framework agreements. I just wondered if there's been any impact from that yet, and how much of your business in this area is on these new framework agreements?
Well, it's the vast majority of our business in distribution is supported by a long-term framework agreement that have been renegotiated. As well, on top of that, we have launched, we have performed SHIFT in many of our unit that have not been under this program in the last three years. That improve through complexity reduction, the generation of EBITDA % on free cash flow generation. I would say with the renegotiation of the frame agreement, plus the equipment saturation, plus the SHIFT performance, yeah, we are on structural margin base.
Okay, thank you. The final one, just on the, on the portfolio. I just wonder if you could give us an update on the telecom disposal and also the plans for the auto harnesses disposal. I think you last commented on this, that you might be able to do something with that business by the end of this year. Is that still a timeline that's relevant?
Yeah. Regarding telecom, on telecom, the transaction is ongoing, and should be disclosed in Q3. Regarding harnesses, we put on hold because business is going very well. We plan to reach EUR 800 million EBITDA, no, sorry. That is not a wish list. EUR 800 million revenues by 2024. You know, the situation, if Ukraine doesn't ease the process, we have received some offer, but that was not for us enough, I would say, attractive to dispose that business.
What we do is that, given the volatility of Ukraine, we have duplicate our equipment in another countries, in order to, if the work carry on, to shift from Ukraine to the other countries. This duplication as well reduce the risk of our businesses, of automotive harnesses, and that will certainly improve the quality of the offer that we should receive next year. As the harnesses will not be proceed this year, we have another activities in the industry which is very well on progress, and that should be announced on the Q4 of this year as a disposal.
Okay, thank you very much.
Thank you, George.
Thank you. Up next, we have Sean McLoughlin from HSBC. Please go ahead.
Thank you. Good morning. just to, I suppose, dig a little bit more into G&T. I mean, thinking of 17%-24% targets that you gave us last year, I mean, we're clearly a long way from that. Just looking at your backlog, I suppose, at which point does that mix shift, let's say, structurally towards, giving you a 17%-24% target range? You know, at which point is, let's say, higher inflation, actually baked into all your forward margin, assumptions for, G&T? That would be the first question.
I will take the question, Sean. Definitely, as you rightly say, we're quite a long way from that, but we have modeled basically our backlog, the current backlog we have, including EuroAsia and TenneT, the two latest contracts that are meaningful contracts, because both of them represent more than EUR 3 billion, EUR 3.5 billion of future sales. We have looked at, with the margin we know on those contracts and the rest of the backlog, how this backlog will basically deplete itself in the coming 5 years. Basically, what can I tell you to answer your question, prices precisely, is that starting 2026, we will be above 17%, and then we will reach gradually to more than 22% by 2028. This is the latest we've done information.
In the meantime, between now and 2026, we will ramp up progressively to get there, but the big change will be 2026 for sure.
Thank you. I guess on the, on the new vessel, can you give an indication of the total CapEx and when you will spend that?
Yes, sure. The total expected CapEx for the new vessel is EUR 270 million. We'll start expanding part of that this year in the second semester for about EUR 60 million. The bulk part of it will be next year in 2024 for EUR 130 million, and the remaining portion will be in 2025.
Thank you. Lastly, on distribution, you talked about the recurring revenues, the 850,000 connected users today. I mean, what proportion of your revenues would you say are recurring in distribution? And what is your target of connected users from that base today?
Well, I'd say it's about roughly 5%. The objective is keep growing. Keep growing because that's part of the strategy to make sure that we can resist to any fluctuation of demand in terms of margin re-generation. What we see is that we are a bit alone proposing those offer to our customers that are very, very well accepted. We'll keep growing above 5%. Our team has a very strong incentive to increase that part.
Thank you. I mean, just maybe, just in terms of maybe of penetration, you know, just to put that kind of 850,000 into some context.
Sorry?
The number of connected users today, what kind of penetration is that, would you say of, you know, I don't know, you know, new sales or existing?
We can say that, let's look at the ULTRACKER with the 40,000 connected objects for the distribution. Our potential target of The captive market that we address can reach a total of 4 million of connected objects. We are only at the beginning.
Super. Thank you.
Thank you. We're now moving on to our next question, which comes from Eric Lemarié of CIC. Please go ahead.
Hi, good morning. Thanks for taking my question. I got two, actually. The first one, regarding your guidance in EBITDA this year. If I am not mistaken, the low end of the guidance implies an EBITDA margin decline in H2, but is there any reason why it should be this case? That's my first question. Second question on acquisition. You mentioned your intention to pursue acquisition, I was wondering whether it is still a priority for you, or you got plenty to deal with your current backlog again?
Well, Sure, I'll take the first part or first question. Definitely, as you rightly say, we're expecting second half to be... I mean, it's not we expecting, it's just we lacking visibility of, as we mean, as we would do in the usages and distribution, most likely businesses. We've had a very, very strong first quarter performance in both segments, Distribution & Usages, as well as Industry and Solution. Second quarter started to slow down a little bit in terms of volume. We've seen mainly in some of the areas in the world where we had the most strongest, I would say, for the past 18 months, strongest volume and pricing increases.
We've seen some slowdown in the months of May and June that are continuing in the month of July. You know that on those businesses, the visibility is quite short term, couple weeks only. Therefore, we are remaining cautious about what could be the situation if volume continues to drop in the third quarter and if prices could also drop. We are quite resilient, we believe, on prices for the reasons that Steve described about, basically our transformation, our ability to move up in the value chain in our product. We have not touched at all or very little impact on prices so far, despite some volume changes. Obviously, the situation remains uncertain, I would say, for the, at least for the last quarter and the second part of the third quarter.
Definitely, we're taking a little bit more prudent approach when it comes to that. The second impact to that is, despite we believe on GNT, that the most of the impact of the first semester are behind us, we continue to trade or recognize margin on some of the projects that will be completed in the second half of the year, or beginning of next year, at the lower margin level for the reason I explained, and therefore, that will not necessarily except for oil and gas compensate the potential drop in distribution usages. For those reasons, we remain cautious, I would say, for the second half, hence the guidance, the way we present it today.
You know that this is a bit our trademark since for the last five years now. Make sure that we reach our numbers, but as well anticipating potential risk on remaining prudent in the guidance. Regarding your second question on the acquisition, of course, fully full blast on the electrification, but two different universe. In the high voltage business, we have decided to play organically with the Halden expansion, with Charleston, with Aurora, with the new second vessel that we just announced. It's an organic I would say choice. Whereas in Distribution & Usages, of course, we keep investing in some organics, and we'll make some announcements in the coming months, specifically on distribution business.
This is where we play as well inorganic. We still have a lot of potential of consolidation in that market because of a multitude of regional players that are certainly a bit worried about the evolution of the demand in 2024. That give us a great opportunity to accelerate our acquisition dynamic in that field. This is what we see right now already, our team is fully loaded on the M&A stream. I think, we'll be very happy to announce another's acquisitions in the incoming months.
Yeah, thank you.
Thank you. Our next question now comes from Akash Gupta from JP Morgan. Please go ahead.
Yes. Hi, good morning, everybody. A few questions from my side as well, and I'll go one at a time. The first one I have is on these investments in high voltage. Chris, again, I mean, we can see the need for investments given the backlog, which has gone up at you and your competitors. What was a surprise for me was that when we look at your competitors, they're also investing in new capacity as well as vessels. When we look at your announcement, it is only about the vessels. Maybe if you can elaborate on, Does this mean that you may be still open to increase capacity further in future, if required, and probably that may take lower lead time than getting a new vessel, which is why you are announcing the vessel before?
Shall we read this, that you may be open to the idea of increasing further capacity in high voltage? Then the follow-up of that question was also for J.C. that, how shall we think about the strategic CapEx for the full year? I mean, it was, I think, EUR 77 million in the first half, and now I think you're saying there would be EUR 60 million, if I understood correctly, for vessel. What is the new number for strategic CapEx for the full year?
Thank you, Akash. Yes, we'll answer to your questions. First of all, the G&T business has to be taken in different parts. We are lowering massively our exposure to land high voltage. That means you need to compare subsea to subsea, our colleagues have invested in both land and subsea new capacity. We make a massive investment in Halden that will be open in Q1 2024. What I can tell you today is that Halden is loaded at more than 90%, 90% up to 2027. Including, of course, TenneT on EuroAsia.
That was the difficulty that we have is that with this full loading of Halden plus as well, Charleston, because we are full up to 2027, we were lacking installation capacity. We are just resynchronizing installation versus production, given the backlog that we have today. What I can tell you is this now with the new capacity of Halden, the ramp up of all our investment in Charleston are fully synchronized with this balance with this third vessels. Do we need to announce more CapEx? Not right now, because let's execute properly what we have.
Our choice is to be 97% subsea driven, considering the level of margin on the lower exposure to massive competition in that field, because you know that interconnection, we are roughly three player on offshore wind farm, 5 or 6 that generate higher margin. That's the, I will say, the answer that we can bring today, Akash, for the moment. J.C.?
Yes, for the question on the strategic CapEx, Akash.
... in the first half of 2023, we spent EUR 90 million of strategic CapEx for the continuous extension of our two new lines in Halden. In the second half of 2023, we'll spend EUR 120 million, which is basically half of that will be the completion of the additional line in Ireland, and they will be operational beginning of 2024, and EUR 60 million for the new vessel. EUR 120 million, which brings basically the total strategic CapEx for 2023 go to EUR 210 million.
Thank you. My second question is on organic growth. If I look at the electrification business, and you say you had 3% organic, excluding umbilicals, is it possible to get a rough idea of how much of that was volume versus prices, pricing? Thank you.
It's majority pricing. Majority pricing, because first of all, our team are not incentivized on volume. None of the team, none of the manager is incentivized on the volume. They are only incentivized on value growth. That's the aim, and this is why we have been able to reduce the natural resources consumption, roughly by -10% over the first semester. Because the new logic of our target definition is strong incentive on the financial ratio for all business unit, means EBITDA return capital employed on free cash flow generation. On the other hand, we force them of reducing their carbon footprint, we put carbon quota for the majority of the unit.
The double constraints of improving your profit while in the meantime reducing your carbon footprint, does not allow to think in growth, in volume. You need to make sure that your economic model, your customers and product portfolio will fit the both aspect, profitability increase and carbon emission reduction. This is the E3 model that we are populating everywhere in the company, and on that for the moment, running very, very well.
Thank you. My final question is on this fire safety cable. Thank you for giving this additional information on the margin profile. Can you say what is the penetration of this fire safety cable in your usage segment today? When we look at the medium-term potential, let's say in three or five years, what penetration do you see down the line? Thank you.
It's about roughly today, we are at 15% overall of our revenue. We have a compound annual growth that we foresee around 13%-16%, depending on the area. I remind you that in Europe it has been forced by regulation. New build, new construction build requires HFFR product, so fire safety proof. It's coming up as well in South America. It will come up as well in North America a bit later. Today the market is about, for fire safety, is about EUR 3 billion, and we expect this market to reach EUR 9 billion overall in 2030, worldwide.
Thank you.
Thank you, Akash. Next question?
We're moving on to our next questioner, which is Miguel Borrega from BNP Paribas Exane. Please go ahead.
Hi, good morning, everyone. A couple of questions from me. First on your guidance, I remember you saying that you were assuming a complete reversal of the cyclical or conjunctural tailwinds in 2023. Margins have actually went up sequentially for usages and distribution, so I would assume some conjunctural effects. When I look at your bridge on slide 19, there's a negative effect from the conjunctural effects, negative EUR 8 million. Just wanted to confirm conjunctural is now coming down, and you still expect the remaining EUR 53 million to come in the second half of the year? Last year, the positive effect was EUR 61 million. Are you expecting EUR 53 million down in the second half? Thank you.
Miguel, yeah, I mean, definitely, first of all, let's talk two seconds about first half. We had a first quarter line with 2022, meaning extremely strong in terms of volume and pricing in all of the region of the world for usages. We started to see a decline in the second quarter, hence the slight negative number that you see on the bridge at the right. We've seen so far the volume decreasing. If I take an example, for instance, from North America and Canada, mainly where we've seen and we've been reporting in 2022, very strong volume and pricing. We see, for instance, that the volume in usages in North America, on the second quarter, declined 38%.
If you look on the quarter-to-quarter from Q1 to Q2, 36%. Definitely a very, quite strong decrease in terms of volume. However.
... mitigate that a little bit because the level was so high. Just to give you information, 2022 was 80% above the normalized level of 2019, if we exclude 2020 for COVID reasons. We remain quite we continue, despite the decrease in Q2, which is impressive in terms of number, we remain quite high, and therefore, not knowing what will be Q3 and obviously Q4, we have discounted that. To answer your question, yes, it's not in the guidance for the second half, explaining why basically we see the second semester, which is much lower than the first semester. The second impact, I talked about volume. The second important impact is obviously pricing, because we had double effect of volume, high volume and high prices. We have not yet touched the prices in Q2, despite the volume decrease.
If the volume was going to continue to decrease, obviously we will have to reduce prices as well to a certain level. Despite we believe again, that thanks to our transformation, we can remain at a decent level of pricing, but we might have to touch prices as well, therefore, pushing it a bit even further, the decrease. This is why, I mean, when we put our guidance together, as we have always done, and this is why we came in February with such a wide range in the guidance and maybe, just the objective of converging conjuncture of 2022 to structural for 2023. That's what we're doing. We have just increased the guidance because, again, we had a very strong Q1.
That's the way, that's the way we took a little bit of, I would say, cautiousness into our guidance, second half performance on usages. I mean, distribution is a little bit different because, again, we are a lot on semi elements, which are giving us more visibility than usages, but and distribution is doing very well, and we don't see necessarily the same, I would say, volatility, potential volatility on usages on second half, but definitely usages, I mean, we don't know much further, I would say, the month of September right now.
Okay, thank you. Related to your guidance as well, what changed essentially, that led you to increase the guidance? Because I noticed the EUR 7 million of shares, share payments, share-based compensation, taking out of the EBITDA, plus the EUR 20 million of additional costs. Basically, if you exclude that's EUR 27 million, plus the integration of Reka, that's the EUR 30 million you are increasing the guidance. Is that what explains the upgrade?
First of all, the share-based plan, you're right. The EUR 20 million, no, because the EUR 20 million would have not been in EBITDA anyway. Again, before we always treat it as structuring, it was not part of EBITDA. This is not a difference. This is just the same treatment that we always do. We cannot take that as an explanation because it would have not been part of EBITDA anyway. The share price, yes, is a difference, that's EUR 7 million. That's about EUR 17 million expected for the full year.
The rest is basically the reason we increase the guidance again, is because we first of all, we've had a strong Q1 in low voltage, very strong Q1, that we need to take into account in the first half result. The second part is definitely we signed EuroAsia, which give us obviously very good news for our financial performance in the second half, and that came basically late into the semester, I mean, beginning of the second semester. Without EuroAsia, probably we would have not been as I would say, excited in increasing the guidance to that level for the second half of the year. EuroAsia is definitely a big contributor of the reason of why we're increasing the guidance as well.
That's clear. Thank you. Then on G&T, I understand the temporary effect in 2023. You're now saying the margin guidance 17%-24%, will be essentially after 2026, which is kind of a change in what you said last year, that from now on, the margins would be in that range. Is that because when you adjust for cost inflation, the projects that you execute until then, will have a little bit more cost than you were expecting? Then, kind of, what confidence do you have that after 2026, it will still be between 17% and 24%? What kind of protections are you having in that sense?
Yeah, Miguel, it's Chris. Just to remind is that I say that everything that we are taking in the backlog is in the range from 17%-24% in EBITDA guidance, which is confirmed by the fact that 97% of our backlog is subsea based. We still have legacy contract that have been taken by the formal team before us, so we are still executing a project that has been signed in 2018. We had as well a project in UK that we signed in 2020 with a massive part of civil work that have been impacted by the inflation. We say that the margin guidance grade, what we say is after 2025, starting in 2026, but that's as well related to the backlog. The fact that our backlog is
... massively loaded with long distance offshore wind farm plus subsea interconnection drives ultimately with those, I would say, tunnels of, EBITDA generation. Of course, you can have execution issue. What we have not modernized properly is the rundown of our umbilical business, the difficulties of the ramp-up of building new factories in U.S. That's for sure, that impacting, certainly a normalized, EBITDA around 14%, but the backlog that we have today goes in that direction.
Yeah, I completely concur to that. I mean, I think we've probably on our side, the missed expectation impact, negative impact on the down of the shutdown of the umbilical in terms of turbulences into the Halden plant, as well as difficult to ramp up the first contract in Halden in 2022, this we did not see. To answer your question, the 17%-24%, we definitely lost a year in doing that. We are more expecting first to do that starting beginning of 2025. We now talk about 2026. Yes, we've lost a little bit of time due to, I would say, again, the unexpected situation in Halden due to the ramp-up and the impact of the umbilical shutdown.
That's a fundamental question. I mean, we go ahead on that. That's for sure. It's what we discussed with our board of directors as well, because it's not only on improvement of the margin through the backlog, is as well as massive scale up, not on Nexans only, but of the sector. Because when you think the backlog of the three players, three main players in that sector in 2019 was about EUR 5 billion, are now on the reach to EUR 20 billion-EUR 25 billion. The backlog of the three main players have been multiplied by 5.
When you look at the G&T of Nexans, we were at a EUR 600 million revenue, now we'll be on the direction of EUR 1.5 billion revenue. It's a massive scale up that requires well to rethink the process, the standards, the routings, needs new skills, this is, we have not mentioned it, give me the opportunity to mention it. This is why we have announced as well a management change, where we ask, we are very happy that Pascal Radue from GE Hydro joined Nexans, because he faced in the last 20 years of his General Electric experience, those issues, he know how to handle it, this massive scale up.
Pascal will start on the first of September, supported by Vincent Dessale, to make that change smooth in the coming years. Of course, it's the first time in the history that G&T face such a, such course. That's the fundamental change versus the last years.
Yeah, when you look at the backlog today, I mean, there's the size of the backlog completely changed. Obviously, like you said, it's moving from EUR 2 billion only, 24 months ago, to EUR 7 billion, almost EUR 7 billion now. It's a massive change with new capacity, with new vessel, with everything. Again, we have not foreseen necessarily the impact of the transformation. When you look at the size of the backlog, it's not just the size of the backlog, it's also the complexity of the backlog. Instead of having 50, 40 project or 50 project in that backlog, we have now in that big backlog, less than 10 projects.
The complexity reduction of the backlog and therefore, the execution issues we might be facing will be quite different and much better off in the future than what it is today. We are in this transformation period, and again, we've lost one year due to the issues on that. When we look at the size of the backlog, the less complexity of the backlog, the margin on the project we have on the backlog, this is why we are quite confident that the future years will see significant improvement in margins.
Thank you very much.
Thank you. Thank you.
Thank you. As a brief reminder, that is star one to ask your question today. We're now moving on to Jean-François Granjon from ODDO BHF. Please go ahead.
Yes, good morning. A few questions from me. The first one, could you come back on the margin expected for the G&T? I understand that you are more optimistic for 2026 and above. What do you expect for 2024, 2025? Do you expect a slight improvement compared to the current level reach for the first half? Do you expect some, I would say probably more than, I don't know, 14%-15% EBITDA margin for G&T? My second question concern also the margin for the distribution and usages with a huge level reach for the H1. Do you consider that this level are sustainable for the coming years? I would ask the other question after. Thank you.
Yeah [foreign language].
Yes, I will take the first question on G&T. Definitely G&T, we've seen improvements the second half that will improve the margin versus what we've seen in the first semester for the reason I described and the contribution of EuroAsia. We see obviously further improvement in 2024 to reach again, the level above 17% in 2026, and that will be gradual from 2024 and 2025 to reach that. We see basically 2 point improvement year to get to the level.
Organic distribution, yes, we consider this sustainable. You can have some abundance in the organic growth, which is linked to the frame agreement call off on the phasing of installation. You know, you are in the favor role right now. We are in the favor role Q2 increase year, Q3 phasing of installation. If we have a strong winter, maybe Q4 will be a bit lower in distribution. What we can say is that volume on the price has been agreed for the next two years, so it should not have massive change in distribution. It's a very resilient business, and we are very happy.
Is what I told you, I want this business to shift to a double-digit horizon. It's what we did, now that means that we'll be ready to make some further investments to support the growth in that sectors. Usages, you still have a mix of structural transformation, but as well, some conjuncture effect. Difficult to tell you exactly what will be the percentage normalized in second semester on 2024, we want to remain in the range between 12%-15% in average. Even if there is a downturn.
Okay, thank you. Other question regarding the financial costs, we saw a strong increase for the first half to reach EUR 38 million. What do you expect? I think this is the increase for the rate. What do you expect for the full year? Another question regarding the CapEx. Could you just come back on the CapEx expected for this year? What do you expect for 2024 for all the CapEx for all the groups?
Yes. I will start with the CapEx question for 2024. In 2024, we will have no more remaining strategic CapEx from the Halden extension, but we will have the new vessel, which is announced, so that will amount about EUR 240 million. Then after that, we'll have about EUR 200 million of, I would say, maintenance CapEx, so that get to us to a total of about EUR 360 million for CapEx, for total CapEx envelope for 2024. Then it will start to reduce. For the operational financial charges.
Basically, financial charges definitely increased significantly due to, I would say part of that is one-off, and a part of that is, I would say, coming from the interest increase, interest hike. We have about EUR 14 million additional costs coming from interest increases. Also, as I say, one of the fact that we issued a new bond, and then we repaid the old bond, and there was a period of time where we had a double interest counts. That's for the most part, we have a little bit of foreign impact as well into this number.
I would expect the second half of the year to be slightly below due to the fact we will not have double bonds cost, but about EUR 30 million, I would say, instead of EUR 60 million. For the second half, that would give us about EUR 65 million-EUR 70 million of financial charges for the year.
Okay, perfect. Just two last questions. The first one concerned the backlog you not mentioned on the press release, on the presentation, the backlog evolution for Distribution & Usages compared to the previous presentation. Could you give us some color about the level and the trend for the backlog, for Distribution & Usages? The last question, regarding 2024 on the plan, your plan between 2021, 2024, presented a few years ago. Do you confirm the target between 10%-12% EBITDA margin expected at the end of the plan in 2024? Thank you.
I will take the second question, the question of the target. We are already there because we just, we are at 10.7%. Again, we continue to see improvements in all our businesses except for GNT for the first half. Again, explain the reason and why now we are confident that we will recover gradually, but we will recover. Then, the fantastic confirmation on the Usages & Distribution. Definitely, unless there is a significant recession next year that basically drops everyone's top line to very low level. I would say in current environment, we are very optimistic that we will be inside the way, well positioned inside that range of 10%-12% next year. Yes.
We don't give specific numbers regarding the backlog on the D&U. What I can tell you is distribution is based on frame agreement on the consumption of the volume signed in the frame agreement is going much faster than what we can deliver. Demand remains extremely strong in all region, in North America and Europe specifically, and as well Africa. Regarding usages, it's difficult to predict. The only thing I can tell you is that, as I mentioned at the beginning, we see a degradation of demand in North America, part of South America and Australia. A slight slowdown of Europe. We see as well that the new permits in Europe are down 15%, that means that Q3 and Q4 will not be fantastic.
A part of it is compensated by a very strong demand in Africa and Lebanon. I cannot give you more than that for the moment.
Okay, thank you very much.
Thank you, Jean-François. I think that was the last question. We wish you all a very great summer break and for the one that we will not see or not meet in the coming days during our roadshow. Thank you for your attention.
Thank you. That concludes today's conference. Thank you for taking part. You may now disconnect.