Ladies and gentlemen, thank you for participating to this Nexans conference call. Hope all your families and you are keeping well and keeping safe in these very turbulent times. I'm Christopher Guérin, CEO of Nexans. With me, Jean-Christophe Juillard, Group CFO, Aurélia Baudey-Vignaud , Head of Investor Relations. We are calling you in direct from our Paris headquarters. I will turn over to Audrey 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 today's press release, along with the audio replay and transcript of today's call that will be posted on our website, Nexans.com. I now turn you over to Chris, who will go over the third quarter 2020 highlights.
Thank you, Aurélia . Before we go through the highlights of the quarter, let me remind that our commitment to the health, safety, well-being of our employees underlies every facet of our operation. Regardless of the depth of duration of this pandemic and COVID-19, we are doing everything in our power to make the company even stronger than before and preparing as well a very exciting next step that we will provide to all our stakeholders on the 17th of February, 2021, during our Capital Markets Day. I propose you to turn to page three that we go through the highlights. Regarding our quarterly results, sales reported at EUR 1.4 billion in the third quarter, 2020, so representing an organic growth of 5.6% against the second quarter on the -9.8% year-on-year.
So we may notice a very solid rebound in cable business on different phasing from July to September, but all business are improving in different paths on speed, with one exception that we all understand, which is the aerospace business. We may notice as well a very strong rebound in harnesses. We have had a record of invoice in September, an historical record, on a very sound project execution in high voltage. I'm sure we'll have a lot of questions regarding the decline of high voltage during this quarter. Let me remind you, this is a pure project phasing. Everything is going well in terms of execution, and our sales on the nine-month perspective for high voltage reflects a 5% organic growth. We may say as well that the transformation plan has been reinforced. This is for us twofold. First is the cost reduction on one side.
We keep reducing our costs everywhere, in all areas, in all functions, since the beginning of the year. We can claim as well a very strong improvement on variable costs thanks to the action from our purchasing team worldwide. We need as well to acknowledge that our SHIFT program focused on energy resources and capacity, specifically dedicated to the good cholesterol, the good part of our portfolio, has been reinforced everywhere. We know that some analysts may see ourselves a bit lower than expected. But once again, I'd like to repeat that since my nomination, we are driven by smart growth. So we are willing to improve the growth of each business, but in terms of financial ratio mainly.
So that selectivity on our business may generate decisions to cap the growth in some areas because of potential issue of overuse or because of low margin, and as well some business or some customers may be diluted in terms of cash conversion. So this selectivity process through the SHIFT program has been reinforced and as well amplified everywhere in all the businesses. We may notice as well a very healthy backlog, 17% year-on-year. All business backlogs are growing and growing with this good selectivity, this good cholesterol. We have to say as well that we have a record of tendering activity in the subsea area, which is for us, of course, an upstream signal of stronger awards sequence in 2021, specifically in the wind offshore business and interconnection business. Once again, the medium-term and long-term catalysts are extremely good for those two businesses.
I will let JC detail our guidance, but our EBITDA range has been narrowed. ROCE has been upgraded, and the substantial free cash flow generation is confirmed. I will let JC detail as well all the overall situation, business by business. But before that, some key events during the quarter. Our investment with Aurora is well on track, and this new leading-edge vessel will be delivered at the end of May, 2021, and is already fully booked on July, starting July 2021. We may as well confirm the complete sales of our German metallurgy business to Mutares that has been closed on October 31st. We may announce as well we announced already the complete sales of Berk-Tek to Leviton on September 30th. And I'm sure you've seen our commitment for carbon neutrality by 2030. Now, JC, I'll let you comment more details of the activities.
Yes. So thank you, Chris. Page four of the presentation. So you have the global view of our Q3 2020 sales performance. So we report a Q3 organic growth of -9.8%, quarter-on-quarter for the group, but with very, as you know, different trends and mix by business that we will detail in the coming slides. When comparing Q3 2020 sales versus Q2 sales, we see globally an organic growth of +5.6% for the group, mainly driven by a solid recovery in the cable business of +9.1%. When looking by region on this slide, we can see that all areas have been impacted with negative organic growth Q3 year-on-year, with worst impact in Europe, Asia Pacific, and for a lesser extent in the Middle East and Africa.
However, when focusing on organic growth between Q2 and Q3 2020, we see that regions like South America and North America, in those regions, sales recovered sharply after the lockdowns. In South America, the rebound was close to 50% and came close to the level of Q3 2019. The recovery of the construction market was strong in Peru, Chile, Brazil, and Colombia. In North America, sales were quite resilient, supported by growth in the utility market, in Canada, partially offset by a tougher market in the U.S., mainly in mining and oil and gas.
Yes. If we move to page five regarding building and territories. Overall, resilient sales in spite of challenging environment. Once again, two sectors with two different evolutions. Territories, utilities, it's a resilient activity supported by the necessity to renew the obsolete grids, not only in Europe and in the U.S., and as well supported by government subsidies. Regarding the building, the construction market, we have, of course, faced a very strong slowdown in demand until the end of May. A pretty sound recovery all along Q3. In terms of organic growth in Q3, we have a very strong September months, much, much, much stronger than July and August, because lockdown measures have been gradually lifted across more geography, enabling construction projects to restart. During the Q3, we keep, of course you can see on the chart on the right page, the evolution of each country. France, Canada, very, very strong.
Peru, specifically strong thanks to the lift of the lockdown in September, like Brazil. China, extremely strong. A bit below is Australia because of lockdown measures during the period, and Nordic because of a pretty weak July, but September is back on track. So we mentioned as well, we give you an additional information, even if the backlog, specifically in construction, has a pretty low depth. But in terms of organic evolutions on the backlogs from September 19th to 20th, we have received a pretty strong order intake. We generate a +4% on backlog year-on-year. If we move to industry and solution, you want to take it?
Yes. So on the next page, on industry and solution, on page six of the presentation, you see globally the COVID pandemic has had quite strong negative impact in this business, with a 13.6% negative organic growth between Q3 2020 and Q3 2019, and -15.9% when comparing nine months 2020 and nine months 2019. However, industry and solution is made of multiple subsegments of activities with quite different trends. Here, I will detail a little bit of the key evolutions. First, if we look at automotive harnesses, it represents roughly EUR 120 million of sales in Q3, which represents about 40% of the total industry and solution sales. After a sharp decline at the start of the COVID in March and April of this year, of roughly about 40% versus last year, it recovered very strongly in June.
The sharp recovery continued over the summers, with +93% of sales increase between Q2 and Q3. Finally, the Q3 sales, we are back to the level of Q3 2019. A very, very, I would say, more than expected recovery of that business starting really in June, July, and August of this year. Overall, on the nine-month period, harnesses sales decreased organically by 17%, but again, mainly due to the sharp downfall of April and May. Most of the impacted segment of industry and solution in Q3 remains aerospace and defense, as Chris mentioned at the beginning, with a -50% organic growth quarter-on-quarter and -39% on a nine-month year-on-year, mainly coming, obviously, from our main supplier shutdown and delays on backlog, which is Airbus.
On a positive note, supported by growing orders from the main OEMs, sales of cable for wind turbines increased by 7.4% between Q3 2019 and Q3 2020, and by +17% on a nine-month basis.
Yeah. Look, we may add, JC, as well some important information. We are in number one position in most of all the renewable actors on the wind onshore, namely Siemens Gamesa, Vestas, and Nordex. We have signed a multi-year contract with Alstom and Bombardier of more than three years. As you know, they have a very, very strong backlog, so we are in number one position there. And of course, as we told you, harnesses have a very strong rebound. So harnesses are strong rebound linked to demand, but as well linked to the dynamic of hybrid vehicle that generated an improved mix in terms of harnesses produced in the cars because it requires both the harnesses for combustion and for the electric part. So harnesses are very, very well oriented. Now, let's go to the telecom on page seven.
So of course, the telecom, it's I know we have a lot of questions in that business. So I remind you that on the LAN cable part, the copper telecom part, we have divested, sorry, Berk-Tek to Leviton, but it's still, of course, in our results in Q3 because the closing has been done at the end of September. We can see that the sales have improved during the quarter versus Q2, +8%. Strong dynamic, mainly in Europe, in the Middle East, in China, pretty slow dynamic in North America. But Berk-Tek starting Q4 will not be reported in our sales anymore. Regarding the telecom infrastructure, so nothing has changed structurally since Q2.
And I think this is certainly the sectors which generated the most of ROI because we're still running with a very, very low demand in terms of fiber- to- the- home deployment because customers prefer to connect consumer with the last mile demand rather than keep deploying the complete backbone. So there is a very, very weak demand. The inventory and the supply chains on fiber optic is still very high and decreasing slowly because of the weak demand. And as well, we still have a lot of inventory with the whole fiber price, I mean, raw material. So we are not yet able to get the full benefit of what I told you in Q2 in terms of strong price reductions of the fiber optic raw material. But it will come because it's already signed. It's just a question of inventory phasing.
What is important to say in that telecom business is that we put a very strong energy to compensate this very weak demand on fiber optic on the subsea telecom. Subsea telecom is fully loaded. We are now having a backlog above 40%. This backlog in subsea will even get reinforced because we will announce in the coming weeks, certainly, big awards that will reinforce our medium-term perspective for the special subsea telecom. You can see already September to September that at this date, our backlog is at +18%, but this number will keep growing in spite of this telecom infrastructure sluggish environment. It will keep growing thanks to subsea telecom.
High voltage, which is a very important part, obviously, of profit generation on page eight of the presentation. So first message is High Voltage and Projects business is on track in 2020, flawless execution, and no impact and delays from the COVID-19 pandemic, especially when you compare to the other cable. When we look at Q3 2020 sales for the business, we see a negative 19.5% organic growth versus Q3 2019, but this is explained only, and I want to insist on only, by a pure phasing difference of the project and also by a different mix between manufacturing and installation. This is illustrated on the graph at the bottom left of the slide, where you can see the sales by quarter for 2019 and 2020. You see a low Q1 and a high Q3 in 2019, where 2020 is much more balanced over the quarter.
Overall, when comparing nine months 2019 and nine months 2020, the organic growth is +5%. At the same time, the backlog for High Voltage and Projects grew 26% between September 2019 and September 2020 thanks to the high tendering activities for subsea interconnection and wind offshore, about EUR 5 billion pipeline being addressed. The record level backlog in subsea gives Nexans visibility on the field capacity until 2022. Sales in subsea grew 1.1% in Q3 versus the same quarter of last year. A word on land high- voltage, where sales grew 20% quarter-on-quarter thanks to the 2019 restructuring and the operational improvement of the manufacturing line in Charleroi.
Not going into too much detail because you have a lot of information on that slide about high voltage, what I can confirm is for the year 2020, high voltage will be at par and on track with our expectation. It will be at the same level of 2019. In terms of margin, I confirm that there is going to be as well no surprises.
We may add, JC, that it was not smooth all the times because of COVID that generate to overcome some execution challenge, but all the teams have made fantastic work. We are efficiently, timely delivering our project on time, so no issue to report on the execution part. Regarding the tendering activity, as I said in the introduction, a huge tendering activity in interconnection on wind offshore. We get benefit as well to have a lot of demands in the U.S. thanks to our new installation in Charleston. But once again, it's not just a question of a pure award on a great organic growth, a great backlog. Nexans systematically applies its risk-reward modelization, which is once again, I repeat, combined of three fundamental dimensions. First, we make sure that we are not taking orders that are not accretive, both in terms of margin and in terms of cash conversions.
We don't take orders that may generate a technological risk because we know that a risk in that sector can have a domino effect for more than two years. We don't as well expose the companies with terms and conditions that we consider, I would say, abnormal. More important for us is we want to guarantee a very healthy and balanced backlog, both in terms of technological risk, financial output, and the terms and conditions that are applied into it.
I will now.
Yes.
Now, I will move to page nine of the presentation and talk a bit about our guidance and say that thanks to a strong focus on execution, continuous cost reduction, and a tight monitoring of our working capital, we are quite happy to confirm or improve the guidance given last July. More specifically, EBITDA, the guidance is confirmed and the range is narrowed from EUR 310 million-EUR 370 million as announced in July to EUR 320 million-EUR 360 million for 2020. The guidance for return on capital employed is upgraded from a previous range of 7%- 10% to a new range to 8%-10%. Finally, we announced last July that despite the high strategic CapEx and the restructuring cash outflows from the 2019 restructuring pledge, free cash flow generation for 2020 would be positive thanks to the significant reduction in working capital in the first semester.
We can now confirm that the free cash flow for 2020 will be in a range between EUR +50 million to EUR +100 million, pre-M&A and dividend, or if you include basically the sale of Berk-Tek that was closed in September, between EUR 200 million- EUR 250 million.
Would you do the conclusion, please?
Yes. What can we say? Regardless of how long or what shape the recovery will take, if you remember that in March, we told you that we would like to see a V-curve recovery, but we believe that it will be more W-type shape because of the sanitary evolution through different pandemic waves. So Nexans is effectively safeguarding its financial strengths, like JC mentioned, and even improving it. Our growth drivers are intact and our transformation is robust. All our units are fully operational despite new lockdowns in countries. And as you can see, to support a very solid backlog across all business. We are very confident in regards to our execution, our market leadership. This will position us to emerge from the current global uncertainty even stronger than ever.
We have two events that are confirmed now in our agenda: a Nexans ESG event that will be held virtual on November 18, 2020, the full year, of course, event presentations on the 17th of February, as well as our Investor Day. So those events, depending on the pandemic, will be live with people in the room or virtual if we are not able to do so. Thank you for your attention. Now, let's turn to the questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Please stand by. We'll compile the Q&A queue. This will only take a few moments. If you wish to cancel your request, please press the asterisk. Once again, it's star one if you wish to ask a question. Thank you. Our first question comes from the line of Max Yates from Credit Suisse. Please ask your question. Your line is now open.
Thank you. Good morning, everyone. So just my first question is on how we should think about the high voltage and project business into 2021 and how much the U.S. plant will be contributing to 2021 in terms of revenues, and is it reasonable to assume that we get in 2021 a very sort of healthy year of double-digit organic growth based on the backlog? That's my first question.
Thank you, Max, for asking. So 2021, when it comes to high voltage with the backlog we have, is going to be fully filled in terms of revenue capacity, both in our main plant in Halden as well as in Charleston. Next year, we will be in the complete production in Charleston of our securing contract. I remind you that the capacity of Charleston when it's fully in production is about EUR 150 million of sales per year. On top of that, obviously, we will add installation of the cable produced. And the plant will be completely, I would say, fully over 12 months under production, where this year, compared to 2020, we only started after the completion of the CapEx, I would say, and the transformation of the plant, we only started the production in mid-year.
So definitely, you will have six months, I would say, added sales due to the 12 months of production next year. When we look at the backlog, it's a very healthy backlog, and we have visibility for subsea until 2022 with the project. There will be, as I mentioned, higher installation in 2021 than in 2020. We had higher installation in 2019. We had, and I communicated about that at the beginning of the year, slightly less installation in 2020. But then, since it's a question of phasing, obviously, the cable produced needs to be installed, and they will be likely they will be installed in 2021. So there will be on top of the Charleston timing, six months versus 12 months, also, I would say, a growth in terms of installation.
In terms of margin, with additional installation, margin will be higher than 2020, likely at the level of 2019.
Okay. That's very helpful. Thank you. Just my second question was on the cost reduction program. So I think we did sort of EUR 49 million in the first half, and I think it implied versus the EUR 210 million target that there was about EUR 86 million still to come. Could we get a rough idea of how you're thinking about that EUR 86 million within the EBITDA guidance for this year? I just want to understand kind of realistically how much is left of this on 2021 and whether, in fact, actually kind of trying to make the company better in obviously difficult times, you've actually found some additional cost savings on top of the EUR 210 million to do? That's my second question.
Yes, sure. So definitely, with COVID, we took the opportunity, may say so, unfortunately, of the situation to accelerate our cost reduction in 2019 and 2020, sorry. And that's why we communicated in our H1 result with a higher number, I would say, than the midpoint of the EUR 75 million that we addressed in our equity history. Basically, EUR 210 million is roughly EUR 70-EUR 75 million per year in our equity history over the three years of the equity history. We did better on the first half due to the acceleration of the cost cutting with the COVID and the fact that basically we had opportunities to go further into our analysis and reduce even further and faster, I would say, some cost in the organization and in the plant.
I would say that some of the cost reduction, in addition to the EUR 75 million and the EUR 210 million, were one-time cost reduction due to COVID, like for instance, all the traveling cost and some consulting cost. We have about a little bit more than EUR 1 million of traveling cost per year. Obviously, during the confinement, most of the company was not traveling, if not traveling at all. And therefore, you will have quite significant savings on that line for 2020. If the business restarts normally in 2021, then obviously, these savings will not rehappen a second time in 2021. However, there are also part of the cost reduction, which are permanent and recurrent cost reduction, probably in the range of about EUR 20 million.
At the end of the day, we will do better in 2020 and will be in the line of what we did in the first half of 2020. I would say that for next year, we will overall be above the EUR 210 million that we communicated at the beginning of the equity history thanks to the recurring impact of the COVID cost-cutting action we've taken in 2020.
Thank you. Maybe just one final very quick clarification. When you said on the High Voltage and Projects that you thought margins would be back in line with 2019 levels, was that talking about just the subsea business, or was that talking about the whole high voltage division? Because I would have assumed that if we're looking at the whole high voltage division, you would have a benefit from the land high- voltage activities being less loss-making because of the restructuring that you've done there. Just maybe a quick clarification around that.
Yes, definitely. Definitely, overall, there will be, I would say, a healthy improvement of the margin for the entire High Voltage and Projects business for the two fold. I mean, there will be a slightly better subsea due to more installation, as I mentioned before. And also, there will be continuous ramp-up on the land part of the business with, I would say, continuous improvement versus restructuring we did in 2019. So overall, altogether, the two will contribute, and there will be an improvement of the gross margin of the high voltage business quite significantly. Decent improvement of.
It's scared to say significant because it doesn't know what you will put in your report. But for sure, Max, if I may add to JC, there will be a double-digit incremental improvement on the gross margin for high voltage overall next year.
I'd love to ask you about your cash, but I'm going to get back in line. Thanks, guys.
Thank you, Max.
Thank you. Your next question comes from the line of Sean McLoughlin from HSBC. Please ask your question. Your line is now open.
Thank you. Firstly, on the EUR 5 billion pipeline and subsea, I'm just interested we've obviously had a good, I suppose, last 12 months in terms of overall order intake. Some of your competitors now have kind of multi-year visibility. I'm just wondering how the actual bidding is structured for these projects. I mean, is this effectively a seller's market? Is there limited capacity for high- voltage cables, and how is this affecting pricing and your approach to bidding in these projects?
Sean, it's a very complex question, but let me get you back on the pricing. We know that we heard from our competitors that there is a pretty intense competition. There is intense competition in all markets, by the way. But the competition cannot be in high voltage like the one we have in telecom business, for example, because we have a much lower number of players in the high voltage business. The way I see it is that when I see the pipeline we're talking about EUR 5 billion to come. When I see the amplification of demands on wind offshore, of course, the COVID has certainly amplified the willingness of countries to improve their roadmap to carbon neutrality. So it will be, I think, surprisingly strange to believe that there will no lack of capacity in the coming five years to come. It will come.
We see already some customers reacting on the bidding process, some customers asking if they can improve the pipelines and specifically the slots because they are scared of a potential shortage of the sectors on the cable side. Because you have a convergence of lines of productions for some actors. When you are doing German links, that can as well jeopardize your capacity for wind offshore. This is not true for all competitors, but that's in one of them, and that's putting another pressure on the capacity. So I am pretty confident. I think there is no reason in the sectors to strongly decrease the price because there is room for everyone and to be even more selective on our side to make sure that we are not playing short-term, that every year, keep improving our gross margin and EBITDA ratio in the subsea business.
So once again, this is the reason that we have reinforced the modeling process that combined the financials, the technologicals, and terms and conditions, I would say, ratios. And we are still very, very confident to have a greater volume next year at greater margin. So I'm extremely positive. Once again, our backlog is full in 2021. So we are not in the race to improve and to get awards for 2021. The year is done for us. Here, we are fighting for mid-2022 and 2023 backlog. So pretty robust on our side.
Thank you. The second question, just on portfolio. I mean, with NMD, how far would you say that you are in your thoughts on overall portfolio adjustments?
In R&D?
No, with the Nexans Metallurgie Deutschland, I further sales in terms of businesses that you might wish to divest.
Further divestment. Sorry, I didn't get it, Sean. That would be part of the Investor Day. I think if I may give a color of our Investor Day is the time of choice. It means a lot of this topic will be addressed during this Investor Day, how Nexans will rotate its portfolio to different sectors. So that will require some divestments in the future. But we need as well to enter in a sequence of M&A because I don't want Nexans to divide by two its revenue. So it's a question of the right sequence on equilibrium between divestments and M&A. So we have done two major actions on divestments, and it will be certainly time now for M&A. For acquisition. Thank you, Sean.
Thank you. Your next question comes from the line of David Barker from Bank of America. Please ask your question. Your line is now open.
Thank you, operator, and good morning, Chris and Jean-Christophe, if you're well. Just a couple of quick ones from me. Firstly, on telecom. I mean, we've been going through this period of high inventory levels at customers and destocking for some time. From the sounds of your prepared remarks, you expect this to continue for a little bit longer. Can you give any view on how you think this affects next year? I mean, do we expect Q1, Q2 to still be high level of inventory and destocking? And how should we think about growth in that part of business next year? And then my second question is really on climate trends and if you can give any insight, particularly in construction. We saw a big rebound in the third quarter, but some of this is obviously due to just delayed projects.
I wondered if you've seen any continuation or deterioration of that trend so far this quarter. Thanks.
Thank you, David. So yes, telecom, certainly, will improve. But telecom is not at all in a V-curve recovery like the other sectors. So we don't know. It will certainly not be a health-curve type recovery because the demand remains strong in near term. But it's certainly one of the sectors which is strongly impacted by the COVID, the lack of resources to install and deploy the fiber optic. And as well, we know we are talking about competition. We are facing very strong competition coming from China. We need to remind that China has already deployed its fiber to the home network everywhere in the country, above 90%, 90% coverage now. So there is a huge capacity available, fiber optics and cables, to be, I would say, sent to Europe in the coming year. So yes, the demand will be stronger next year, no doubt.
The question is at what value? Because, of course, as I told you, we are not vertically integrated, so we take the benefit of a lower raw material price. But we have to pass through this benefit, a major part of it, to our customers because they see as well this benefit to come. So yes, the sales will be higher next year, no doubt. The question is when. I don't see a recovery in Q1. I see a recovery more in starting the second quarter for the telecom. And we will see how the price will evolve. But Chinese are extremely present in that sector right now. And that remains a worry. But once again, our exposure in telecom market, specifically for fiber optic and fiber- to- the- home, is about EUR 200 million sales on a total of EUR 6 billion revenue.
So it's not the strongest exposure that we have. David, if I go back regarding the construction market, Q3 dynamic, and we have seen as well the result of our colleagues from Schneider and from Legrand. I think I will listen to what they have said or what they will say, but we are in a catch-up mode in many areas because of very strong confinement and lockdown in some countries. So we are in catch-up mode. We still do not see a real benefit of economic rebound thanks to countries' plans. But what I can say, David, is that compared to two months ago, when I talked to customer CEOs, they are much more positive than a few weeks ago. So I'm not sure there will be a big impact in Q4 because the order of new projects are not yet there. But I'm pretty positive on Q1.
Fantastic. Well, thanks for the color. Thank you.
Thank you, David.
Thank you. Your next question comes from the line of Akash Gupta from JP Morgan. Please ask your question. Your line is now open.
Hi. Good morning, Jean-Christophe. Thanks for your time. My first question is, if you can quantify the impact on top line in Q3 from being selective. So basically, what I'm after is how much of sales decline year-on-year in organic terms was driven by being selective and that may not be recovered next year. So that's question number one.
Question number two?
Question number two is: can you give us a flavor of what shall we expect for the upcoming CMD in February? Obviously, COVID was a major factor behind you pushing it by three months, but I'm also wondering if internally you needed more time to bring certain changes. Also, you are talking about some M&A, so maybe that could be a factor. So if you can comment on that, please. Thank you.
Okay. So I will comment on the question number one. No, I'm joking, Akash. So yes, a really good observation, Akash, regarding it's a good question regarding the organic growth effect due to selectivity. We are not monitoring day by day this selectivity effect, but what we can say overall, we have been extremely, I would say, aggressive on capping growth in some areas. I will give you some examples: Brazil, Morocco, Middle East. Why there? Because we are always facing longer payment terms. We have a higher risk of overdue.
So in those countries that love to be in, for example, Morocco, to be in a range of organic growth of 5%-8% year-on-year, we kept them at two points or 2% because we don't want them to take any risk to announce a fantastic organic growth, but it depends on the impact with a very negative impact on the cash conversion. So once again, all our units everywhere in the world, I monitor on the cash conversion perspective. So they are not pushed on the organic growth. They are pushed on the cash conversion perspective. So they have to reach their EBITDA targets, but without destroying the cash conversion cycle. So that's the first thing. How much is this impact in terms of organic growth? Difficult to say, but I will say between two to three points.
We have to mention as well that we have closed one unit in the U.S. We love U.S. markets, but this unit was very underperforming with a very high working capital, very low margin, and very high fixed cost. It's a plant in Chester. This plant, we have decided to close it during the quarter, and that's impact for another 1 point of organic growth for the quarter. So yes, of course, our organic growth could be much better if we will be less selective on the customer's portfolio and as well if we will not have closed one plant. But that's not our trigger. Our trigger was to improve the free cash flow. Regarding the second question, so very difficult for me to answer because I don't want to disguise anything regarding what we will say in the Investor Day.
You may have some rumors of when you postpone such event like that, that there could be an issue with the board of directors. There is no issue at all with the Board of Directors. On the ESG event, Quiñenco will be our Chilean shareholders will do an intervention. He will speak in the name of Quiñenco about what he thinks about Nexans and its strategy, and you will see there is no issue on that side, neither on the BPI side. So very, very strong alignment, very, very strong alignment with the board of directors. We just we are not Siemens. We are not Schneiders in terms of size. So we try to have the best moment to do this Investor Day because it's every two years or every three years. So it's an important moment for Nexans.
If you remember, in 2017, Nexans really failed in communicating its past growth Investor Day. So we don't want to repeat this bad event. We don't want to, I would say, unsurprise people. But everything will be on rotating portfolio of the company. Everything will be on innovations. Everything we will announce will be entirely embedded with the megatrends that we see in terms of energy transition and energy efficiency. So are we doing any M&A right now? I don't answer, Akash.
Thank you. Maybe a follow-up on M&A. I mean, can you tell us how much acquisition firepower you have given you have also done some recent divestments? Also, in order for you to buy any company, do you need to repay some of the federal loans that you have taken? Or I don't know whether you have only bonding lines in place, but just wondering whether you need to forego those bonding lines or the credit lines you had from state-backed in order for you to acquire companies?
Yeah, sure. So in terms of, I would say, acquisition power, we have today, it is pretty high. Liquidity at the end of September is in excess of EUR 1.6 billion. So I mean, definitely, we have a lot of room here to size and take action if we see an attractive transaction coming up. On top of that, we have quite low leverage, as you know. Leverage is below 1x EBITDA. So that also gives us more flexibility here to leverage a little bit further if sizable acquisition would come through. So really, in terms of capital structure and balance sheet, we have the space, I would say, and the power to grow the company and do the right M&A. In terms of loans, bonds, and so on, the first repayment, I would say we have two repayments scheduled in 2021, both of them about at the same time.
The first one is EUR 275 million bond maturing May of 2021. The second one is a PGE, le prêt garanti par l'État , for EUR 280 million, which is also maturing at the end of May. Again, we have a lot of cash on the balance sheet. Depending on how we play the M&A option, we'll refinance that in due course. But we have a lot of cash on the balance sheet and space. So I mean, we're not worried at all about this.
Thank you.
Thank you, Akash.
Thank you. Your next question comes from the line James Taylor from [Accent]. Please ask your question. Your line is now open.
Hi. Yes. Thank you for taking my question. Mine's sort of a follow-up to Akash's question. So you mentioned that the current situation has led to greater selectivity in the portfolio. So maybe you're walking away from more sales than initially expected when your current plan was outlined. So to what extent do you think that some of this sales attrition could be temporary? Is there any clear opportunity to regain these sales as the customer's situation improves, and maybe this amplifies growth going into 2021?
It's a really good observation, James. This is exactly our motivation. Our transformation program called SHIFT because we want to reduce a part of our sales that we consider as bad cholesterol, bad fat, in order to shift it with good cholesterol. And what we see since in the last six months is that we are gaining market share. We are gaining market share on the good part of our portfolio through the strategic customers that are considered platinum and gold for our business. So you are perfectly right, James. It will come the time of growth, but this growth, we know because of a very granular way of analyzing this portfolio quality, this growth will be smart. Smart in the way that it will be accretive for our EBITDA. It will be as well perfectly aligned with our cash conversion cycles.
As well, that means it will be customers that will be seeking for innovations on new solutions and services. That helps us as well to improve our quest for more value in the coming future. Once again, the transformation program during the first two years is that you may prune a part of your portfolio for reason of selectivity, but after will come the time of amplification and the time of growth. That's clearly the motivation of our transformation program.
Perfect. Thank you very much.
Thank you, James. Next question.
Your next question comes from the line of Benjamin Terdjman from Kepler Cheuvreux. Please ask your question. Your line is now open.
Good morning, everybody. Thanks for taking my question. I would just have two. The first one is on your guidance of free cash flow that is now more, let's say, more positive. So I was wondering if you could detail what is behind your improved confidence to that matter. The second one is on your EBITDA guidance. If we could have some granularity by segment and if there should be any difference between H1 and H2 and if you see any activities where you see more self-help than others? Yeah, what's your view on that?
Yes. I will take the first question.
Can you take the second as well?
I'm joking. I'm joking. About free cash flow guidance. So definitely, you've seen when we presented our H1 result that we really took advantage of the COVID situation to put a very, very strong focus across the entire organization in cash conversion in our business. The level of working capital for the group and most of the businesses were at a level that for historical reasons and for a long period of time, above 12% on sales, which for our business, on average, was way too high, about 5.2 high versus our main competitor and versus what our business, if well managed, should be. So we put a lot of emphasis on that, I would say, in the second quarter of this year.
We communicated a very strong improvement and a cash generation on the first half, which was quite significant by bringing that percentage from 12% to about 7% and slightly below 7%. So a one-time, very significant cash, I would say, inflow in the first half that for the first time, Nexans was able to communicate a first-half cash flow positive. Where typically, if you look at Nexans over the past five, 10 years, the first six months of the year are quite negative, and then there is a recovery on the second part of the year. So this time, we really killed that negative cycle, I would say, and we generated that cash. Obviously, what we've done on the first half is a one-time impact, meaning that now we are at a sustainable level. We are running at 6.9%, 6%, 7% of working capital and sales.
And our plan is, obviously, to maintain that through this part of the second part of the year and through the next part of the year. So the big question when we said positive cash flow in July was to we were quite confident that we were, thanks to this improvement in working capital on the first half, were able to generate positive cash flow. Because I remind you, at the beginning of the year, before all the COVID impact and so on, the cash flow for the year for Nexans was quite negative before the working capital improvement. We had a very unique year, I would say, where you have the cumulative effect of very high CapEx due to subsea, the strategic CapEx of subsea, which is about EUR 150 million by themselves this year.
And then you had all the outflows of the restructuring plan that was announced in 2019, which was about EUR 180 million. So those two, I would say, exceptional events in the life of the company were really coming to hit 2020 cash flow. So when we announced in February our guidance for the year, we said last time, 2021 will be back to a normalized cash flow, but 2020, we will still have those two elements that will really drastically impact cash flow, and we will be about EUR 150 million negative cash flow for the year. Then COVID happened.
All the measures we've taken on working cap, I mentioned, we were able really one time to generate a lot of cash flow by rationalizing our stock inventory on all our plant, conversion cycle, plant by plant at all level of the company, bringing a lot of cash flow to get to that level on the first half. The question in July was, are we going to be able to sustain that number? Now we are in November, and I have to say that despite the recovery of Q3, we are able to maintain our low level of working capital on sales. Therefore, today, I feel confident to announce that the cash flow for the year will be positive and will be quite strongly positive between EUR 50 million-EUR 100 million pre-M&A, again, despite the very high CapEx and cash restructuring.
I think it's, and now that we are obviously 9.5 months, 10 months into the year, I feel quite comfortable our ability to achieve that, which was a little bit maybe too premature in July. This is why we said positive in July, and this is why now we can put a range and a number of this achievement. I mean, this is basically the story of 2020 cash flow and why we are coming now with this number that we are quite confident that we will achieve.
I'm regarding the second question. Is that okay for that answer, or?
Yeah. Thank you. That's very clear. Yeah.
Regarding the second question, Benjamin, not all our business is reported again here, but it's reported always for half-year results are driven under three categories, whatever the business: profit driver, cash-strong, value burner. Profit driver is all the business that is generating significant return on capital employed. So they are good in EBITDA ratio, and they are good in working capital ratio on sales. The cash-strongs are the ones that are good in terms of EBITDA ratio and accretive for the company but have an issue of working capital. That may come from too high inventory or a very long receivable. For example, the case of Morocco, that's the reason that we have decided to cap this business. On the value burners, what we call the bad students of the company are the ones that are dilutive in EBITDA and dilutive in terms of working capital.
So each unit is classified around these three pillars. On each unit, have, of course, different interests and different targets. If we give a color of EBITDA ratio improvement business by business, I will let Vincent Dessale, COO of the company in charge of the B&T, Building and Territories business in Europe and NAM, to maybe give more color for Europe and NAM. But what I can say is that, in general, B&T has a pretty good resistance in terms of EBITDA year-over-year in spite of the pandemic because working on the fixed cost. We still have some improvement to do, but still strong. Industry. Industry, of course, you have two businesses for us, which is industry like aerospace automation, mining, wind onshore. Pretty okay resistant in spite of the dilutive volume effect of aerospace business, which is a good business for Nexans.
On harnesses, it has a strong impact because of very low H1, but on the course to recovery. T&D is the one that has twofold. Telecom infrastructure is certainly the most impacted this year because of low demand. Whereas subsea telecom is strongly improving and will keep improving over the year. On high voltage, I will not come back to it. We keep improving every year in terms of ratio. Maybe, Vincent, do you want to color a bit more the Building and Territories business in Europe and NAM?
Yeah. Maybe the best way is to illustrate what you said about value burners, transformation unit candidate, and profit driver, what we have done in the NAM, North America. In North America, in the building business, we have two units, one in Canada, one in the U.S. And what we have done along the year for these two units is to go into the details, customer by customer, product family, per product family. We have looked to the performance of each unit, performance of each customer, performance of each product family in terms of EBITDA, in terms of cash conversion. And based on this, indeed, we have taken a certain number of decisions, which lead to two consequences or, let's say, to illustrate again the purpose.
We have decided to close the factory of Chester because it was clearly dilutive for the company due to high inventory, due to the cash conversion, which was not good enough. And on the other end, in Canada, thanks to the work that we have done, we have now 94% of our sales done with strategic customers. And when you are able to do this type of transformation, first, you are moving from value burners to transformation candidate to profit driver. And as a consequence, the EBITDA is significantly moving up compared to last year. So this type of exercise that I'm illustrating with North America, this is what we are doing in all the group, in the different activities, in the different business units.
That's an example of the granularity that we can give in order to explain the work ongoing within all Nexans through a transformation program and what we call the new Nexans.
Is that fine, Benjamin?
Yes. Yes, perfectly fine. Thank you.
Thank you. Thank you. Thank you, Vincent.
Thank you. Your next question comes from the line of Jean-François Granjon from ODDO Midcap. Please ask your question. Your line is now open.
Yes. Good morning. Jean-François Granjon speaking . The first question concerns the second wave. Do you have integrated the impact of the second wave on your guidance and forecast for this year? And what could be the impact for 2021? The second question concerns the Building and Territories business. Could you split the organic growth or decrease for the Q3 for first-part building and second-part territories? My third question concerns the backlog. You gave us it was very interesting during the spending question, the backlog for each division. And you expect 4% growth for B&T, 18% for telecom, and 26% for high voltage. So do you expect organic growth in 2021 for all the group? And the last question regarding 2021, how is your feeling currently for the business and the profitability for 2021? Thank you.
Wow. Great question, Jean-François. So as usual, so let me answer regarding the second wave. As we say in March, I think we were not many companies saying that, but in our financial model, we have integrated two main economic criteria, the first economic event. The first was the impact business by business of the 2008 financial crisis to see the level of sort of stress test, the level of resilience of each business, where we told you at that time that in 2009-2011, utilities business is much more resilient than building because building is extremely GDP-driven. But of course, these sectors can benefit from a recovery curve. But we have modeled this economic event with another event, which is in that case, sanitary, which is the pandemic of 1968. The pandemic of 1968 has suffered from three waves of contamination.
We have plugged that in our numbers to really understand what could be the behavior of the business because in the case of 1968, the second wave was three times more important than the first wave. Unfortunately, I do believe this is the direction of the COVID-19 evolution. We know that as well, between each wave, because of contamination process and evolution through population, it takes approximately 20 weeks of impact between the peak of one wave to another. I think it's right now extremely difficult to predict what will be the start of next year, 2021, for one obvious reason, Jean-François: Europe is now strongly impacted on the second wave contamination. Whereas, for example, South America is starting its deconfinement, stopped the lockdown after the first wave. Each geography will have different exposure through this sanitary impact.
In the U.S., the first wave and the second wave didn't have any break because of the size of the countries and the way they have managed the crisis. So there is the two waves merging together. So there is a nonstop contamination process in the U.S. So in the coming weeks, we will improve our model to really see now what is the impact per region. I think we will not see in the first on that please take it carefully because this is just early interpretation. We cannot see a V-type recovery in H1. Could be in some area, could be in some countries, but not worldwide because of these evolutions of wave contamination that are not, I would say, synchronized, sorry for the word, not synchronized in all areas.
So we will keep informing you of our model, but I think it's very interesting where suddenly you merge sanitary data with economic data. It's a very strong tool for us to anticipate what impact we may have in terms of cash conversion. Regarding B&T, JC, you want to take it?
Yeah. So yeah, we can definitely share with you the split. So B&T total group combined, building and territories or utilities combined is -7.8% Q3 2020 versus 2019. If you split between the two, the building part is -12.8%, and the utilities part, which is much more resilient, is -4.9%.
Okay. That was the third question, which is the level of profitability for 2021, JC. So maybe repeat that we have one year delay versus.
Yeah. So basically, what we're assuming for 2021 is that we have limited pandemic effect in 2021. Basically, what we assume is that our 2021, I would say, plan is to achieve what we are planning on doing in 2020. So we have a one-year delay, I would say, in our plan of profitability and cash generation and so on between 2020 and 2021. The only business which is not impacted is high voltage, as we discussed in the top. So you will be slightly better than 2020 due to high voltage. The rest of the cable business, I would say, would be what we see is to be in 2021 where we expected in 2020 pre-COVID.
On the model, our model showed that H1 could be a bit lower than, for example, H1 2019 because of what I said before due to the wave impact on H2 can be much stronger. So that's what the model says for the moment.
Of course, there is one difference important. We sold some assets, as you know, in 2020. So I mean, those assets, obviously, will not generate anything in 2021. So just to compare, if you compare 2020 to 2021, you need to take that also into account.
Okay. Perfect. Thank you very much.
Thank you, Jean-François.
Thank you. Your last question comes from the line of Joffrey Bellicha from Societe Generale. Please ask your question. Your line is now open.
Hi. Good morning, everyone. Thank you for taking my question. I only have one, and it's on the High Voltage and Projects division. Considering Ørsted's comments on their earnings last week, I was wondering, I mean, they've been basically commenting on the U.S. offshore wind farms being delayed further. I was wondering what was the impact on your framework agreement with them as you were initially expecting to deliver the first cables in 2022. Thank you.
Thank you, Joffrey. Congratulations for the result of Societe Generale this morning. I'm just seeing that. So regarding yeah, we have listened to the call of Ørsted. For us, at the present time, there is no impact because they want to keep the production slot that they awarded to us. So they say that could be delays in terms of installation and assembling, but not in terms of production cable supply. So for us, for the moment, there is no alert on that topic, but of course, we remain extremely vigilant.
Thank you very much .
Thank you, Joffrey. Thank you very much, everyone. Stay safe. We hope that the conditions everywhere in Europe and in the world will improve, at least for a greater Christmas on time with your families in the coming months. Take care. Stay safe, and speak to you next year. Thank you.