Nexans SA

PAR:NEX

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, good morning, and welcome to Nexan's First Quarter 2021 Financial Information Conference Call. As a reminder, this conference call is being recorded. [Operator Instructions] I would now like to turn the call over to your host for today's conference call, Mr. Christopher Guerin, Nexan's CEO. Please go ahead, sir.

[Christopher Guerin, Chief Executive Officer]

Thank you. Thank you. Good morning. Good morning, ladies and gentlemen, and thank you for participating to Nexan's conference call. I hope you and your families are well and staying safe. I'm Christopher Guerin, CEO of Nexans. With me here in the Paris headquarters, Jean-Christophe Juillard, Group CFO; and our Investor Relations team. I will now turn over to Aurelia, who will go over the conference call rules.

[Aurelia Baudey-Vignaud]

Thank you, Chris. I would like to remind participants that statements made during the conference call, which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Readers and listeners are strongly encouraged to refer to the disclaimers, which are an integral part of our universal registration documents. Along with the audio replay of today's call that will be posted on our website, nexans.com. I'll now turn it over to Chris, who will go over the first quarter 2021 highlights.

[Christopher Guerin, Chief Executive Officer]

Thank you, Aurelia. So let's now turn to Page [ 1 ]. As you can see, Nexans took a headstart the year in the first quarter of the year. Let me notice 3 main points: first, an organic growth of plus 1.4% in Q1 and against Q1 2020, setting some basis for the year. The top line recovery was supported by, first, a very healthy backlog across all business, notably in subsea high-voltage with an adjusted backlog of EUR 1.5 billion. And I remind you that our main operations, Halden facilities, are fully -- is fully loaded in 2021. We keep this very intense customers on business selectivity along the lines on the group to really focus on value growth. And this is the reason as well that we had to decline some equivalent of 1.5 to 2 points of growth in the building sectors to make sure that all the orders that go through our production line are very healthy in terms of margin. I will come back to this point. We had as well notice price increase -- to set up a price increase to offset raw material inflation. We believe this is only the first sequence and expect further inflation in the coming quarters, notably in metals, polymers, PVC, all type of components that's supporting cables. But we will go over this in details further in the presentation. But just a quick reminder, this increased our customer pass-through for the group. The second main point for this quarterly result is that the group is taking the final step of its transformation. Since beginning of 2019, Nexans has undergone major change, improving its performance, thanks to significant fixed cost reduction on our in-house optimization program called SHIFT. We strengthened our balance sheet during the quarter, Nexans proceed to the early repayment of what we call the PGE, which is a French state-backed loan on as well a 2021 bond. And we were granted by Standard & Poor's and look upgrade to positive on its PB long-term rating. Along this line, the key strategic investment done by Nexans, the group is, as you have seen in the recent news, best position in U.S. offshore wind market and was selected as preferred supplier by Empire Wind for the offshore wind project outside New York City. Third main point of this quarterly result and last. Over the first quarter, Nexans started laying groundwork for the next strategic ambition 2024 as we announced it to you, to the market on the last 17th of February. So as I told you, our new purpose is to simplify our businesses to amplify our impact and to turn into an electrification pure player, directing on our focal point on generation of energy, transmission, distribution and usage of this energy. Transform and innovate. In the quarter, we have signed 5 innovation and digital partnership, I will come back to it. And as well, of course, scaling up to step up performance notably through an active merger and acquisition pipeline and dividend divestment for which we have started preparation work. So in conclusion, for this introduction, again, the Q1 is a head start to the year, both in terms of operation with a standard sales of EUR 1.5 million, as mentioned, which is represent 1.4% organic growth and the current sales of EUR 1.7 billion, up to 15% alongside with the raw material increased inflation, specifically copper price. And I'm very proud to announce that we do confirm our 2021 guidance. Now if we turn on Page 4. Let me come back to this partnership that has been signed during the Q1. So you will find a snapshot of the risk management, innovation, digital partnership that we signed over the quarter with leading players in their domain, such as Bureau Veritas, that is supporting our new efforts to reinforce and reduce the risk management in the wind offshore business because you know that some of our customers may have a problem in the past due to cable installation, not with Nexans. But that's the reason that with Bureau Veritas, we really want to reinforce our leading-edge experience in that domain. Schneider Electric is supporting us in turning Nexans in the industry 4.0 in all our many factories. And this partnership is kicking already beginning of the year. Microsoft and Orange Business Services on CPO, of course, are helping us to scaling up in the Internet of Things, artificial intelligence and digitalization. Now if I move to Page 5. Nexan's unique turnkey EPCI model in High-voltage & Projects. We do everything, front-end engineering design, manufacturing, installation and production. And wind generation is winning, we provide our client aftermarket services for the high-voltage generation and transmission cable solution. Early engagement, we believe, is key to grab this engineering project architecture, offering tailored solutions to our clients and most important for them, to mitigate risk for all parties. Thanks to this early collaboration, our engineers can focus on R&D force, design capabilities, our installation capabilities to match customer project needs. But you know and when we keep repeating and we will keep repeating for the next year, we also modelized each project on its risk and reward analysis, combining the 3 fundamental dimension, which is the financial modeling of the project itself, the technological risk and the terms and condition of each project in order to rebuild a very healthy backlog with limited risk of execution in the coming years. In terms of manufacturing, we have an unparalleled worldwide footprint with 4 plants across the globe, so very well balanced because, of course, unique and big, big plants in Norway where we have announced another investments for the year to come, supported by a plant in Belgium for [ long ] high-voltage. But our leading hedge unit in U.S., Charleston and as well Japan make it very, very balanced. Most of them are doing MI or XLPE AC and DC technology. While guaranteeing, of course, the quality of the cable with a full testing practice with the dedicated labs And along our installation capabilities, we have now -- almost now 2 purpose-built vessels. Our old lady, the Skagerrak, this vessel, which is more than 30 years old. And soon to come, as I'm sure you've seen the picture, Aurora equipped with 10,000 tonnes dual turntable on the low carbon footprint that will really enable us to face a very, very challenging project in depth water. Nexan's unique model enable us as well to unlock opportunities and best position for the group, notably in the buoyant U.S. offshore market, where close to $100 billion investments toward carbon-free electricity are expected by 2035. And like Joe Biden confirm -- President Biden confirmed 30 gigawatt offshore wind capacity that should be with -- by 2030, and this number is likely to reach 110 gigawatts by 2050. As of today, we are the only high-voltage cable manufacturers with a plant in U.S. and as recently announced, we have been selected as preferred supplier for the development of the Empire Wind project, which is a JV between Equinor and BP. Let's move now to Page 6. So of course, you have seen that the beginning of the year, of course, is pretty dynamic in terms of demand, but we had to face raw material inflation and sometimes supply chain disruption. Hopefully, Nexans have been able, like last year, with the start of COVID to anticipate that move, specifically on the supply chain issue, and none of our factories suffer from any disruption, which is, I think, important to say. Regarding the raw material inflation. So let me elaborate the -- this element into the 2 pages, Page 6 and Page 7. First, you have to know that have a pass-through model on close to 83% to 85% of our business as indexation, methodologies and formulas on all pass-through techniques on both metals and polymers. So this is, of course, in metals and polymers that we have to face a strong inflation. But we have -- and this is as well a market practice, a structural contract engineering practice that enable us to pass-through the majority of this inflation. And of course, if we talk about the 15 remaining percent its daily negotiation. We inform our sales team to inflate that cost through to customer. If we go to Page 7, because I know you will always -- some analysts will always challenge me regarding the organic growth. We want growth, but we want smart growth. So we want to make sure that everything that is entering in our order backlog is very healthy in terms of financial modelizations and technological on risk aspect. And as well, good fat for our factories. So that's the reason that shift transformation model is supported by in-depth analytics, to really determine what is the good fat on the bad fat of -- in terms of product for our business portfolio, but as well determining what are the critical customer for our future and the one that are a bit less critical for our future. And that's the reason that we have classified them in in 4 main categories. Either we are serving platinum type customers, gold type customers, silver type customers that are here not all selected based on their volume or margin, but around 20 different criterias, both quantitative and qualitative. And we do the same with the product. So the objective, and this is what you see on the slide, is really keep growing the green part. But in parallel, we are doing negative growth for the red part because we consider that the customers that are not qualified as platinum, gold and silver may be extremely dilutive for the margin. They could be good in terms of organic growth, but dilutive in terms of margin. So this is a very low priority customers. And if they want to get access to cable, they need to pay cash. And we believe this is a very, very great model because potentially, in the years to come, the scarcity of raw material will be an issue. So you have to make sure that you are able to keep growing your businesses, keep improving your margin, but in a very, very disciplined way. The third element is SHIFT PRIME. We know we -- of course, SHIFT PRIME is based on our new strategic ambition. But it's a process that required a lot of preparations and already need to be kick off right now. So we have all our unit in building territories and high-voltage electrification ecosystem under the Shift Prime umbrella, to really deploy superior service vendor, I would say, results. [indiscernible], I will not comment what I've already exposed on the 17th of February. But all our sales and marketing team are incentivized to generate higher value. And we are very proud as well to launch during the quarter worldwide from France, Belgium, Australia, New Zealand, Canada, all South America, our new packaging tools for our customers called Mobiway. This is mainly for the building sectors, which has required a lot of innovation. And you will see such innovation every quarter now in the quarters to come and the years to come. So Mobiway has been launched during Q1, and of course, with a very impressive result. JC, I propose that you comment the results per sector.

[Jean-Christophe Juillard]

Thank you, Chris. So as you said, Chris, overall positive organic growth for Q1 '21, plus 1.4%, but with some quite different mix when we look at the different businesses. So let's start on Page 8 with Building & Territories. So in Q1 2021, this segment demonstrated sequential improvement, and sales are up 3.3% against last year Q1 2020. When we exclude the closure of our plant in the U.S. chapter. On an organic standpoint, sales were down 2% year-on-year.Building continued to focus on selective growth, reducing the strong clients, as Chris explained, and mechanically decreasing volumes, but overall, improving margin and cash generation. Sales were sound in the quarter against last year Q1 2020. Activity was mainly dynamic in South America, particularly in Brazil and Peru and also in Africa and the Middle East, mainly in Turkey. Both these regions benefited from the upturn in the construction market and client inventory buildup. However, in Europe, sales were strong in Spain, resilient in France despite pursued lock down and still challenging in Belgium. On the Territory side, we witnessed a mix across -- activity across the various geographies. Robust demand in China, robust demand in France, sound sales in South America and weaker demand in the Nordics against last year due mainly to weather condition. As you can see on the chart on the right of the slide, across our main regions, sales were up in the Americas, with plus 15%, excluding Chester plant closure in North America, and 19% organic growth in South America and also in Africa and the Middle East at plus 8%. Organic sales growth was sound in Europe, minus 2%. This region represents close to 47% of the business segment sales. In Asia Pacific, despite strong sales in China, organic growth ended at minus 4% year-on-year. Based on the backlog visibility we have in this business, [ territories ], along the lines of the raw material increase, we expect further gradual and sequential growth throughout the rest of the year. Last, we are very proud of our recent success of electrifying 41 villages in Cote D'ivoire, Ivory Coast, and also of the launching worldwide for the construction market for our grounbreaking innovation, Mobiway, that Chris explained earlier. On Page 9, we're moving now to Industry & Solutions. As you can see, sales in Q1 2021, against the same period of last year, were up 6%, reflecting the rebound we have seen over the last 2 quarters, specifically in auto harnesses and automation. In automation robotics, the recovery was quite strong at plus 46% year-on-year, boosted mainly by demand in Europe. In automotive harnesses, as you may recall, starting early mid-March last year, our key clients, Audi, BMW, Daimler shut down their plants in Germany, which impacted immediately our sales. Now and ever since the third quarter of 2020, this business has demonstrated strong recovery supported by catch up demand in China and the dynamics in the electrical vehicle market. Organic sales growth is up 18% in the first quarter 2021 year-on-year. For the transport activities, sales were found in the rail infrastructure and rolling stock market, plus 4.8% year-on-year, thanks to new subway line in China and Europe. While on the other side, aerospace and defense continue to be quite severely challenged by the COVID-19 environment. Over the quarter, backlog in this segment of business grew by 6%, and Nexans signed several multiyear contracts, demonstrating its commitment to continue to enable this business to run and thrive while structuring it as a stand-alone business. Let's move now to Page 10 and look at the Telecom & Data. Organic growth was slightly down by minus 4% in Q1 2021 compared to last year, mostly due to the fiber cable market still challenged by Chinese competition and the lack of backbone orders. Conversely, land and cable systems demand was quite strong in the quarter at plus 19%, year-on-year, supported by the rebound in Asia and in Europe and also major projects in the Middle East. Also, strong activity in special telecom, which continued on the positive trend of the last quarter, organic sales up 12% in Q1 '21 versus Q1 2020. All these activities supported by strong backlog growth of plus 8% over the period, give us some visibility for the second quarter. A quick reminder, when looking at the number and Nexan's close of sale of Berk-Tek in September 2020, which is included in the Q1 '20 sales but excluded in Q4 2020, and of course, in Q1 2021. Let's move now to Page 11 and have a look at the High-voltage & Projects business. If you recall, in Q1 2020, in our subsea business, we benefited from 2 exceptional repair project, which, by nature, are unpredictable. They boosted significantly our Q1 sales last year in subsea by more than 65%. In Q1 2021, we continued to execute our strong backlog as scheduled but did not have any AMEA project, [ repair ] project, suffering from an unfavorable comparable effect. Organic sales in Q1 2021 landed down minus 25% against Q1 2020. Thanks to our solid healthy EUR 1.5 billion adjusted backlog in subsea and a fully loaded plant in Halden in 2021, we expect gradual sales acceleration throughout the rest of the year 2021. In addition, starting in the second half of the year will be the boosting effect of both Charleston and Aurora that will be fully operational. Both assets are booked with a good mix of projects. In land high-voltage activity, it was found and aligned with project execution and pursued growth recovery. We still expect slightly positive performance in 2021. As mentioned earlier, our full EPCI turnkey model on top of the [ buy and ] tendering activity, reflected in the preferred supplier agreement signed with Empire Wind give us strong confidence for the performance of the high-voltage business group throughout the rest of the year. That gives you a quick outlook about our Q1 sales. And now I'll turn back to Chris for the conclusion.

[Christopher Guerin, Chief Executive Officer]

Thank you, JC. So before we take your first questions, let me go on Slide 12 with the key takeaway. So Q1 2021 was a head start for the year, supporting gradual and sequential improvements through the rest of 2021. Nexans has successfully managed the raw material inflation through price increase and as well, as I told you, pursue customer selectivities in Building & Territories, mainly as one industry to further grow performance, and for high voltage, best positioning itself in the U.S. wind offshore. So let me remind us well that our backlog year-over-year is plus 20%. Plus 20% in terms of backlog. And maybe what we cannot see through the line is a recovery in the last months in telecom infrastructures because we see an increase in the last 3 months of plus 44% of order intake and backlog performance. So Nexans is very well on track to finalize its transformation plan, to achieve its operational and financial target while laying the groundwork for our next ambition, which is to electrify the future. We do confirm our '21 guidance, and I remind you, [indiscernible] retired, EBITDA between EUR 410 million and EUR 450 million. And JC, I think, eyes to eyes we can say that we are very, very well positioned on the higher range on that guidance. Return on capital employed between 12.5% and 14.5%, and the free cash flow generation between EUR 100 million up to EUR 150 million, of course, before merger and acquisition and equity operations. So that, in sum up, the situation of Q1. so a quick -- strong head start, a very high level of selectivity, a very healthy backlog with a growth of 20% year-over-year, which is give us a pretty strong, I would say, confidence for the quarter to come, confidence in growth, but most important for me, confidence in EBITDA generation and free cash flow generation. Thank you very much for your time. Let's now open, Aurelia, for the first questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Lucie Carrier from Morgan Stanley.

[Lucie Anne Lise Carrier, Executive Director]

I have 3 questions, and we'll go one at a time. The first one, I kind of wanted to -- I heard a little bit the news this morning. We have seen that Ørsted has potentially an issue with some cabling on offshore wind in Europe and the U.K. I just -- and potentially cost -- extra cost of about DKK 3 billion. I just wanted to check whether you have any involvement potentially with that. So that was my first question.

[Christopher Guerin, Chief Executive Officer]

Yes. Thank you, Lucie. We heard about it. It's -- from what we understand, it's not about cables, but it's about cable protection system, and we are not concerned by this project mentioned by Ørsted.

[Lucie Anne Lise Carrier, Executive Director]

My second question was around the auto harnesses business because we are seeing quite a lot of production being suspended in the second quarter on the back semiconductor activity, including for some of the German OEMs like Daimler. I know that historically, you've had exposure to that. So I just wanted to understand how we should think about the rest of the year in auto, considering the delay we seem to be seeing on some of the production?

[Christopher Guerin, Chief Executive Officer]

Yes. Thank you, Lucie. So far, and given all the forecast that we have for the next quarter, at least a quarter or 2, we have noticed no disruption at all. And we have a very smooth supplier right now with no lagging times due to semiconductor issues. So -- and our customers confirm their forecast. So of course, we are -- yes, like we mentioned, our -- one of our first customers are BMW, Daimlers and General Electric and as well Porsche. But no -- so far so good.

[Lucie Anne Lise Carrier, Executive Director]

Okay. Perfect. And then lastly, maybe I just wanted to get some color from you in terms of how we should think about the margin dynamic on the back of the price increases that you are passing? Is that something that is for you neutral? Or do you actually expect to, kind of, retain some of the benefits that you -- of the price increase on the back of raw material inflation? And maybe if you could help us understand that by division as well, please.

[Christopher Guerin, Chief Executive Officer]

Yes, of course. So the first requirement to our salespeople is we should not have any negative hit due to raw material inflation. So this is the basics. But of course, thanks to our SHIFT program on our qualification system per product and their customers, we have them as well to gain some benefit from this inflation. And the fact that -- to make sure that our line have not been disrupted in Q1, it requires a lot of effort from our procurement team in terms of access to materials and negotiation with our suppliers. So I don't want to dilute this effort with lower margin. So that's the reason that we put a very, very strong incentive for all our salespeople to get some benefit in terms of margins, thanks to customer selectivity and as well order intake selection at -- right at the beginning to make sure that our mix is constantly improving in terms of EBITDA generation. And that's the case, of course, for everything, which is on a recurring mode. [indiscernible] means building mainly because you know we are able to revise the price in general every month. Territories, it's mainly indexation because it's a frame agreement for 2 years. And of course, we go back to our customers regarding raw material inflation to export fully this indexation agreement that we have in the contract. Telecom, there is no specific issue there. Right now on ISP as well, it's through indexation program and the renegotiations of some project. We're getting about, there's no risk at all because everything is hedged and indexed. JC, you want to add?

[Jean-Christophe Juillard]

No, yes, I just would like to add that 1.4% organic growth in Q1 is a good result. It could have been higher. Let's put it this way, if we were ready to take any volume and any increase, we would have had a much higher Q1. Again, I think what is very important for Nexans is the balance between basically managing our profitability or EBITDA and managing our cash. And we prefer to have 1.4% organic growth with good improvement in our margin and good cash generation, then dilute ourselves and go to 3% or 4% organic growth. And I think this is the -- one of the key drivers of how we manage the business and also makes a difference between what we do and others do in the capital good environment. And we are very firm about that, and we'll continue to that. And you will see improvement in margins due to this, I would say, selectivity.

[Operator]

The next question in the queue comes from the line of Miguel Borrega from Exane BNP Paribas.

[Miguel Nabeiro Ensinas Serra Borrega, Research Analyst]

I also have 3 questions, please. The first one, just on Building & Territories. Can you comment on what and where are the main pockets of growth in this business? You mentioned a strong catch up in orders. Can you give us maybe a little bit more color on that?

[Jean-Christophe Juillard]

Yes. So definitely, we -- what we've seen in Building & Territories is interesting because in 2020, basically, what we've seen is that Buildings suffered the most. Territories was quite resilient. In terms of orders and in terms of volume. And we lost a lot of volume on the building side. And what we've seen in the first quarter of '21 with the rebound, is exactly obviously the opposite. Territories grew moderately, but Buildings did very, very well and catch up very well, both in terms of volume, but also in terms of margin, very significant improvement in margin. Also, of course, due to the fact that we selectively picked our orders. In terms of pocket for growth, we see a lot of growth in South America. We've seen a lot of growth in South America. We are very confident in South America for the second quarter. Definitely, a very significant ramp-up versus what we've seen even in the second half of 2020. I would say that Asia and mainly Australia and New Zealand continues to be very strong. Where -- it was in Q1 last year, it was pre-COVID, we had a stronger Australia because of the fires that happened and a lot of demand in cable at the time. Obviously, when you compare Q1 to Q1, you don't see that in the growth, but we are very positive about Q2 in Australia and New Zealand. Europe has been a little bit behind the first quarter, but we see now we have very strong backlog in Europe for building. So we are quite confident about Q2 for Europe and see what we didn't see in the first quarter happening in the second quarter of the year. So basically, I would say that --

[Unknown Executive]

In North America as well.

[Christopher Guerin, Chief Executive Officer]

North America is huge.

[Jean-Christophe Juillard]

And North America is also a very nice recovery. So I think most of this recovery that we -- will be seen in the second quarter of the year. And we can say that because we look at the level of our backlogs altogether that we have today, and much, much higher than it has been even in 2019. So we are quite confident for the second quarter and the rest of the first half.

[Miguel Nabeiro Ensinas Serra Borrega, Research Analyst]

The second one, a little bit more technical, can you give us a sense of the impact from copper prices on your margin? I understand that you passed through, so your profit impact should be neutral. But on the margin side, is there a sensitivity that you can comment on?

[Jean-Christophe Juillard]

No, there is no impact on everything. It's passed through. On the margin as well, there is no impact. On the cash flow, no impact. So I mean, there's nothing really on the copper side. I mean, again, what we see in the copper side, definitely where we could have a risk is the scarcity of the product itself, the material. But the increase in copper does not impact our numbers.

[Miguel Nabeiro Ensinas Serra Borrega, Research Analyst]

Okay. And lastly, Chris, if I could push you a little bit on the EUR 150 million EBITDA uplift you announced within electrification. How much of this is under your control? So putting it in another way, are you expecting some of these improvements to come from a more favorable tendering by being more selective in high-voltage projects? Or is it purely internal measures?

[Christopher Guerin, Chief Executive Officer]

It's internal. I mean, we are not betting -- I mean, definitely, the key message on our equity story is that the EUR 150 million that we committed to deliver by 2024 is completely internal. If we are not betting on any I would say, external...

[Jean-Christophe Juillard]

Positive environment.

[Christopher Guerin, Chief Executive Officer]

Positive environment. Obviously, there is a huge disaster like we've had in COVID impacting everyone. There will be an impact on our plan. But I would say at a constant market environment, this achievement of EUR 150 million by 2024 is in our hands only through innovation.

[Operator]

The next question in the queue comes from the line Sean McLoughlin from HSBC.

[Sean D. McLoughlin, Associate Director of Clean Technology]

Yes, some questions from me as well. Firstly, on growth selectivity. So you say you stepped away from about 1% to 2% of sales in Q1. I'm just wondering which divisions and segments, in particular, you're walking away from, from sales? And then just thinking about the next quarters, given the strong cyclical rebound that we're seeing in general, I mean, how might this figure shape up in the next quarters? Are you actually maybe missing out on some of that growth rebound because of selectivity?

[Christopher Guerin, Chief Executive Officer]

Yes, Sean. Regarding grows selectivity, the selectivity in general is applied to all our businesses, including high-voltage because it's a different model for high voltage, but project selectivities as well are part of our decision process. Regarding specifically to your questions on the first quarter, the business that have been the most, I will say, impacted due to the selectivities is mainly construction sectors. Because at the beginning of the year, we have seen this -- more this inflation, which was not a topic for us, but more the access to material. And we wanted to make sure that we safeguard our top client first. So that's the reason that we kept some units in terms of growth. But we cut them as well, depending on their position in our metrics, if you remind profit drivers, cash tanks or value burners. So some -- there is less and less value burners. But some of our units that are delivering an EBITDA below 6% have been capping growth as well. So we want to make sure that any growth that we are doing is good in terms of EBITDA generation. And it's not only pure volume, but as well value. So this is mainly the construction sector that has been impacted for the first quarter. Regarding the next quarter, of course, the rebound will be there. There is no problem for us to benefit from it. And it's already in the backlog, Sean, because our backlog year-over-year is plus 20% all across the business. So no problem on that side. I think where we are -- remain extremely vigilant is a raw material accessibility. But regarding orders, there is no problem. And maybe, Sean, if I can color a bit, I've seen the result of some other companies in the capital goods market. And I think that's a question you should ask as well to our colleagues in the wire and cables. But in general, wire and cables are a bit upstream because they are a bit -- sorry, they are ahead of some raw material issues because we are upstream versus other subsectors. So what happens in terms of difficulties of raw material access and inflation in wire and cable industry first quarter can be applied on as well impacted some other capital goods sectors. So that's the reason that we -- I will do my old shops. But 15 years ago, we were always looking at the wire and cable activities to be a first signal of demand because of the metallurgy aspect or as well of potential scarcity of resources.

[Sean D. McLoughlin, Associate Director of Clean Technology]

Very clear. My second question, on Slide 11, I can see you have a fair bit of spare capacity in Halden for '22 and '23. I mean, I'm assuming that this is going to be mostly for European market. So I'm just wondering what you're targeting now in terms of where you expect that order intake to come from?

[Christopher Guerin, Chief Executive Officer]

So for 2021, we have no spare capacity this year is fully loaded. We can take some -- only some spot maintenance project, but it's extremely limited free capacity in 2021.

[Jean-Christophe Juillard]

And 2023 -- 2022 and 2023, sorry, we have, as you say here, but we are very active on a very -- a quite significant pipeline. And for example, you've seen a project, Empire Wind, that we are -- which we are preferred bidder. And we are also advanced on other tendering -- significant tendering. So we have really no, I would say, concern about our ability very shortly to fill with capacity for those 2 years.

[Christopher Guerin, Chief Executive Officer]

Empire Wind, we are just notified as preferred supplier. It's not at all in the backlog. And we have -- nowhere in the numbers, neither in these capacity [ or shops ]. So we need to be awarded officially.

[Jean-Christophe Juillard]

And big awards are coming like [indiscernible] shortly.

[Operator]

The next question comes from the line of Artem Tokarenko from Crédit Suisse.

[Artem Tokarenko, Research Analyst]

Yes. I have 3, please. My first question is around the project pipeline and high-voltage business. Could you maybe talk a little bit about the bigger projects, which you see this year, and maybe you could talk a little bit about whether you still expect the U.K. CfD to happen this year. There is increasing risk that it can slip towards the next year. And then on the bigger projects like NeuConnect and EuroAsia and Green Link, what's the last process -- progress you're tracking at the moment? That's my first question.

[Christopher Guerin, Chief Executive Officer]

You know, Artem, we have discussed it already last year. Our tendering activity last year were just huge, record high. So 2021 will be a year of awards. But our tendering activity remains extremely brilliant, very, very dynamic. So what will be the sequence in terms of award notification, you will have certainly EuroAsia to come before the end of the semester, so in Q2. You may have as well Terna in the subsea. You may have Neuconnect a bit later. And of course, Green Link, huge -- in the U.S., there is a huge project as well -- wind offshore project with Dominion. So there will be a lot of project to be awarded in the next month. What we believe is that the 2 first could be EuroAsia and Terna. There is as well some awards to come from Iberdrola and East Anglia. And as well, as I mentioned, potentially Dominion. So Q2 will be normally pretty intense in terms of award.

[Artem Tokarenko, Research Analyst]

Understood. And my second question is around your previous outlook for double-digit revenue growth in high-voltage business in 2021. Considering the 25% decline in revenues in Q1, does this outlook still hold for the full year?

[Jean-Christophe Juillard]

Yes, it does. Completely. Again, what we've seen in the first quarter is really linked to the exceptional level of Q1 2020. Again, when we look at the first quarter of the past few years, Q1 2020 has been about 60% above the average. And again, it's mainly due to 2, I would say, quite exceptional levels, which are those 2 repairs that basically brought significant revenue. We're talking about EUR 40 million revenue in the quarter itself just for those repairs. Some years, we have 0 repair. Some years, we have 2 repairs. On average, we usually have 1 or 2 per year. That year, we got 2 in the first quarter of 2020. So those minus 25%, again, do not reflect at all the pace we're having on executing our backlog, and it doesn't give any indication about our commitment to achieve a significant ramp-up in sales for 2021. And we are completely aligned to achieve that.

[Artem Tokarenko, Research Analyst]

That's very clear. And my last question is around U.S. offshore wind. And I guess 2 questions here. Firstly, on the existing pipeline with Ørsted, are you seeing any delays? Or it's all progressing as planned? And secondly, in terms of the 30-gigawatt target which you mentioned, do you see enough projects at the moment being in an early stage sort of to accommodate that target in the next 10 years?

[Christopher Guerin, Chief Executive Officer]

So some -- there were some delays on Ørsted side that we are -- keep discussing with them because they don't want -- we have more or less a take-or-pay system with them, so they don't want to lose their production slots. So there is discussions regarding the phasing of their projects for -- so I will be -- I'm not able to comment it right now, maybe a bit later during the second quarter. Regarding the 30 gigawatt, no, there is not yet enough project in early stage. But Biden teams are really speeding up everything, which is about permit release on field. So it's going much, much faster than what it was 2 years ago. So we are very, very confident there.

[Operator]

The next question comes from the line of David Barker.

[David Barker, Equity Research Analyst]

I've got 3 pretty quick ones. So firstly, just a bit of math on the high-voltage business in the second half. Obviously, you have Aurora and Charleston, which will have a full -- less first full half of contribution. I believe in the past, you said that this is worth around GBP 200 million a year. So mechanically, in the second half, you're kind of going from EUR 320 million of project sales, adding EUR 100 million gets you to EUR 420 million. And you're talking about kind of improved underlying growth in the business as well. Is that the right way to think about it? And I guess on that basis, we're looking at kind of 35%, 40% of growth in H2 for high-voltage. That's my first question, and then I'll ask my other so afterwards.

[Christopher Guerin, Chief Executive Officer]

Yes, David. JC, do you want to?

[Jean-Christophe Juillard]

Yes. So definitely, I mean this is right way to see it. I mean, the total additional capacity for Charleston when fully ramped up and in full execution with full backlog is EUR 150 million. On top of that, we have the installation that could get you, as you said, close to EUR 200 million -- EUR 180 million, EUR 200 million. But the capacity, the manufacturing, additional revenue generation for manufacturing cables in the plant of EUR 150 million. So definitely, what we're seeing here in 2021, it's starting in Q2, you will see the first very significant increase in sales due to Charleston. And then you will increase again in Q3 and Q4. For the year, we are aiming at about EUR 90 million -- EUR 80 million to EUR 90 million additional sales only due to Charleston. But again, Q1 was not -- Q1 of this year was not yet in the ramp-up phase of Charleston. So we have very limited revenue. So it really start next quarter and then the 2 following quarters of Q3 and Q4. So that's basically how we will increase total sales of the subsea business. And then you have a little bit more also installation due to Aurora. So altogether, we will be close to EUR 100 million additional sales versus 2020 due mainly to those 2 elements.

[David Barker, Equity Research Analyst]

Fantastic. And then I've got -- forgive me for the next couple of questions. It might be a bit more difficult. But you just referenced EuroAsia interconnector potentially being on target for the end of the second quarter. We've heard a lot about the kind of technical requirements for that project and the pricing. How do you feel that you are positioned? And how kind of critical is it that you win this contract for your backlog over the midterm?

[Christopher Guerin, Chief Executive Officer]

Difficult to comment because I'm not in customer shoes. But we are very, very well positioned in terms of qualification in -- for this project, which is in-depth water, 3,000 meters, thanks to our MI capabilities. We are -- we will be only 2 players on this EuroAsia project, and because it's a very, very technical project, very ambitious project. But so far, only Nexans and Prysmian are able to really manage this project in the coming years. So how the customer will decide, it's a bit too early to say for me.

[David Barker, Equity Research Analyst]

Okay. And then final one, just a follow-up from Lucie's question at the start, and I appreciate the news has only come up today. But on this Ørsted and the kind of cable protection system issues, just to clarify, you don't have any responsibility for the cable protection? And also, is there any potential that you'd have to change, any design over the midterm of how your intra -- inter array cables are actually designed? Or is it more just an issue with the protection?

[Jean-Christophe Juillard]

David, so to go back to this point, we get the news of this Ørsted issue at the same time than you. So we need to...

[David Barker, Equity Research Analyst]

Forgive me, you've been busy.

[Christopher Guerin, Chief Executive Officer]

No, no, no, it's not a question. We are not concerned at all. So it's not a project that we do with Ørsted, the one -- the project, which is concerned by this cable production system. So we have no information at all so far. But our team is calling Ørsted to get some information. But what I can tell you is that doing cable for wind offshore is really complex. But installing it properly, protecting them as well is extremely complex. And this is as well why Nexans have spent a lot of time with insurance companies that are a bit concerned by the increasing costs [ that ] are linked to bad installation of cables for wind offshore business. And that's exactly why we have made this partnership with Bureau Veritas. We need to show our leading-edge capabilities in terms of installation and protection of cables and how we can keep improving in that direction to reduce the risk that a customer -- significant customer like Ørsted may face in some projects. But so far, I don't have enough information to comment what Ørsted has announced this morning.

[Operator]

The next question comes from the line of Daniela Costa from GS.

[Daniela C. R. de Carvalho e Costa]

I just have one question, and sorry if you've mentioned this earlier, but I don't think I've heard it. Can you give us a little bit of an update regarding the process for the 3 divestment areas? And if we -- if it is feasible to expect any news flow regarding that within 2021 still?

[Christopher Guerin, Chief Executive Officer]

Daniela, so we are preparing the carve-out with the teams and the unions, respectively, in each country, for the 3 main bucket of divestments. But our team right now is 100% focused -- if not 100%, but because they are preparing the process, but mainly focused on acquisition process. So we are pretty active in that field. So in terms of financements, acquisition will come first before [indiscernible] in 2021.

[Daniela C. R. de Carvalho e Costa]

All right. And that is still -- like the focus is on the building segment there?

[Christopher Guerin, Chief Executive Officer]

It's -- the focus is on electrification, Daniela.

[Aurelia Baudey-Vignaud]

Operator, hello? Hello?

[Operator]

I believe your operator is having some technical difficulties. The next question comes from the line of Akash Gupta from Jpmorgan.

[Akash Gupta, Research Analyst]

Most of my questions has been answered. Just one technical question left. So if I look at on your Slide 7, where you show you have divided your customers into 4 categories, is it fair to say when you talk about being selective in a business, then this customer might be part of others category? Or could it be also part of the other 3, platinum, gold and silver?

[Christopher Guerin, Chief Executive Officer]

Didn't get the question, Akash. Can you repeat? So we are on Page 7...

[Akash Gupta, Research Analyst]

So -- yes. So you divide your customer there into 4 categories, and you say you are scaling down business with these others. And when you say in your segment comments that for a segment, sales were impacted by selectivity. So is it fair to say that those customers were part of this other category?

[Christopher Guerin, Chief Executive Officer]

Yes, that's right. This is exactly right, Akash. Consider the green part of this Page 7, a plane. So we consider our capacity is like a plane that require, of course, a lot of resources to make it fly. So we want to make sure that we are filling the plane with the right customer profile. So they are not all in business class, there is some economic class, but we don't want to be a low-cost company. So that the low-cost company is more on the red part, if I want to give an image of what we are doing. So that's, of course, when I say, Akash, that we have refused -- I don't like the words, but we have declined some orders in mainly building sectors, that could improve our organic growth by 1.5 points or 2 points, it's mainly on the red area on that slide here, what I call the bad fat. But it's not only customers because it's as well product families because there is some product families that we used to produce since years that we consider not attractive in terms of free cash flow generation for the company and that we have decided to stop.

[Akash Gupta, Research Analyst]

And maybe just a follow-up on that. So when you say your wind turbine activity was down nearly 20% on strengthened other project selectivity, I guess some of those projects might be going in that other category. Is that correct?

[Christopher Guerin, Chief Executive Officer]

No. It's -- Akash, this -- the metrics that you have on Page 7, this is the metrics that we use, and this is a good point that we should adopt, that we use for B&T sectors, telecom sectors, industry sectors. We have a different on ISP. We have a different selectivity process, as I mentioned, for [indiscernible], which encompass financial dimension, risk dimensions and as well technological dimension.

[Akash Gupta, Research Analyst]

No, I mean, I was meaning about industry. So when I look at your Industry & Solutions, and you said there wind was down 20% year-on-year and that was because of project selectivity. So the question I had was that, is it because some of these customers are going in that other category where you don't want to do the business bid? So maybe help me understand. Is that the case or not?

[Jean-Christophe Juillard]

I don't think -- it could be a part of it. But I think for the most part, in the wind activities, because we have seen some very, very high activity in 2021 and a very strong Q4 as well. And we have seen a slight decrease in the volume. But there is -- they could be -- that could be a part of it, like you're right, due to selectivity. But since we are #1 -- the #1 and #2 with the biggest OEMs customers, we remain with that level of positioning as preferred supplier, and we have not seen any changes. So it's more a cycle of the business rather than, I would say, changing how we work with those key suppliers like GE, Vestas, Gamesa and so on.

[Christopher Guerin, Chief Executive Officer]

Sorry, Akash, I didn't get the question at first.

[Operator]

The next question comes from the line of Joffrey Meller from Societe General.

[Joffrey Bellicha Meller, Equity Analyst]

Yes. My first question is very simple, and I was wondering if you could give us the impact on the B&T margins from the, let's say, the close -- the shutdown of the Chester plant? How much basis points you're expecting the margin for this division to improve in 2021?

[Jean-Christophe Juillard]

Well, I mean, I didn't calculate exactly the impact on the entire division. What I can tell you, it was a business that was running about EUR 200 million of sales, and it was loss-making, so a slightly negative EBITDA, so negative margin. So I mean, out of a total of B&T sector of about EUR 3 billion, you can do the math, but it will not be that significant.

[Joffrey Bellicha Meller, Equity Analyst]

And my second question comes back to your comment on the order intake in telecom, Chris, which I thought was very interesting. Could you give us a split between the volume and the pricing effect of the 44% increase you've seen there? And then the follow-up question will be, when do you expect this order intake to transform into revenues?

[Jean-Christophe Juillard]

But this is mainly volume-driven. And it's -- first quarter last year were still very good before COVID-19 impact. Very good -- it was good, not very good, it was good. What we've seen is really a big increase starting January in terms of order intake of plus 44%. So it will impact the second quarter and the third quarter, mainly. This is mainly volume-driven and no price. The price remains extremely challenged in that sector due to Chinese competition. And I think you've seen the news regarding anti-dumping. There will be no provisional measures from European Commission before year-end. So it's still very intense in terms of competition, but the market is getting better in terms of demand.

[Operator]

The next question comes from the line of Jean-Francois Granjon from ODDO BHF.

[Jean-Francois Granjon]

I have 3 questions, please. In the press release, you mentioned an improvement for the mix March for the backlog. Could you give us some more color about that? The second question concerns the raw materials. Do you see any risk despite the pass-through policy for the next quarter? And due to the strong growth for the copper pricing, could you give us some more color about the impact for the stock equity and for the working capital? And the last question, I just want to come back on the next M&A. Can you make an update on the future and potential review for potential acquisition during the next month or quarter?

[Christopher Guerin, Chief Executive Officer]

I will take the last question first. You know, M&A process is -- it's always a complex exercise because there is no company officially announcing divestment. So nothing is public. But we have engaged already several discussion with some of our 20 candidates. I think you mention, François, we talked about 20 candidates. Our objective is not to make 20 acquisition, but more about 3 to 4 different magnitude of them between EUR 200 million, EUR 500 million, up to EUR 1 billion. Process is going through, but I cannot elaborate more because I don't want to disclose anything on that regard. Regarding the backlog. But yes, the backlog is -- it's 2 good news. First is the volume aspect of the backlog, it's plus 20%. But when you link this backlog growth, with the selectivity that we just reviewed in detail with Akash, that means that it's not only a growth by itself, but it's what we call internally a smart growth is that. It's 20% increase of backlog only with platinum, gold, silver customers on products, that means very healthy in terms of free cash flow generation for the company. And that's the reason as well, Jean-François, that we consider to be extremely confident for the rest of the year, given this aspect of very strong Q1. We do not show you the margin, but they are excellent. And as well, this backlog profile, if I may say, boasts in volume and quality of this backlog for the months to come. So we are extremely confident. We don't like to be overconfident. But we are extremely confident for the rest of the year. Regarding the raw materials, so the -- I will start. So there is -- I will let you, JC, comment on the pass-through on the stock equity. Regarding raw materials, I think we have to be extremely prudent. It's more a midterm comment, but inflation can come before scarcity. I think COVID-19 have impacted the logistics systems worldwide not for few months, but for minimum 1.5 years. So it will need certainly between 12 to 18 months before the worldwide supply chain is getting a bit more regulated, I mean, back to normal, if I may say. After, where I'm extremely prudent on -- specifically on the raw material itself, on copper, because there is a big boom towards electrification when you listen President Biden plan, when you listen European Commission investments, on the Chinese [indiscernible] shipping plan in regards to electrification, everything converges to the same raw material: copper, aluminum and some specific polymers. So if this is the perspective I see, if everybody is investing to -- at the same time for decarbonated production of energy, a renewal of the transmission and distribution network, plus a boom in the usage of electricity worldwide, everything is converging to the same raw material. So I think inflation came come before a risk of scarcity. And that's the reason I want Nexans to be extremely prudent in terms of organic growth on this selectivity aspect because I don't want the team to come back to me saying, "Sorry, Chris and JC, we have not been able to reach our target because we didn't have the raw material." No, you need to reach the target whatever the supply chain procurement situation, full stop. You have to fill up your objectives. So that's the reason I think we -- the year 2021 is a year of inflation. The year '22 and '23 onwards could be years of scarcity. But we will have time to come back to this, I will say, prospective illustrations. Maybe JC, to be specific to Jean-François' questions.

[Jean-Christophe Juillard]

Yes. So just to specific on the pass-through. So as we said, copper and aluminum, represent about 50% of our standard costs, are complete pass-through. So basically, we have no exposure here at all. Everything is passed through and hedged at the time when we purchase the material. The rest after that, you have PVC, plastic and other components. And well, if we look at basically the sales of Nexans, about 80 -- close to 85%, 82% of our sales are indexed, so meaning that as soon as there are increases, basically it's reflected in our pricing. And then we have the remaining, which is not indexed where we have, obviously, to be extremely diligent and review our pricing list and pricing of our catalog on a very regular basis to make sure that we reflect quite immediately, I would say, the inflation on the other component but -- metal to the price of our product. But I think, I mean, we are doing that very carefully. And so far, we have not seen any impact in our margin due to that. To your question about increase in copper and aluminum will increase working capital, the answer is yes. Mechanically, we'll increase working capital. But again, it will have no cash impact. It will have no margin impact. It will have, I would say, a noncash increase in our working capital, both on the receivable and on the payable side and inventory. But it will remain balanced on our balance sheet. So no increase. On the stock equity, which is the [ core ex ], yes, to answer your question, if there is an impact due to the increase of copper on the stock equity, [ on the core ex ]. The answer is yes. Obviously, since this is calculated on an average price of the copper, when the average price increases, basically, you have an impact on our P&L. But this impact is below EBITDA, is in operating margin and is not impacting basically our EBITDA number. We are definitely -- we'll see an improve -- an increase in our net income in H1 due to, I would say, the mechanical effect of the copper price increase versus the average [ at which ] internal balance sheet sitting on our P&L for H1, for sure.

[Christopher Guerin, Chief Executive Officer]

This was the last question, I guess? Well, thank you for attending that call. Just to conclude by we are extremely confident for our guidance 2021, certainly on the high range -- the high part of this range, even if we don't want to comment too much. We want to demonstrate as well to all our shareholders and investors that this is supposed to be the last year of our equity story of -- introduced in 2018. And we want to make that year a strong demonstration for Nexans to demonstrate that how Nexans is robust now versus the last 10 years. So it's a New Nexans with a new ambition plan, and we are extremely happy with this head start. Thank you very much for your time.

[Jean-Christophe Juillard]

Thank you very much.

[Operator]

Thank you for joining today's call. You may now disconnect your handsets.