Nexans SA

PAR:NEX

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good morning, and welcome to Nexans First Quarter 2023 Financial Information Conference Call. As a reminder, this conference is being recorded. For the duration of the call, your lines will be in listen-only. However, you’ll have the opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Mr. Christopher Guerin, Nexans’s CEO. Please go ahead.

[Christopher Guerin, Chief Executive Officer]

Thank you. Good morning, ladies and gentlemen, and thank you for participating in Nexans conference call. I’m Chris Guerin, CEO of Nexans with Jean-Christophe Juillard, Deputy CEO and CFO; Vincent Dessale, COO. Nino Cusimano, our General Counsel; and as well as Elodie Robbe-Mouillot, VP, Investor Relations.

I’m turning now to Elodie that will go over conference call rules.

[Elodie Robbe-Mouillot, Vice President-Investor Relations]

Thank you, Chris. I would like to remind participants that statements made during the conference call, which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Readers and listeners are strongly encouraged to refer to the disclaimers, which are an integral part of our URD, along with the audio replay of today’s call that will be posted on our website, nexans.com.

I’ll now turn over to Chris, who will go over the first quarter highlights.

[Christopher Guerin, Chief Executive Officer]

Thank you, Elodie. So let’s turn now on Page 3 straight on the quarterly main highlights. So four of them, the first one is a promising start value, we are already focused on the value growth, so growth that is mainly made of value structural positive mix effect, and the very tight price management on the as well improvement of our price power supported by our new solutions.

And as well in parallel, we continue to scale down the metallurgy business as plan on, of course mentioned during our Capital Markets Day of 2021. So therefore, the organic growth for the quarters is about 6.5% if you exclude the other activities versus the Q1 2022. Very well on track on the Autun on plan regarding actually innovation on services acceleration, we have more than 100% growth in Connected Objects.

We have already on Q1 now more than the 60,000 Connected Objects. So as you know, it’s as well link to a new revenue business model with monthly fees with our customers. So, very proud about this development, potentially is still enormous. Amplification of our fire safety technology, I will dedicated a specific slide on a new video on it during that call, and that’s supported by many investments. One of them is the €40 million investment we have announced in our plant in France for the upcoming three years in the last month.

Point number three new milestone in asset rotation aligned with our plan. So as we already mentioned, we are in exclusive negotiation with Syntagma Capital for the disposal of Telecom Systems, and we receive a few days ago the antitrust approval for the acquisition of Reka Cables in Finland. So the closing of Reka Cables is imminent, will be done in incoming days.

Point number four, strengthened credit profile as you know, we have a steady improvement of S&P rating, BB+ rating, outlook upgraded from stable to positive. And we have to say as well that we are very proud about it, that we have been extremely successful for the first Sustainability-Linked Bond insurance, and that has been a significantly over subscribed, but we are talking about a €400 million sustainability bond.

Let me turn to JC on Page 4 for the organic growth explanation.

[Jean-Christophe Juillard]

Thank you, Chris. So if you – if we move on Page 4, you see that, as Chris said, the organic growth of Nexans Q1 2023 versus same quarter 2022 is 2.2%. Notice to say here that obviously we have an impact coming from our other activity. I remind you that part of this other activity is our strategy to reduce our Metallurgy business, which is a strategic critical asset for Nexans, but also I will say a dilutive asset in terms of EBITDA margin.

So our strategies to focus on our own demand and reduce the sales of that we have been successfully pursuing that strategy now for the past two years. So this is also of course reducing and impacting the organic reported sales as €1.674 billion. You see that we have a scope impact of €60 million, which is the acquisition of the Centelsa business that we did in the second quarter of last year.

And also a negative impact on 4x mainly coming from the NOK versus Euro, which has been I would say deteriorating and since we have significant revenues in NOK currency, there is I would say a sales impact not reported in the organic growth.

Important to say also that if you exclude the Metallurgy business, again, part of our strategy and make basically our organic growth comparable to our competitors, organic growth excluding Metallurgy set at 6.5%, which is obviously quite a significant number. You’ll see also that within the organic growth, we have the difference – significant difference between electrification and non-electrification. I will detail that in the coming slide.

If we move now to the Page number 6 and we start on Page number 6 – with 5, sorry, my mistake. Page number 5 with the electrification businesses zooming between generation, transmission, distribution, and usages. First is generation and transmission minus 10.7%. So here it is important to explain a little bit further this I would say two-digit organic growth decrease, which is coming from the decision of Nexans to exit the Umbilical business.

Umbilical business is an oil and gas business manufacturing and providing cables for mainly oil and offshore platforms. We have taken the strategic decision for simplicity and decomplexify and debottleneck our plant to exit that segment of business. And this is explaining basically all of the negative organic growth.

In fact, without that Umbilical volumes between Q1 2022 and Q1 2023, the organic growth of the division, generation and transmission would’ve been positive of 8.5%, mainly thanks to the ramp up – continuous ramp up of our Charleston plant in South Carolina. Just to give you a little bit figures Umbilical business in Q1 2022 the sales were €47 million were in Q1 2023, the sales for that segment of business were €4 million. So, again, that, that resolution is part of our strategy to exit the business, which is also dilutive in terms of margin.

Distribution, if I move to the next I would say electrification business is distribution. Very nice significant, I would say positive organic growth is distribution, mainly driven by the start of the grid renewal that we see in most parts of the world right now. We’ve seen significant increase in demand from utilities in all of the region where we are present for distribution, whether it’s North or South America, Europe, and even Asia.

So I would say this business is finally taking off. And through the sale agreement, we see that utilities are requesting more and more volume through the sale agreement in distribution, which is obviously a good sign.

And finally, usages continues to grow 1.5%. I know that all of you are very focused on usages because of the commodity view of you have on this business. We continue to believe that this is a fantastic I would say market for Nexans because of our premiumization. The fact that we are not seeking volume, but value that we are growing the business through pricing and through innovation and services, we continue to see the growth. You see 1.5% of – versus quarter of last year, that was already a very strong quarter. There will be obviously Europe remains quite strong. We see a little bit of decrease in North America, but at level that continues to be extremely high and prices remain very strong.

If I move now to the next slide, on Page 6, and we look at the non-electrification business. So basically non-electrification business is made of the industry solution business, which is including the harnesses – automotive harnesses business, which is the biggest part of that industry solution segment.

We see a very strong growth as you can see on the slide, plus 22% organic growth quarter last year versus this year. Auto harnesses, the trend that we started to see in 2022, despite the war in Ukraine’s continue in the first half of 2023, meaning that demand is extremely strong. We have been – I would say, benefiting from the fact that some of our competitors have been in a difficult situation, whether because of their presence in Ukraine or whether due to market condition, we have gained market share at good margin level. And this business is going significantly also to be noticed in that segment, strong growth in the mobility. Mobility is mainly aerospace, shipbuilding and rolling stock.

We feel growth in that segment that continues and no sign of, I would say, pressure on backlog at that stage. And we are quite confident as we see later for the remaining part of the semester. Other activities, again, is made of two parts, the Metallurgy part that I explained – which is explaining the bulk of the decrease in organic growths, part of our strategy to reduce our Metallurgy business. And the telecom business, we will be divesting within the second quarter, which is now moved, I would say, for the most part into the other activity business, a small portion of that has been also transferred to the generation and transmission business, which is the one – the fiber parts that is included part of the high voltage cables.

If I move now to Page number 7, and I turn onto Chris.

[Christopher Guerin, Chief Executive Officer]

Thank you. So that’s address, and I liked on generation on transmission situations in terms of CapEx and backlog. So we were – three weeks ago, we were in with JC to have a complete review of the CapEx. Everything is on track. The two new lines are very well in progress, that where is set. We’ll be ready to start beginning of 2024. The extension as well in Charleston, we were there last week is running very well. Once again, we believe that organic growth through extension of an existing plant is certain in the least expensive model, because this extension will bring us another €340 million revenue when it will run at full pace with limited fixed cost.

Regarding the backlog, so adjusted backlog we know that we don’t have the biggest backlog of the sectors. We are not running to be the biggest. What is important for us is to be a very adjusted backlog on the line in terms of our three pillars that have been shown on Page 5 means marginal yield technological fit and with limited contractual terms exposure.

And I – let me repeat as well, because I’m sure you will have questioned that we don’t want to be the first to book on. We like to be more at the best level of selection of contract, but some awards to come. We are very confident about it in coming weeks. On here, you see the – on the right side of the slide, the main project in backlog when we were in Charleston last week, we have seen at the full on positive start of the Revolution project, and as well the loading of the sales work project for offset. So everything is running according to plan in regards to this project in Charleston.

If I turn now to Page 8 and think it’s important that the financial community get the message regarding the fact that we don’t see usages business as a commodity business anymore, even of course, is the – we know that the visibility is more limited than others. So let me give you again, the big numbers, the big picture on this Page 8. So we see the building cable market that we call usages with a global demand growing of more than 3.6% per year.

So the market was about €50 billion in 2019. We see that in 2030 at €81 billion. We – those many drivers, but if I may like the underlying trends, we see five of them the electricities consumption will grow by 20% by 2030. The new built under the renovation acceleration. And just keep in mind that 53% of the building have been built before 1970, and that we require a very in depth renovation. New safety regulation, we – mainly in Europe and partly in South America, but gaining into traction and let me elaborate a bit more further on.

Of course, the electrical network reliability on the fact that you need more and more power output for residential and infrastructure businesses and as well the new elements that are underlying this usage market, which is the electrical vehicle charging station that you need in the car park, the solar panel, the heat pumps, and all these new usages that drive more electricity within the building, therefore, more demand for cable.

Let me highlight now the safety regulation. I will not comment the video that will come after next slide. But safety cables which is a shift from PVC to HFFR cable is keep growing with a gross organic growth of 13% per year. So we see the market roughly in 2021, about €3 billion to shift to €9 billion potential revenue for just fire safety technology. And for the last four years, we have accelerated the shift in terms of production towards fire safety versus PVC cable. And that’s the first momentum. The second momentum is that we have much more protection on the buyers who fire safety cable. We have just for instance, more than 150 patents. And of course, this protection is yielding margin upwards.

They give us a significant premium versus a traditional PVC commodity business. We are able to add up a new service based revenue model with, as I mentioned in my introduction with connected object link with the fire safety I will say promotion on amplification and after, we as well as we want to become top leaders in the electrification field. We prioritize with new, through the new build with high safety standards, means we relocate more our production capacity for the verticals that require the most, this fire safety element like data centers, school on, hospital on as well big building renovations.

So that’s the train that we are following. This is why we keep reinforcing our premium on our margin yield in that sector. And you will see a thank you, you will be very at ease when the financial will come up later on this year that this is obviously a good move. But let me express this technology shift through a video that we have just made for this occasion. And let me launch the video. So video.

[Video Presentation]

We went off for the video on the fire safety. We are happy to take all any kind of question related to that technology. Let’s now shift to Page 9. We wanted to highlight a bit the visibility that we have for the first half, difficult to predict for all the year, except certainly for G&T. But let me elaborate for Q2, our visibility for Q2. So I think nothing to elaborate much on Generation & Transmission. Now, we are fully booked on with the exception of EuroAsia, in our plant in Japan, certainly part of your question.

Regarding distribution, our businesses on our equipment are fully saturated. We have already ordered for Q2. So no negative trend there. In Usages, thank you, you all have followed that the residential is weakening in some part of the world mainly U.S., slightly Europe. The main, there is a – most of it is offset by industrial infrastructure positive trend. So we have a slight slowdown in Q2 in terms of market environment, but a pretty good visibility in terms of financial output for the semester. So we are very positive in that regard. And specifically on the site that the pricing very, very high on as well, we keep developing our solution on our technology shift to fire safety that contribute positively to this margin output.

Regarding automotive harnesses, a very strong trend. The shift to electrical hybrid cars and electrical vehicle is a very, very sustainable on the long term. So we are fully booked, and you have seen as well that one of our competitors have major difficulties to that U.S. opportunity to grow even more. Regarding the other industrial, JC already mentioned, the very strong positive start of the industry business. The backlog is very, very solid. We are more than just the first semester as a visibility. So far for the first semester pretty good. And that give more visibility for the guidance that I will turn now to JC.

[Jean-Christophe Juillard]

Yes. So thank you, Chris. So for in terms of guidance, we are at that stage end of the first quarter of 2023, confirming the guidance on EBITDA and on normalized free cash flow, 570 to 600 for EBITDA, €150 million to €250 million for the normalized free cash flow. As you’ve seen from this presentation, we start to have a very good visibility on the second quarter. And I would say a good level of control on the first semester of the year. Obviously like we are continue to be in quite uncertain environment, we have obviously situation with opportunities, tailwinds and headwinds. Also some areas a little bit more shaky, I would say.

On the tailwind side, I mean, definitely the transition is moving forward as you see the growth I described on the distribution with the utilities is a very strong signal about the renewal of the grid, and that will continue. So definitely the market are quite dynamic. The transformation model you will see, we don’t report here earnings, but you will see in the first semester release that we have a solid improvement in the margin that continues through our transformation platform.

And the other goals which is also backlog growing significantly, I would say in the generation and transmission business that will basically continue to grow hopefully in the coming weeks with new orders. On the – I would say more risk level geopolitical and economic environment, I mean, that is true for us, like it is for our most companies. We’ve seen, as I said, a slight decrease in the extremely booming market that was North America usages in 2022, a little bit slight decrease of volume at the end of the first quarter. We probably see also this decrease continuing second quarter, but just to be reassuring the level we continue to see on that business in terms of volume is much, much higher than it was before 2022. So continue to be very strong and prices have not moved downwards. So despite I would say softening in the demand in the residential market pricing remain extremely strong. And with our transformation platform, we believe that we will continue to improve margin.

And last but not least generation and transmission, we see some pressures on the margin of our contract due to various situation, mainly some inflation costs that are not fully passed through on the project that we got into the backlog before the inflation prices increase that is impacting a little bit margin of the business. We have also some hump up cost in Charleston. It’s a new plant, it’s performing, but there’s been some hump up cost and impacting some of the contract. And obviously, as you know, we are still waiting for the confirmation of some significant awards that would also depending on the timing, could have an impact. So globally this is a picture in terms of the guidance confirmed on both KPIs as well with the – I would say strong visibility we have for the first semester.

[Christopher Guerin, Chief Executive Officer]

Thank you, JC. Now we can open the line for the question.

[Operator]

Thank you. [Operator Instructions] We will take the first question from Miguel Borrega from BNP Paribas Exane.

[Miguel Borrega, BNP Paribas Exane]

Hi. Good morning, everyone. Thanks for taking my questions. I would like to start with Usages. You say that you see a normalization North America sales were down 19% here. But you still talked about favorable pricing. Can you break it down volumes and pricing, and how much is pricing down sequentially from Q4, for example, and where could we see margins go in this business? I know you also have some internal measures to offset the cyclical tailwinds, but if we were to exclude your internal measures, where would you say that margins would go? Maybe back to where they were before, around 6%, or do you see margin not going back to normalized level? Thank you.

[Christopher Guerin, Chief Executive Officer]

It’s a very detailed question, Miguel. But we will not comment because it’s too much detail to give to externally on our side. What I can tell you is that we’ve seen the residential market reducing offset by the industrial demand and commercial demand. So there is still a significant demand there. In terms of pricing, I will say that we were the only one to say that there is a massive contractual effect due to pricing effect on the residential market. We have not this – if not seen yet any declines of those price or we still have the same carryover in 2022.

So why we are very confident, at least for the first semester, Miguel, to comfort a bit your risk view is that we benefited right now to both our first structural effect output, thanks to our three innovation that we have launched in North America, specifically the CANADEX product plus all the services around it and on top the carryover of the contractual effect. So we have right now a pretty, very, very significant profit level, right now in North America.

[Miguel Borrega, BNP Paribas Exane]

I’m just a little bit confused because I think JC talked about the slight decreasing volumes and continuing into Q2. So is that for the whole of usages or North America specifically because sales are down 19%, if you assume pricing is still positive or slightly down?

[Jean-Christophe Juillard]

Yes, sorry, Miguel I was maybe not clear enough. The 19% – decrease that we’ve seen in Usages is mainly in fact, completely, we have a little bit in South America, slight decrease, but the bulk part of the decrease is coming from North America. But I remind you that the level of North America last year when you compared to the first quarter of 2022, the increase was almost a double of a 100% growth in that segment, in that region versus the normalized level of the past. So even if you get a 19% decrease quarter-on-quarter on Usages North America, it remains at very high level and the prices have not changed, remain as the same level than they were in 2022. So it’s slightly less in volume, still very strong, but the same level of prices. So the mix is very positive – continues to be very positive.

[Miguel Borrega, BNP Paribas Exane]

Very clear. Thank you very much.

[Operator]

The next question from – comes from Akash Gupta from JPMorgan.

[Akash Gupta, JPMorgan]

Yes. Hi. Good morning, everybody. I have two questions, please. The first one is on North America, and I’m wondering both for distribution and usages, if you can help us provide some breakdown at country level and also, if possible at more regional level that whether you are more exposed to East Coast, West Coast, or South – or Southeast or Midwest, for example. And the second question I have is on timing of closing of telecom systems divestments where previously you said you expect this by end of H1, but today I don’t see any timelines. So maybe if you can update when you expect this divestment to be closed? Thank you.

[Christopher Guerin, Chief Executive Officer]

So the exposition regarding your first question, Akash, the exposition is one third residential, two third infrastructure on commercial on Canada mainly. So it’s not East, West Coast is we are 80% Canadian market focus, not U.S. focus. Regarding the telecom disposal, yes, we confirm H1 as the timeline of the closing.

[Akash Gupta, JPMorgan]

Thank you.

[Christopher Guerin, Chief Executive Officer]

Thank you, Akash. Next question?

[Operator]

The next question comes from George Featherstone from Bank of America.

[George Featherstone, Bank of America]

Hi. Good morning, everyone. Thanks for taking the questions. I’d just like to start, please on G&T. I wonder if you could first give an update on how things are progressing with EuroAsia. When would we expect that sort of move from preferred supplier agreement into more firm backlog? And then I think you mentioned, and just call it at the end that your high voltage margin in the backlog was a bit under pressure from inflation pressures. I just wanted to sort of understand that, comment a little bit, is this sort of a significant impact you are seeing or can you help frame it for us that would be super helpful? Thanks.

[Christopher Guerin, Chief Executive Officer]

[Indiscernible] you can add, thank you, George. Maybe if you can elaborate regarding where we stand on the EuroAsia?

[Unidentified Company Representative]

Yes, EuroAsia as you have mentioned, we have indeed this [indiscernible] prior agreement. It’s quite complex and large project involving different countries. The project is a secure technically on our side because it’s a quite specific one with very in depth installation. The project is also currently under closing indeed with financing, which is a mix, as you know, of EU and the different actors [ph] of the region. So today we are close to the end. To be honest, we are not the one leading the show in the construction. So we expect indeed the closure of the deal in Q2, but we are not in control to be crystal clear of the process.

[George Featherstone, Bank of America]

Regarding the margin conclusion on G&T, your comments…

[Christopher Guerin, Chief Executive Officer]

Yes. So the situation try to describe in my conclusion slide on the headwinds within the business is that we’ve seen some of the contract that entered the backlog before the inflation surged meaning 2018, 2019, 2020. Basically, we are under execution as we speak basic – have not a full pass through of all the cost components. Obviously, raw material are completely pass through, but you have some items like civil works, for example, civil works, some situation on energy that not necessarily are completely pass through indexed, I would say through the life of the contract. And since we’ve seen this significant inflation over the past 24 months, there are some impact. We are obviously in discussion with our customers, but since it is a dispersion, it’s not part of the contract. There are some impact on the margins on those projects. We are basically performing or manufacturing as we speak. So that I would say one of the impact, and that’s what I try to describe on here.

The second one that we see in terms of generation and transmission margin is the I would say the ramp up of Charleston that and I’m sure Vincent can elaborate more on – better on this than me, but basically Charleston has been now since last year ramping up, it’s a new plant. We have successfully produced now two major contract, but since it’s a new plant, there are obviously some I would say more testing, more situation of you set up the machine, you go through the first batch production of the project, and there are a little bit of inefficiency, which is normal, I would say for any new operating facilities.

So we see that also on some of the projects that has been manufactured in Charleston. We believe it’s a one-off. We believe that we are making [indiscernible] and the plant will stabilize frankly, but I would say I have to say that there will be some light impact.

And the last I would say situation that is also putting pressure on the G&T margin is the timing of some of the big awards. We – you talked – we talked about EuroAsia we were scheduling, we were planning and having EuroAsia in the backlog at the end of the first semester 2023. Right now this thing has been moving, it’s a moving target to us. We hope that it will consume, but I have to report that if this is further delays, it could be some impact on the margin.

So that’s basically what I wanted to describe in terms of pressure on the margin on the business. One is timing. The other one are more one off situation that will be clean in the coming months.

[Christopher Guerin, Chief Executive Officer]

Maybe to precise on Charleston ramp up to make it very simple is that we have size the organization of the plant in order to secure the ramp up. And indeed, we are consequently having a kind of structure, which is bigger than the one that we need for the current volume.

So of course, we anticipate the full run of the plant, which will be by the end of this year, beginning of next year in order to be prepared. So somehow you have compared to plant like Halden, which is 45 years of experience, the efficiency is by definition lower. So that’s basically the – as mentioned by JC, we see month after month, good progression of the productivity and efficiency, which is a, I would say, normal ramp up for a plant, which is the unique one in a new territory. Of course, the ramp up of Halden next year will be completely different because we’ll be an existing – with just an add-on of activities.

[Jean-Christophe Juillard]

George, any other questions?

[George Featherstone, Bank of America]

Yes. Just couple of things. If I can just follow-up a few points on this before the next question because obviously that was a really in-depth answer, so thank you for that. Firstly, can you just let us know the portion of your backlog that you think is exposed in terms of those inflationary pressures because it sounds like there was a point in which you started to include more indexation and contracts, and maybe that’s also in the backlog.

So if we can just sort of break out the mix there. And then also in terms of the margin for G&T this year, I think you previously said that it would be similar to last year. So is that including these comments and these effects that you’ve mentioned with Charleston ramp and the inflation pressure too? Or is this something incremental to that prior comment?

[Christopher Guerin, Chief Executive Officer]

Okay. We’ll take the first question regarding the backlog. The – we – regarding the inflation cost is really is related to contract that have been signed before the end of 2019. We have revised as you know, we have been pretty local on it in 2020, all our contractor conditions on as well to protect the margins.

So I will say that the part, which is still exposed to massive inflation effect is now very, very limited, I will say less than 10%. Regarding the margin effect…

[Jean-Christophe Juillard]

So the margin effect, yes, so this is, I would say on top of what we said last year. So the margin expected for – I mean for the first semester will be lower than the margin of last semester.

[George Featherstone, Bank of America]

Okay. And for the full year too?

[Jean-Christophe Juillard]

Yes.

[George Featherstone, Bank of America]

Okay. Thank you very much for confirming that. And then just my sort of second question and last one, just on usages, coming back to a couple of points. Could you remind us the split you have in North America resi versus non-resi? And then also in that what I would probably call quite a significant decline of nearly 19% year-over-year. Is there any distributed destocking in that or is it just underlying activity slowing?

[Christopher Guerin, Chief Executive Officer]

Well, as really – as we really on already answer to our cash, we have one-third to residential, two-third on non-residential. And we are more Canadian market focused than U.S. focused on. There is no destocking effect specific for the Q1 on our unit are fully loaded right now.

[George Featherstone, Bank of America]

Okay. And you used to give a backlog for that business, but I noticed you’ve stopped providing that data. Could you give us an update on where that is year-over-year and sequentially?

[Christopher Guerin, Chief Executive Officer]

Yes. We don’t – I think compared to our competition, we were – we’ve seen that we were giving a lot of data that we sometimes not play in our favor. So you have the tracking of our visibility on the Q2, so we – you – that we elaborate on Page 9. So that’s the only information you will get. The only thing I can tell you is that we have a good visibility for the first semester.

[George Featherstone, Bank of America]

Okay. Thanks a lot guys.

[Christopher Guerin, Chief Executive Officer]

Thank you, George.

[Jean-Christophe Juillard]

Thank you.

[Operator]

The next question comes from Nancy Ni from Goldman Sachs.

[Nancy Ni, Goldman Sachs]

Hi, good morning. I just wanted to again sort of focusing on G&T. I think in the last quarter, we’ve seen a few sort of large awards from tenant and also kind of Biscay Bay going to some of your peers. And I’m just wondering, was this sort of the result, were you not interested in these awards or was it that they weren’t deemed sort of platinum for you to go after? And in that case, sort of which are the platinum projects that we should be tracking sort of you could – if you could help shed some light on that. Thank you.

[Christopher Guerin, Chief Executive Officer]

Yes. Thank you. So regarding the there was two significant award that FTE was supposed to distribute. We get the first one Celtic in the standalone supplier agreement. That’s the one we targeted. And they have decided to split the Biscay Bay in two lots to [indiscernible] So I will say that I think everybody have received the part of the cake. Regarding Internet, I’m not go to elaborate because we are in [indiscernible] right now.

The frame agreement that tenant is putting on the sector is massive the biggest ever. And we are part of the race. And there is some great element in that frame agreement that we pursue and we see if we are able to be part of this frame as well. More to come. Thank you.

[Nancy Ni, Goldman Sachs]

Okay. Understood. Thank you.

[Operator]

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

[Jean-Francois Granjon, ODDO BHF]

Yes. Thank you. Good morning. So you also answer to my question, but nevertheless, I will come back on the G&T business – well understand . So you expect a lower margin for the first half compared to the second half last year. Do you expect also a lower margin for the full year? And for G&T, what will be the mix between offshore wind business and connection expected for this year. And two, this a new point, I think, due to this more cautious appreciation for the G&T, you are more comfortable with the low end range of the guidance for the full year. And my second question concerns the integration of Reka Cables, as you mentioned, the EBITDA label, so lower compared to the group. What do you expect in term of improvement for the Reka Cables in the coming quarters for the company? Thank you.

[Jean-Christophe Juillard]

Let me take the last part. We are not able to command Reka for the moment because closing is imminent in few days. But I cannot elaborate more. Maybe these are regarding the mix, even if we don’t never disclose the mix G&T business, though it’s true that we don’t disclose the mix. But I will say, if you take out Umbilical as we say, because we are exceeding the mix between the connectors and offshore wind farm would be quite stable this year with the assumption, of course, starting [indiscernible] as I already mentioned by GCD front.

[Christopher Guerin, Chief Executive Officer]

So you will see the same pattern that the one we had in 2022, which is more project on the wind offshore revenue from project on the background on the wind offshore than on the interconnection. And obviously if we had – the sooner we enter into the backlog was, yes, the more it’ll I would see increase the interconnection part. But that’s what I said versus the year before 2022 where we had a strong, I would say execution on interconnection contract, namely with Crete Attica project. We have lesser of that and we are more executing contract like Revolution and like we had in 2022 [indiscernible] which are more wind offshore. So the mixed, I would say remains in 2023 similar has 2022.

[Jean-Francois Granjon, ODDO BHF]

Okay, thank you.

[Operator]

The next question comes from Eric Lemarie from CIC.

[Eric Lemarie, CIC]

Yes. Hi, good morning. I got three questions if I may. The first one on the sales of the share from Invexans, have you been surprised by this sales. Did you have any conversation with investments before this sales? And do you have any indications that they could sell more share in the future? Certain question regarding the Umbilical business, could you remind us when does the decision to exit that business was taken? Because I missed that. And the last question still on the residential market, could you tell us what is your global exposure to the residential market and within the residential market, I suspect you’ll more export to the renovation than to the new residential market. You may tell us that. Thank you.

[Christopher Guerin, Chief Executive Officer]

Yes. Thank you. Let – we missed the – there was a answer regarding the guidance. That was the last question from Francois, regarding the guidance I forgot to answer and I – before I answered, we answer to your question. So in terms of guidance right now, it’s a little bit early to now and comment more on the guidance. This is why we confirm the guidance, we will likely come back with, I would say, a more precise view of the guidance during our half year presentation. What I can tell you today is that we are confident that we are well positioned in that guidance, the way we see the year as of today, which when I say that it’s a midpoint or above midpoint of the guidance.

[Eric Lemarie, CIC]

Hello. Let’s go to your first question regarding Invexans, unless this is certainly why Nino Cusimano, our General Counsel has been invited?

[Christopher Guerin, Chief Executive Officer]

Yes. Sure. Thank you very much for your question. And I think the direct answer is, of course, no, we were not – they were selling – there is a healthy segregation between what our shareholders do with their assets and the company. And for the future, our shareholders in the sense of themselves declared that they will remain a reference shareholder. So we have no reason to believe that the situation with changing future.

[Jean-Christophe Juillard]

Okay. Yeah, we were not aware anyway. Regarding Umbilical, the Umbilical is produced in Halden plant. So there is that the decision has been taken two years ago with the expansion to decomplexify the Halden to leave more room for the offshore on the interconnection lines on, because this Umbilical project, which is roughly a €20 million to €50 million revenue per project is creating more than – more complexity that in brings margins. So that’s the reason that we have launched solar structuring two years ago. And we are now at the end of the tail of production for this Umbilical to start 24 with a double size of Halden fully loaded with interconnection subsea and offshore wind farm. Regarding regional market, we don’t give all the details regarding the speed between regional shore and on infrastructure.

The only thing that you maybe need to reset the model is be careful. Take into a account the five drivers that I mentioned on the Page 9, which is a higher demand of electricity, bigger size of sections demand, new safety regulation that shift to technological shift as well new pattern of growth with electrical charging station. So it cannot be seen as just a residential only trend on the commercial and infrastructure demand. There is five main underlying trends that will change the model of this market in the coming years. Please take that into account. This is why we have selected them today in the slides.

[Eric Lemarie, CIC]

Thank you. Thank you very much indeed.

[Christopher Guerin, Chief Executive Officer]

Thank you. We still have a questions.

[Operator]

We now take a follow-up question from Miguel Borrega from BNP Paribas Exane.

[Miguel Borrega, BNP Paribas Exane]

Yes. Thank you. Just wanted to follow-up on the delay of EuroAsia and if that impacts in any way the free cash flow guidance. So does it matter if you’re awarded the project in Q2 or Q3 or Q4? I know it must be meaningful if you are awarded in 2024, but by quarters, does it change anything to your free cash flow guidance? Thank you.

[Jean-Christophe Juillard]

So definitely, I mean when we get this – when we get into the backlog, this massive order, there is about 10% down payment associated with the contract. So when you talk about €1 billion plus contract value, there’s today we get the contract an impact on the cash quarter and the semester quarter, definitely. Right now, the way we’ve seen that, it’s in two my guidance for the cash for the year. We have also other big projects that we are basically bidding on. I have not, we have not put all the down payment in the guidance, so we assume to get one big down payment through one of the big contract on which we are bidding to part of the guidance of the cash flow, meaning the down payment in excess of a €100 million. Definitely the timing on when we enter the contract will have, obviously consequent impact on the quarter or the cash flow on the quarter on the semester. Sure. Yes, stay tuned on Q2. I’m sure we’ll have positive news on those – on start, but too early to say for the moment.

[Christopher Guerin, Chief Executive Officer]

Thank you. I think this is the end of the call. We have no more questions. Thanks for your attention on looking for what for our next financial comments for H1. Thank you for your attention.

[Operator]

Thank you. That will conclude today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.