Nexans SA

PAR:NEX

Earnings Call Transcript 2021-Q3

[Operator]

Ladies and gentlemen, good morning, and welcome to Nexans Third 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 Guérin, Nexans CEO. Please go ahead, sir.

[Christopher Guerin, Chief Executive Officer]

Thank you. Thank you. Good morning, ladies and gentlemen, and thank you for participating to this Nexans conference call for the third quarter result. I'm Christopher Guérin, CEO of Nexans. We are here with Jean-Christophe Juillard, Group CFO; Aurelia Baudey-Vignaud, Head of Investor Relation; and Élodie Robbe-Mouillot, Nexans Investor Relation. I will turn over to Aurelia for -- to 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 document, along with the audio replay of today's chat that will be posted on our website, nexans.com. I now turn you over to Chris, who will go over the third quarter 2021 highlights.

[Christopher Guerin, Chief Executive Officer]

Thank you, Aurelia. Thank you. And once again, Nexans demonstrates a great performance in this third quarters. We -- as you can see on the document, the Nexans performance is about an organic growth of 8.2%. Despite an important business selectivity, it's part of our SHIFT program to be extremely selective on the margin level, risk level, customers by customers. Some supply chain challenge, of course, like every business and specifically in automotive sectors. And the first step taken reducing our metallurgy business, and maybe J-C will comment a bit further on this element, which -- because metallurgy business exposure is -- external exposure is part of our next equity story. Overall, a very strong backlog of 9% year-over-year, extremely selective. And for high voltage, the adjusted backlog is about EUR 1.5 billion. And I'm sure you will have question about it, but we are still awaiting significant awards in the coming weeks, and those are close to the end. Some should be announced before the end of the year. That's for sure. The backlog for other business is firmly up. Building and utilities business backlog is plus 26% year-over-year only with our selective customers on a project. Industry is up 32%. And a slight rebound in telecom of plus 9%, but the signal for telecoms remains strong for the next quarters to come. More importantly, I keep repeating because we are not guiding on the organic growth, as you know, since 2018, but this backlog growth is not only driven by volume but as well by the launch on the monetization of our recent innovation. We have one innovation announced and deployed every quarter. And the last one took place in all South America, in all the main European countries as well Australia, all the way to Qatar, crossing North America and Turkey, solving customers' problem because that's, of course, the first intention. But in -- as nothing is for free, it's as well the monetization of those innovation improve our margin. This organic growth is not only reflecting very strong market dynamic in all sectors but also importantly our SHIFT transformation model to move to a more value-driven business versus volume and as well supported by what I've just said, the solution from our amplification -- amplify program, which is a cornerstone to our strategic ambition for 2022 to 2024. Importantly, we confirm our last upgraded guidance for 2021, thanks to the great visibility we have and the sound dynamic of all our action plans for the months to come. These coming months are important for Nexans as we are opening as well a new chapter to become a pure player of electrification with the visit of 100 customers, for example our stakeholders to the Aurora vessel celebration last September in Norway. And we have a similar event taking place next week in U.S. with the official Charleston opening, for which we are expecting more than 100 customers, suppliers and government key officials.If we move now to Slide 4. Of course, raw material access and cost inflation remains a hot topic for the period. And believe me, it will remain for the next coming decade. It will be a hot spot. Let me just remind you the following because we have seen as well the result of some of our customers that are suffering from cost inflation. In the case of Nexans, I remind you that metal price inflation is 100% pass-through to customers, enabling us to protect our margin. There is as well, of course, polymers inflations that we follow with tight control and collaboration between purchasing teams and sales teams in order to implement straight away with a very disciplined approach the pricing impact to pass through to all our contracts following price indexation. We also amplify our supply chain model by contracting more and more shorter route for supplies below 500 kilometers to avoid the congestion of containerships and as well to reduce the carbon footprint. So on this slide, again, we draw your intention (sic) [ attention ] on our unique vertical integrated manufacturing process on metallurgy that, in case of scarcity, is a very strong competitive advantage and as well in terms of lead time. Quickly on Slide 5, sorry. You can see that very intensive Q3 in -- with many, many events. We wanted to give you an overview of all this quarterly achievement. So we have -- Nexans has continued to engage with all stakeholders on ESG commitment. We joined The Copper Mark, but we have as well host in Stockholm our second Climate Day with 100 customers and expert. The next Climate Day next year will be in New York. Secondly, we -- it's strategy to electrify the features integrating the state-of-the-art Aurora cabling vessel, which is, of course, a cornerstone of our electrification pure-player model, and as well the fact that we have signed this sales purchase agreement to acquire Centelsa in South America. Another point, the successful dialogue with investors. We have been recognized by institutional investors, and we thank all our investors for their trust in Nexans and for this recognition. And as well, operational road maps, we have signed various contract with Seagreen, Equinor, some others to come we'll be announcing in coming weeks. And as well, we are pursuing this innovation implementation, as I mentioned, in the beginning of my speech, everywhere in the world. Moving to Page 6. Of course, it's this Nexans first M&A milestone aligned with the group's strategic ambition to become a pure electrification player. The group signed a share purchase agreement with Xignux to acquire Centelsa, a premium cable manufacturers based in Colombia, active in bidding in utilities applications. Centelsa is a world-class player, had a total turnover of more than $250 million in 2020, enterprise value of $225 million, resulting EBITDA multiple of about 9.5x. So closing of the transaction is subject to regulatory approvals and is expected to take place in the first half of 2022. And I'm now moving to Slide 7. It's our quarterly rendezvous regarding innovation. And believe me -- maybe not always clearly understood by some analysts and investors, but believe me, the customers are very -- have a very strong appetite for everything we announced in regards to innovations. And I thanks all of them because what we have been able to develop in the last 6 months is just astonishing. So Slide 7. Amplified by Nexans, the innovation of the quarter will be -- that will be launched tomorrow in all main countries of Nexans for Building & Territories business is an adaptation of our MOBIWAY home solution. This adaptation called MOBIWAY UN'REEL, the new system saves times and money for customers for reducing installation cost. This is one of their big, big topic on removing the need to purchase additional tools to unwind the cable, thanks to this integrated locking system, which is a part of the UN'REEL system. MOBIWAY UN'REEL enables customers to unload cable directly from drums with improved safety on site, thanks to no need for handling, no need for heavy lifting and reducing the risk of injury. And that's part of the process of customers' questionnaires and survey we've done in the last months on this innovation. It's expected with a great demand in the coming months. Maybe now let's go to the numbers. J-C, I'll let you comment.

[Jean-Christophe Juillard]

Sure. Thank you, Chris. So if we move to the presentation on Page 8. You see that for the company as a whole, we reported -- we're reporting a 9-months organic -- Q3 organic growth of 8.2% year-on-year and a Q3 organic growth of 0.4%, Q3 '21 versus Q3 2020. If we exclude the metallurgy impact, because you know that as part -- as Chris mentioned, as part of our strategy, our aim is to decrease the metallurgy impact to reduce the, I would say, dilutive effect of this business and focus on Nexans with our metallurgy business. So if we exclude the decrease of the sale of metallurgy, which is part of our equity story, the Q3 organic growth, Q3 '21 versus Q3 '20, is then not 0.4% but plus 1.9%. On a 9-month year-to-date basis, all businesses of the group except high voltage, and I will get back to that later in the presentation, have posted solid recovery versus last year despite the consequences of the COVID which are still impacting some area of the economy: semiconductor shortage, raw material price inflation, transportation and logistic disruptions. Organic growth on a 9-months basis, as you can see on the slide, between '21 and 2020 for the cable business is 10.4% supported by strong volume increase mainly in building, automation and automotive harnesses. As you can see on the map, the strong recovery in South America and generally all of the region was quite impressive, again mainly South America and the Andean Region, where we are just -- we just announced this acquisition. The only area in the world that have shown some volume decrease is Asia Pacific, where Nexans businesses generally was less impacted by COVID in 2020. So at a different pace, I would say, in terms of recovery versus the other region. Finally, the good news is what Chris mentioned, is that our backlog is up 9% versus September 2020. All business have increased their number in terms of backlog at the end of Q3 '21, which is, of course, a very positive news for the last quarter of this year 2021. If I move now to the next slide and we look at the High Voltage & Project Q3 sales. So we report a 6% negative organic growth on a 9-months basis, '21 versus 2020. It's mainly explained, and this is not news, but it has been through most of 2021, the main explanation of, I would say, the not stronger organic growth, is a high level of repair and maintenance that we had last year, mainly in the first half of 2020, that generated incremental sales that did not repeat itself in 2021. If we exclude the IMRs, which are the repair and maintenance additional work in 2020, the organic growth of the high-voltage group in '21 equals to plus 8% on a 9-months basis, which is obviously a very different story. Strong return to growth in Q3, as you can see on the graph, plus 8% organic growth, in line with the project phasing, Charleston ramp-up and the Skagerrak maintenance. Q4 is very intense both in terms of production and installation. Our adjusted backlog is at a record high EUR 1.5 billion. And significant award, as Chris mentioned, will be announced in the coming weeks that will likely inflate significantly this number. We continue to enforce strong, disciplined project selectivity through the SHIFT project -- program, balancing risk and returns to: one, keep a healthy backlog with limited execution risk and acceptable contractual terms; two, warrant backlog depths of 2 years to keep visibility on execution; and three, ship capacity in 2024 for which our yield model display opportunities for more appealing profitability due to market cable capacity well below potential demand. If I move to the next slide and we look at the activity of Building & Territories. Good organic growth for our Building & Territories business on a 9 months-to-9 months year-to-date basis, plus 3%. And if we exclude -- if you recall, we closed the plant in North America, in the U.S., in Chester. And if we exclude from the comparison Chester, the organic growth amount to 8% -- plus 8% for the Building & Territories business. The growth has mainly come from the building segment, plus 7.2% on a 9-months comparison, while utilities has been slightly shrinking, minus 3%. When looking at geographies, the growth has mainly come from South and North America, respectively, plus 27% and plus 14% versus the 9 months of 2020, while Asia Pacific, for us Nexans is mainly Australia and New Zealand, has seen a decrease in volume in building. Backlog for the Building & Territories division continues to expand, plus 26% versus September last year, which continues -- with continued strong backlog in building, and especially in Canada, and a good recent award in the utility business that should see, I would say, a take-off again of that segment of business in the division. So -- and this backlog, obviously, is a short-term backlog for Building & Territories, so this growth in the short-term backlog gives us a strong confidence for our Q4 numbers. If I move now to Slide 11 and we have a look at our Industry Solution (sic) [ Industry & Solutions ] and Telecom & Data businesses. Start with Industry & Solutions. As you can see, very strong recovery in the 9 months 2021 versus last year 9 months, 13% organic growth. On a quarter-to-quarter basis, the organic growth is plus 3%. Business segments like auto harnesses and automation have seen a spectacular recovery from 2020 with, respectively, plus 30% and plus 38% organic growth on a 9 months-to-9 months comparison. Auto harnesses growth had been slowing down in Q3 this year, slightly impacted by the semiconductor shortages that push few car manufacturers to cancel some volumes, but it remains quite limited. Our Aerospace & Defense, sorry, that was, as you recall, brutally hurt in 2020 with the COVID crisis is bouncing back with a plus 41% organic growth in Q3 versus Q3 of last year and plus 9.1% on a 9-months basis. Part of the sale of this business segment, aerospace, has been shifting from traditional customers like Airbus to Chinese aerospace companies like COMAC and [ AIJ ]. On the other side, businesses like shipbuilding and rolling stock have been declining, respectively, 30% and 7% versus 2020, mainly explained by lower demand in China. The impact anyhow of those 2 sub-business segments remains limited as their share in the total sales of the division remains quite low. The backlog finally of Industry & Solutions at the end of September is up 32% compared to last year at September mainly driven again by automation demand in Europe, which is giving us strong confidence again for the Q4, last quarter of this year '21. Finally, Telecom & Data. On the 9 months-to-9 months comparison, Telecom & Data sales grew organically plus 5%, thanks to strong demand in the LAN cable, plus 20%, versus last year and also special telecom equipment, plus 11%. The organic growth is more significant when comparing Q3 '21 versus Q3 '20 at plus 11%, thanks to the slow recovery of the telecom infrastructure business, plus 11.5%; the strong demand in LAN cable in Europe, plus 10%; and especially the continuous increase in demand for special telecom cable, plus 14%. And finally, the backlog is also up in this business, plus 9% in September '21, thanks to strong demand in specialty telecom cables.I will move to the last slide, which is our guidance. So we confirm our 2021 guidance. And I remind you that we narrowed and improved last July our guidance for this year, 2021, and we confirm that improvement. Our EBITDA -- on EBITDA, our action to decomplicate the portfolio, seeking value, not volume, are paying off, and we are confident we will reach between the mid to the upper part of the range. On return on capital employed, likewise, we are confident we will see a significant improvement on return on capital employed in 2021, and we will be close to achieving the commitment we gave in 2018, which is a ratio at 15%. Free cash flow, we confirm the range of EUR 100 million to EUR 150 million. I remind you that we continue to have strategic CapEx for the high-voltage business that remains high in 2021 with the completion of Aurora and Charleston, plus the start of the new investment in Halden for the 2 additional high-voltage line as part of our equity story. That concludes basically the financial part of the presentation. Now we will open for questions. Thank you.

[Operator]

[Operator Instructions] The first question today comes from the line of Max Yates calling from Credit Suisse.

[Max Yates, Research Analyst]

So just the first question I have was around the comments you've made on the Charleston facility and the Halden facility being fully loaded for Q4. I guess this is sort of the one division where you have sort of the most visibility in terms of the backlog. So maybe if you can give us a feel of kind of how the loading was in Q3 to help us understand kind of what Q4 revenues could look like in that business? And what the step-up could be based on those factories being fully loaded? That would be my first question.

[Jean-Christophe Juillard]

Yes. Thanks, Max, for the question. So yes, Q3 was quite a, I would say, a particular quarter for the -- for high-voltage business for the following reasons. First of all, we were not fully loaded yet in Charleston. We had the inauguration of the plant, as you know, on November 9, next week. So from that point, we are fully now ramped up on Charleston. So in Q3, we -- I would say we generated less sales than expected on Charleston. We had a slight delay on our Seagreen project due to COVID, but Q4 will be, I would say, Charleston delivering full speed. So that's the first impact. You will see a much stronger sales in Q4 on Charleston than Q3. The second situation that was a little bit peculiar, I would say, on Q3 was we had the Skagerrak vessel, which was unused, basically in maintenance. For part of the quarter, it was in maintenance. And the second also impact on Skagerrak, on the installation, is that it did a repair work in Southeast Asia. And basically, we account for the repair work not in sales. We have the full EBITDA contribution and the full margin contribution, but it's not reported in sales. So basically, we had an installation quarter very, very low. But it doesn't mean, again, no margin and no work but just not accounted in sales, and plus the maintenance. Whereas, in Q4, Skagerrak will be fully used. And we'll also have Aurora on Antarctica also basically doing full-time installation in the quarter. So when you add up the 2 vessel together in Q4, plus Charleston full ramp-up, we will have a very strong Q4 quarter in terms of high-voltage sales that will definitely make a difference with the low point of Q3.

[Christopher Guerin, Chief Executive Officer]

Yes. And we continue to keep maintaining Skagerrak here because we want the 2 vessel operating for the next 3 years. It's important to mention.

[Max Yates, Research Analyst]

Yes. And then...

[Jean-Christophe Juillard]

Altogether, I mean, I confirm what I said already in July. Altogether, the organic growth in terms of high voltage versus last year will be nicely positive. So -- with a very strong Q4. But definitely positive.

[Max Yates, Research Analyst]

Nicely positive for the full year in high voltage, that is, just to confirm?

[Jean-Christophe Juillard]

That's correct.

[Christopher Guerin, Chief Executive Officer]

That's correct.

[Max Yates, Research Analyst]

Yes. Fantastic. Okay. And just the second question I had was on the sort of project pipeline. And you've kind of helpfully again shown your sort of factory load coverage, 80% load for the next 2 years. I would imagine -- kind of when you look at the pipeline, are you kind of confident that kind of based on the pipeline that we see today, that actually kind of -- we understand the longer-term pipeline is attractive. But actually, for 2022, that we should be seeing a year of kind of full capacity in your Halden plant and also your Charleston plant? So that's my second question.

[Christopher Guerin, Chief Executive Officer]

Yes, let me maybe color a bit the load utilization for 2022, 2023. First, in Charleston, so we have this official opening next week where we would be all in U.S. for this opening. Today, Charleston is operating the Seagreen project. On 2022, utilization will be devoted to Ørsted for all the contracts that we have in backlog, and they are all confirmed. So at Charleston, we have -- we'll have a very high utilization ratio. Regarding Halden. So once again, there is 2 technology, XLPE and MI. Let me color a bit the load utilization. We are, for 2022, 100% loaded in XLPE, 100%. So we cannot take any more order. And significantly loaded as well for 2023. The remaining capacity is in MI, is in MI, and where -- which is as well linked to the award that should be announced on 2 major project that are the one of [indiscernible] links of Terna and the second one from EuroAsia. So we are very confident on -- to announce in the -- for Q4 and the full year result the full utilization rate ratio -- capacity ratio for Halden in the next 2 years -- for the next 2 years.

[Max Yates, Research Analyst]

Okay. That's very clear. That's helpful. And just my final question would be on the acquisition and disposal program. Obviously, we've seen the first acquisition. Maybe if I could ask about sort of the disposal process. So is this a case of kind of you're fielding offers for the different businesses that we've talked about, so sort of telecom, automotive? Do you more see that -- doing this kind of maybe in an orderly fashion? So you're thinking about sort of starting the process of maybe telecom first and then automotive? Maybe if you could just talk a bit about kind of what we should think about in terms of a time line. And are you actually sort of fielding discussions at the moment for all of or any specific one of those businesses at this moment?

[Christopher Guerin, Chief Executive Officer]

Well, I cannot give you such granular details, Max, but that's for sure. We -- the execution of our M&A program is very important in terms of sequence because we don't want to divest first and to acquire after. So we want to keep a EUR 6 billion revenue constantly over the period. So the first milestone was an M&A, an acquisitions in South America. The second milestone of our M&A program will be a divestment. And that's for sure, we are very active. Process is going on. We have a lot of discussions both for automotive harnesses and telecom, but I will not give you the orders of the sequence.

[Operator]

[Operator Instructions] The next question comes from the line of Lucie Carrier calling from Morgan Stanley.

[Lucie Anne Lise Carrier, Executive Director]

I have a few. I will go one at a time. The first question I had, please, was on the backlog. And I just wanted to understand a little bit the dynamics here because you're mentioning it is up 9% for the group. But then Building & Territories is up 26%; industry, 32%; telecom, up 9%. So how do we actually get to the 9%? Is the backlog in project down compared to that? And then how does that backlog compare quarter-on-quarter? And excluding the project business, how many months' or weeks' visibility does that backlog give you in terms of the -- again, the non-project businesses, please?

[Jean-Christophe Juillard]

Yes. Sure, Lucie. Thanks for the question. I'll take the question. I -- you're right to mention it. When you look at the 9% and when you go on the division by division and you look at the percentage, it feels strange that when you have Building & Territories at 26%, the total mix is 9%. The main reason is that Building & Territories backlog number is very small because it's a very short-term backlog. It's only a few weeks, couple of weeks, 2 weeks, 2, 3 weeks.

[Christopher Guerin, Chief Executive Officer]

For building and our...

[Jean-Christophe Juillard]

For building...

[Christopher Guerin, Chief Executive Officer]

And 1 to 2 months for utility?

[Jean-Christophe Juillard]

And 1 to 2 months for utility. So the average length of the visibility on those backlog is very small. Therefore, it doesn't -- in terms of value, it's much smaller than what it represents in terms of sales for the group, for instance. So this is why you have this, I would say, strange view of the 9% for the group versus 26% for Building & Territories. And -- but definitely, the backlog on high voltage is growing versus last year and, as Chris mentioned, will continue to grow with what will be announced likely in the coming weeks.

[Christopher Guerin, Chief Executive Officer]

Yes. Let me color a bit more on this part, Lucie, yes. So building, it's very, very strong demand. So there is a -- in all regions. So no specific event. And the question we have from customers is about raw material scarcity, and there is more and more question in regards to copper access. And I can you give you more information if you need to.Regarding utilities, the backlog reading is always a bit complex because when we have an orders shifting into backlog, it's a few weeks' visibility. But most of the contract is from frame agreements on course (sic) [ of course ] that are not injecting the backlog. What I can tell you is that at the end of the year, utilities will remain stable, but we are entering in major negotiation for most of the utilities for the next 2 years. On the frame -- future frame agreement on volume demand is up 20%, 20% to 30%. Why this demand is so important? It's because of the electrification. Like we said during our Capital Market Day, countries, regions, nations have underinvested massively in the medium voltage part -- in the distribution part in the last 20 years. So now they need to catch up. They need to catch up to make sure that there is no power outages in cities on -- or blackout. So the demand will be extremely important for the next 2 years in the utilities sectors. Regarding the backlog of high voltage, we don't want to have the biggest backlog. That's not the goal. We want to have, once again, a very healthy backlog in terms of limitation of execution risk on -- with acceptable contractual terms. That's very important. And once again, we want to warrant for high voltage a backlog depth of 2 to 3 years max. Why 2 to 3 years max? Because we see a bottleneck issue -- an important bottleneck issue in the cable supplies starting in 2024 because of a huge demand supported by mega project in offshore wind and interconnection. And we want to make sure that we are not discounting our capacity with offering price potentially too low today and that could be at a different level in 3 years' time because of a huge demand. So we try to balance our backlog to make sure that we have no risk in the coming 2 years. But we don't want to lock our capacity for the next 4 or 5 years with today's margin because I think it could be different in 2 years' time.

[Lucie Anne Lise Carrier, Executive Director]

Thanks very much for the color on high voltage. Just maybe coming back to my question around the visibility on the backlog. So I understand the 1- to 2-month ballpark for B&T overall. How should we think about industry and telecom in that context?

[Christopher Guerin, Chief Executive Officer]

And this will take -- industry is -- the backlog of today is much higher than 2019. So visibility is very, very strong. We are refusing orders because not of risk of -- not of -- not because of capacity utilization but potentially risk of scarcity of raw material, specifically in automation. It's automation's links to robotics. Automatization is extremely dynamic. And just for automation, the backlog is up to 45%, and that's only the beginning. So very, very great visibility in the industry business. On the top of it, aerospace is back. Not big time, but it's coming back. And that means that 2022 will be an excellent year for the industry. Telecom, it's a bit disappointing, but the signal that we receive to the -- from the market is -- are pretty positive that it will be a strong demand in China that should, I will say, feed Chinese competitors. And we hope to have great news regarding a dumping case in Europe in the coming weeks that will support as well the European demand. So telecom, a bit disappointing certainly so far, but not in terms of margin evolution at all. It's very good. And I'm pretty positive for next year to come.

[Lucie Anne Lise Carrier, Executive Director]

My second question was around the supply chain. Thank you for the slides you included in the document. I just had a couple of question now on some of the factors for that. On the metal side, you're mentioning kind of hedging contract. Is there any risk around those hedging contracts when they effectively roll over and they have to be kind of renewed or renegotiated in terms of which price level would be put in place? And then also, can you maybe help us understand, as a percentage of sale, the share of your energy cost and transportation cost and the nature of contracts you have in these 2 areas, please?

[Christopher Guerin, Chief Executive Officer]

Well, I'll let you take the hedging, J-C. On the -- regarding energy, it's about 2% of the cost of goods sold. So it's about 2%. And we have a long-term contract for the next 2 years at a pretty good price. And regarding transportation, so what we call direct marketing expense, of course it can vary strongly depending of the sectors. Average is about 3%. But what we are pushing, and this is part of our E3 strategy -- E3, remind you, it's economics, environment and engagement. We will show you for the full year result what we are doing on connecting the profitability of each customers with as well the distance of supply. We engage strongly our unit to increase their business with customers that are around 500 kilometers, maximum 800 kilometers, and try to avoid all customers beyond 800 kilometers because we see that transport will be -- cost will be a big issue in the futures. But as well, we want to make all our unit manager aware regarding the footprint impact -- carbon footprint impact. And that's the reason that we are setting up some systems and tools to reduce the transport impact both on the cost and as well on the environmental aspect. Regarding the hedging, J-C?

[Jean-Christophe Juillard]

Yes. So it's a good question on the hedging because I would say that typically, we have extremely limited or no impact when we roll our hedges on a monthly basis. However, it is true that last month, in October, there was a unique situation in the market on the copper where they were -- the market moved into a situation that is called backwardation, where the, I would say, 3-months rate was lower than the spot rate. And when we rolled our hedge on the volume of copper at that time, we had a negative impact. I would say that this situation did not happen since, I'll recall, 5 or 6 years ago. It lasted only that day, the third Thursday of the month of October, where most companies on the LME were holding their position. Since then, the situation of the market is back to, I would say, a much more normal situation with the 2 -- or the spread being close to 0. But we had a unique situation, it is true, in October that basically impacted us slightly but not significantly, to answer your question. So it's kind of a unique situation. But it's possible, yes.

[Operator]

Your next question comes from the line of Sean McLoughlin calling from HSBC.

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

It was just one follow-up. I just wanted to understand your previous comments about your forward visibility on contracts and how that fits with the current framework that you have with Ørsted in the U.S. I mean if I've understood correctly, you want to lock in for up to 2 years, but then you want to leave, let's say, everything open in terms of price negotiations beyond that. I mean does that apply to Ørsted or is Ørsted a special case? And then I had a follow-up.

[Christopher Guerin, Chief Executive Officer]

Yes, sure. Now Ørsted is a special case because we had signed contractual terms for the next 6 years to come, 7 years in total. So it's a -- we have a very, very strong visibility for Charleston both in terms of load but as well in terms of margin. So are we able to yield, what I was mentioning, our price for Charleston? It will be limited because what has been signed for Ørsted is fixed, of course linked to indexation to raw material. Of course, we will not lose anything. No margin impact. But where we want to yield as maximum our margin is on -- is in Halden, in -- where we want to make sure that Halden is not fully locked beyond 2024 because I'm sure that we can -- given the contracts to be awarded and tendered in '23 and '24, it's significant, and I want to take this opportunity, of course, to improve our financial ratio.

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

One question specifically then on the U.S. situation. I mean, obviously, your main competitor's building a factory there. We saw as well Ørsted is going with another competitor to build capacity specifically for array cables. Just wondering, how is the -- how do you see the U.S. competitive environment changing? So in other words, is the capacity already being built? Or you think that this simply won't be enough to match demand?

[Christopher Guerin, Chief Executive Officer]

No, no. I have to be honest, Sean. First, to build high-voltage factories in U.S. in normal times takes 4 to 5 years, 4 to 5 years. So of course, I understand the intention of our competitors, but nothing before 4 to 5 years specifically if it's a greenfield. Secondly, no, it -- there will be still undercapacity, I'm looking for the word, issue because of the very strong demand on both subsea and as -- linked to offshore wind but as well demand. I remind you that the build back better plan of President Biden is supposed as well to require an equivalent of 20,000 miles -- 20,000, 25,000 kilometers of HVDC LAN cables. So that can significantly impact the load of -- positively the load of today's factories available in U.S. But in the meantime, you have the huge growth of offshore wind. I was in New York on -- talking with Doreen Harris, the Chairwoman of NYSERDA New York State. They will announce in -- certainly in coming weeks the -- even more project to come in the next 4 years. So no, I think there will be an issue in terms of cable capacities to face all this demand coming up in U.S.

[Operator]

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

[Jean-Francois Granjon]

Yes. Three question, please. The first one concern the future contract. Could you make an updates about the future contract? I would just mention Empire Wind, EuroAsia, some projects in Italy, et cetera. Do you expect some new contracts in the coming months? The second question concerns the order activities. So we see a decline during the Q3 due to less external sales for copper. Is this a strategic decision? What do you expect for the next quarter and for the coming months? Do you expect a new decrease for this business? And the last question, could you give us some more color what about -- you expect for next year 2022, taking into account the inflation cost, taking into account the shortage situation? Are you comfortable with the new improvement for the margin next year?

[Christopher Guerin, Chief Executive Officer]

Thank you, Jean-Francois. So a lot of questions. Regarding future contracts, so Empire Wind, as you mentioned, is -- we are preferred suppliers, but there is a significant project to come from Equinor as well in U.S. So the award should come at the end of -- the full award of all those projects should come at the end of H1 or beginning H2. Regarding the other contracts in high voltage, both Nexans and Prysmian have been qualified in 2 significant project, which are EuroAsia and [indiscernible] links from Terna, and we -- which is a huge interconnection project where we are all waiting the feedback from the customers both in terms of, I will say, share of -- award of the share and as well the choice of the technologies. That's important. But we are very confident on that part. So nothing to say regarding high voltage. A very, very positive outlook. Regarding -- I will let J-C comment on the metallurgy. Regarding the color -- or expectation of 2022, yes, I believe that the inflation on the costs is not finished and will not be finished in the coming years. We know that we are entering in a huge electrical revolution for the next 10 to 20 years because of the implementation of decarbonated energy for the generation of electricity; in parallel, the renewal of the power grid on the transmission and the distribution. And at the end part of the ecosystem is the electrification of the usage. So all of this will require a significant amount of raw materials, significant amount of copper and aluminum. Our ability to pass through this inflation is -- doesn't need to be demonstrated again, and you will see the results in the full year for 2021 in terms of EBITDA. So we have no risk on that side. But the main topic, hot topic for -- starting in 2023 more than 2022 will be access to copper because we have modelized the copper production supported by the copper demand, and there is a high risk of shortage in '23 and '24. But I'm sure we will have more time to discuss about it in the coming months. J-C, regarding metallurgy?

[Jean-Christophe Juillard]

Yes. On metallurgy, Jean-Francois, you're right to mention, I mean, definitely, we are on the trend now to reduce the amount of sales coming from metallurgy definitely because, again, this is what we explained during our equity story in February, yes? We -- it's a big business. It amounts to about EUR 1 billion of the sales of the company. The margin are extremely low, 1.4% on average, EBITDA margin. So it's dilutive for the group, and we have the objective to reduce it by half by 2024. So we'll do that by step. What you -- what we started to do at the end of this year is definitely going to that direction. It will be progressive, and there will not be, I mean, a massive reduction in one year or in a quarter of metallurgy. But I would say surely but slowly, we will reduce the sales. We move to a tooling the business more than, I would say, manufacturing -- owning the copper business, and the size will decrease. So in Q4 of this year, it will slightly reduce a little bit again, not significantly because, again, small step by small step. But it will definitely be lower than last year Q4.Sure. And margin for next year, [ 1/12th of the ] -- next questions?

[Operator]

The next question comes from the line of Christian Schindler calling from DWS.

[Christian Schindler]

It's Christian. I have 2 questions, if I may. Firstly, just looking at the 2-year stack organic growth, so, I mean, this quarter, pretty flat versus minus 10% last year. And when comparing to 6 months, so you have been on par if one looks at 2-year stack. So is there an easy explanation why this quarter was relatively weakish comparing to previous year? That's question 1. And question 2, you are very confident on the -- most of the divisions for Q4. Any idea how organic drop in Q4 on total group could look like?

[Jean-Christophe Juillard]

Yes. So Christian, I will take your 2 questions. So again, why Q3 -- and I started on -- I think it was the first question from Max. I gave a little bit of color of why Q3 was -- this year was a little bit strange or, I would say, awkward in terms of sales. And a big part of that is coming from high voltage and the fact that if you compare to last year, we had repairs -- significant repairs still in the third quarter, about EUR 10 million of repair that we didn't have this year. And then the vessel installation where, again, not a -- whether in maintenance in the quarter or whether it was not accounting for sales during the repair in a project in Philippines. So that makes already the high-voltage sales, I would say, artificially, I would say, lower. And the rebound in Q4 for us is -- I would say we are very, very confident it will happen. It already -- we are already in Q4, and we already are on a different trend in terms of that business. The second element, I think, is important. We were surprised last year in Q3 by the rebound of the harnesses business. I don't know if you'll recall, but we had the second quarter of last year, in the middle of COVID, where basically we had minus 40% or 50% sale on the business in harnesses. And during the summer of last year and the third quarter, we had a double-digit or almost 30%, 35% growth, almost recovering, I would say, what was lost in Q2. So very strong Q3 harnesses sale. That did not -- definitely is not the same situation this quarter. We've had a strong H1 in harnesses, plus 30%, 40% growth versus last year. But we had a weaker Q3. We had some cancellation of volume in harnesses business due to the shortage of semiconductors. And therefore, when you compare the 2 quarter of last year and this year on this segment, it's quite significant, the variance. So those 2 element explain why. I mean you see, basically, I would say, a flattish comparison Q3 to Q3. But we are extremely positive, again, with the high backlog we explained and what's -- the ramp-up of Charleston in Q4 on the vessel, that we'll have a very strong Q4 of -- in terms of sales.

[Operator]

We have no further questions coming through on the phone lines. I'd like to hand the call back over to your hosts for any final remark.

[Christopher Guerin, Chief Executive Officer]

Yes. Thank you. Thank you. Thank you, Christian, for this last question. So once again, a very positive outlook for the next months to come. No bad surprise in Nexans. So everything goes in line with what we have guided. And I remind you that we don't guide organic growth. So how can we miss what we don't guide? We guide EBITDA, we guide return on capital employed on free cash flow. Once again, selectivities of our project and customers is the heart of our system. On the -- you -- we have to make sure as well that any business which can be dilutive like metallurgy is really focused on our -- all internal needs and not external needs. That impacts as well slightly the organic growth. But once again, very, very confident for what's to come and as well the future award that will be announced in the coming weeks. Thank you a lot for your attention. Next call will be on the 16th of February for the full year results. And you will see, that will be excellent. Thank you very much.

[Operator]

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