Nexans SA

PAR:NEX

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good morning, and welcome to Nexans' Nine Months 2024 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, Nexans' CEO. Please go ahead, sir.

[Christopher Guérin, executive]

Good morning, ladies and gentlemen, and thank you for participating in Nexans conference call. I'm Christopher Guerin, CEO of Nexans. With me is Jean-Christophe Juillard, Deputy CEO and CFO; and Élodie Robbe-Mouillot, VP, Investor Relations. Let me turn over to Élodie that will go over -- that will go over the conference rules.

[Élodie Robbe-Mouillot, executive]

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 you over to Chris, who will go over the 9-months highlights.

[Christopher Guérin, executive]

Yes. Thank you, Élodie. So if we go straight to Page 3, as you can see on the 9 months revenue level, we are at plus 4% with a weak Q3 that I will comment, obviously, acceleration in electrification close to plus 8% and framework agreement and backlog visibility is still very high. In Generation & Transmission with some new awards to come in coming weeks.

Maybe a word because I'm sure that will be the main questions on the revenue on sales and revenue on distribution and usages. Let me highlight the fact that we have been certainly a bit too aggressive in the month of August in terms of reduction of our inventories, which caused delays in deliveries in September, which by the time of October have been now caught up. So we had a very -- delays in those both sectors in the 2 last weeks of September but have been caught up in October.

The month of October -- beyond the catch-up of September delays is higher than budget, so with a robust trend for October, November and December. So there is just, I will say, phasing of issues that we have on distribution and usage, but nothing alarming in regards to our organic growth for the year. We remain prudent on some markets that will comment like GC like international market in Europe because we've seen that our customers suffer from some, I would say, order intake decline, but overall '24 will be a great year.

Maybe highlight on some CapEx. We continue to reinforce our capacity because we have overall a high demand, both, of course, in high voltage, but as well in medium-voltage and we're very proud to announce because it's more than 2 years work with our partner, [indiscernible]. The launch of recycling, I will say, new capabilities in [indiscernible] that -- which is a CapEx of EUR 80 million that I will comment.

If we go in Page 4, that's specifically in regards to that, I would say, new investments. We are very concerned by the risk of copper scarcity, but more, I will say, willing to bring green copper offer to our customer, we know that the demand for secondary copper, recycle copper will be extremely high in coming years, and that can as well generate a price premium.

So our new recycling capabilities will allow us to recycle an equivalent of 80,000 tonnes -- sorry. So that means, that's an equivalent of a small copper mine. A small copper mine is about 80,000 to 100,000 tonnes per year. So a very important investment in regard to circular economy. For Page 5. On Page 5, so we are building a new tower for onshore cables for 525 kV to support TenneT frame agreement but as well as some other firm agreement coming up in high-voltage. So that's an investment of EUR 90 million that will be in Charleroi plus Erembodegem for the accessories but as well Calais for increasing our, I will say, testing capabilities.

And keep expanding on low-carbon medium-voltage cable because of the grid renewal in Europe, a EUR 50 million investment in Bourg-En-Bresse that will be, I would say, commissioned in coming years. So keep pace, increasing our capacity. Let me now turn over to JC for the revenue, I will say, highlights.

[Jean-Christophe Juillard, executive]

Thank you, Chris. So moving to Page 6. 4% organic growth, 9 months, '24 versus 9 months 2023. If we exclude the metallurgy, as I explained every quarter, our strategy to decrease our external sales on the metallurgy business. If we exclude that strategic intention, then the organic growth 9 months is almost 7% at 6.9%. Quarter-on-quarter, Q3 '24 versus Q3 '23, it's a minus 0.5% organic growth. However, when you split that negative -- slightly negative organic growth, in fact, you have a positive plus 8% in Electrification and a minus 8% in nonelectrification mainly due to 2 sectors in nonelectrification automation, which continues to be slow to recover, and Automotive Harnesses, which is also a double-digit sales decrease, obviously, reflecting what you see in the market right now for automotive.

And then, of course, 19% decrease in Q3 year-on-year on the other business. So in fact, the Electrification business is again are growing 8% quarter-on-quarter. If you look at the 9 months year-on-year, Electrification, 4% for the group, 12% for Electrification, minus 4% for nonelectrification again, driven mainly by automation and automotive business and 14% negative for the other segment, which is, again, metallurgy. So globally speaking, what is important for us is that electrification businesses, whether it's on a quarter-to-quarter basis, plus 8% on a 9-month to 9-month basis are growing 12%.

Now if I move to the next page, Page 7, and we look at Generation & Transmission. First to notice a strong growth of almost 20%, 19% of the backlog, adjusted backlog that reached a record level of EUR 6.2 billion from September '24 to September '23, mainly driven by the inclusion of Great Sea Interconnection in the adjusted backlog. In terms of sales, a 36% growth quarter-on-quarter and a 54% growth 9 months to 9 months, explained again by the additional lines of production to execute the backlog to new lines of production that started operation in the month of January of this year.

Moving to Page #8, and we look at Distribution. So in fact, of Distribution, we have, I would say, 2 different aspects. The first one on a quarter-to-quarter basis, it has been flat with a mix between the region. We start to see a very nice rebound in APAC where we've been growing 9% quarter-on-quarter. However, we have seen -- continue to see destocking North America, minus 7%. Europe is plus 1% and the Middle East and Africa is growing 2 digit, double digits, very strong momentum in Middle East and Africa, plus 11%. When you look at the 9 months, the sales are growing organically by 2% mainly driven by accessories, plus 5%, where territories are plus 1% growth, rather stable.

If I move now to Page 9 and we look at Usages, on the Usage part. So we had a growth in sales due to, obviously, the acquisition of La Triveneta Cavi contributing in the third quarter of 2024. When you look organically, you have minus 1% organic growth, mainly driven by the residential sector, which is declining mainly in Europe, whereas the commercial industrial centers are catching up, are growing single digit in the region.

Also to notice that in usages, North America is strongly growing plus 30%. Quarter-on-quarter, we had a very low Q3 of 2023. And on the 9 months basis, it's a flat organic growth, mainly driven by negative Europe and partially offset by quite strong North America, plus 7%. Also South America is improving on a 9 month basis growing 3%. And again, globally, what we see is a decline in residential offset by an increase in the commercial and industrial market of Usages.

Now I will turn to Page 10, and we confirm the guideline on adjusted EBITDA that we raised if you -- in July at the end of our first semester, EUR 700 million to EUR 800 million adjusted EBITDA for the year 2024. We also, in July raised the normalized free cash flow guidance by EUR 75 million to reach EUR 275 million to EUR 375 million. We also confirm basically the 2 guidance for the full year 2024, which will be, again, a record level of profitability for example. And I will conclude again to remind you on Page 11 that we have 2 upcoming events, significant events for Nexans on November 13 in London for our Capital Market Day and in U.S. Investor Day in New York on November 20.

Thank you very much. Now I will turn back to operator for Q&A.

[Operator]

We will take our first question from Daniela Costa from Goldman Sachs.

[Daniela Costa, analyst]

I have 3 questions, if that is possible. But the first one, I just wanted to ask you a bit more about, can you clarify on the Great Sea Interconnector. How much of the contribution that you had already in Q3? If there's anything from what you did in Q3 that you couldn't book in -- you will book in Q4 and then just help us thinking through the booking of Great Sea Interconnector from here? That's the first one, and then I'll ask the others one at a time.

[Jean-Christophe Juillard, executive]

Thank you, Daniela, for the question. So on Great Sea Interconnection, as you know, and I'm sure Chris will explain a little bit the momentum of the discussion here. But just to speak about the figures and the booking. So we still not have received the final notice to proceed. That should be coming in the next days. So Chris will talk about that. What we've received, though is another down payment in the third quarter. In fact, it came early October.

We received another close to EUR 30 million. So we have continued to make progress on the contract, recognizing sales, recognizing margin. However, at a slightly lower pace than what we expected because, again, we are waiting, we are -- you know that we don't want to expose the company and we are making progress according to the cash we receive and not faster than the cash we received to not expose the company in case unlikely, but still possibly in case the contact is postponed or canceled.

So we have received more cash again in October. We have continued to make progress in the third quarter. We recognized about EUR 30 million sales in the third quarter. Obviously, as soon as we get the final notice to proceed, which again should come quickly, there will be a catch-up on the project with much faster booking and acceleration for the fourth quarter of the year. So right now, I would say, we're progressing, but I would say at the medium to slow pace until we get the final notice to proceed.

[Daniela Costa, analyst]

Sorry, on that what was the original normal -- what would have been the EUR 30 million if you had, had the notice to proceed. And so how big is the catch-up?

[Jean-Christophe Juillard, executive]

Yes, we would have probably been about twice the number.

[Christopher Guérin, executive]

Maybe I'll add regarding on the contractual, I would say, evolution. So you know that all the stakeholders have signed recently, all the agreement required for the project between [indiscernible] Cyprus government and the European Commission. So all the revenue framework process has been agreed on. The main milestone coming up is the Phase 2 of the survey of the sea bed. That should be planned in -- which is planned already in incoming weeks. So that's the critical milestone to make sure that as it will be under near the international water, and we need to make sure that there is no issue doing this survey. And in that, if no issue, notice to proceed will be signed just after this received, so I will say, mid-November.

[Jean-Christophe Juillard, executive]

And just to finish up on the numbers, Daniela, we were expecting in July, we were expecting the final notice to proceed by the end of August. So in fact, there's only -- for the quarter 3, there's only 1 month difference, the fact that it's postponed now to November, fourth quarter. So for the catch up would have been slightly higher if we had the notice to proceed in August, we would have had a full blast of 1 month in September of revenue recognition. So it would have been higher, but not like that significant higher because...

[Daniela Costa, analyst]

And my second question is regarding your comments on the medium voltage and I think also on the Usages, you mentioned on both destocking. How should we think about this in terms of the trends going forward then, and is it impacting pricing in those areas where we have had very strong pricing dynamics in the last sort of 1.5 years?

[Christopher Guérin, executive]

Yes, that's -- I think it's a fundamental question when I see the reaction of the share price, Daniela. The destocking is more on our side. We have been a bit too aggressive on the level of inventories because the signal that we received from the market, specifically on Usages were a bit negative in some area like in Europe for September.

And we have been ourselves, too aggressive in the destocking effect. So that encountered delays of supplies on our side for our customers that we have been able to catch up. So October, November are very, very strong months.

Beyond the catch-up, we are at budget. We remain very vigilant. I think there is no issue on the major voltage side because it's a circular trend. So there may be phasing delays because lack of labor resources to install the cable, but demand remains very high. And we have just renewed, and we are not able to communicate but very strong frame agreement for the next 2 years with one of the key players with a very high level of volume for next year.

On low voltage, I will say there is a mix effect as you -- we can see from our, I will say, customers and partner on looking at Rexel comments on Saint-Gobain comment, construction in Europe is pretty weak. So specifically in residential, but technical buildings, or critical building is very, very strong. So I would say that we may have a destocking effect from the market at the end of December, but nothing alarming in terms of revenue reconnection at this stage.

[Daniela Costa, analyst]

And not impacting pricing?

[Christopher Guérin, executive]

Yes, pricing remains stable, and this is why we are confident in regards to the financial guidance.

[Daniela Costa, analyst]

And my final one is just more longer term. You have over the past couple of months, made a lot of communications regarding this intend to use more recycled copper. I guess, ultimately, the clients pay for the metal. So I assume they will pay for the extra costs related to ramping that up? Or how is that likely to impact your margins and your financials going forward? Have you put more investment into that? And I assume that ends up with a slightly higher final products for the client?

[Christopher Guérin, executive]

Yes, it's a great question. Let me answer in 2 steps. The first step is that we will purchase some scrap. So we will purchase secondary copper that have a low value at a level versus primary copper. So you have a cost advantage there. And secondly, we know that there is -- we have interviewed more than 150 customers recently in regards to access to secondary copper.

We know that there is a premium for, I will say, green product made of recycled copper plus recycled polymer. This is what we will be able to offer starting 2026, complete 100% low carbon offer because we will be able to, I would say, manufacturers, I would say, rod wire 100% recycled by campaign. So that's something that will be unique in terms of offer. But of course, I will elaborate a bit more during the Capital Markets Day. Because I think this vertical integration will be a strong distinctive advantage for the future.

[Operator]

We will take our next question from Akash Gupta from JPMorgan.

[Akash Gupta, analyst]

I got 2 as well, and I'll ask one at a time. My first one is on Usages and Distribution. So you talked about some destocking on your side, which impacted your ability to deliver and cause some weakness. Can you comment about underlying market and a bit of underperformance there? Was the underlying market was still growing in these 2 segments? Or was there some issues on the market as well? And then I'll ask my follow-up later.

[Christopher Guérin, executive]

Yes. I would say that on distribution, demand remains very, very strong. Akash, if we will have seen something different in terms of trend, we will not have announced this new CapEx. Our line are still very saturated. There is some upticks depending on some contracts because we have some -- we received some big contract on solar farm and renewable farms. And as this project base, we can shift from one week to another week, and that's what exactly what happened in September. We have some revenue recognition that we're supposed to be at the end of September, that shift to the first week of October. So no concerns on distributions.

We have as well a negative effect because we had consolidated 2 units into 1 in Finland. So we have to stop production in Finland to make this, I would say, transfer of production. So that affects our Q3 as well in the Distributions. But now it's done, so they are running full blast. In Usages, I will say, I will not bring more, I would say, granular comments than the one for our customers, there was a downward trend in residential market up to 8% to 10% in Europe. It's same in U.S. In North -- when I say U.S. for us it's North America, obviously, with a focus on Canada. But in Canada, it has been offsetted by industrial market in Q3, clearly, where in Europe, it's still -- we're still facing some low volume on headwinds. And I would say that Europe will remain at that level to, I would say, at the end of first quarter of 2025.

[Akash Gupta, analyst]

And my second question is on G&P. I think in your opening remarks, you talked about some framework agreements that could be announced or that would be coming for award in the coming weeks. Maybe one question broadly on the demand-supply situation, how do you see the demand-supply situation given we also have a national grid in the market with a large framework that we heard from other markets players.

And when it comes to your Capital Markets Day, how shall we think about potential for further capacity expansion on the subsea part. Is that something that you are considering? Or you are still not interested or not keen to invest more on the subsea side?

[Christopher Guérin, executive]

Akash, good try on the question for the Capital Market Day. You know that I will not answer that, and you have to be patient and wait that we meet all together on the 13th of November. So I will not answer on capacity expansion. I will talk about it on the 13th of November. Regarding frame agreement, you know that we are in discussion with RTE that has been announced in October. We are at least an exclusive negotiation for [indiscernible] 1 and 2 or only 1 project. And if everything goes well, we expect to remain at -- in the roughly December, with full off in January.

[Akash Gupta, analyst]

Maybe a question on the demand-supply situation, like how do you see the demand-supply situation now versus, let's say, at the start of the year in high-voltage given we have some projects that might be getting pushed out while other projects that are being added to the pipeline. So how do you see the high-voltage demand supply situation in general?

[Christopher Guérin, executive]

In general, very strong, specifically in Europe. Very strong specifically in Europe. And we -- so no concern, no change of dynamic. We still have some, I would say, free capacity to offer compared to some of our competitors for some specific years. So it's pretty strong. We remain, of course, extremely vigilant in North America in regards to the elections and but so far, I will say no change of dynamic. I think that will be the case up to 2030. We may have a change of dynamic post 2030, Akash, to be honest, but demand remains very, very strong.

[Operator]

We will take our next question from Miguel Borrega from BNP Paribas.

[Miguel Nabeiro Ensinas Serra Borrega, analyst]

I've got 3. I'll go one at a time. Chris, you sometimes talk about hyper cycle in medium voltage. Can you help us understand that in the context of your 9-month results. So your organic sales growth was 2% and flat in Q3. Maybe give us a sense of pricing and volumes here, especially in Europe and North America? And help us understand these new framework agreements that you often talk about. In what elements are they different relative to what you've seen a few years ago?

[Christopher Guérin, executive]

Thank you. So yes, cycle on medium voltage has, of course, in very positive territory. I had the question very often from investors, which is to say, why your growth ratio is not higher? I will say you need to take it as a sensitivity table, which is crossing organic growth versus EBITDA generation. We can grow up to 5%, 6% without any issues, but it could be dilutive for the margin.

So we know that between, I would say, 2% to 3%, it's still very accretive in terms of EBITDA percentage. And we can be -- of course, it requires to be extremely selective, not only by customers, but more specifically by SKUs. If you want to capture more growth, it will be negative in terms of EBITDA generation in terms of percentage-wise.

So this is, I think, this selectivity approach that we have since the beginning. In terms of frame agreement, what is the dynamic, it's related to all the investments announced by the DSO in the last year. You can see that they're all up plus 25%. So and all nations are waking up at the same time. So that's creating a pretty high level of saturation of the equipment. But the difficulties on their side is that financing is there, demand is there. Their potential bottleneck will be access to labor resources because you need labor resources to install the cables on the ground in Europe. And that's the risk of, I would say, potential scarcity on their side.

[Miguel Nabeiro Ensinas Serra Borrega, analyst]

And then in GMT, help us understand the evolution of your backlog sequentially. So there must have been something out of the backlog in Q3 execution wise. And maybe also talk about new orders. Are you being restrictive in some way, how full are you. And then with regards to the Great Sea Interconnector, should we expect another EUR 25 million EBITDA in the second half of the year?

[Jean-Christophe Juillard, executive]

No. In Q3, in backlog, we recognized revenue, and we basically booked a project called Orkney in the quarter. That's when that the movement of the third quarter on the backlog of GMT. And the second part of the question was?

[Miguel Nabeiro Ensinas Serra Borrega, analyst]

So if you can talk about orders, if you've been restrictive, how full are you? And then the impact on EBITDA from Eurasia in the second half?

[Jean-Christophe Juillard, executive]

So impact on EBITDA, as I explained in the past, and we are on the trend of basically hardly improving our EBITDA. I said that second half would be likely at the level of the first half in terms of EBITDA margin for the business of GMT because we need to continue to fully execute the project with lower margin that will gradually improve in next year and the year after next to reach a much higher level when we will fully execute the contract of -- large contract of TenneT and Great Sea Interconnector, 2 years from down the road chart, higher margin project. So that's basically no changes versus what I explained last quarter.

[Miguel Nabeiro Ensinas Serra Borrega, analyst]

And then if I may, one last question, maybe big picture, can you give us your views if indeed we see copper shortages? What kind of impact would that have in your business? And maybe if you can break it down by business segment, if you can.

[Christopher Guérin, executive]

Yes. In case of -- so what do we see in terms of copper shortages today, not much at our level because we have privileged access. And I would say the big names of the sector cannot see any copper shortage because of their size, and the volume they represent for the supply chain or for the mining producers. We've seen that in the last acquisition made recently that the medium-size players had difficult of access. And we are pretty active in M&A, and that's always something that came out access to copper for medium-sized companies start to be a potential issue.

The shortage -- the big shortage could come if China and U.S. are shifting to high demand in terms of energy transition at the same time. which is not yet the case in China and not fully the case in U.S. So far, the main impact in terms of business would be, in the one consuming most of the copper will be Usages business, building wires, low voltage. Major voltage is mainly aluminum.

[Operator]

We will take our next question from Alasdair Leslie from Bernstein.

[Alasdair Leslie, analyst]

A couple of questions, please. So just firstly, on the divestments. You said last time that you were ready to kind of test the water in coming months. So can you maybe update us on kind of level of interest, potential timing, et cetera? And then maybe specifically for automotive harnesses, I appreciate you say it's obviously been relatively resilient. But does the more challenging backdrop there in autos, does that basically take a sale off the table for now?

And the second question is really on the selectivity strategy. It's clearly paying off in Usages and Distribution. But I was just wondering, do you think G&T might be maybe better served by a kind of broader and more diversified backlog. You maybe avoid the oversized exposure to single project risks, the kind of volatility on sales and returns. Just be interested in your thoughts about the future evolution of the G&T backlog.

[Christopher Guérin, executive]

In regard to the -- if I get the question right, in regards to the divestments, we will announce some, I will say, evolution in incoming weeks. But automotive market is clearly down, but I think I don't need to elaborate that. We have launched the process of the divestment of the industry and solution businesses. It's not official, it will come up. But I don't want to comment much that part because we'll make some announcements in coming weeks. Regarding selectivity strategy, G&T, I don't get the question, sorry for that.

[Alasdair Leslie, analyst]

Yes. Just I wonder, I mean, you've obviously had a very select -- sort of successful selectivity strategy, which is paying off the low voltage and medium voltage businesses. But it just sort of seems as though the -- on Generation & Transmission, I was just wondering just whether there's kind of limits to that strategy there for Generation & Transmission having a very narrow backlog. It does seem to kind of believe you very vulnerable to single project risks.

We can see that sort of volatility sort of play out in terms of kind of expectations around sort of the -- particularly on the margin. So I was just wondering whether you think that perhaps it might make more sense to go for a more diversified kind of broader backlog and particularly, I guess, in terms of when we think about capacity additions and the mentioned there around sort of reviewing the potential for future capacity additions, whether that might come into play when you look at the size of the backlog and Generation & Transmission?

[Christopher Guérin, executive]

Yes. I would say that as well, part of the answer is coming from -- the investment that we just announced in Charleroi. Charleroi is a EUR 90 million investments to support, of course, all the land part of the subsea cable, but as well the high demand in frame agreements for land high voltage, which now we see a very strong improvement in terms of price dynamic. And in regards to the evolution of backlog, we will -- there is a lot of tender activity right now and negotiations.

So you will see the evolution of the backlog coming up in the coming months. We remain overall very cautious in terms of allocating our capacity and resources because it's not only about volume, it's not only about margin, it's linked to risk and apparently guarantees and we want to make sure not to bet on specific projects. that can jeopardize the evolution of the group on the long term.

[Alasdair Leslie, analyst]

I wonder if I could just squeeze in a sort of quick follow-up and it's more short term. Just on the, I suppose, helping sort of calibrate G&T expectations, growth expectations for 2024. If you do get that notice to proceed on GSI and you get a catch-up in '24. I think you said previously, G&T could grow at 60% with GSI. I imagine it's maybe a little bit lower now just given some of the delays there, but maybe if you could help us sort of update the expectations there, that would be great.

[Jean-Christophe Juillard, executive]

Yes, exactly, you're right on. I mean, we're expecting -- we said closer to 60% at the beginning of the year because we're expecting the notice to profit much earlier. I mean, now it's been postponed to early November, and we're expecting it first in the first half. So definitely, it has had an impact despite the fact we progress, as I explained on the project because we continue to receive some cash, but a much lower level than the normal expected progress on the project if we had the full down payment and a full notice to proceed explaining why basically the G&T organic growth is today not as high as expected at the beginning of the year.

So I mean, again, there will be definitely a difference, but we should still be in a good territory for the year if we get the final deals to proceed the beginning of the November as we expect.

[Operator]

We will take our next question from Lucas Ferhani from Jefferies.

[Lucas Ferhani, analyst]

Just wanted to come back on the comments on Distribution. Would you be able to give us the number roughly you're seeing in October in terms of the organic growth, just to see that come back and maybe compare that to what you saw in September? And also in that division, is there any revenue impacts from the manufacturing consolidation in Finland? And could you give us the number there on that impact?

[Christopher Guérin, executive]

Yes. So I think that, no, we'll not give you the revenue impact on Finland because I don't want to be as granular for that. But it has been important, it was planned, but it was associated with a different, I would say, factor like to aggressive destocking effect that we had on our side. On the -- regarding Distribution, overall, we are, I would say Q4, we are close to between 8% to 10%, plus 8% to 10%.

[Jean-Christophe Juillard, executive]

So we won't give you the October growth rate, but we have a Q3 slightly negative minus 10%, explained by the season, mentioned earlier and will be catch up.

[Operator]

We will take our next question from Eric Lemarie from CIC.

[Eric Lemarié, analyst]

Yes. I got 2 questions actually. The first one regarding the Great Sea Interconnector project, do you see any risk of further headwinds regarding this project, especially political-driven headwinds? And what about the geopolitical risk mentioned by some observers mentioning notably in Turkey, is it a risk to consider for this project?

And the second question regarding the U.S., you mentioned the U.S. election. What could be in your view the impact of an election of Donald Trump on your business? Do you see any risk? Or maybe on contrary, do you see perhaps new opportunities with the Trump administration?

[Christopher Guérin, executive]

Yes. Thank you. In regards to Great Sea Interconnector, there was a change on the meeting between Emmanuel Macron, the Greece Prime Minister and the President of Turkey -- sorry, not of -- yes, Turkey Erdogan was there, but as well Cypress President in the recent months. The potential headwinds remaining in that project because this project has been full of headwinds for the last 2 years.

It remains at the time of incoming weeks for the survey seabed as we are in international waters. Turkey declared that it's not in international water, this is their waters. So we may encounter some geopolitical risks at that time of the survey. But if the survey goes well without any tension, I would say, from our stakeholders' views that the only major milestone or risk milestone that we are -- we may encounter. After it should flow very well. So I cannot say more than that.

In regard to the U.S. election, I would say if the president Trump is winning, there will be a dual effect. That will be the negative and that will be the positive. The negative is that we know it's posture in regards to renewable energy, which is I will say, more negative than the others. But let me remind as well that I will say it's more a state decision of investments at government level. But the positive as well is the local content is that we are the only one right now to be able to come with made-in-America offer.

So our subsea cable for offshore wind farm are designed by Americans, manufactured by Americans in U.S. territory. So this local content, of course, will be in favor for Nexans. So I will say it's a dual effect. One positive catalysts and one negative catalyst. Let me remind that we spent $150 million upgrading our Charleston unit in 2019 in the time of Trump presidency and that was a risk, but that has been pretty accretive for the last years. So not negative, I would say.

[Operator]

We will take our next question from Sean McLoughlin from HSBC.

[Sean McLoughlin, analyst]

A few from me as well. So firstly, just staying in the U.S. I mean what is your view currently on high-voltage opportunities outside of offshore winds that you effectively could deploy the Charleston facility for. Secondly, I'm wondering, we've seen French press commentary that you approached and turned down the bid. Just any comment on the dynamics would be helpful. And thirdly, on auto harnesses, just to check, is that 100% auto car exposure? Or is there an off-highway or heavy-duty exposure that diversifies your overall end market mix?

[Christopher Guérin, executive]

Yes. So what is the opportunity for high voltage outside of Charleston in U.S.? Of course, we can manufacture a non-high-voltage product because that was what the, I would say, initial design of the unit before 2019. But the demand in Europe is so strong and of course, maybe in terms of carbon footprint is not the best. But if we have a hold in Charleston due to a decline of demand offshore wind farm for a certain period, we prefer to leverage the capacity for offshore wind farm business in Europe, to cope with the demand. Regarding auto harnesses, JC?

[Jean-Christophe Juillard, executive]

Yes, for auto harnesses. Yes, it’s linked to the automotive market, obviously, because we're providing the hard cable harness. This is for key German manufacturers and the luxury brands. However, we are in the niche market. We only -- first of all, we only do the engine harnesses. We don't do harnesses for the body of the car. So it's a little bit more complex and added value than the rest of the body harnesses of the car. So -- and again, we have very selective premium customers. So -- but to answer your question, yes, it's exposed to the automotive market, for sure.

[Christopher Guérin, executive]

And regarding the questions in line with the article on the Bloomberg floor of yesterday. Regarding those rumors of a takeover of CD&R Nexans, well, first, I will say, practical answer, we do not comment market rumors. We -- in the course of our business life, company Nexans has been regularly in contact with partners and investors, it's normal life. The market capitalization of Nexans in 2018 was about EUR 800 million, 6 years later, we had EUR 6 billion. The only thing that I can tell you is that with what we will present, and this is what we've discussed in depth with our Board of Directors on the 13th of November, I think EUR 6 billion is not our limit.

We believe that we have -- you will see very ambitious goal for the company in incoming years. Still a lot of to do in terms of value creation, you will see that. And the only thing I can add up is that we don't have today any ongoing discussion with CD&R.

[Operator]

We will take our next question from Jean-Francois Granjon from ODDO BHF. Please go ahead.

[Jean-Francois Granjon, analyst]

Yes, you have also answered to lots of my questions. Nevertheless, 2 other questions. The first one, I just want to come back on the backlog at EUR 6.2 billion versus EUR 6.7 billion previously. So could you explain this a little bit decreased by the more selectivity to -- for a new agreement? And the second question concerns the guidance. So you have improved the guidance at the end of July. Currently, and you do the Great Sea Interconnector contract, are you more comfortable with the high-end range of the guidance or not?

[Jean-Christophe Juillard, executive]

Yes, Jean-Francois will answer. So the first question, we didn't book anything in Q3. So we recognize sales and basically, there's a combination of probably different elements, but sales recognition is the largest one. Again, we will likely book orders to all the backlog furthermore in the coming months. So nothing really specific to say about the backlog evolution between H1 and Q3.

For the guidance, I mean, again, depending on GSI, of course, because we still do not have the final notice to proceed. So we want to remain cautious, but assuming we have the final notice to proceed and continue to make progress on the project revenue recognition, cash received revenue recognition within our plan for the next 3 months is definitely objective to be a part of the guidance.

[Operator]

We will take our next question from Xin Wang from Barclays.

[Xin Wang, analyst]

The first one I'd like to ask on distribution. So on the pace of frame agreement renewal, last quarter, we said there is 40% to be renewed. Would it be possible to get an update on this, please?

[Christopher Guérin, executive]

Everything that was supposed to be renewed this year has been renewed. So there is no more negotiation ongoing in regards to Distribution. And it has been renewed with a great volume perspective and with stable pricing.

[Xin Wang, analyst]

My second question on GSI. On the arrangement for cable production and transportation. My understanding is that you're making these cables in your Japanese factory? Are you using Aurora or a simple vessel to ship it over to Europe on a regular basis? Or are you currently storing all the cables produced in Japan. Would you consider reschedule your production capacity to produce them in Norway instead, for example, given the long-haul shipping costs and environmental impact.

[Christopher Guérin, executive]

Yes, I think that given the size of the GSI project, that will be dual production. The first length are being -- are currently being produced in Japan because this workshop is specifically dedicated to a mass implemented technology and was, I would say, was awaiting this project to come, but the major length of the contract that will be starting in -- production will be starting -- can continue, but start in Halden in '25, '26, we, of course, will be done in Norway. So we need the both plants to combine to be able to deliver this project on time. And we will use our Aurora vessel or Skagerrak to manage the transfer.

[Xin Wang, analyst]

That's really good color. So my next question is on U.S. projects. So in offshore, interim reporting back in August they made an impairment to revolution wind and the delayed commissioning date from 2025 to 2026. But also flagged the risk of Sunrise Wind commissioning slipping from end of '26 to first half of 2027. Would you be able to talk about the impact on cable inflation schedule, please?

[Christopher Guérin, executive]

Yes. I think in revolution, we don't have any specific impact on Sunrise, we are not in charge of the installations. So today, we're running the production of Sunrise. And of course, we discussed on the -- what do we do with the cable that will be ready for installations with the customer. But we -- so those delays to -- in terms of production was does not affect our schedule.

[Xin Wang, analyst]

My last question, if I'm allowed. So -- we saw some news on French ruling. So Rexel, Schneider, Legrand, Sonepar was find by the French Competition Authority on special price agreement mechanism. I think cables could be a big part of this. Do we expect any impacts or any sign to Nexans, please?

[Christopher Guérin, executive]

I cannot comment this issue in regards to our partners and customers, and we are not concerned by what happened on this topic.

Thank you. I think that end the question session. So thanks a lot for your attention and see you on the 13th of November in London for the Capital Markets Day. Thank you.

[Operator]

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