Nexans Unsp/Adr

Ladies and gentlemen, good morning and welcome to Nexon's 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 will have the opportunity to ask questions, and this can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press the star zero and you'll be connected to an operator. I would now like to turn the conference over to Mr. Christopher Guerra, Nexon's CEO. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and thank you for participating in Nexon's conference call. I'm Chris Guerra, CEO of Nexon. With me, Jean-Christophe Julliard, Deputy CEO and CFO, Vincent Dessal, COO, Nino Cusimeno, General Counsel, and as well Elodie Omuyo, VP Investor Relations. I'm turning now to Elodie that will go over the conference call rules.

Thank you, Chris. I would like to remind participants that statements made during the conference call, which are not historical facts, are forward-looking statements within the 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 URG, along with the audio report of today's call that will be posted on our website, nexons.com. I now turn you over to Chris, who will go over the first quarter highlights.

Thank you, Elodie. So let's turn now on page three, straight on the quarterly main highlights, four of them. The first one is a promising start.

Value, you know, we are really focused on the value growth, so a growth that is mainly made of... Ladies and gentlemen, good morning and welcome to Nexon's 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 will have the opportunity to ask questions and this can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press the star zero and you'll be connected to an operator. I would now like to turn the conference over to Mr. Christopher Guerra, Nexon's CEO. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and thank you for participating in Nexans Conference Call. I'm Chris Guérin, CEO of Nexans. With me, Jean-Christophe Julliard, Deputy CEO and CFO, Vincent Dessal, COO, Nino Cusimeno, General Counsel, and as well Elodie Ormuyo, VP, Investor Relations. I'm turning now to Elodie that will go over the conference call rules.

Thank you, Chris. I would like to remind participants that statements made during the conference call, which are not historical facts, are forward-looking statements within 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 URG, along with the audio report of today's call that will be posted on our website, nexons.com. I now turn you over to Chris, who will go over the first quarter highlights.

Thank you, Elodie. So let's turn now on page three, straight on the quarterly main highlights, four of them. The first one is a promising start. You know, we are really focused on the value growth, so a growth that is mainly made of value growth. a structural positive mix effect on the very tight price management and 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 planned and of course mentioned during our capital market 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 and well on the plan regarding innovation and services acceleration. We have more than 100% growth in connected objects. We have already on Q1 now more than 60,000 connected objects. So as you know, it's as well linked to a new revenue business model with monthly fees with our customers. So very proud about this development. Potentially still enormous. Amplification of our fire safety technology. I will dedicate 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 months. Point number three, new milestone in asset rotation aligned with our plan. So as we already mentioned, we are in exclusive negotiation with Santegma Capital for the disposal of Telecom System. And we received a few days ago the antitrust approval for the acquisition of Reka Cable in Finland. So the closing of Reka Cable is imminent, will be done in the incoming days. Point number four, strengthen and increase profile. As you know, we have a steady improvement of SNP rating, BB Plus rating, outlook upgraded from stable to positive. And we have to say as well that we're very proud about it, that we have been extremely successful for the first sustainability link bond insurance, and that has been significantly oversubscribed. which we are talking about a €400 million sustainability bond. Let me turn to GC on page 4 for the organic growth explanation.

Thank you, Chris. So, if we move on page 4, you see that, as Chris said, the organic growth of Nexans Q1 23 versus same quarter 22 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 Nexens, but also I would say a dilutive asset in terms of EBITDA margins. So our strategy is 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 growth. Reported sales of 1.674. You see that we have a scope impact of 60 million, which is the acquisition of the Santelsa business that we did in the second quarter of last year. And also a negative impact on Forex, mainly coming from the NOC versus the Euro, which has been, I would say, deteriorating. And since we have significant revenues in NOC 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 a significant difference between electrification and non-electrification. I will detail that in the coming slides. If we move now to page number six, and we start on page number six, with the electrification businesses, zooming between generation and 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 to be complexified and debottleneck our plant to exit that segment of business and this is explaining basically all of the negative organic growth in fact without Without that umbilical variance between Q122 and Q123, the organic growth of the division generation and transmission would have been positive of 8.5%, mainly thanks to the continuous ramp-up of our Charleston plant in South Carolina. Just to give you a little bit figures, umbilical business in Q1-22, the sales were 47 million euros, where in Q1-23, the sales for that segment of business were 4 million euros. So again, that reduction is part of our strategy to exit that business, which is also dilutive in terms of margin. uh distribution if i move to the next i would say electrification business is distribution very nice uh significant i would say uh positive organic growth in its distribution mainly driven by uh the start of the of the grid renewal that we see in most parts of the world right now We've seen a significant increase in demand from utilities in all of the regions 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 frame agreement, we see that utilities are requesting more and more volume through the frame 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 you have on this business. We continue to believe that this is a fantastic, I would say, market for Nexance 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 that growth. You see 1.5% 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 levels that continues to be extremely high, and prices remain very strong. If I move now to the next slide, on page six, 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 trends that we started to see in 22 despite the war in ukraine continue in the first half of 23 meaning that demand is extremely strong um we we have been i would say uh 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 growing significantly. Also, to be noticed in that segment, strong growth in the mobility. Mobility is mainly aerospace, shipbuilding, and rolling stock. We see a 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'll see later, for the remaining part of the semester. Other activities, again, is made of two parts. The metallurgy part, which is explaining the bulk of the decrease in organic growth, part of our strategy to reduce our metallurgy business, and the telecom business that 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 part that is included, part of the high-voltage cables. If I move now to page number seven and I turn on to Chris.

Thank you. So that's just on I like on generation on transmission situations in terms of capex on backlog. So we were, three weeks ago we were in London with GC to have a complete review of the capex. Everything is on track. The two new lines are very well in progress. Tower 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 certainly the least expensive model because this extension will bring us another €340 million revenue when it will run at full pace with limited extra fixed costs. Regarding the backlog, so healthy 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 healthy backlog on the line in terms of our three pillars that have been shown on page five, means margin yield, technological fit, and with limited contractual terms exposure. And let me repeat as well, because I'm sure you will have questions that we don't want to be the first to book And 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 on the right side of the slide, the main project in backlog. When we were in Charleston last week, we have seen the full and positive start of the Revolution project, and as well the loading of the Southwark project. project for Orsted. So everything is running according to plan in regards to this project in Charlestown. If I turn now to page 8, and I 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, 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. 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. There are many drivers, but if I may highlight the underlying trends, we see five of them. The electricity consumption will grow by 20% by 2030. The new build and the renovation acceleration. And just keep in mind that 53% of the buildings have been built before 1970, and that required a very in-depth renovation. New safety regulation, 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 and 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 this slide, but safety cables, which is a shift from PVC to HFFR cable, is keep growing with a growth, 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. For the last four years, we have accelerated the shift in terms of production towards fire safety versus PVC cable. That's the first momentum. The second momentum is that we have much more protection on entry barriers for fire safety We have, just for an instance, more than 150 patents. And, of course, this protection is yielding margin upwards. They give us a significant premium versus traditional PVC commodity business. We are able to add up a new service-based revenue model, as I mentioned in my introduction with connected object, linked with the fire safety, I will say, promotion and amplification. After, we as well, as we want to become top leaders in the electrification field, we prioritize through the new builds with high safety standards. means we reallocate more our production capacity for the verticals that require the most this fire safety element, like data centers, schools and hospitals, and as well big building renovations. So that's the trend that we are following. This is why we keep reinforcing Our premium on our margin yield in that sector, and you will see, I think 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.

Fire safety starts with cables. Today, one fire breaks out every two minutes in Europe. At the same time, the demand for energy is constantly increasing. The expected rise in electricity consumption is more than 20% by 2030, and with it, an increased risk of electrical fires. cables present in large quantities in the structure of building installations can be a decisive asset for the safety of property and people.

The re-ability of electrical network is a top priority of our innovation roadmap and is mandatory for the energy transition. What does it mean for a building market? To deploy innovative solution as a protection against electrical fire and to replace PVC commodity cables.

Technologies to prevent fire risks exist and can increase the reliability and protection of buildings. Prevent the start of a fire, reduce toxic smoke, slow down the spread of flames.

Nexon has a long experience, a deep technology expertise, a huge capacity of innovation in the field of electrical fire protection.

These technologies are developed at the Nexon's Impacity Innovation Center in Lille. 100 researchers, 150 patents, 1,000 test simulations. Nexon's fire safety technological solution reduces the growth of a fire by 5 to 10 times. Compared to current solutions, visibility is improved by a factor of 10 compared to traditional PVC products. Low fire hazard cables reduce the appearance of smoke and acidic gases for safer evacuation. And fire-resistant cables maintain the integrity of electrical systems for more than two hours at temperatures of plus 1,000 degrees Celsius.

Protection against electrical fires is an

An absolute necessity to save lives, to save homes, to save money. It does represent billions of euros of economic losses. The next five years, we'll see a real technological shift from the old PVC commodity cable to the halogen-free, smoke-free, non-spreading technology. This will bring a much better ability of electrical network in buildings.

We already have the solutions and technological advantages. We are committed to making buildings, hospitals, schools safer. This is how we electrify the future.

Voilà for the video on the fire safety. We're happy to take any kind of question related to that technology. Let's now shift to page nine. uh we wanted to highlight the bits the visibility that we have for the first half difficult to predict for all the year except certainly for gnt but let me elaborate for q2 our visibility for q2 so well i think nothing to uh to elaborate much on generational transmission now we are we are fully uh fully booked uh on the with the exception of Eurasia in our plant in Japan, certainly part of your question. Organic distribution, our businesses and our equipment are fully saturated.