Nexans Unsp/Adr

Ladies and gentlemen, good morning and welcome to Nexon's first half 2024 earnings conference call. As a reminder, this conference call is being recorded. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your questions. I will now like to turn the call over to your host for today's conference, Mr. Christopher Green, Nexon's CEO. Please go ahead, sir. Thank you.

Thank you. Thank you. Good morning. Welcome, everyone. And thank you for joining us today for our H1 2024 result presentation. Here is Chris Guérin, CEO of Nexens. With me, Jean-Christophe Julien, Deputy CEO and CFO on Elodie-Rome Mouillot VP Investor Relations. I will turn you over to now Elodie for the conference call.

Thank you, Chris. Before we start, I would like to remind participants that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We invite you to visit our website where you can find and download our URD, which includes a description of the group's risk factors. And I'll turn you over to Chris, who will go over the first half highlights.

Thank you, Elodie. Let's go to page four. So, as you can see, we are starting... with a very, very strong financial performance at 11.6% EBITDA. So very pleased to report this strong financial performance for the first half year, driven, of course, by, as you will see later, electrification business organic growth, and as well further enhanced by the successful integration of Latrevin and Takavi that started the 1st of June, a strategic move for us in the European region. footprint of product offering. We achieve as well as 6% ongoing growth in sales, 16% increase in adjusted EBITDA, 32% for net income. And as you can see, we're reaching a 412 million euro EBITDA on a margin of 11.6. We have as well generated a strong free cash flow of 79 million euros on maintaining a solid balance sheet with a leverage ratio of 0.7. Based on this result and our positive outlook for the second half of the year, we are upgrading our guidance. I will let GC explain the magnitude of this upgrade. Last but not least, as you can see on this slide, we have still a very strong backlog. I'm sure you would have questions on getting a grid C interconnector. Happy to answer what we can. And as well, a very strong engagement of our team. We keep progressing on the engagement rate. reached 78%, which is a record of engagement rate for Nexon. If we move to slide number five, you can see, and we are very proud about it, the evolution of the EBITDA semester after semester. And you can see that with a 4.12 million euro, we have achieved in six months, for the ones that remember, what we achieved for the full year of 2019. So in six months, we are doing what we were doing before in 12 months. So it's a very strong progression. Normal aspect cash flow is about 189 million euros, and with a very good cash conversion. And the return on capital employed, we reached 22%, including for electrification, including the goodwill of La Trevineta. So without the goodwill, it's about 27%. And for the group return on capital employed, it's 20%. And without the goodwill, it would have been 22%. If we move to page six. So as I mentioned, we completed early June the acquisition of Latrivine Takavi, renowned leaders in the European cable industry. Strategic move. This strategic move is not just an acquisition. It's a significant leap that aligns perfectly with our ambition to become a pure player of electrification. It's our third acquisition with reaching a revenue on total with Sant'Elsa, RECA and La Treveneta of 1.4 billion. If we go to La Treveneta specifically, the acquisition value and enterprise value of 500 million euros is said to be immediately accretive to our earnings per share and will deliver, this is the new information that we have not announced before, an equivalent of 20 million euro synergies. This calculation has been based on the successful track record of the integration of Santelsa two years ago and RECA last year. You know that we have exceeded our expectations, both in terms of overall value of synergy with Santelsa and RECA, and as well as speed of synergy implementation. With the €20 million that you see, we are pretty optimistic to achieve this number and to beat that number in the coming months. If we move to page 7, in this first half of the year, we celebrated the grand opening of the newly expanded section of our high-voltage subsea cable plant in Alden, with all customers, more than 50 customers joined us, as well as partners and journalists. And it marked as well the 50th anniversary of Alden. So this project initiated in November 2021. This construction of this state-of-the-art facility incorporates some of the most sophisticated cable production technologies available today, with the capability to deliver subsea cable up to 525 kV for HVDC and 420 kV for HVAC. This expansion more than double our plant's capacity for HVDC extruded cable. It's also introducing a monumental 153-meter-tall second extrusion tower, allowing us to insulate four cables simultaneously. And this tower is not only a marvel for industrial engineering, but now stands as the Norway's tallest building on its first skyscraper. It's not New York, but almost. If we move to page 8, Very strong bid as well for Amplify, which is linked to our strategic initiative, specifically the acceleration of our solar offers and all renewable offers. So it's a strong bid for us, for the Amplify, as well for Shift Prime, which is, if you remember well, the premiumization of our offer that's yielded substantial and structural results. and that helping this, of course, this great performance in terms of EBITDA, because everything we do under SHIFT program is purely structural and not linked to any conjunctural effect. This outstanding result underscores the relevance of our strategic levers, transformation playbook, and the commitment of our team to drive value creation and, of course, innovation. Let me hand over to GC for the description of the result, business by business.

Thank you, Chris. So I'm moving on page 10, and I will start with the organic growth of Nexon for the first semester 24. So as you can see here, very strong organic growth for the semester compared to semester 23, first semester 23, 6.1%. As usual, if you exclude the metallurgy decrease, which is part of our strategy to focus on our needs and reduce external sales, then the organic growth is at 9%. including the other activities. You'll see the split between the businesses. The expansion of the top line is mainly coming from electrification. It's completely coming from electrification, I would say, where you see a 14.1% growth, as well as an increase also in margin. I will explain in the next slides which business are driving this electrification push. In terms of looking at the business non-electrification, we have a slight decrease after, if you recall, a strong 2023 organic growth. mainly coming from automation and mining, where shipbuilding and other businesses like shipbuilding are performing extremely well. So it's, I would say, a mixed bag of strong trends, positive, and other ones slightly declining. Also on the harnesses business, after two years of very strong organic growth, we are seeing today, I would say, a plateau in terms of sales. For the group, the margin is expanding almost one point at 11.6%. I remind you that the objective of the equity story 21-24 was 12%, so we are reaching the high part of the commitment we took three years ago at 11.6% on this first half. If I move now to the next slide, I will start with the generation and transmission. Last year, in the first semester of 2023, we had a difficult semester in terms of margin on the business, where we reached, unfortunately, a very low point of 8% margin. We said that we will gradually recover on that margin. We've done a second semester of 2023 where we moved from 8% to about 10%. And we said that gradually this will be improving with, I would say, still a plateau in 2024. And starting 2025, we will see a few points additional to the margin every year. So we confirmed that, as you can see, on the first semester of 2024, where the margin is 11%. We have a 64% organic growth on the business, mainly explained by the additional capacity in Alden with the two new lines that, you know, are now in operations in the beginning of 2024, serving basically the big, the increased backlog, as you see, 6.7 billion record backlogs on Exxon, another growth of 30% versus June of 2023. Page 12, if we look at distribution, this is the second part of the business, which is in electrification after GNT that is now performing quite well. We have a decent organic growth at plus 2%, mainly driven by accessory, which has a very strong margin, driven by Europe also, where we see a strong increase in demand in Europe by utilities at plus 9%. organic growth in europe overall two percent of the growth and a very strong boost in the margin as you can see where the margin percentage increased by 2.2 16 and the total adjusted ebitda from june 23 increased by 20 so we are very happy and we continue to see this strong momentum in terms of margin and and top line in the distribution business and and we believe that uh the visibility and the expectation for the coming years remains quite strong in distribution. Usages on the next slide on page 13, a moderate organic growth plus 1% with also, I would say, a different performance according to the geographical area. Europe slightly down, minus 4%. We see strong improvement in top line organic growth in South America. We see a strong 15% growth in Middle East and Africa. North America is flat. Slightly decreasing, minus 1%. You see also that the margin remains stable, I would say. We continue to see in the margin level what we started to see in 2023, which is a normalization in North America. both in terms of your volume and a little bit in terms of pricing. And therefore, this is compensated by improvement in the region I said, I told you about. But again, we are continuing to see this normalization in North America, which is eating part of the additional performance in usages from the other geographical area. We believe we will talk about that, I am sure, in your question, but we see a second semester and a third quarter and a second semester that should remain at good level with a normalization in North America ending in June. I will take you now on the next section, which is the key financials, and I will start on page 15 with our profit and loss. So as Chris mentioned, an adjusted EBITDA up 16% versus first semester of 2023. Organic growth has plus 6%. 0.1% as I explained previously. We have an operating income at 291 million euro with flat reorganization cost. Income before tax 247, an increase in financial result, net financial result due to the cost of debt which has been increasing versus first semester of last year. Income tax also increasing because of higher profit for the company and the net income reaching 176 million euros versus 134 in the semester of last year. And you see on the graph that the contribution of 47 million euros of the electrification businesses in the growth of the EBITDA to reach the 11.6% EBITDA margin for the semester. On page 16, we have a look at our net debt and our balance sheet. And you see that, of course, leverage slightly increased from 0.4 times to 0.7 times, mainly due to the bond that we issued to finance the acquisition of Latrivineta CAVI, 575 million euros that we oversubscribed 2.5 times. Strong cash from operation. I would say not a change in working capital, which is flat. I mean, we've seen over the past year significant improvement in our change in working capital. We were close to almost zero working capital on sales. At the last closing, we are at 2%, so a slight increase, but again, We believe that the normalized level of working capital would be rather below 6%, so continue to have a very low working capital. CapEx continue to be high, I would say, versus the normalized CapEx of the company. Because of the strategic CapEx, we continue to invest in high voltage. We have, in the first semester, the completion of the new line of Alden that started to generate revenues and margin, as I described before, and we are in the middle of the building of our new vessel, Electra, and we spent 84 million euros in the first semester in the capex for the building of the vessel. So out of the 191 million of total capex, 105 million are related to investment in GNT. The rest of the reach for the net debt is mainly the dividend payments that we had for 101 million euros in May. And I think that puts our net debt at 810 million euros for the semester, at the end of the semester, which is again a leverage of 0.3 times. It means very strong balance sheet and low leverage. There is a lot of room in our covenant. If I move now to page 17, and we look at our cash, you see that... We have a strong cash position in our balance sheet. Remains, I would say, at the same level of December 23 at 1.1 billion euros. Strong liquidity, 1.9 billion. If we include the undrawn revolving edit facility for 800 million, you see the maturity of our debt and our growth debt at 1.9 billion, with two new bonds, 29 and 2030, one to refinance bonds that came to maturity in April of 2024 and the 350 million bond and the 575 maturity 2029 to finance the acquisition of La Trevineta. So that's concluding the financial statement presentation as well as the business overview. I will now move to the outlook on page 20. So on the outlook, we want to capitalize basically on the strong performance on the first semester, the good visibility that we have on most of our businesses for the second half of the year, and we are increasing the range of the guidance for adjusted EBITDA from 670, 730 million, which we announced in February, to a new range of 750 to 800 million. That, of course, includes the contribution over seven months of Latrivineta cavi that will contribute for roughly 40 million euros EBITDA. So if you just take the midpoint of the previous guidance, which was 700 million, and the midpoint of the new guidance, 775, and you know that 40 million of that is coming from Latrivineta, I would say at similar scope, the increase of the guidance is 35 million from Latrivineta. the strong performance of the business. In terms of normalized free cash flow, same thing. We included, obviously, the performance of La Trivenita, and we increased the low part of the range and the high part of the range from 200, 300 million euros to 275, 375 million euros. Both of those KPIs, whether adjusted EBITDA or normalized free cash flow, will be a complete record for Nexon's performance. in terms since the IPO in 2021. That being said, now I will turn to Chris for the conclusion.

Yeah, just a word of conclusion to remind everyone that we will have our Capital Market Day in London, November 13th, and we will do the following week on the November 20th, U.S. Investor Day, as we have a pretty strong base in New York City. Voila! Let me now turn for the Q&A.

Sure, thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will take the first question from line Akash Gupta from JPMorgan. The line is open now. Please go ahead.

Yes, hi. Good morning, everybody, and thanks for your time. I have two to start with. The first one is on guidance and the implied second half based on the new range. So when we look at implied second half, it kind of implies significant slowdown or noticeable slowdown in the second half versus first half. So, maybe if you can elaborate on where this slowdown is coming from and also what particularly you have assumed for G&T where we are hearing some delays from Euro-Asia financial close. So, that's the first one to start with.

Okay. Thank you, Akash. I'll take the question. Indeed, but you know next half quite well and typically always on the second half we have a seasonality effect and typically on the second half our EBITDA is always lesser than the first half. I mean, just take the month of July and August in Europe for vacation time, you lose two weeks. You take again December, you lose a couple of weeks. So on average, you're losing a month of activity versus the first half. So by structure, I mean, second half is I'm talking outside of GNT, which is obviously a long-term project, which is different, but at least for usages and even for distribution and in-distance solution, there is a cycle between first, different cycle, different first half and second half. So that's number one. Number two, to answer your question on GNT, so what we are seeing in GNT right now is that we will be at the same level of margin for the second half and the first half. roughly around 10% to 11%. The idea is to remain, the improvement will start in the next years, mainly in 2025 when we'll be completed with our legacy contract for the most part, the one that will impact it starting 2022 with inflation and the hump-up cost in Alden and Charleston. So that's one thing. While we also took some cautious view regarding Great Sea, you understand that Great Sea and you know that Great Sea is not, we still don't have the financial close on the project. We're expecting the financial close of Great Sea happening by the month of August. So we are confident that this project will start for good and will happen. Unfortunately, right now, we're still waiting for that financial close. So in the guidance, there's a little bit of coaches here to ensure that even if we don't get, let's see, we can achieve the guidance without any issue. So really, this is factored also into the guidance of the year. So a little bit conservative when it comes to that. So that's explaining maybe those couple of reasons explain why you see a second half slightly below the first half in terms of EBITDA performance.

Thank you. And my second one is on GND. So I think Chris mentioned that the new tower can take four cables inside. So does it mean that you have some flexibility to increase capacity if you need to? In that case, you don't need to build a new tower to add two more lines in Halden Factory?

No, very limited. Very limited. I think right now the extension we can do is mainly in Charleston. but today and then will be quite fully loaded in coming years. We still have some room in Charleston in 2026 for further award that we are working on, but no, we'll be at our max, I would say. Thank you. Joakim, any next questions?

Thank you. We will take the next question from line Alexander Virgo from Bank of America. The line is open now. Please go ahead.

Yeah, morning, gentlemen. Thanks very much for taking the question. I just wondered if you could give us a little bit more color on the, excuse me, on the ramp up in margins in GT. Obviously, introducing a new factory and allowing for effects, et cetera, is one of the reasons why perhaps the operating leverage isn't as strong as one might expect. But I just wanted to give us a sense for how we should think about that margin moving from here. I appreciate your comment there that H2 margins 10 to 11% or so is a starting point. But just thinking about how we model that over the next couple of years, that would be super helpful. Thank you.

Yeah, so definitely, I mean, the answer is Answer to your question, Alex, is similar to the one I gave to Akash, to the question of Akash before. I mean, we're still in 2024 completing or advancing on most of our revenue on the legacy contract, you know, the contract that we've seen strong margin decrease last year, mainly in the first semester of last year. And we have to execute and complete. So this remains a bulk of the revenues in 2024, explaining why the margin is not improving that much, at least versus the second half of 2023. We will be, again, the revenue of next year, I mean, providing we have obviously RETI interconnectors signed in August, this will be an important provider of revenue and margin next year, as well as the Tenet contract and the Celtic contract. And definitely we will move to executing new part of the backlog with higher margin, explaining why starting 2025 the margin will start to move up above 11% and then gradually again around 14 to 15% in 26 to be above 17% in 2027. So this is just obviously pending. We have no execution issue. This is basically the hump up of the life of the project that explains the margin improvement semester after semester and year after year. So that's basically how we see it. Why 2023 was lower than 2024? We had some one-offs in 2023. We don't have the one-off in 2024. We just have the execution of the low margin project. which is explaining why we are slightly better than 2023 in terms of margin. And this will continue over the years, as I explained.

Okay, that's helpful. Thank you. And perhaps I could push you a little bit on Great Sea. So what if we don't get it signed in August? I appreciate that it's no longer really in the guidance, which is very helpful. But I'm thinking about sensitivity for next year and, you know, how much... How delayed can it be, if you like, before we need to start thinking about material impact on the business?

Yeah, so we've been very careful with this project. We've recognized margin in the first half of the year. We've recognized sales on margin, despite the financial close did not yet happen. But we have received cash. So basically what we've been doing is we have been recognizing margin up to cost and margin and revenue, up to the level of cash we've received from the customer. And this cash is non-refundable. So we're just taking no risk at all, at least up to now. The point of, the point, the changing point, it would be in August when basically the financial growth need to happen for us to receive more cash and to continue progress on the project. So I would say for 2024, what has been, recognized is guaranteed, both as I explained in terms of margin and obviously in terms of cash because it's non-refundable. The risk is on the second half, but it's not in the guidance. And for next year, I mean, the contribution of grade C for next year is important, I have to say, but we have time also to find other ways to mitigate part of the shortage if it happens that grade C is not confirmed in August. We have many other projects that we can move into the production lines and basically mitigate part of the contribution of, of great. So that's basically how we working on the plan B. If unfortunately this project does not materialize in August.

Yeah, I think, and actually if I may have as well on, on just the comment is, uh, of course we monitor us very closely. This, this project project on this ongoing financing, like any other project project, we, we see sign of, uh, progression. in line with terms and conditions of the contract and everything. We are very confident that the authorities will come to a positive decision, and we are very committed to that project. I would say step by step, it's not in the guidance, in the further guidance of the group for 2024, and I think we will have further comment on the next quarterly results, because here we will see if this... if this discussion ended positively or not, and we'll give you more guidance for 2025 at that time.

Okay. That's helpful. Thanks very much. Bye.

Thank you. We will take the next question from line Daniela Costa from Goldman Sachs. The line is open now. Please go ahead.

Hi. Good morning. Thank you for taking my questions. I wanted to clarify sort of some of the prior comments and also link it with the backlog. So you said sort of the backlog is $6.7 billion, I guess. one you're including 1.4 billion in there that is euroasia and how much is also in the 6.7 that is frame agreements not yet called off um so effectively sort of how much is what is really firm and of that what is for delivery next year that it's not euroasia so what we have in the uh in the uh firm we

We do not have, like you say, Euro Asia, which is 1.4 billion. We have some of the frames, the call-off of Tenet, which are in the adjusted backlog, but not on the firm backlog.

If I may, we have two cores that are in the backlog on one project, which is not yet in the backlog.

Sorry, just to make sure I understood. So of the 6.7, 1.4 is Euro-Asia, so 5.3 is backlog, including frame agreements, and frame, that it's not Euro-Asia. Of that 5.3, how much is firm versus frame agreements?

Let me check. It's about a 4.7. 4.7 billion euros which is firmed.

And you say some of this extends up to 2030, so what's the utilization you have for next year if Euro-Asia doesn't come through?

The Euro-Asia project is produced in our unit in Japan. It's not in Alden. It's really, Alden is fully loaded for next year, as well as Charleston, so the impact will be, the negative impact of any delays on conservation will concern our Japanese plant, which was most bull in the last two years because of lack of projects in MI.

And when you mentioned you can bring some projects to try to fill that up, are there, what are the big tenders out there? There are MI that could come.

First, we can put up some project in some buffer planning that we have in Alden and Charleston. It's very limited. It's a feeder, more than a big hole. After, for MI, I will not comment the project that we are working on to compensate for question of confidentiality.

Thank you. Just one final clarification also on the point that you mentioned earlier that you received cash from EuroAsia. Did you receive it in the first half? In terms of inside your normalized free cash flow, how much is included from advances of Euro-Asia?

Yes, we did receive up to June about 120 million euros.

Got it. Thank you very much.

Thank you.

Thank you. We will take the next question from Lion Bastion. I'll go from Barenburg. The line is open now. Please go ahead.

Good morning, and thank you for taking my question. On your... backlog, what kind of margin should we assume at the top of your order book, given the strong pricing power that you have following the shortage of manufacturing capacity?

Sorry, you mean the margin on the backlog?

Yeah, the top of your backlog. What kind of margin do you have in terms of projects with high margins?

But we have to, you know, the way we segment it, we divide our backlog. Basically, we have all the projects, which are wind offshore projects, which are roughly projects typically in the backlog around between 12% to 15% EBITDA margin. And then we have the interconnector project, which requires long-length, instead of deep-sea, long-length installation, typically Eurasia, Celtic, and... again, links we had in the past and so on. Those projects are higher margins. They are above 15%, and depending on the project, they can reach up to 50%. So, and the backlog is about, today, the 6.7 is about split between about 50-50 between the two. So that's basically how you can drive the margin of the backlog, if that makes sense.

Okay, and I have another question on M&A. Yesterday, you appointed someone for your distribution usage division in North America. Should we assume that in terms of M&A, your next target will probably be in the U.S., or we shouldn't assume this read-across?

Yeah, we hired a great guy in Canada coming from SourceWire, Tim King. I think we have not changed our investment thesis, Bastien. we have three of them. First, to acquire companies in a market where we are already present and when we know we can premiumize better our offer. That was the case of Santelsa, Reca, and partly La Trevineta. The second is acquisition in bigger countries where we have a lower presence. Of course, that could be U.S., but U.S. is a much more consolidated, and now with two top players, like Southway and Presbyon, certainly generating more than a 50% to 60% market share there. So, of course, the small-sized player will have difficulties to compete on the long term with the two great companies. And on the third is any kind of great investment or acquisition we may do in Asia-Pac, with a double-digit growth that can help the evolution of our business portfolio. So that's the three things that we are following. No change, no change. And we're still very active because you can see that economy is not as flourished as before in general. And the stronger companies will win. And this is why we have great opportunity coming up in the coming months in acquisition.

Okay. Thank you very much.

we will take the next question from line alice leslie from bernstein the line is open now please go ahead oh yeah hi good morning um a few questions on distribution um just we obviously saw a great improvement in the margin but just just on the growth and i kind of appreciate the selectivity focus but but the growth was still a little bit muted in h1 you kind of flagged nine percent growth in in europe but two percent overall I just want to expand on the trends in the markets outside of Europe. I think you mentioned in the slides there project delays in North America, South America, so that those come back in the second half. And just generally about sort of, I don't know to what extent, obviously, just growth is limited by capacity constraints. I was just wondering if we have to wait for the kind of Morocco facility to come on stream to see a kind of real acceleration here, perhaps more in line with demand. And then just finally, just on these new framework agreements in distribution, I just wonder how many of the older ones are still due to roll off. Is there still a sort of drag from some of these older contracts or have we seen this kind of improvement in pricing sort of fully come through now? Thank you.

Yeah, thank you. I would say that there is, we are not yet at the full saturation of the capacity, but in the organic growth that you see in our results, What I can mention is that if we are willing to take, I would say, two points more incremental growth, it will be dilutive to the earnings. So this is what we balance every week and every month in terms of ordering tax. It's just a question of growth for growth. If you are able to deliver the 16% EBITDA, which is a record in our history for distribution market, It means it's a very, I will say, fine-tuned recipe to go to a good utilization of your process, a good, I will say, fulfillment of your process and as well saturations, but as well making sure that you don't bring too much complexity and you select only the accretive product and accretive, I will say, customers because You know, I could generate easily 5% to 6% growth in that market, but in that case, my EBITDA will be closer to 10% to 12%. So that's a very fine balance that we need to work with. And secondly, in terms of your question for your frame agreement, I would say that 50% to 60% of them have been renewed. We still have 40% that has to be renewed.

And if I may add, just to go into detail a little bit of how this margin is built up in H1-24, I mean, it's been a really strong increase in Europe. I mean, in Europe, we've seen a plus 9% growth in terms of revenues. And the margin, the EBITDA margin from last year to this year moved from 8% to 12.6%. So we gained 4.6 points on margin. On the business, which is the largest one as made of the sales, that also grew by 9%. So I would say that the momentum that we're seeing today is quite exceptional. And also what we see where we get a lot of value is on the accessories business, you know, like not the cable itself, but basically all the accessories that connect the cable, for instance. We see a strong, nice improvement in terms, both in terms of volume on that business that has been growing, that grew 5% over the period versus last year. And the margin on that business also improved by 2.4% to reach more than 20% EBITDA margin. So, I mean, we see both momentum, I would say, on the cable itself, with a strong push from Europe, as I described, both in terms of volume and margin, but also on the accessories business for the same reasons.

That's fantastic detail. Could I just ask what sort of portion of the distribution business is accessories, just broadly?

Roughly 20%. Yeah, I was going to say it's about

three four hundred million twenty percent lovely thank you thank you we will take the next question from line eric lamar from cic the line is open now please go ahead yes uh good morning thanks for for taking my question i got three actually the first one um on the competitive environment uh did you observe any change in in this competitive environment in Europe and North America, any Chinese or other international players interested to do some business in your areas? A second question on the Great Sea. Could you tell us maybe what was the contribution of the Great Sea on H1 margin for GNT? And the last question on U.S. politics. If Trump becomes president of the U.S., do you see any specific risk on the renewable sectors, notably the offshore wind sectors. Thank you.

Eric, I will take the grade C question, and I will let Chris answer the other question. So the contribution of grade C in the first half has been 60 million of sales, 25 million of EBITDA contribution, 110 million of cash, 120 million of cash received, and a net cash position of 71 million euros.

Yeah, regarding the evolution of the... I'm talking a generational transmission, Eric. Yes, of course, we see a lot of expansion on capacity creation in China so far. Very, very strong. We have more than seven players now in China doing a subsea cable for offshore wind farm. that can generate on the long term, 2032, I would say, an oversupply if China is able to deliver in Europe, of course. But this is, of course, I would say, it's not, I would say, a threat in the short term for the European player, but it is clearly a threat in the long term, and the long term is starting in 2032, I believe. So I think there will be more than eight new production lines coming up in the coming years in China on top of what has been built. So it will be quite significant. And it's clearly China building more capacity than what their domestic markets require in terms of cable. So we have, of course, to be extremely vigilant. on the evolution of the chinese player you have seen as well that ls is coming up in europe you've seen as well that sumitomo is building a plant in scotland so well because they have been attacked as well in their area from by the chinese players so we have to make sure that europe is not becoming the elder rado of the asian players regarding um uh president trump uh in fact um I have many times the question we need to acknowledge. It's difficult to answer, of course, but we need to acknowledge one thing, is that when we decided to invest $150 million in Charleston to upgrade our capacity to turn it subsidy for offshore wind farm connection, it was under Donald Trump presidency. And what we've seen as well is that under President Trump's mandate, we've seen a positive acceleration of all the permits on everything which is regards to administrative lease for offshore wind farm development. So there is the speech, but there is as well the reality that the state are the owner of the project and are still willing to invest massively in the coming years in the U.S. I don't see a slowdown with all the commitments that New York State took recently, New Jersey, Massachusetts, if Donald Trump is winning in coming months.

Thank you. Thank you. That's very clear.

Thank you. As a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will take the next question from line Lucas Farani from Jefferies. The line is open now. Please go ahead.

Thank you, good morning. The first question on high voltage, just on the organic growth. At the end of last year, when you set the guidance, you were targeting 40% organic growth for the full year and now 64% in H1. Where do you think you'll end up in the full year versus what you had said? And just also on the margin progression in generation and transmission, So H2 will be similar to H1, so about 11%. And then I think you said earlier on the call, an additional two percentage point per annum in 25 and 26. Did I hear that right? Thank you.

Yeah, I will take a look at the first question on GNT. Yeah, we're above. There's a little bit of mechanical impact of why we are 64% versus 40% that we announced last year for this year. It's the fact that we started to do progress on the JC interconnectors in 2023, but we didn't want to recognize margin at the time. And we started to recognize the margin basically when we got the cash down payment at the end of December. So there is a one-time effect of you release basically all the costs incurred on the balance sheet to the P&L, which is basically taking a one-time impact on the sales, which has been helping also growing the first semester versus what we said. The answer to the question regarding what will be the second half of the year and what will be the full year in G&T growth, I mean, again, it depends of basically the materialization or not of the grade C interconnector project in August. because there's a contribution of that project which is quite significant in the second half. So depending if we think we will get it and it will happen, then we should remain in a similar, I mean, between 55% to 65% organic growth for the year. If this project does not materialize, we'll have to stop on the sales recognize at the end of June, and it will be slightly lower, 50%.

Sorry, I'm on the margin point, if I can confirm that.

So the second question you had was on the margin progression on this question. Was it right? I knew it was your question.

Yeah, just on GNT, I think I heard you at the beginning of the call. I think you said an additional two percentage point per annum in 25 and 26, and H2 should be similar So you should end up this year at 11%.

Yeah, between 10% to 11%, I said. Yes.

So that means you should reach kind of about 15% by 2026. I think expectations were slightly higher. Is there a reason maybe behind that?

Is there any change? No, I mean, I don't know why you say that. I mean, maybe expectations were higher, but that's not what I said. Starting 2027, we will be at 17%. we will gradually increase the margin progressively. It's just a question of execution of the backlog that we have today. I mean, obviously, the big question remains, create the interconnectors and how this will play over the next years, if it will be part of the picture or not. But assuming it is, which is what we think is going to happen, you will see 2%, 2.5% increase per annum. And then by 2027, we should be at, I mean, we're aiming to be at 17%. margin.

Perfect. No, that's super clear. And if I can add one just on M&A and disposal. On the M&A side, is the focus more on LTC at the moment or if there are opportunities out there, will you still kind of continue to potentially add something even as early as H2? I mean, the leverage is higher, but it's still on decent level. And on the other side, is there any update you can give on the disposals in industrial? Thank you.

Just one word on the leverage. So the leverage is higher. We have a little bit of room, like you said. We continue to pursue the objective of becoming investment-grade starting next year. So obviously that will put some cap at our leverage level, probably around 1.5 times net debt to EBITDA. So like you said, we have a little bit of room. And we have also, I mean, starting... Starting the second part of next year, we will be generating much more cash flow because of the completion of our strategic capex. So between the gap in the leverage and we can still feel plus additional cash flow generation, we will be making starting second half of next year, then definitely we'll have room for M&A. And then we have obviously the potential proceeds from divestment which are ongoing.

Yeah, we have finalized the carve out of the industry business and ready to test the water in the coming months for the divestment of industry business. And of course, keep moving on the divestment on the automotive harnesses. We're getting acquisition side. We have a team for integration working on the team for acquisition. Our M&A guy is in front of us, so looking in his eyes, he looks to be very active on a lot of work right now. I'm not sure he will take some vacations during the summer. So yes, more to come. I cannot comment more.

Last one, just on the high voltage backlog, I think it's flat sequentially, it's still on high levels, but I'm just wondering if you have anything From customers and on the pipeline that you have, it seems, and one of your competitors highlighted that, that there's a bit of a wait-and-see attitude from some of the customers that know that additional capacity is coming, that they give a lot of visibility already, and maybe taking a bit more time to add to the orders. Just wondering, what are you seeing on the high-voltage orders? Thank you.

We have some projects under negotiation or standstill period that I cannot comment right now, but you should see awards coming up before the end of the year. Not small, material ones. Very, very, very big ones.

Perfect. Thanks. Thanks so much.

We will take the next question from line John Francois Graham from Odo. The line is open now. Please go ahead.

Yes, good morning everybody. I just want to come back on the grid C interconnector to appreciate the risk. Taking into account the current discussions with the government, do you see some potential delay or cancellation of the project? I think there is some question regarding the financing and the participation to the European community, etc. So do you see just a delay or do you see even a risk of cancellation of the food project?

It's a question where you cannot get an answer, Jean-Francois. First, because we are not part of the stakeholder in the negotiation. What I can tell you without disclosing confidential information, that there was a call with the European Commission uh ito on the cyprus government has been extremely positive in the last days and every every old stakeholder expressed their willingness to keep moving that project i think the topic is more on the regulator in cyprus uh but uh i'm sure that before middle of august they will find a a solution between them i cannot comment more okay thank you i understand sorry for that We are not part of the negotiation. Okay, thank you.

Thank you. It appears no further question at this time. I'll hand it back over to your host. Thank you.

Thank you. Thank you, everyone. We have a pretty extensive connection of people, more than 300. Thank you. So as a conclusion, just a quick reminder, the Q3 result will be on the 30th of October. And of course, we are welcoming you in London on November 13, or for our US Investor Day in New York City on the 20th. We wish you a great summer break. Thank you very much. Thank you.