Nexans Unsp/Adr

Ladies and gentlemen, good morning and welcome to Nexon's first quarter 2025 information conference call. Please note this conference is being recorded and for the duration of the call, your lines will be on listen only. 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 question. If you require assistance at any point, please press star 0 and you will be connected to an operator. Now, I would like to turn the call over to your host for today's conference call, Mr. Christophe Guérin, Nexon CEO. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and thank you for joining us today. This is Christophe Guérin, CEO of Nexon, with me, Jean-Christophe Julliard, Deputy CEO and CFO, and, of course, the Audrey Bourgeois Investor Relations Team. I will turn you over to Audrey, that will go to conference call room.

Thank you, Chris. I would like to remind participants that statements made during the conference call, which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Readers and listeners are strongly encouraged to refer to the disclaimers, which are an integral part of our universal registration document, along with the audio replay of today's call that will be posted on our website, nexons.com. I now turn you over to Chris, who will go over the Q1 2025 highlights.

Thank you. So let's shift already on page three. As you can see, the group made a promising start to the year, demonstrating a structural strength and lasting impact on Nexon's transformation with a plus 4.1% organic growth for the group, reaching 1.8 billion euros in Q1. This performance, as you can notice, is driven by our electrification businesses, power connect, power grid, and power transmission with a very robust organic growth of 6.8%, reflecting excellence in operation of execution on Earth.

A good trend as well for Q2 that we... Ladies and gentlemen, good morning and welcome to Nexon's first quarter 2025 information conference call. Please note this conference is being recorded and for the duration of the call, your lines will be on listen only. 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 question. If you require assistance at any point, please press star 0 and you will be connected to an operator. Now, I would like to turn the call over to your host for today's conference call, Mr. Christopher Guérin, Nexon CEO. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and thank you for joining us today. This is Chris Guérin, CEO of Nexense, with me, Jean-Christophe Julliard, Deputy CEO and CFO, and of course, the Audrey Bourgeois Investor Relations Team. I will turn you over to Audrey, that will go to conference call rooms.

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 Security Litigation Reform Act of 1995, Readers and listeners are strongly encouraged to refer to the disclaimers, which are an integral part of our universal registration document, along with the audio replay of today's call that will be posted on our website, nexons.com. I now turn you over to Chris, who will go over the Q1 2025 highlights.

Thank you. So let's shift already on page three. As you can see, the group made a promising start to the year, demonstrating a structural strength on the lasting impact on Nexon's transformation with a plus 4.1% organic growth for the group, reaching 1.8 billion euros in Q1. This performance, as you can notice, is driven by our electrification businesses, PowerConnect, PowerGrid, and PowerTransmission, with a very robust organic growth of 6.8%, reflecting excellence in operation of execution on a good Good trend as well for Q2 that will come out during Q&A session. Talking about execution, keywords in our transmission activities, we reached an adjusted backlog of 8.1 billion euros at the end of March 2025, confirming a strong positioning in power transmission, but you have seen as well the RT frame agreements that have been signed. which is a significant order, above €1 billion, but as well, yesterday, Malta CCE for a project that will be produced in Exxon's Charleston in the US. In Q1, in terms of past M&A and recent disposal, we continue to see good results in the successful integration of Latrevin and Takavi. That's delivering synergy as expected. Finally, as you are all aware, we have announced exclusive negotiation with Lator Capital for the divestment of LinkCO that is now expected to be completed in the course of Q3 2025. It will be, of course, a major step in our journey to become a pure player in electrification. Overall, 2025 will be a pivotal year for Nexense and we know that we have a As you know, we have a very clear and defined strategy, robust business model as a pure player of electrification, and of course, very strong transformation program supported by Shift to keep delivering great results. If we are now moving to page four, let's take a closer look to the organic growth performance. Of course, you've seen a very strong growth I will say growth in electrification business. This quarter is particularly driven by power transmission, which is delivered more than 20% of the growth in Q1. You will have the details with GC. Power grid was temporarily affected by a phasing effect that should recover with a very good, strong Q2. Power connect remained on the solid trajectory. Of course, plus and minus, lower demand in Europe, stronger in the other area, but we expect as well a good recovery in Q2. Metallurgy project is at 5.7% and non-electrification has been a pretty slow start due to automation on railway market. Not too negative in automotive this quarter. On the page five, we have done like every two years our employee survey calls for all the employees of Nexans. So what we see is that first the participation ratio which record of the history of the group, 92% of the employees participated to this survey. And what we see is that we are happy, but we have missed the 80% target In 2025, what we reach is 79%. I can see that there is a hiccup in the slide. It's not 27, but 2025. We reach 79% of engagement ratio in this year, which is a very good result. Let me hand over to GC for the presentation of the business trends on the result for Q1.

Thank you, Chris. So turning on page six, looking at the performance of power transmission for the first quarter of 2025, so an organic growth of 21.7%, very strong double-digit organic growth, mainly coming from the new capacity installation that started last year, not really different at the beginning of the year last year, but within the quarter. So you have, I would say, a ramp-up effect still about the new capacity in Alden. We have been performing well on Celtic and grade C interconnector in the first quarter, explaining partially the strong organic growth of 21.7%. The backlog, as you can see, is in strong evolution, almost plus 10% versus the end of last year, mainly again, as Chris mentioned, coming from the booking of the RTE frame agreement. If I turn to the page seven and we have a look at Charleston, just to answer your main question regarding the load of our plant in the US. So again, we reconfirm what we said at the end of last year, meaning that the plant is above 90% loaded in 2025 through 2028. Of course, there will be, during the year 2025, a shift of the project between the completion of the U.S. project, mainly Empire Wind 1 and Sunrise, and the plant will be loaded with the new award we just announced yesterday, Malta-Sicily. And therefore, the U.S. backlog at the end of March only represents 2.7% of the total backlog of power transmission, so US project is not an exposure anymore. For an example, and just to go back to the recent news flow about Empire Wind 1 stop, it has no impact, material impact, no financial impact on the company's performance if the project is stopped. I will move now to the next page, on page 8, our grid. 1.7% organic growth on grid. With, I would say, a low single-digit percentage growth, there is a phasing effect with the second quarter of the year where you will see a rebound. So we had a timing phasing situation mainly in Europe, but we have, I would say, a nice growth in the beginning of the second quarter. So we will catch up in the second quarter about this phasing and we'll come with a an organic growth for the first half, which is in line with the commitment we took during the CMD of mid single digit organic growth. So really a question of timing here in the first quarter, which is always a little bit slow due to weather conditions, mainly winter in Europe. Always to say that North America, South America and Middle East have been performing quite well. against again the saving in Europe and we have also good performance on accessories. If I move to the next page, on page 9, 1.9% organic growth on PowerConnect. Same thing, a little bit the same situation. We will see a rebound in the second quarter of the first semester in the organic growth of PowerConnect. So I would say a slower start of the year, but definitely we see today a good momentum for the second quarter of the year. So we remain optimistic that we'll reach the objective of the growth for the year as we committed in the CMD in November 24. Again, the difference here is mainly coming from Europe and Asia-Pacific, which has been negative organic growth, offset growth. by a very strong growth in Middle East and Africa, very strong growth, also double GDP growth in South America, and a strong growth in Canada. And again, the European situation, the Europe slightly negative organic growth of minus 4% will be offset in the second quarter, mainly due to a timing situation. And now I will move to the slide 10. I will give you a little bit of detail on PowerConnect.

Yeah, sure. Thank you, GC. So just to remind on PowerConnect, the aim is to move from a commodity business to a premium business. Two main elements to make that journey positive. First is on the technology, shifting from PBC standard cables to fire safety technology. So it's just like that you've already seen in the past. On the left side is Express. the overall demand for cable for the, I would say, building market. The second column explain you the trend for wires, for cables, of course, the electricity consumptions, the new build, the renovation acceleration, the safety regulation that I will comment, the electrical network reliability. We know that it's a big topic and specifically with the event that Europe seen in the last days. And new electrical usages like EV stations, solar panel on top of building, and of course, high demand for data centers. So when you go to the third column, which is the safety technology adoption, we see reversing versus the global demand for welding wire that the penetration of a safety cable is up 14%. on that our revenue that you can see on the graph on the graph move from. Twice higher number versus 2020 with a record revenue in in Q1 2025 for this fire self technology revenues. If you go on page 11, technology is not the only elements that bring us to a premiumization. It's as well new standardization of packaging to support the the use of the product by the electrician. We have an excellent start on MobiWebHub that has been introduced during the Capital Market Day last November 2024. The end, I remind you that it's a full propriety solution with a lot of patents on it. We've launched it in one country last year. This year will be five countries and after eight and 12 countries. We have each time, the adoption is very, very high each time that we have been able to introduce this packaging. The refill is really a great success. So take this PowerConnect MobiWay pop as a kind of Nespresso model where they get access to a machine and after they have to recharge with our patented capsule. So it's a great success. We're very happy about that. Let me turn it up. Turn over back again to GC for the M&A part.

So on the M&A front and the portfolio rotation, we are progressing quite well. On the M&A first, we are very active in the same line of our CMD targeting acquisition in the core business of medium and low voltage cable in different geographies. of the world, and we are quite optimistic that we should announce some positive news flow in the coming months. On the divestment, you are fully aware of the divestment of LinkCO, which is now extremely well advanced, and we are confident that we should be closing early Q3. So that will be a major step into, of course, our completion towards becoming a pure player in electrification. The remaining asset, autoelectric, is under process as we speak right now for divestment as well. And we are confident that we should come also with a final position situation on the divestment of these assets by the end of the year, very early next year. I move now on page 13, just to confirm that the progress we are making on this big acquisition we've made in Italy last year, La Trivenita Cavi is doing well. We are on track to deliver the synergies. I remind you that we had targeted about 20 million recurring synergies that we will reach after three years. We had a plan to progress on those synergies and we are progressing well. So the contribution of these assets to Nexon's performance is going to be significant starting 2025. Ling Xiao, I just mentioned, again, you know the asset, you see the size and the enterprise value that was signed with Latour Capital. Not much to say, but just to confirm that this is on track and this will be out of the portfolio of Nexon's. mid-year 2025. And I will conclude after this good performance of the organic growth, this good start of the year 2025. We are in line for a very strong first half of the year and we confirm the guidance that we announced in February of this year, $770 to $850 million on adjusted EBITDA and $225 to $325 in free cash flow generation for the year 2025. That being said, that concludes the presentation, and we turn now to the operator for Q&A.

Thank you very much. Ladies and gentlemen, as a reminder, if you would like to ask a question or contribute on today's call, please press star 1 now on the telephone keypad, and to redraw your question, please press star 2. You will be advised when to ask your question. The first question comes from the line of Eric Cazeneuve, Lemarie calling from CIC. Please go ahead.

Yes, hi. Thanks for taking my question. Good morning. I've got three questions, please. The first one on Great Sea Interconnector. Could you tell us if you have received any notice to order, if there's a notice to proceed yet, and maybe if you can share with us the sales and maybe gross margin or ABDA that you have generated on that project in H1. This is my first question. I've got a second question on Germany. If I'm not wrong, Nexon is quite exposed to Germany. And I was wondering if you consider that you could maybe benefit in the future from the German investment plan. And my last question is on the United States. You mentioned a 19% exposure to North America on the slide 24, if I'm not wrong. But I was wondering... But these figures exclude transmission and auto analysis. And I was wondering if you could share with us your exposure to United States in cells and maybe to give us maybe more details on the project ongoing in the U.S. currently, Sunrise, Empire Wind, and maybe a word on Revolution Wind. Thank you.

Yeah, sure. So, Eric, let me take the first question. So, regarding JSI, so we are, of course, we don't yet have the notice to proceed. There's still a lot of discussion with some different stakeholders in the area, but we are in close cooperation with the clients to continue to produce and advance the production. We have received, again, done payment in April on this week. that position us to keep producing the cables up to the end of August. So, for that, everything goes well. We follow, of course, closely all issues with affected geosites in case of geopolitical, I would say, events. For the moment, we don't have any significant change in the project, and neither in terms of production. We received the done payment. We keep producing on very close contact with the client. I cannot elaborate more because there is a lot of political aspect in that contract, but we are not part of the table of negotiations. Regarding the second question on U.S., maybe, Mitek, the one of U.S.

Yeah, so the 19% is now U.S., is North America. So it includes, of course, our flagship in Canada for medium and low voltage, which is a significant contributor to the sales of the region. And then you have, of course, the revenues of high voltage in Charleston. So that's a combination of the 19%. But the bulk part is coming from Canada.

When it comes to Germany, so as you know, we have a historical presence through power grid accessories there. So of course, with the German investment plan in the infrastructure, both the renovation of the grid, the extension of the grid, and the connection of renewables, we are there to be able to rest the growth, including with our historical customers, whether it's Aon in Germany. or large contractors. So we see a positive growth coming up in Germany for Power Grid.

Well, it's not Chris Pekin, but Elliot Roux.

Thank you, Eric.

Okay, thank you. The next question comes from the line of Sean McQuilling from HSBC. Please go ahead.

Thank you, good morning. I just maybe wanted to follow up on Eric's question on the US offshore projects. I'm not sure we got the full answer there, just kind of where are we on the remainder of your committed backlog. And secondly, building on that, just thinking about the mechanics of supplying European projects from the US. I mean, I would assume higher production costs in the US and also the vessel costs So, I mean, how can this be margin neutral? Is it just an offset because the loading of the factory remains very high? Just thinking, how should we think through the margin impacts, you know, cost versus benefits of this new model?

Yeah, Sean, good morning. This is Chris. So, regarding the, where do we stand regarding the production of a U.S. offshore wind farm project? Empire Wind has been produced, so the cable is ready to be installed, so everything is in the end of Equinox now. And we still have a back-end production for Sunrise, and it will be very, very soon completed in coming weeks. And we will start the production of the Malta-Sicily interconnection project in charge in the coming months. We're getting the second question.

Just to maybe to step back once again on the financial impact. So like he said, the cable is produced on the Empire Wind One. There's not much to recognize in terms of revenue and margin on that project. And if the contract is confirmed to be canceled because of the US authorities decision, then definitely we get a termination fee and there will be no financial impact to us on this project. And it's a very similar situation on Sunrise. where basically we are at the end of the production of the contract. And if the contract was going to be terminated for the same reason as Empire Wind 1, the financial impact on Nexance would be extremely limited. So we are not worried about financial consequences about termination of those projects. And those two projects are the only one, again, in the backlog of Nexance for US. And it represents less than 3% of the total backlog of Nexance. So really, for us, We have no other contract in the back of the U.S., so no material, I would say, negative news flow could impact really coming for the U.S. When it comes to your last part of the question regarding the cost of basically loading the plant in Charleston with non-U.S. project, I guess many European project, the cost difference versus producing in Alden is not different. You know that definitely Norway is a high labor cost country, not different than South Carolina, so there will be no impact on labor cost differences. Remind you that the total labor cost in a contract is roughly between 7% to 8% of the total value of the contract, so it's not that meaningful. It's not a labor-intensive, I would say, business. And then on top of that, we have significant contingencies in the project ranging from 10 to 12% in average of the total value of the project that if any variances in cost could materialize, it would be absorbed by the contingency. So overall, there will be no significant financial difference whether producing in Charleston or producing in Norway. And I will complete about transportation costs. I mean, shipping the cable on the vessel from US to, let's say, somewhere in Europe or Mediterranean Sea, because we are very active in the Mediterranean Sea with many projects right now. The difference in terms of transportation cost is not significant, and the timing of shipping from Charleston or shipping from Alden, the cable, is only one day difference. So again, it's meaningless. And again, and finally, the just to go back to the perspective of the total cost of transportation within the project, typically it's about like labor, about 7% to 8% of the total cost. And we have the contingency. So whether it's transportation, whether it's labor, manufacturing and shipping from Alden, we don't see that as being a disadvantage to our supply chain and to the margin of the project.

Very helpful. Thank you.

Sure. The next question. The next question indeed comes from the line of Jean-François Grandjean calling from Odo. Please go ahead.

Yes, good morning. Just a quick question regarding the new frame agreement with RTE for more than $1 billion. Could you give some more color about the timing expected for this project? And probably you mentioned probably more than $1 billion, so the potential amount expected?

Yeah, Jean-Francois, that's above a 1 billion euro project. It's DC cables. Of course, there could be some potential upside. Closer will be from the project. So that will be in 2027, 2028, 2029 onwards. So significant order. That will be produced in Aldean. And RTE still has a very, very strong pipeline of further order of that magnitude coming up to be awarded in coming years. So RTE will be very important for customer for us to keep in from 28 to 20, 2032. Okay, perfect. Thank you. Thank you, Jean-Francois.

Ladies and gentlemen, as a second reminder, if you would like to ask a question, please press star one and redraw your question. It's star two. The next question comes from the line of Chris Leonard calling from UBS. Please go ahead.

Hi, guys. Hopefully you can hear me. Just two questions from me, please. The first on low voltage exposure in Connect. You spoke about good product momentum for new sales and premium customers and nominees. Do you still anticipate or have more confidence in improving margins for the year in Connect than you do in the power grid segment? And then the second question is on the buyback. I think you've launched a buyback in April for 750,000 shares. Just wondering how you've progressed on that. And I believe you have authorization to go above that potential level up to 175 million of share purchases. So is there any timeframe you have on when you might decide to upsize that buyback? Thank you. I would take this.

I would take this.

You take the second question. Yeah. Yeah, we'll take the first question. Thank you, Chris. So, regarding the first question, yes, we keep improving our margin. Two main, I would say, drivers for margin improvement. The first driver is the penetration of the fire safety technology, which is, of course, it's very complex, high-density polymers. with a very strong entry buyers. We are only few to be able to provide that to the market. So that gives us a premium effect on the price. The second is everything we can do on ergonomics, like the mobile whip-up, of course, that's driving up the margin. So that's element number one. Element number two is our transformation program. We love to to do acquisition of companies that have a very high level of diversity, where our shift program can play a significant level of synergy by reducing complexity. And we still have a significant spread in the Connect world from low-performance units to high-performance units. What we have, of course, is to keep duplicating the best practices from high-performing units that are above 18% EBITDA on sales to the others. So we have a great offer to lift up the margin. And second, we have our transformation program that plays a significant role to ensure that our margin improvement is not made of conjunctural effect but real structural effect. Regarding the complex second question?

No, the second question, I will repeat what we announced in terms of capital allocation in our CMD in November. I mean, the resources, the cash generation, as well as the proceeds of the divestment we are currently making will be towards M&A. And we are very active, as I said in the presentation, versus M&A, so quite confident we will redeploy that cash through M&A. We will do a share buyback, but share buyback right now is only limited to avoid dilution because of our share employee plan. We have this year an additional plan because every other year we have an employee plan where we'll act where an employee can basically acquire a share of the company at a discount. So we will have one specific plan on top of the regular LTI plan. So we will just do share buyback to avoid the dilution of those plans on our shareholder base. But so far, there's no other commitment on share buyback. Now, if it happens that we are not, I would say, successful or the M&A plan is delayed and we are not against doing share buyback, if that would be the case. But right now, this is not the main objective and the main willingness of deploying our resources.

If I can, I was just actually going to follow up with a third question on GSI in terms of the seabed surveys. restarting and um i think in the press there was commentary that the the greek government were gonna um support with um with their own military vessels um so that they could continue and i think there was also commentary of support from the Israeli Prime Minister as well. So when should we expect that the surveys restart and if you have visibility on that? And previously, I think you said you're around maybe above halfway down on those surveys. Is there any update on what percentage you're through on the surveys? Thanks.

Chris, no, I'm not able to comment on that part because that's in the end of the re-government on Ibtos or I commit to them that I will not make any specific additional information on the top of the one that have been official on the press. So the important for us is that the project is keep moving on and we keep producing and we received on payment. This is the only thing I can comment today, Chris. Okay, thanks so much.

The next question comes from the line of Daniela Costa calling from Goldman Sachs. Please go ahead.

Hi, good morning. Thank you so much for taking my questions. I have two things. I'll ask them one at a time. But the first one, I just wanted to go back to the Charleston facility, the European contract. So it's an HVAC contract. And I think historically sort of HVAC contracts weren't maybe as profitable as HVDC. And there's a lot of demand on HVDC. So interesting to hear. Is there anything specifically about these contracts that is just more attractive than normal or why you're prioritizing an HVAC contract versus potential HVDC demand that could be done there?

Yeah, it's not a question of technology. It's just a question of lead time. That was the project in terms of lead time that fit perfectly for the production of late 25 on the beginning 2026. We have some other project coming up in a DC technology in Charleston. So it was not a matter of technology, but just a matter of lead time. You know, with the sudden drop of US offshore wind farm, We didn't have to have idle, I would say, production for more than six months in the factory. So this project just fits perfectly the load aspect for 2025 and 2026 first semester.

You can still add more before 2026 on the plant from other contracts?

Yes, we have other projects to come on 2026 that will be officialized in the coming months.

Got it. Thank you. And then my second question is more related to competitive dynamics. And I know you're not in the U.S. on the low voltage end, but there was a sizable amount of, for example, aluminum imports that were going to the U.S., which with tariffs, and your main peer has talked about this a few times, might not be going to the U.S. I think it was even up to 40 or 50 percent of the aluminum market that was imports from outside U.S. Have we seen any signs of these redirecting to Europe? Is there a problem at all? I know some come from India, some from Vietnam, so they travel a pretty long distance to go to the U.S. Can they travel that distance to come to Europe, and is that feasible? What are you seeing, and what are the mitigators there?

Yeah, not much information. Aluminium is huge, mainly in medium voltage. U.S. is in deficit in both aluminum and copper. Just in copper, the capacity fraction in U.S. is about 1.2 million metric tons, and the consumption is above 2.5 to close to 3 million metric tons. So there is a deficit in copper, there is a deficit in aluminum. In aluminum, I would say in Europe, we don't need those diversals from Asia. It's coming mainly from Europe or Middle East. Europe already moved on, I would say, we think entirely supply chain with the start of the war in Ukraine, because there was a pretty high level of dependencies of aluminum coming from Russia. So we have all players have completely rethink their supply chain. So we don't have any specific tension in aluminium supply in Europe so far, neither in copper. But I don't know exactly what is the dynamic in the US.

Maybe my question was more, is there a risk of dumping of aluminium from imports into Europe, from Asia, from the places, the ones that were importing, exporting to the US? Can they aggressively dump into Europe?

So far, we've not seen that, but I think your question is very relevant and we need to be extremely vigilant on the evolution in coming months.

Got it. Thank you so much.

The next question comes from the line of Max Yates, calling from Morgan Stanley. Please go ahead.

Thank you. Good morning. I just wanted to ask about the potential kind of termination fees related to Empire. How do those actually work mechanically? Because I guess you're saying there's no financial impact, but would you still get, say, the fee for the installation that would be attached to that contract? Because I think this was about a $200 million contract. Then do you just get the cost of producing the cable back? So potentially it's a kind of lower EBITDA number than you would have assumed on $200 million of revenues. I'm just trying to understand kind of how it actually works in practice.

Yes, thank you, Mac. So there's two parts of the termination fee. There's a contractual termination fee, which is 7% to 10% of the contract value, and then there is a termination fee for convenience, and we have to look at what it means exactly to the contract, but that basically covers any incurred not paid cost and subject to... exposure that you might have left on the contract if the contract is cancelled so basically the analysis we've made is that the termination fee on both contracts and especially for Empire Wind 1 basically covers the lack of margin and revenue and margin and cash I would say that is remaining of the project for installation for Sunrise and the installation if cancelled which is again this is Not the case. You know, Empire Wind has been notified as a stoppage from the U.S. authority. We've had no news on Sunrise. So for us, Sunrise is a contract which is always seen as normal. We're just taking a worst-case situation here on Sunrise. We'll have to look about the installation, what it means. But basically, the principle is a little bit the same. You get an 8% to 10% termination fee, and then after that, you have for convenience which covers basically any incurred exposure you have. But again, sunrise is not canceled or it's not stopped as we speak today.

I understand. That's helpful. And maybe just on medium voltage capacity in Europe, do you have a sense of kind of what your competitors are doing and what you're doing on adding capacity and medium voltage, because I understand that most people are bullish on distribution spending in US and in Europe, but how would you frame the capacity that has been added, the utilization of the industry, and whether there are shortages, excess capacity, or we're about the right level when you look at the industry as a whole? Thank you.

Elliot? Hi, Elliot speaking. As you know, we cannot comment on competition and investment when it comes to medium voltage capacity in the EU. What we can comment is what we already announced in our CMD, that we did early investments in several plants to be able to cope with the high demand in terms of medium voltage for power grid. As you know, it's driven by the main trends of grid renovation and connection of renewables and data centers and factories. So this, we continue, and as you know, we have announced several investments, like I said, in several countries.

But today, I would say the utilization ratio of our capacity is pretty well saturated, and you will see that in the Q2 growth that we will generate in the coming months.

Excellent. Thank you very much, everyone.

The next question comes from the line of Uma Salin calling from Bank of America. Please go ahead.

Hi, good morning, everyone. Thank you so much for taking my question. So first, I have a follow-up on your Charleston plants. So how does it work with any of the potential tariffs in the U.S.? If you're producing in the U.S. but delivering to European clients, are you exposed to any of the raw material tariffs?

No. In the U.S., there was a clearance for copper and aluminum supply. So I would say the chemicals are local in the U.S. The main question was on the access of aluminum to copper. They have been exempt from the new tariff policy of President Trump.

Okay, thank you. But then I also heard from some of the companies saying that even though the local players... have also raised prices post the tariffs. Is that something you see in the U.S.? Is there any sort of... Yes. Or, you know, for aluminum?

For the copper, we have our own source of supply because we have a vertical integration of metallurgy in Canada that's sourced directly from Charleston.

Okay, thank you very much. My second question is on the GSI. So I guess if I understand correctly, you mentioned that you haven't gotten notice to proceed, but you'll continue to produce in advance. So if we're thinking about the worst-case scenario, if the project does not proceed, so what are your plans to use the current capacity that's reserved for the GSI, and what kind of contingencies do you have?

GSI is, you know, MI technology, which is the mature technology, and then I would say technology which is diminishing. I mean, there's less and less awards and contracts on MI technology replaced by XLPE. We have two lines of production out of the six lines of Nexance in high voltage, and basically If GSI was going to be canceled, we have other projects out there that we are working on to basically get an award that will replace GSI. The situation is there could be a period of time with a gap, for sure, between the time you get the award and the time you can fill the line. What we would do as well, we will close our... shop small facility in Japan, which is MI technology, and therefore will be remaining with only one line of MI in Alden. And I would say the financial impact of the loss of GSI and the gap between the time of replacing GSI, we don't see as being that significant. And definitely not... not impacting our target for 2028, even though the contribution of GSI through 2028 was significant. You can imagine that every day we are working on a plan B. If GSI was going to be stopped, we have progress on that, and we have a detailed plan on how to replace the project if it was going to stop.

Yeah, I think you're right. It's a fundamental element. My consideration six months ago would have been... Very, very complex for us to manage, but now the plan B is progressing. So we are working on both parallels. So that's our level of confidence to replace in case of is higher and higher every month that pass.

That's super helpful. Thank you very much.

The next question comes from the line of Luca Cernic calling from Jefferies. Please go ahead.

Good morning. Thanks for taking my question. I'll have three, if possible. The first one, just on what have you seen on trends in April, specifically for grids and connects. You talk about recovery in Q2, just to see if April is starting to show that. The second one is just how are you thinking about maybe the second derivative effects from tariffs, from the uncertainty and potential kind of macro slowdown. Are you seeing any signs of that specifically in Connect or nothing so far? And the last one is just on what happened in Southern Europe with the blackout. Do you see any kind of risks related to kind of cable damage? And otherwise, how do you think your portfolio in grids and accessories really benefits from kind of helping grid resilience, which is now more of a topic? Thank you.

Thank you, Lucas, for those quick questions. So maybe, Elia, do you want to comment on GRID for the trend of April?

Yeah, absolutely. So for the trends in April, we are already full and executing indeed with the momentum that has been announced by JC. Basically, it's a phasing effect, as you know. So we will completely deliver not only April, but the full Q2 to be in line with the mid-signal digit that we announced yesterday. prior to the CMD.

In regards to connect with, we have a good and strong April, but I cannot be 100%, I would say, sure for June because, you know, we have only a month of visibility, but we are very, we scrutinize as well the announcement of Rexel, Sonepar, West Coast, but this year, they see a pretty good dynamic in coming months. So we are, I would say, confident for Q2, both for Connect and for Grid. Regarding the second questions, do we see any macro slowdown in Connect? I think we are already in some region in recession, and that's the case since Q3 for Europe, since the beginning of 2024. In Oceania, we've seen a very strong rebound in Canada, a very strong rebound in South America, a very strong rebound in Middle East, Africa. And we believe that even if we have not much visibility on Oceania right now, but in Europe, we believe that we've reached already the low point and that we will see a strong improvement, a good improvement, I would say, in coming months. Regarding element 3, Eliette?

On the last one, at this stage, I think no one can say if it is related to any network cable topic. By the way, usually in the networks, the issue doesn't come from the cable. As you know, we have actually in Europe and also in the US very old aging cable systems. We have explained during our CMD that usually the problem comes from the connecting point, which is where we have the accessories. So for sure, what we have announced in terms of having a smart portfolio and advanced offers, both for grid and accessories, will contribute to the resiliency of the grid as it is already today. And we have loyal customers that are indeed in Spain and Portugal purchasing from our portfolio for the underground network. We are pleased to say that we contribute to the grid resiliency, and we are looking forward to know what are the reasons behind this back out, because maybe we will be able to contribute with our office.

Yes, indeed. I think it's an happy event. You know, those events remind everyone that electrical grid is the backbone of the country economy, and when you have a blackout, it's not only a direct damage on the hardware, it's life-stopping. transport stops. A lot of, all our life, suddenly, we see that we are extremely dependent on electricity. So, of course, we've seen the announcement of the TSO this morning from all the places in the world. saying that they will work on the resiliency of their backbone of grid, of the power grid network, and they will keep investing because that will be, of course, a strong element of growth for us in the coming years. Thank you, Lucas.

Thank you. The next question comes from the line of Alasdair Leslie calling from Bernstein. Please go ahead.

Yeah, thank you. Good morning. So a few outstanding questions. Firstly, just a follow up on transmission. So thanks for the detail on the transportation costs and times from the US to Europe, I guess, from Charleston. How does Asia compare in that respect? So let's say from Japan, in your case, to Europe, just in terms of costs and timing. And maybe just more broadly on transmission, I was just wondering if you could help us kind of calibrate your kind of full year growth expectations now that you obviously had very strong growth in Q1. Consensus, I think, is around 6% for the full year. What kind of growth range should we be thinking of taking into account, I guess, GSI risks still, I suppose, for the full year? And then the final question, if I can just squeeze it in, is maybe just on Connect. You said Europe's lagged in residential. Did you see a sequential deterioration there in any markets? And then maybe just you talked about improved momentum in Connect and Q2. I wasn't clear. Is that coming from a rebound in Europe or is it more driven by other regions? Thank you.

Let me start by the last question regarding Connect. Residential market overall is very low. Very low in North America and very low in Europe. The main growth generation is coming from commercial infrastructure, commercial and industrial, sorry, and as well data centers. But residential remains a very weak market. And we had as well a pretty high demand for building renovations. We're getting question number one or two.

So question number one, Asia and Japan is a little bit more expensive in terms of cost than producing in London or Charleston for sure. Timing is a little bit longer as well, but I remind you that we have only MI technology and it's a small, it's not the same level of production or the same speed of production and quantity of production than the line that we have in London. It's really, I would say, a 50 to 60 people shop. I would say more than a full... I would say full capacity, full production as we have. But again, the cost is a little bit higher, but when you have a project that we like GSI, for instance, which is very strong margin with very high level of contingency, the difference in cost and timing to ship the cable to the Mediterranean Sea is not making the difference for the reason I explained regarding the low portion of the cost in the total cost of shipping logistics and labor in the total magnitude of the project cost. So, I mean, definitely on a project like GSI doesn't move the needle and any difference is absorbed within the contingencies and it's building into the cost structure of the project. The second part of the question was the forward-looking of the organic growth and transmission. We'll have a good year in transmission in terms of organic growth. We will be a double-digit organic growth for transmission for the year. We have a strong first quarter for the reason I explained in my presentation, meaning that last year we had only the full benefit of the hump-up of the new production lines. in the middle of the quarter, when obviously this year, we start from the first day of the quarter. But despite that, we'll have a second quarter that will be low double digit, and then a strong H2 with, I would say, more in line, I would say, above 15% organic growth in H2. So globally, it's going to be a quite good year in terms of organic growth for our transmission business, which makes sense. Obviously, with the larger backlog that we need to execute and the hump up of the new big contract we have in the backlog. And like you rightly said in your question, this is, of course, also dependent on how GSI is confirmed or not.

Lovely. Thank you very much. The next question comes from the line of Miguel Borrega calling from BNP Paribas Exxon. Please go ahead.

Hi, good morning, everyone. Thanks for taking my questions. I just wanted to understand your EBTA guidance a little bit better. You previously said that if GSI is canceled, the low end of the range was still achievable. The project has not been canceled so far. Now you're saying that the next milestone will be in August. So you'll probably book full revenues and profits in the first half. Does that mean that the low ends of the range is now secure and that we are more looking between the MIPS points and the top end of the guidance?

Well, I mean, I don't have, I mean, I don't have moved or changed the expectation on achieving basically the guidance for the year. You're right to say, Miguel, that if GSI what I said in February, if GSI was canceled immediately in the beginning of the year, then we would be more on the low part of the range. That's definitely the case. And it's becoming less and less likely because as we receive payments and cash since then, obviously we are securing the year more and more. And now most of the, I mean, at least 50 or 60% of the year is behind us. So definitely I'm... we are not likely to get to the low part of the range, but more around the middle, mid, mid part of the range. And, uh, again, if the organic growth is confirmed in the second quarter, the way we see it, um, both in terms of connect and grid, uh, especially more in connect, which has less visibility, then definitely we should be shifting to the higher part of the range. So that's the way we see it right now. The momentum is, uh, is quite good. And don't forget that, uh, That does not include the divestment of LinkCO because the guidance excludes any change of perimeter. So don't forget that we are divesting LinkCO, which is roughly a 45 million euro EBITDA on six months, which should be out of the perimeter of the company since starting July. So that needs to be restated within the guidance, obviously, because this is a change of scope. and potentially the timing is more uncertain about when M&A will come in the year, if it's going to be third or fourth quarter within the year, there will be some contribution there. But that's basically where I see it. Scope being the same as of today, we should be now in a, I would say, normal case situation, more in the middle part of the range, And confirming the organic growth in the second quarter, we should be moving to the upper part of the range, I confirm.

Great. And then just to finish off, in power grades, I remember the second half of last year, the margin was a bit weaker sequentially. Anything to worry about this year or still think that you can top last year's full year margin of 13.7%? Thank you very much.

No, I mean, today, the way we see it today is that we should be at a strong margin level in grid. There's no, we should be definitely at the level that we've seen in 2024. We don't foresee any major differences.

Thank you, Miguel. Last question, maybe?

Indeed, the last question comes from the line of Philippe Schwenek calling from DWF. Please go ahead.

Yeah, good morning, gentlemen. Two questions, please. Firstly, on autos, you said you might dispose that already early next year. I think that's different from previous communication when you said it needs a settlement in Ukraine first. So what has changed here? Secondly, in the United States, there's a lot of tendering for onshore networks. Is your Charleston factory able to compete for those deals? It used to do onshore cables in the past, I believe. Thank you.

Maybe let me take the second question. Yeah, of course Charleston is able to do both land interconnection and subsea interconnection. But we prefer as much as we can to use our facilities in Charleston for subsea interconnection because we have a balanced capacity both in installation and production. If you do land interconnection, you don't use your vessel anymore. Of course, on the margin that we see in the subsea interconnections for the moment are are a bit better than what we see in the land in the U.S. market. We're getting the first question, GC, you want to take?

Yeah, so far, to what I think maybe we're not clear, but we don't need an end to the conflict between Russia and Ukraine to diversify the asset. I mean, I remind that the asset has never been impacted at all since the beginning of the war in 2022. It has been fully producing, fully operational, even with more load than expected due to some other competitors like Leonie, if you remember Leonie that went bankrupt. So, in fact, the asset has been performing very well. I mean, so the end of the world was not a triggering event for the divestment. And today we are progressing on that front, and even though the war is not over yet, it's not stopping or having an impact on whether the business or the process of that investment.

Thank you.

There are no further questions, so I will hand it back to your host to conclude today's conference. Thank you.

Thank you very much. Thanks a lot for your attention and see you for future results and for the IPA results in July. Thank you.

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