1H results: Strong Performance Supports Structural Value Growth

• 2021 Guidance raised on the back of record EBITDA in H1 2021
• Subsea High Voltage leadership in motion with Empire Wind projects preferred supplier agreement, Nexans Aurora vessel delivered and Charleston US plant on track for Q3
• Building blocks of Strategic Ambition to become an Electrification Pure Player
• Positive net income at 81 million euros

Nexans published its financial statements for the six months ending 30th June, 2021. Commenting on the Group’s performance, Christopher Guérin, Nexans’ Chief Executive Officer, said: “Ahead of expectations for 2021, we are confidently building the blocks of our 2022 – 2024 new strategic ambition presented at our Capital Markets Day last February.

This first semester’s strong performance anchors the first steps of our strategic vision to become the pure player in sustainable electrification. Nexans is now a structured, healthy and solid Group. We will continue to trigger structural value growth while amplifying our impact on energy transition.”

 

I. First half 2021 Highlights and General Operating Context

Record half year performance

In the first half of 2021, sales at standard metal prices totaled 3,112 million euros, up +12% organically compared to first half of 2020 and up +24.2% in the second quarter 2021 illustrating demand upturn and positive mix/price management.

Nexans benefitted from sound commercial momentum and pursued selective growth across its businesses to support healthy backlog for the period and beyond. The Group pursued its strict monitoring of raw material supply and price inflation pass-through, partly enabled by its unique vertically integrated model.

First half 2021 results reflect a good start to the year with a record EBITDA of 222 million euros, up+37.2%. The EBITDA margin grew by +155 bps against first half 2020 to 7.1% driven by volume rebound and operating leverage linked: i) to complexity (SHIFT performance program) and cost reductions, ii) effective raw material control both in terms of price inflation and supply and iii) continued product portfolio selectivity.

Successful “New Nexans” 2019-2021 Transformation Plan

Nexans leadership in subsea High Voltage & Projects was illustrated by the signing of a preferred supplier agreement by Empire Wind LLC to electrify the future of New York State by connecting the Empire Offshore Wind Farms to the onshore grid. In parallel, Nexans Aurora vessel construction was completed early June, while Charleston US plant conversion is on track for completion in the third quarter despite logistical constraints due to Covid-19 travel restrictions and material supply delays. Both investments will support the performance acceleration expected in the second half.

During the semester, the Group pursued fixed costs reduction and SHIFT transformation program across all operations implementing cost and productivity improvements, notably focusing on operating working capital and closely monitoring raw material supply and cost appreciation.

Building blocks of Nexans’ 2022-2024 strategic ambition: Electrify the Future

Convinced that remaining a generalist will be more a weakness than a strength, Nexans unveiled its ambition to become an Electrification Pure Player on February 17, 2021 at its Capital Markets Day. The Group will cover the entire electrification value chain: from the very start of production of energy, to transmission and distribution of energy, all the way to usage of energy.

 

During the first half, the Group started laying the groundwork on its three main pillars:

• Simplify to Amplify: leveraging on its successful transformation, the Group is focusing even further on value growth services and solutions, on customers’ needs and tailored innovations to support the worlds’ Energy Transition and to unlock its potential as Electrification Pure Player .
• Transform and Innovate: Nexans strengthens its R&D firepower through the signing of five risk management, innovation and digital partnerships with leading players in their domains and deployment of a new R&D organization with the implantation of SHIFT Prime, Design Labs and Techno Centers.
• Scale-up to step-up performance: the Group moved forwards on its inorganic agenda.

 

II. H1 2021 analysis per Segment

BUILDING & TERRITORIES: +234bps EBITDA margin thanks to selective growth

Building & Territories segment sales amounted to 1,277 million euros at standard metal prices in first half 2021, a +5.3% organic growth compared to the same period last year. Sales were sequentially up +7.9% in second quarter 2021 supported by an upturn in most geographies notably in Europe and well oriented end- market demand.

EBITDA was strongly up at 90 million euros compared to 58 million euros in first half 2020, with solid EBITDA margin of 7.0%. This +234bps increase reflects the successful management of raw material price inflation and supply as well as the significant cost and complexity reductions implemented since 2019, notably through the in-house SHIFT Program.

Over the period, the Building segment demand recovery was strong across most geographies driven by volume growth while remaining selective to support profitability. The Territories (Utilities) activity witnessed good dynamics in South America, sound demand in Europe thanks to solid recovery in France and a slowdown in North America, notably in Canada.

INDUSTRY & SOLUTIONS: Robust growth boosted by Auto-harnesses and Automation

Industry & Solutions sales landed at 697 million euros at standard metal prices in the first half of 2021, up +18.7% organically year-on-year and +34.8% in the second quarter of 2021 supported by strong dynamics in auto-harnesses and automation. EBITDA more than doubled to 68 million euros against 30 million euros during the same period last year and EBITDA margin also strongly improved at 9.7% compared to 5.0% in first half 2020.

Automation was strongly up (+44.0% year-on-year), boosted by demand in Europe. Railway Infrastructure & Rolling Stock sales were slightly down -3.3% year-on-year in virtue of lower Asian demand. Aerospace & Defense witnessed the first signs of recovery in the second quarter (+84.3% compared to second quarter 2020) while Oil & Gas remained challenging. After several quarters of dynamic activity, in light of raw material increase, Wind Turbine activity was down (-22.4% in sales year- on-year).

Automotive harnesses was strongly up by +50.9% in the first half. Sales reached a record high in virtue of growing market shares of electrical vehicles supported by Government subsidies. A contract in body harnesses has been awarded and will secure the growth momentum in the future.

TELECOM & DATA: LAN cables and Systems continued upturn; Q2 supported by recovery in Optical Fiber infrastructure market

Telecom & Data sales amounted to 160 million euros at standard metal prices in first half 2021, up +2.7% organically (excluding Berk Tek sold in third quarter 2020) compared to first half 2020 and up +9.5% in second quarter 2021 showing a rebound in demand. EBITDA improved by +14.6% and reached 18 million euros in the first half 2021, reflecting continued profitability focus which more than offset unfavorable base effect of the Berk Tek sale and pricing environment, which is now stabilizing. As a result, EBITDA margin improved strongly at 11.0% compared to 7.0% in first half 2020.

LAN cables and Systems rebounded by +27.7% organically in the first half 2021 compared to first half 2020 with activity benefitting from the upturn in both Asia and Europe.

Telecom Infrastructure was down -7.9% in first half 2021 as demand started to return in the second quarter. Pricing pressure was mitigated thanks to cost reduction and competitiveness measures.

Thanks to the solid demand and Nexans’ leading position, sales were up +9.7% in the Special Telecom (Subsea) business year-on-year and backlog remained strong.

HIGH VOLTAGE & PROJECTS: H1 2021 penalized by unfavorable H1 2020 comparable; solid grounds for a strong second half

High Voltage & Projects standard sales stood at 346 million euros in the first half of 2021, down -11.8% year-on-year, in line with project phasing and unfavorable comparative in first half 2020 which had benefitted from three repair contracts. Sales will accelerate progressively throughout the second half, reflecting project phasing, delivery of the state-of-the-art Nexans Aurora cable laying vessel and completion of the Charleston plant in the US.

EBITDA landed at 52 million euros, down -14.2% compared to first half 2020, reflecting the absence of repair contracts in first half 2021. Excluding these three contracts, the growth would have been close to +30%.

Subsea high-voltage was down -15.6% in the first half 2021, impacted by a strong base effect as stated above. In line with the Group’s flawless and disciplined project execution, progress was made on project execution, notably on interconnector projects NSL, Crete-Attica, and Lavrion-Syros as well as offshore wind farm projects such as Seagreen OWF and Dolwin6. Adjusted Subsea backlog7 was at 1.4 billion euros at the end of June with high visibility and fully loaded Halden plant in 2021. Tendering activity continued to be strong, Nexans was selected as preferred supplier by Empire Offshore Wind LLC to electrify the future of New York State, connecting the Empire Offshore Wind Farms to the onshore grid. As part of managing critical transmission assets, Nexans was awarded aftermarket consulting services for Kintyre – Hunterston subsea high voltage transmission link. In parallel, the Charleston plant conversion made progress and completion is expected in the third quarter despite slight delays due to Covid-19 travel disruptions and material supply constraints. Nexans Aurora vessel was delivered on-time and the Group held her naming ceremony on June 8th, 2021. The vessel is now ready to sail on numerous secured projects such as Seagreen OWF in the United Kingdom, Crete-Attica interconnector in Greece and Empire Wind OWF projects in the US.

Land high-voltage was up +3.5% in the first half 2021. Project execution gradually increased over the semester, in line with backlog phasing. Performance remained above breakeven level, after the successful turnaround of the unit last year.

 

Ⅲ. uccessfully executing final steps “New Nexans” 2019-2021 Plan

The Group is well on-track to complete its “New Nexans” transformation plan launched and has exceeded expectations in first half 2021. The teams continued to reinforce cost reduction measures and amplify the SHIFT Transformation program to enhance cash conversion as well as complexity reduction. Focus on operating working capital and customer selectivity on all commercial opportunities and turnkey projects is now embedded within units to improve profitability in all environments. During the first half of 2021, 74 million euros of EBITDA improvement were achieved.

 

Ⅳ. 2021 Outlook

Following the strong first half performance and, based on current macro-economic environment and assuming no material impact from COVID-19, the Group upgrades its targets for 2021:

• EBITDA between 430 and 460 million euros (previously between 410 and 450 million euros);
• Free Cash Flow before M&A and equity operations between 100 and 150 million euros;
• Return on capital employed (ROCE) between 13% and 15% (previously between 12.5% and 14.5%).

 

Ⅴ. Taking into account Environment, Social and Governance impact of our activities

During the first half, Nexans celebrated the tenth anniversary of its CSR department and made significant progresses towards its ambitious Corporate Social Responsibility commitments.

As a responsible leader fully committed to have a positive impact in its ecosystem, the Group launched its first supplier day to share its purchasing ambitions, roadmap and new CSR supplier charter with more than 250 key suppliers, and finalized the 9th edition of the Nexans foundation, aiming to help disadvantaged communities to access energy.

 

Ⅵ. Significant events since the end of June 

On July 22 - Nexans joined the Copper Mark organization as a partner to promote responsible copper production globally.

On July 21 - Nexans was awarded by SSEN Transmission after-market consultancy services to support a business continuity strategy for its critical high voltage transmission link between Kintyre and Hunterston.

On July 2 - Nexans strengthened its global wind network and increased its cable harness production capacities to meet the growing demand for clean energy and electricity in the world with a new production facility in the city of Tianjin, China.