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Ladies and gentlemen, good morning, and welcome to the Nexans First Quarter 2020 Financial Information Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the call over to your host for today's conference call, Mr. Christopher Guérin, Nexans CEO. Please go ahead, sir.
Thank you. Good morning. Good morning, ladies and gentlemen, and thank you for participating to this Nexans conference call. Hope you and your families are keeping well and keeping safe in these very exceptional times.I am Christopher Guérin, CEO of Nexans. With me are J-C Juillard, Group CFO; and Aurélia Baudey-Vignaud, Head of Investor Relations. We are calling you directly from our Paris headquarters.I will turn over to Aurélia who will go over the conference call rules.
Thank you, Chris.I would like to remind participants that statements made during the conference call, which are not historical facts, are forward-looking statements within the 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 today's press release, along with the audio replay and transcript of today's call that will be posted on our website, nexans.com. I now turn you over to Chris, who will go over the first quarter 2020 highlights.
Thank you, Aurélia. So before we go through the highlights of the quarter, let's start with the current environment on how Nexans is managing this unprecedented crisis, taking all measurables to protect our employees and our stakeholders while maintaining continuity of production and supply chain. This is quarterly result. Normally, we don't have any presentation, but because of this exceptional context, we have a presentation for today's call.So I will refer to Page 3 of the presentation, and now, let me guide you through these few pages with J-C. On to Page 3. So the Executive Committee of Nexans and all the company turned into a crisis mode since more than 8 weeks. To set a mitigation plan, we were supported by the daily monitoring that we set up with our Chinese team since the 15th of January, beginning of the crisis. 3 months later, none of our 900 employees in China have been contaminated, and all our operations in China are back to the level of production of 2019, since the first week of April. The 5 main pillars of our crisis team are the following: of course, the first one is workforce protection; the second one is supply chain and operation stabilization; the third one is customer engagements, priority -- prioritizing on serving our top 3,000 customers that make more than 90% of our total revenue; fourth pillar is about liquidity preservation and financial modelization; and the last pillar is, of course, communication -- external stakeholder information and hardwire flow that we have put in place during the crisis with the Board of Directors. Thanks to our strict internal contract process, anticipated actions identified with our Chinese team, plus all employee engagements across the world and trade union support, the group deployed sanitary measure across all units while maintaining all along the crisis production continuity. We have as well taken a set of decisions in the last week that you have seen. To sustain operation and demonstrate social cohesion, a premium of EUR 750 per month for frontline workers was set in European plants. And the top executives of the group agreed as well for pay cuts between 15 -- minus 15% to minus 30% during the time of the crisis as well as the Board of Directors and the Chairman of the Board. On March 24, 2020, as a consequence of the COVID-19 crisis, the restrictive measure undertaken by government affecting business demand, Nexans suspended its guidance for 2020. Of course, an update will be provided as soon as the situation firms up. Another decision that has been taken that you have seen, the Board of Directors has decided not to propose at the next Annual Shareholder Meeting, which is next week, the payment of the dividend for the year 2019. In regards to operation now, moving back to operation, our plants across all geography witnessed no major disruption due to either material shortage, supply chain disruption or union obstruction. None of them have faced any major disruption. And as end of March, 90% of our plants were open and up and running.Now moving back to the communication of today, which is our quarterly result. Standard sales were up EUR 1.56 billion in the first quarter 2020, representing a flat organic growth against first quarter 2019. As you can imagine, because of the impact of COVID-19, we have a very strong variation sectors to sectors, either talking about automotive harnesses representing 8% of our total sales, our telecom infrastructures 2 -- that has been as well strongly impacted. We will come back to it. But 2 other segments that have been not at all impacted by COVID-19, namely High Voltage and renewable activities. And as you can see in the press release, the High Voltage & Projects segment posted 56% sales growth in Q1, driven by sound cable production and as well very strong cable laying activities without any disruption in that business. I will let Jean-Christophe later go on all the details business by business regarding this overall situation. Let's now turn to Page 4. Just wanted to highlight with some few picture before talking about financial of last week's information flow of Nexans. As you can see on the left part of the page, all the grand blocks for the cable laying vessel, Nexans Aurora, that will be ready for next year, have now been assembled at the hull yard, as you can see on that picture. Of course, it's -- we are waiting this vessel to operate in 2021 with a great pride. On the health and safety side, let's keep in mind that our first and foremost priority more than ever is the health and safety of our employees. Our health and safety team rolled out all around the specific protocol that our employees are respecting in order to protect themselves on overall the spread of the virus. And we want to give you very transparent information regarding the situation of COVID-19 within Nexans. Only 26 Nexans employees have been tested positive COVID-19 out of a total of 26,000 employees so far. More than 50 to 100 actions has been set per unit to protect our team since January from China crisis and March in all the rest of the world. Let me thank all our team for their engagement, discipline and vigilance under such heartbreak. And as I mentioned before, none of our 900 Chinese employees have been contaminated so far.We have been able to provide since the beginning of the crisis more than 1 million masks and gloves to all our units. But as well in gestures of support to local authorities, hospital and doctors, more than 30% of them has been given to our communities by our teams everywhere in the world. And we've as well supported a top-priority customer that required our product to produce specific equipment for its people. You can see as well on the right side of the page, pictures that we have taken 2 weeks ago from our Chinese operation. You can see Julien Hueber, Executive Committee member, which is in our plant in Suzhou, which is now running full speed. I would now like Jean-Christophe comment on the sales per business. J-C?
Yes. Thank you very much, Chris.So now I'm turning on Page #5 of the presentation. So despite the COVID-19 crisis that started to impact Nexans mid-March, the group consolidated first quarter sales did not suffer, with a stable organic growth versus Q1 2019. In fact, January and February were strong months in most businesses that more than offset the sales slowdown in China that happened starting February. The first strong impact of COVID-19 on Nexans' businesses started mid-March in Europe, where all businesses were significantly hit, except the High Voltage segment. Due to the nature of the business and the location of our main plant in Norway, they are less impacted by COVID than the Central Europe.Let's look in more detail at the sales Q1 performance by segment of business, and I'll start with the Building & Territories business. First, Building. Building started the year 2020 on a strong note in Europe and North America, but with COVID impact in China in early February, when Nexans' plant was closed for 2 weeks, then mid-March, the COVID crisis impacted sales, first, in Europe and in the Middle East, then in North America, while Asia was really on the recovery mode. On the Territories side, the utilities, sales were resilient in Europe and South America, with the exception of Brazil and Peru. And -- but sales in Lebanon were also below last year, mainly -- but mainly due to the political crisis. Overall, the Building & Territories segment sales for Q1 reduced 5.5% year-on-year. On the side, on Industry & Solutions, as you know, Industry & Solutions is a multiple subsegment in the business. But Industry & Solutions was 6% down year-on-year in Q1 sales, and it was impacted by the COVID crisis starting mid-March as well, but on a different scale according to the business. Part of the most impacted businesses on Industry & Solutions were automotive harnesses, and automation and robotics were significantly impacted following the shutdown of the car and truck manufacturers around the world. Nexans' harnesses business sales reduced 6% year-on-year when Audi, BMW, Daimler shut down their plants in Germany mid-March. Automation sales decreased 30% year-on-year, mainly from a sharp drop of orders, mainly also coming from the automotive industry. Aerospace sales were also strongly impacted with a 9% decrease of sales year-on-year after Airbus announced shutdown of their assembly plants and delays of execution of the backlog. On the other side, the wind offshore business continued to grow, plus 26% year-on-year, mainly supported by Vestas orders in the Nordics.On Telecom & Data, Q1 year-on-year organic decrease of 10% suffered strong declines of fiber cable sales in Europe, 20%, where our team underground were in confinement, unable to deploy fiber. LAN cables were moderately impacted, minus 2%, as decrease in sales in China early February was offset by a strong demand in Europe and the U.S. Finally, the dynamic for the High Voltage & Projects is quite different. The COVID crisis had no impact on the business at that stage. First quarter sales increased by 56% versus the last year, thanks to a healthy backlog in subsea and the turnaround of our land high-voltage business. On subsea, cable production was full capacity, and our installation vessel was in operation every single day, installing projects like Lavrion in Q1. Subsea sales increased by 66% versus last year, supported by this high activity and also a favorable phasing on installation versus last year. On the land high-voltage sales, they grew by 22% versus the last year, thanks to the backlog, but also to the completion of the restructuring that started in 2019, that now, in 2020, as planned, is starting to bear fruits.Now if I move to the next slide, I will talk a few words about our liquidity, group liquidity. You can see that as of March 31, Nexans has a liquidity position in excess of EUR 1 billion. If we take a conservative approach and reduce this liquidity by the amount of vendor financing on copper that can always shut down if the crisis was going to worsen, the liquidity, the stress liquidity number would be around EUR 930 million.On top of this, the group has access to EUR 65 million of untapped credit facilities and is currently applying for a loan guaranteed by the French State for an amount of 200 -- up to EUR 280 million. With this, total Nexans liquidity will amount to close to EUR 1.3 billion, which will ensure the company is well armed to face the crisis even if this one should last beyond 2020. On our debt covenant, Nexans closed 2019, as you know, with significant headroom on both covenant, leverage ratio and gearing ratio. And we believe that there is no risk at that stage based on the liquidity presented that the company reaches the limits anytime soon.Let me now turn back to Chris for the COVID impact for Nexans operational business.
Thank you, J-C. So let's move on to Page 7 because I'm sure that Q1 looks a bit far away already with such crisis that you will have a lot of questions regarding what's happened since mid-March up to now. This is the objective of this slide is to give you a bit some color of the magnitude of the impact business by business, countries and sectors that we do cover.So as you know, we will not give any forward-looking guidance today, but at least to give you this color. So if -- let me explain a bit this page to make sure that it's well understood. First, the magnitude of the impact. This is the year, represented by the 3 blue COVID star. When it's 3 blue COVID star, that's implied a slowdown in demand from 15th of March to April 30, above 30%. If it's a 2 blue COVID star out of the 3, it means a slowdown in demand between 6% to 15%. If it's only 1 blue COVID star out of the 3, it's meaning that the slowdown is either 0 or minus 1%, up to minus 5%. And when it's 3 star all gray, that means that there were no impact at all on the demand.So this information, in terms of impact on demand, is caused by our sales exposure per country, all sectors. And here, represented not in value, of course, but at least in terms of exposure, is it a very high exposure, medium or low in regards to our total sales of each business group? So if I start with the first graph, first represents – or representation, which is Building & Territories, you can see that France, pretty high level of sales for our Building & Territories sectors, has been heavily hit specifically with, during the period, the construction then up to 50% to 60% in the first 2 weeks of April. And in Belgium, Canada and Lebanon, we were at minus 40% during this 30-days or 45-days period. But business has been slightly picking up over the last 2 weeks of April.If we go still on the same sector, on the opposite side, Nordic, as you can see, has been less impacted, only a few percent of a decrease of demand in April in Norway and absolutely no impact in Sweden. We have as well been able to make some growth. Still for business (sic) [ Building ] & Territories, China is strongly recovering since the beginning of the month, as I mentioned.If we move on the Industry & Solutions side, of course, heavy hit on automotive harnesses due to the lockdown of car manufacturers. Let me remind again that automotive business represent 8% of the total group sales. And I'm sure you will have a lot of questions about it. We will answer to that. Our exposure on oil and gas is relatively small, but of course, oil and gas is strongly impacted, as you know. And we have as well, on the middle side, adapted our production output in aerospace following Airbus’ recent information regarding the minus 30% -- minus 20% to minus 30% production output slowdown. Rolling stock, on the opposite, rolling stock on renewable sectors remain very robust. And we have signed a lot of contracts at the end of 2019 with customers on -- that have as well on their side a fantastic backlog. So our operation for those business never stop.For T&D, given the government policies and confinements on, of course, preventing most fiber cable installation campaign in Europe, telecom infrastructure sales were down minus 19%, and the drop continue very strongly in April. Just for France, for example, you can see some report on [ citadel ] that from a year-over-year, we are close to minus 40% to minus 50%. But thanks really for our business, we have been able to take additional orders following the lockdown of some of our competitors’ operation during the month of April. If I continue the reading on the right side, subsea T&D is according to budget, so still on telecom, because we have a very, very strong backlog and a lot of demand in the subsea telecom business for the coming weeks. On high-voltage activities, as mentioned at the beginning of the call, our operation in Norway have not placed any disruption, neither slowdown both in production and installation. And everything is running like plan on budget. We have to mention as well that we have made 2 significant repair projects that we have been able to manage in parallel, reinforcing Nexans' presence in the inspection, maintenance and repair market segment. So now if we move to the last slide before taking your questions, on Page 8. As I told you, thanks to our learning from COVID-19 crisis management in China in January and February, plus the fact that, as you know very well, Nexans is on a restructuring and transformation mode since 18 months, we have been able to anticipate a lot of measure and set the right level of action to cope with this crisis. Of course, we have addressed a lot of topics like business continuity, protecting our top customers. Here is -- of course, this slide is extremely financial. We have deployed -- we have decided to deploy SHIFT program, transformation program worldwide at the same tempo in all units in the world, so of course, well ahead, advanced on our 2021 objective with one unique driver on a weekly mode on our 3 main pillars: cash preservation; cost reductions; and pricing management. We have as well addressed all spend and cost compression. We have all our procurement team to ensure stability of supply on us while finding quick wins to reduce the price cost squeeze effect. And of course, we have freezed all CapEx that we consider nonstrategic. For focus, we are really now under focus. So we are setting up a lot of financial analysis, scenarios, modelization. We have set as well beginning of April new cash conversion cycle target per unit at the end of June. So we have all classified them since 2 years on profit driver, cash tanks, value burners. So depending on their position, they have different set of target. We have reforecast all our cash flow. We have monitored all our financial parameters, like J-C comment, and we just launched new cost-reduction initiatives.The outcome for us is to have an enhanced liquidity; improved cash conversion cycle; accelerated complexity reduction and SHIFT program deployment; optimized the pricing management; keep having a leaner and efficient cost structures; and reduced risk exposure on projects. That gives me the opportunity to -- because I'm sure you will have a lot of questions following the award of SuedOstLink in the last days. So let me give you a statement. How about it?As we already mentioned over the last 18 months, the group's continued to be drastically selective on all commercial opportunities and turnkey projects. Our strict and solid evaluation process focus on overall risk on the technology side or installation side, financial rewards, contractual terms. Consequently, although we are always prepared to embrace reasonable commercial and business challenge, we will not accept what in our discrete judgment is an excessive or a not adequately rewarded commercial risk. The SuedOstLink is a great and fantastic project for energy transition of Germany through this installation of 1,000 kilometers of cables, and let us congratulate our competition for this sizable award. Our view is the following: through the combination of its size, the technical requirement and contractual obligation level of SuedOstLink project cannot be really compared with any past land high-voltage project. However, subsea XLPE project constitute a good benchmark to assess the SuedOstLink opportunity within a known risk-and-reward analytical framework. The application of our standard subsea risk and opportunity analysis for this specific project, that has been not done by our land expert, but that has been done by our subsea technical and financial expert. Combining with financial modeling, recent statistics from past project has led internally in Nexans to a no-go on participating to the last part of this bidding. And we have informed the customer duly during the negotiation phase. The price level implied by budgetary guidelines and confirmed by publicly available award values lead to a price per kilometer within around, let's say, of 850 to 1,000 kilometer, or 1,000 kilo euro per kilometer. This is, for us, lower than the level of serving on several XLPE subsea projects with a similar level of installation share, but with, of course, lower tension and with AC-proven technology. The risk level, in our view, is significant. Nexans has been the first player -- let me remind you, we have been the first player to successfully complete the 525 kV HVDC feature test. That said, for this technology to be deployed at such massive scale, 1,000 kilometers under the severe contractor terms that contractors are expected to adhere to, there has to be an adequate reward for the supplier. We felt early, and I've been a bit -- I've been transparent about it, that the reward and risk formula was imbalanced to our detriment.But of course, this is Nexans' view, our risk management sensitivity and the way we want to build and grow our long-term backlog with the right combination of risk and profitability. In this condition, Nexans has chosen to save its available capacity for other project and finally not to participate to the SuedOstLink bid. We have made sure TenneT fully understand our position, and we thank them for that, as we worked with TenneT in great partnership over the last years, and we look forward to do so in different projects. So that was my statement regarding SuedOstLink.Now we are ready to open for questions.
[Operator Instructions] And I will now take our first question, and this comes from the line of Akash Gupta.
It's Akash here from JP Morgan. I have 3 questions, please. My first question is on Slide 7. Can you quantify, if we add all these dots together, then what it means for the group organic growth from March 15 to April 30? So that's question #1. The second question I have is, if you can help us modeling high-voltage business for the year where you have visibility from the backlog at least for subsidy portion. So Q1 was clearly pretty strong in terms of year-on-year growth. But what should we expect in the remaining quarters? And what's your planning for the full year given in this business, you have very little impact from COVID-19? And my final question is on the German high-voltage corridors. So I mean I appreciate you providing color on your position. And the question I have is that if we have the same technical terms or bidding terms that we had for SuedOstLink, then is it fair to assume that you won't be participating in the coming 2 projects that are still to be awarded?
Thank you, Akash. J-C?
Yes. So I will take your first question, Akash, J-C speaking, on April and looking at Page 7 of the presentation, having a view on what April looked like. So definitely, April, let me remind you, as I presented, that really, the impact on Nexans, if I put Asia and China on the side because we started to get impacted in February, but it was very short and we shut down our facilities only a couple of weeks. And the restart after that was extremely quick and was higher than expected. So I would say, the Asian impact on Nexans in Q1 was limited. Then after that came Europe and North America and the rest of the world, in fact, and that started really the second week of March. So we have, I would say, 2 to 3 weeks maximum impact in our Q1 of the issues of the COVID. April will be -- and we believe that April will be the bottom point of the impact. It will be definitely worsening of the impact on all our segments, but again, SLS, subsea and land, and I will come to that in a second. But definitely, if you take the example of harnesses, that was impacted 6% in the month of -- in the first quarter. The impact in April is almost a 70% to 75% reduction on sales on that business because all our customers basically were shutting down most of the month of April, started late March and most of the month of April. Now we see reopening, restarting. It start to look much better now. But the month of April definitely will be significantly hit. Building is also -- building will also be heavily impacted in the month of April. The impact that we declared for the first quarter was 6%. It will be much higher than that for the month of April. But again, we start to see reopening. We had closures of our facilities in Europe, but we are reopening now and we're running. As Chris mentioned, all our plants are now in operation. So April, to answer your question, will be the deepest point of the impact for the crisis, at least for now where we see and may look much better.When it comes to SLS and subsea, specifically, again, this business has not been impacted. What you see are the 60 -- 6% subsea sales increase versus last year is, again, twofold. If you recall, last year, the first quarter was very low. We had -- in fact, we had a negative organic growth in Q1 of 2019 versus 2018. It was really a phasing impact on the -- how the cable production will phase on the big project as well as the installation. Just to give you an idea, last year, in the first quarter, we had 17 days of installation for the full quarter of both installation, cable installation, deep sea from our main vessel. This year, in the first quarter, we had 91 days. So fully, completely fully in operation the entire quarter. So it really depends on the phasing. That's a big reason. We have now, as you know, a very big backlog. The way we model SLS and subsea specifically is really completely in line with what we announced in February. We don't see impact on this business segment with the crisis. Again, we have confirmed basically all the projects ongoing with our main customers, and we are on track. So what you had as assumption in February, is still valid for 2020 when it comes to subsea. And the recovery of land, finally, is fully under control and now is bearing its fruit. And we will not have, obviously, the issues of the past and the impact on our sales and EBITDA we had in '18 and '19.
And if I can ask -- add 1 or 2 comments, J-C, on what you say. That's right, that just before COVID-19 impact, we had a fantastic start. I want to mention that, in all businesses, a fantastic start, above expectations. So of course, there is the foot on the brake now.We have to color as well Building & Territories. You know that in Territories, it's utilities. Utilities always remain much more resilient in crises, and this what we have seen in 2008 and 2009. There was a lot of demand during the last week that we have been able to cope. And of course, Building, it's easy to modelize because you have countries that have set up very, very strict confinement measure, like France, Belgium and Canada on orders that are a bit -- much lighter, and that have a huge impact regarding the demand. Once again, in Sweden, we have not decreased as we have almost grow sales in April, so a different impact. And regarding the last question, Akash, I understand your question regarding SuedOstLink. I will not comment it because the award is not yet there. But I think I gave you enough information to make your own view.
[Operator Instructions] And your next question comes from the line of Sean McLoughlin.
Just building on what Akash asked, specifically on high voltage. Looking at much tougher comps through Q2 and Q4 2019. Do you still expect organic growth in High Voltage & Projects through the next 3 quarters? My second question is around the French government loan guarantee, if you could just talk about cost and conditions around this. And the third question, you've mentioned in a very helpful call last month about a W-shaped recovery. Just wondering if there's any development of your overall view there.
Yes. Sean, Jean-Christophe speaking. Thank you for your questions. So on the first one regarding 2020 versus '19 on subsea. So what we presented, what we explained in February during our presentation for '19 result and looking at the guidance for 2020, we said that 2020 was kind of a plateau compared to '19 and '21 on the subsea business, mainly due to phasing of this project. Again, in '19, we had some large projects like Nordlink, for instance. That came to a completion, basically releasing a lot of, I mean, I would say, final sales and margin. We don't have this kind of phasing in our plan for 2020, which why we will have a plateau. We are not impacted by the crisis, I explained, but we will not have organic growth when compared to 2019 due to -- mainly due to this reason, despite the fact that all our facility’s fully under full production and our vessel will be utilized. But again, the phasing of the project make that 2020 will not see organic growth in subsea versus what we had in '19, and we see, however, a rebound of that in '21. That's for the question on subsea. The second question I think you had was on the loan, the French State loan. So yes, this is something that we are pursuing. We are well advanced in the negotiation for discussion for that. We are using 5 of the banks that we -- which are our main partners who are the banks in our revolving credit facility today. We are finalizing the term sheet of that. It will be up to EUR 280 million loan for 1 year, and that can be extended for a maturity of 3 additional years. It will be guaranteed at 80% by the French State. The cost of that loan is extremely, I would say, interesting. For us, it's a basically all-in cost of 105 bps. So very interesting with some condition, but not excessive condition to get the loan granted. So it's a quite interesting source of financing. We believe that if the crisis could extend much longer or we see a W shape and another big impact of the crisis at the end of 2020, early '21, it will be helpful for our working capital need and management to have this additional liquidity, I would say, on our balance sheet.
And regarding your last question, Sean, regarding our view on recovery. We -- in a nutshell, we are moderlizing our financial based on 2 events. We have taken, on one hand, the pandemia of Hong Kong in 1968 on the sanitary model and not the economical model, but the sanitary model. That said, that each pandemia has 2 waves of contamination, and the second wave having always an impact between 15 to 20 weeks after the end of the containment of the first wave. So we take this as an element of the sanitary impact and that we mix with the 2008 economical crisis. So of course, we are extremely vigilant right now, and we have daily report of the situation of the second wave in China that should appear from now on up to the end of July. If the second wave is pretty small, of course, that will have an impact – a very positive impact to the recovery of the world. So as of today, our prediction is based on the W type -- W-shaped recovery, whereas 2008 was a V-shaped recovery. So we believe that the collapse can be much deeper than 2008, with small quick rebounds linked to end of containment period in some country with medium wave up and then -- but during the next 12 months. We have as well what we are doing to be extremely, I will say, precise on the way we're modelizing our financial and to make sure that we don't make any mistakes on the way to operating the business and as well the way we manage the liquidity. We apply a different recovery depending of the sectors. We know that Territories is pretty resilient in such crisis. We know that Building can be extremely elastic and can turn in V shape very, very fast. We know that automotive and aerospace can be an L-type recovery, whereas renewable can be extremely strong; rolling stock as well, extremely strong; on high voltage, we're not concerned. So once again, this is a modelization. We may be wrong, but we prefer to be less optimistic and prepare for complex, I will say, 5 quarters and be surprised positively by a V-shaped scenario than the reverse. I hope that answers your question, Sean.
And we will now take our next question, and this comes from the line of Artem Tokarenko.
I have 2, please. The first question is around Ørsted's comments on large U.S. projects being at increased risks of delaying offshore and maybe a slower consenting. I'm just wondering how this affects your planning around your U.S. plant and whether you see any implication for your agreements, which you concluded last year with Ørsted. And also, my second question is more broadly around submarine projects pipeline for this year. Could you maybe talk a little bit about the bigger projects you think can go ahead this year and if there are any delays outside of those German land corridors?
Yes. Thank you. Thank you, Artem, for your question. How about -- yes, I forgot to mention that Ragnhild Katteland, the Head of SLS, is on the line. Ragnhild, you're here?
Sorry. Yes, I am.
I will let you take these questions regarding the announcement of Ørsted on our -- maybe you can start by an update regarding our Charleston CapEx upgrade, Seagreen, Ørsted on the backlog of high voltage. Thank you, Ragnhild.
Yes, I will. Thank you, Chris. So for Charleston, you all know that we are turning this into a subsea plant. It's going ahead as planned. And a major milestone was just achieved just last month when we started the manufacturing of our first subsea export cable project, Seagreen, for SSC in U.K. This project is in the pipeline for Charleston, has been for a long time. And it will utilize Charleston then for the next '20 and '21.When it comes to the partnership and framework agreement with Ørsted and Eversource, it's truly a good partnership. And Ørsted did come out with a communication regarding some uncertainties for the U.S. projects. We still believe strongly that the U.S. projects will go ahead. The announcement was really made to one specific project, which is Skipjack, where you don't have any export cable. So as such, we are not any way influenced by this delay. There is also in this communication had been a risk of delay of Ocean Wind, but it's not a delay yet.So base case for Charleston is still valid. We go ahead as planned. I just discussed with Ørsted yesterday regarding this fact. Of course, to mitigate any risk, as we always do in a project, we do work on different scenarios and also in this case. So we are working together with Ørsted to see in case there should be a delay for Ocean Wind, how could we then conduct the sequencing in Charleston with South Fork and Revolution to ensure that they utilize Charleston fully. And this is, of course, the interest for both Nexans and also for Ørsted. So...
And we have to mention -- Ragnhild, that we have to mention as well that we are talking about 2022. 2021 production is already secured and up and running.
Clearly. So Seagreen project is going to be installed in '21, finishing last cable in end '21, install beginning '22. So no doubt, for utilization of the Charleston 2021, '20 and '21 is okay. And then with the pipeline, as we see today, is no bid neither for '22 and onwards. So I'm confident of this one.For the rest of the backlog, the question was regarding backlog in subsea. We don't see today that there are any delays of the planned coming subsea projects. Of course, we are following this closely. But again, as I say, we don't see this coming. And of course, the backlog for '20 for subsea is already contracted. So as such, there is no risk for our backlog for '20 or '21 for the subsea projects. The main project that we're working on this year, we have the Mallorca Menorca. We are just mobilizing and have started the North NSL project, Norway, U.K., which is a major project this year with the installation both onshore and offshore. So that's kind of the main project. We also have Mindanao in the Philippines. And none of these projects we see any type of delays.I also would like to mention what Chris mentioned earlier is that we have had 2 major repairs in first quarter, both on Malta Sicily and also outside Spain, both with anchor damage, so not anything else. And now we will start and have mobilized for also a repair in Oslofjord, also with anchor damage for some cable. So the operations, subsea offshore is going very well.I think, Chris, anything else to mention?
No. Simply that's been clear.
Sorry, actually, maybe I wasn't very clear. But I actually meant more the bidding activity this year for new submarine projects. I think previously, the indications were for the market to be around EUR 3 billion and then German corridors to be on top. So given the current situation and the progress with project tendering, do you think there is still scope for the market to be as strong as EUR 3 billion this year?
Ragnhild?
Whether or not it comes to EUR 3 billion or not, what we -- again, as what I said, we have not got any indications that any of the projects that we have in our -- to be tendered, that they will be delayed. So today, again, I don't see any difference in this scope.
What we may say, Ragnhild, is that we believe that energy transition will be reinforced in the coming years, both in terms of countries interconnections and renewable energy deployment. We can have 1 or 2 project slippage, but I'm sure that post COVID-19, all governments, all utilities will strongly invest in energy transition. So -- and as of to now, to be very transparent, we have not seen any disruption in our bidding demand on tendering. So smooth flow for the moment.
And we'll now take our next question, and this comes from the line of David Barker.
Just a couple from me. Firstly, for Chris. Can you talk a little bit in a bit more detail on your work with Europacable to bring forward some parts of the European green new deal? And what are you hoping to get out of governments in Europe? And is there any real hope that we can see some of this renewables grid demand across Europe pulled forward? And then secondly, maybe one for J-C. Can you give any sense at all on the scale of how much you can accelerate your fixed cost reduction this year? And I guess, more specifically, can you give any sense of how we should be thinking about EBIT drop-through certainly for H1? And then, finally, in automotive harnesses, aerospace and oil and gas, clearly, there's quite a big fixed cost base in some of these businesses, and one might argue that the demand environment midterm could be impaired. Are you using this as an opportunity to kind of accelerate the rightsizing of these businesses more permanently? Those are my 3 questions.
You start.
Yes, I will start. So I will have difficult, David, to give you, I would say, a view on what could be H1 in terms of impact on our EBITDA. It's obviously a little bit early for that to give you. I mean we talked about the month of April being a very tough month. Recovery in May, but we have to see how much of a recovery. Is it going to be a slow recovery? Or is it going to be sharper than expected? So it's a little bit premature. I mean what we know already, again, that April is, as we said, on all businesses but SLS is very much impacted.When it comes to fixed cost reduction, yes, definitely, we have 2 very strong objective to, I would say, take advantage, if I can say that, on the crisis. The first one is to manage better our working capital and reduce them significantly. We've been quite high, and we've been working on that. But this is a very good opportunity for us to basically streamline and reduce significantly working capital and preserve liquidity. So we are working on that. And typically, if you look at Nexans and the way Nexans has been every year evolving, we always have the first 6 months of the year where we consume working capital on magnitude of EUR 200 million that we recover in the second part of the year. So we are making sure that this is not happening this year or at least not in the magnitude that we usually see. Obviously, there will be drop of sales. Drop of sales mean drop of receivables, but also we are managing much more closely our inventories that something we have not really done at that level in the past. So working capital, one thing, and preservation of cash.The second one is fixed cost. So as you know, you're right that we're addressing part of the transformation fixed-cost reduction. We have about EUR 75 million per year of fixed-cost reduction. That's needed anyway in our business just to cope with the price cost squeeze and the inflation and the productivity gain. This year, obviously, price cost squeeze will be much lower than the average EUR 65 million that we've seen in our company every year. So we will gain that -- we'll have a gain on that.However, on the price -- on the fixed-cost reduction, sorry, we will see a meaningful additional fixed-cost cut this year. I mean just some of them will come naturally, right? There's no traveling in the company. So traveling is EUR 20 million per year in Nexans. I mean there will be very -- a big reduction of that number. There is much lesser demand in consulting and a lot of additional costs that we will not see. So -- and then we are doing long-term action also. So I mean I cannot give you an additional number of fixed costs we will cut for the year, but it will be meaningful with all the initiative. And I will come with much more clarity on that when we'll announce our H1 numbers.
Yes. So regarding the question that's on Europacable, of course, we are pushing hardly. You know that the electricity demand in 2020 will decline by 5%, which is the largest drop since the Great Depression on the '30s. And there is a very, very -- during the lockdown measure, there is a major shift towards low carbon source of electricity, including nuclear, hydropower, wind and solar photovoltaic, which is that we believe this year to reach more than 40% of global electricity generation. Coal has particularly hard been hit. A massive impact as well on oil demand. It has declined at more than 50% because of the lockdown. And what we can see is that this year, renewables are set to be the only source of energy that will grow in 2020 with the chair -- share of global electricity generation that will jump this year, of course, owing lower operating costs and priority access to the grid. So we believe that in Europacable, that energy transition and renewable energy will be the long winner of this crisis. And we hope that all the government and the European, I will say, leaders in Brussels will take as well the right decision to reinforce all the investments in that direction.
And your next question comes from the line of Joffrey Meller.
I guess the first one is on the Telecom & Data division. I wanted to kind of get a better view of the mix between the impact, obviously, of COVID-19, but also the impact of destocking at some of your major customers in infrastructure over the Q1 and maybe the impact that you expect from destocking and COVID-19 as we go until the end of the year? And then maybe the second question is maybe in land and telecom again. What effect do you expect for the rest of the year as you can see that maybe some -- there could be some increase in data center demand for this division, excluding the impact of COVID?
Thank you, Joffrey. I will take this one. First of all, there is, of course, a different momentum between land and fiber optic. And if I talk to cable fiber optic first, I'll remind you that we don't produce fiber but just the cable, we have -- it's a very contrasted view. We had a growth of more than 20% in Scandinavia, and we have an important fall in France because of the lockdown, which is France and Belgium is a big part of our sales. And that was already a very strong destocking effect in January and February because if you remind, I told you that there was a lot of inventories in operators’ warehouse with -- due to a lot of importation that they have made at the end of 2019 and as well products with a higher fiber price that they wanted to consume as a top priority. So that was not a fantastic start of the year in telecom fiber optic. We benefit from a greater price. Fiber optic is not yet like the barrel, meaning turning negative. But of course, lower demand can generate potential of price gain for our procurement team. We are extremely vigilant on that. But in -- we have to mention as well that for fiber optic deployment, the demand is there. We need to renew all the backbone. So it's a pure COVID-19 impact. It will not change the deployment phase of all the countries. They need that fiber. So we believe that there will be a pretty sharp recovery in the coming months, of course, if there is not a major second wave on COVID-19.Land business has been more resilient. We were in -- we are mainly, I will say, following the business in U.S. U.S. has been extremely dynamic on that sector, and we have a very, very good model there. We have implemented SHIFT as well with a fantastic success in the land business. So we are extremely confident. Does that answer your question, Joffrey?
Yes, I think it does. And can I just follow up with actually a question on land high voltage. I totally understand your comments on the German corridors. And I guess my question is, where is your backlog standing in land high voltage? And what other projects or opportunity do you see in land high voltage apart from the German corridors?
Okay. Yes, but we never give the split of our backlog. We are -- the only thing I can tell you is that we are fully loaded in land high voltage up to the 2021. There is a lot of customers out of Germany calling us to set a frame contract for the coming 2 to 3 years. It's not only Germany that we need to renew its entire backbone, it's all the countries everywhere in the world. So in energy transition, we will require a lot of cables, but we prefer to pursue proven technology with lower tension that we master very well and at a very good profitability level. Once again, that's the -- this is the model that I'm driving since my nomination to our investors, and let me thank them again for that trust. I don't want to build a backlog that could generate a big risk for the company in coming years in Nexans' standpoint of view. So we are extremely confident for the next deal to come. Of course, they could not be as, as I will say, at the same scale than SuedOstLink, but a very reasonable one in terms of size and in terms of risk, sensitivity and profitability.
And your next question comes from the line of Jean-Francois Granjon.
I just have 3 questions, please. Could you come back on the land business? And could you explain us if you can reduce the losses? You expect some breakeven this year, so do you expect to reach the break-even level for the land business this year despite the context? The second question, could you give an update regarding the CapEx program for this year? You mentioned previously that you should reduce maintenance CapEx. So could you give us the amounts of the CapEx expected for this year? And the last question, during the previous call in April, you mentioned that for the B&T division, you expect a 9% decrease for the full year in terms of sales. Do you confirm this expectation or not?
So thank you, Jean-Francois, for your question. I will start with the land question. So again, all SLS business right now, long-term project, we don't see impact on our -- in 2020 due to COVID. So the big difference we had between '18, '19 and 2020 was basically the shutdown of one of our facilities in land; the refocus on one facility, [ Chandra ]; the transfer of the project into that plant and the execution of those projects. And as you said, we had a significant loss in '18. We cut the loss in half in '19, and our objective amount for 2020 was to be breakeven. We are fully in line with this. So it will make a difference of about EUR 25 million from last year losses, and we are on target to achieve that. And the numbers reported as of today are completely in line when it comes to this return back to a break-even situation on that loss-making business. And again, all the projects are long-term projects, and we've seen no delays in that. This is explaining why you see also the significant sales organic growth versus last year. It's because we are now executing the project and producing the cables accordingly. On the CapEx side, yes, I remind you that the CapEx of the group, as announced pre-crisis, was EUR 290 million, but EUR 160 million of that are CapEx linked to subsea, mainly to the Aurora vessel construction and the Charleston plant transformation. So we will not touch those because they are critical CapEx, strategic CapEx. And behind those CapEx, we have a project and a pipeline and a backlog to basically use that investment. And so we need the plant and the boat to be ready for '21. So we will not touch that. We are left remaining with EUR 130 million of, I would say, maintenance and other CapEx. We are focusing extremely granularly in detail to reduce that number for the year 2020 to basically, obviously, preserve our liquidity. Our objective is at least to cut this number in half and potentially more.
Regarding B&T, Jean-Francois, so yes, we mentioned that its growth could be at the end of the year between minus 10% to minus 15%. Of course, we will adjust the numbers in the coming months. We are extremely vigilant as well on the communication of some of our customers regarding their vision because really, country by country, the situation is different. And you have to cut Building & Territories into 2. And for us, it's 50-50, 50% our sales on Building, 50% on utilities. And we said they have different dynamics.Once again, there is some countries with a very, very strong hit, which is France, where we are present. Italy, extremely hit, but we have a very small presence; on Spain, a huge hit, but we are not there. And in opposite, we have Sweden, which is extremely dynamic and Norway as well extremely dynamic. So China as well at full speed. So still, it's still difficult to predict what will be the end of the year, what will be the impact of the second wave of pandemia. But this is for the moment what we have.
We have another question, sir, and this comes from the line of Andrea.
It's Andrea Scatozza from Goldman Sachs. The first one is on the German corridors commentary. I understand your clarity in the studying. But I was wondering, where do you stand with regards to the [ A North ] project? And how do the underlying terms and conditions start there?
Yes. So there is still the discussion happening for the A corridor. But once again, we are discussing terms and conditions. We are discussing the technology because, of course, the cable could be the same, but the tension could be a bit different with lower risk. So this is what we are studying for the moment. And of course, there will be the profitability. So the current discussion are still ongoing.
Okay. And a follow-up one on the government loan currently from France. Could that potentially affect your capability to repay the dividend going forward? Or more in general, is there any program on governments which carry strictly this option in the future?
So we are still in discussing with the banks to finalize the term sheet, so that's one aspect of discussion. However, I mean, what is important, I mean, we see at Nexans that being a short-term need. Again, we have the liquidity and the balance sheet. We don't -- we're taking that additional, I would say, loan to preserve ourselves in case there is a much worsening of the crisis in the future. But again, we have a quite strong balance sheet as it is today. We are, therefore, planning on basically paying back the loan within 12 months. So for us, it's not a question of, I would say, take that loan and use it as a long-term financing. So the question of the dividend definitely for us will not happen next year.
Okay. And another one, if I may, on the land high-voltage comment on the market opportunities. Given the tendering award of this week, it seems that some player for those projects employed an XLPE 525 kV technology, and other player appeal other technology. I was wondering where do you stand from a technological standpoint in that regard. And how do these different technologies affect the product proposition in the tendering activity? And most importantly, how do you think about the next 5 years from a technological standpoint in this space?
Well, thank you for this last question. Ragnhild, maybe you can explain the -- how the technology are evolving and as well maybe the thing between subsidy and land business together?
Yes. So first, I would like to mention that Nexans, of course, is -- have a strong R&D program, where we both work on improving current technology as well as looking forward to enhance new technologies. So this is in our backbone, and I think it must be. When it comes to technologies for XLPE DC, again, as Chris mentioned in the beginning of the call, we were the first one actually doing the 525 AC extruded feature test. So as such, you see that Nexans is there on this technology. When it comes to risk and maturity, today for long interlink projects, we still believe that the paper cable solutions that we have for NSL, for Nordlink, for the Cape Africa, for these big projects, we feel that those are the ones that are still mature for the subsea part. Going forward, the years to come, of course, this will change or could change. So that we will have both this technology and also the type of extruded technologies like, for example, XLPE or P-laser. But again, we're working on both of these or different solutions for the future. So for a project to come, it's more maturity and where we are for testing and together with the total risk assessment that we make.
Yes. Yes, exactly, Ragnhild. And what we want to say is that it's not a question only on -- you cannot take things in silos. It's not only technology on one side, profitability on the others and terms and conditions. It's the combination of everything together on the scale of each project. So before I was nominated, there was a lot of decision that has been taken by feeling, by the few data analysis, with no model, with just by experience, and there was great decision in the past. But now we put everything in the model. We have a scoring system for each project to come on all the aspects and all -- combining all the elements that we mentioned. And this is the way we make our decision. I hope it answer your question.
This is the last question, and it comes from the line of Akash Gupta.
I have a follow-up question on earlier question regarding fixed-cost savings in 2020. So if I look at the press release, you talk about accelerating savings from 2019 and 2021 plan. Maybe if you can talk about how should we expect about these fixed-cost savings or pacing of fixed-cost savings between 2020 and 2021? And is there any room to bring forward some of the savings that you were originally expecting in 2021?
Yes. Sure, Akash. Thank you. So as I mentioned before, so we have EUR 210 million objective for the 3 years of equity story. We achieved the first 1/3 of that in last year. We were targeting an equivalent amount for 2020 and the third part of that again in next year. We will see definitely an increase of the fixed-cost reduction this year for the reason I mentioned before. Some of them are going to be, I would say, a one-off reduction due to the fact, for instance, if I take the traveling cost. Some of them are going to be deeper recurrent reduction. So you will see them in this year, and you will -- they will also increase the number of fixed cost basically in this next year. So there will be -- this crisis will be taken from Nexans as a good reason to basically review completely our fixed cost even deeper and go beyond in '20 and '21 the level that we originally targeted in the equity story. Now again, it's too premature for me to tell you what will be the new fixed-cost target from '20 and '21. But we will, for sure, come back and give you that information very shortly. Thank you, Akash. Thank you, everyone, for your participation. Let me thank warmly all our team around the world. We are very proud of their daily engagement. This crisis reinforce our future values. Let me thank as well our shareholder for their trust and support. You can count on me, count on all the management teams of Nexans to make Nexans a successful company without taking abnormal risk. Thank you, and have a great day.
Thank you. That concludes our conference for today. Thank you all for participating. You may now disconnect.