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Ladies and gentlemen, thank you for standing by, and welcome to the Nexans 2020 Third Quarter Financial Information Conference call. [Operator Instructions] I must advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker today, Mr. Christopher Guérin. Please go ahead, sir.
Yes. Thank you. Good morning, ladies and gentlemen, and thank you for participating to this Nexans conference call. I hope all your families and you are keeping well and keeping safe in this very turbulent times. I'm Christopher Guérin, CEO of Nexans. With me, Jean-Christophe Juillard, Group CFO; Aurélia Baudey-Vignaud, Head of Investor Relations. We are calling you indirect from our Paris headquarters.I will turn over to Aurélia for 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 third quarter 2020 highlights.
Thank you, Aurélia. So before we go through the highlight of the quarter, let me remind that our commitment to the health, safety, well-being of our employees underline every facet of our operation. So regardless of the depths of duration of this pandemic on COVID-19, we are doing everything in our power to make the company even stronger than before and preparing as well a very exciting next step that we will provide on all our stakeholders on the 17th of February 2021 during our Capital Market Day session.So I propose you to turn onto Page 3, that we go through the highlights. So regarding our quarterly results, standard sales report at EUR 1.4 billion in the third quarter 2020, so representing an organic growth of 5.6% against the second quarter and a minus 9.8% year-on-year. So we may notice a very solid rebound in cable business and a different phasing from July to September. But all business are improving in different paths and speed with one exception that we all understand, which is the aerospace business.We may notice as well a very strong rebound in harnesses. We have had a record of invoice in September, an historical record, and a very sound project execution in high voltage. I may -- I'm sure I will have a lot of questions regarding the decline of high voltage during this quarter. Let me remind you, this is a pure project phasing. Everything is going well in terms of execution. And our sales on the 9 months perspective for high voltage reflects a 5% organic growth.We may say as well that the Transformation Plan has been reinforced, and this is, for us, twofold. First is the cost reduction on one side. We keep reducing our costs everywhere in all areas, in all functions, since the beginning of the year. And we can claim as well a very strong improvement on variable costs, thanks to the action from our purchasing team worldwide.But we need as well to acknowledge that our SHIFT program focus on energy resources and capacity, specifically dedicated to the good core result, the good part of our portfolio has been reinforced everywhere. We know that some analysts may see our sales a bit lower than expected. But once again, I'd like to repeat that since my nomination, we are driven by smart growth. So we are willing to improve the growth of each business, but in terms of financial ratio, mainly, so that's selectivity on our business, may generate decision to cap the growth in some areas because of potential issue of overdues or because of low margin and as well some business or some customers may be dilutive in terms of cash conversion. So this selectivity process, through the SHIFT program, has been reinforced and as well amplify everywhere in all the businesses.We may notice as well a very healthy backlog, 17% year-on-year. All business backlog are growing and growing with this good selectivity, this good cholesterol. We have to say as well that we have a record of tendering activity in the subsea area, which is, for us, of course, an upstream signal of strong awards sequence in 2021, specifically in the wind offshore business on interconnection business. Once again, the medium-term and long-term catalysts are extremely good for those two business.I will let J-C detail our guidance, but our EBITDA range have been narrowed. ROCE has been upgraded, and the substantial free cash flow generation is confirmed. I will let J-C detail as well all the overall situation business by business. But before that, some key events during the quarter.Our investment with Aurora is well on track. And this new and leading-edge vessel will be delivered at the end of May 2021 and is already fully booked on July, starting July 2021. We may as well confirm the complete sales of our German metallurgy business to Mutares. That has been closed on October 31. We may announce as well -- we announced already the complete sales of Berk-Tek to Leviton on September 30. And I'm sure you've seen our commitment for carbon neutrality by 2030.Now J-C, I'll let you comment in more details the activities.
Yes. So thank you, Chris. Page 4 of the presentation. So you have the global view of our Q3 2020 sales performance. So we reported a Q3 organic growth of minus 9.8% quarter-on-quarter for the group, but with very, as you know, different trends and mix by business that we will detail in the coming slides.When comparing Q3 2020 sales versus Q2 sales, we see globally an organic growth of plus 5.6% for the group, mainly driven by a solid recovery in the cable business of plus 9.1%. When looking by region on this slide, we can see that all areas have been impacted with negative organic growth Q3 year-on-year, with worst impact in Europe, Asia Pacific and, for a lesser extent, in the Middle East and Africa. However, when focusing on organic growth between Q2 and Q3 2020, we see that regions like South America and North America, in those regions, sales recovered sharply after the lockdowns. In South America, the rebound was close to 50% and came close to the level of Q3 2019.The recovery of the construction market was strong in Peru, Chile, Brazil and Colombia. In North America, sales were quite resilient, supported by growth in the utility market in Canada, partially offset by a tougher market in the U.S., mainly in mining and oil and gas.
Yes. If we move to Page 5 regarding Building & Territories. Overall, resilient sales in spite of challenging environment. Once again, 2 sectors with 2 different evolutions, territories, utilities. It's a resilient activity supported by the necessity to renew the obsolete, sorry, grids, notably in Europe and in U.S., and as well supported by government subsidies.Regarding the building, the construction market, we have, of course, faced a very strong slowdown in demand until the end of May, a pretty sound recovery all along Q3. In terms of organic growth in Q3, we have a very strong September months, much stronger than July and August because lockdown measure has been gradually lift across more geography, enabling construction project to restart.During the Q3, we keep, of course, the -- you can see on the chart on the right page the evolution of each country. France, Canada, very, very strong. Peru specifically strong, thanks to the lift of the lockdown in September like Brazil, China, extremely strong. A bit below is Australia because of lockdown measure during the period on Nordic because of a pretty weak July, but September is back on track.So we mentioned as well, we give you an additional information even if the backlog specifically in construction has a pretty low depth. But in terms of organic evolutions on the backlog from September '19 to '20, we have received a pretty strong order intake, which generated plus 4% on backlog year-on-year.If we move to Industry & Solutions, you want to take it?
Yes. So on the next page, on Industry & Solutions on Page 6 of the presentation, you see globally, the COVID pandemic has had quite strong negative impact in this business with a 13.6% negative organic growth between Q3 '20 and Q3 '19; and minus 15.9% when comparing 9 months '20 and 9 months '19. However, Industry & Solutions is made of multiple subsegment of activities with quite different trends.Here, I will detail a little bit of the key evolutions. First, if we look at Automotive Harnesses, it represents roughly EUR 120 million of sales in Q3, which represents about 40% of the total Industry & Solutions sales. After a sharp decline at the start of the COVID in March and April of this year of roughly about 40% versus last year, it recovered very strongly in June. The sharp recovery continued over the summer, with plus 93% of sales increase between Q2 and Q3.And finally, the Q3 sales. We are back to the level of Q3 2019. So a very, very, I would say, more-than-expected recovery of that business starting really in June, July and August of this year. Overall, on the 9 months period, harnesses sales decreased organically by 17% but again mainly due to the sharp downfall of April and May.Then most of impacted segment of Industry & Solutions in Q3 remain the Aerospace & Defense, as Chris mentioned at the beginning, with a negative 50% organic growth quarter-on-quarter and minus 39% on a 9-month year-on-year, mainly coming obviously from our main supplier shutdown and delays on backlog, which is Airbus. On a positive note, supported by growing orders from the main OEMs, sales of cable for wind turbine increased by 7.4% between Q3 '19 and Q3 '20 and by plus 17% on a 9-month basis.
Yes. Look, we may had, J-C, as well some important information. We are #1 position in most of all the renewable actors on the wind onshore, namely Siemens Gamesa, Vestas and Nordex. We have signed a multiyear contract with Alstom and Bombardier of more than 3 years. And we -- as you know, they have a very, very strong backlog. So we are in #1 position there.And of course, as we told you, harnesses has a very strong rebound. So harnesses' strong rebound linked to demand but as well linked to the dynamic of hybrid vehicle that generated an improved mix in terms of harnesses product in the cars because it requires both the harnesses for combustions and for the electric part. So harnesses, a very, very well oriented.Now let's go to the telecom on Page 7. So of course, the telecom, it's a -- I know we have a lot of questions in this -- in that business. So I remind you that on the LAN cable part, the copper telecom part, we have divested, sorry, Berk-Tek to Leviton. But it's still, of course, in our results in Q3 because the closing had been done at the end of September. We can see that the sales have improved during the quarter versus Q2, plus 8%. Strong dynamic, mainly in Europe and Middle East and China; a pretty slow dynamic in North America. But Berk-Tek, starting Q4, will not be reported in our sales anymore.Regarding the Telecom Infrastructure, so nothing has changed structurally since Q2. And I think this is certainly the sectors which has generated the most of [ ROI ] because we're still running with a very, very low demand in terms of fiber-to-the-home deployment, because customers prefer to connect consumer with the [ last-minute ] demand rather than keep deploying the complete backbone. So there is a very, very weak demand.The inventory on the supply chains on fiber optic is still very high and decreasing slowly because of the weak demand. And as well, we still have a lot of inventory with the [ old ] fiber price, I mean, raw material, so we are not yet able to get the full benefit of what I told you in Q2 in terms of strong price reductions of the fiber optic raw material. But it will come because it's already signed. It's just a question of inventory phasing.What is important to say in that telecom business is that we put a very strong energy on -- to compensate this very weak demand on fiber optic on the subsea telecom. And subsea telecom is fully loaded. We are now having a backlog above 40%, and this backlog in subsea will even get reinforced because we will announce in the coming weeks certainly a big, big awards that will reinforce our medium-term perspective for the special subsea telecom. So you can see already, September to September, that at this date, our backlog is at plus 18%. But this number will keep growing in spite of this Telecom Infrastructure's sluggish environment. It will keep growing, thanks to subsea telecom.High voltage.
High voltage, which is a very important part of, obviously, our profit generation on Page 8 of the presentation. So first message is High Voltage & Projects business is on track in 2020. Flawless execution and no impact and delays from the COVID-19 pandemic, especially when you compare to the other cable. When we look at the Q3 '20 sales for the business, we see a negative 19.5% organic growth versus Q3 2019. But this is explained only, and I want to insist on only, by a pure phasing difference of the project and also by a different mix between manufacturing and installation.This is illustrated on the graph at the bottom left of the slide, where you can see the sales by quarter for '19 and '20. You see a low Q1 and a high Q3 '19, where 2020 is much more balanced over the quarter. But overall, when comparing 9 months '19 and 9 months '20, the organic growth is plus 5%. At the same time, the backlog for High Voltage & Projects grew 26% between September '19 and September '20, thanks to the high tendering activities for subsea interconnection and wind offshore, about EUR 5 billion pipeline being addressed. The record level backlog in subsea gives Nexans visibility on the field capacity until 2022. Sales in subsea grew 1.1% in Q3 versus same quarter of last year.A word on Land High-Voltage, where sales grew 20% quarter-on-quarter with a -- thanks to the 2019 restructuring and the operational improvement of the manufacturing line in Charleroi. So not getting into too much detail because you have a lot of information on that slide about high voltage. What I can confirm is for the year 2020, high voltage will be at the -- and on track with our expectation. It will be at the same level of 2019. And in terms of margin, I confirm that there is going to be as well no surprises.
We may add, J-C, that it was not as smooth all the times because of COVID that generate -- to overcome some execution challenge, but all the teams have made a fantastic work. We are efficiently timely delivering our project on time. So no issue to report on the execution part.Regarding the tendering activity, as I said in introduction, a huge tendering activity in interconnection and wind offshore. And we get benefit as well to have a lot of demand in U.S., thanks to our new installation in Charleston. But once again, it's not just a question of a pure award and a great organic growth, a great backlog. Nexans is -- systematically applies its risk reward modelization, which is, once again, I repeat, combined of 3 fundamental dimension.First, we make sure that we are not taking orders that are not accretive, both in terms of margin and in terms of cash conversions. We don't take orders that may generate a technological risk because we know that a risk in that sectors can have a domino effect for more than 2 years. And we don't as well expose the companies with terms and conditions that we consider, I would say, abnormal. So more important for us is we want to guarantee a very healthy and balanced backlog, both in terms of technological risk, financial output and the terms and conditions that are applied into it.J-C, guidance here.
I will now -- yes. Now I will move to Page 9 of the presentation and talk a bit about our guidance and say that thanks to a strong focus on execution, continuous cost reduction and a tight monitoring of our working capital, we are quite happy to confirm or improve the guidance given last July. More specifically, EBITDA, the guidance is confirmed, and the range is narrowed from EUR 310 million and -- to EUR 370 million as announced in July to EUR 320 million to EUR 360 million for 2020. The guidance for return on capital employed is upgraded from the previous range of 7% to 10% to a new range to 8% to 10%.And finally, we announced last July that despite the high strategic CapEx and the restructuring cash outflows from the 2019 restructuring plan, free cash flow generation for 2020 would be positive, thanks to the significant reduction in working capital in the first semester. We can now confirm that the free cash flow for 2020 will be in the range between plus EUR 50 million to plus EUR 100 million, pre-M&A and dividend, or if you include basically the sale of Berk-Tek that was closed in September between EUR 200 million to EUR 250 million.Would you do the conclusion, please?
Yes. But what can we say? But regardless of long and what shape the recovery will take, if you remind that in March, we told you that we would like to see a weaker recovery, but we believe that we're more a W-type shape because of the sanitary evolutions through different pandemic waves.So Nexans is effectively safeguarding its financial strengths, like J-C mentioned, and even improving it. Our growth drivers are intact, and our transformation is robust. All our units are fully operational despite lockdowns in -- new lockdowns in countries, and as you can see, to support a very solid backlog across all business. We are very confident to -- regarding the -- in regards to our execution, our market leadership. This will position us to emerge from the current global uncertainty even stronger than ever.And we have 2 events that are confirmed now in our agenda: a Nexans ESG event that we be held virtual on November 18, 2020; the full year, of course, event presentations in 17th -- on the 17th of February as well our Investor Day. So those events, depending of the pandemic, will be live with people in the room or virtual if we are not able to do so.Thank you for your attention. Now let's now turn to the questions.
[Operator Instructions] Our first question comes from the line of Max Yates from Crédit Suisse.
So just my first question is on, how we should think about the High Voltage & Projects business into 2021? And how much the U.S. plant will be contributing to 2021 in terms of revenues? And is it reasonable to assume that we get in 2021 a very sort of healthy year of double-digit organic growth based on the backlog? That's my first question.
Thank you, Max, for asking. So 2021, when it comes to high voltage with the backlog we have is going to be fully filled in terms of revenue capacity, both in our main plant in Halden as well as in Charleston. Next year, we will be in the complete production in Charleston of our securing contract. I remind you that the capacity of Charleston, when it's fully in production, is about EUR 150 million of sales per year.On top of that, obviously, we will add installation of the cable produced. And the plant will be completely, I would say, fully, over 12 months, under production. Whereas this year compared to 2020, we only started after the completion of the CapEx, I would say, in the transformation of the plant. We only started the production in mid-year. So definitely, you will have the 6 months, I would say, added sales due to the 12 months of production next year.When we look at the backlog, it's a very healthy backlog, and we have visibility for subsea until 2022 with the project. There will be, as I mentioned, higher installation in 2021 than in 2020. We had higher installation in '19. We had -- and I communicated about that at the beginning of the year, slightly less installation in 2020. But then, since it's a question of phasing, obviously, the cable produced needs to be installed, and they will be likely -- they will be installed in '21. So they will be on top of the Charleston timing 6 months versus 12 months. Also, I would say, growth in terms of installation.And in terms of margin, with the additional installation, margin will be higher than 2020, likely at the level of '19.
Okay. That's very helpful. And just my second question was on the cost reduction program. And so I think we did sort of EUR 49 million in the first half. And I think it implied versus the EUR 210 million target that there was about EUR 86 million still to come. Could we get a rough idea of how you're thinking about that EUR 86 million within the EBITDA guidance for this year? I just want to understand kind of realistically, how much is left of this on 2021 and whether, in fact, actually kind of trying to make the company better in obviously difficult times. You've actually found some additional cost savings on top of the EUR 210 million to do. That's my second question.
Yes, sure. So definitely, with COVID, we took the opportunity, if I may so, unfortunately, of the situation, to accelerate our cost reduction in 2019, and that's -- '20, sorry, and that's what we communicated in our H1 result with a higher number, I would say, than the midpoint of the EUR 75 million that we addressed in our equity story.Basically, EUR 210 million is roughly EUR 70 million to EUR 75 million per year in our equity story over the 3 years of the equity story. We did better in the first half due to the acceleration of the cost-cutting with the COVID and the fact that, basically, we had opportunities to go further into our analysis and reduce even further and faster, I would say, some cost in the organization in the plant.I would say that the -- some of the cost reduction in addition to the EUR 75 million and the EUR 210 million were onetime cost reduction due to COVID, like, for instance, all the traveling costs and some consulting costs. We are generating -- we have about a little bit more than EUR 1 million of traveling costs per year. Obviously, during the confinement, most of the company was not traveling, if not traveling at all. And therefore, you will have quite significant savings on that line for 2020.If the business restarts normally in '21, then obviously, these savings will not rehappen the second time in 2021. However, there are also part of the cost reduction, which are permanent and recurring cost reduction, probably in the range of about EUR 20 million. So at the end of the day, we will do better in 2020 and will be in the line of what we did in the first half of 2020.And I would say that for next year, we will, overall, be above the EUR 210 million that we communicated at the beginning of the equity story, thanks to the recurring impact of the COVID cost-cutting action we've taken in 2020.
And maybe just one final very quick clarification. So when you said on High Voltage & Projects that you thought margins would be back in line with 2019 levels, was that talking about just the subsea business? Or was that talking about the whole high voltage division? Because I would have assumed that if we're looking at the whole high voltage division, you would have a benefit from the Land High-Voltage activities being less loss-making because of the activities, because of the restructuring that you've done there. So just maybe a quick clarification around that.
Yes, definitely. Definitely, Overall, there will be, I would say, a healthy improvement of the margin for the entire High Voltage & Projects business for the twofold. I mean, there will be a better -- a slightly better subsea due to more installation, as I mentioned before; and also, there will be continuous ramp-up on the land part of the business with the, I mean, the, I would say, continuous improvement versus the restructuring we did in 2019.So overall, altogether, the 2 will contribute. And there will be an improvement on the gross margin of the business, high voltage business, quite [ significant ]. Decent improvement of...
He's scared to say significant because he doesn't know what you will put in your report. But for sure, Max, if I may add to J-C, there will be a double-digit incremental improvement on the gross margin for high voltage overall next year.
Your next question comes from the line of Sean McLoughlin from HSBC.
Firstly, on the EUR 5 billion pipeline in subsea. I'm just interested, we've obviously had a good, I suppose, last 12 months in terms of overall order intake. Some of your competitors now have kind of multiyear visibility. I'm just wondering how the actual bidding is structured for these projects. I mean, is this effectively a seller's market? Is there limited capacity for high-voltage cables? And how is this affecting pricing and your approach to bidding in these projects?
Sean, it's a very complex questions, but let me get you back on the pricing. We know that we heard from our competitors that there is a pretty intense competition. There is intense competition in all markets, by the way. But the competition cannot be in high voltage like the one we have in telecom business, for example, because we have a much lower number of players in the high voltage business.The way I see it is that when I see the pipeline, we're talking about EUR 5 billion to come, when I see the amplification of demands on wind offshore, and of course, the COVID have certainly amplified the willingness of countries to improve their road map to carbon neutrality. So it will be, I think, surprisingly strange to believe that there will no lack of capacity in the coming 5 years to come. It will come. And we see already some customers reacting on the bidding process, some customers asking if they can improve the pipelines and specifically the slots because they are scared of a potential shortage of the sectors on the cable side. Because you have a convergence of lines of productions for some actors when you are doing German links, that can as well jeopardize your capacity for wind offshore. This is not true for all competitors but that in one of them. And that's putting another pressure on the capacity.So I am pretty confident. I think there is no reason in the sectors to strongly decrease the price because there is room for everyone and to be even more selective on our side to make sure that we are not playing short term but, every year, keep improving our gross margin and EBITDA ratio in the subsea business. So that's -- once again, this is the reason that we have reinforced the modelization process, that combined the financials, the technologicals and terms and conditions, I will say, ratios. And we are still very, very confident to have a great award next year at great margin.So I'm extremely positive. Once again, our backlog is full in 2021. So we are not in a race to improve and to get award for 2021. The year is done for us. Here, we are fighting for mid-2022 and 2023 backlog. So pretty robust on our side.
And the second question, just on portfolio. I mean, with NMD, how far would you say that you are in your thoughts on overall portfolio adjustments?
In R&D?
No, with the Nexans Metallurgie Deutschland, i.e. further sales in terms of businesses that you might wish to divest.
For the divestment, sorry, I didn't get it, Sean. that would be part of the Investor Day. I think if I may give a color of our Investor Day is the time of choice, means a lot of this topic will be addressed during this Investor Day, how Nexans will rotate this portfolio to different sectors. So that will require some divestments in the future, but we need as well to enter in the sequence of M&A because I don't want Nexans to divide by 2 its revenue. So it's a question of the right sequence and equilibrium between divestments and M&A. So we have done some 2 major actions on divestments. I mean, it will be certainly time now for M&A or acquisition.
Your next question comes from the line of David Barker from Bank of America.
Just a couple of quick ones from me. Firstly, on telecom. I mean, we've been going through this period of high inventory level with customers and destocking for some time. From the sound of your prepared remarks, you expect this to continue for a little bit longer. Can you give any view on how you think this affects next year? I mean, do you expect Q1, Q2 to still be high level of inventory and destocking? And how should we think about growth in that part of business next year?And then my second question is really on October trends. And if you could give any insight, particularly in construction, we saw a big rebound in the third quarter, but some of this is obviously due to these delayed projects. So I wondered if you've seen any continuation or deterioration of that trend so far this quarter?
Thank you, David. So no -- yes, telecom, it's certainly, will improve. But it's -- telecom is not at all in a V-curve recovery like the other sectors. So we don't know. It will certainly not be an L-curve type recovery because the demand remained strong in near term. Each -- but it's certainly one of the sector which is strongly impacted by the COVID, but the lack of resource to install and deploy the fiber optic.And as well, we know we are talking about competition. We are facing a very strong competition coming from China. We need to remind that China has already deployed its fiber-to-the-home network everywhere in the country, above 90%, 9-0, 90% coverage now. So there is a huge capacity available, fiber optics and cables to be, I would say, send to Europe in the coming years.So yes, the demand will be stronger next year, no doubt. The question is at what value. Because, of course, as I told you, we are not vertically integrated, so we take the benefit of lower raw material price. But we have to pass through this benefit part, a major part of it to our customers because they see as well this benefit to come. So yes, the sales will be higher next year, no doubt. The question is when. I don't see a recovery in Q1. I see a recovery more in starting the second quarter for the telecom. And we will see how the price will evolve. But Chinese are extremely present in that sector right now, and that remains a worry. But once again, our exposure in telecom market specifically for fiber optic and fiber-to-the-home is about EUR 200 million sales on the total of EUR 6 billion revenue. So it's not the strongest exposure that we have.David, if I go back regarding the construction market Q3 dynamic. And we have seen as well the result of our colleagues from Schneider and from Legrand. I think I will listen what they have said or what they will say, but we are in a catch-up mode in many areas because of a very strong confinement and lockdown in some countries. So we are in catch-up mode. We still do not see a real benefit of economic rebound, thanks to countries' plan. But what I can say, David, is that compared to 2 months ago, when I talk to customer CEOs, they are much more positive than a few weeks ago. So I'm not sure there will be a big impact in Q4 because the order of new projects are not yet there. But I'm pretty positive on Q1.
Your next question comes from the line of Akash Gupta from JPMorgan.
My first question is that if you can quantify impact on top line in Q3 from being selective. So basically, what I'm after is how much of sales decline year-on-year in organic term was driven by being selective and that may not be recovered next year. So that's question number one.
And question number two?
And question number two is on -- can you give us a flavor of what shall we expect for the upcoming CMD in February? Obviously, COVID was a major factor behind you pushing it by 3 months. But I'm also wondering if internally, you needed more time to bring certain changes. Also, you are talking about some M&A, so maybe that could be a factor. So if you can comment on that, please.
Okay. So I will comment only question number one. No, I'm joking, Akash. So yes, a really good observation, Akash, regarding -- it's a good question regarding the organic growth effect due to selectivity. We are not monitoring day by day, this selectivity effect. But what we can say, overall, we have been extremely, I will say, aggressive on capping growth in some areas.I will give you some example. Brazil, Morocco, Middle East, why there? Because we are always facing longer payment terms. We have a higher risk of overdues. So in those countries that they love to be in, for example, Morocco to be in a range of organic growth of 5% to 8% year-on-year, we kept them at 2.2% because we don't want them to take any risk to announce a fantastic organic growth, but -- and it depends on the impact -- with a very negative impact on the cash conversion.So once again, all our units everywhere in the world, I monitor on the cash conversion perspective. So they are not pushed on their organic growth. They are pushed on the cash conversion perspective. So they have to reach their EBITDA targets but without destroying the cash conversion cycle. So that's the first thing. How much this impact in terms of organic growth? Difficult to say, but I will say between 2 to 3 points.We have to mention as well that we have closed 1 unit in U.S. We love U.S. market, but this unit was really underperforming, with a very high working capital, very low margin and very high fixed cost. It's a plant in Chester. This plant, we have decided to close it during the quarter, and that's impact for another 1 point of organic growth for the quarter. So yes, of course, our organic growth could be much better if we will be less selective on the customers' portfolio and as well, if we will not have closed 1 plant. But that's not our trigger. Our trigger was to improve the free cash flow.Regarding the second question, so it's very difficult for me to answer because I don't want to disregard anything regarding what we will say in the Investor Day. You may have some rumors of when you postpone such events like that, that there could be an issue with the Board of Directors. There is no issue at all with the Board of Directors. On the ESG event, [indiscernible] will be our [indiscernible]. Shareholders will do an intervention. He will speak in the name of [indiscernible] about what he thinks about Nexans and its strategy. And you will see there is no issue on that side, neither on the BPI side. So very, very strong alignment, very, very strong alignment with the Board of Directors.We just -- we are not Siemens. We are not Schneider in terms of size. So we try to have the best moment to do this Investor Day because it's every 2 years or every 3 years, so it's an important moment for Nexans. And if you remind in 2017, Nexans really failed in communicating its path for growth Investor Day. So we don't want to repeat this bad event. We don't want to, I will say -- and surprise people. But everything will be on rotating portfolio of the company. Everything will be on innovations, and everything we will announce will be entirely embedded with the megatrends that we see in terms of energy transition and energy efficiency. So are we doing any M&A right now, question mark? I don't answer, Akash.
And maybe a follow-up on M&A. I mean, can you tell us how much acquisition firepower you have given you have also done some recent divestments? And also in order for you to buy any company, do you need to repay some of the federal loans that you have taken? Or I don't know whether you have only bonding lines in place. But just wondering whether you need to like forgo those bonding lines or credit lines you had from state-backed in order for you to acquire companies.
Yes, sure. So in terms of, I would say, acquisition power, we have, to date, I mean, is pretty high liquidity at the end of September, is in excess of EUR 1.6 billion. So I mean, definitely, we have a lot of room here to size and take action if we see an attractive transaction coming up. On top of that, we have a quite low leverage, as you know. Leverage is below 1x EBITDA. So that also gives us more flexibility here to leverage a little bit further if sizable acquisition would come through. So really, in terms of capital structure and balance sheet, we have the space, I would say, and the power to grow the company and do the right M&A.In terms of loans, bonds and so on, the first repayment, I would say, we have 2 repayments scheduled in 2021, both of them about the same time. The first one is EUR 275 million bond maturing April or May of 2021. And the second one is the PGE, the prêt garanti par l'état, for EUR 280 million, which is also maturing at the end of May.Again, we have a lot of cash on the balance sheet. Depending on how we play the M&A option, we'll refinance that in due course. But we have a lot of cash on the balance sheet and space. So I mean, we're not worried at all about this.
Your next question comes from the line of James Taylor from Exane.
Mine is sort of a follow-up to Akash's question. So you mentioned that the current situation has led to greater selectivity in the portfolio. So maybe you're walking away from more sales than initially expected when your current plan was outlined. So to what extent do you think that some of their sales attrition could be temporary? Is there any clear opportunity to regain these sales as the customer situation improves and maybe this amplifies growth going into 2021?
It's a really good observation, James. That's -- this is exactly the -- our motivation. The -- our transformation program called SHIFT, because we want to reduce a part of our sales that we could consider -- we consider as bad cholesterol, bad fat, in order to shift it with good, good cholesterol. And what we see since in the last 6 months is that we are gaining market share. We are gaining market share on the good part of our portfolio with -- through the strategic customers that are considered platinum and gold for our business.So you are perfectly right, James, will be -- come the time of growth. But this growth, we know, because of a very granular way of analyzing this portfolio quality, this growth will be smart. Smart in way that it will be accretive for our EBITDA. It will be as well perfectly aligned with our cash conversion cycles. And as well, that means it will be customers that will be seek for innovations on new solution and service. So that help us as well to improve our quest for more value in the coming future.So also again, the transformation program at -- during the first 2 years is that you may prune a part of your portfolio before reason of selectivity, but after will come the time of amplification on the time of growth. That's clearly the motivation of our transformation program.
Your next question comes from the line of Benjamin Terdjman from Kepler Cheuvreux.
I would just have 2. The first one is on your guidance of free cash flow. That is now more, let's say, more positive. So I was wondering if you could detail what is behind your improved confidence to that matter.And the second one is on your EBITDA guidance. If we could have some granularity by segment, and if there is -- there should be any difference between H1 and H2, and if you see any activities where you see more self-help than others. Yes, what's your view on that?
Yes. So I will take the first question.
Can you take the second as well? I'm joking. I'm joking.
About free cash flow guidance. So definitely, you've seen when we presented our H1 result that we really took advantage of the COVID situation to put a very, very strong focus across the entire organization in cash conversion in our business.The level of working capital for the group and most of the businesses were at a level that for historical reasons and for a long period of time, above 12% on sales, which for our business, on average, it was way too high, about 5 points too high versus our main competitor and versus what our business is, if well-managed should be. So we put a lot of emphasis on that, I would say, in the second quarter of this year.We communicated a very strong improvement in cash generation in the first half, which was quite significant by bringing that percentage from 12% to about 7% and slightly below 7%. So a onetime very significant cash, I would say, inflow in the first half, that for the first time, Nexans was able to communicate our first half cash flow positive; where typically, if you look at the Nexans over the past 5, 10 years, the first 6 months of the year are quite negative, and then there is a recovery in the second part of the year. So this time, we really kill that negative cycle, I would say, and we generated that cash.Obviously, what we've done on the first half is a onetime impact, meaning that now we are at a sustainable level. We are running at 6.9% to 7% of working capital and sales. And our plan is obviously to maintain that through this part of the second part of the year and to the next part of the year.So the big question, when we said positive cash flow in July was to -- we were quite confident that we were -- thanks to this improvement in working capital in the first half, we are able to generate positive cash flow. Because I remind you at the beginning of the year, before all the COVID impact and so on, the cash flow for the year for Nexans was quite negative before the working capital improvement. We had a very unique year, I would say, where you have the cumulation effect of very high CapEx due to subsea, the strategic CapEx of subsea, which is about EUR 150 million by themselves this year. And then you had all the outflows of the restructuring plan that was announced in 2019, which was about EUR 180 million.So those 2, I would say, exceptional event in the life of the company were really coming hitting 2020 cash flow. So when we announced in February our guidance for the year, we said last time, 2021 will be back to a normalized cash flow. But 2020, we will still have those 2 elements that will really drastically impact cash flow, and we will be about EUR 150 million negative cash flow for the year.Then COVID happened. All the measures we've taken on working cap I mentioned, we were able really, onetime, to generate a lot of cash flow by rationalizing our stock inventory on all our planned conversion cycle, plant by plant at all level of the company, bringing a lot of cash flow to get to that level of the first half. And the question in July was are we going to be able to sustain that number? And now we are in November, and I have to say that despite the recovery of Q3, we are able to maintain our low level of working capital on sales. And therefore, today, feel confident to announce that the cash flow for the year will be positive and will be quite strongly positive between EUR 50 million to EUR 100 million pre-M&A, again, despite the very high CapEx and cash restructuring.So I think, it's -- and now that we are, obviously, 9.5 months, 10 months into the year, I feel quite comfortable in our ability to achieve that, which was a little bit maybe too premature in July. This is why we said positive in July, and this is why now we can put a range and a number of this achievement.So I mean, this is basically the story of 2020 cash flow and why we are coming now with this number that we are quite confident that we will achieve.
And regarding the second question -- is that okay for that answer?
Yes. That's very clear. Yes.
And regarding the second question, Benjamin, is all our business is not reported again here, but it's reported always for half year results, are driven under 3 categories, whatever the business: profit driver, cash tanks, value burners. So profit drivers is all the business that is generating significant return on capital employed. So they are good in EBITDA ratio, and they are good in working capital ratio and sales. The cash tanks are the one that are good in terms of EBITDA ratio and accretive for the company but have an issue of working capital that may come from too high inventory or very long receivable. For example, the case of Morocco, that's the reason that we have decided to cap this business. On the value burners, it is what we call the bad student of the company, is the one that are dilutive in EBITDA and dilutive in terms of working capital. So each unit are classified around these 3 pillars, and each unit have, of course, different interests and different target.If we give a color of EBITDA ratio improvement business by business, I will let Vincent Dessale, COO of the company and in charge of the Building & Territories business in Europe and NAM, to maybe give more color for Europe and NAM. But what I can say is that in general, B&T have a pretty good resistance in terms of EBITDA year-over-year in spite of the pandemia because working on the fixed cost, we still have some improvement to do, but is still strong.Industry, of course, you have 2 business for us, which is industry, like aerospace, automation, mining, wind onshore, pretty okay resistant in spite of the dilutive volume effect of aerospace business, which is a good business for Nexans. On harnesses, it is as strong in fact because of very low H1, but on the course to recovery. T&D is the one that have twofold. Telecom Infrastructure is certainly the most impacted this year because of low demand, whereas subsea telecom is strongly improving and will keep improving over the year. On high voltage, I will not come back to it. We keep every -- improving every year in terms of pressure.Maybe, Vincent, do you want to color a bit more the Building & Territories business in Europe and NAM?
Yes, maybe the best way to illustrate what you said about value burners, transformation, unit or candidate and profit driver. What we have done in the NAM, North America. In North America, we -- in the building business, we have 2 units, one in Canada, one in U.S. And what we have done along the year for these 2 units is to go into details, customer by customer, product family per product family, we have looked to the performance of each unit, performance of each customer, performance of each product family in terms of EBITDA, in terms of cash conversion. And based on this, indeed, we have taken a certain number of decisions, which lead to consequences. Or let's say, to illustrate again the purpose, we have decided to close the factory of Chester because it was clearly dilutive for the company due to high inventory, due to the cash conversion, which was not good enough.And on the other end, in Canada, thanks to the work that we have done, we have now 94% of our sales done with strategic customers. And when you are able to do this type of transformation, first, you are moving from value burners to transformation candidate, from transformation candidate to profit driver. And as a consequence, the EBITDA is significantly moving up compared to last year. So this type of exercise that I'm illustrating with North America, this is what we are doing in all the group, in the different activities in the different business unit.So that's an example of the granularity that we can give in order to explain the work ongoing within all Nexans full transformation program and what we call the New Nexans.
Is that fine, Benjamin?
Yes. Yes, perfectly fine.
Your next question comes from the line of Jean-Francois Granjon from ODDO BHF.
Yes. Jean-Francois Granjon speaking from ODDO BHF. The first question concerns the second wave. Did you have integrate the impact of the second wave on your guidance forecast for this year? And what could be the impact for 2021?The second question concerns the Building & Territories business. Could you split the organic growth or decrease for the Q3 for first part, building; and second part, territories?My third question concerns the backlog. You gave us -- it was very interesting during the session, the backlog for each division. And we expect 4% growth for B&T, 18% for telecom and 26% for high voltage. So do you expect organic growth in 2021 for all the group?And last question regarding 2021. How do you -- how is your feeling currently for the business and profitability for 2021?
Wow. Good questions, Jean-Francois. So let me -- as usual. So let me answer regarding the second wave. We -- as we say in March, I think we were not -- many companies saying that, but we -- in our financial model, we have integrated 2 main economic criteria, the first -- economic event. The first was the impact, business by business, of the 2008 financial crisis to see the level of sort of stress test, the level of resilience of each business, where this is -- where we told you at that time that in 2009 to 2011, utilities business is much more resilient than building because building is extremely GDP driven. But of course, these sectors can be -- have benefit from recovery curve. But we have modelized this economic event with another event, which is in that case, sanitary, which is the pandemia of 1968. The pandemia of 1968 have suffered from 3 waves of contamination. And we have plugged that in our numbers to really understand what could be the behavior of the business because in the case in 1968, the second wave was 2 times, 3 times more important than the first wave. And unfortunately, I do believe this is the direction of the COVID-19 evolution. And we know that as well between each wave, because of contamination process and evolution through population, it takes approximately 20 weeks of impact between the peak of one wave to another.So it's extremely -- I think it's, right now, extremely difficult to predict what will be the start of next year 2021 for one obvious reason, Jean-Francois, is that Europe is now strongly impact on the second wave contamination. Whereas, for example, South America is starting its deconfinement, stopped the lockdown after the first wave. So each geography will have different exposure through this sanitary impact.In U.S., the first wave and the second wave didn't have any break because of the size of the countries and the way they have managed the crisis. So there is -- the 2 waves were merging together, so there is a nonstop contamination process in U.S. So we will -- in the coming weeks, we will improve our model to really see what -- now what is the impact per region.I think we will not see in the first -- and that, please take it carefully because this is just early interpretation. We cannot see a V-type recovery in H1. Could be in some area, could be in some countries, but not worldwide because of these evolutions of wave contamination that are not, I will say, synchronized, sorry, for the work, not synchronized in all areas. So we will keep informing you of our model. But I think it's very interesting where suddenly, you merge sanitary data with economic data. It's a very strong tool for us to anticipate what impact we may have in terms of cash conversion.Regarding B&T, J-C, you want to take it?
Yes. So yes, we can definitely share with you the split. So B&T total growth combined Building & Territories or utilities combined is minus 7.8% Q3 '20 versus '19. If you split between the 2, the building part is minus 12.8%; and the utilities part, which is much more resilient, is minus 4.9%.
There was the third question, which is the level of profitability for 2021, J-C, and so can you repeat that we have 1-year delay versus...
Yes. Basically, what we're assuming for 2021 is that we have no or very limited -- we have limited pandemic effect in 2021. And basically, what we assume is that our 2021, I would say, plan is to achieve what we are planning on doing in 2020. So we have a 1-year delay, I would say, in our plan of profitability and cash generation and so on between '20 and '21. The only business which is not impacted is high voltage, as we discussed in the top. So you will be slightly better than 2020 due to high voltage. The rest of the cable business, I would say, would be -- what we see is to be in '21 what we expected in 2020, pre-COVID.
On the model, our model show that H1 could be a bit lower than, for example, H1 2019 because of what I said before, due to the wave impact and H2 can be much stronger. So that's what the model say for the moment.
Of course, there is one different important. We sold some assets, as you know, in 2020, so I mean, as said, obviously, will not generate anything '21. So just to complete, if you compare 2020 to '21, you need to take that also into account.
Your last question comes from the line of Joffrey Meller from Societe Generale.
I only have one, it's on the High Voltage & Projects division. Considering Ørsted's comments on the earnings last week, I was wondering -- I mean, they've been basically commenting on the U.S. offshore wind farms being delayed further. I was wondering what was the impact on your framework agreement with them as you were initially expecting to deliver the first cables in 2022.
Thank you, Joffrey, and congratulations for the result of Societe Generale this morning and just in that. So regarding -- yes, we have listened the call of Ørsted. For us, at the present time, there's no impact because they want to keep the production slot that they awarded to us. So they say that could be delayed in terms of installation and assembling but not in terms of production, cable supply. So for us for the moment, there is no alert on that topic. But of course, we remain extremely vigilant.Thank you very much, everyone. Stay safe. We hope that the conditions everywhere in Europe and in the world will improve at least for greater Christmas on time with your families in the coming months. Take care, stay safe and speak to you next year. Thank you.
Ladies and gentlemen, that does conclude your conference for today. Thank you for participating. You may now all disconnect. Thanks.