Nexans S.A. (NEX) Earnings Call Transcript & Summary

Welcome to the Nexans Half year 2026 Earnings Call. [Operator Instructions] Now I will hand the conference over to the speakers. Julien Hueber, CEO; and Vincent Piquet, CFO. Please go ahead.

So good morning, everyone, and thank you for joining us today for Nexon's first half 2026 the call. I'm here today with Vincent Piquet, our CFO, and together, we will take you through our H1 2026 performance. As usual, our disclaimer noting that this presentation contains forward-looking statements subject to the usual risks and uncertainties. Slide 3. So let me how you for the key highlights of our first half 2026 performance. Nexans, there once again its strategy of profitable growth and further increase its exposure to the U.S. market. Starting with growth performance. Standard sales reached EUR 3.2 billion, up by 1.5% organically, driven by a strong electrification performance with organic growth up by 4.5% more than offsetting the expected decline in other activities linked to Metallurgy. The group delivered a solid adjusted EBITDA amounting by EUR 388 million representing a healthy margin of 11.9% of stoma sales, also even by our electrification business, which delivered a robust adjusted EBITDA margin of 13.2%. Let me highlight once again that this is a high level of margins supported by our positioning as a pure player electrification bearing fruits. On cash generation, our cash conversion ratio stood at 42.7%, underlying the quality of our earnings. Turning to capital efficiency. The group purchase stood at 15% in H1 2026. On electrification, ROCE was at 17.4%. The variation compared to last year was mainly explained by the goodwill edit through our recent acquisition, notably Republic Wire in the U.S. With the completion of the acquisition Republic Wire, Nexans further expand its North American footprint with no close to EUR 1 billion of current sales, and that is a platform to further continue the buy-and-build story in the U.S., but not only the U.S. as we also remain opportunistic in our M&A pipeline. We also recently completed the divestment of Autoelectric on July 3, marking the successful completion of our transformation into a fully fledged electricationer. Finally, and beyond our H1 2026 on operations, our transmission MeiLin will be loaded until mid-2028 with a project of interconnection in med that should start by the end of '26, reflecting sustained strong demand for cutting-edge high-voltage solutions levering our leading technological capabilities and engineering expertise. El -- our third cable investors successfully entered into operation starting, as you know, in June 2026, further strengthening our fully integrated installation capabilities. And I also would like to highlight, on Power Grid that we expect our capacity in Europe to increase by around 40% between 2025 and 2028. To answer a buoyant market where demand still maturely exceeds supply. These investments are part of our '28 guidance and since '24. And again, the amount of work to bid in Power Grid worldwide is massive. The significant extension of duration of frame agreements with our customer -- our platinum customer is the best illustration of this. Moving to next slide. So before we dive in our segment performance, I really wanted to insist on a structural transformation that is reshaping our industry on creating unprecedented opportunities. This slide can be why our pure-player model is so powerful. We are witnessing the emergence of a new market paradigm, fundamentally reshaping our industry. Our customers are rapidly changing the way they work. And this is opening the door to enter in new type of partnership, new channel to market on new business opportunities. This shift is particularly pronounced in fast-growing verticals such as data center, battery energy storage system and solar, where electrification needs are surging, and we are being close to the end customer is becoming a real competitive advantage. This is exactly why our pure player positioning Nexans, a preferred partner worldwide, thanks to our agility and strategy based on 3 pillars. First, innovation. Our R&D center on pastel is dedicated to addressing the critical needs of end users and decision makers directly giving us a tight line into how these faster markets are shaping the requirements on a designed solutions ahead of the curve rather than reacting to them. Second, industrial excellence. By mutualizing our industrial footprint across the group, we are structurally improving our time to market. And you know that this topic is important for me. And with our ongoing capacity expansion, we are positioning ourselves to capture a substantial share of demand growth. Third, M&A. We continue to consolidate our positioning across electrification and the momentum speaks for itself. Three acquisition in 12 months, we ramp up other capacity expansion. Remember, we explained that RCT has increasing capacity as well as republic wire. We intend to keep pursuing external growth with our disciplined approach to further strengthen our detection activities. Put together, these 3 pillars are precisely what allow us to address our customer critical needs for reliable, efficient and sustainable solutions. With a speed to market that is no essential winning contract in this new [indiscernible] this is a full strength of Nexans pure player model. Moving to Slide 7, our H1 summary. So let me break down '26 performance between electrification other activities. Electrification remains a clear engine of our performance in H1 with earnings growth of plus 4.5% in the upper range of our midterm guidance. The group adjusted EBITDA margin reached 11.9% of standard sales, flat versus 2025, margin per turns but slightly below compared to H1 '25. H1 2026 remained constrained by an adverse mix effect among the 3 segments of elevation with a strong performance of transmission, power transmissions, powered staying at a high level, while Power Connect still facing a mixed effect. Priority and other activities, mainly metallurgy. The segment witnessed a minus 15% organic decline. And as you know, this is due to a strong comparison basis in H1 '25 as customers brought forward copper orders that of type implementation in the U.S. Moving to the Slide 8. Let's walk through business by business and starting with Power Transmission, which delivered a strong improvement in adjusted EBITDA margin in H1 2026. I -- here also, I'm very happy to announce that our MI line will be loaded up to mid-2028 with a project in the Mediterranean sea. This project will start to contribute our performance by the end of this year. Store sales came in at EUR 777 million, up by 4%, which includes the growth of minus 0.1% organic growth as expected. As we are lapping an exception conversion base after 2 consecutive years of a strong momentum and the growth pattern is now starting its normalization throughout the year with comparison base that will become even higher in Q4, while margin improvements will continue their trajectory. Adjusted EBITDA reached EUR 107 million, up by a strong 21% year-on-year with a margin up almost 200 basis points to 13.7% of Sonat sales. This confirms our strong operating leverage and that we are firmly on track towards our high-teens margin trajectory by 2028. Our adjusted backlog stood at EUR 7.7 billion at the end of June, essentially flat versus December. The backlog remains subsidiary and give us good visibility to our activity all the way to 2028. And as you know, our line, in particular, being now loaded until mid-'28. Moving to Slide 9 on Nexans Selecta. As you know, our third cable laying vessel has successfully entered into operation in June this year 2026. ACRA brings a real step-up in capabilities with a free turntable to total [indiscernible] tonnes, which is up by 35% versus our oral vessels with the ability to lay up to 4 cable at the same time. Beyond the technical specification, what matters the most is what this vessel give us strategically, greater efficiency, lower energy consumption and overall addition agility. Indeed, going our own vessel means we control our execution capacity rather than depending on the charter market, which directly supports future profitable growth in power transmission. Moving to Slide 10. Let's move to Power Grid where Nexans continued to build on its strong positioning in the Bolon global market. First, the stat sales reached which is up by 3.7%, including a solid 4.9% of organic growth in the end of our midterm targets. This was supported by strong underlying trends on access was business that remains particularly dynamic, all this driven by robust customer demand for high value-added solution led to grid modernization on the ongoing expansion of power infrastructure. The adjusted EBITDA at EUR 108 million, with a high margin of 15.4% of standard sales. This level is fully in line with our expectation. It's worth recalling the structure and mix of this business. around 2/3 is underpinned by frame agreements and the remaining 1/3 by project activity. Given the timing and execution profile of this project, some quarter-to-quarter margin can vary simply by a mechanical consequence of that mix. Overall, buoyant demand combined by a strong positioning in high-value additions continue to support pricing power. We are also seeing strong momentum in North America in infrastructure projects on data center. And Nexans actively preparing to capture this business, and that has started in -- let me also touch briefly on inflation context. As we have explained before, we saw a slight effect in the early stage of the conflict, which was quite minimal and is not behind us or price are not fully indexed to the current price situation. And we passed inflation through to customers. So at this stage, we do not expect any further significant impact on the pass-through. That said, we remain cautious and continue to closely monitor the situation, both in the Middle East and at the macro level. And finally, A key point in that global demand is now significantly outpacing available industry capacity, which is why we're investing to expand our own capacity. On the next slide, Slide 11, how attractive market perspectives are worldwide. I want to highlight 2 figures that really capture scale of the opportunity. First, around 80 million kilometers of [indiscernible] will need to be built or replaced by 2040. This is the equivalent of rebuilding today's entire agreed over the next 15 years. And second, close to 50% of the world power grid will not be fit for purpose to handle this renewable energy by 2030. So these needs are driven by strict enforce, modernization of aging grid, the rising share of renewable energy in the electrical mix, the need for greater grade capacity and the growing importance of reality. The reality today is that capacity is saturated globally, notably in Europe with demand materiality exceeding supply. This is precisely why we are investing to expand our power grid capacity in Europe by around 40% between 2025 and 2028. With investments were included in our '28 guidance, we presented at our [indiscernible] Market November '24. We are simply executing under plan will allow to capture a demand environment that remains exceptionally strong. And probably even stronger than expected at the time of our cat in Arcade last November '24. Let's go to Slide 12, Power Connect. So the business review with -- let's see with the best review with Power Connect, which showed a very dynamic topline momentum with a resilient margin performance despite an adverse effect. First, on standard sales. They reached nearly EUR 1.4 billion up by 15.4% in total. This breaks down into 7.3% organic growth, an exceptional high level, which supported a very dynamic trend in Latin America and several European countries including growth from Italy, which illustrates our ability to positively deploy our innovative solution in that market. On top of this acquisition, recent acquisition accretion added a 10% sales growth, reflecting the contribution of 5 months of Cables RCT in Spain, 6 months of Electro Cables in Canada and 1 month of [indiscernible] in the U.S., 3 value-accretive deals. Profitability. Second, on profitability, our adjusted EBITDA came at EUR 162 million, representing a margin of 11.8% standard sales. As expected, this segment subject to a temporary adverse mix effect driven by 2 factors: the Nordic countries where our best-in-class operation are still constrained by market conditions, on Italy where margins are still below the segment average. So the key message here is the sequential improvement. If you look at the progression from H2 2025, our margin improved by 80 basis points from 11% in H2 '25 to 11.8% in H1 '26. This was supported by synergies in Italy, improvement in Latin America and the continued expansion in high-value verticals such as data center across our different geographies. So the trend is moving in the right direction. And despite the mixed effect, we see our efforts bearing fruit. A quick word on inflation, as we discussed for grid, the dynamic is similar year for Connect. With that, I will now hand over to Vincent, who will take you through the financial review.

Thank you, Julien, and good morning, everyone. Let me start with the standard sales bridge. We walk you from the EUR 3,093 million in H1 2025 to EUR 3,249 million in 2026 representing a total sales growth of plus 5%. Organic growth is at plus 1.5%. As Julien mentioned, this reflects a solid electrification performance of 4.5% organically partly offset by the expected decline in other activities linked to Ming down 15.6% and that mechanically recover in H2 2026. The second and largest contributor was Coupe at 3.8%. This is where our value-accretive acquisitions are really starting to bear fruit. It includes 6 months of Electro Cables, 5 months of Cables RCT and 1 month of Republic Wire, which we consolidated from June 1. On Republic Wire specifically, we'll have a 7-month contribution over the full year 2026. So you'll see this scope effect continue in the second half. I would also like to say a word on Republic Wire as its integration is off to a very good start. We are progressively bringing in our know-how, our culture of operational and industrial excellence, and we're already working on generating the first. Finally, foreign exchange had a slightly negative impact of negative 0.3%. The U.S. dollar and the Canadian dollar weighted on our sales, though this was partly offset by the appreciation of the Norwegian kroner. This brings us to EUR 3,249 million in standard sales in H1 2026. Let me now turn to how this translated into profitability with the adjusted EBITDA bridge. The bridge takes us from EUR 372 million in H1 2025 restated for IFRS 5 to EUR 388 million in H1 2026, an increase of 4.3%. Looking at the organic contribution by segment, growth was primarily driven by the strong performance of power transmission, which added EUR 16 million and was clearly the main engine of our profitability improvement this half year thanks to the quality of execution and driving a strong operating leverage. Our Grid contributed a further EUR 2 million. Here, I'd note that unlike in some prior periods, there were no particular one-off projects this half, but we remain at a very high level of margin, among the betas performers, and we will continue to grow our margins gradually from here. Please keep in mind also the structure of the business, as reminded by Julien, 2/3 with long-term firm agreements and 1/3 with projects. Power Connect added EUR 3 million, including organic and scope. We have deliberately combined organic growth and scope effects as we increasingly optimize product flows between our existing and recently acquired plants whenever it makes strategic sense. This reflects our industrial mutualization strategy and our ability to adapt to the new market parting as previously highlighted by Julien. And we will keep neutralizing our plans to optimize our production capacity, improve our time to market and capture commercial opportunities. We are confident in our ability to extract value from this transformation of our footprint utilization and the benefits will progressively on time, be fully reflected in our figures. On scope, acquisitions contributed around EUR 20 million composed of 6 months of Electro Cables, 5 months of Cable RTC and 1 month of Republic Wire. Foreign exchange accounted for minus EUR 3 million and other activities weighted by a further EUR 2 million. All this brings us to a solid adjusted EBITDA of EUR 388 million for the first half. Let's now go through the P&L. Starting with our adjusted EBITDA that grew at plus 4.3%, as explained, with strong contribution for Power Transmission, we then have the impact of depreciation, mainly linked to Power Transmission recent strategic CapEx as well as the acquisitions. Positive correct mechanical effects of copper price increased over the period, offset by a negative ForEx impact related to our hedging activities. Our income taxes remained broadly stable at circa EUR 60 million in H1 2026 compared to circa EUR 65 million in H1 2025, resulting in an effective tax rate of 32.7% in H1 2026, more or less in line with the full year 2025 rate that was at nearly 31%. Net income from discontinued operations decreased by EUR 17 million, reflecting the net losses generated by Autoelectric during the first half 2026 and while H1 2025 benefited from the net gains on the disposals of AmerCable and Liceo partly offset by an impairment related to auto electric at the time. Let me now walk you through the net bridge for the first half. Net debt bridge, sorry, for the first half. The first item to highlight is the positive operational performance in EBITDA and working capital. On capital expenditures, spending was relatively high this half, mainly driven by the investment in Nexans Electron. And I want to flag here that H2 CapEx should be more or less in the same range as in H1 as we continue to finish the investment in transmission metallurgy. This brings me to our free cash flow, which came in at EUR 165 million, representing a cash conversion ratio of 42.7%. And without transmission payments this half, this is a solid performance illustrating our discipline on cash management. On dividends and equity operations, the cash out was lower than last year because last year, we ran the successful Act employee shareholding plan. Again, at Nexans, we believe it is important to associate our employees with the group's performance and long-term value creation. On M&A, this includes the acquisition of Republic wire together with the earnout and the transaction fees associated with that transaction. Putting it all together, we end the half year at a well-controlled leverage ratio of 1.4x. It gives us ample headroom to continue investing in our growth, both organically and through M&A. Let me finish the financial review was a word on our financial structure, which remains solid even after the acquisition of Republic Wire, giving us the flexibility we need to continue executing our investment plans. Our liquidity position remains very strong at around EUR 2.5 billion, including EUR 1.5 billion of cash and cash equivalents alongside undrawn EUR 800 million revolving credit facility and EUR 250 million of undrawn EIB financing. In the context of the Republic Wire acquisition, we put in place a bridge to bond term loan of EUR 500 million with an initial 12 months maturity and two 6-month extension options. This is a temporary instrument indexed to Euribor that partially funded the acquisition while we prepare a bond issuance. Setting aside that bridge, 100% of our debt is at fixed rate, and our nearest maturity is our EUR 200 million EIB financing due in April 2027, and our average cost of debt stands at around 4.1%, which is a very good level. Finally, on our credit rating, we remain BB+ with a stable outlook from S&P. This rating reflects the strength of our balance sheet and the discipline we apply in deploying our capital. With our leverage at 1.4x and its robust financial structure leaves us well positioned to keep investing in our growth. Let me now hand back to Julien.

Thank you, Vincent. So let me take you through our 2026 guidance. So we expect an adjusted EBITDA for a full year of 20266 to be between EUR 770 million and EUR 840 million. on the free cash flow to range between EUR 275 million and EUR 325 million, so this guidance does not assume execution of a great interconnection project in '26, as you know, but the load of the line at the end of 2026. This guidance takes into account the contribution of Republic Wire, the new acquistion in the U.S. starting from first of June '26 and excludes the contribution of any further acquisition. So all in all, the opportunities ahead are competing and we have all the capabilities to succeed as a pure player electrification. We'll continue to execute with discipline, strengthening operational excellence and further leveraging our integrated industrial footprint. This transformation will be gradual, and we are confident in our ability to deliver sustainable value for our stakeholders. Nexans will continue to operate within a disciplined financial framework for benefit of its shareholders, employees, the broader economy. So with that, thank you all for your attention. And now with [indiscernible], we will be happy to take your questions.

[Operator Instructions] The next question comes from Akash Gupta from JPMorgan.

I've got 2, and I'll ask 1 at a time. My first 1 is on guidance. Previously, you said that you expect H1 to be softer, meaning H2 to be stronger. And given the can performance that shows year-on-year growth in EBITDA. My first question is that does this comment still hold, i.e., should we expect a better H2 on underlying basis before adding 6 months contribution from Republic Wire acquisition?

Okay. Thank you, Akash, for your first question. So yes, indeed, you've seen that we have raised our guidance by EUR 40 million, at least the low end of the guidance. A few things. First one, you've seen that our H1 is more dynamic than our additional hypothesis in terms of phasing of projects in terms of growth, specifically in some areas like Connect on grid. We are very confident for second half also and the backlog both [indiscernible] very strong. So we see also good -- but we are -- as you know, we are living in a geopolitical environment with Iran that is day in, day out. So we want to remain prudent overall. And clearly, we are not shooting for the end of the guidance, we are shooting for the midpoint of again. So -- but clearly, we are very satisfied with our H1 would have stronger than our initial epotesis.

And my second question is for Vincent. I think when I look at the D&A expense in first half, it was EUR 153 million with just 1 month of Republic Wire consolidation. If we double this amount and add a few million more for Republic extra D&A should we expect full year D&A to be around EUR 310 million? Or is there any one-off in H1 that we shouldn't expect to repeat it in full year?

Yes, you're right. Our H1 was at the same level as H2 last year, and we expect due to specific items or H2 2026 to come back to levels that are more in line with what we saw in H1 2025. So there will be a slowdown in H2 2026 versus H1 2026 on the depreciation rate.

The next question comes from Daniela Costa from Goldman Sachs.

I have 1 clarification on the answer just before, and then I'll ask my question. But just on the guidance on the sort of EUR 30 million to EUR 40 million of the change in the range. Is that just Republic? Or is there anything else in it? Because I think if we look at the multiples you set for Republic, it seems like this is just Republic. Can you just clarify if there's anything else in the guidance changed beyond Republic?

No, it is more than Republic. So we've included the impact of Republic. And there is more than Republic in that EUR 40 million reflects the strong performance of H1 and the positive outlook we have on H2.

Okay. Got it. And then just looking at the backlog you had in March was EUR 7.9 billion. Now you have EUR 7.7 billion. If we look at sort of like the sales you had during the quarter, that implies that you got some orders at around EUR 235 million. Is that the Mediterranean order or the Mediterranean or there over and above that? And maybe just helping us understand how that then fills up the gap of GSI because if it is just the EUR 235 million sounds like a much lower value than what one would have expected the GSI to be in 2027 and mid '28.

Okay. So I will take this one, Daniela. So -- the backlog we have reporting end of June does not integrate the new MI order that we are having with the Mediterranean sea, so it does not include it yet. We have been winning some projects. You remember that we explained in H1 that we were winning some projects in order to positively use the [indiscernible] IR, and we will also sort of medium-sized projects in the transmission. So that's explaining the EUR 7.7 billion of backlog. Regarding this MI projects, we are now the preferred bidder, and we are an exclusive discussion with our customers. And as soon as will process we finalized, it would be an official award and then it will become in the backlog. It's not yet in terms of size it's using -- I'm sorry, on the Mediterranean size was your second question. It's using our capacity for 18 months. So it gives you an other size of the order.

The next question comes from Scott Humphreys from Berenberg.

Firstly, on Connect. So we saw some quite exceptional growth -- organic growth in Connect in Q2. Margins, as you say, were up some 80 basis points from H2 '25. Could you talk a bit about the different components of this sequential improvement in the Connect margin? And I'm thinking specifically as well about the sort of the margin differential between the Nordics and Southern Europe, in particular, and the extent to which that gap could close.

Okay. So next, so indeed, the geographies dynamics are different -- we've explained already, if you remember, in Q1 that the Nordic market was stubblish. In fact, it has not restarted, which is, for us, our biggest margin level for Connect. It's several bonds above the margin on several points. I mean it's more than 5 to 6 points above the margin of Connect in the average. And we are doing some growth. So Nordic is not going, not yet. We estimate and we hope that we will recover positively in H2, but in H1 has not recovered. But at the same time, we have seen some other European countries growing quite well. Italy very strong growth with our Italian business we have there. pushing for innovation. So margin posing steps, but the margin in Italy, as you know, are not yet at the average. So when we are pushing and getting more volume extra activities for the Italian market, it has a negative mix impact on our margin. France is doing very well. Belgium is doing very well, spending doing very well. So we are extremely satisfied with the market recovery in this part of the world. We also have good dynamic sales in South America, extremely strong in South America as well as in North America coming up. So overall, our topics we need to solve, and it's ongoing is really the Nordic that's hurting us. And quickly continue to transform the business we have in new acquisitions to bring them typically Italy to bring them to the at least average of Nexans for Connect.

Great. And if I can just ask a second as well. So on the production line, it sounds like you've got this long-term project sort of starting by the end when we think about your 2026 guidance in H2, could you kind of confirm what that assumes in terms of maybe some of the shorter-term actions that you were talking about previously? Has anything changed in relation to those sort of smaller pieces of work and utilizing the line this year.

No, I think it doesn't change. We were we're preparing for the start of production towards the end of the year. And in the meantime, we're continuing to use the line with very short orders, the spares that we've talked about before. So it doesn't change. We now have certainty that the line will be fully used starting at the end of the year for -- until mid-2028.

The next question comes from Nabil Najeeb from Deutsche Bank.

Just a follow up on obviously, saw an organic improvement in the quarter for Connect. Just wondering to what extent, if at all, demand was helped by extreme weather conditions, particularly as Europe experiences multiple heat waves. And yes, we have seen that has supported HVAC demand for some. And if it did help, do you expect that to remain a tailwind into Q3?

So we do not see the demand has been positively impacted by it was. We do not see that because we are -- the -- it was -- I might say the opposite because he could have slowed down some of the construction works outside during the day. So it didn't have any positive effect for us. It's really the fundamental market that is driving this growth. Commercial is picking up industrial activities picking up, of course, data center, but also that also battery storage and all this. So we also are quite satisfied on the solar. In solar, it's either agreed on connect depending on type of cable, mid-voltage bringing the solar panel to the grid, but also we have ample of Connect business in solar. So it's a mix of several elements. And we do see a continuation of a good momentum in the growth in the second half of the year.

Great. And my second question is on Republic wire. Could you give us an update on the progress on the capacity build out there? And the progress made with increasing medium-voltage sales in the U.S. using Republic wire as a base?

So I was in Republic. 3 weeks ago, I spent the time to meet. First of all, all the sales network, sales agents, I was very impressed by the quality by the, I would say, the amount of sales guys across all set in the U.S. in the right location, California, Texas, Michigan, Florida and on pushing and selling our product there. So that's -- I was very impressed by the quality of this sales. So the integration is doing very well. We already have started the industrial synergies between our [indiscernible] in Toronto and the Republic and different elements, compounds, metallurgy. So the plants are supporting in travel. So that has started from day 1 it's minority actions. It's also very -- I'm very also enthusiastic about the capability to extend our Nexans product to this public sales agent willing to extend their range of portfolio. So that's also moving very fast at the right pace. We have already in place a very strong integration teams on site in order to review all the different streams we have. So it's a cadenced weekly reviews and so on. So that's moving fast as well. Now regarding your question of NV expansion in the U.S. for standing at this day, we are doing it from the outside U.S. plant. So Canada South America, as we have explained. And we are currently investigating different option of medium, but capacity increasing for North America. But clearly, we will increase our capacity to sell more module in the U.S., either from the internal manufacturing or from the outside, but we are currently working on 2 options.

The next question comes from Lucas Ferhani from Jefferies.