Nexans SA

PAR:NEX

Q1-2025 Earnings Call

[Operator]

Ladies and gentlemen, good morning, and welcome to Nexans' First Quarter 2025 Information Conference Call. Please note, this conference is being recorded. [Operator Instructions]

Now I would like to turn the call over to your host for today's conference call, Mr. Christopher Guerin, Nexans' CEO. Please go ahead, sir.

[Christopher Guérin, executive]

Thank you. Good morning, ladies and gentlemen, and thank you for joining us today. This is Chris Guerin, CEO of Nexans. With me, Jean-Christophe Juillard, Deputy CEO and CFO; and of course, the Audrey Bourgeois in Investor Relations team. I will turn you over to Audrey that will go to conference call rooms.

[Audrey Bourgeois, executive]

Thank you, Chris. I would like to remind participants that statements made during the conference call, which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Readers and listeners are strongly encouraged to refer to the disclaimers, which are an integral part of our Universal Registration Document, along with the audio replay of today's call that will be posted on our website, nexans.com.

I now turn you over to Chris, who will go over the Q1 2025 highlights.

[Christopher Guérin, executive]

Thank you. So let's shift already on Page 3. As you can see, the group made a promising start to the year, demonstrating a structural strength and lasting impact on Nexans transformation with plus 4.1% organic growth for the group, reaching EUR 1.8 billion on our sales in Q1. This performance, as you can notice, is driven by our Electrification businesses, PWR-Connect, PWR-Grid and PWR-Transmission with a very robust organic growth of 6.8%, reflecting excellence in operational execution on that, a good trend as well for Q2 that we'll comment during Q&A session.

Talking about execution, keywords in our transmission activities, we reached an adjusted backlog of EUR 8.1 billion at the end of March 2025, performing a strong positioning in PWR-Transmission, but you have seen as well. The RTE frame agreement that has been signed, which is a significant order of above EUR 1 billion, but as well -- yesterday, Malta Sicily for a project that will be produced in Nexans Charleston in U.S. In Q1, in terms of past M&A and the recent disposal, we continue to see good results in the successful integration of La Triveneta Cavi that's delivering synergy as expected.

And finally, as you are all aware, we have announced exclusive negotiation with Latour Capital for the divestment of Lynxeo that is now expected to be completed in the course of Q3 2025. It will be, of course, a major step in our journey to become a pure player in Electrification. In overall, it will be -- 2025 will be a pivotal year for Nexans and we know that we have -- as you know, we have a very clear, defined strategy, robust business model as a pure player of Electrification and of course, very strong transformation program supported by SHIFT to keep delivering great results.

If we are now moving to Page 4, and let's take a closer look to the organic growth performance. Of course, you've seen very strong, I would say, growth in Electrification business. This quarter is particularly driven by PWR-Transmission which has delivered more than 20% on cost in Q1. You will have the details with JC. PWR-Grid was properly affected by a phasing effect that should recover with a very good strong Q2. PWR-Connect remained on a solid trajectory, of course, plus and minus lower demand in Europe and stronger in the other area but we expect as well a good recovery in Q2. Metallurgy project is at 5.7% and Non-electrification has been a pretty slow start due to automation and railway market, not too negative in automotive this quarter.

On Page 5, we have done like every 2 years, our employee survey calls for all the employees of Nexans. So what we see is that, first, the participation ratio reached a record of this revenue group, 92% of the employee participated to this survey. And what we see is that we are happy that we have missed the 80% target in 2025 -- what we reached 79%, I can see that there is a hiccup in the slide. It's not '27, but 2025. We reached 79% of engagement ratio in this year, which is a very good result.

Let me hand over to JC for the presentation of the business trends on the results for Q1.

[Jean-Christophe Juillard, executive]

Thank you, Chris. So turning on Page 6. Looking at the performance of PWR-Transmission for the first quarter of 2025. So an organic growth of 21.7%, very strong double-digit organic growth, mainly coming from the new capacity installation that started last year, not in Halden. We have been performing well on Celtic and Great Sea Interconnector in the first quarter, explaining partially the strong organic growth of 21.7%. The backlog, as you can see, is in strong evolution, almost plus 10% versus the end of last year. Mainly again, as Chris mentioned, coming from the booking of the RTE frame agreement.

If I turn to the Page 7, and we have a look at Charleston, just to answer your main question regarding the load of our plant in the U.S. So again, we reconfirm what we said at the end of last year, meaning that the plant is above 90% loaded in 2025 through 2028. Of course, there will be during the year 2025, a shift of the project between the completion of the U.S. project, mainly Empire Wind 1 and Sunrise and the plant is -- will be loaded with a new award we just announced yesterday, Malta Sicily.

And therefore, the backlog -- U.S. backlog at the end of March only represent 2.7% of the total backlog of PWR-Transmission. So U.S. project is not an exposure anymore for Nexans. And just to go back to the recent news flow about Empire Wind 1 stop, it has no impact, material impact, no financial impact on the company's performance if the project is stopped.

I will move now to the next page. On Page 8, PWR-Grid, 1.7% organic growth on grid with, I would say, a single -- low single-digit percentage growth. There is a phasing effect with the second quarter of the year, where you will see a rebound. So we had a timing phasing situation, mainly in Europe, but we have, I would say, a nice growth in the beginning of the second quarter. So we will catch up in the second quarter about the phasing, and will come with an organic growth for the first half, which is in line with the commitment we took during the CMD of mid-single-digit organic growth. So really a question of timing here in the first quarter, which is always a little bit slow due to weather condition mainly winter in Europe. Always to say that North America, South America and Middle East have been performing quite well against again the phasing in Europe, and we have also a good performance on accessories.

If I move to the next page, on Page 9, 1.9% organic growth on PWR-Connect sensing a little bit the same situation, we will see a rebound in the second quarter of the first semester in the organic growth of PWR-Connect. So I would say, a slower start of the year, but definitely, we see today a good momentum for the second quarter of the year. So we remain optimistic that we'll reach the objective of the growth for the year as we committed in the CMD in November '24.

Again, the difference here is mainly coming from Europe and Asia Pacific, which has been negative organic growth offset by a very strong growth in Middle East and Africa, very strong growth also double-digit growth in South America and a strong growth in Canada. And again, the European situation, the Europe, slightly negative organic growth of minus 4% will be offset in the second quarter, mainly due to a timing situation.

And now I will move to the Slide 10. I will give -- Chris will give you a little bit of detail on PWR-Connect.

[Christopher Guérin, executive]

Yes, sure. Thank you, JC. So just to remind on PWR-Connect and the aim is to move from a commodity business to a premium business. Two main elements to make that journey positive. First is on the technology, shifting from PVC standard cables to fire safety technology. So it's a slide that you've already seen in the past. It's on the left side is express the overall demand for cable for the, I would say, building market. The second column explained you the trend for wires, for cables, of course, the electricity consumptions, the newbuild renovation acceleration, the safety regulation that I will comment, the electrical networks reliability. We know that it's a big topic and specifically with the event that Europe has seen in the last days, and new electrical usages like EV stations, solar panel on top of building and, of course, high demand for data centers. So when you go to the third column, which is the safety technology adoption. We see reversing versus the global demand for building wire that the penetration of safety cable is up 14% and that our revenue that you can see on the graph move from twice higher number versus 2020 with a record revenue in Q1 2025 for this fire safety technology revenues.

If you go on Page 11, technology is not the only elements that bring us to a premiumization. It's as well new standardization of packaging to support the use of the product by the electricians. We have an excellent start on MOBIWAY POP that has been introduced during the Capital Market Day last November 2024. I remind you that it's a full propriety solution with a lot of patents on it. We've launched it in 1 country last year. This year will be 5 countries and after 8 and 12 countries. We have each time the adoption is very, very high, each time that we have been able to introduce this packaging. The refill is really a great success. So take this PWR-Connect MOBIWAY POP as a kind of Nespresso model, where they get access to a machine and after they have to recharge with our patented capsule. So it's a great success. We're very happy about that.

Let me turn over back again to JC for the M&A part.

[Jean-Christophe Juillard, executive]

So on the M&A front and the portfolio rotation, we are progressing quite well. On the M&A, first, we are very active in the same line of CMD targeting acquisition in the core business of medium- and low-voltage cable in different geographies of the world. And we are quite, I would say, optimistic that we should announce some positive news flow in the coming months.

On the divestment, you are fully aware of the of the divestment of Lynxeo, which is now extremely well advanced, and we are confident that we should be closing early Q3. So that will be a major step into, of course, our completion towards becoming a pure player in Electrification. The remaining asset Auto Electric is under process as we speak right now for that divestment as well, and we are confident we should come also with a final polished situation on the divestment of this asset by the end of the year, very early next year.

If I move now on Page 13. Just to confirm that the progress we are making on this big acquisition we've made in Italy last year, La Triveneta Cavi is doing well. We are on track to deliver the synergies. I remind you that -- we had targeted about EUR 20 million recurring synergies that we will reach after 3 years. We had a plan to progress on those synergies, and we are progressing well. So the contribution of this asset to Nexans' performance is going to be significant starting 2025.

Lynxeo, I just mentioned, again, you know the asset, you see the size and the enterprise value that was signed with Latour Capital. Not much to say, but just to confirm that this is on track, and this will be out of the portfolio of Nexans midyear 2025.

And I will conclude after this good performance of the organic growth is a good start of the year 2025. We are in line for a very strong first half of the year. And we confirm the guidance that we announced in February of this year, EUR 770 million to EUR 850 million on adjusted EBITDA and EUR 225 million to EUR 225 million in free cash flow generation for the year 2025. That being said, it concludes the presentation, and we'll turn now to the operator for Q&A.

[Operator]

[Operator Instructions] The first question comes from the line of Eric Lemarie calling from CIC.

[Eric Lemarié, analyst]

I got 3 questions, please. The first one on Great Sea Interconnector. Could you tell us if you have received any notice to order or notice to proceed yet? And maybe if you can share with us the sales and maybe gross margin or EBITDA that you have generated on that project in H1? This is my first question.

I've got a second question on Germany. If I'm not wrong, Nexans is quite exposed to Germany, and I was wondering if you consider that you could maybe benefit in the future from the German investment plan?

And my last question is on the United States. You mentioned a 19% exposure to North America on the Slide 24, if I'm not wrong. But I was wondering -- but these figures exclude our transmission and auto-harnesses. And I was wondering if you could share with us your exposure to United States in sales? And maybe to give us, maybe more details on the project ongoing in the U.S. currently, Sunrise, Empire Wind and maybe a word on Revolution Wind.

[Christopher Guérin, executive]

Yes. So Eric, let me take the first question. So regarding GSI. So we are, of course, we don't yet have the notice to proceed. There's still a lot of discussion with some different stakeholders in the area, but we are in close cooperation with the clients to continue to produce and advance the production. We have received again, down payment in April on this week, that position us to keep producing the cables up to the end of August. So for that, everything goes well. We follow, of course, close the issue with affect the GE side in case of geopolitical, I would say, event, but for the moment, we don't have any significant change in the project, and neither in terms of production. We received the down payment, we keep producing on very close contact with the client. I cannot elaborate more because we are not -- there is a lot of political aspect in that contract, but we are not part of the table of negotiation.

Regarding the second question on U.S., maybe let me take the one of U.S....

[Jean-Christophe Juillard, executive]

Yes. So the 19% is not U.S., it's North America. So it includes, of course, our flagship in Canada for medium and low voltage, which is a significant contributor of the sales of the region. And then you have, of course, the revenues of high voltage in Charleston. So that's a combination of the 19%, but the bulk part is coming from Canada.

[Elyette Roux, executive]

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

[Christopher Guérin, executive]

That was not Chris speaking, but Elyette Roux.

[Operator]

The next question comes from the line Sean McLoughlin, calling from HSBC.

[Sean McLoughlin, analyst]

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

[Christopher Guérin, executive]

Yes, this is Chris. So regarding the -- where do we stand regarding the production of U.S. offshore wind farm project? Empire Wind has been produced. So the cable is ready to be installed. So that's -- everything is in the end of Equinor now. And we still have a back-end production for Sunrise and it will be very, very soon completed in coming weeks, and we will start the production of the Malta Sicily interconnection project in Charleston in coming months. Regarding the second question, JC, do you want to...

[Jean-Christophe Juillard, executive]

Just to -- maybe to step back one second on the financial impact. So like you said, the cable is produced on Empire Wind 1. There's not much to recognize in terms of revenue and margin on that project. And if the contract is confirmed to be canceled because of the U.S. authorities decision, then definitely we'll get a termination fee and there will be no financial impact to us on this project. And it's a very similar situation on Sunrise, where basically we are at the end of the production of the contract. And if the contract was going to be terminated for the same reason as entire Wind 1, the financial impact on Nexans would be extremely limited.

So we are not worried about financial consequences about termination of those projects. And those 2 projects are the only one, again, in the backlog of Nexans for U.S., and it represents less than 3% of the total backlog of Nexans. So really, for us, we have no other contract in the backlog for U.S. So no material, I would say, negative news flow impact really coming to the U.S.

When it comes to your last part of the question regarding the cost of basically loading the plant in Charleston with non-U.S. project, I guess, mainly European project. The cost difference versus producing in Halden is not different. You know that definitely Norway is a high labor cost country, not different than South Carolina. So there will be no impact on labor cost differences.

I remind you that the total labor cost in a contract is roughly between 7% to 8% of the total value of the contract. So it's not that meaningful. It's not a labor-intensive, I would say, business. And then on top of that, we have significant contingencies in the project ranging from 10% to 12% in average of the total value of the project that if any variances in cost could materialize, it will be absorbed by the contingency.

So overall, there will be no significant financial difference whether producing in Charleston or producing in Norway. And I will complete about transportation costs. I mean, shipping the cable on the vessel from U.S. to, let's say, somewhere in Europe or Mediterranean Sea because we are very active in the Mediterranean Sea with many projects right now. The difference in terms of transportation cost is not significant and the timing of shipping from Charleston or shipping from Halden the cable, is only 1 day difference.

So again, it's meaningless. And again -- and finally, the total -- just to go back to the perspective of the total cost of transportation within the project, typically, it's about like labor, about 7% to 8% of the total cost. So -- and we have the contingency. So whether it's transportation, whether it's labor, manufacturing and shipping from Halden, we don't see that as being a disadvantage to our supply chain and to the margin of the project.

[Operator]

The next question indeed comes from the line of Jean-Francois Granjon, calling from ODDO.

[Jean-Francois Granjon, analyst]

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

[Christopher Guérin, executive]

Yes, Jean-Francois, this is -- so that's about a EUR 1 billion project. It's DC cables on that, of course, there could be some potential upside closer will be from the project. So that will be in '27, '28, '29 onwards. So a significant order that will be produced in Halden. And RTE still have a very, very strong pipeline of a further order of that magnitude coming up to be awarded in coming years. So RTE be very important for a customer for us to keep in from '28 to 2032.

[Operator]

[Operator Instructions] The next question comes from the line of Chris Leonard King from UBS.

[Christopher Leonard, analyst]

Just 2 questions from me, please. The first on the low voltage exposure in Connect. You spoke about good product momentum for new sales to premium customers and avenues. Do you still anticipate or have more confidence in improving margins for the year in Connect than you do in the PWR-Grid segment?

And then the second question is on the buyback. I think you've launched a buyback in April for 750,000 shares. Just wondering how you've progressed on that. And I believe you have authorization to go above that potential level up to 175 million of share purchases. So is there any time frame you have on when you might decide to upsize that buyback?

[Christopher Guérin, executive]

You take the second question. I will take the first question. Thank you, Chris.

So regarding the first question, yes, we keep improving our margin. 2 main, I would say, driver for margin improvement. The first driver is the penetration of the fire safety technology, which is, of course, it's very complex high-density polymers with a very strong entry buyers. We are only a few to be able to provide that to the market. So that give us a premium effect on the price. The second is everything we can do on ergonomics like the MOBIWAY POP, of course, that's driving up the margin. So that's element number one.

Element number two, it's our transformation program. We love to do acquisition of companies that have a very high level of diversity where our SHIFT program can play a significant level of synergy by reducing complexity. And we still have a significant spread in the Connect world from low performer unit, from high-performance unit. So what we have, of course, is to keep duplicating the best practices from high-performing units that are above 18% EBITDA on sales to the other. So we have great offer to lift up the margin. And second, we have our transformation program that play a significant role to ensure that our margin improvement is not made of contentual effect, but real structural effect.

Regarding the complex -- second question?

[Jean-Christophe Juillard, executive]

No, the second question. I will repeat what we announced in terms of capital allocation in our CMD in November. I mean, the resources, cash generation as well as the proceeds of the divestment we are currently making will be towards M&A. And we are very active, as I said in the presentation versus M&A. So quite confident we will deploy that cash for M&A. We will do a share buyback, but share buyback right now is only limited to avoid dilution because of our share employee plan. We have this year an additional plan because every other year, we have employee plan where all act where employees can basically acquire a share of the company at a discount.

So we will have one specific plan on top of the regular LTI plan. So we will just do share buyback to avoid the dilution of those plans on our shareholder base. But so far, there's no other commitment on share buyback. Now if it happens that we are not, I would say, successful or the M&A plan is delayed and we are not against doing share buyback, if that would be the case. But right now, this is not the main objective and the main willingness of deploying our resources.

[Christopher Leonard, analyst]

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

[Christopher Guérin, executive]

Chris, no, I'm not able to comment at that part because that's in the end of the recoverment on ITO. So I commit to them that I will not make any specific additional information on the top of the one that have been official on the press. So the important for us is that the project is keep moving on, and we'll keep producing and we received down payment. This is the only thing I can comment today, Chris.

[Operator]

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

[Daniela Costa, analyst]

I have 2 things. I'll ask them one at a time. The first one, I just wanted to go back to the Charleston facility, the European contract. So it's an HVAC contract. And I think historically, sort of HVAC contracts weren't maybe as profitable as HVDC and there's a lot of demand on HVDC, so interesting to hear. Is there anything specifically about these contracts that is just more attractive than normal? Or why you're prioritizing an HVAC contract versus potential HVDC demand that could be done there?

[Christopher Guérin, executive]

Yes, Daniela. It's not a question of technology. It was just a question of lead time. That was the project in terms of lead time that fit perfectly for the production of late 25 on the beginning of 2026. We have some other projects coming up in the HVDC technology in Charleston. So it was not a matter of technology, but a matter of lead time. With the sudden drop of U.S. offshore wind farm, we didn't have to have idle, I will say, in production for more than 6 months in the factory. So this project just fit perfectly, the load aspect for 2025 and '26 first semester.

[Daniela Costa, analyst]

You can still add more before '26 on the plant from other contracts?

[Christopher Guérin, executive]

Yes. We have other projects to come on '26 that will be officialized in the coming months.

[Daniela Costa, analyst]

Got it. And then my second question is more related to competitive dynamics. And I know you're not in the U.S. on the low voltage end, but there was a sizable amount of, for example, aluminum imports that were going to the U.S., which with tariffs. And your main peer has talked about this a few times, might not be going to the U.S. I think it was even up to 40% or 50% of the aluminum market that was imports from outside.

Have we seen any signs of these redirecting to Europe? Is there a problem at all? I know some come from India, some from Vietnam. So they travel a pretty long distance to go to the U.S. Can they travel that distance to come to Europe? And is that feasible? What are you seeing? And what are the mitigators there?

[Christopher Guérin, executive]

Yes. Not much -- aluminum is huge mainly in medium voltage. U.S. is in deficit in both aluminum and copper. Just in copper, the capacity extraction in U.S. is about 1.2 million metric tons and the consumption is above 2.5 million to close to 3 million metric tons. So there is a deficit in copper, there is a deficit in aluminum.

In aluminum, I would say in Europe, we don't need those diver source from Asia. It's coming mainly from Europe or Middle East. Europe already moved on, I would say, rethink entirely supply chain with the start of the war in Ukraine because there was a pretty high level of dependency of aluminum coming from Russia. So we have -- all players have completely rethink their supply chain. So we don't have any specific tension in aluminum supply in Europe so far, neither in copper, but I don't know exactly what is the dynamic in U.S. So...

[Daniela Costa, analyst]

Maybe my question was more, is there a risk of dumping of aluminum from imports into Europe from Asia from the places -- the ones that were importing -- exporting to the U.S., can they aggressively dump into Europe?

[Christopher Guérin, executive]

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

[Operator]

The next question comes from the line of Max Yates calling from Morgan Stanley.

[Max Yates, analyst]

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

[Christopher Guérin, executive]

Yes. Thank you, Max. So there's 2 parts of the termination fee. There's a contractual termination fee, which is 7% to 10% of the contract value. And then there is a termination fee for convenience, and we have to look at what it means exactly into the contract, but that basically covers any incurred not paid costs, and subject to exposure that you might have left on the contract if the contract is canceled. So basically, the analysis we've made is that the termination fee on both contracts and especially for Empire Wind 1 basically covers the lack of margin and revenue and margin and cash, I would say, that is remaining on the project.

For installation, for Sunrise and the installation, if canceled, which is -- again, this is not the case. Empire Wind has been notified as a stoppage from the U.S. authority. We've had no news on Sunrise. So for us, Sunrise is a contract which is progressing as normal. We're just taking a worst-case situation here on Sunrise. We'll have to look about the installation, what it means. But basically, the principle is a little bit the same of any -- you get 8% to 10% termination fee. And then after that, you have termination for convenience, which covers basically any incurred exposure you have. But again, Sunrise is not canceled or it's not stopped as we speak today.

[Max Yates, analyst]

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

[Elyette Roux, executive]

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

[Christopher Guérin, executive]

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

[Operator]

The next question comes from the line of Uma Samlin calling from Bank of America.

[Uma Samlin, analyst]

So first, I have a follow-up on your Charleston plant. So how does it work with any of the potential tariffs in the U.S. if you're producing in the U.S. but delivering to European clients? Do you -- are you exposed to any of the raw material tariffs?

[Christopher Guérin, executive]

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

[Uma Samlin, analyst]

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

[Christopher Guérin, executive]

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

[Uma Samlin, analyst]

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

[Jean-Christophe Juillard, executive]

Well, I mean, GSI is MI technology, which is the mature technology, and then I would say, technology which is diminishing. I mean there's less and less awards and contract on MI technology replaced by XLP. We have 2 lines of production out of the 6 lines of Nexans in high voltage. And basically, if we -- if GSI was going to be canceled, we have other projects out there that we are working on to basically get award that will replace GSI. The situation is there could be a period of time with a gap for sure between the time you get the award and the time you can fill the line.

What we would do as well, we will close our shop small facility in Japan, which is MI technology, and therefore, we'll be remaining with only one line of MI in Halden. And I would say the financial impact of the loss of GSI and between the time -- the gap between the time of replacing GSI, we don't see as being that significant. And definitely not impacting our target for 2028, even though the contribution of GSI through 2028 was significant. We have -- you can imagine that every day, we are working on the plan B, if GSI was going to be stopped, and we have progressed on that, and we have a detailed plan on how to replace the project if it was going to stop.

[Christopher Guérin, executive]

Yes. I think JC, you're right. It's a fundamental element. Consolidation 6 months ago would have been very, very complex for us to manage, but now the plan B is progressing. So we are working on both parallel. So that's -- our level of confidence to replace in case of is much -- is higher and higher every month at pass.

[Operator]

The next question comes from the line of Lucas Ferhani calling from Jefferies.

[Lucas Ferhani, analyst]

I have 3, if possible. The first one, just on what have you seen on trends in April, specifically for Grids and Connect. You talk about recovery in Q2, just to see if April is starting to show that. The second one is just how are you thinking about maybe the second derivative effects from tariffs, from the certainty and potential kind of macro slowdown? Are you seeing any signs of that specifically in Connect or nothing so far?

And the last one is just on what happened in Southern Europe with the blackout. Do you see any kind of risk related to kind of cable damage? And otherwise, how do you think your portfolio in grids and accessories really benefits from kind of helping grid resilience, which is now more of the topic?

[Christopher Guérin, executive]

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

[Elyette Roux, executive]

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

[Christopher Guérin, executive]

In regards to Connect, we have a good and strong April, but I cannot be 100%, I would say, sure for June because we have only a month of visibility, but we are very -- we scrutinize as well the announcement of Rexel, Sonepar, West Coast, but they see a pretty good dynamic in coming months. So we are, I will say, confident for Q2, both for Connect and for Grid.

Regarding the second question, do we see any macro slowdown in Connect? I think we are already in some region in recession, and that's the case since Q3 for Europe for -- since the beginning of 2024 in Oceania, we've seen a very strong rebound in Canada, a very strong rebound in South America, a very strong rebound in Middle East, Africa. And we believe that even if we have no much visibility on Oceania right now, but let's say in Europe, we believe that we reached already the low point and that we will see a strong improvement in -- good improvement, I would say, in coming months.

Regarding Element 3, Elyette?

[Elyette Roux, executive]

Yes. On the last one, at this stage, I think no one can say if it is related to any network cable topic. By the way, usually in the networks, the issue doesn't come from the cable. As you know, we have actually in Europe and also in the U.S., very old aging cable systems. We have explained during our CMD that usually the problem comes from the connecting point, which is where we have the accessories.

So for sure, what we have announced in terms of having a smart portfolio and advanced offers, both for grid and accessories will contribute to the resiliency of the grid as it is already today. And we have loyal customers that are indeed in Spain and Portugal purchasing from our portfolio for the underground network. So we are pleased to say that we contribute to the grid resiliency, and we are looking forward to know what are the reasons behind this blackout out because maybe we will be able to contribute with our offers.

[Christopher Guérin, executive]

Yes, indeed, Elyette, I think it's a happy event. But those events reminds everyone that electrical grid is the backbone of the country economy. And when you have a blackout, it's not only a direct damage on the hardware, life stops, transport stops. A lot of all our life have suddenly see that we are extremely dependent from electricity.

So of course, that -- we've seen the announcement of the TSO this morning from all the place in the world saying that they will work on the resiliency of their backbone of grid, of the PWR-Grid network, and they will keep investing because that will be, of course, a strong element of growth for us in coming years.

[Operator]

The next question comes from the line of Alasdair Leslie calling from Bernstein.

[Alasdair Leslie, analyst]

So a few outstanding questions. Firstly, just a follow-up on transmission. So thanks for the detail on the transportation costs and times from the U.S. to Europe, I guess, in Charleston. How does Asia compare in that respect? So let's say, from Japan in your case to Europe just in terms of costs and timing? And maybe just more broadly on transmission. I was just wondering if you could help us kind of calibrate your kind of full year growth expectations now there. You obviously had very strong growth in Q1. Consensus, I think, is around 6% for the full year. What kind of growth range should we be thinking of taking into account, I guess, GSI risk still, I suppose, for the full year?

And then the final question, if I can just squeeze it in, is maybe just on Connect. You said sort of Europe has lagged in residential. Did you see a sequential deterioration there in any markets? And then maybe just you talked about improved momentum in Connect in Q2. I wasn't clear. Is that coming from a rebound in Europe? Or is it more driven by other regions?

[Christopher Guérin, executive]

Let me start by the last question regarding Connect. Residential market overall is very low, very low in North America and very low in Europe. The main growth generation is coming from commercial infrastructure -- commercial and industrial, sorry, and as well data centers. But residential remained a very weak market. And we had as well a pretty high demand for building renovation. Regarding question number 1 or 2...

[Jean-Christophe Juillard, executive]

So question number one, Asia and Japan is a little bit more expensive in terms of cost than producing in Halden and Charleston for sure. Timing is a little bit longer as well. But I remind you that we have only MI technology, and it's a small -- it's not the same level of production or the same speed of production and quantity of production than the line that we have in Halden. It's really, I would say, 50 to 60 people, I would say, more than its full, I would say, full capacity, full production as we have. But again, the cost is a little bit higher. But when you have a project that we -- like GSI, for instance, which is very strong margin with very high level of contingency.

The difference in fast and timing to ship the cable to the Mediterranean Sea is not making the difference for the reason I explained regarding the low portion of the cost in the total cost of shipping, logistics and labor in the total magnitude of the project cost. So I mean, definitely on a project like GSI doesn't move the needle and any difference is absorbed within the contingencies and it's built into the cost structure of the project.

The second part of the question was the forward-looking of the organic growth on transmission. We'll have a good year in transmission in terms of our organic growth. We will be double-digit organic growth for transmission for the year. We have a strong first quarter for the reason I explained in my presentation, meaning that last year, we had only the full benefit of the ramp-up of the new production lines in the middle of the quarter, when obviously this year, we start from the first day of the quarter. But despite that, we'll have a second quarter that will be double -- low double digit and then a strong H2 with, I would say, more in line, I would say, above 15% organic growth in H2. So globally, it's going to be a quite good year in terms of organic growth for our transmission business, which makes sense, obviously, with the larger backlog that we need to execute and the ramp-up of the new big contract we have in the backlog. And like you rightly said in your question, this is, of course, also dependent on how GSI is confirmed or not.

[Operator]

The next question comes from the line of Miguel Borrega calling from BNP Paribas Exane.

[Miguel Nabeiro Ensinas Serra Borrega, analyst]

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

[Jean-Christophe Juillard, executive]

Well, I mean, I don't have -- I mean, I don't have moved or changed the expectation on achieving basically the guidance for the year. You're right to say, Miguel, that if GSI, what I said in February, if GSI was canceled immediately in the beginning of the year, then we will be more on the low part of the range. That's definitely the case. And it's becoming less and less likely because as we received payments and cash since then, obviously, we are securing the year more and more. And now most of the -- I mean, at least 50% or 60% of the year is behind us. So definitely, I'm -- we are not likely to get to the low part of the range, but more around the mid part of the range. And again, if the organic growth is confirmed in the second quarter, the way we see it, both in terms of Connect and Grid, especially more in Connect, which has less visibility, then definitely, we should be shifting to the higher part of the range. So that's the way we see it.

Right now, the momentum is quite good. And don't forget that, that does not include the divestment of Lynxeo because the guidance excludes any change of perimeter. So don't forget that we are divesting Lynxeo, which is roughly EUR 45 million EBITDA in 6 months, which should be out of the perimeter of the company since starting July. So that needs to be restated within the guidance, obviously, because this is a change of scope and potentially -- but timing is more uncertain about when M&A will come in the year, if it's going to be second, third or fourth quarter within the year, there will be some contribution there. But that's basically where I see it. scope being the same as of today, we should be now in, I would say, normal case situation more in the middle part of the range and confirming the organic growth in the second quarter, we should be moving to the upper part of the range, I confirm.

[Miguel Nabeiro Ensinas Serra Borrega, analyst]

Great. And then just to finish off, in PWR-Grids, I remember the second half of last year, the margin was a bit weaker sequentially. Anything to worry about this year? Or you still think that you can top last year's full year guidance -- full year margin of 13.7%?

[Jean-Christophe Juillard, executive]

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

[Operator]

Indeed, the last question comes from the line of Philipp Schweneke from DWS.

[Philipp Schweneke, analyst]

One -- 2 questions, please. Firstly, on Autos, you said you might dispose that already early next year. I think that's different from previous communication when you said it needs a settlement in Ukraine first. So what has changed here? Secondly, in the United States, there's a lot of tendering for onshore networks, is your Charleston factory able to compete for those deals as you used to do onshore cables in the past, I believe.

[Christopher Guérin, executive]

Maybe let me take the second question. Yes. Of course, Charleston is able to do both land interconnection and subsea interconnection. But we keep prefer as much as we can to use our facility in Charleston for subsea interconnection because we have a balanced, I would say, capacity both in installation and production. And if you do land interconnection, you don't use your vessel anymore. Of course, on the margin that we see in the subsea interconnections for the moment are a bit better than what we see in the land in the U.S. market.

Regarding the first question, JC, do you want to take?

[Jean-Christophe Juillard, executive]

Yes. So for Electric, maybe we're not clear, but we don't need an end to the conflict between Russia and Ukraine to divest the asset. I mean, I remind that the asset has never been impacted at all since the beginning of the war in 2022. It has been fully producing, fully operational, even with more load than expected due to some other competitors like Leoni, if you remember, Leoni went bankrupt. So in fact, the asset has been performing very well.

I mean -- so the end of the war was not triggering even for the divestment. And today, we are progressing on that front. And even though the war is not over yet, it's not stopping or having any impact on whether the business or the process of divestment.

[Operator]

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

[Christopher Guérin, executive]

Thank you very much. Thanks a lot for all your attention and see you for Q2 results and for the half year results in July. Thank you.

[Operator]

Thank you for joining today's call. You may now disconnect.