Mersen S.A. (MRN) Earnings Call Transcript & Summary

Welcome to Mersen's announcement of its annual sales for 2019. We're with Luc Themelin and Thomas Baumgartner.

Good evening, everyone, and welcome to our conference call to announce the annual sales of Mersen Group for 2019. So I'll give some comments on the publication. And Luc Themelin and myself will take your questions afterwards. I'll start with some highlights for the year 2019. First of all, for the third year running, we have achieved sustained growth, with sales reaching EUR 950 million, which is 8.2% growth in published figures. As for organic growth, it's at 4.1%, which is in line with our targets. Secondly, growth was lower toward the end of the year, given a certain phasing of orders in the chemical businesses and also due to a sluggish electrical distribution in the U.S. And my third point, the group made strategic purchases during the year, which has positioned us well for the medium and short term. So I'll talk to you about those acquisitions, Columbia and AGM Italy. So Columbia will allow us to modulate our production capacity for isostatic graphite and to internalize production of extruded graphite, which we used to purchase outside the group. As for AGM Italy, this is a good complement because there will be scale effects for the purchase of semifinished products. And it will also allow us to benefit from new expertise. So let's look at annual sales per segment, starting with Advanced Materials. So for Advanced Materials, it's EUR 545 million, which is a 12% growth in reported figures and 9.4% in organic terms. So this increase comes from a vibrant business in chemicals, aeronautics and process industries and brisk sales in electronics, where we saw sustained growth for silicon carbide semiconductor market. As expected, in the solar sector, it was weak at the start of the year, but grew strongly in the second half of the year, bringing us close to the 2018 level. As for the Electrical Power sales, they were at EUR 405 million, which is 3.4% growth on a reported basis. This segment benefited from sales by FTCap, a company we acquired in 2018. In organic terms, sales for this segment fell by 2.4% due to a slowdown on the electrical distribution market in the U.S. and due to fewer projects for power electronics, mostly in Europe. So now I'll give you a few comments on the geographic breakdown, starting with Europe, where most countries, a vibrant business, including Spain and Italy that came in with a 4% growth. France and Germany, more specifically, faced a more complex environment, due in part to fewer projects in power electronics and in wind energy. In Asia, the group's sales picked up at the end of the year, ending at 2.2% growth with sustained levels of business in India and Japan. The solar market in China saw a strong growth at the end of the year, totaling EUR 55 million, which is comparable with the EUR 58 million of 2018. In North America, sales remained solid, up 7%, thanks to chemicals and electronics market. However, electrical distribution was down in the U.S., as I said, especially in the fourth quarter. As for the rest of the world, sales were lower due to the phasing of chemicals projects and also high basis of comparison of sales for Morocco in 2018. So if we take a closer look at sales for the fourth quarter of 2019, it was EUR 232 million, up 1% from 2018, with differences between these segments. In Advanced Materials, there was 6.4% organic growth, driven by the solar market. And in the Electrical Power, their sales shrink in organic terms by 5.4% tied to that same downturn in electrical distribution, as I mentioned earlier. So we are confirming our targets, in particular the operating margin before nonrecurring items between 10.5% and 10.7% of sales before impact of IFRS 16. As for CapEx, we were at EUR 65 million. We are at the lower end of the bracket, due to the fact that some investments have been postponed to 2020. So there, you have our main comments, and now we will take your questions.

[Operator Instructions] We have a question from Jean-Francois Granjon.

I have a question about China. [ I'm sorry. The connection is really bad. It's impossible to hear the question. I will try to translate the answer. ]

Well, but about China -- I can imagine your question about China. First of all, as concerns our plants there, well, it's the holidays right now, and this has been extended to the 10th of February for the holiday period there. But I don't expect any particular impact. So we don't have any particular problem. We have a few experts there. But if your question is about the spread of the virus, well, we are watching this closely. But for the time being, we aren't anticipating any particular impact. None of our entities are located in the hardest hit zones, perhaps some of our customers, but where our plants are located are not particularly concerned, although people are being cautious. But of course, we await the return to business decreed by the government.

[Operator Instructions] We have a question from [ Lamar Capital. ]

So you mentioned CapEx being at the bottom of the bracket. So you postponed some for 2020. Does that mean overall CapEx will be higher in 2020?

Well, we haven't yet announced our total investment for 2020, but it should be fairly high. But there are between EUR 5 million to EUR 10 million from 2019, which have been pushed on to 2020. Okay. So in Columbia, this is more along the lines of a complementary acquisition, but there is work to be done to get the production line in line with our standards.

[Operator Instructions]

All right. Well, then if there are no further questions, thank you for being with us. And our next conference will be March 11 at 10 a.m. for our annual results. Thank you, everyone, and good evening.

Thank you, ladies and gentlemen. That's the end of our conference. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]