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

Hello, everyone, and thanks, first of all, to all of the people present here in the room with us. We've all taken the necessary precautions given the current health situation. Now we do have many people connected via the webcast. So what we will do is that we will first have Luc Themelin and Thomas Baumgartner giving their presentations, and then we will take questions from the room. And those who are connected via the webcast can send their questions at any time, in fact, via a text message to the number that's displayed on the platform, and then we will address their questions. Thank you very much.

Hello, everyone. Welcome all of you, those who are here and those who are connected from afar. So we'll be talking to you about our results of 2019. But before we hear the figures from Thomas, let me give you some background of the past 3, 4 years because we have had some very fine performances in the past years. So it's always interesting to look back a bit. So our strategic objectives have been fulfilled, some that we set out in our road map and that we've presented to you every year. But after a few years of some, well, sluggish performance until about 2014 and '15, we did a lot of restructuring. We repositioned the company in many areas. And then with the Board and the management team, we set ourselves some targets in hard figures. And so what I'll be showing you are quite close to those targets. We have worked a great deal on some new areas as well. If you think back to what Mersen was 5 years ago, we have positioned ourselves on some sustainable development markets, very dynamic growth markets more so than in the past. And that's what we continue to set our sights on. We do still have a strong sales in traditional markets, nonetheless, and which have been performing well. We've worked a lot on our human capital. There's been a lot of work in the different organizations, which isn't always an easy thing to do given all of our product lines and our widespread geographic presence. So more work on collaboration. That's been very important. It's not -- it's easier said than done. And in particular, we've done some very good work in terms of safety because there are certain risks in our factories. And I will show you those figures. And I think that we can claim that we are best-in-class in terms of safety. So in terms of competitiveness, there's been a great deal of work there. We've got a strong program for profitability to at least cover rises in costs. And we continue to ask more of our teams. So we always do that just in case sales are flat. If there's no growth, then we have to at least be covering those cost rises. And then there is our expertise. It's about understanding what our customers want there. They want very complex products. You have to understand exactly what they want. So curious to give you an idea. I would love to spend all morning talking about those satisfying figures, but you can see, this year, we're getting close to EUR 1 billion in sales. We've got -- so we've been making strong gains there. So the EBIT, also rising. So you can see consolidated annual growth at the progression there, we're about 6%. So as we've often said, we are not targeting 12%. We would rather stick to around 11%. But Thomas will say more about this. For the -- in terms of the cash flow after all of the capital expenditures, pretty good figures there for the free cash flow. And at the same time, there's been acquisitions. Here, again, there wasn't always -- there weren't always interesting targets, but we've done quite a bit in just the past couple of years. If you look -- start at the right on the screen there, LGI and GAB Neumann, well, they are in chemicals market services, and they're rather profitable. Although we have said before that we would not be pushing in the direction of the chemicals market, nonetheless, they offer some interesting services. So it's a tactical and technical, better presence in Germany. So this is Gab Neumann. And so we are finalizing that acquisition, about EUR 10 million. So then we have FTCap, Idealec and CALY. Here, this is to do with expertise in power electronics. We find these types of products on sustainable development areas. And we have Galaxy. We have Hatan. We're doing some excellent developments there. So Hatan is a joint venture for the rail transport industry, in fact, while it's still ramping up, but with very good outlook there. And so the big acquisitions with strong potential for preparing our future is Columbia, and I'll be saying more about Columbia and the U.S. And then we have in Italy, Milano, where we have there a machine shop processing extruded graphite. So we've had some very good acquisitions, but now we have to integrate them. So capital expenditure. You can see the rises there coming off of some fairly slow years. We're really spending about EUR 30 million a year. We had to manage that as best as possible. But with the upturn as of 2018, well, we needed more production capacity in solar business, semiconductors, particularly silicon carbide. So we have [indiscernible] in technical mirrors and components for power electronics. And this past year, we increased our investments at around EUR 63 million. There's about EUR 12 million for the SiC, silicon carbide, market. And really, we can continue to invest there because that trend is quite firm. Then, of course, well, it takes money to do all of this. So -- but the ROCE is quite good. We've got a lot of work tending towards the environment market, and we're doing a lot of work ourselves to be more environmentally friendly, manage our waste, et cetera. So you can see the budgets there. And Columbia will require some spending to get that production up and running. So -- and we -- there's a lot of things that we can do at Columbia, and something that's flexible that we can really increase production depending on demand. Now for 2019, it's not that easy to read this graph. But in fact, what we can see here is a pretty good share on the end markets and sustainable development businesses. So electric vehicles, we expect to see much more toward 2021 there in rail transport. So you can see that's growing to 3%. And in semiconductors, for electronics market is really starting to reach significant levels. So it's doing well. Okay, it can be cyclical, which isn't necessarily linked to GDP. And then you can see the figures for the, what we call, the other markets. Now wind. In the wind energy market, growth is a bit less, but still rising in the solar energy business. We've also -- well, we don't want to overexpose ourselves there, but you can see the sales figures for that. So energy efficiency, what does that cover? Well, it's everything we do for our customers that helps them improve their yield to, say, energy, increase the service life of their equipment, et cetera. So it's -- but it's very precise what we're trying to do here. We have to pick and choose the applications in the chemicals business. Good growth there. Now in other markets, there's a lot of process industries there, and we did well. The economy -- the general economy was good, but you mustn't think that what we've achieved in the past 4 years was just thanks to the economy, but because we have seen some ups and downs in some areas, China, for example. The solar market had a lot of ups and downs. Germany hasn't been great. So in fact, I think it's a good sign that, in fact, what we're achieving here is not only tied to a good, strong economy -- global economy. What about the financial situation? Well, Thomas will be talking to you more about that. But anyway, stable in terms of net debt, and we still have a good capacity for self-financing of our acquisitions. And so I think that's a rather reassuring slide. And this has allowed us to pay out EUR 1 per share, which is double of 5 years ago. And so this is in line with our payout policy, and it will mean a distribution of 34%. So before going into other topics, I want to come back to our safety record. Now this slide is not very easy to read, I know that. But first of all, look at the frequency rate, which is easy to calculate for us in fact. It's -- we look at the number of accidents with lost days and we multiply it by the number of hours worked, and that gives us the number. And in fact, we have about 1 million hours worked per month by our staff and we have 1 accident with lost days per month, over 6,500 staff. Okay. Now some countries, there's still more work to be done in terms of the safety culture, but those figures are fantastic in fact. Getting it below 1 will be very tough. We've put in a lot of work here. So as I've -- well, 15 years ago, our number was 15. There's been a huge amount of work there. Some industrial companies are much, much worse than us. We have safety inspections every week everywhere. Just a quick visit of the workshops to check on everyone. So that's really a key part of achieving such a record. Also, we are upholding our promise to have more women in management position. So we're aiming for 25% by 2021. More if we can. In terms of cultural diversity, all of our sites in foreign countries are run by a local person. Of course, we are there for the setup, but they are the ones who manage and run their sites, be it in India, the U.S. or elsewhere. And rather surprising, a very pleasant surprise, we saw that through a survey, our employee engagement rate is 89%, okay? These are anonymous surveys, and that's what they said. So they are proud to work for Mersen, so that's always a good sign. All right. And I can tell you one person who's proud to work at Mersen, sitting right next to me here. So Thomas Baumgartner.

So hello, everyone. So yes, 2019, we saw very good profitable growth. You can see the figures. So sales of -- you can see the sales figures with 4% organic growth. Operating margin for nonrecurring items at 10%, that's the margin. We've got cash flow from operations, EUR 110 million, which is a very strong growth over last year. And our investment program at EUR 63 million is a lot, but it is a bit less, in fact, than originally announced because we had to shift part of the 2019 onto 2020. So all of the figures I'm giving you today are -- exclude the impact of IFRS 16, okay? But of course, in the press releases, you have the figures including the impact of IFRS 16. And of course, if you have any questions about that impact, you can -- we can talk about it later. So coming back to sales. So EUR 950 million with the organic sales covered all of our geographies: North America, 35% of the sales, 7% rise; followed by Europe, coming at 34% of our sales, 4% rise; Asia Pacific is up 2%. And so if you see that rise in sales, well, there are several components to this, of course. First of all, we've got some volume effect. In the second column, there are price effects. We're positive in both of our divisions, and I'll say more about that. And then we have the scope effect. These are acquisitions from 2018 and then fully integrated in 2019, so FTCap, LGI and Galaxy. And then we have the new Italian plant, which was acquired in November 2019. So we don't have that included yet, that's AGM Italy that we've only had for a month. But then we have GAB Neumann, which was recently acquired. Then we have a positive currency effect with the dollar, which rose. So we've seen a rise in sales, better margins and operating income. 20% gain there, and this is perfectly in line with our guidance. And what this is coming from? What is the volume effect? Growth in sales, but the mix is not totally favorable, and I'll say more about that, particularly on the Electrical Power side. But we've had a positive price effects offsetting some of the effects of our raw materials rises, customs duties. So ever since we put in place our operational excellence plan in our factors, we have achieved some good improvements, so that we are at least covering cost inflations. Now if we look at the different segments, while the picture is rather different, in Advanced Materials, quite a leap here in terms of margins going from 14.1% to 15% of the operating margin. So we've got a volume effect here rise, we've increased sale prices and better productivity. So our ROCE, in fact, is at 13.9%, which is also very satisfying improvement over last year. Then if we look at Electrical Power, the good news here is we've got some good price effect last year. For example, we told you that it would be a little bit tough to increase the prices, but we've done it now. Now there was less volume, particularly in North America and on product lines. So sometimes the mix was not favorable, sometimes the lower volumes concerned more profitable products. And then, of course, we have the dilutive effect of FTCap and Idealec. So a dilutive effect on the margin there, but we'll say more about what we're doing in Electrical Power. So ROCE, as you can see, is a bit -- well, the margins were lower than Advanced Materials, but the ROCE is really comparable between Electrical Power and Advanced Materials. So now let's look at net income. The first thing to note is that it's up 3%. In spite of some nonrecurring expenses, which are higher, EUR 11 million. It was only EUR 4 million last year. Why? Well, primarily because we had an impairment of development costs for hybrid protection, so EUR 5.3 million. So Luc will tell you a bit more about what's going on in the electric vehicle market. So our -- so we are -- our financial costs, I mean, in euros, perfectly in line with last year. So also, in our tax expense, in line with last year and, of course, much better than 2017 when the effective tax rate was 32%. A lot of this, thanks to the American tax reform. So let's look at free cash flow now. So strong improvement there. So you've got the figures here after our capital expenditures. So we're at EUR 48 million, which is a very high number. Why? Well, first of all, we generated a lot of EBITDA. We did have a rise in working capital requirements, but kept under control. And so this gives us a cash flow conversion rate of 77%, and that allows us to finance our investments. That's what's important, and we will continue that. We have been able to finance them. So we still have an excellent cash position, even after all of those investments. So all of that to say here that we've got -- well, if you look at the green bar, it is stable, financing our capital expenditure, financing acquisitions and investments and the dividends. So this means that, overall, the debt is perfectly stable, but 2018 and '19 with the ratios that Luc mentioned earlier. So our policy is to stay between around these numbers of 1.5, and this is really important to us. It's not the question of the solidity of the company, but we -- it's really about keeping flexibility for periods that might be uncertain. This allows us to continue to make the investments that we need to make and want to make, and this gives us a competitive advantage. And so this is why we pay very close attention to that net debt to EBITDA. So if we look at liquidity, so we issued Schuldschein last March. So that's EUR 130 million that you can see there. That will be due, but we have -- so -- but in fact, there won't be any repayments until November 2021. These are private American placements. We would like to pay them off since they're a bit more expensive than others. But the penalties for anticipated payment, it's not a good idea either, but we have EUR 200 million in available credit lines. So here, again, we have a solid position for that and rather very comfortable in terms of the loan maturities. And now I'm going to hand over to Luc, who's going to talk to you about our operational priorities.

So let's have a look at some of the things that we see coming down the road for 2020 and 2021 and our operational priorities, look at the 2 different divisions. So let's start with Advanced Materials. On the screen, what you can see here is the main product ranges that we make ourselves. And you'll see, when we talk about Electrical Power here, the real key is producing things ourselves. If you don't make it yourself and if you don't make it -- first of all, if you don't make it yourself, well, then you're in trouble. But the key is to do it well. It's going to depend 90% on the quality of these products. That is what makes all of these components -- high-performance components. Of course, there's the sales force and the service, of course, but so much depends on the quality and this requires huge expertise. And this is why it's so important that we bought a plant for extruded graphite that we used to buy. We have suppliers who provide us with this, who know our grades, but we want to do better and we can get more market share. So you've got the isostatic graphite here. So it's a -- we are #1 with our 12,000 tonnes there. Extruded, we're aiming for about 5,000 tonnes by making it ourselves in extruded graphite. When we talk about installation, EUR 215 million in sales, Here, I'm talking about sales. And then we have the sintered silicon carbide. This is a very strategic area that I'll be talking about. So having the Columbia plant and getting that up and running will really be a key to allow us to produce ourselves instead of buying quite a lot of tonnes and allow us to gain market share as well. So it's really quite unique what we do here. We do have some competitors doing -- but we are, by far, #1, covering such a broad range of products. And so in addition to the different products, we're pretty much the only one having plants in so many places on these key zones. So St. Marys and Chongqing, for example, that can produce about 6 million tones in isostatic graphite. And then we have some sites in France. Then we have Holytown for rigid felts, Holytown, Scotland. And now with Columbia, we've -- you can see they are covering 3 different areas. We originally bought Columbia for extruded graphite. We knew that there would be capacity for isostatic graphite that the previous owner had never really done anything with this. So that can be up and running by the end of the year, if need be. And then so that we have a better balance, we've also decided to start also producing rigid insulation felts for the North American market. So that is for the semiconductor market in the U.S. So that will really be online fully by 2021 at Columbia. So very key new site for us. So we've got some high-tech processing sites because then we have to make the parts for the customer. So we've got semiconductor market in Korea, for example. Well, that's no surprise. But 3 plants in China that are quite sophisticated, that just 5 or 6 years ago we didn't have. And of course, in St. Marys, that's a semiconductor market for a long time. So the challenge this year, well, as you've -- after hearing Thomas, you can understand that, right now, we're really focusing on integration here. So we have to pay very close attention to our processes, but it's something that we're quite good at normally. So we need to get Columbia up and running. There are no major concerns there. We've got a good team there, some people who had already been working there for insulation of felts. Well, it's not identical to what do we do in Scotland, but pretty much. So it's a matter of obtaining customer certifications. And in isostatic graphite here, again, we have good flexibility and we can produce as needed as of 2021. So beyond Columbia, which will keep quite a few people busy, well, we have various other investments in Holytown in Scotland, which is a good thing. We have 2 big customers there. We've got existing and new ones for silicon carbide manufacturers in Europe. So we're increasing capacity there. And then we need to integrate AGM Italy as well. So they process extruded graphite. So very quickly, we want to be able to supply Italy with products coming from Columbia. So what are the end markets, solar, aeronautics, semiconductors, particularly North America, and heat treatment and heat processes. So Milano, the Italy -- Italian site will serve that. We could do much better there. It's a market where we've been present or reuse extruded graphite. We can do more now, thanks to the Italian site. So just to sum up, this is an area where we invest a lot. It's 2/3 of our investments go here. It's not easy investments, it's for very specific equipment. It can take a year to get those up and running sometimes. The products then have to be compliant with customer requirements. So -- but if we look at our current utilization rate of our plant, it's quite good. We can do more. We have a lot of promising markets that we can supply. So -- and some of our customers have multiplied their need over the past 10 years, and there's a big demand particularly for the markets that I mentioned, solar and aeronautics and semiconductors. So there's a lot of future in Advanced Materials, and that's always good news for us. So now if we look at Electrical Power, here, what we see is a very technical lineup of products. So you have all types of switches and protection. It takes a lot of a very specific design and assembly. But the products, in fact, there were -- we purchased a lot of the pieces of these. In fact, we don't need to make all of the pieces but it's the design behind it that we -- we're not making the ceramics, we're not making the plastics, we're not making the terminals. But what's unique about what we do here is we cover all of the standards, first of all, the U.S. standard. You can see the fuses and they are rather large fuses, in fact industrial fuses. And then the European on the left, but smaller, that are not designed the same. And then there are some other standards here and there, such as the BS, which is the British standard. So covering all of that around the world is important for us because you've got German manufactures who are delivering to the U.S., so you have to give -- sell them the right equipment. And then just in -- recently, we've added overcurrent production, thanks to our company Cirprotec that protects installations even in homes, particularly in areas subjected to big variations in the electrical supply. And so homes and businesses need surge protection. And so we -- then we have power conversion. Now here, we're really getting into signal transfer, some very technical aspects. And a lot of it is to do with converting DC to AC. So we've got 4 passive components, okay? We don't make semiconductors ourselves, but to -- the semiconductor people need the cooling systems. They need the busbars to connect it all, and they need the cooling systems to cool it all. So we cover that. We are #1 in the sense that no one else covers all of these lines. Same thing here. So you've got power conversion in blue, green for electrical protection. So we've got a very good global footprint here. We've got Newbury doing the designs in the U.S. Juarez is their production site. In Europe, you've got Tunisia Saint Bonnet and Kaposvár. For China, we have 2 plants, Shanghai and Yangzhou for fuses. For power conversion, this is where we've done a lot of work. And in fact, well, we've got India, which is rather historic. But the -- we've really built up the power conversion in India through acquisitions. So we can do everything in India now, busbars, fuses and cooling systems soon, so that we can begin to address the renewable energy markets there. And we've even got our R&D going on and a lot in the U.S., of course, to be very close to our customers. And customers ask us to go with them. In fact, wherever they're going, they ask us to follow, which also explains why we are so present in China and India. So what are some of the growth drivers here? So a little bit different between electrical protection and power conversion. Electrical protection is around the mature market, driven by growing demand for electricity, also on power storage. But in fact, the main driver of growth here is power conversion. So in renewables, for example, wind towers, of course, produce at variable rates. Then if you've got batteries, you need converters between DC and AC. You need to ensure the quality of the current. So you need converters for that to protect the system. So there's plenty of work for us there. Now what about electric vehicles? So Thomas told me I was -- to talk about this. So let me say a few words. It's true that we put quite a bit of money to research and development. So we started working on that very hard 2 years ago. We've talked to you about it before. Because, well, you have to be able to shut off the current. Some of these batteries are getting very powerful. They're now at about 400 volts for electric vehicles, except for Porsche. They're at 800 volts for the Porsche cars. So we're doing some work with Ford with some hybrid fuses, but in fact, Ford, a bit like Porsche, has changed technologies there. And so we just decided, well, things are a bit unstable in terms of the technological choices, and these customers don't pay for any of the cost of developing. You can either decide to go with them or not. So that's the choice. So for 2 years, we were spending on this. But we stopped with Ford, we are continuing with Porsche. Will -- and we do expect to have a clear idea by June, but the technical challenges continue. Okay, we were unhappy with that impairment, of course, but the story is not over. In fact, because we're looking at hundreds of millions in euros in contracts, potential contracts for busbars and fuses for electric vehicles. And so this can be buses, cars. It can also be for shipping and/or a top range vehicle, like you can see in the middle there. And we will soon be certified there with different customers. So for shipping, it's also very interesting. But then there's a new environmental protection cess. And so as concerns ferries. Ferries, in particular, to enter a port, they will have to come into port driven by electrical power only. So that change is coming. Then -- so then we have buses and industrial vehicles, they are all heading to full electric for mines -- for work sites -- mining work sites. Okay, so it's not big quantities here. But as you've no doubt seen in -- around airports, everything is electric. So all of that is a good news for us. And so this R&D will pay off. And so by -- so currently, so we are selling more for the bus segment for now, but we know the rest is coming. So in the coming year and 2, what will we be working on in Electrical Power? Well, we need to integrate FTCap, first of all, which is not an easy thing to do. The Italian side is easier. But FTCap is capacitors. We have to get the products certified where they weren't previously certified. So that's going to take all of this year, first of all, before we start seeing real sales. Then we have Idealec and busbars. We need to work on these synergies there. And then in Europe. So as I talked to you about the fuse standards, well, we're not as profitable in Europe as we are in the U.S. on some of those. And I think it will be very hard to achieve more profitability in the U.S. There's more to do, harmonizing across our plants. And we're also strengthening our industrial base in India because Bombardier and Alstom have contracts there. We have to be ready to supply them very quickly. What about new products? Well, as I've said, we are stopping the R&D on electric vehicles for now until the landscape becomes a bit clearer, so other than Porsche. And then we are working on new electrical protection products, which could represent about EUR 10 million in sales in the 2 or 3 years ahead. So stay tuned for more news there. Now in Electrical Power, to sum up here. Here, there's a lot of work being done in terms of operational efficiency. So for example in Europe on electrical protection and some product lines for power conversion as well, the operating margin there is at around 9%. We can get up to 11%, I'm quite certain. So we're going to have to focus on that. A lot of new products being launched right now in electrical protection. And we have some good growth drivers there in power conversion. So if you look at everything that's going on in power storage and electric vehicles, the power conversion, there's a lot to do there. We have a lot of customer contacts, a lot of demand. And so the coming 2, 3 years will really pay off everything that we've been doing there. So what about the coming year? So before I say anything about the coronavirus. So let's look at the right side of the slide here. So as Thomas has said, well, the solar market is heading for a good year in solar Chinese companies. There's 3 big ones that say they will be increasing their production, just going up to 170, 180 gigawatts. So we're quite comfortable with those numbers. There are a few Chinese competitors in fact also supplying these companies, but we are very well positioned. And so the market is heading in the right direction. Also, everything to do with power storage, there might not be huge growth there. We expect to see much more starting in 2021, 2022, in particular, when we do our simulations. In semiconductors, we estimate this between the silicon, silicon carbide. We could see coming off a high basis of comparison, maybe not fantastic numbers, but in the -- but things are definitely shifting to silicon carbide. Chemicals, no growth after 3 very strong years. And in process industries, this will greatly depend on the global economy. So there are some signs of a turnaround in Germany, but sales have been sluggish there. We are addressing this. It's EUR 100 million nonetheless for us. Okay, the American elections might have an impact on the economy. We hope to see things to rebound there. Brexit, we are not particularly impacted by that. And now coming on to coronavirus. Of course, this is something that we must pay attention to. Now already we had a great first quarter. So we're working on a very high basis here. But -- so excluding these other impacts, well, we could hardly have done better. We've done great. But nonetheless, we are -- well, I think things have been complicated in China, but we are pulling through quite well. The plants all resumed work on February 10. So it's true that -- well, there's a certain cycles in China, but -- and it worked out okay for us. And so things are working, they're moving ahead. We are seeing some problems in terms of the -- on the Electrical Power division because we work some smaller businesses. But overall, I must say there hasn't been much impact for us in China. Of course, we have to keep our eye on all of this. We'll have to see in March and April in terms of the logistics management, for example. So I must say that we are keeping our eyes on the future effects, but it's hard to give a very precise guidance here. What we can say is that well, the first quarter, we will have seen some contraction in sales but we have the ability to recover quickly and to offset that downturn because the demand will come back. There you have it for me. And so now we will take your questions.

So I have a question. Could you please tell us about your plans for increasing capacity for silicon carbide in the coming years?

Okay. This is for the semiconductor market, okay? We make several types, in fact. So we follow demand here of 5 or 6 big players. Cree is one in particular, in Germany, SiCrystal. All of those players have their plans and programs, so we integrate this into our production programs. So we've been adding in capacity in Holytown in Scotland to that. We can -- we have 2 Chinese [Audio Gap] So our -- we adapt capacity to demand. In fact, in rigid felts, we are often the only one certified. We are technically ahead of our competition, okay? So we are not always #1, we might be #2 on some graphite products. On rigid felts, well, we do have to be good here because we really have to follow with the dynamics of the market. So we've had 2 consecutive years of spending EUR 10 million to increase capacity. And well, we are devoting about 25% to the investments towards that market and that includes the work that we need to be done on Columbia.

So have you changed your outlook for growth for 2, 3 years? What sales figures for 2 or 3 years in -- for the silicon carbide market?

Well, on a 2-, 3-year horizon, we are not giving any very specific figures, there's sort of an envelope there. Okay, the business is moving a lot. We are waiting to see what some of the processes will involve. And there are some new players trying to join the market, STMicro, for example, microelectronics. Then others as well. So we are constantly doing reviews of the situation every 2 or 3 months in fact. So it's because things change so quickly in this business. And so we look at the customer data to prepare for the following year. So we have an idea of what we will need after 2021, but so little by little every 6 months, so we firm up the numbers with our clients. But of course, some of their demand might be postponed or shifted. For the electric vehicle drive, there's a lot of change right now and in many applications in industry and robotics, for example. Wind power, solar power, it's -- the -- so the boom there is not being driven by electrical vehicles but rather in other areas. So we had a question from the webcast. So what is your mark for maneuver in terms of costs if growth falls? And what you expect to see for the second quarter and third quarter, in particular, coming off of a high base of comparison? Well, we don't give guidance per quarter in fact, so I can't really say anything about Q2. And of course, with the impact of the coronavirus, it's hard to tell. So it doesn't make that much sense to try to give guidance in just a quarter. Now there will be the base -- high base of comparison effect, that's true. Now for the first quarter, as we've said, we know there will be a contraction of sales. So I think that's pretty clear. Okay. So as concerns, what's our room for maneuver? Well, in fact, what's hard is when the landscape is not clear, okay, we -- there are many things that we can adapt. But it's true that we're being prudent about our capital expenditures, but we always move forward with such things gradually. So we'll be paying very close to that type of spending. And then in terms of the staff numbers, we have about 1,000 temporary workers at any given time. So we work with that. And then there's -- depends on the geographic zone as well. So what -- and in fact, we don't expect to have to take any very hard measures. We're focusing on productivity. Those are things that we need to do any way, paying attention to staff numbers is part of that.

Another question. Do you have visibility on the inventories amongst your clients?

Well, okay. Well, that's a tough question. Well, we don't have a whole lot of visibility. When we're asked what's going to happen in the coming weeks, well we are still in discussion with our big customers, like Siemens, but we haven't had any major announcements by them about any changes. They have some big projects that they might not intend to slow down with that. We haven't -- we -- ourselves, we're not having any problem in supply on our side, okay? We -- and so I believe it's the same thing in terms of our clients, supplying our clients.

I have another question. What about electrical distribution in the U.S.?

Well, currently, well, it's not bad in fact. It's true that the first quarter is down, but it's picking up in fact. So at the very beginning of the year, it was not good. It's picking up. We have another question.

I have 2 questions. On electrical protection, first, the margin is slightly down since 2016. And you talked about the mix effect. Could you perhaps explain that a bit more? And are you taking specific measures to improve those margins? Although I know you did have some recent restructuring there. Second question on capital expenditures. About EUR 50 million at a sustainable level. Here, you're talking about different amounts. What about Columbia and all of that? Will you be increasing capital expenditure because of Columbia? And what about -- well, it looks like Columbia is having to start up from nothing, whereas St. Marys, wouldn't it have made more sense to invest more there since they're already up and running?

Okay. Let me try to answer part of that question. Well, no, we didn't have to make any choice between Chongqing, St. Marys and Columbia. It's more between St. Marys and Chongqing, but these are very technical that not easy to explain. Now Columbia, in fact, is going to be making a product that we don't make elsewhere in the group. So that's extruded graphite. And the capacities in Columbia will really kick in when St. Marys and Chongqing are at full capacity or if we see better profitability to have certain products, certain sizes, dimensions of products to be made there rather than at St. Marys, for example. I mean, we're very close to Nashville, okay. And they are -- there, the plants are quite different in fact. So it's not a problem competing with each other. Okay. And then you asked about the investment. Well, in fact, in Columbia, yes, this is all about setting it up. You talked about EUR 50 million investments in maintenance. I'm not sure what you mean exactly there. Oh, okay. In fact, there's -- yes, there's several million euros for upgrading some sites for environmental reasons. That's what was called maintenance, so smoke extraction and treatment, for example, because the standards are more and more strict. So sometimes we have to make investment there to be compliant. And then there's productivity investments, which are quite high as well. So that's all part of that. What -- so it's not EUR 50 million. In fact, it's about EUR 30 million for what we would overall call maintenance investments. As concerns of profitability and electric protection, without getting into too much detail, well, in fact, the distribution market in the U.S., it's a very profitable market. So when there are fluctuations there, well, some of this is coming from the mix that can -- that we have to follow. But then in power conversion, it's also very profitable products there. So it means that any fluctuations there have to be very closely followed. But that said, we have significant sales in Europe where we need to be more profitable. In fact, maybe we need to work on the products or our industrial footprint. We have product lines at certain plants, we're making busbars, others making capacitors. We have to be more profitable. And we've said that FTCap would be dilutive in the beginning. That's being worked up. There's no major restructuring there. There's only 1 plant. So we're working on the processes there. All of this comes in combination with the price adjustments, selling the products differently, less distribution, more to OEMs, things like that. It's a complex environment.

I have another question. What are the trends on the product mix for 2020?

Well, we don't see anything negative coming down the line for the product mix, but yes, trying to detect where any economic disruption could concern our product mix, well, we can only work on hypothesis here, we don't see electrical distribution going down. That's the mix that had been negative with electrical distribution, but that's about all we can say at this stage. Are there any other questions? All right. Then thank you, everyone. And so we'll see you on April 29 then to publish our results of the first quarter of 2020. Thank you, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]