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

All right. Hello, everyone. So what a pleasure to see you again in this room, although some people are, of course, connected remotely. And so it's a 2 years to the day in this same room that we last saw each other. So thank you so much for being here with us and for connecting remotely, and we will present Mersen's 2021 results. So of course, I must say a few words about the World News, which is obviously on all of our minds, and you probably have some questions about the group's position in the conflict zone. But we have no plans, we have no staff. So on that side as concerns Mersen, things are fine. Although on the human side, of course, they are not. So today, we'll be presenting our results for 2021 and guidance for 2022 and the outlook through 2025. But we will not, in the current presentation, be talking about any effects of the crisis in Ukraine. But of course, if things last for too long, then there could be consequences. So we'll be talking to you about where we've been investing, where our markets are headed. And so we -- this is why we decided to give you some outlook towards 2025 because we're preparing for it now, of course. But first of all, let's look at about -- let's look at 2021. So great performance here. 2020 was, of course, quite complicated, and we were happy to come out of it, not too badly. But from there, we began to see a good level of orders. And then things started picking up in the first half of 2021, as you know. And we knew that this solar energy would be going well, semiconductors as well, aeronautics, we -- and rail. We knew that, that would be lagging behind. But then there was the industrial side on the EP, Electrical Power side, that we had to keep an eye on. And then we began to see in the second half of the year, things really picked up very strongly. And so that's what brings us to this EUR 923 million in sales, which is close to our 2019 level. So a great turnaround, a great recovery, and which puts us in a good position for the future. So current operating margin at 10% on the dot. 10% of sales. We are -- we are also investing and building up our teams. We've got the Columbia site, so there's still a lot of investment. We're also beefing up our teams for electric vehicles. So all of that is integrated into the P&L, of course. Then we're seeing a growing demand and Columbia, in particular, will be a great resource for us. And so this means that well, we decided to show you what the dividend will be. EUR 1 per share for the shareholders, so that's about EUR 25 million (sic) [ EUR 21 million ] in euros. And because it was a very good year, all staff as well received bonuses as part of the profit sharing program, and so -- and that will be about EUR 25 million. So now for us, 2019 is sort of a reference year for us, so you can see that sales are not far off the mark. Of course, there were 3 acquisitions in the period, and we still have aeronautics and the rail industry that are still lagging by about EUR 50 million, so there is room for recovery there. So we look forward to that pick up again. The EBITDA margin was very close to the 2019 levels. And the operating margin, I explained to you some of the reasons why it's a bit down from 2019 due to our investments. At the same time, we have been continuing our efforts to follow our CSR road map. Now, you don't see everything here because there are a lot of different projects underway, but we are quite close to 56% of our sales of being in the sustainable development markets. We've got women managers and executives at over 24%. We've also got some excellent safety results as well. There were a lot of safety visits, close to 5,000. Of course, it was difficult in lockdown times. And if we look at recycling of our waste, we are at about 63% recycling rate, and 91% of our employees say they are proud to be part of Mersen, according to the surveys. So we -- I'd like to say a few words about Polar Pod project, which is something we're very enthused about. Jean-Louis Etienne came to us and present us the project, so it's to do with conducting studies about the climate change. But the machine is very interesting itself because there's power electronics and energy storage, which, of course, are right up our alley. So we're -- we find this a very interesting adventure, and Jean-Louis Etienne is a fascinating person himself. So it's -- no. So here, you've got a slide just with some pictures. But just to give you an idea of what I'll be talking to you about. So we've got, of course, electric vehicle, semiconductors and the solar industry, and I'll say more about that later. But now it's Thomas's turn.

Thank you, Luc. So let's look at the results, so I hope you can all hear me okay. So let me see if I can work my way through these slides here. So sales, as Luc said, very good. Here, EUR 923 million. That's a 9% increase like-for-like and all of our geographic zones contributed to this, which is pretty remarkable. 8% across all zones, North America, Asia and Europe. I mean, we didn't do it on purpose, but that's great. And I think this really demonstrates the pertinence of our model to produce and sell locally, to be as close as we can to our clients as we develop products with and for them. So most of our markets have contributed to this growth, but what really drove growth was the energy sector, particularly solar, and then electronics, in particular, semiconductors. Process industries as well, not as strongly, but as Luc said, this is often very much tied to global economic growth. And -- but things, in fact, went better than we had expected in 2021. And the chemicals market, things were stable, which was a good surprise in fact, because they had been negative at the beginning of the year. So things are trending in the right direction. And then in the transport market, of course, this was underperforming. As Luc mentioned, Aeronautics and the Rail sector were significantly down for the year and haven't picked up yet. At the same time, in Electric Vehicles saw strong growth. Okay, it's currently a small market, which can offset the other underperforming markets. So here, you can see that 56% of our revenues are tied to sustainable development markets and they had stronger growth, including in the Process industries. So here, you can see our quarterly sales trends since the beginning of 2019. And so what you can see here is interesting because you can see the downtick in 2020 and a return to growth and even exceeding. And so in the fourth quarter of 2021, we even exceeded the same quarter of 2019, and our book-to-bill ratio has been above 1 throughout the year. So that good performance has enabled us to get back to a double-digit operating margin. If we look back to 2019. In fact, we were at 10.8%. So there was a little bit of an unfavorable currency mix, but in particular, there was amortization. It's true that in 2019, we were really at our maximum in terms of capacity. But what we've done is we have been investing to raise our capacity. And so -- in fact, so we've been doing all of that so that we can position ourselves for even more sales in the future. So for 2021 -- so where are those base points are coming from? Well, there's the volume effect, of course, which is always important at Mersen, so -- and there was also some positive mix effect. If we look at the inflation of raw materials prices, this was partially offset by sales price increases. There's always a bit of a lag though, of course, but this is going to be one of the real challenges in 2022. So we're going to have to take measures, and Luc will come back to that. Our productivity and adaptation plan was very effective and helped offset the salary rises and as -- and then also to offset the non-recurrence of certain government aid that we received in 2020 due to COVID. So that's a good news. And then also, there is a very good bonus and profit sharing distribution. Okay. So this explains a difference of 0.8% difference compared to 2019, so great progress here. And we can see this in both divisions. In fact, they contributed to the improvement of the group's profitability, and for all of the same reasons. There's a bit more volume effect in electrical power and a bit more attributable to the adaptation plan in advanced materials. So now let's look at net income, which was, of course, a negative last year. As you remember, there were a lot of charges particularly linked to the plan. So it's positive this year, close to the 2019 levels, and now it includes a EUR 5 million in non-recurring expenses in connection with the adaptation plan and the ramp-up costs of Columbia in the first half of the year. And then we have financial expenses, which were improving, thanks to the decrease in our average debt for the year, and we have obtained better financing rates. So our effective tax rate is 24%, which is quite comparable to what we saw in 2018 and 2019. But of course, 2019 was not an ordinary year. So all of these good results often stemming from the adaptation of plan. And in fact, these plans cost less than expected, so this is all very positive. But in cash, there's still about EUR 6 million that have been recognized, but we will be making the cash outlay in 2022, so let's look at cash flow. So EUR 117 million before investments, so this is a very good level. Here, again, this is absorbing EUR 8 million for the adaptation plan, so we're doing -- that was even better than 2019 level. Now, of course, this is lower than 2020, which was an atypical year. Of course, when there is a drop in sales, well, then you're going to see gains in working capital requirements. And then in the following year, well, things turn around. So here, we are back into the normal business levels. But these are good cash flow levels. And the conversion rate of 79%, I don't think we've ever done that before. In fact, that's an absolute record, and this 19.4% benefits from a certain technical effects stemming from the bonuses. We had provisioned for a lot in 2021, but there wasn't much a payout. And so what have been provisioned will be paid out in 2022. So of course, this somewhat artificially improves the WCR, and so -- and we, without that effect, we would have been at over 20%, which is, of course, very -- represents a very good management of our supply chain, in particular. If we look at investments, EUR 79 million a year. Of course, there's maintenance and productivity investments, investments in solar, energy storage, electric [ vehicles ], semiconductors. And well, Luc be telling you more about Columbia, and about EUR 9 million to -- for environment and safety at our sites, improving our processes and installing as well solar plants here and there to power our sites. There was EUR 5 million spent on various projects to on the -- sorry, on the IT system modernization, and that project continues through 2022. That project isn't yet complete. And now, if we look at the -- here, this -- our debt level, it's pretty much stable. Slightly up because you can see, well, there was EUR 10 million in acquisitions, and this concerns the acquisition of our partner's shares in our Hungarian fuse factory, so that's entirely ours now. And so debt at EUR 193 million gives us an excellent financial structure. Net debt to EBITDA is 1.42, and we are at the low -- and we're even doing even better than our range that we must stick to, and the gearing is excellent as well. So these good performances allow us to propose a record dividend of EUR 1 per share, so that's a -- also within our range of 30% to 40%, so here, we're at 38%, so this -- so you can see the cash out that will occur in July. So, what about liquidity? As you know, probably, we have refinanced our USPP with a new one with long maturity rates -- long maturities, sorry, and so there are no high immediate repayments. We've got other borrowings that can be refinanced. So all of that, that good financial structure and good liquidity will allow us to finance our projects that Luc will be describing to you. I'll now hand back over to Luc.

Okay. Thank you, Thomas. So let's first have a look at what's underway for 2022. We've got a great order intake currently, so we're getting very close to the EUR 1 billion in sales. We're not quite there yet, but not far, so we're pretty confident in the dynamics on our different markets. And in semiconductors, I'll give you more details there. But let me tell you a bit about what's going on right now. There are 3 key areas that we're focusing on. We are continuing to strengthen our EV team, Electric Vehicles. The plants are ready to start production in 2023. So we have a strong automotive culture here, I mean, we already have a lot of experience in the automotive sector, but we need to build it back up again. There are a lot of things to be integrated. There are a lot of clients that we have to work with. There's a lot of design engineering underway, but we don't want to spread ourselves too thin. But at the same time, we need to stick very closely to manufacturers, so we need to be ready for that. We need to be very present, so we don't want to miss any opportunities. And right now, there is, yes, a great new project with Soitec, which is preparing to be -- to produce products by the end of 2023, and we are working with them. The idea is to do some work through our Gennevilliers plant with them. This is works a lot of preparation work, of course, so there's a fair amount of investment there. So we're doing lots of sample and prototype production underway there. It's all very promising. Then as for Columbia, it's starting its production now. There's been a lot of work to produce 2,000 tons, and demand is going well. And so we are also starting our production in isostatic graphite there to meet the demand coming in. So the -- we've got dedicated teams. Myself and Thomas are monitoring all of this very closely. So in light of all that, we expect to see sales growth between 3% and 6% with an operating margin of around 10%. Now, there's some inflation underway, so a bit prudent. There's the EV team, of course, well, represents there's a certain weight of financing that and Columbia, well, this operates in tranches. But in light of the investment there, we know it won't be profitable immediately, so that will weigh down on some of the results. But we're building for the future, but it's all very acceptable levels. If we look at the CapEx, pretty high levels between EUR 80 million and EUR 85 million, and pretty much in the same areas we've been talking about to you for some time now. So that's our road map for 2022. Now, if we start projecting towards 2025, we can see some strong levers for growth. So for the past 4, 5 years, we've been working on an operational excellence plans and there are a few plans that are still need to improve, but we are prepared to follow demand and keep up with our growth targets. Okay, there is still some movements, some transformations, for example, in Korea for semiconductors. Also, we've been working with the local teams a great deal even when it was difficult to travel there, but things have been going well. And we're building industrial capacity, but as I've said, well, Columbia will gradually be ramping up and some very strong levers for growth. So of course, there's a huge -- okay. So we are trying to keep pace with the changes in lifestyle. Thank you, Véronique, for that sentence. But it's about more electrically powered vehicles, et cetera. And we, and -- but also, at the same time, we set some ambitious goals in CSR, and I'll say more about that later. So let's take a closer look at Columbia. It's a truth that there was a good growth in materials from 2017 to 2019, which meant that we had reached absolute capacity in terms of tonnage of graphite, and so we were stuck a bit if we wanted to rise up to 12,000 and more tons. And so there was some issues with Graftech. So we decided then to make an acquisition in 2019, and it was at a good price, that acquisition, and we began to work on new graphite formulas. New grades of graphite so that we could be able to start production. So this was really our basic project. Okay, then we -- there was the Americarb issue. We had to move, in fact, the production line because if we hadn't had that, well, it would have been very complicated. So we were lucky that we were able to ship the Americarb production to Columbia, but we -- that is all underway. In 2020, we weren't expecting to have to reach 8,000 tons of graphite, but we had to prepare for that. And in 2021, we even began production of extruded graphite. And so we're quite happy that we've already got some capacity. Okay, it's not easy. It's not just with the press of a button that you can start up a production line, so -- but we are already beginning to supply certain markets. So that was a great acquisition. In fact, we were lucky in many ways. And so this is becoming one of the top 3 facilities for the group. So let's look at some of our strongest growth levers. Well, of course, you're familiar with the solar energy. And so with our targets there for EUR 100 million for 2025. If we look at semiconductors, the silicon semiconductors so here 4% growth, the EUR 60 million by 2025. Then in SiC, 16% growth. And of course, I hope you attended our session in December, focusing on that -- this. Producing SiC requires a lot of Mersen components, so that's interesting for us as well. And electric vehicles. Well, it's true that the goal is there EUR 40 million to EUR 70 million. That's a pretty wide bracket, I admit, but we don't want to get overly optimistic there. Well, we have to be prudent in the numbers we announced. That's a pretty wide bracket. So here, I think a lot of you in the room here probably know this type of slide by heart. So if you look at the start of the process, so the manufacturing of the ingot, it takes a very high-temperature furnaces where we provide graphite components, and so those are the 3 main clients. There's been a lot of consolidation there. In fact, okay, there is often new entrants in the Chinese market in particular, but those are the 3 mastodons on the market that represent 80% of cells -- of solar cells, who then deliver to electrical production panels. Now, we don't anything there, in particular. But once it's installed, then we provide the electrical protection. So you can see the clients there. And something that's a bit newer is there's more and more energy storage. Most of the energy is used in real time, but there are more and more storage blocks like you see on the screen there. It looks like a container of sorts, and there are a lot of batteries, lithium ion batteries in there, and there are a number of modules inside. There are fuses to protect those modules, and then there are -- there's power conversion systems as well. And here, you see -- then he see [indiscernible] -- which is a Swedish company, Northvolt, and I think they've got perhaps partnership with Volkswagen, I can't remember. But anyway, great potential. Several millions, we're already have several million euros in sales there, and this can be used in wind towers as well. So you can see the sales of EUR 71 million for 2021, and we will expect to approach EUR 100 million for 2025. But there are tons of graphite. They're needed all over, so we have to decide how to distribute them amongst the clients. We can't put it all in solar. We have to also be able to deliver to all types of clients. Now, if we look at the semiconductor side, the silicon that, for example, in computers and smartphones, you can see that it all starts on the same thing, an ingot, but it has to be ultra pure. And it is quite sophisticated, that's interesting for us. And then, of course, there are a lot of different steps before you can arrive at the computer memory or the transistor. So there is the wafer epitaxy. I put lithography there because -- and in fact, ASML is a big European manufacturer. And so -- and what they do is they make the templates for the etching. But there's no graphite involved in that there, but I put it -- we put it there, so you could understand the process. So there are a lot of different templates, and we are good. We are probably #1, and our expansion in Korea is very important there for the ionic implantation. So this is very interesting at that stage. And also, you can see, well, the other names that you are no doubt familiar with. So we had sales of EUR 47 million in 2021. We're aiming for EUR 60 million, that's perhaps a modest ambition, but we know that the market is huge. There is a huge demand right now, making up for a bit of a slowdown. And it's really worldwide. The Chinese, perhaps, will be ramping up or moving into more higher end production, we'll see. Okay. So what's going on in SiC here? Fewer -- there are fewer steps, but they are more critical, okay. So it's not an ingot, it's a ball-shaped crystal, so you can see the monocrystalline version here. And from there, you can make about 40 SiC wafers if they are good. Well, now there are some 8 meter long ingot for solar, and they can make slices down in the microns level, so you can imagine the quantities. But here, it's a very different thing. So here, we've got a smaller ingot and then there's the wafers, and from there, the transistors. So down below -- so where is Mersen's expertise? Well, it's in the crucibles. So for example, at Tesla, it takes -- needs 24 of these transistors. This takes a lot of production. The sales here, you can see EUR 36 million for 2021. We are aiming to remain #1 or #2 for 2025. So you've got ST Microelectronics in [ Catane ]. You see some of the other big clients. So then what so we've got this fabulous product. There's huge demand coming in. It means that furnaces are being built, the wafers are still complicated to make and costly as well. And what speed always wants more and more. So we had to stop and think about, and others have been trying to think about how to do things better. And so what is Soitec doing? They have a smart cut technology. They can do this on any types of single crystal as well. They can do very fine layers on the single crystal, 10 microns, for example, up to 20 microns, and what they have managed to do is so they use the smart cut technology on SiC. You can see on the left there, there's only about 10 microns on the service that are for the transistor. Everything below that doesn't -- it's just a substrate, okay, it has to be done right. But -- so there's 50 microns there because it has to be the support for the top layers. And so what Soitec is doing is slicing the different essential layers, and so we still need that substrate to support these very thin layers. And so this is where Mersen comes in, okay. It's been -- it's a doped graphite because it has to be as conductive as possible, and that's where the great technology is. At very low resistance, these things heat up, you know, while they're operating. And the layers here, this is where the genius lies on paper, but now -- though they are making the [ MOSFETs ] already, so it's super interesting what they're managing to do. So you can see the representation on the right, so they're getting their products certified with transistor makers. And there's -- we will be ready by 2023 to be producing this. So these are French partners, teams in Paris, teams in Bernin, which is in the southeast of France. So there's a whole lot going on here. In fact, I could say a lot more, but I won't go into too much detail. Okay. So current 2021, no sales yet, of course. But in fact, we really expect the market to be really interesting by 2030. So there will only be EUR 30 million in 2025, so we are preparing for that. We have to prepare for that now because there's a lot of industrial work to be done here. And this -- and so the prospects 10 years down the road could be incredible for us. Okay. So here is probably something that you're more familiar with, the electric vehicle market. So most of the electric vehicles are constructed that way. So you can see the different modules here that -- top right, you can see those battery modules. So you've got these cells, these cylinders that you see top right. And then, of course, you've got the terminals, the cables, that will send the power to the inverter. And so we're working with various carmakers, and I'll show you whom, to work on this laminated bus bar, which saves a lot of space, in fact, on just one side, as you can see. So the poles are only one side, the plus and minus terminals, that safe space. And so we're working with the various car manufacturers, and we expect that to bring us up somewhere between EUR 40 million and EUR 70 million. So in fuses, there are a lot of things that we're already doing there, of course. And these -- so here, you can see placements. So you've got the contactors. You've got the power control systems. And the electrical current can either come via auxiliaries with other fuses. For example, power steering will require separate lines, et cetera. And if we look at the inverter here, we are also being asked to make these components as well. So we've got the power converters, the capacitors, all of those are things that we can provide. Okay, sometimes we're only providing fuses, but also most of the time, bus bars and also power converters. So this is where we believe that we can certainly reach EUR 40 million. And then there will be the transition to SiC. So well, the -- we have a production site in Mexico, okay? We know that European manufacturers will also need teams here, so we're building up those teams as well. We've got a site in Shanghai for -- so the idea is to be ready by next year, producing in Juarez for where we already have certifications, and then get other sites certified as close as possible to the clients. So the product range has been defined. So we've got plenty of products there. And bus bars are all very much customized per manufacturer. We are working with partners for the 800-volt hybrid disconnectors, and a lot of other references that you can see here. Now it's really only a Marquardt who has allowed us to officialize the certification, but there are many others where we are pretty much already certified, and I'll show you those names later. So well, BAE. This is for electric-powered buses in the U.S., well, Panasonic, you know very well. Arrival, I think they make e-trucks for UPS. And then there's Lordstown who are also launching into car making. So here, you can see the panorama of our clients. So of course, we're working with Tier-1 suppliers. We're working with everyone, frankly, and so that's the current landscape. But we are also discussing directly with manufacturers because some of them are redesigning their production platforms. They may have started with some rather standard products, but now they're looking to optimize their systems, but I'm not showing everyone on the screen there. So we've got Tier 1 Marquardt. And frankly, even 2 years ago, some of these companies were not clients of Mersen. So there are new names, new players on the market. But at the end of the day, it's not that many, and there could be some consolidation. Valeo, for example, is not on the screen, and some of these, you're probably familiar with. Okay. But there are some that are Chinese-made, so you might not be familiar with the names. CATL, for example. But then we have Samsung, Litens, and we've been working with ACC as well for the past 2 years, working on cell connector systems. So -- and so it's true that there's a lot of stakes on batteries, a bit less on fuses. So who are some of those new players? Well, Lucid, Rivian makes a truck, sort of a small truck, and they do delivery vans for Amazon, for example. So we've been certified there. Then we have Faraday. And so -- Okay. They're all well on the way, ramping up their production, so a lot of electric truck manufacturers. So an electric truck is interesting for us given what they can transport. And if they have a cooling system, they might have 50 fuses. So important value per truck there, that's interesting for Mersen. Okay. So after that overview of our fast-growth markets, here are some of our prognosis for 2025. Some of it is challenging, of course. We've got our traditional markets. The Chemicals market, we believe, will maintain its levels there, but we believe that Rail and Aeronautics will pick up again. Industrial processes will generally follow GDP growth path. But the idea is for EUR 1.2 billion. We will soon be at EUR 1 billion, so things are -- will really be picking up in 2024 and 2025. And of course, it's not just a one shot. It's because we have been preparing for this. In the past 20 years, we have never seen such promising growth markets for our business. To gain that in 10 years -- 20 years ago, this was a huge amount of work. Whereas here, in just 3 or 4 years, we've made a huge leap. But we have to be good everywhere. Operating margin over 11%, EBITDA margin over 17% and the ROCE above 12%. So that's a road map through 2025 with ambitious objectives. So we're also working a lot on reducing our CO2 emissions. We've set our targets, and the waste recycling is well underway although some sites are -- need to do better. You've got the number of women in management. It's not easy, but we're fixing ourselves some good targets there, and the other goals that we're setting in terms of CSR. So that is our presentation for you today. And obviously, we will be taking questions and answers. And then perhaps Veronique will have a few words to say.

S to ask questions for the -- we'll start with those of you in the room, then we will take questions from telephone and other questions that were taken via the chat. So I just want to explain that to you. So 3 ways to ask your questions.

BHF, Jean-Francois. Could you say more about the Soitec partnership? There's a new site in Bernin [ and ] France. So what are the stakes here? And what about the investment? You announced the potential for business, but you didn't say too much about the CapEx. So tell us what will be the CapEx to be ready by 2023, 2024 with Soitec? And then what about China? Because we're hearing again that there are some new lockdowns in China. Is that going to have an impact -- there's a problem with the microphone in the room, sorry. So we've got isostatic graphite being produced in China. So are you concerned? Are you impacted by these latest rounds of lockdowns in China? And another question -- and then, well as for guidance 2022, you're giving us a range, what explains about 3% to 6% there. What are the elements that might put you at the top of the bracket or at the bottom of the bracket?

Okay. Thomas, which one do you want to answer?

I'll take the last one.

Okay. All right. So that means I have to answer on China, first of all. Yes, since last Sunday, we've been receiving information that in some regions, there has been a lockdown, but for short periods. Yes, it was announced by some companies where the plants were closed for a week. Locally, the teams make the decision who -- well the Shanghai headquarters close for 3 days? We have a plant near Shanghai where there was also a closure for 3 days. So it's not like a couple of years ago, closing for a month, so it's just 3 days or so. And so our plants are not impacted. Now if it reached Chongqing, well, it's a process plant, you certainly can't do any teleworking in those cases, so the process plants, people are still present. But it's easier to close a machining work shop than it is the big furnace sites. As for Soitec, your question there. Now, we are spending money in this first phase. We believe that we will be getting there some subsidies there, that's pretty much -- we've been pretty much assured on that side, so we're not expecting too much of an impact on the P&L for 2 or 3 years. So it's hard to put a figure on the plant that will be built. We don't know exactly the cost and design. Of course, yes, there will be furnaces, but we don't know if we're buying 50 small ones or 3 big ones. That's still being studied. But in any case, we've got 2 years to get a better picture. And if things go according to Soitec's plans, by the end of 2023, we will be able to come back to you with some figures for a dedicated plant. But yes, so currently, we've got Paris teams working on that as well. So are there any other aspects you wanted to know about Soitec? So Thomas, guidance.

Well, it's the process Industries and Rail, I think, that are the unknowns here. Now process, we do have order -- well, the order log. It's -- there's often a fairly long production at time. Process industries worked very well in 2021 and electrical distribution was very high, and so perhaps it's distributors who are looking to build back up their inventories to protect their supply chain. April, May last year, we were already seeing that, and it's continuing. We're seeing some significant orders. So currently, that's the case. But in electrical distribution, that's a picture that can change quickly with the economy, not taking into account any indirect impact from the Ukraine, Russia conflict.

Everyone. Thomas [indiscernible] of [indiscernible]. I have several questions as concerns 2022. So you talked about the order log, and so where do things stand now compared to the end of 2021 for 2019? In terms of operating margin, what are your expected capacity usage for Colombia? And on EV, what were the costs in 2021 to build up the team? And what will it be in 2022? And as concerns raw materials inflation, could you say what your policy is for hedging on that?

Let me start with the last one. The last point, inflation of raw materials. Now, our strategy is a very dynamic one on raw materials. Before, we used to raise prices maybe once a year, but we have completely changed our approach. We can now make decisions more quickly on raising prices. Now, there's copper. It's an issue as is silver, but we're doing a bit better there. So it's all about changing the dynamics on our pricing, okay. Now, it is an element in our guidance. Will we be able to pass on all raw materials costs? We don't really know yet, and that's going to be the challenge. And I mean, currently, for now, we are able to pass on price rises. But if there are new ones, well, we don't know how far we can go with that. And so in the guidance, so we figure that we won't be able to do that at least immediately. There might have to be some lag in raising the sales prices.

Now your question about Columbia, there's a first tranche of investments for the extruded graphite. That's we're going to be producing, 2,000 tons this year, so we're at 100% of its -- the capacity of the first stretch. But then there are some additional costs or -- to then get up to 4,000, 8,000 tons. Okay. So the grades have been development. It's true that the yield might not be very good in the beginning as we improve the process there, but we need to be at 95% yield. And so that explains our guidance on the operating margin, okay. So none of this is written in stone, of course, because, well, yes, so we have to ramp up. And I think there's another question that we didn't answer. Oh yes, about orders -- incoming orders. We don't give guidance on incoming orders. I mean, we -- you saw the curve. Normally, we've got about a 4 to 5 month backlog in general. And so the first quarter will be good, that we can tell you, and certainly the first half of the year will be good. And then, of course, the economy always comes into play. But our market -- the market trends for us are quite positive. All of our markets are trending upwards, or even very positively. We are also building up for the silicon carbide demand -- we don't see -- it certainly won't be coming down. The demand is high. The Chinese for the solar markets, we have orders through December and beyond in fact, okay. So -- but yes, in the first half of the year, some of the bookings for our solar will not be as high. But in the second half of the year, definitely, we've already got orders from OEMs. We've got sales in Korea, and we're a bit tight in terms of supplying some of the demand. So those main growth markets that we showed you, they -- I'm not saying that they are impervious to the outside world economy, but at the same time, there's so much driving those markets that we expect to see that continue. And so we need to see all this confirmed, of course. I mean, really, we -- having seen -- we're usually at about 8 months advanced orders is typical, so never 12-month booked orders. We never have that kind of visibility, so you shouldn't be expecting that, but we're doing quite well. And on electric vehicles, the investments. Well, what we've got is the fuse lines. 25 new hires, I believe, to beef up the teams.

Well, yes, it represents about 0.3% of the margin to build up those teams, okay? Because for 2022, there's not going to be any additional sales. Well, there will be, but at low levels. It's for 2023 where we expect sales to become really noticeable and important for us. Right now, it's more about investing in our human resources, whereas the others -- on the other divisions or other business lines, it's more about capital investment.

Stephen Benhamou, Exane. I have several questions. First question, you've got certain pricing power. So in the guidance, should we then understand that half comes from volume and the other have from price? Second question. You said there could be a lag between rising materials costs and the ability to raise sales prices. Is there [indiscernible] effect there between S1 and S2? And what would have been the EBIT margin? It seems to me we're close to 11%. If we compare to your guidance, you think you're going to be close to 11%. So what then is going to explain the improvement in operating margin in the next 4 years?

No, not 11%. Let me start with your last question. It's quite interesting. Now we've said the -- we said operating margin would be above 11%, so this -- we've got a 15% conversion rate. So because we are continuing to invest, as Luc said, the things don't come to an end in 2025, the investment continues. And if we look at the EBITDA levers, what are the drivers there? 17.5%, well, it gives you a conversion at 20% to 25%. And so -- so that really follows -- I mean, that's guidance. We're being prudent, so there is room for improvement. Yes, there is a volume effect in our guidance. We didn't go beyond the inflation trends that we're seeing now. There is a price, but it doesn't account for 50%, okay? It's -- but at the -- if we're at the top of guidance, yes, the price isn't that much of an effect. We've always increased them about 1% a year in fact, okay. But we're certainly not talking about 10% price increases, not at all. We're not on that kind of market. So price doesn't explain that.

There's been several waves, in fact, where we will be able to offset everything. Well, we started with copper. There is transport as well. General salary inflation. Gas and energy, which is, of course, not looking very favorable, and there are some prices that we can't raise if we're still within the framework of a contract. So there's no clear model that I can propose to you. So on average, in fact, it won't be. there will never be 10% increases in prices, as Thomas just said.

So raw materials, perhaps, the impact will be stronger in the second half of the year. But we're looking at the market dynamics. Of course, we keep an eye on this, but we -- there are salary increases that are higher than the previous year, but this has all been accounted for and there will be price increases as well. But at the same time, we've got the operational excellence plans as well, so it's all about managing the dynamics.

On raw materials, other than the price effects, are there -- is there any risk in supplies? Looking at Russia, for example, I think coming from Russia, not copper, but any other raw materials where you have a sourcing from the conflict zone? Russia, Ukraine.

No, we don't buy anything there. But there are some suppliers who buy things in that zone and who transform them and then send to us. But for now, that...

But we've got clients, however, who might be more impacted, so we don't know yet.

And another question. So you talked about the productivity plan having its full impact now. Are you planning for any new measures for internal productivity?

Well, every -- well, there is a plan every year for -- so we will continue every year to have a productivity plan. So the adaptation plan, in fact, was to respond to a particular situation, the drop in the Chemicals market tied to the health crisis, and then the drop of the Aeronautics market, for example. So it's always about being agile to respond quickly. So every year, there is productivity plan.

There are no more questions from the room. We do have some questions that -- well, some questions have been answered. [ Sebastian ] was asking about, well, the health crisis in China. So that has been answered. So given the delays of production, when will the first tons produced by Colombia be sold?

Well, we've already delivered some tons, okay, but you can't start up with 2,000 tons. I think it was about 500 tons last year to get them tested by clients and get them certified. So in the process, I think it's about 1,000 tons that's under -- in production. I think we delivered about 300 tons at the beginning of the year, so it already started last year, in fact. So there will be more coming this year.

And a question from [ Bastian ] about the energy supply mix. Can you tell us what it is, and what are the charges tied to energy costs?

So you mean between gas, electricity? Well, well, there's no diesel fuel, I can say that, for starters, I don't know the exact ratios. There's a lot of gas used in the United States at St. Mary's and Columbia and in Chongqing, those are the 3 biggest consumers with prices that are pretty much covered, so not much impact there. As for electricity, China and St. Mary's, again, with acceptable contracts. I'd say it's in Europe where things are a bit more shake up there. But we don't consume that much energy in Europe.

It's more important in the advanced materials pull, of course, it only represents about 5% of sales.

And what about invoicing?

About EUR 10 million, an answer to the question, that unfortunately, the interpreter did not hear.

Right. Well, we have no more questions via the phone nor in the room. So thank you so much, everyone, for joining us for this meeting, and we look forward to seeing you soon. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]