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

Apologies for the English translation, which apparently got disconnected.

[Operator Instructions] First question from Stephen Benhamou of BNP Paribas.

I have 2 questions, please. First of all, those are good results, but it seems that your guidance seems rather prudent. That's my first question. Now with electrical distribution trending upwards strongly, can you tell us what you expect to see in terms of margins?

Well, I don't know if we're being so prudent. In fact, if you look at sales, in fact a year ago, the first quarter had been relatively low. It's true. And so it's true that it's difficult to predict across the year. But as Luc has said, well, the situation in Ukraine could perhaps have an impact on process industries. So perhaps that explains our prudence. Now electrical distribution in the U.S., the margins are good. We were actually quite surprised at the growth levels. The previous year's growth picked up very well there. And overall, the -- well, there's been inflation in salaries and raw materials. And so there was an effort made to pass on those price hikes. And then also, we're still in the start-up of the Columbia site, which is not yet at full capacity. So those are some of the factors that mean that we are announcing that bracket for growth.

I have another question. And what about Russian gas, if the cost of gas arises steeply, what might be the impact?

Well, we spoke about this in March. We don't have many plants that would be affected by that. I think it's really European citizens who will be impacted -- so nor in China. So for me, it's more about -- I mean, of course, the German market could suffer. So that's why it would be an indirect impact, but we do have to keep an eye on what happens in Germany due to their dependence on Russian gas. But as concerns a direct effect, no.

Now you talked about your order intake, and you said the trends were good. Could you say a few words about the demand side? How do you see things evolving?

Well, we are getting orders now for 2023 in FIC, for example. Now in 2022, we're quite confident for the year as concerns the electric vehicles market, solar as well. But it's true that we've decided to keep a rather narrow range of supply there to concentrate our efforts. But at the same time, for the United States, we've seen a very strong growth. Now we don't expect that to last forever, but it's very satisfying to see that growth. And Europe is holding up well. There is some tension, a bit of pressure to supply, but the clients fully understand the situation. In Mersen, we have rarely seen both business segments and all of our geographies working so well across the board. So it's a very favorable environment for us right now.

[ Toma Renau ] question.

I have several questions. First of all, the price effect for the quarter. You've mentioned a 2%, 3% positive price increase, where as you had said that you expected it to be about 1.5% for the entire year. So what about order intake? Is that pretty much in line with your expectations? Another question concerning your guidance on sales. So you talked about process industries trending well. There have been some uncertainty due to the rail market, I believe. So are things in line with your forecast? And the final question on the closing of plant in China. Could you say more about any -- was it a solar -- a plant for the solar market or -- you talked about EUR 24 million in sales.

Well, as concerns the prices, yes, we announced that we would be raising the prices. But we did raise prices more than we had originally announced. And so our guidance isn't really going to change there. The transport market is recovering. As order intake -- well, we're at 5 months backlog, whereas at the same period last year, we reached 2 months backlog. Luc?

China in the first quarter -- so Shanghai, of course, has been impacted. That mostly concerns the chemicals market, but another more the wind energy market and then power electronics and semiconductors. But they have never been stopped, in fact. So there are good deliveries for the solar market. Now some of the sites that had a slowdown, we'll be able to make up for the delays in the coming months. So we don't expect overall a negative impact, but we do have to keep an eye on it. The situation is improving and all 4 sites are operating. You asked another question about the guidance about the rail market. That is picking up, but so we are seeing positive signs. It's not that big a market for us. So this often concerns our process industries. Here, again, we have to be careful. It's -- okay. So it's the European and U.S. markets where we're seeing some pickup in rail.

And I have another question about electric vehicles. What about any new qualifications? Is everything still going according to plan?

Yes. We have Marquardt, where we are delivering pre-series. So that was important for us to get off to a good start with them, and it should pick up in 2023. Yes. So -- and the others are well underway. We're also working on batteries, as we've said before, some of this is for the long-term 2024, '25. So nothing particular to report here. Certainly, nothing negative. We're doing a lot of price estimates.

Next question, Jean-Francois Granjon from ODDO BHF.

I would like to ask more about the mix. Are you expecting to see a better product mix, particularly in electrical distribution? So you've mentioned your price rise. Do you expect to see any dilutive effect on the margins? I mean we know that the price changes will change the top line, but what will be the impact on margins for the group? I have another question -- so you said you don't expect too much direct impact on the Ukrainian war -- and the next is -- what will make Mersen resilient that could help you weather through a general economic slowdown? And could you also tell us about CapEx? So you announced your levels of investment, tell us what you're planning for.

Well, CapEx, we've said that EUR 85 million in 2022; 2023, perhaps not at the same level, but we're certainly in line according to our plans for investments. I'm not sure what more we can say about that. Of course, for we are faced with some challenges receiving some equipment when we place orders. That's the case for everyone. As concerns pricing, well, some orders have already been placed and are now being delivered. So the impact of the price increases may, in fact, be felt a bit later, but we're already seeing a positive impact from that. So I think we can expect overall for the year 3% points gained, thanks to price rises. But yes, as concerns raw materials, yes, there's a dilutive effect on the margins that are quite right. But we try to think in a more global manner. And so from the beginning, we've been saying and in the guidance, we have said what we would be -- we're doing. And so we -- for now, things are going as planned. We will have to see just how far we can go with those price increases. As concerns the -- the mix is pretty much the same as last year. You asked about that. So there has been no strong mix effect compared with last year. I think there was another question about general economic downturn. Well, of course, we are not immune to such things, but we are in dynamic markets such as the semiconductor markets. And so we can absorb that. But of course, if there's a sharp decline, that will be a different story for everyone. So it will depend just how steep an economic decline we could all be faced with. But we are present in industries that are quite resilient. No, we are not seeing any warning signs at this stage. Hope that answers your question, sir. But we've had shots and booster shots, and we would like to feel that we're immune. I mean we've been working a long time to be more resilient. But being in solar and semiconductors and electric vehicles, all of those are promising sectors. And rail is being promoted greatly across Europe and the United States, even.

[Operator Instructions] Yann de Peyrelongue.

I have a question. Coming back to Process Industries. What's your order log look like? What are the amounts can you give us a little background in general, what are the cycles, for example? Is it really from month to month that you see changes?

Well, I don't have the figures. But I think we're currently about a 3-month backlog in process industries. Now there is always a certain lag effect between the orders and the building -- the billing, sorry, in process industries. But it depends where some things move more quickly in the United States and in China than they do in Europe. And well, we are working with the end customers. So we do get the information quite quickly. Certainly, from quarter-to-quarter, we can see the trends. We can see when clients are wrapping up certain projects, and we keep an eye on their communication, their press releases, et cetera. Well, it's true that in process industries, the turnaround time can be fairly quickly. But for semiconductors that can be longer, they can be longer lead times a bit in solar as well.

Coming back to your guidance. Do you expect to see yourselves more at the top of the bracket or the bottom end of the bracket?

Well, in particular, we do have to keep an eye on the general economy, which may be impacted by the work. But we've seen strong recovery. Some areas are less stable than others -- and so we're quite happy with the recovery. But sometimes, things might pick up quickly and then recontract it. So the automotive industry, for example, can be a bit volatile. And we've had some very positive, some good surprises for this first quarter and particularly in areas where we have strong margins.

And the final question about margins. Is there a difference from one half year to another, typically?

Generally, with a bit more sales -- sales are a bit higher in the first half of the yea. So that's rather typical.

[Operator Instructions] Apparently, there are no further questions Well, then thank you all for joining us. And so the -- we will next publish our half year results on July 29. Have a good evening -- that's the end of our conference. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]