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

Thank you so much, everyone, who's joined us. Some of you had to walk here in fact. So we are waiting for the green light from the control center. Hope everyone is okay. I hope you can all hear me. Sorry, my voice is a bit scratchy this morning. Okay. So while we're waiting to get started, we'll let you admire the wafers and transistors. Are we ready to go? Okay. Let's go. So I will kick off with a few slides before I hand over to Thomas, who will talk to you about our very fine results for 2022. We're trying to be modest, but we are quite proud. So he will also give you some guidance for 2023. And as you saw the press release yesterday, so there are some very interesting things coming our way at Mersen and I'll come back after Thomas gives you the figures for 2022 to talk to you about our outlook. So here's to give you a little bit of a background on our progress since 2018. So you can see the rising sales figures. Of course, there was the tough year of 2020. But before 2019, you can see we were heading towards EUR 1 billion. So we had to wait until 2021 to get back up and fully running. So in 2022, well, this was excellent, but I think there's even better to come. In any case, it certainly gives us a very positive outlook. So we roundly surpassed the EUR 1 billion mark. And you can see that our financial results, you've got EBIT kept pace and the ROCE as well at 12.5% is quite satisfactory. So you can see a very fine streak here. And there's more to come that I'll talk to you about. Now we've also been working on our CSR commitments. Trying to change slides here, sorry. So we can do better. It's always possible to do better. But the ratings agencies are giving us positive scores. So you can see here Mersen's progress over 5 years. So we are showing here that thanks to our geographic locations, we can pick up growth across our 3 main zones in the North America always doing best, top of the class there. They've got, well, these, semiconductors, of course and of course, they have a great industrial facilities. Europe doing well and you can see more variety in the contributions there. And then Asia-Pacific, it's not just China. Korea is also contributing greatly. India, we are still building up, but the sales figures are on the rise. It's a very interesting country for us. And then, of course, Japan, where we have a strong presence, so plus 70 points there. And so we've got a good movement in the solar industry and -- but China had a bit of a lag there, that's so strong. But our 4 main markets, our most promising markets, so particularly in renewable energies, silicon, SiC and the electric vehicle markets really contributed over EUR 105 million with a very strong growth, 12% for the period. And our other markets also saw a satisfactory growth up 4% with a broader base. And so you can see for the period from 2000 -- from '18 to 2022, overall fine growth. So the group has been positioning itself from one year to the next on very buoyant markets. It's true that, well, we've been talking about wind energy quite some time and solar, of course, a lot of work on silicon carbide. As I see, we've been talking to you about that quite a bit in the past few years, very dynamic markets. And we have achieved some major contracts, just very recently signed, in fact, the [ Peugeot ] contract dates back only to January and the SiC, sorry. And so of course, we used to be happy to announce contracts for EUR 5 million contracts. Let's say, well, we haven't seen with -- there was the [ Sabic ] contract at EUR 40 million, which is a huge contract. So -- but now we're starting to see even larger figures, much larger figures and that -- for us, this has allowed us to raise our ambitions, not only for 2023, which is already partly underway, but through the horizon of 2027. And we believe that the momentum will continue at this pace. So now Thomas has got quite a long presentation for you. So we hope you can keep up. Thomas has a lot to tell you.

Okay. Yes, I do have a lot to say. It's true. So -- and also on the guidance for 2023. So hello, everyone. So as Luc has just said, it was a great year. We can start with the sales with EUR 1.115 billion. So that's 15% organic growth, as you can see on the screen. So starting on the left, you can see that our process industries remained dynamic during the year. So that was a good surprise and deliveries to the American electrical distribution sector, in fact, reached a record this year. But the most dynamic markets were on renewable energies, semiconductors and electric vehicles even though EVs still represent a small share of our sales today. So there are 2 highlights. First of all, very strong growth of SiC semiconductors through -- across the year and particularly in the second half of the year and Luc will say more about that later. And secondly, our deliveries in the solar market reached EUR 100 million in invoices and that far exceeded our initial targets because we had set that target for 2025. So in fact, we are 3 years ahead of what we're expecting to do in solar. So when we look at the situation more globally, we can see that our growth was balanced. First of all, in volumes were up around 10% on a like-for-like basis. On top of that, there was an increase in our sales prices of around 5%. And we've got 15% organic growth. Now there was a currency effect there coming from the appreciation of the U.S. dollar and the Chinese renminbi and so in fact, these are conversion effects because our international footprint allows us to sell where we produce. So that is a great strength for Mersen. So it means that we've got a natural hedge against the volatility of exchange rates. And so this is why our good geographic distribution is all the more important, so all regions contributed to the growth. So Luc showed you some of the background on that. We saw more pronounced growth in North America, less so in Europe. But part of this is due to changes in the exchange rates. So if we look at organic growth across all [ regions ], we were in double digits across all regions. And both segments of our activities contributed as well, particularly in materials in 2022. They are contributing quite strongly this year. And we saw over 20% organic growth there. So let's look at EBITDA now or profitability, which you can see here is recurring EBITDA exceeded EUR 185 million. That's 25% up from last year. And the margin -- EBITDA margin also improved 60 basis points compared to 2021. Let me say a few words about depreciation. So what you can see is this is rising significantly, EUR 8 million to EUR 9 million, but this is well tied to our increase in investments in the past 2 years. And so the weight of the depreciation could have impacted our current operating margin. But in fact, it was absorbed by the increase in our volumes. Also, our investments enabled us to increase production capacities. We'd already made a lot of investment in 2019. So this allows us to generate more sales and increase our operating margin. And so you can see that here, the margin rose by 90 points coming in at 10.9%. So if we look in more detail, some of the trends there, what do we see, first of all, in the margin increase? First of all, there was a favorable volume mix effect and that, of course, ties into the sales figures. The second element is the combination. I don't know if you can see there the 4 lines in reddish orange. So what do we see there? Well, there's inflation, raw materials to begin with, also in wages. So high levels of inflation compared to previous years and we can also see that those different forms of inflation is that they were offset by gains in productivity. I mean, we have continually improved our productivity about nearly 100 basis points. But it's also really thanks to raising our sales prices. So I don't know if you remember, but last March, a year ago, we said we were going to try to pass on the inflation by raising prices and we managed to do it. We weren't quite there as of last June. It was slightly negative. But in fact, all told, at the end of the year, it means that we fully offset the cost of inflation. So third point, these volume and prices if we extract the inflation, this helped to offset the impact of the Colombia start-up as well as the additional resources that we have devoted to electric vehicles. And so we don't have much sales coming from that yet, but that's a temporary situation. So you can see that we managed to absorb those costs, thanks to volume and prices. So the key message this year about our cost model is our ability to pass on inflation in our selling prices, thanks to our high-tech products, our custom-made products that we improve every year, working in close collaboration with our customers. So what about our net results? Let's look at our nonrecurring EUR 11.4 million nonrecurring expenses, mostly corresponding to an impairment of goodwill on the anticorrosion equipment, which is devoted to the chemicals market. Well, what's the reason for this? Well, like every year, we do carry out impairment tests. So we compare our flows and we compare it to the new -- the past values to the new values. So in discounting measurements. And so our flows have, in fact, improved. We've got good orders on the books. But in fact, it's the cost of capital, which rose the WACC. Well, you all know the reasons why these rise. And so mechanically, there was an EUR 11.4 million impairment that was tied to the WACC and not due to a change in the environment, which is positive. But you'll note this charge is not booked as cash. So other than the impairment and on deductible you can see our debt levels. We are partially taking debt in dollars because that's where we have a lot of activity and this can lead to more financial costs. As concerns the effective tax rate, we are at 21%. This is thanks to good rates and results in China, stronger than other regions. So the net results are up by 27% overall. Let's look at the cash position. So we generated an operating cash flow of EUR 105.5 million. This is a good level, especially given the variations -- well, the increase in our working capital. So this, of course, is linked to strong growth in activity. I told you 15% organic growth. Well, you need inventory and you also will mechanically see client outstandings that add up as well. Okay. So we did have to increase our backup stocks to secure production. Also the ramp-up of the Colombia plant, not much sales yet, but we have to have a lot of works in progress there at Colombia. So this is on the WCR, but it's a good ratio there. In fact, at 21%, it's better than 2021. So in our line of business, keeping it at that level requires a lot of work in fact. So this takes into account as well some provisions for bonuses, which have not yet been paid out like last year. So what about investments? We invested heavily in the past 2 years, EUR 79 million, 2021, EUR 97 million in 2022. These are industrial investments. The effort is in line with the acceleration of our markets. What's important to note is that this came with a strong increase in the ROCE already in 2021, but now 12.5% in 2022. So the EUR 97 million, where did we invest that? Well, there's maintenance, of course, there's growth and a specific point on Colombia that I'll come back to. And then, of course, there are safety and environment investments that from year to year represent about the same proportion. And so let me just give you 2 examples of growth projects. So first of all, we are moving our Korean operations to a much larger and ultramodern factory. And this will allow us to keep up with the growth in the semiconductor market. A second example and we communicate about this is implementation of a new thermal treatment project at the EMEA plant, which consists of combining the firing graphitization stages in one phase and this reduced our costs, energy costs to begin with. And it also reduces our WCR and of course, our CO2 impact. So let me say a bit about Colombia more specifically. So this is a very strategic plant for our future growth. And as we've been saying for the past few years, this is a modular plant where that we can ramp up or put on pause as needed. So we began to build up our capacity for extruded graphite. This is primarily for process markets. So we built a capacity of 2,000 tonnes there for the process industries. And we are continuing on our road map and we'll be doubling that capacity. So we also use this -- so in fact, we are bringing back in-house production and this will improve our margins. It allows us to integrate the chain of production, so that's good for our margins. We are also in the process of increasing our production of isostatic graphite, which is our flagship project and we're increasing by 2,000 tonnes. That's a 15% increase in fact. And this is a key material for semiconductors and in particular, the SiC semiconductors. And that's why we're making that investment. So with all of that high level of CapEx, well, we did buy back some shares and so this has raised debt by about EUR 50 million is also -- so this was for dividend share buybacks and lease payments. And we're seeing an improvement here. In fact, we're at 1.36. But our -- you can also see here our pension obligations have decreased by EUR 10 million. So this is good news. What about -- so what about now liquidities, okay. So we have no significant refinancing until 2026. And we have EUR 250 million in available credit lines and that is our syndicated loan, which was refinanced in 2022 with a maturity now in 2027. So in this context of higher percentage points, well, you should know that 2/3 of our gross debt is at fixed rates, which is also in our favor. Okay. So here's our slide on CSR. Luc mentioned that a lot of effort was made here. So a good performance would not be complete if we hadn't also made progress in our CSR road map. As you know, there are the ratings agencies, Quo Vadis, amongst them. This is an NCI for the financial markets. So all of this really reflects the efforts that we have been making in the company and they are giving tangible results. So we have met the targets that we set for 2022 for responsible purchasing, for the percentage of women engineers and managers. And we made major efforts in training in ethics and compliance and cybersecurity. And of course, we will be continuing all of those efforts. So one area that we're particularly proud of is the reduction in our greenhouse gas emissions intensity, 38% down compared to 2018. This is, in fact, much faster than what we had set. We thought we would reduce it by 20% for 2025, but we're already down by 38% in 2022. So in view of this good performance, we're proposing a dividend of EUR 1.25 per share to the General Meeting of Shareholders. That's 25% up from last year. This represents a payout ratio of 33% of net income, in line with our distribution policy. So now let me say a bit about our outlook for 2023 in our guidance. So we are targeting a sales growth of between 5% and 10%, driven by the SiC semiconductor market. So the gap between the high and the low growth ranges comes primarily from the process industries, including electrical distribution. As you know, these markets are sensitive to the economic environment, so the macroeconomic environment, which is still uncertain. So as we've told you before, we are going to be limiting our growth in solar in 2023 because we are at full capacity. We don't want to increase it in China and we would rather allocate our additional capacity to semiconductors and Luc will say more about that. And the final comment on the sales figures, the growth rate should be higher in the first half of the year than in the second year due to a benchmark effect in 2022, it was EUR 524 million -- sorry, in 2021, there was EUR 524 million in the first half and EUR 591 million in the second half of the year. So just by comparison, it -- you will see this noted difference because we're coming off a high base of comparison for the second half of the year. So what about our current operating margin, well, between 10.5% and 11%. This will, of course, depend on the volume of business and also on our ability to pass on wage and energy inflation. So it will be more about wages, in fact, not so much on the raw materials, but -- and there is also the energy costs as well taken into account. So will we be able to pass on all of that increases? Well, that's certainly our goal, but the challenge is to make it happen. And so the -- this will also take into account a significant increase in depreciation and amortization in line with our investments. It also includes increased cost for electric vehicle developments because we are strengthening our production and methods and supply chain teams to prepare for larger production runs in 2024. So there is going to be additional effort to be made there. And the final element of guidance concerns our industrial investments, which may surprise you because it's double what we usually present to you. Now this takes into account, so that EUR 150 million to EUR 200 million is, of course, our regular investment level, about 5% to 6% on average of our sales. But on top of that, we've got new investments coming with the Wolfspeed contract that we announced yesterday and other contracts as well. Then there's Soitec as well. Luc will say more about that. So in fact, that's why we're going to be seeing these longer investments for the medium term and Luc will give you all of the explanations about that and he'll talk to you about our new ambitions.

So we're calling this a new dimension. So -- and you'll start to see, what we're starting to see on some very promising and new end markets. And so we're calling it a new dimension because 2022 brought a lot of lessons for us. It confirmed our efforts in certain markets. Okay. I think you know there are some markets such as aeronautics, which haven't fully come back yet. But it was, nonetheless, overall, an excellent year. What we've also seen and this comes as no surprise is that some of our most buoyant markets are becoming fantastic markets, in fact. So 2022 reflected the results of where we had been investing our efforts. So we've got 56% of our sales is generated in a sustainable development markets and we've presented an excellent plan last year. But in fact, we were arriving at those figures very quickly at the high bracket and we should really reach that quite quickly. So there were some targets on some markets that we've already exceeded, silicon, solar, wind energy markets. All of that went more quickly than we thought, but that's not all. We've given you presentations on our different markets before. And we generally -- of course, we look at what clients are predicting in terms of demand. And it's really with about 1-year visibility. For example, so we look at the components that they will be ordering. And so we're always really trying to keep an eye on these markets, particularly SiC lately to see -- and some -- I'm sure some consulting firms will give you some predictions. And we knew that things would be accelerating. But these are some figures that we would patch, you know, put together in-house based on what we knew, but just last year, we saw the #1 on the SiC market, Wolfspeed come in with a very precise road map with quantities for every month or even every week because if you watch their communication, they have invested in mega factories. They announce new contracts all the time. And they came in with some really serious figures and some very clear ideas of what they want to do through 2027. And so this was close to what we're thinking about. But this, in fact, was hard orders, not just an idea. So we started to study the [ matter ] seriously. Of course, the market is of interest to many -- to other players. And there's Onsemi, for example, other players that you know and they have their own ways of predicting the market. But what we did was, we looked at all of that, added up all of the potential market to come up with our own road map because it means that we have to make investments for several types of products. It's not the same equipment. It's not the same factories. And if we add in Soitec as well, it means that SiC was going to keep us very, very busy. On top of all that, I think we were also very reassured around the fuse market, the battery protection systems as well. There are some things that we can't yet communicate about, but we are in the process of being qualified, certified with a number of players. The electric vehicle market, well, this goes well beyond our projections for 2026 or '27. And in particular, there's also busbars. And last year, we didn't know if our product will be picked up by vehicle makers. So -- but we decided really to wager on the SiC business and we had to do a lot of testing, of course. And by the end of the year, we knew that our product was technically very interesting to clients. There are entire platforms that rely on these technologies. And we work a great deal with the [ SCC ], for example, is a main partner. And so once you get qualified, well, it means you're looking at EUR 200 million in potential sales, but it means investing to be able to achieve those figures. So that's some of the background. So really picking up pace and a lot more reassurance that we are betting on the right markets. So both of our industrial segments will be concerned obviously materials with the SiC. I can say a few words, of course, about how this works. So you've got the wafers, those are 15 centimeters. So these are small. The SiCs are small, 0.5 in thickness. And once that has been produced, okay, so it's a Wolfspeed and others. We'll then process this to make a power transistors. They are those small squares that you saw on the wafer. And then in the box system, I think there's something like 34 semiconductors in that box. And then that goes to the power conversion unit, which is fit in above the engine, the electric vehicles, then you've got the battery under the seats. So on the bottom of the chassis and that's where we will have our fuses as well. And in some cases, with SCC, for example, there will also be the -- our busbars connecting the cells. So that is our main lineup of products here. Of course, that's rather simplified. But yes, we're very focused on the busbars and fuses, of course. Okay. So now this is a complicated slide first thing in the morning, I know. But if you look at the number of vehicles being a market, so in yellow, on the left. Well, you've got the value in terms of the SiC EUR 1 million on the right, the number of vehicles. So it's EUR 7 million for the year -- for the year. And then we're heading up to EUR 10 million and EUR 20 million -- EUR 30 million by 2030 with a lot of different manufacturers who have already said, for example, that they will stop heat engines, Renault, Volkswagen, I believe, so massive arrival on the market of electric vehicles. But in fact, there was only Tesla who was using SiC until now. So if you look at that curve in red, what you can see for 2022, you can see the ones that are equipped with the SiC, I mean there was a little bit of Honda, but nearly nothing. The beautiful Taycan Porsche at $100,000, but that was standard silicon. So what's happening? Well, I think costs have come down. Wolfspeed probably made some very attractive offers to carmakers. It's a very efficient product and it can help gain in a range and it occupies less space. So -- but it was mostly for high-end cars. But now the industry is looking to use it across all ranges of electric vehicles. So as you can see it's the SiC, where little by little, be equipping be fitted into all electric vehicles. So if you look at the red curve, this is Wolfspeed knows this as well, they've got -- if they've got 50% of the market, they know how much a graphite they need to make this okay. So okay, fuses, well, is pretty much the same. That's not the big difference. The difference is with the SiC. So on the materials side, EUR 52 million, that's for sales. That's a great growth, in fact, for the SiC market. Okay. So you've got a diagram here. You've got the furnace, you've got the different components. So the sort of dark gray on the slide there are the graphite parts that we make. So the insulation, the isostatic graphite, PVT, so Physical Vapor Transfer, that's what that PVT means. It goes in the yellow area there. You have to heat it up. There's an evaporation and then it is condensed at a portion of the furnace and the end result is that great ball or boon as it's called in the industry. And from there, you can slice about 20 wafers. Okay. This can take 2 or 3 days up to a week to, in fact, produce these balls for slicing. And so you need quite a number of furnaces and they all have to be equipped with the graphite components. And so this means that we have to invest to be able to keep up with demand. So once you've got your wafers -- well, we're not explaining the epitaxy process, but we have a lot of sales of sophisticated -- very sophisticated products, highly purified and processed. So once the wafers are ready, they might go back to -- well, see, for example and then they will make the devices. Hitachi makes devices, but not wafers. So some of them are both device makers and wafer makers. So ST has decided to make them in Catania and -- but they'll continue with the 2 technologies. And then they'll make the power transistors that you see on the right. You've got the industrial version for vehicles on the right. And they're often -- and they are specially designed. So that's the process now. So we've got, obviously, Wolfspeed, I think they've got about 60% of the market. So they are really the driving force here. I mean they -- and we've been working with them for 25 years. In fact, they are also very demanding in terms of technology and quality. SiCrystal is quite a bit smaller, but a very professional player. And then we've got the Japanese as well, so you're familiar with ST, I'm sure. They make the MOSFETs for cars. So they have a big market share there. And they're buying wafers from Wolfspeed. And then we've got Onsemi. That sort of came out of nowhere in a way. They bought a company in fact picking up a number of furnaces. And it's a real chase on the market because everyone needs to get ready. And then another -- there are other players. Well, our Chinese friends of course, are always in the picture. And there are some -- and we deliver to the Chinese as well. So 2 SiCs, small, but very interesting. The Koreans, you have to be very good to work with them. So we are fully committed. We are really in the race. And so just working with the Wolfspeed, we had to understand their needs and we've signed a contract through 2027. And so this would be EUR 400 million in sales. So between felts and isostatic graphite components, there will be specific investments of EUR 120 million. And in fact, they are going to help us with this. So -- and it should represent 200 jobs created primarily in the United States, but the felts are made in Scotland. And in fact, we make a very complicated product specifically for them from Scotland. So these are the leaders making the most high-quality wafers. They are up to 200 millimeters for the wafers. And so there's a call for a lot more 200-millimeter wafers and they will be producing that at the Mohawk plant in the state of New York. And so they have agreements with other players such as BorgWarner. So we've got to see that as well. So big German Tier 1 manufacturers. So we are -- we've got Durham involved and then we've got contracts for devices as well to be sold to carmakers. So that's what the landscape looks like. We have to keep up with a very impressive quantities. In fact, we can perhaps come up with a figure of tonnes if you're interested. On the other slide, okay. So what about Soitec, I believe it's really a complementary technology. Okay. So there's room for Soitec, of course. And their products are -- have a lot of advantages, in fact. So Soitec's technology, in fact, consists of taking, for example, a Wolfspeed wafer and splitting it into very fine layers, micron thin layers. There's -- they're at 400 millimeters. And then what they do is bond it to a pSiC, cheaper substrate, a mono-silicone substrate. So -- and so the idea is for us to produce that substrate and then this can be sold to fabs such as ST. So we should be well positioned to work with ST. And so you've got something of the schedule. Our calendar, we have never developed -- okay, we had this product, but we had to do a lot of work to bring it up to the level. So you can see there's a lot of R&D involved here, particularly to move up to the 200 millimeter size wafers. And then now we are starting with our pre-series runs. And we are looking to be qualified by ST. This means that we need to also invest in the facilities, for example. So about 45 million devoted to Soitec. So we've got the Gennevilliers plant where we already had some of the facilities. And we hope to be producing 200,000 wafers by the end of 2025. And then you -- I mean, I'm sure you've heard some of the announcements from ST about their volumes. So for us, the question is, well, do we need to expand a plant or facilities somewhere else. Okay. We are also get -- we are also getting some state aid [ IPCEI ]. so the European program for semiconductors, where we should get some grants for research. So it's a great technological adventure. And so at Soitec, everybody is happy. The product is defined, the specifications look very positive, but now we need to produce it and we'll have to keep an eye on the costs as well through 2024 as we ramp up. So now if we look at the electrical components, so this can be battery protection, there are a number of products that we make already on standard cars. So there's a lot of protection systems. So you've got the big fuses that with high app ratings. And then you've got some smaller fuses that protect auxiliary equipment. In 2 or 3 years, we've developed a range of products online with prices that clients expect. And so if we -- so none of this is standardized. Each manufacturer wants its own specially designed terminal. But this is good for us because it sets apart from the competition and it's not too hard to do. So we have the factories being qualified. Some are already qualified by the big manufacturers. And so we try to seize every opportunity to be qualified by the different manufacturers. And so we've -- we're working with a lot of different partners on this. As for the busbars, a slightly different story here. So you can see the bent shaped one, which is for converters. And we are working on some new developments, but the one that has the strongest potential is the flat one with the cell interconnection capacities. And so carmakers have been buying from the Chinese, these packs, these sort of plug-in packs, it's all interconnected, but with rather basic technologies. But little by little, the manufacturers are looking to redesign the packs differently, working on the voltage 800, 1,000 volts, even up to 1,500 volts. And so they call on people like us to redesign what goes into these packs. And so we started with SCC on redesigning the busbars and that will connect 24 cells per pack or there can be 12 Mersen busbars coming on to production for SCC. So that's one of the big jumps for the year and we are quite confident that we're working with the manufacturers or redesigning the packs, that we will be able to make some interesting offers for them. Renault is starting to get into the game here as well and others are going to be looking for the laminated busbars, which are more efficient and they can all be fully interconnected and instrumented. So what we've got here are targeted markets and we won't be seeing busbars in every type of vehicle. So it's not so much a question of the category of vehicles. Okay, yes, it will be a higher range. But rather, in fact, it will depend on our penetration rates. So for example, there are a few manufacturers who are currently redesigning their packs at the moment, but there will be more and more. So when you look at the potential of the improvements, thanks to our busbars, that's where we start getting very interesting. So the targeted market, as you can see there on the left, currently EUR 350 million on a global market of EUR 2.1 billion. So we're looking to have 3 fuse making sites. So Shanghai has been qualified delivering Chinese clients, but will also deliver to Europe as well. We're going to have to see what we can do about prices, though. In Mexico, in Juarez with a lot of production lines and we deliver so to Marquardt, et cetera and the American market. But for Europe, we already have a plant in Hungary, where we're almost ready to start up on production. For busbars, this is a different story. So we decided not to scatter ourselves. Most of the clients are in Europe, in fact. And so this will be manufactured in Lyon and we have our expertise center there as well. And so that should keep us very busy for 2 or 3 years. So you've got some logos on the right. We're allowed to show those. So the few Chinese NIO, BAIC, not sure how they pronounce that. And so we are delivering Webasto, for example, this is for truck batteries, Delta, Rivian, Lucid, Panasonic, that's for BMW. In fact, Marquardt, that's Volkswagen, Porsche, Audi, some things for Renault. If you buy an Alpine you will have a Mersen fuse inside TE and then ACC and Mercedes -- ACC, so Mercedes. So those are -- so as Thomas was saying, well, we have dedicated teams for this, okay, that's -- there's a cost to this in few millions in years because we have to structure our teams and when we get -- but with the volumes that will come, the EBIT will become a positive, of course. So ACC, you've probably seen plenty of communication around this. It was a set total -- Saft total, sorry. There are -- there's -- so they've got their different teams, specifically ones for automobiles. And we've got Stellantis and their brands and then Mercedes also joined the movement. So it's a huge factory in Douvrain, in France and this is for cells. So you -- well, we -- okay, we've blurred the image on the bottom right because we can't reveal exactly how it's designed. So you've got the smart laminated busbars. And it's a very sophisticated devices. And this is what sets us apart from what the Chinese can do. So EUR 200 million for the life of this contract, in fact, through 2027, but there's also plans for '28 and '29. The platform where busbars are being used are developing even more quickly than originally planned. And so there are a lot of investments will be made at our St. Bonnet site to serve this platform. Now ACC has decided to build a mega factory in Germany. There's another one perhaps in the works for Italy and in the United States. So for us, it's having the design team in France is great, if we can deliver to Germany and Italy, that's excellent. And we're also working for the Mercedes platform. They like our products. Okay. Not forgetting the -- all of the great work in silicon products as well. Here, you can see the EUR 60 million in sales for 2022. Okay. As you know that there was a bit of a stall on the market due to -- with memory supplies, but you've got the big players. You've got the big [indiscernible], you've got TSMC. In the U.S., you got Intel, of course. And so all of that is on the right track for us. And a lot of the new components were already present on those processes. Okay, it's not on the same scale as the SiC, okay. And you know it -- you know, in just 4 years of our work on SiC, we've already caught up with the silicon levels. On solar market, we -- as we've said, we don't want to do more than we're currently doing there, particularly, we don't want to be overly exposed to the Chinese market where the competition is very stiff. But we're talking about hundreds and hundreds of gigawatts coming onto the market. Now we did do well this year by seizing some opportunities because we have the right size, right type of products for different processes, the tri-reflective layers on the PVCD products. And so we were able to provide the appropriate size and shape of products from our Chongqing plant. Then, in fact, well, in China -- okay, we're present in China. But in just a month, we were seeing the demand from lesser-known companies who are investing in plants elsewhere in India, plus the U.S., so up to about 70 gigawatts. So that represents a lot of tonnes of graphite, in fact. So there could be a strong rebound on that market. And so these are -- they are doing the crystal pulling, they are doing the whole chain and we are -- we can be present on that. So it's an interesting market. As for Colombia, you saw the investment plan that Thomas presented. So now what about our outlook for the medium term in that new dimension I talked to you about. So here, you can see what's going on in the CapEx side. What you can see here, so EUR 300 million is specific to what's going on the lift. But as Thomas has said, well, the company is also spending on things such as maintenance, I don't like that word, you know, it's a replacement of machines. It's to do with a particular -- it's not the guy coming in with his wrench to fix the broken machine. That's not what we mean by maintenance, it's about upgrading. It's also safety and environment investments. But that EUR 300 million is devoted in very large part to SiC developments and the rest for electric vehicles. So for materials on SiC, so we've got our different plants, 3 plants, so to move from 12,000 tonnes to 16,000 tonnes. That's an isostatic graphic. As for insulation felts, there's a flexible and rigid felts. Tonnes don't mean much, in fact here, but we are multiplying our production by 2. And then it all has to be machined and purified and coded by epitaxy processes. It means that we have to significantly expand 4 plants, 3 in the U.S., Bay City that will double in size and in France for Soitec. So that's about EUR 30 million to EUR 40 million in investments. And then we have everything for the EV platform. So not a heavy capital investment. But nonetheless, production lines, not too expensive. So Mexico, China -- okay, but in St Bonnet, in France, that's where we want to be doing more. So they're going to have to have a new dedicated building there. So we pushed the fuse production to Hungary because we already knew that this trend was coming and we were prepared for it. So all added together, EUR 100 million also for certain acquisitions, more or less advanced in the negotiations. So -- and all of this is being done to bring in EUR 400 million in additional sales. So for the period, this really pays off. It goes going quickly. It's true that we have to concentrate a lot of the investment in 2023 and '24, quite a bit. But of course, we already anticipated in 2022 and it should bring some impressive sales and very quick profitability and at high levels. So looking at the figures, well, you remember no doubt what we were forecasting from last year. We -- so you've got the EUR 1.115 billion. So that's with all of our different markets, okay. So EV is only at EUR 20 million right now, but it will move up to 45% for the renewables and semiconductors and EV ended by 2020 -- so that's where it will be in 2027. So you're going to see -- so all of the different elements of SiC coming at EUR 140 million. So these are the areas that are growing the most quickly. It's something that we wouldn't necessarily have imagined even 3 years ago. And of course, there's always still the renewables such as solar. We can see how that evolves. So this should bring us to EUR 1.7 billion. So that's a new dimension for the group. So you've been following us for years, we were at EUR 800 million for a long time. But now we are really moving into a higher level. And for us, also with the new trends in power storage, energy storage, we have a role to play in that area as well on top of all the new vehicles coming on to the market. And so the KPIs, you can see our operating margin at 12%, that's 50 points up. EBITDA margin, 19% and ROCE, 13%. So very profitable growth. And so this is -- we're already established in these areas. So we're not taking off in unknown directions. And so it's very much under control. For us, the products are there. There's always going to be R&D, but we have the strong foundations. Our clients, we have been working with them for a long time. So we've got great history with Wolfspeed, you know, we know them very well. And this is why we managed to sign such an important contract. The energy transition is going to be more work for us. We're going to be seeing more on smart grids, for example. And it's all, again, under control. Of course, there is a share of risk. You have to be good. You have to deliver according to contract, but we can manage all of this. So there you have it. So thank you. So for questions, what we'll do is start with questions from the room. You will have to speak in the microphone so that everyone can hear you, that's connected remotely and for the translation. And we will also take questions by phone and via webcast. That will be the order that we will take the questions.

We're waiting for the microphone. Apparently, that microphone is not working or is that one. We're waiting for the microphone. There we go. Microphone is working. Okay. Thank you so much. There's a question.

But before we go back to your industrial plan, which is fascinating. But if we could just focus on 2023, in relation to your guidance, you said 5% to 10% growth is going to depend on the fuse market electrical distribution, other such products. What are your scenarios for prices in that 5% to 10% bracket? Is it to do with prices or volumes or inflation. So just a breakdown on that bracket for sales growth. And coming back to operating margin, if we looked at the middle of the guidance bracket you gave there, my same question, what are your assumptions there? What are your ideas on either price increases between that, I think you said 11% operating margin? And so that's what I'm trying to understand is the dosages here. So could you give me some indications there?

Well, I mentioned inflation, of course. So there is wage inflation, okay. It's -- this could be a 6% increase. This could we talked about EUR 10 million in cost of energy. So we're looking at about 4% overall inflation. And our goal is to try to offset that. We believe that through prices, we can pass on about 3% perhaps up to 4%.

And so what you're saying is that the -- well, is the -- so there is -- so in that bracket, there's 3% to 4% inflation?

That's correct.

Question, coming back to your outlook for 2023, you seem to be pretty comfortable reaching the sales targets. So it looks like you're -- you'll need closer to 10% organic growth. Is that true? And on operating margin, this appears to be the negative impact of Colombia on the one hand, so -- but which might no longer be negative in 2023 and then there's the EV?

So, well, let me I'll start with your second question. You're quite right. Yes. Well, there will be other EV costs, of course and still some -- the cost of Colombia. We have to supply the plant for them to be able to produce. So -- but -- and we are moving towards production sales for Colombia. It's true that it's coming in phases. There was in EBIT last year we came negative, but we will be positive by the end of the year for the isostatic graphite. And on your first question, well, as Luc was saying, we are already not far from the EUR 1.2 billion, okay, if everything goes as planned, well, yes, we'll be at about 10%. We are -- the figures that we are seeing now, we were expecting for 2025, but we're already there. So what I'd like to add is that we probably couldn't have done -- gone even -- gone further than this because we have to -- it takes a lot of investment. Okay. So not a whole lot more. And so that's why you're seeing this strong acceleration, but thanks to additional CapEx.

I have a question. I have several questions in fact. So first question. There was a slide on electric vehicles. You said you can have about EUR 300 in sales per car. It seems to me that in older figures, there were -- it was up to EUR 1,000, so I'm wondering about that change. And a question on Wolfspeed. What's the sequencing here, the advanced payments and CapEx involved, could you say a bit more? Third question, I want to be sure that I understood the CapEx budget. Is it 6.5% plus EUR 300 million, plus EUR 100 million from Wolfspeed? So the contribution from Wolfspeed, where does that fit in? Fourth question, if you could come back to the financing of your CapEx plan, your balance sheet is solid. So I'm having a hard time understanding why you don't draw the available credit lines. You've got -- could you say a bit more about that?

So okay, well, Thomas, we'll take the first and the last question. So first question. You're quite great. We have reviewed the amount of per vehicles because here, we're looking at more passenger cars, okay, EUR 1,000, that's more for a truck, okay? So we didn't include those in the calculations, but we haven't really changed the overall picture.

So answer from Luc on the Wolfspeed, the pace of their investment, well, it's going to be spread across '23 -- 2023 and 2024, we believe. So -- and the EUR 120 million from Wolfspeed are included in the [ EUR 300,000 ] that you saw on that slide, that EUR 300 -- sorry, EUR 300 million, excuse me. And so -- and there are other forms of CapEx, of course, for other business activities. So yes, the EUR 120 million from Wolfspeed is included in EUR 300 million.

Well, we said we are looking at various options for financing. We didn't say it would all be through CapEx. You're right. We do have credit lines to be drawn, but we want to keep our financial and strategic flexibility. The idea is we want to be able to make a good acquisition, okay, so that it will -- particularly if it will help us reach new contracts. So flexibility comes at a cost, of course. So for us, we need that strategic flexibility and of course, our shareholders as well. So we will have to examine the different options every time. And so it could include capital increase question.

Question, can you say something about any acquisition targets? Would it be a number of small ones or one big one, where and what sector.

Well, I can't give you any specifics. But these are acquisitions mostly on the materials side. They are generally at around EUR 120 million of sales, that size of company. There's one even working in SiC. So we've always got that in mind and the -- to expand our industrial footprint and then some interesting opportunities are out there, companies that we've been working with. So Luc, okay, it's always very targeted, they tend to be bolt-on acquisitions. It's true that we had stopped during COVID. So we are resuming in fact, bringing in additional expertise. Particularly, there can be some smaller local family-run businesses, historical family business that don't have access to international markets. Those can be particularly interesting targets for us.

I have another question, your investment plan, particularly around SiC. So you've got the Colombia plant ramping up. What is your capacity rate? What will be the plan for that for 2023 through '24 in isostatic graphite? Okay. So we know there's very high demand for SiC. But you've got -- everyone has limited capacity to produce. So how do you think -- see things evolving, you're massively investing as others are certainly looking to do as well. So is there room for everybody? Do you not worry about overcapacity? So what is your vision on this utilization rate based on the market demand and your ability to meet the demand, but there has to be limits to this. There are really only the 3 really big players here. So 2 competitors. So you're close to something of a monopoly on those high-end products. Sorry, I threw in -- threw a lot at you at the same time.

Well, first of all, so silicon and -- okay, the SiC world is American. Silicon is Japanese, okay? Great products, but they do not appear to be in the race so much. So they want to be able to catch up to Wolfspeed because they're so huge. So that's the first thing. There's a -- and we have a big share of their work. So will we be able to deliver to Wolfspeed? Well, we have to keep an eye on this. We have to have a good balance of delivering to the EV market as well. So we saw EUR 120 million investment on our side, but they're at billions in investment, okay? But this is the first time that we are looking -- the bus comes to us. And we are the only ones capable of raising our isostatic capacity. Don't look to Japan. They are stuck with their limits and they don't have any genuine qualifications with the clients like this. And AGL has announced things more along the finishing phases. So yes, there's a bit of epitaxy, maybe as you all can do more than us as for insulation felts, the -- ours are -- they're qualified, so are we. But that's not the real topic. It's really around the isostatic and that's we're nearly the only player capable of providing them. Okay. We don't want to overexpose ourselves on graphite in China because we believe that there are players there. So 1,000 of [ 500 ] -- we don't want to be overexposed in quantities in China. As for Soitec, we are technically sufficiently advanced to capture the market, a good chunk of the market that they are aiming for. And so Mersen is ahead of the game and still has room to grow even beyond 2027. We know that some will stall along the way. We don't see anyone who will be able to deliver the same quantities of isostatic as we can. And then there's the installation that's -- we've -- when you've worked for 30 years with an OEM, that gives you a very solid foundation. Also Thomas now.

As Luc said, we showed you some of the figures from 2021 and we were already seeing at the time was customer engagement. It's true that when you have to invest like that, okay, fine, all right. We needed a customer commitment on volumes if we're making that kind of investment. It's true. Okay. Invest payment is a form of an engagement, okay? They are advances. It could be refunded. But it's not so much around that, but it's really about their commitment to volumes. So there's not just Wolfspeed. I mean that's the biggest of the contracts. There are others. So that also secures us in the volumes. Okay. I mean there's always a share of risk, but we are quite confident that we will be fully using our production capacities.

Well, 105%, in fact. Our scheduling for 2023, we need to be able to do more. We're trying to figure out ways to do more for SiCrystal for example. But for the first half of the year, we weren't able to put online the additional capacity.

Question, so is the isostatic 2023 is going to increase capacity. So that's not enough for 2023, you're saying?

Well, we are a bit short on isostatic and felts for 2023.

Question. Well, yes, this is why I was asking about the sequencing in fact?

But we'll get to those 2,000 tonnes. But okay, the presentation is a bit simplified, but we can talk at length about this, if you like. There are also OEMs that are really hanging on. Epitaxy is an essential part of the process. So [ Extron ], MPE also need to be able to deliver. And the epitaxy is difficult. And so that's why we position ourselves to be.

Another question, coming back to solar. Okay. You said you didn't want to invest more in capacity, but you do. There is high demand. So in your business plan, are you planning for progression or an increase? Is it -- what's your business plan there? What's your -- even though you've said that you aren't looking to accelerate too quickly?

Well, yes, in renewables, I didn't talk about solar in particular, but we're at about EUR 150 million looking to move to EUR 200 million. So it could bring in more if there were specific projects, but outside of China.

Question, so you're saying that solar is going to be representing less than overall?

No, I'm not saying that, but because it's not just in the materials side, there's also our electrical division as well, you know, sell all over the world to be on China. So we don't have to limit that, but 80% of our -- 80% concerns the materials departments. But right now those are mostly Chinese clients. We don't want to do more there.

Okay. Now there are some big projects in France as well, [ France La Mure ], for example, okay? But we don't know what portion we will be able to capture on that. In the United States, when projects are announced, we know they're going to do them. France La Mure in France, I'm not so sure.

Question on profitability through 2027. I'd like your views per division between materials and electrical, the 6-point gap there. What can you say about that? Do you see them converging? And in semiconductors, you had 20 -- you were at 25%, your EBITDA margins, have things changed?

Well, the Electro division is currently impacted by the resources we're devoting to electric vehicles. It's true the margins are different. But if you look at the ROCE, they're very close, in fact, so that's one thing to keep in mind. Okay. The precise profitability, the EBITDA of semiconductors. I don't -- I can't think off the top of my head, but they are good. But of course, there's investment at the same time. On the electrical division, the EV -- so in materials for semiconductors, there is going to be a bigger gap between EBITDA and EBIT. And so I mean, as you said, yes, the figures -- we stick to figures previously announced.

Question, on your plan through 2027, the margins, okay, bottom, what you've talked about the business mix and you've talked about the growth figures. But there's a fair amount of pressure there. So what of -- some of your other levers for growth also? So for the core business of Mersen, are you seeing a shift in the core business? So I'm just wondering if there have been some long-term changes in the road map?

So well, for the SiC, everything that we're doing for the electric vehicles, all of this, we are relatively careful about our projections there, although we're confident that we will be even better. The SiC market is fantastic, but it's discussions, negotiations with Wolfspeed are tough. It's profitable of course. It should be quite profitable, but I wouldn't -- so -- but it's impossible to say right now that we could reach 13% EBIT. But I think all of the work that we're doing right now is aiming to be above 12% and to continue to capture business. So 18%, 20%, but losing our grip, that's losing control, no, that so we don't operate that way.

Okay. And in terms of -- I'm not sure I agree with what you've said about EBITDA. We could get to 19.5% from where we are and this does create value because this is coming from EUR 1.7 billion in 2027. And -- but look at the ROCE, yes, there will be high investments in infrastructure and they do take long to get a payback on this. Okay, some things pay back very quickly, such as furnaces. But when you're talking about such quantities, it takes longer, okay? But then it means that we are ready beyond 2027. But the ROCE, you can see that we will not be negatively impacting our ROCE with these investments, in fact. And so it means that, yes, so we've got the strong return on the investments is what they have to be. And this is the same thing for margins. We're investing a lot. And so there's depreciation, but this is what will allow us to keep growing. So the value there of the EBITDA is -- that's what you need to be keeping your eye on.

Question, you mentioned a figure, the EUR 200 million for renewables, SiCs, EUR 120 million, electric vehicles, EUR 140 million. And so for the SiC semiconductors, what -- no, EUR 250 million.

EUR 250 million was the SiC.

All right. Then what we'll do now is see if there are any questions from people connected via phone. Have any questions come in via phone? Perhaps not. Well, but we did get some on the chat. So from Jean-Francois Granjon of ODDO.

Okay. There are 5 questions, 5 questions. First of all, so what will be the ramp-up with Wolfspeed in terms of sales? The CapEx is what we see a continuation of the investment level. And free cash flow, will it be negative for 3 years, do you confirm that? What is the potential for improvement on advanced materials? And what do you anticipate in variations in working capital requirements? And is that it for now.

Okay. So let's see. Thomas first.

In sales, was the question about sales?

Yes, sales to Wolfspeed.

Over EUR 100 million by the end of the plan, starting in 2023 at about EUR 25 million. And it's so rather linear. Okay. The sales are more linear than the investments. Then there was a question -- too many questions.

The CapEx, EUR 200 million, would we see the same thing in 2025?

Well, we can't give you the figure. There's a pretty big bracket that we gave you there, okay, EUR 300 million. We said that that was for 2023, 2024. So we can't be any more specific than that beyond that. And okay, on free cash flow, we're going to have to see how things evolve in 2025. But we can see that for -- through 2024, yes, it will be negative, you're correct.

You cannot read Thomas' notes. So the potential of improvement of margins in materials.

Well, we said there'll be improvement in margins across both divisions as for WCR. Here, we're careful in our prediction, let's say, 20%, 25%. That's our hypothesis, perhaps better certain years and not as good other years.

Okay. Another question. On the EUR 100 million for external growth and the contribution to sales, is that included in the 2027 plan? Second question, when will you decide on your financing options?

The answer is yes, we do include that in the projected sales. The second question, we are studying all of that and we're also looking at marketing, finance environment, so we can't answer that. So we have to see what the -- we're studying it.

Another question. R&D spending for 2022, is that 3% of sales? And is that a figure that will continue in the coming years?

Well, yes, that's pretty much what we do every year. There was also Soitec in there, even though we've got some of the European aid for that research. But 3%, yes, is generally the level we work with.

And we generally -- there's also work done by our methods, so teams that isn't accounted in that.

Another question. What about the financing, the investments? And do you include the IRA aid? And why do you -- and what about the EUR 100 million.

Okay. We didn't talk about a capital increase of EUR 100 million. We said that it could -- we could turn to a capital increase, perhaps so that we will be in a position to make a pertinent acquisition, okay? But I never said that we would look to EUR 400 million in capital increases. So yes, the financing matter, everything is on the table and being studied.

Well, no, we're not taking into account any American state aid. If we can get subsidies, then fine, but -- so I -- I've never received a whole lot of support from -- on the American side, but well, why not. But there's the European aid. There's a French state aid for the CapEx at Soitec. So okay, there's a lot of fine speeches, but then you can sit and wait for the money to actually arrive or as we need to be moving quickly, okay? So we can sometimes hope for 25% support on our R&D.

In the United States, what we can see is the tax credit, particularly for Colombia, for example.

And another question. Could you tell us about your financing options?

Well, again, it's all being reviewed. There's a bank loans, capital, hybrid instruments. So there are advantages and disadvantages to all of that. For us, we really want to maintain strategic flexibility. And we have to keep in mind, of course, the return on shareholder value. So regardless of the option, we have to, of course, protect our shareholders at the same time.

All right. Well, we have no other questions by webcast or phone. And if there are no further questions from the room -- we do have question by phone. Was there a question, a phone question? No, no questions from the phone. Okay. Well, but we do have another question in the room.

On the dividend payout policy, will you stick to that policy or would you have to look for some savings there?

Well, no, there's -- currently, there's no challenge on that dividend policy that's approved by the Board of Directors every year. So for now until there is a change at Board level, then we are within our policy between 30% and 40% of net result.

All right. Then, thank you, everyone. Enjoy the rest of your day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]