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

Ladies and gentlemen, welcome to the Mersen conference for the third quarter sales of the group presented by Luc Themelin, CEO; and Thomas Baumgartner, CFO. For your information, this meeting is being recorded. [Operator Instructions] I will now hand over to Luc Themelin. Thank you.

Hello, everyone, and welcome to our conference call. Let me start with a few highlights of the period. So we had a very good third quarter and record sales for the first 9 months of the year at EUR 110 million and organic growth of 15%. The SIC semiconductor and electric vehicle markets, which are the pillars of our 2027 plan performed particularly well in the SIC. Market sales nearly doubled to EUR 65 million over 9 months compared with the same period. As for sales of electric vehicles, growth was also strong, though at a lower level of EUR 17 million over 9 months. We see the process industries that continue to perform well for both divisions with double-digit growth. And so thanks to this good performance, we can confirm the targets for 2023 announced last July, and we have specified the ranges for organic growth and capital expenditure. And now I'll hand over to Thomas, who will give you details about Q3 sales.

Thank you, Luc, and hello, everyone. So the third quarter sales reached EUR 302 million with organic growth of 8.6% compared with a very strong third quarter last year. The currency effect impacted our sales figures this quarter for about EUR 18 million, mainly due to the depreciation of the Chinese renminbi and the U.S. dollar. There's also a small change in the scope of consolidation corresponding to the disposal of the German tantalum and corrosion equipment, which was finalized August. And around 5% of growth can be attributed to price increases, mainly in North America and Europe. So if we look at the different segments, we'll start with Advanced Materials. And here, we have organic growth of 6.7% and sales of EUR 166 million. And there are 3 things to note here. First of all, the SIC semiconductor market that Luc mentioned, was very strong and exceeded EUR 22 million this quarter. In 2022, the full year figure was EUR 52 million. Second point, Process Industries remain buoyant. Third, as announced previously, the solar power market is stable since we decided not to allocate more capacity in China to this market. And last point, invest materials, deliveries to the chemicals market were lower this quarter. As you know, this market is strongly tied to contracts for Mersen. In the Electrical Power division, the sales were EUR 136 million representing organic growth of 11%. Electrical distribution in Europe and the United States remain very dynamic, supported by price increases. Growth was also strong in electric vehicles, as Luc mentioned, with sales of bus bars, the heavy vehicles and fuses totaling over EUR 6 million for the quarter. On the other hand, there were fewer projects for power electronics, especially in Asia. Now if we look at the breakdown by geographic zone, sales in Europe grew strongly in both divisions, thanks to the semiconductor, rail and chemical markets. Sales remain brisk in France and Germany. In Asia, sales were slightly down compared to last year, mainly due to fewer projects in China and Japan in both the rail and energy markets. In North America, the business was strong in both divisions and in a large number of markets, particularly renewable energies, semiconductors and process industries. As for the rest of the world, which represents rather low sales generally, business was down comparatively due to non-repeated major deliveries for the chemicals market in South Africa and Morocco. So it makes this good performance, we can confirm our [indiscernible] for the year and give a more precise range for organic growth and CapEx, which was quite broad. So now we forecast organic growth of between 11% and 12% whereas previously, it was announced at 10% to 12% in the previous guidance. Operating margin before nonrecurring items between 11% and 11.2% and investments of between EUR 175 million and EUR 200 million, where previous guidance announced EUR 150 million to BRL 200 million. Also, I would like to inform you that we have extended the maturity of our syndicated credit facility, be an extension of a year, giving us an average maturity of around 4.5 years. So those are my main comments and now Luc and I will be happy to take any questions you may have.

[Operator Instructions] First question, [ Francois Benton ], private Investor. So question from [ Francois Benton ]. We're waiting for the question from [ Francois Benton ]. Well, then we'll move on to the next question. [ Thomas Fino ] of [indiscernible] DuPont.

I hope everyone can hear me. I have a few quick questions. First of all, is growth in Q3 impacted by limited production capacity in Advanced Materials. And the CapEx that you've been committing since the beginning of the year, will that allow you to increase production capacity. That was my first question. And so you were talking about sales for the 9th month while some of the figures were pure just for the quarter. What -- but what will we continue to see a positive balance because there's some inflation in that mix as well, I presume. And a final question on the scope, minus 0.3%, could you tell us what that corresponds to?

On the scope question, we disposed of an unprofitable activity because we always do a strategic review every year, and there was one that had become less profitable and less strategic. And so we disposed of -- it was about EUR 8 million a year in sales as concerns inflation. Yes, 5% in -- sorry, I'm talking about the price increases in Q3. Now there's a 4% annual inflation. So we will be -- we won't be increasing prices so quickly anymore because there's already been a strong increase. So the -- so it should be between 4% and 5% of the price increase. And so our margins are not explained just by the price increase. So you asked about production capacity in advanced materials and the CapEx. No, we are not experiencing difficulties for capacity. We should be at about the middle of our usual range. Now I'm not sure exactly what the rest of your question was.

Well, well, is growth in Q3, is it limited due to your -- any production capacity difficulties?

Well, we had said that 2023, we would be close to full capacity. There's been no great variation there.

All right. And if I could ask further questions. On the disposal that you mentioned in your portfolio of activities, are there any other entities that you -- or activities that you are looking to dispose of of.

Well, every year, we do a strategic review of our portfolio. And so we are looking both at acquisitions and disposals. But currently, there is nothing major in the works one way or the other.

Next question, Julien Onillon of Stifel.

Hello. I have 2 questions. Just quickly on prices, so 5% up this quarter, you -- so you've talked about fuses, and you said the -- you raised the prices quite strongly. So could you -- but perhaps others didn't rise. So quickly, could you explain that? But I mostly like to come back to some of the drop, some of the decline in the chemicals market because there had been exceptional deliveries the year before in the third quarter, which would explain the lower levels this year. But is there an underlying downward trend? Nonetheless, do you expect to see that continue to come down because you certainly have an order book that gives you some visibility. So can you tell us the best about which products for the process industries could, therefore, perhaps receive less investment, if you're expecting a certain contraction or at least less growth?

Well, in the process indices, we're not seeing any particular signs of a decline and that does cover an awful lot of different types of activities. So for the chemicals market, we have -- we see variations depending on large orders or contracts. And so it's true that in the chemicals market, it tends to be rather prudent. But nonetheless, we are seeing a sustained business. We keep a close eye on the trends and it's still making a strong contribution to the group's sales. As concerns prices, it's true that, yes, and in the past, there have been difficult years. Now in -- and Asia, there was no big change there in terms of the pricing.

Well, another question. In North America, the price increases, you said it was nearly 0 in Asia. So does that mean you're close to 10% increase in North America?

Well, I can't answer that precisely. But yes, there was a good increase.

Next question, Jean-Francois Granjon of ODDO BHF.

Hello, everyone. So I'm wondering about China and the graphite business. Could you tell us a bit about the situation there? Are you impacted? And another point, you reached, well, a macroeconomic in process indices. So we've understood that there is a good dynamic right now and a good growth. So -- but in chemicals, what's about -- we know that the chemicals industry can be impacted by macroeconomic factors, thank you.

Well, let's start with graphite and what's going on in China. Well, this is no surprise. There are -- there are components of where China produces about 80% of certain components for the world. So we know that there are issues around export rules, where now it's true that we've always kept an eye on the regulations of different governance. Now if we look at graphite powders, we have to obtain authorizations. But as for -- so between the powder synthetic and natural composition of the silicon. These have been regulated for quite some time, in fact. For us, Mersen is a presence in China. So -- but we're quite confident there because the products that we make are not concerned by most regulations. As for the process industries, yes, we're seeing slightly lower volumes. But at the same time, this is coming off of some very high growth figures previously, particularly in the first 6 months. So yes, we are prudent in our approach to Q4. Thank you very much.