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

Welcome to Mersen's Q1 '24 results. [Operator Instructions] For your information, this meeting is recorded. Over to Mr. Luc Themelin, who is the CEO.

Thank you. And good evening, everyone. Welcome to this Q1 sales announcement. Starting with some of the highlights of the first quarter, we've set a new record for quarterly sales at EUR 312 million. Last year's momentum continues. The 2 divisions and 4 major geographies contributed fairly evenly to the company's performance. The group's strengths -- and we have two key areas, expertise, [ industrial ] leadership, and the SiC semiconductor market continues to grow, with over 20% growth this quarter. I would also like to highlight the very good performance of the transportation markets, be it rail, aeronautics or electric vehicles, with overall growth of above 20%. The process industries have held up in both divisions with overall growth higher than the company's whole. So thanks to the good performance, we're able to confirm the guidance for 2024 communicated in March. So we've set a new quarterly sales record, despite unfavorable currency and scope effects. The biggest impact is coming from conversion of the Chinese RMB and the U.S. dollar into euros, which is having a negative EUR 6 million impact of the quarter. To a lesser degree, we've had a scope impact change following a disposal of a small business in Germany for EUR 3 million. Organic growth, we achieved 6.8%, which is a great performance after a particularly buoyant 2023. For the record, we achieved plus [ 8% ] growth in Q1 '23. Nearly 3% of that growth was due to price increases, mainly in North America and Europe. Handing over now to Thomas, who is going to go into greater detail into the sales for Q1.

Thank you, Luc. Hello, everyone. So yes, you're right. It was a record quarter. And as you can see, all geographies contributed to the growth. Starting with Europe, organic growth in Europe was driven primarily by France and Italy. Aeronautics and semiconductors, SiC semiconductors, have posted strong growth, also driven by big restructurings in the chemicals industry. APAC group sales rose by over 8% year-on-year, especially in China, where the semiconductors business and chemicals segment has been very good with -- on the other hand, the business in electric, the electrical sector, is remaining sluggish. Last but not least, in North America, organic growth was 6.7%. Growth has been particularly sustained in electrical activities, primarily electrical distribution in the U.S. So the two -- both of our divisions enjoyed strong growth. The Advanced Materials division reported organic growth of 8.9%, with sales of EUR 172 million, and the Electrical Power division posted sales of EUR 140 million, with organic growth of 4.2%. So you have one slide here for each market. I would like to spend some time first on the electronic markets, starting with SiC semiconductors. Demand, still very strong, with customers in all 3 major geographies. We've achieved sales of EUR 25 million. Silicon carbide semiconductors market is slowing down, due in particular to a slowing market. And finally, power electronics projects are less numerous this quarter compared to Q1 '23. Moving on to the second market, which is the energy market, more specifically renewable energies, it is stable, as expected. As we told you last year, we're at full capacity, but we're not increasing it as planned. As far as the transport is concerned, transportation market, very buoyant. Aerospace, strongly growing, returning to its levels of 2019. Growth is primarily coming from Europe and North America. The rail market is also quite dynamic. We have contracts with Alstom in Europe, Bombardier in North America. We also have some maintenance contracts with the French RATP, for example. So a very buoyant market in Q1. Growth has also been sustained for electric vehicles as expected, with nearly EUR 6 million recorded in Q1. Moving on to the chemicals division, which, as you know, is a contract businesses. We had a lot of contracts in Q1. We've also had the deliveries of the synthesis units and heat exchangers in all geographies. A lot of strong growth, especially in China and Europe, driven by different applications in the battery and fiber optics sectors. Last but not least, growth in the process industries, which remain very strong. This is true, with electrical distribution in Europe and the U.S., as I said before, and it is also driven by price increases in the vicinity of 3%. So an overall good performance, which enables us to confirm our objectives for the full year. Organic sales growth of around 5%; operating margin before nonrecurring items around 11% of sales; CapEx between EUR 200 million and EUR 240 million, depending on the speed of execution. The EUR 200 million and EUR 240 million, including EUR 110 million to EUR 150 million for investments under the growth plan, again, very much in line with the company's road map. So this is it. Luc and I will be more than happy now to pick up your questions.

[Operator Instructions] The first question is coming from Thomas Renaud from Gilbert Dupont.

Hello, can you hear me?

Yes, we can hear you a lot and clear.

I had a first question on the price in Q1. You said 3%. I was thinking between 1.5% and 2% price effect. This is what you announced the previous time. So why is the price effect slightly higher? Is it because inflation is higher? Or is it because the electric distribution demand is such that you can actually afford to further increase prices? That's my first question. Second question on the chemicals segment. Should we expect this momentum to continue for the full year Q2 or full year or not? And my last question is on profitability. Looking at the performance of this quarter, there is more growth on Electrical and Advanced Materials. Can we reasonably assume that the mix effect has been very favorable and has been -- has had a very positive impact on profitability for Q1?

Okay. Thank you. Again, we confirmed our guidance for the year. That's to answer your last question. As far as price effects are concerned, we have embarked effects. We have always -- we always have a price effect at the beginning of the year. We're going to stick to what we announced earlier, between 1.5% and 2% overall price increase for the full year, '24. As far as the chemicals are concerned, we had a very good quarter, but last year's quarter Q1 was slower. So we're looking at single -- mid-single-digit growth for the full year. But we don't expect it to go at this pace. We're going to -- we had a lot of large deliveries towards the end of the year last year.

[Operator Instructions] The next question is coming from Jeremy Sallee, BNP Paribas.

Hello, can you hear me?

Yes, we can hear you.

I have a couple of questions. The first one is on silicon carbide. You told us about the growth for Q1. Do you expect this momentum to continue? Or do you think it may accelerate towards the end of the year? Could you also give us an update on your production capabilities? Second one on process industry. Things seem to be going really well. What has the order intake been like recently? Have you seen a slowdown? Or is it still buoyant?

Well, on silicon carbide, good growth. We think H2 should be more dynamic, looking at the forecast. The forecasts are generally confirmed 3 months ahead, so we can give you further information in July on this. Our capacity capabilities, well, as you know, we have 3 plants, really going to reach full capacity towards the end of the year. So things are going quite smoothly. The process industry, it's a bit complex. But what I can say is that in the U.S. and Europe, things are going smoothly for the entire process industry segment. We have a good industrial momentum in all large industrial countries, really nothing to -- nothing else to say. Electrical distribution, we have important deliveries. We have some fewer orders. Right now, we're really delivering -- we had some very large orders we received towards the end of the year last year, which we're delivering now.

My understanding is that we have no more questions at this point. On the French line, actually, we do have a question. Here it is, from Julien Onillon.

I would like to have a clarification, please. I would like to come back to aerospace. Your -- the numbers are very impressive. Is that something -- can you hear me?

Yes, yes, we can hear you. Please go ahead.

Is this something you expect to last for the remainder of the year? Or do you think it's really specific to Q1? That was my first question. My second question on North America. There's been a lot of interesting organic growth. We are seeing an acceleration. You were at 5.5% Q4 '23, now we're at 6.7%. It's interesting to see this acceleration, which has not been the case in Europe, going down from 11% to 5.8%. Is there anything specific to the U.S. that could explain this acceleration in Q1? Keeping in mind that 2023 already was a very good year with very high performance. So the question is, is it specific to the U.S.? Is there an explanation? Is there a specific reason why Q1 is really much better than Q4 '23?

Well, what's unique in the U.S. is that we had some large contracts in the chemicals segment. And in electrical distribution, we're delivering a lot of past orders right now, and things are really accelerating, especially on the supply chain. This is why sales are increasing. But we don't necessarily expect it to be the same towards the end of the year.

Okay. But you still expect Q1 -- Q2 to be quite good, but you expect it to be -- to decline towards the end of the year?

Yes, but orders could also pick up. We don't really know. We know there are very high expectations on electrical delivery. I think there is quite a bit of uncertainty for the end of the year, but we can't really say things are going to slow down per se. And then in aerospace, we're quite confident on that segment. Over the past 2, 3 years, we had a bit of a decline. Things are really picking up. We do business with Airbus. They're not really able to produce more than necessary, but they've had some real success stories, very large deals. Dassault as well, we're in the Rafale program. And -- with a lot of Mersen products there as well, and there is no reason for this to stop. So yes, we expect things to have a positive impact on our overall sales. We have a lot of equipment companies behind this, like Liebherr and Thales, for example.

Next, we will take our question from Thomas Junghanns, Berenberg.

Four quick questions. First, did I understand correctly that sales for the SiC industry grew by 20% year-on-year? Maybe we can go one by one.

[indiscernible] is supposed to translate the question. Can you give us the question, please?

Yes, sure. Did I understand correctly that sales for the SiC industry grew by 20% year-on-year?

So I don't know if, Thomas, you can hear me, It's Véronique. So I don't know, we have a problem. So I will call you back with Luc and Thomas just after the call because I don't know, it's not working, sorry.

There are no further questions on the English line. I will now hand over the line back to the host for additional or closing remarks.

I have a question on rail in India. Could you shed some additional lights on rail in India?

Yes. We are growing our Indian sites because rail is growing. We're also launching new products, and we invested EUR 8 million over the past 3 years. India represents EUR 35 million in sales, and we're starting to develop new products there. Things are going very well. So far so good. We're seeing our first orders coming in. But we have to work a lot locally with local OEMs and with companies like Alstom and Siemens, but we were asked to have product lines made in India. So we're working on this for the 4, 5 years to come.

So we have a question from Thomas, Berenberg, in English.

[ Did I understand ] correctly that sales for SiC Industry grew by 20% year-on-year, given the slowdown in EV demand?

The answer is yes. I'm not sure if it's 20% growth year-on-year. I'm not sure we can really talk about EV growth in India, but we have kept our promises. So the answer is 20% growth year-on-year in SiC semiconductors. The answer is yes.

We have additional questions in writing. Maybe we can take questions on the phone.

Yes, we have one more question from Jean-Francois Granjon from ODDO BHF.

Maybe you already answered the question, I apologize. I came in a bit late. I have two questions, as a matter of fact. In Advanced Materials, you mentioned a decline in silicon semiconductors. Could you come back to this for the full year? And then you mentioned price. The price -- the 3% price effect, how do you see the things in the months to come? Do you expect the trend to be -- to continue or to be different?

I can pick up the second question. I've already more or less answered it. So we're maintaining the 1.5%, 2% bracket price increases for the full year. We'll see. We'll see how things go. Obviously, we do want to continue price increases. But right now, we're sticking to 1.5% and 2%. So it's not really a surprise to see 3%. On silicon carbide, I don't think there is really much to be said. There is a lot of sequencing, maybe some destocking as well. When you look at Samsung and other large companies, things are -- we don't really have any special comments to make. It's just normal business sequencing. And that's it. Some minor delays, but nothing special otherwise.

Okay. We have no more questions on the phone. Back to your host to close today's meeting.

Many thanks. Thank you for taking the time to listen. We will be back on July 30 for half year results. Thank you, everyone, and have a wonderful evening. Bye-bye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]