Mersen S.A. ($MRN)

Welcome, ladies and gentlemen. Welcome to Mersen 2026 First Quarter Sales Presentation. The webcast will be structured in 2 parts. First, a presentation by the Mersen management team represented by Luc Themelin, Group CEO; Salvador Lamas, Group COO; and Thomas Baumgartner, Group CFO. [Operator Instructions] I will now hand the call to Luc Themelin to begin today's call. Please go ahead.

Thank you. I'm happy to introduce this presentation for the last time. As you know, I will hand over to Salvador in less than 1 month. But about the quarter 1, we have a positive set of results to share. It actually marks a return to quarterly organic growth with plus 3.1%. All in all, reported Q1 2026 sales of EUR 296 million with 2 main highlights: robust growth in the Electrical power segment with organic growth of plus 8.7%. Electrical power is increasingly acting as a key growth engine for the group, supported by strong structural demand around electrification, grid deficiency and data centers. Positive momentum in North America with 8.2% organic growth for the period. As far as exchange rates are concerned, we have a negative impact of EUR 17 million mainly linked to the depreciation of the U.S. dollar and the RMB. I remind you that this does not impact our competitiveness. It is purely a commercial effect. I will now turn over to Salvador and Thomas for more details.

Thank you, Luc, and hello, everyone. So the organic growth stood at 3.1% for the quarter, including around 2% of price increases, and if we look at our performance by geography, here are the key highlights, beginning with North America, the largest area in terms of revenue with 42% of the total. So North America reported a strong growth of 8.2%. This is a very solid performance driven especially by growth for data centers and growth in aeronautics. Europe reported a slight decrease, and this reflects 2 things, low deliveries in chemicals compared with a very strong quarter in 2025. And on the other hand, growth in other markets, which underlines the resilience of our business in the region, excluding chemicals, organic growth would have been close to plus 3%. Eventually, Asia. Asia Is back to positive organic growth at 1.9%. This reflects growth in India and South Korea, driven especially by rail markets and energy storage solution. On the other hand, China reported a decrease heavily impacted by the solar market and weak deliveries in chemicals. If we look now at our performance by segment, what we see, first, a strong growth in electrical power, driven by projects in grid quality and driven as well by a solid sales momentum for data centers. And on the other hand, a slight decrease in Advanced Materials. We saw a lower level of activity in solar and chemicals, which was largely offset by growth in the rail markets, in aeronautics and semiconductors, both SiC and SI. So overall, this segment reflects a mix trend with short-term headwinds in a few markets, but solid momentum in structural growing areas. So now I will turn over to Salvador.

Thank you, Thomas. Hello, to everyone. I would like first to briefly comment on a few business successes achieved during the first quarter. As already mentioned by Luc and Thomas, we recorded a high level of sales in electrical distribution in the United States with double-digit growth compared to the previous year. This is driven by grid quality and data center demand. In terms of new markets, we have made progress in our collaboration with Terra Innovatum. Terra is developing a micro modular reactor that is scalable, affordable and deployable anywhere with the power of 1 megawatt at a time. Mersen will supply nuclear-grade graphite. And today, the first-of-a-kind prototype has been manufactured. Terra will now enter into a more industrial phase, which will continue to support very closely. On the EV side, specifically the battery -- concerning the battery, we disclosed last week the signing of a contract with Vulcan Energy. This is an interesting company that is developing the first integrated lithium and energy business with a carbon neutral footprint. We will supply to Vulcan Energy, a specific synthesis unit in graphite called in our ranges, Eco&FLEX. This is a quite unique solution that will support the conversion of a lithium chloride into lithium hydroxide, and on top of that, it will also enable to recover the energy release during the process, which will be reused in the customer processes, contributing to make this project carbon neutral. Finally, energy storage continues to be an important market. We are active in South Korea with customers such as Samsung SDI, delivering fuses to fully protect the battery storage systems. All these achievements illustrate very clearly our position in our key markets with long-term growth trends, particularly electrification, energy transition and sustainable mobility. Now looking ahead, we remain confident on our ability to deliver our full year objectives. We are well positioned on structurally attractive end markets, such as electrification, energy transition, clean mobility, grid reinforcement and advanced technologies. At the same time, we remain focused on excellent execution while maintaining a strict cost discipline in the company. As a reminder, in 2026, the group is aiming for organic sales growth between 2% and 6%, with stronger growth in second half of the year versus H1 of this year. An EBITDA margin before nonrecurring items of 16% plus/minus 50 basis points, operating margin before nonrecurring items of 8.5% plus/minus 50 basis points, reflecting a further significant rise in amortization and capital expenditure between EUR 90 million and EUR 100 million, which is representing a significant decrease compared to previous year 2025. As a reminder, our guidance considers a significant increase in raw material costs, particularly copper and silver, which we expect to offset through price adjustments with an impact that will be more visible in the second half of the year. With this, let's move to answering questions.

[Operator Instructions] The first question comes from Thomas Renaud, of Kepler Cheuvreux.

Okay. Two questions from my side. Can you split the Q1 price contribution by end market, if possible? This is my first question. And the second one is related to the SiC business. It appears to be recovering a bit faster than expected. Is it true or not? And what are the main drivers there? Is it the end of destocking phase, new order intake? I don't know for data centers or maybe a recovery in the EV market. So could you elaborate a bit on that point too?

Okay. Maybe I can answer to the first question. What we can say is that we have more price impact in North America and a little bit more in Electrical Power, but this is not being with a specific market, I would say. It's easier in North America compared to other regions in the world. SIC?

Yes. There is a slight jump, it's not a big difference compared to last quarter. We cannot say that there is a recovery. It's just a question of mainly segments. We don't know...

Yes. We had -- it's in line with the expectation. We had a compensation linked also not a big, big one, but few millions, a few small millions with a negotiation of last contract with 1 customer. And in fact, I can say, we have EUR 17 million of SIC sales, and last quarter was EUR 15 million. So this is not a big jump.

The next question comes from Jean-Francois Granjon from ODDO BHF.

Sorry. I was on mute. So three questions from my side. The first one concerning the U.S. distribution. So as we see a huge improvement or positive trend for this quarter, so if I will remember, this business is quite -- had some well margin in the past. So do you expect you to a strong growth coming from the U.S. distribution higher margin? And are you more confident regarding your guidance for the full year? The second question, you mentioned in the press release strong growth coming from data centers. So this should have an impact on the U.S. distribution. So I think you have a good idea on what the business made with data centers. So could you give us more precisely or could quantify the percentage made with the data center business for all the group? And the last question concern the solar business. So you do not expect any inflection improvement for the short term. What is your scenario for the medium term for this business? Do you expect more growth, not this year, but next year? What about the storage, et cetera.

Okay. I will answer to the first question. Effectively, we have a strong business in electrical distribution. Part of it also is driven by price increase. And as you know, price increase is compensated partially or totally increase in silver costs. So it doesn't increase the margin. So that's why today, we just continue to say that our guidance -- we maintain our guidance in terms of margins.

Regarding the second question, I will take it. So yes, data centers is an activity that we are following, of course, much more closer. Today, we can say that the Q1 result is around EUR 10 million, okay? Which represent 2x what was expected -- what was the result in Q1 2025. So effectively it's a business that is growing, and we are well positioned in this part of applications. And regarding the solar inflection, your question about medium term, definitely, we do not expect inflection this year. We expect inflation during 2027. At this time, we still don't see the signal that will trigger this inflection. It will come from the restructuring of the industrial [ setup ] and the companies in China, producing the sales. And as we speak today, this is not still making it a reality in China. We still believe that this business could come as we say, we're always positioned in high-end applications in this market that still are true and will continue to exist in the future.

[Operator Instructions] The next questions come from Julien [indiscernible] from [ Marex. ]

So I have several questions. First, one technical question. It seems that you have changed some of the company from division, going from Electric Power to graphite. Could you explain that? Because when you look at the number of last year, they seems to have changed? Second question, I would like to come back more fundamentally on some -- plenty of question on your different contracts, recently signed. First on Vulcan, you mentioned that it is a multiyear contract of million euros. What does it mean? Is it EUR 10 million, EUR 20 million? What type of, let's say, of revenue we can expect from this contract to come starting -- is something you expect in '26 or it's something it will come later on in '27 terms of for Vulcan? Same question for Terra. You have not mentioned any numbers here, but I understand that there is now starting a new phase with Terra. Which type of revenue you can expect from Terra coming. Is it something here, we're expecting more in 2029 and nothing really in the short term. But just to know if any revenue are expecting for Terra. Another contract you are not mentioning, but it's something which you already mentioned during the annual results, which is a contract with the U.S. Defense, the DLA, for providing some graphite for new rockets, considering that the U.S. has consumed a lot of rocket recently. We had in mind something like EUR 10 million potentially. Are you expecting now something much bigger coming on stream, and it will be -- again, if you have some numbers, are you expecting -- how much do you expect for this year and maybe for next year on this contract? And finally, still on the contract, I'm talking about Korea, you mentioned in your presentation, effectively this battery energy storage contracts. I was not aware what -- how much we are talking about specifically again, EUR 10 million?

I will maybe start with the first question. So we are talking about a small business product line, which is linked with transportation. In fact, the system, it was a system to connect to the ground, the rail system. In fact, it was done, it was manufactured in Electrical Power. And it uses also graphite in it. And so it was better in order to maximize the synergies to put them in the same segment, which is Advanced Materials. And in fact, it represents something like EUR 20 million of sales per year.

Now regarding the second question on the contract regarding Vulcan, it is several million euro contract, as we explained, we will not release the full amount. It's a multiyear contract, but the expectation will be starting invoicing this contract late 2026, mainly '27 and a little bit in 2028. What we can say is you should expect on this contract -- in the life of the contract, a little bit less than EUR 10 million, just to give you some figures. The third one regarding...

Sorry, I didn't hear. It's -- I mean, broadly around EUR 10 million, so maybe plus and minus...

Less than EUR 10 million.

Less than -- okay. Clear.

Now regarding Terra, Terra, we submitted a prototype, as I mentioned, in 2026. We do expect the industrialization phase to ramp up not before 2028 because it takes time to put in place everything that is needed, okay? Now DLA, DLA, as you know, is the Defense Logistics Agency in North America. It is not to specify what is the use of this graphite. It's for strategic purposes. And it's a contract that lasts a few years. It could be repeated. At this stage, we don't know yet, but it's something that, yes, could be renewed but at this time, not much information to share with you about it. Regarding Korea, Korea, Samsung SDI is a recurring customer for us. So there's contracts awarded systematically every other year regarding new platforms. I can give you a number, roughly, you can expect about this contract, several million euros per year of sales on fuses.

There are no further oral questions at this time. So I will now return the conference to the speaker for the written questions.

Yes. Thank you. So a number of questions have already been answered, but there's one around small modular reactors. So the question is, can you quantify the consumption of ton of graphite by small modular reactors?

Consumption, I don't know what you mean by consumption. In fact, when you build the small modular reactor, you have to fill the reactor with around 100 tons of graphite. And it stay at least 15 years during the usage of the reactor before being replaced. That means each time they will sell a small reactor, we have to supply 100 ton of graphite.

Okay. Now move to question around organic growth. So since you printed an organic growth of 3.1% already in Q1 and you expect a stronger growth in H2, is it fair to assume that you will end in the upper end of the range provided in the guidance?

So we keep our guidance Why? Because last year, we had a very strong Q2 impact linked with some contract renegotiation. So at the end of it, that's why we don't -- we are comfortable with the guidance we gave, but we have no more indication to give.

Second question is from Giovanni, is what kind of growth did you have in Q1 for semicon both silicon and silicon carbide?

In fact, in silicon carbide, it's really important because it was very low in the first quarter of last year, it was around EUR 10 million. And as I said, it's EUR 17 million today. And on the SI, it's a double-digit growth. So a good start, I would say.

So just a clarification, ask on the tons of graphite for small [ SMRs, ] small modular reactors. So can you clarify that you said, Luc, that's for you. So 100 tons of graphite are sold to each modular reactor. What tonnage of graphite did Mersen sell in 2025?

Something around less than 12,000.

Okay. So the range 10,000 to 12,000.

Yes.

Then I have a question from Jeremy. So what is the anticipated pricing impact for the year? And maybe together with the second question, why not tighten the organic growth guidance towards the upper end of the range after the Q1 performance, especially given that organic growth is expected to be stronger in H2.

Today, I already said, and don't forget that there is a war in Iran, and can have impact -- not direct impact, I would say, but indirect impact. So I think it's not the time to give a very precise range of sales. Now the pricing impact we have today a 2% price impact compared to last year. This is the full-year impact, the full-year impact. This will -- the 2% will disappear, okay, because we increased last year the price gradually. So it will go back to 0. I don't know if I am clear, but the 2% will disappear. And then we will add other price increases, okay, that will be -- we will see them in the end of this quarter, the second quarter and in H2, especially to cover or to compensate for the increase in raw material, namely silver and copper. That's why, yes, maybe it will be higher than 2%, but don't forget that it's not in addition to 2%.

Okay. Now we have a question on the context. So can you share some information regarding the situation in Middle East and possible impact for Mersen?

Yes, I will take this one. So effectively, the group is closely monitoring what is happening in Middle East, that's for sure. At this stage, we know that we have not seen any significant direct impact on our activities. Of course, this is lasting long or longer than expected for a lot of people. And yes, we could have some repercussions in the global economy. So yes, we are watching it. At this stage, no significant direct impact. We may have some indirect impacts like transportation cost increasing that we are seeing. And this we consider that we can most of it compensated by price increases during the year.

Thank you. So I don't have other questions. So if you may, we still have time if you want to send a question or ask. I think Thomas wants to ask more questions.

We have a follow-up from Thomas Renaud from Kepler Cheuvreux.

Just to clarify on the Middle East question. So you are not expecting any bottleneck on your own supply chain or raw materials for the formulation of graphite or something like that?

No, no impact. No.

We don't...

No, no, we are not impacted directly.

So no more question here.

No, me neither. We don't have any more questions now.

Okay. So if we have no more questions, we look forward to updating you on our progress on July 30, sorry, for the half year results.

Thank you.

Thank you.

Thank you, Luc.

Thank you, everyone, for connecting to this call. The call is now over. You may now disconnect. Thank you.