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

Ladies and gentlemen, welcome to Mersen 2026 Q3 sales. The webcast will be structured in 2 parts. First, the presentation by the Mersen management team represented by Salvador Lamas, Group CEO; and Thomas Baumgartner, Group CFO. [Operator Instructions] I will now hand over to Salvador Lamas. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining us. I'm pleased today to share that quarterly sales came in at a record level of EUR 329 million, an organic growth of 14.2%. What is encouraging is that this performance reflects positive momentum across both of our segments and all 3 of our main regions. Electrical Power continued to accelerate, delivering organic growth of 22.8%. We are seeing very strong demand in several of our key markets, particularly data centers and power electronics, where our solutions play an important role in supporting the growing need for electrification and electrical infrastructure. At the same time, Advanced Materials returned to organic growth of 6.4%. This is an encouraging development supported notably by demand in the silicon semiconductors and aeronautics as well. This combination is important. It is a clear demonstration of the strength and diversity of our growth drivers and confirms the relevance of our positioning at the heart of electrification and the major energy and industrial transitions. It is worth noting that our strong performance was partly driven by price increases, which contributed approximately 4% points to organic growth in the third quarter. Overall, this strong performance gives us the confidence to raise our organic sales growth guidance, and I will come back to this later in the presentation. But first, let me hand over to Thomas who will take you through the third quarter performance in more detail.

Thank you, Salvador. Good afternoon, everyone. As Salvador mentioned, the 14.2% organic growth in sales was driven by all geographies. First, by strong growth in North America with 17.2% we continue to see in the region a very dynamic activity for data centers. This is not the only growing market as aeronautics wind rail are also on a strong momentum. The second region, Asia Pacific is also very dynamic with organic growth of 18.6%. This growth is driven by all countries in the region, China with growth in wind and semicon offsetting the low level in solar. India with wind, rail and data centers in Korea, driven by the semiconductor market. Eventually, Europe also delivered a strong performance with organic growth of 9.5%, marking a clear improvement compared with the first half of the year. Growth was supported by aeronautics and several electrical infrastructure project. If we look now by segment, starting with Electrical Power. Electrical power segment has posted a very strong growth, almost 23%. This was driven by strong growth for protection of data centers and by several projects in power electronics, where we supply passive components for OEMs. EV and wind were also solid. And as Salvador said, the good performance includes also price increases to compensate largely for the inflation of components and raw materials. The Advanced Materials segment also benefited from growth in several markets, leading to an organic growth of 6.4%. First of all, silicon semiconductors and aeronautics deliver a very strong growth. And as far as solar is concerned, we have not seen yet any sign of recovery. And finally, as I see semiconductor sales increased, but have remained as expected at a low level. On the other hand, the activity in chemicals suffered from the difficult situation of this market, as we mentioned it already in the first half. I would also like to briefly comment on the few highlights on the third quarter. First, we continue to meet the strong demand for fuses to protect data center installation in different regions in the U.S., but also in Asia. As far as silicon semiconductor is -- silicon semicon is concerned, we have a solid market position, especially on the ion implantation phase. The growth is mainly fueled by AI and data center demand. In September third highlight, we have been selected by GE Vernova to contribute to a major project to strengthen the Saudi Arabian Power Grid as integrates a growing share of renewable energy. And eventually, during this quarter, we have seen a strong growth in aerospace, both in the military and the suit segments, and it's important to remind that both segments, material and electrical are contributing to this market. So this achievement illustrates very clearly our positioning on key markets with long-term growth trends, partly electrification, data centers, energy transition and sustainable mobility. I now hand over to Salvador for more details on the 9 months same figures and the guidance for the full year.

Thank you, Thomas. Looking to the first 9 months of the year, the group sales reached EUR 941 million, including a negative exchange rate impact of EUR 18 million. We grew organically by 7.3% compared with 3.9% in the first half of the year. During the period and especially during the third quarter, the price increase impact was significantly higher than the first half of the year, as expected. It is important to mention that we continue to see a high level of inflation. Price increases contribute approximately 3% to the total growth for the first 9 months. Let's talk now on our full year guidance. First, for the fourth quarter, Mersen anticipates the following market trends. We continue to see strong momentum in data centers as well as silicon semiconductor market. The deliveries of silicon carbide semiconductor as explained by Thomas, will remain at low level. We see further positive momentum in the wind power market while the solar market will remain low. We see as well ongoing favorable trends in transportation, powered by particularly rail and aeronautics but also as well, continuing the ramp-up of deliveries with electrical cars, battery components for ACC. And we see a low level of deliveries from the chemical market I've mentioned with Thomas as we expected and communicated during the year. Last, the group should be in position to continue raising these prices to largely offset inflationary pressures on components and raw materials. Overall, for the full year, we have upgraded for the second time this year and narrowed our guidance for organic sales growth. We now expect organic growth between 6.5% and 7.5%. This is above the previous guidance from July, which was between 4% and 6% and of course, above our original guidance at the beginning of the year, which was between 2% and 6%. That means that we are forecasting a good fourth quarter after an exceptional third quarter. As far as margins are concerned, we confirm our previous guidance, which was released and upgraded at the end of July. EBITDA margin before nonrecurring items between 16% and 16.5% expected around the midpoint of the range. Operating margin before nonrecurring items will be between 9% and 9.5% expected on the upper range of the guidance. Industrial CapEx between EUR 80 million and EUR 90 million remain unchanged compared to the previous guidance in July. And to conclude, this risk guidance is fully in line with our midterm plan for 2029. With this, let's be open to questions. There's more to questions.

[Operator Instructions] The first question comes from the line of Giovanni Selvetti from Berenberg.

Congratulations about the results. The question is more about if you can kind of give a sense of outcome if you're telling us that pricing is quite good and you can rebate the inflationary environment that you see. The higher volumes and the higher growth is not translating to higher margins. So what was -- in the press release, you mentioned a less favorable product mix. So if you can elaborate a bit more about that.

I can start with pricing. In fact, the pricing when we launch pricing, we are where we thought we would be. So good pricing power. However, we have a little bit more inflation than what we expected in July. So we are going to adapt our pricing policy. But of course, it's not immediate, I would say.

Yes. And to explain with the mix impact, the increased need of electrification and acceleration of these main markets we are present, we see more and more a project business in front of us with higher volumes being requested by OEMs, which is different compared to the distribution traditional business. But is positive for the future as well because this OEM market will generate as part of our business model, the spare part business that goes with in the following years.

The next question comes from the line of Thomas Renaud from Kepler Cheuvreux.

One question on my side on the updated guidance. It's implying Q4, let's say, 4% to 8% organic, so a clear slowdown compared to Q3. What explains the slowdown? Is it mainly cautiousness on your side because the wording of your Q4 outlook is very positive in my view. In Electrical Power, your main competitor, Littelfuse, expects further acceleration in Q4 after 22% in Q3. So are you seeing the different trends?

No. In fact, the Q3 was a combination of many markets going very, very well. First, and there is a reference effect. If you look at the Q3 last year, the difference between the Q3 and the Q4 last year, we were -- we posted minus 6% in Q3 and almost flat in Q4. So It's a lot of about reference effect, I would say. That explains what you call the deceleration, but it's not a disruption of business.

No, but it's a clear deceleration compared to...

Yes. Yes, the reference effect is not the same. Again, the Q4 was very low last year. And if you compare with H1, there is an acceleration compared to H1 with the figure -- implied figure you give for the Q4. So there's no deceleration.

And just on my comment on a little fuse, which expects further acceleration.

Again, we have not the same exact portfolio than Littelfuse. So you cannot compare directly and get the same conclusions. What I can say is that we don't see this acceleration in our markets where we deliver specifically data centers. I think there's a question behind. So I confirm today the trend is there and we'll continue to grow in this market as our customers.

[Operator Instructions] The next question comes from the line of Julien Onillon from Marex.

So 3 small questions. I mean we have seen a strong, strong numbers overall. But just like to come back on very specific markets where you have some weaker revenue or results. Let's say, first, on second carbide, you mentioned it's quite stable. So no strong recovery. From what you are today, do you see that it may be not in Q4, but do you expect early 2027 some improvement in this market and be the same question about solar? Are you seeing solar to eventually to start to recover or you see the recovery of potential in solar to come later on? So what are the view on those 2 markets? Second question will come on traditional [indiscernible]. So semiconductor are more traditional. Here, you have a strong growth. What type of growth do you have? Is it -- for the full year, we expect something like 10% growth, 20% growth, just to have the IDO magnitude in the semiconductor growth [indiscernible] year?

You mentioned 3 questions, but...

Well, there is 2 and 3. Silicon carbide and solar is 2 questions and the third one traditional summit.

Okay. You start.

I can start with the first one regarding the markets are not so strong today. Yes, silicon carbide market, yes, I confirm today as well. We don't see a significant recovery before end of 2027. It was the case in July. I confirm it's still the case today, okay? Regarding solar, we don't see a recovery in China on this market. As I mentioned, the situation in China with this overcapacity and our stock hit is still there. Nevertheless, with solar in a medium-term situation, different countries, some countries are looking to produce their own solar resources. Such is the case of India and United States. And with these customers, we are already working on the prephase pre-project on this project. So we expect midterm recovery, not in 2027.

And as far as semiconductor silicon are concerned, we are more closer to 30% growth since the beginning of the year.

Okay. So when we have had in mind around EUR 55 million of revenue last year. So 30% is quite significant?

Yes.

There are no further oral questions at this time, so I will now return the conference to the speakers for the written questions.

Yes. Let's start with a question on data center. So could you give us -- so a question from Jeremy Sallee. Could you give us an indication of the revenue contribution from data center and the growth rate of that business? Could you also provide the same figure for ACC?

So yes, I will take that one. So from data centers, we expect to meet above EUR 40 million by the end of the year, which represents -- thanks to -- compared to the previous year. So this is confirmed. Regarding ACC, we have not communicated the figures particularly. What I can say is that we also see the ramp-up compared of the output of ACC that you can find as well in other media. So we see -- what I can tell you is that Q3 was the highest ever number we have delivered to ACC. And we continue to see this ramp up in the future in some forecast for ACC that is able to share with us for starting next year.

Okay. One question for the fourth quarter. Could you elaborate on what trend you expect by division, we think about new growth in AM?