Hello, everyone, and welcome to Mersen's 2023 sales, presented by Mr. Luc Themelin, who's the CEO, and Thomas Baumgartner, who's the CFO. This conference is recorded. You will only be listening. However, at the end of the presentation, you will be invited to ask questions. Please press star one to record your question. You can also put questions in writing through the webcast. Should you need any assistance, please press star zero. You will then be connected to an operator. Without further ado, over to Mr. Luc Themelin.
Hello, everyone, and a happy New Year. We're very pleased to welcome you to Mersen's 2023 results. A few words to introduce you to another yet record-breaking year. We set a new annual sales record at EUR 1,211 million.
Thanks to this good performance, which confirms our strategy, we're forecasting operating margin of approximately 11.3% for the year, which is higher than previously announced. We're therefore perfectly in line with our 2027 roadmap. So we've set a sales record in 2023, despite unfavorable currency and scope effects. The most significant impact is obviously the conversion into euros of the Chinese RMB and the US dollar, which has negatively impacted our sales, approximately EUR 40 million for the full year. And to a lesser degree, we've also had a change in scope linked to the disposal of a small operation in Germany, which we already mentioned last October. Looking at organic growth, as you can see, we've had a solid momentum since 2020. In 2023, organic growth is +13%.
The fourth quarter was very sustained, with organic growth of 9%. As a reminder, the company posted organic growth of +18% in the first half, 9% in the second half, due to a much higher basis of comparison in the second half compared to the first half. For the full year, 2023, each quarter amounted to roughly EUR 300 million. Over to you, Thomas. Thank you.
Thank you so much, Luc. Hello, everyone. This was indeed a record year across all geographies. We're going to start with North America, where growth has been the most dynamic, the most sustained, as you can see. The two segments contribute semiconductors and process industries. Electrical distribution, included in the process industries, was very active also, mainly supported by price increases.
Business in Europe also grew strongly in both segments, driven by semiconductor, rail, as well as aerospace. In Germany, business has been very buoyant, in particular, thanks to chemical industry and semiconductors. In France, growth was mainly driven by aerospace. Growth has been somewhat more modest in Asia. China and India really drove growth, thanks to, respectively, the semiconductor and chemicals markets for China and rail and wind power sectors in India. However, the electrical protection market has declined, especially in China, because, of a less favorable economic environment.
Last but not least, the rest of the world, sales growth is a result of business deliveries in the chemicals in the Middle East, which was weighted by the non-recurrence of some major deliveries in the chemicals in South Africa and Morocco, in the previous year, 2022. Looking at end markets over the years, starting with the process industries, which obviously accounts for the largest share of sales, 33% of total sales. There, again, growth was sustained at over 10%, with the contributions of the two segments. The electrical power segment, as I said, electrical distribution in Europe, in the United States first, and also in Europe, remained very buoyant, mainly driven by price increases for advanced materials.
Growth was driven by the glass industry, the steel industry, price increases, as well as market share gains in Europe. The second market in electronics is electronics, sorry, with 24% of total sales. This market is driven by the impressive acceleration of SiC semiconductors, EUR 90 million in 2023 versus EUR 52 million in 2022. This is really not a surprise. This market has been driven by a number of long-term contracts we have with industry players, especially the Wolfspeed contract. In conventional silicon semiconductors, growth is also quite present in spite of a declining market. Mersen's growth is due to its positioning in key very technical areas of the business and the manufacturing process....
To continue, energies, mainly renewable energies, starting with solar, growth in 2023 is close to EUR 100 million, 97 to be precise, leading as expected to limited organic growth over the year. A hundred million last year, but there is a negative currency effect. So but, but we do have positive organic growth. At the end of 2022, we decided to allocate less graphite production capacity in China to solar energy in order to free up that capacity for the semiconductor market. We're actually going to continue this strategy in 2024. The wind power market is also showing limited growth, as we also expected. The transports market represents 13% of the total sales. Growth has been very dynamic in the aerospace segment, both in Europe and in the U.S.
Rail has also grown very much in line with the company's growth, and we are actually now above pre-COVID levels. Lastly, for electric vehicles, EV, the company has started to supply Marquardt with the fuses and also the first ACC deliveries with busbars. Furthermore, business for charging stations is also picking up in the US and Europe, with fuses as well as cooling plates. Last but not least, chemicals at 9%. The growth here has been a bit more limited, but the order book is higher than last year at the same time on a like for like basis. So I would remind you that organic growth in growth market, semiconductors, SiC, renewable energy, was in total, 20%, compared to 5% in more traditional markets.
In growth markets, the strongest contribution is, as you would expect, coming from SiC semiconductors, with nearly 90% growth, EUR 90 million in 2023. Growth of electric vehicles is 16%. It represents EUR 24 million in sales, and once again, we expect stronger growth in the market moving forward, 2025, 2026. Last but not least, growth was slightly less strong for semiconductors and renewable energies, respectively at 9% and 5% for the reasons I explained before. So this overall good performance allows us to increase our operating margin guidance for the year. As Luke said earlier, it should be around 11.3% of sales. As far as investments are concerned, guidance remains unchanged between EUR 175 million and EUR 200 million, as we indicated before.
This is it for this presentation. Luc and I will now be happy to answer all your questions.
Thank you. If you'd like to ask a question or make any comments, please press star one. Please make sure your microphone is switched on when asking your question. We have one question from Sandrine Cauvin f rom Gilbert Dupont. Over to you, sir.
Good evening. Can you hear me okay?
Yes, we can hear you.
Could you tell us about the acceleration in Q4, advanced materials and the slowdown in other segments? Could you explain what's behind these changes in Q4? This is my first question. Second question: In Q4, there was a slowdown in electrical power. Does that mean that the only what's behind the growth is only volume and price increases? And my third question is on electrical distribution.
Could you give us the outlook for this business as we start 2024?
Well, I think the first question... In Q4, the chemical is doing very well, so there is no real change in the actual trends in the two markets you mentioned. Between Q3 and Q4, there have been no major changes. On the question on electrical distribution, I think the one in Europe works quite well. We have more visibility in the U.S. We have a significant backlog, as we mentioned before. We had to submit year deliveries, important deliveries, and... We have a few months ahead of us with continued high deliveries. We're delivering the orders that were made a few months ago. The overall trend is still looking quite satisfactory at the beginning of this year.
How much visibility do you have? Would you say four to six months?
Well, we have a significant backlog. Demand in the U.S. right now is not declining. Business is quite sustained there, so we'll have to see. We things could very well pick up again in February, March. The two past years has seen a somewhat unusual cycle with COVID, but we think we have a very solid momentum in the U.S., but also in Europe. We've had some very good deals all the way up through the end of 2023.
And how about the prices for electrical power in Q4?
I think you're right. It's the main effect is a price effect. It's been a bit higher, as a matter of fact, than anticipated. Price and volume.
Okay, thank you very much.
Sur EP, on electrical power.
We're talking about electrical power, EP. Absolutely. Thank you.
Next question from Jean-François Granjon .
Hello, good evening, everyone. I have a question on electrical distribution. You said that you're delivering the orders you took over the past weeks. What are the current trends of order intakes? Are you seeing a slowdown in order intakes? And subsequently, how do you see the next three to four months? That's my first question. My second question, you've had obviously an excellent year, 2023. Organic growth was 80% in H1, 9% in H2. The guidance is 11.3% margin. So we're going to see— So the margin will be the same in H1, H, and in H2, with organic growth, which was less sustained in H2, and yet margins are, are excellent. How do you explain this?
How do you explain this very good margin semester after semester with organic growth being lower? Do you think it's a question of productivity? How, how do you explain margin has been so good during the second half of the year, in spite of organic growth being lower? Not bad, but lower, lower than H1.
Well, we have two very similar semesters in terms of sales. Organic growth, again, has been quite similar in terms of volume and in terms of price, and this is really what explains this. We will communicate this in greater detail when we communicate the results. So how about... As far as the bookings are concerned, your question on bookings, the electrical distribution bookings are a bit lower, but we've had a lot of orders which we're now delivering. So we're sort of catching up, making up.
Products are being delivered. They order a bit less. We're still getting very decent orders. I think in February, March, we should be... You know, if business goes well, we should be in good shape. We're not seeing any signs of decline. We saw a lot of growth in 2023. In 2024, we don't expect particular growth in electric distribution.
Next question.
The last question on pricing. 5% growth is the price effect for the full year. What is the price momentum right now? Is it still the same? Are you still being able to increase prices or not?
Well, we're still going to get the benefits of the 2023 price increases. We may continue to increase prices, but more selectively. Obviously, increasing prices has become more difficult also because of less inflation.
Inflation, you know, the main inflation is coming from wages. It is significant, even if it is less than the previous year. Inflation is lower. Energy prices are dropping, for example. Raw materials, some raw materials are declining as well. They were very-- They increased very sharply last year. I'm going to say what we've said before. Our objective is to compensate for inflation. We did this in 2022. We did it in-- We said it in 2023, we delivered. We're saying the same thing. The objective, this is our objective, again, very consistently with the previous years, within reach.
Thank you.
Once again, this is a final call. If you would like to ask a question, please press star one on your phone. The next question is coming from, Skifel.
Over to you.
Hello. I would like to come back to the 2023 price increases. Obviously, you're going to have cost increases in 2024, wages, materials. You've been able to have some price increases. What, what-- how much is going to be... How, how much of the price, the 2023 price increases will still impact Q1 2024?
We will give you additional information once we work on our guidance, probably in March. What I can say is that the impact is less now than it was last year. Right, quite logically. So would it be in the vicinity of about 2%? Once again, we will tell you in March.
Okay, I have a quick technical question on the scope. You mentioned this small disposal.
I was a bit surprised by the amount. It was EUR 6 million impact on Q4. I had in mind it was a EUR 10 million sales business for the full year. Have you booked retroactively?
To me, it sounded, seemed quite high. EUR 6 million for Q4, that sounds a bit high. I'm not sure how to answer your question. To me, that sounds a bit high. Make sure you call Véronique Boca. We'll get back to you with a precise answer.
Okay, I have another question. I'd like to come back to the main growth factors and growing segments. You mentioned electric vehicles, EVs.
No new major contracts with battery manufacturers. Obviously, you still have the deal with ACC, which is now generating some sales.
But to reach your 2027 targets, you're going to have to sign much larger contracts, like the ACC contract. How much progress have you made? We hear about a slowdown in the EV business. Things seem to be a bit more complex than expected. Could you give us an update on that? And my next question is on silicon carbide, EUR 90 million sales, a very sharp increase with a potential capacity limit. You're really trying to, you know, mobilize massive efforts to answer the demand. In 2024, how do you see things moving forward? How much do you think you could earn maximum, with much larger capacity contracts? What's the maximum sales you would expect to generate on that segment?
Difficult to know what will be the final demand for silicon carbide. What I can say is that 2023 was very much in line with our expectations. We announced a number of contracts, and those contracts happened. Our customers kept their promises. We are now working on 2024 with our customers. Again, I cannot really answer your question at this point. I think customers will adjust their needs as we move forward. We have several customers. We finished the year positively with a Chinese customer who came, which was somewhat unexpected. You know, we're going to do our best to amortize ups and downs, but I can't really give you any figures at this point.
But you have capacity constraints, right, on these products?
Yes, we always said that 2023 would be difficult to deliver more. The fact is, customers did not really ask for more. In 2024, there are going to be some additional allocations, but not that many. The real peak will be coming in 2025. This is where our capacity, mainly in H2, you know, will be important. We're really following demand as we move to meet customers' needs and expectations. We do expect growth in silicon carbide in 2024, of course. Sales should accelerate quarter after quarter as we increase our capacity. We will give you additional information in March, once we can give the guidance. We have contracts, good qualifications. And again, we're very much in line with the 2027 plan.
We would like to have a second contract, like for batteries, we have ACC. With ACC, we're in very good shape, better than expected, doing very well. We're talking to a number of other companies, one or two companies, for potential deals in 2025, 2026, 2027. And new platforms, potentially as well. We're not going to disclose any names right now, but things are looking quite good. And we should be in line with the 2027 plan.
Okay, very good. Thank you.
Okay, this was our last question coming from listeners. I'm going to give the floor to Véronique Boca for any questions in writing.
Hello, we have one question from Bruno Hertz.
"What is going to be the impact of current sales on your ramp-up?
On the electric vehicles? Well, it's difficult to say at this stage. We're not targeting 80% market share. I think our success greatly depends on the manufacturers we work with. I can't really answer the question, looking at the current EV, you know, performance. We have different product customers who've qualified our products. We'll see how successful they are, how successful their platforms are in the next two to three years, if things go well.
Okay, here's another question from Philip Dubois: "What explains the increase of 2023 investments, which you made in the fall? Is it because of price increases due to inflation, or is it because you have real new development opportunities?"
Well, I think we somewhat adjusted our estimates.
At the beginning of the year, we more or less had this in mind, between EUR 75, EUR 175 and EUR 200, but it's a large amount, and we figured if we're behind, we may be under that number. So we deliberately put a very wide bracket, because we never invested that much in the past. Obviously, we have to execute, and we knew we may not be able to spend all the money, but we did. We did, which is good news. So things remain unchanged. Maybe we didn't communicate clearly. It's not an increase in capital expenditure. I think today we're talking about greater precision, accuracy. You know, sometimes there can be a gap between January and December, so that's the explanation. We have no additional questions on the chat.
But we have more questions from those who are on the phone. We have a question from Thomas Fenot from Gilbert Dupont.
Hello. Yes, me again. I have a question on the partnership with, I believe the speaker said Soitec. Could you tell us a bit more about it?
We're still qualifying products as we're speaking. We are also doing a fair amount of research and development. I think, you know, this industry, there's a lot of demand for 200 millimeters, and we'll see where things go as we move forward. We don't want to make any announcements at this point.
Okay, I have a last question on advanced materials. What's the beginning... what are the trends on process industry steel at the beginning of this year, 2024?
Are you seeing somewhat of a decline or are things still quite buoyant?
Well, honestly, the beginning of the year started three weeks ago, only three weeks ago. It's a segment where I, I guess, to give, to give you an answer, we'd have to wait a little bit.
Okay, thank you very much.
The next question is coming from Jérémy Sallé , BNP Paribas.
Hello, can you hear me?
Yes, we can hear you loud and clear.
I have a question on organic growth. What were the surprises you had during the two last months of the year? Was it electrical distribution or was it the semiconductors, silicon carbide? Then I have a question on ACC and Wolfspeed. Could you give us an idea of their, the contributions of those deals?
What's the ramp up-- What are the ramp-up perspectives for 2024 for those two deals?
Well, for Wolfspeed, I'm not sure I can answer, but, we're talking about EUR 1 million in samples next year. Shouldn't be... So we're talking about small amounts. Wolfspeed, I don't know. I don't have the number in mind. And on semiconductors, silicon carbide, the two last months of the year, you know, the numbers are not that significantly higher. December, historically, has always been low for Mersen, and we had a very good month of December in 2023. It would have really made us happy had we had this two months ago-- sorry, two years ago.
Great. Thank you.
Another question from Julien Onillon . Hello. Good evening.
I would like to come back to one point you mentioned earlier on traditional semiconductors. You said you mentioned a 9% increase. Is that 9%, is that organic? What are the sales generated by these, by these semiconductors? Maybe you mentioned it. And how do you see this segment moving forward in 2024? Because it is, it is quite unusual segment. And my second question is on costs. You mentioned the price effect and inflation. In 2024, with the ramp up, with investments and with the preparation for 2025 and price and capacity increases, do you expect price or cost increases in 2024?
My last question, you may not have a precise answer to this one, I understand, but you said H1, H2, in terms of sales, excluding M&A and disposals, the sales were very stable. Two hundred and eight million, six hundred million per half, six hundred and ten for each half. Would you say that the first half, with the price increases, with the backlog, do you think there could be an increase, a new increase this year with a higher comparison basis?
Well, for the last question, we will answer in March. Coming back to the question on cost, yes, there will be additional costs. There will be more amortizations as well. Yes, we're developing an EV. We're beefing up our teams.
Right now, as you can imagine, we're not profitable. We've hired several people throughout the year, so we may even be less profitable next year, but this is something we anticipated. Then we have the development costs as well. So yes, we do have some costs, but the price effects should cover or offset inflation. This is our objective. Really the objective is volume. Volume, we will come back to in March once we have our guidance. The margin will, of course, depend on that as well.
You had a question on semiconductors. I think the total is EUR 150 million. EUR 90 million is the silicon carbide, so the remaining part is the rest is the standard semiconductors.
The silicon market, margins and markets for equipment providers, it has not been a very good year. We grew, not much, but we did grow. Everybody is expecting the business to pick up, so this year is expected to be a better year. But the impact of silicon carbide is going to be much better than silicon.
A few years ago, the numbers were pretty much opposite. Things have really evolved over a three-year period. And wind power, no change in strategy?
Well, I think we have a pretty clear picture for wind. We're simply following market trends, OEM and spares. I think we're in the vicinity of EUR 50 million. For solar, as Thomas said, in China... We're not looking at increasing our capacity there for solar.
We have some, you know, competitors there who are reallocating some of the graphite to silicon carbide. Because there are major developments in these segments, and we can't just ignore our customers. We have very good customers there, and again, I think that in solar, we should be able to keep, you know, roughly EUR 100 million in sales, maybe EUR 90 million. I think we could do more if we really wanted to, but we cannot increase our capacity in China for the time being. And we want to give priority to silicon carbide customers. We'll see how things go in, you know, in two years, for solar outside of China, we'll see how much progress there is. We're seeing two or projects that have made some real progress, so we'll take it from there.
Okay, thank you.
Another question from Jean-François Grangeon from Oddo BHF. Over to you, sir.
Yes, question on M&A. How are things looking? I know some of the talks last year took longer than expected. How much progress is expected in 2024? Are you hoping to make any substantial acquisitions in 2024?
Yes. We do hope there will be acquisitions. We hope we're going to have a deal with one of our targets. Administratively, it's you know, a lot of work, especially in some countries. It takes a lot of paperwork to you know, go through an acquisition, but I don't see any reasons why it would not work.
Okay, thank you.
No additional questions. Over to Véronique Boca, should there be any additional questions in writing?
Yes. We have one question on BYD. Do you have any perspectives?
What are the-- what's the commercial outlook for BYD, which will soon be entering the electric, the European market on electric vehicles?
Yes, I think they're actually going to set up a business in Hungary. There are a lot of companies there, a lot of manufacturers there. We don't really know what the plan is at this point. I guess they're probably going to do car assembly, so that doesn't really mean much for us at this point. I don't think they will have a battery production site, and, and if that's not the case, well, then we may, we may get in touch with them. We work with, with other manufacturers as well, and fuses, we'll have to see. We'll have to see what their industrial plans are and, and what their intentions are in, in Europe.
They're obviously going to have to source in Europe. They won't be able to ship, you know, fully assembled vehicles out of China. We'll see.
Okay, we have one more question on Columbia. What's the contribution of the Columbia factory in the U.S.? This year, what's the expected increase to 2024, and what is the overall... How much does Wolfspeed represent?
Columbia, you mean in terms of capacity? I think Columbia has very limited capacity. We have several product lines. I think we're at extruded, we're at 1,000 or 2,000 tons, I believe the speaker said, and we're further increasing capacity. So Columbia is in a ramp-up phase. If the contribution to results is negative because of this ramp up, I think we will have positive results next year.
Columbia will be much more profitable then, and it will become more profitable year after year as we increase volumes. We expect to be at 2,000 tons of capacity quite rapidly, probably towards the end of next year. This is in our industrial plan when we presented it last year. The additional capacity is going to be in Columbia. Eventually, it will be a little over 4,000 tons. Nearly half is Wolfspeed. I think we've sold a few tons in Columbia. The plant will really be ready in H2, and as Thomas said, that will be the first step, the first milestone, 2,000 tons, and then, depending on demand, we will target 4,000 tons.
Okay, we have more questions. More questions on M&A.
Some have already been answered on the M&A pipeline, and I can already tell you that we will not answer those questions. And on the KPIs, the profitability, the geography, the sales of these potential mergers, we, at this point, cannot answer those questions, I can already tell you. I have another question: Could you tell us about the process industries, are you seeing an inflection in the current trends?
Well, as we said before, I think we've answered the same question. It's difficult to say at this point. It's too early. We're going to have to wait at least three months before we can answer that question.
Okay, we have no additional questions on the chat, and we have no additional questions on the phone. Gentlemen, the floor is over to you to close this call.
Okay, thank you so much, everyone, for attending. We will see you again on March the thirteenth for our annual results, and hopefully, we can answer all the questions we were not able to answer today. Thank you so much, and have a pleasant evening, everyone. Bye now.