Ladies and gentlemen, welcome to the half-year results of Mersen. This session will be recorded. For questions, please press star one on your device. The floor is now over to Mrs. Véronique Boca.
Good morning. Hello, everyone, and thanks for being with us this morning for the presentation of Mersen's 2025 half-year results. The press release, as well as today's presentation and half-year report, will be available on our website. As always, following this presentation, Luc Themelin and Thomas Baumgartner will be available to answer your questions via the conference call or the chat. Without further ado, over to Luc.
Thank you, Véronique. Good morning, everyone. The H1 results are in line with the annual targets announced back in March. Half-year revenue amounted to EUR 610 million, representing organic growth of -4%.
Public figures were down 2.2%, which takes into account a very, very unfavorable foreign exchange compared to the beginning of the year. Please note that we had a very clear improvement in Q2 compared with Q1. EBITDA and operating margins have proved robust, respectively at 16% and 9.5%. We have continued solid structure with a leverage of 2.2%, thanks in particular to strong cash flow generation. With that in mind, we confirm our annual targets. A few words about our business performance. During the first half of the year, we performed well in North America, +0.3%, considering that the region was negatively impacted by the slowdown of the SiC semiconductor industry. We're one of the top three in the U.S. This market benefited from a real momentum in the chemical maintenance industry and electrical distribution markets. Europe is down 2% on an organic basis.
This reflects a decline in the chemicals, and SiC semiconductors, we're one of the biggest players in Europe. It is offset by momentum in wind power and power electronic projects. Last but not least, in Asia, the group sales declined by 15.7% on an organic basis compared to last year, mainly due to low sales to solar cell manufacturers in China. Sales for chemicals are also down. In contrast, India and Japan are growing fast, supported by railway and energy storage. By markets, by end markets, as you can see, the transportation markets have been very buoyant. This applies to all three markets: aerospace, railway, and EVs. The chemicals market has also been very dynamic, with the H1 very favorable in terms of billings. It will be less the case in H2.
The electronics market is more contrasted, however, with growth in power electronics, but a particularly significant and expected decline in SiC semiconductors. As far as silicon semiconductors, business is slightly down due to longer delays in the delivery of a number of export licenses. The process industry markets have been contrasted with positive trends in electrical distribution in the U.S. and a slowdown in traditional markets. Energy markets are declining mainly due to solar power and wind power, which has remained very buoyant. Q2 was significantly better than Q1, with organic decline limited to -1.4%. This represents a sequential organic growth of +4.7%, primarily due to the positive impact of contract renegotiations with SiC semiconductor customers, which led to a significantly higher Q2 than Q1. In addition, the electrical distribution was significantly better in Q2 versus Q1. Finally, we'll come back to this project in power electronics.
Rail and aerospace have been driving growth. On Monday evening, we announced a power electronics project. This is a market which is structurally growing because it is necessary to take energy from where it is produced to where it is consumed. This is what this slide is showing. Energy is on the left side, and we have converters and the transportation of energy from solar fields and wind farms. Some of those lines are several kilometers long, and we need conversion stations or converters. They generate several millions of euros. We have a very good backlog valued at EUR 35 million. That's about EUR 12 million per year. The momentum there has been very good. Looking at the railway market, the market is also very dynamic. 2% to 3% growth per year. We're currently in India. We're very active in India.
Going from diesel to electric, we're very active on power conversion there already. We recently picked up a pantograph contract, which allows you to collect energy. We just had a multimillion-dollar contract. This has been a growing market. Last but not least, aerospace. Here are, as you may have been able to see us at the Paris Air Show, aircraft need power conversion, which is the bulk of the market, plus the materials, climate controls, engine controls. It is a double-digit growth market, coming mainly driven both by civil and defense. For the second half of the year, the company expects continued positive momentum in the wind power market and a slight rebound in solar. Growth in the silicon semiconductor market, with low delivery levels for SiC semiconductor customers, although they will be higher in the second half than the first half.
The continuation of power conversion projects for electricity transmission. Continued positive trend in the transportation market, thanks to many railway projects and momentum in the aerospace industry, and the ramp-up of deliveries to ACC for electric vehicles. A decline over the year in the chemical market, as we announced before, and the process industries, which will be in line with global economic trends. Over now to Thomas, who will give you the main financial data.
Thank you, Luc. Let's come back to some of the key indicators of the half-year, with some macro components. EBITDA landed at EUR 97.8 million, representing 16% of sales, down from last year, due primarily to lower volumes. Depreciation increased as expected, in line with our investment plan. As a result, our current operating income declined, leading to an operating margin of 9.5%. Those indicators, again, are very much in line with our annual targets.
If we now take a look at the changes in our operating margins this year versus the previous year, we can see that there is a decline in volumes, as we mentioned before, which was mitigated by the positive effects of our adaptation plan. You can see that the balance represents roughly one digit point decrease in margin compared to last year. Another important point, and this is something we see every year, is that we largely offset raw material and wage costs through improved productivity gains and price increases, which reflects, as every year, our strong pricing power. You can see we have a positive impact of those four items, + 0.2%. As I mentioned earlier, our depreciation and amortization increased. Last but not least, we had a limited negative currency effect related to the sharp decline in the dollar and the RMB.
I'd like to remind you that this is a mirror conversion effect, as we produce mainly where we sell. I'd like to come back to the optimization plan we announced last October to optimize costs and to reduce inventories. As you can see, our gains are EUR 10 million over the half year, slightly higher than we had announced. They represent 160 basis points of margin, as you saw just on the previous slide. The reduction in inventory has been very rapid, and we already achieved our target of reducing them by EUR 32 million on a like-for-like basis since the plan was launched last October. We did this in nine months, including Q4 2024, and we continued with another reduction of EUR 11 million in H1 2025, which is great performance, and this justifies our excellent cash flow in H1.
We can say that we've been very responsive, very effective in deploying our action plans across the company. Let's now take a look at EBITDA by business segment, starting with the Electrical Power segment. It has been progressing in terms of current EBITDA, both in terms of value and margin. Margin improved by 170 basis points to last year at 15.8%, and primarily to an increase in volumes and the positive impact of the adaptation plan. Operating margin has also significantly increased to 12.1%. For the Advanced Materials segment, EBITDA declined, which, as planned, both in terms of value and margin. This is mainly due to a negative volume mix effect related to SiC semiconductors and solar, which are markets where we have strong margins, and this was not fully offset by our adaptation plan.
The current operating margin has resisted quite well and stands at 10.5%, taking into account a sharp increase in depreciation and amortization related to our investment plans. Moving on to the net income, which amounts to EUR 29.5 million in H1 2025. It includes non-recurring expenses amounting to EUR 4.9 million, mainly including costs coming from the adaptation plan. I'd like to remind you that we provisioned a large part of this in 2024, but not all of it. We had some EUR 5 million to spend this year. Financial expenses were higher than last year due to the increase in our gross debt, mainly. Last but not least, the tax rate is 25%, slightly higher than last year's 24% due to lower results in China, where we benefit from a lower tax rate than the company's average. As Luc mentioned, operating cash flow for H1 was very high.
We generate generally more during H2 than H1. It rose by more than 40% compared to H1 2024. This was due to the decrease in inventories, EUR 11 million, which had increased in H1 2024. The working capital requirement stands at 19.2% of sales, down significantly. We were at 22% on June 30, 2024, and it continues to benefit from advances on SiC contracts, which are globally stable. Taxes amounted to EUR 6.9 million, which is very much in line with what we paid in 2024, including exceptional positive effects. The net debt remained virtually stable, EUR 380 million compared to EUR 370 million. It includes very positive and strong operating cash flow, which enabled us to finance EUR 71 million in capex. The objective is between EUR 160 million and EUR 170 million for the full year. This is very much in line with our year-end targets.
More than two-thirds of the industrial capex relates to capacity increases linked to the company's midterm plan, mainly for SiC semiconductors, EUR 71 million in capex, which includes EUR 7 million of investments that are intangibles. The financial structure, therefore, remains very solid, with a leverage ratio of 2.2, as you can see. Last but not least, some quick information on our liquidity profile. As you can see, the average maturity of our financing is close to nine years. It was extended in H1, thanks to the signing of two USPPs, one in US dollars and one in euros. This new scheme will enable us to, with the cash we have, EUR 70 million cash. We have a syndicated credit facility, which is unused. We will be able to use it in 2025 and 2026. Our liquidities are very significant. Over to you, Luc. Back to you.
Yes, thank you. To conclude, these strong results allow us to confirm our forecasts for the year. Revenue is expected to be stable or positive compared to 2024, based on exchange rates, euro USD or 1.05 and euro RMB at 7.65. This is important because both rates have changed since March, since last March. This implies organic growth between -5% and 0%. Rates have significantly changed since and will have, of course, an impact on our reported revenue. The current EBITDA margin of between 16% and 16.5% of revenue, operating margin between 9% and 9.5% of sales, including a significant increase in depreciation and amortization, and the capex, which is expected to be between EUR 160 million and EUR 170 million, including a EUR 15 million delay from the end of 2024. I would also like to say a few words about the announcement we made yesterday evening regarding the appointment of my successor.
As you will have seen, I will be stepping down as CEO at the end of the Annual General Meeting in May, and I'm delighted that Salvador Lamas will be taking over as Chief Executive Officer at that time. This announcement is the result of a process that began several months ago with our Board of Directors. The board conducted a thorough and rigorous search, reviewing both internal and external candidates. At the end of the process, the board was convinced that Salvador was the best person to ensure a smooth transition and advance our strategic ambitions. Salvador has all the qualities the board is looking for: strong leadership, natural leadership, rich and varied experience, and a deep understanding of our sector. He joined Mersen in July 2021 and successfully led the development of solutions for power management business with the Electrical Power Business Group.
He played a key role in accelerating growth in traditional and power electronic markets, as well as high potential segments such as energy storage and electrical vehicle infrastructure. He recently focused on coordinating operational activities and improving Mersen's profitability. As for me, I will take over as Chairman of the company at the end of the 2026 annual shareholders meeting, succeeding Olivier Legrand, whose term of office is coming to an end. He was with us for more than eight years. I would like to thank him warmly and thank him for his work. Of course, I will continue to work with Salvador and the executive committee to ensure a smooth transition before taking over as Chairman of the board. Thank you very much for your attention. We're now happy to take your questions, should there be any. Thank you.
Ladies and gentlemen, for questions, please press star one. First question from Thomas Renaud from Kepler Chevreux.
Good morning. Can you hear me okay?
Yes, we can hear you loud and clear.
Thank you for this presentation. I have several questions. Could you tell us about the split between volumes and price on Q2 and H1? Could you also tell us about the very good performance of electrical conversion in Q2? Do you think there are any risks related to U.S. tariffs or increases? Do you potentially expect the market could be slightly down in H2 because of that? As far as the process industry is concerned, what are your perspectives? What is your outlook? I know that sometimes you tell us about your backlog. Is your backlog consistent with the past? How do you see your backlog on electrical distribution? I also have two questions on growing markets. You talked about ACC deliveries.
How much are we talking about by the end of this year? How does that compare to your initial expectations? As far as contract renegotiations with customers, could you tell us about the SoyTech and smart chips? That seems to be on hold. Thank you. As far as price effects are concerned, it's 1% on the two semesters. No real changes.
As far as EP is concerned, I think that's a very, very good question, especially a couple of months ago, maybe a bit less today. Electrical distribution progressed significantly with a strong backlog. Of course, things could change, but there are no tariffs that apply to products coming from Mexico. We think, as we said before, there were a lot of orders post-COVID. We struggled to deliver. Orders declined. Things are now picking up again. We're back to better order levels. That's what I can say.
I can pick up on the other questions. I took some notes. I noted your questions. On the process industry, it's a bit less than last year, even though levels are still quite good. As far as electrical distribution backlog, it's not very high currently, but the dynamics are very good. North American electrical distribution orders are good. As far as ACC is concerned, the forecasts at the beginning of the year, the one we decided to keep, we're going to be multiplying the speed of production by 10. ACC's perspectives are the same, and we maintain them, especially in October, November, and December. SmartSIC and SiC, there is no reason for SoyTech to go faster than the SiC overall markets. They're all produced for electric vehicles. Demand has declined. We explained this last year. SmartSIC is following that trend.
Thank you.
Thank you, sir.
We have a question from BNP Paribas.
Hello. Can you hear me?
Yes, we can hear you.
I have three questions. First question on electric vehicles and SiC. Generally, you give us some guidance about the breakdown of sales for those segments. As far as electrical power is concerned, you talk about a negative mix effect. Electrical distribution did well. I'm not sure I understand where the negative mix comes from then. My last question has to do with your guidance. You're towards the high end of MAC for H1. Why are you not increasing your guidance for the full year? Reported sales guidance, looking at the current forex. Why are you confident to keep your reported sales guidance? Does that mean you expect to reach the high end in terms of organic growth? 25% in solar in H1.
SiC a little under $30 million. We did $11 million in Q1, and the last one is $15 million. That's your first question. That's the breakdown. I'm not sure I understand what you mean by negative mix. We had a decline in sales in markets where we had very good margins, solar and SiC. On electrical power, we had a rebound of U.S. electrical distribution in Q2. Q1 was a bit weak. We have an excellent trend, but for the full half, first half, H1, it's a bit weak. Sorry, I forgot your last question.
The last question was on guidance and the expected margin. You said between 9% and 9.5%. Why not more? The impression is that H2 is looking quite good. Why not a bit more? Amortization primarily. We're investing quite heavily. The amortizations are going to increase. How about sales? Forex should be less positive. Are you maintaining your reported sales? Do you still think you would be at the high end in terms of organic growth when the reported sales should be stable or positive based on foreign exchange, which back then was much better?
If we take today's forex and we compare it to the foreign exchange we had when we published our guidance, there is a EUR 50 million gap. When we published the guidance, it was 105. That's what we said. Right now, it's at 115 or even 117. Our guidance remains the same. It says based on the forex of that time, sales will be stable or positive. We talked about the positive organic effects. There is some uncertainty around the process industries. That could be the tariffs, which are not going to impact us directly, but they're going to have an impact on overall economic growth. Solar is eventually going to pick up again.
We're still not seeing this in orders today, but it will eventually come. We decided to stick to our guidance.
Thank you.
Thank you, sir.
Question from Jean-François Granjon with ODDO BHF.
Hello. You mentioned the contract, EUR 35 million contract. What does that represent? How does that compare to the rest of the backlog? How is it going to contribute to growth? You said this is a very buoyant segment. Second question. The margin of electrical power has been very good. I'd like to understand. You mentioned the difference of plus 8%. Things were stable at the beginning of the year and really picked up. How do you explain this? What are the trends for H2?
I 'd like to come back to Jeremy's earlier question. If we make the assumption that H2, I heard what you said about amortization, but if we assume H2 will be better than H1, we could be above 9.5%. This is not to be outruled. I'd like to hear you on this. As far as free cash flow, we're seeing negative cash flow for the full year, but positive cash flow in H1. Do you think we can expect to come back to positive cash flow before the end of the year? No, it will be negative for the full year. Sorry for disappointing you. Cash flow has been good. We spent EUR 65 million in industrial capex. We said the target was between EUR 160 million and EUR 170 million. We have an additional EUR 100 million in capex to come. We have the adaptation plan we'd have to pay for. We have the dividends to pay out.
All in all, I guess my answer to your question is that our debt is going to further increase in H2, but less, less than what we thought at the beginning of the year. Thomas explains the very good performance of electrical distribution. Historically, margins are good. There are two business units. The second business unit is power electronics. There were some productivity pockets which we were really able to improve, with much, much better profitability on some products and locations. There's still some work ahead, but I think we've really made some substantial improvements, and margins today are very good, really very good. GDC contracts on this slide, as you saw, we had EUR 35 million of outstandings. This covers the two years to come. That gives you a bit of a flavor of how much that represents for the company. Three, four years ago, it was five.
We don't really know where we're going. There are some periods where we have very big contracts and other periods where we don't. I think that on average, things are going to continue and grow. Electrical power is growing in H1. My impression was you were saying the opposite, Jean-François. It was flat in Q1, but up in Q2 with more GDC contracts, more in Q2 than Q1. There was a rebound in electrical distribution. It was negative in Q1, and it became positive in Q2. Sequentially, electrical power has really made nice progress. For today, nearly at 4% growth in terms of reported sales, which also explains improved margins for H1. Thank you. I heard what you said about the margins. Do you think we could still be slightly above 9.5%? We're maintaining our guidance. As I said before, we still have a lot of investments in H2.
Amortizations are going to significantly increase. We have no reasons to change our guidance.
What's the EV sales for H1? Could you?
About $15 million.
Okay. Thank you.
Thank you, Mr. Granjon.
We have a question coming from English from Mr. Giovanni Bernatti. Sir?
Hello, can you hear me?
Yes, please.
Yeah. I have two questions. The first one relates to silicon carbide. You say that you expect an improving number of deliveries in H2. I was wondering if it's more deliveries with the same customers or if you're expanding the customer base. The second one is really that if we look at the profitability of the electrical power division, it's historically high. I was wondering if you think you can keep these same margins in H2 and in the years to come. Thank you.
I'm not sure if you said any point. I'll pick up on your second question. I'm going to answer in French. We have interpretation into English. Yes, we don't give guidance by division for the half year. We give an annual guidance, nothing more. What I can say, however, is that for electrical power, we have additional areas to improve our profitability as we move forward. On EV, for example, we're still negative in terms of margin because we haven't yet reached the expected volumes to cover the costs of the teams that are working for us today. Moving forward, electrical power can continue and improve its margins. That's a global trend. As far as silicon carbide customers, they are always the same. We have no significant newcomers, significant or non-significant. The customers we serve are the same ones, and demand varies with ups and downs. We know them all. That's so the same.
Okay, thank you.
[Foreign language].
We have no additional questions, audio questions. We do have questions, however, that are asked on the chat. We have one question on the chat on mergers and acquisitions. Are you looking at any external growth opportunities in the U.S.?
The answer is no, not at all right now. We said no additional acquisitions in 2025.
Next question, following the Paris Air Show, what have been the contracts yielded?
The Paris Air Show is not a show where you pick up new contracts. There are big announcements, contract announcements for Airbus and Boeing, but we meet with our customers on a very regular basis, like Safran, Liebherr, and that's where we discuss our future. We don't specifically sign large deals during the Paris Air Show. The Paris Air Show is an opportunity to meet with potential other international customers.
Our footprint is so global that it's mainly an opportunity for us to meet up with customers. Again, trends, overall trends are good.
Next question, what is your business potential in defense?
It's a bit complicated. We deliver parts on the Rafale aircraft. Two aircraft per month are produced, soon three, but we have interesting perspectives for the years to come. We're talking about EUR 50 million worldwide for that segment. Information is not always easy to collect, but that's roughly the number. Maybe EUR 100 million in five years, but I don't really know and have any specific details on this. The trends are looking quite promising.
I have one question on silicon carbide. If the silicon carbide market were flat in 2026, would you be able to redeploy capabilities elsewhere?
We expect 2026 to be not a huge market. As we said last year and the beginning of this year, we expect things to really pick up towards the end of 2026, but mainly in 2027. We have a lot of capabilities to address the SiC market. We don't have any technical issues. What we need is a market. It's a product which is very much very similar to others. The investments in SiC can be used in other applications, but we expect we would want the SiC market to pick up.
One question on CapEx and investments. What are the big investments ahead of us? In what geographies and what segments?
That's a tough question. We're closing our EUR 300 million investment plan for SiC and electric vehicles. Most investments in the U.S., some investments in Europe as well, and a bit less in Asia.
Let me remind you that our geographic footprint is such that we produce where we sell. We're able to address local markets. We invested significantly in India, for example, and in the future, we will invest where necessary, wherever there is growth. Our number one market in terms of sales is the US. For that reason, we're likely to invest more in the US. Here comes a general question. What is your market share and what are the trends? Market share trends. We're in multiple markets. In graphite, I think we're number one in terms of size. It depends on geographies. I think we have between 30% and 35%. The average is probably 25%. On the electrical division, it's a bit more difficult. We make fuses, but we have big competitors in the US. I think we're number two. Market share probably in the vicinity of 30%.
In Europe, things are a bit more fragmented. We have significant market share, and in power, we're number one. The market there is also very fragmented, also fragmented by geography. I think we're probably talking about 15% market share. As far as adding market share, I think we were able to capture some growth more than our competitors because we're in the right location. We have competitors who are very good in Germany, very powerful in Germany, but they're not really benefiting from the U.S., India, or Korea. I think that worldwide, we're picking up more market share than some of our competitors that are more regional. What I would like to add to that is that the reverse of that is that we invested a lot in our graphite production capabilities. What's impacting our profitability and operating margin, mainly because of amortizations.
When things pick up again, then we will be in a much better position to gain additional market share because some of our competitors will, at that point, really be lagging behind in terms of investments, and catching up will take time.
We have no further questions on the chat at this point. We have no additional questions on the phone. In that case, ladies and gentlemen, I would like to wish you a wonderful summer. We will see you and speak again on October 23rd for the Q3 results. Bye-bye now.