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Welcome to Mersen's 2018 third quarter sales announcement. Luc Themelin, Chairman of the Management Board; and Thomas Baumgartner, will speak in French with simultaneous translation in English.
Welcome to our phone conference to announce Mersen's sales for the third quarter and first 9 months of the year. So as usual, I will start by commenting on the press release, and then I will take questions along with Luc Themelin, CEO.Overall, the group's sales for the third quarter, very satisfactory as were the first 2 quarters. But before we go into detail, I'd like to point out 2 highlights for the quarter. First of all, there is a EUR 7 million scope effect primarily linked to the consolidation of FTCap acquired in July in the field of power electronics. And secondly, there is a currency effect of a negative EUR 2 million, which is good improvement over the start of the year.So sales for the third quarter were EUR 223 million with organic growth at 10%, thanks to the performance across all of our geographic zones. So let's start with Asia, which continues to rank first with organic growth of nearly 13%. China was especially dynamic, mostly in the solar, rail transport and chemicals markets. In India, the wind power market seems to be picking up after a year on hold. In North America, we saw growth of 9% with a sustained business in electronics, thanks to a buoyant semiconductor market with silicon carbide applications. Sales to the electrical distribution market were also dynamic this quarter. As for Europe, which posted 6% growth, mostly driven by France and Germany, particularly in renewable energies, rail and aeronautics. And in the Rest of the World, we signed large contacts in chemicals, in particular, for the phosphate industry.So our high potential markets continue to perform well. We've seen a double-digit sales growth, especially in solar. And in 2018, we expect to see at least 25% higher sales than last year. This includes the integration in the fourth quarter with slightly lower growth compared to the first part of the year. In the electronics market, it is also rising, particularly for semiconductor manufacturing but also in power conversion. Growth for the sector was in double digits. So if we look at the different divisions, Advanced Materials saw organic growth of 16% with sales of EUR 124 million. So in addition to strong growth in solar and electronics, the aeronautics market grew as did rail but to a certain extent.So on the chemicals market, sales saw strong growth this quarter with deliveries on some large contracts. And so overall, this market continues to trend upwards. The process industries were less dynamic than previous quarters, but in fact, you probably remember that last year, our final quarter was very, very strong.So in the Electrical Power division, we reported growth of nearly 3% coming in with sales at EUR 99 million. So as I said, our sales in electrical distribution in North America grew. Rail transport also showed good growth as did electric vehicles, though the sales figures are still low because the market is not that big yet. And renewable energies, there was growth, but this did not offset the smaller number of contracts in power conversion for conventional energies. So total sales for the first 9 months were EUR 653 million, which is organic growth of 10.7% compared to the same period last year. There was a negative currency effect of EUR 25 million for the 9-month period and a EUR 9 million scoped of consolidation effect, which is linked to some acquisitions in Power Electronics. We've got Idealec, FTCap and LGI. So Idealec in April, FTCap and LGI acquired in July.So those are my comments on the sales figures. So as you can see, our sales performance was very good across our best markets and all across our geographic zones. So in light of these figures, the group expects to see about 9% organic growth for 2018, which is the upper range of previous guidance announced between 7% and 9%. Our operating margin before nonrecurring items should also come in at the high end of forecast, so at 10.4%. In July, we had said it would be between 10.1% and 10.4%.And so I mentioned demand is high particularly in electronics. And so we will be investing a bit more in new equipment and expanded capacity, which will bring investment up to EUR 55 million instead of the EUR 50 million initially planned. So those are main comments today. And so now Luc Themelin and I will take your questions.
[Operator Instructions] We have a question, Jean-Francois Granjon of ODDO BHF.
ODDO BHF. My first question is about Electrical Power, 2.8% growth. What has slowed down there, in fact, other than perhaps the comparison basis? Also, can you talk about the solar business in China and any government decisions there? Is there any risk of an impact on your business in the coming quarters? And of -- and another question. So you said over 10% growth for 9 months, although you mentioned a slight slowdown in growth.
So it's true that there is this comparison basis that explains some of it. Now in the solar business in China, yes, there was some slowdown in installations in the middle of the year. One of our 2 big customers slowed down a bit, but this won't affect overall orders for tonnage. We don't have too much visibility for 2019. But as you know, we still have room for growth there, and in fact, we've had good deliveries for the past 1.5 years. Now globally, trends are the same about 100 gigawatts installed base added per year, but we know that demand should stay high. You asked about Electrical Power. Well, it's in -- we were perhaps a bit too weak in Asia. So in power electronics, there were up -- there were more contracts in the first half of the year delivered in the third quarter. But overall the third quarter -- well, the previous year, that was a very high basis. And so -- and we had -- we came in at about 3% growth for the first half of the year, so with 13% overall. So that's a high basis of comparison, as you can see. So we were expecting the fourth quarter to come down a bit from those levels, but that's -- those are good growth figures. We -- our guidance was at 9%.
A question, Martin Boeris from Exane.
First question on price effects. Were they -- there significant effects?
Well, these are pretty much in line with the first half of the year, mostly concerning the Advanced Materials division.
I have another question. In Advanced Materials again. Your big solar customers in China, were they -- were you already working for them in 2017?
Well, yes, last year on the fourth quarter, yes, we have some big orders from those customers.
I have another question. Do you expect to be signing any big contracts in this second half of the year for solar for deliveries in 2019?
Well, our contracts already signed will run into 2019 with just a few adjustments. And in semiconductors as well, the contracts are signed for 2019 and beginning into 2020. So traditionally, our business -- well, the contracts are not over very long periods. We can have a logbook in the chemicals market that can run for several years. But otherwise, it's pretty rare to see longer length contracts.
So you're saying you don’t see your customers trying to secure supply?
No. Well, in semiconductors, we are seeing demand speed up, which is why we are investing in capacity, and we will continue to do so next year.
Okay. So it tends to be about 2, 3 years out in this market. So in silicon carbide and semiconductors, does that represent about 1/3 of your growth, can you say?
Well, I don’t have the exact figures, but it is a good share. We have 2 or 3 big customers, but the rest of the semiconductor market is performing well. It's -- and so it is important, but there are a lot of other customers as well. Well, let me just give you an idea. Out of EUR 20 million in silicon carbide, that's -- and that was at the beginning of the year. So compared to last year, that's higher. I think we were below EUR 15 million last year in the silicon carbide applications.
[Operator Instructions] Question from Stephen Benhamou from Gilbert Dupont.
I have a question concerning the investments that you're expecting to make. So a bit higher than guidance. So you've said that you'll be continuing that strategy through next year. Could you say a bit more about what we can expect in 2019? Are you also considering a major investment to build even further?
Well, yes, we have had to raise the CapEx to prepare to meet demand, but this is for 2020. In fact, this year, we gained 1,000 tonnes in capacity in isostatic carbon. So that will be for next year. And beyond that, yes, we are looking to expand capacity. But for now, we believe we can cover demand for the coming 2 years with our existing capacity, but it is something that we are working on. I can't tell you right now if it will be a new plant or just an expansion of capacity in existing plants.
And so for CapEx in 2019/2020, do you expect to stay at the same levels?
Well, we can't give you a precise figure this evening. But clearly, coming from the EUR 30 million to EUR 35 million of past years, we expect to continue to roughly the same level as this year, average.
A question from ODDO BHF.
Two questions. The currency effect, EUR 25 million -- minus EUR 25 million for the year? Or do you -- how do you expect to see how that evolve? And for 2019, the macroeconomic situation, we are starting to see slowdown in some countries, a more prudent position in some industries. So what do you see for the trends in organic growth next year?
Well, for the currency effect, this should be pretty much as announced, although the effect is less in the second half of the year. As for trends in 2019, well, we are not seeing any decline in orders from the OEMs. We're not seeing any real signs of that, but on the other hand, we might not be repeating this 10% growth. Okay. Solar isn't totally connected to the economy; semiconductors either. Silicon carbide is boosting our sales and might help us offset any drop in the semiconductor market. So we think that we've already done a lot to strengthen our position and continue to deliver even in a rather medium-level market, but we don't see that here right now. We're seeing high levels of activity in chemicals as well in China.
Okay. Okay. China may not produce 30% growth continually, but we're not seeing slowdown there. And we have other Asian countries that are picking up as well and in process industries?
Well, these are more closely connected to GDP, but we are not seeing any negative signs there.
We have a new question from Martin Boeris.
On process industries, could you say more specifically which ones are driving? We've heard about the glass business -- glass-forming business? Is that what's driving it? Or are there other process industries?
Well, a little -- I'd say glass forming, a bit less oil and gas a bit less, but in fact, we're seeing a good spread. We've reduced our exposure in glass forming, but we are very interested in that business. Thermal treatments market -- yes, the automotive industry, metals, plastics, glasswork. And so overall, in the U.S. and China, in particular, but even in Europe, we are seeing some good revenue streams there.
And coming back to solar with another question. Do you have any exposure in older energies or conventional? Are you seeing any -- or previous technologies? So how do you see that evolving?
Well, yes, it's true that our multi-activity customers we've seen slowdowns there. Well, those older technologies have lost steam. So it's normal that it has come down. And that is a good market in the solar and the switch has really been made to the newer technologies.Are there any other questions?
[Operator Instructions] All right. No further questions apparently.
All right. Then thank you, everyone, for joining us this evening. And so the next conference call, January 30 at 6:00 p.m. for the sales of 2018. But before that, there will be an Investor Day on November 29 at the Cloud Business Center near the Paris Stock Market, and we'll be talking about the sustainable developed markets. And that will be the opportunity to ask more questions about the solar industry, silicon carbide and those markets, and we'll have some different operational speakers from our operations. So we hope to see you there. Thank you, again, everyone, and good evening.
Ladies and gentlemen, that's the end of our Mersen's conference. Thank you very much, and good evening.