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Welcome to the Telephone Conference of Mersen Group for the Sales of 2017. We have Luc Themelin and Thomas Baumgartner.
Welcome, everyone, to our conference call to announce Mersen's sales for 2017. First of all, I will comment today's press release, and then with Luc Themelin, and I will answer any questions you might have.So sales for 2017 came in at EUR 809 million, which is quite satisfactory, and the group saw organic growth of 8% on the high end of previous guidance.Currency effects were strong year-end. After a positive EUR 5 million in the first half, we ended with a negative annual effect of nearly EUR 11 million due primarily to the depreciation of the U.S. dollar and somewhat to the renminbi, the British pound and the yen.The scope of consolidation effect was a positive EUR 1 million, and concession consolidation of rail business and a new joint venture in China. I remind you that the high power switch business of our Gorcy site was sold in October and was restated as a discontinued business. It represented EUR 5 million in sales for the year. Now as for the sales for the fourth quarter, came in at EUR 201.5 million, which is up 13% compared to last year. The currency effect was a negative EUR 9 million. In our 2 segments and all of our geographic zones, we saw sustained growth this quarter.Let me now give you some highlights. First of all, we had double-digit growth in North America. The overall economic situation was much better than the beginning of the year with a positive effect on process industries and electrical distribution. The strong growth in electronics seen early in the year continued through this last quarter. In Europe, most countries saw growth, as in the previous quarters. Sales were brisk in aeronautics and aerospace. Sales were also strong in the Chemical Equipment business, compensating for a weak third quarter. As for Asia, continued to produce double-digit growth. Sales were particularly strong in solar, thanks in part to the Longi contract.The group sales for the year in solar were EUR 43 million for the year, which is about 10% growth like-for-like. Now at the beginning of the year, we mentioned a stable market for solar 2017, and there were nonrecurring sales in polysilicon, as we had announced.So that was for quarterly sales. Now let let's look at the annual sales in detail per segment. So sales in Advanced Materials were EUR 447 million, which is organic growth of nearly 10% for the year. In electronics, these rose sharply, and a highly favorable semiconductor market process industries saw significant growth due to favorable environment and also to the group's strengthened applications such as glass molding for smartphones and high-quality graphite for electrical discharge machining for aeronautics and automotive industries. On the chemicals market, there was also growth primarily due to a low basis of comparison in 2016. The solar market grew, as I mentioned. However, our sales on the wind energy market were impacted by a slowdown in the second half, particularly due to a situation in India. Overall, sales for renewable energy is accounted for 12% of the group sales.As for the Electrical Power segment, sales for the year were EUR 363 million, which is organic growth of 6%. Power electronics was up, thanks to various projects such as HVDC in Europe and robotization in Asia. The rail market brought in sustained growth with some new projects across all zones.As for electric vehicles, the business was stable after a freeze on incentives in China, which hurt our sales at the beginning of the year. And in process industries, sales were buoyant driven by the generally good economy and the recovery for the process industry overall.So those are my comments on the sales. So in light of these results, and thanks to the rollout of our competitiveness plan, Mersen confirms its forecasts of a significant improvement in operating margin before nonrecurring items at around 9.2% of sales compared with 7.5% in 2016. So this is a rise of 170 basis points, which is at the high end of our earlier guidance. So I remind you that the operating margins for 2016 and 2017 have been restated for 2 items. First of all, the reclassification of amortization on intangible assets tied to acquisitions, and that is now recognized under operating income. And after the disposal of our high power switch business, we have classified it as a discontinued activity. The details of these 3 statements are in the press release.Also note that the IFRS 15 applicable as of 2018 will have a very little impact on Mersen, and again, you've got some details in the press release.So those are our main comments on today's announcements. Luc Themelin and I will now take your questions.
[Operator Instructions] We have our first question.
So my first question is on total sales in glass molding for smartphones. And what about your price environment? Have you seen improvements for the Advanced Materials segment?
So yes, on prices, we saw the beginnings of improvement in the fourth quarter. The price effect was overall positive for Advanced Materials in the fourth quarter. And so at the end of the year, well, after some negative effect, well, it comes out just slightly negative. Now coming back to glass molding, that's about EUR 13 million starting from nothing 2 years ago. The Samsung models have had a curved screen.
So is there a recurring business here?
Well, this curved screen, in fact, is also on the back of the smartphone, which requires glass molding. This should last about 2 or 3 more years. So that depends on the design.
And so what type of molds for the design?
So this is a hot mold process, and there's a highly polished finish of the glass. And they have to change equipment quite quickly, and it's a good volume for us, in fact.
So a question from Societe Generale, Christophe Quarante.
I have 4 questions. So what about the unexceptional tax on dividends? Could you tell us what's new there and the tax rate in the United States? That's my first question. And could you talk about the translation and transaction effect, the currency effect and connection between the dollar and euro? And could you also come back to the geographic zones, give us an overall view of what to expect to see in 2018? And number four, in your competitive environment, your competitors are raising their prices or raised the price in the middle of the year, so what kind of effect do you expect to see and you might expect to see rise in salaries as well?
So that exceptional tax in France, I believe, you meant, yes, for those that -- well, it mostly concerns countries which earned over EUR 1 billion in sales, which is not yet your case, but there was also a question of taxation on dividends. So this exceptional tax, well, we're not concerned, in fact, so there won't be a negative impact from that. So on the dividends, we'll be able to -- well, net of tax credits, the sums are not so substantial, less than EUR 1 million. So there isn't that much impact, in fact, there. Your second question was about reform in the United States. This should have a favorable impact on our tax rate, and so we're looking at that. But the new tax reform is rather complex. Currently, it's 32% of our sales are in the United States, and our profits are higher there than elsewhere. So that gives you something of an idea of what we can expect. Your third question was about -- what was your third question? Sorry.
It was to do with the dollar-euro parity and then the impact on margins.
Well, at the current exchange rate $1.25 for the -- we expect to see a negative impact, about EUR 35 million. In the first half -- we are not -- and it doesn't just concern the dollar. It also concerns other currencies. It's a translation effect of it, so we'll see, and we do have more margin. We prefer a higher dollar, but it isn't that significant. And so, well, this can also reduce our debt, in fact, in the United States since we have loans there. Now the competitive effect that you mentioned, well, we produce locally.
Well, coming back to the translation aspect, well, I -- your margins so are better in the U.S., you said?
Well, we prefer to see a stronger dollar. It's true. That would have a good impact. That would improve margins.
So my turn to answer a few points. So you're talking about prices for materials. As Thomas said, in graphite, toward the end of the year, we saw some areas with high demand such as China, and the Longi contract allowed us to sell quite a bit of graphite. But in other areas, the effects might be felt a bit later. So -- well, as concerns salary rises no more than elsewhere, in fact. Although in some raw materials, we would see more of an impact. So as for regional dynamics, well, a lot of our growth was in China, EUR 60 million -- EUR 38 million is coming from of China. So 30% of sales are coming from Asia. It's pretty much 1/3, 1/3, 1/3, coming in more quickly than we expected, in fact. In North America, really, they really woke up in the second half of the year, so there was a nice growth there that we saw from 1 quarter to another. Now Europe was fairly dynamic coming through Germany with some big OEMs. So it's -- so that should continue. We believe, Asia should be driven by China, Korea, India. So with this stage, we can't say much more than that. What we can say is that in 2017, the economy was good in all 3 zones: North America, Asia and Europe.
So 2018 in Europe lagging, perhaps, a bit whereas the U.S. is leading?
Well, we can't say much about the regional outlook since it's so early in the year, but we can look at the different markets. For example, we expect to be -- solar to be more vibrant this year. The chemicals market as well should continue to grow. Our process industries also heading in the right direction. So will we see the same growth rates? That remains to be seen. So -- but on March 7th, we'll have -- we can give more indication.
A question, another question. [Foreign Language]
Now coming back to raw materials, you've mentioned the scissors effect before. Is it -- could it be favorable to you? And will that continue to 2018? And what about sales in chemicals? You say there was some offsetting. Do you think that, that was just a onetime situation? Or will it continue? Do you have any ideas of the amounts?
Well, we said an offset or compensation because, well, some quarters there, more deliveries than others. And the third quarter was rather weak in Europe, in particular, in chemicals. But overall for the year, there was an interesting level of growth that we expect to see continue through 2018. So we really hit the trough in 2016. It really bottomed out in chemicals. Coming back to raw materials, I'll try to answer that question. Well, some of the carbon graphite materials, we saw some rise in prices in 2017, particularly second quarter, which we didn't really pass on to the sale price. And so it wasn't until fourth quarter that we were able to pass on the increase of price. So copper was also up, which concerns certain activities, which we were able to pass that on in prices. But I think between this sale price and the demand, we managed to balance. There was no real scissors effect, in fact. Because by the time -- between the order time and the time when you use the materials, we were able to pass on the prices, so there was no unfavorable effect.
[Operator Instructions] So another question from Martin Boeris.
Could I have more detail on the distribution of sales between your different segments? And what's the momentum? You talked about 6% advanced growth in Electrical Power. And what about in Advanced Materials? Is there a big difference between graphite equipment, anticorrosion equipment?
Well, everything developed in a rather homogeneous manner. In distribution, electrical distribution was fairly stable, although it did really pick up on the second half of the year. But all across the different activities, we saw growth. And so -- and in a fuse gears, power electronics, there, we saw faster growth, in fact. Now it's true that, well, there were -- in the wind energy market, as we said, the market was a bit weak this year, so some of that business was impacted.
And so last year, in wind energy, your sales were EUR 44 million. That's fairly stable as it's been? Yes?
No, it's not. This -- no, that was up a bit from 2016. Oh sorry, it was EUR 45 million in 2016 and EUR 44 million in 2017. So the previous year, in 2015, it was at EUR 43 million. So as you can see, the numbers are pretty stable.
Another question about renewables. I'm talking about pricing position for solar panels imported from Asia. So some customers worried about the prices here. What's your vision for the prices coming for 2018, particularly in solar?
Well, we aren't particularly worried. We expect the Chinese will continue to sell a lot, and they have a huge domestic market. In fact, 45 million gigawatts. And anyway, the -- most of the panels are made in China, so you have to buy them from somewhere.
We have another question from Christophe Quarante from Societe Generale.
What about electric vehicles? I think it was a year -- something of a transition year. In 2016, you were at EUR 10 million. How do you see -- what was 2017? How do you see things evolving? Will there be more -- will you be making more capital investments? And your competitiveness plan as well. So you said that there was EUR 8 million of that. And so your guidance was rather prudent there. So just trying to do some quick math here. So there were -- what was some of the different effects there?
Okay. Well, I can't really give you much of a sneak preview here. We'll say more about that on March 7th. So the -- well, in electric vehicles, there was a slowdown in China. We are positioning products on the high end of the market, the pure electric vehicles. And so here, sales, we expect to see sales rise there. So we've got a team, devoted, particularly to that. So we need more people, in fact, more than we need to make material and equipment investments.Any further questions?
[Operator Instructions] We do have another question, [ Eric Benigo ]
I have a question about where you stand at the utilization rate.
Do you mean graphite?
Yes.
Well, we had some peaks at about 90% in the fourth quarter.
So you're getting close to the 100% then? So do you expect to see -- expect to be making more investment in that area?
Well, we're working on this in the beginning of the year now, and we'll say more in March. And we, yes, we'll perhaps make more investments to meet the demand for the solar market and for the Longi contract. Thank you.
No further questions for the moment.
All right. Well then, thank you, everyone. And our next conference will be on the 7th of March at 10:00 a.m. for the group's annual results of 2017. Have a good evening.
Ladies and gentlemen, the conference is now over. Thank you very much.