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Earnings Call Transcript

Earnings Call Transcript
2018-Q4

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Operator

Welcome to the 2018 full year results conference call. At this occasion, Luc Themelin, Chairman of the Management Board; and Thomas Baumgartner, Group Chief Financial Officer, will hold a conference call. Mr. Baumgartner, you have the floor.

T
Thomas Baumgartner
CFO and Group VP of Finance & Administration

Thank you. I'd like to welcome you to this conf call organized for the full year results presentation for the year 2018. Now first of all, I'd like to make a few comments on today's communication. And as usual, I will be available to answer any of your questions, along with Luc Themelin.The sales for the year 2018 amount to EUR 879 million. This is a very good result. The group has generated organic growth, close to 10%, similar to above the most recent estimations we had communicated. Now the currency effects, it impacts a scope were slightly offset the effect of ForEx had a minus EUR 24 million impact on the reported sales figure in the first half of the year and close to what we had anticipated. We had set -- well, we had announced between EUR 25 million and EUR 30 million. Now the scope impact is positive, plus EUR 17 million, and it's related to the consolidation of Idealec and FTCap report of the year.Let me just remind you that those activities have been consolidated since the first of April and 1st of July 2018, respectively. Let's now get back to organic growth of 10%. That growth is featured by a growth on our business segments and all of our geographical areas in our 5 major markets. Now 2 markets were -- well, contributed to this, I'm sorry, the solar energy market, with a sales figure reaching EUR 58 million, going by over 30% versus last year, despite the leveling off of the fourth quarter when compared to last year's as was expected.Let me just remind you that we had experienced a very good growth end of 2017. The electronics market was -- well, had actually been well positioned and most especially for the manufacturing of semiconductors based on silicon carbide solutions. We got a unique offer on that market and very special relationships with the stakeholders in that field. Now I was referring to all the geographical areas growing throughout the year. Growth was very significant in Asia as it was in 2017, with organic growth of roughly 13% in 2018 and a strong contribution from the solar energy market, the electronics market and the chemical market. And growth was actually driven by China more than anything else, whereas Japan was actually in contraction because of the photovoltaic installations going down and the high basis of comparison.In North America, growth amounted to 8.4%, with the business -- brisk business in the electronics market, as I was saying, mostly on semiconductors based on silicon carbide. And the distribution was quite good for the year and this was not necessarily the case in 2017.Finally, the European zone displays a growth of over 8% driven by France, Germany, Italy and Spain. The renewable energy markets, railroads, transportation, and aerospace markets were quite brisk.Now let's focus on business segments, with the AM business segment, with an organic growth of over 12%, with a sales figure of EUR 487 million. As I was saying, the solar sales and electronics sales were very, very strong. And all the other markets, with the exception of the wind energy market, experienced brisk growth, whether chemicals, aerospace or process industries.The Electrical Power business segment has been going up by 7%, this is organic growth, with sales amounting to EUR 391 million. Electrical distribution, as I was saying, in North America also grew just as the railroads, transportation, and the electrical vehicles markets. On the other hand, perhaps less growth on power conversion projects for industry.Now I just wanted to make a comment on the figures at the fourth quarter. Growth came to 7.4% on a like-for-like basis, and the pace was quite brisk given the base of comparison, which was very high because growth was very strong end of 2017. So those 2 business segments are going up, growing, and in all of our geographical areas. Asia, more moderate growth because of high base of comparison in 2017, most especially in chemicals and the solar markets -- energy market, as I said already, in conclusion. Now those results are very good with vibrant activities on all those promising markets in all our geographical areas. Besides all those items, now the group generated or conducted quite a number of acquisitions in 2018, Idealec, with bus bars; FTCap was to expand our capacitors portfolio; I'd like to add the buyout of minority interests from Cirprotec to pace up the development of -- the development process and the setup of a joint venture in China so as to pace up our developments and product lines in the solar market or energy market, but which still haven't contributed to this in 2018 because it was just set up recently.Now given those very good results, the group reiterated its objective of the operating margin before the nonrecurring items around 10.4%. Now those are the main comments regarding the data today. And Luc Themelin and myself are now available to answer any of your questions.

Operator

[Operator Instructions] We have one question from Martin from Exane.

M
Martin Boeris
Analyst of French Mid Caps

Now several questions, actually. Now first and foremost, the first question regarding the carbon -- carbide, the silicon carbide market, and what it represented in terms of turnover in 2018 and the amount in 2017. And I also had a question on the prices you mentioned. You had indicated when the Capital Market Day, 1.6% in 2018. Now has this figure remained the same since then, yes or no? Do you believe you are able to -- going to be benefiting from brisk environment in 2019? And perhaps, could this be even more important on the markets? Now the offer is unique, as you said, in terms of silicon, carbide silicon and solar applications. And finally, a very last question, regarding the 4 growing markets, which you had displayed in the Capital Markets Day. Now just to really be familiar with the growth in 2018.

U
Unknown Executive

Now I'd like to get started with prices. Now prices, this is about what you already indicated. So no change has occurred in the last quarter. So more information will be disclosed as far as 2019 is concerned. We'll be doing this in March. But prices are going to go up, but not as much as in 2018. In 2018, really, the prices increased quite significantly. Do you want any figures? In the silicon carbide market, actually EUR 20 million, EUR 25 million this year, okay. Now I don't know what it was the year before, but growth is quite important. And end of November, we were aiming at [ 50, 60 ]. So actually there's a pacing up here going on in 2020, 2021 and now driven by the electronics.

M
Martin Boeris
Analyst of French Mid Caps

And in those markets, do you believe that change is going to be taking place among stakeholders and so far as their technology? Now this is the technology which you're aiming at?

U
Unknown Executive

Yes. Well, we had witnessed that already go with initial important requests in December 2017, and then increasing demand in the 3 Western stakeholders, with a few Chinese coming up, with very important ambitions and objectives. And yes, we're taking this with a grain of salt. That's quite brisk and vibrant as we said already. This has saturated over 2, 3 years. And CapEx is going to be taking place now. The growing markets with the solar energy market, 30% growth this year, with wind leveling off. We're quite happy because it actually -- well, there was an upturn in the fourth quarter. So it's actually leveling off and quite stable. The electronics, really, we get an upturn here, but we've got semiconductors and power conversion and a very nice growth in this respect, and transportation in general. So really, I mean, we see development right and left, but then the solar-energy market is quite good here.

M
Martin Boeris
Analyst of French Mid Caps

A very last question, regarding the solar energy market, [ EUR 58 million ] in 2018, just to know the portion here of those 2 contracts, LONGi and the other stakeholder, LONGi and Zhonghuan?

U
Unknown Executive

On Zhonghuan, yes, LONGi and Zhonghuan. Well, the initial contracts were supposed to have be around EUR 15 million per annum of sales, but this was not really that accurate. But basically, yes, roughly speaking.

M
Martin Boeris
Analyst of French Mid Caps

And this is going to be taking place in 2019?

T
Thomas Baumgartner
CFO and Group VP of Finance & Administration

Well, now they slowed down, actually, in the second half of the year with the discontinuation of Chinese incentives. But the year seems to have, actually, well, it seems to really be showing good forecast here. They still got their growth plans. So we shouldn't have no concern in this respect. What we can see here is, well, the first half of the year was really pretty good -- so the last year. So the first half of the year was actually contracting. And as Luc just said, in their future forecast now in talking with them, the forecast is rather positive, and we can see here a -- well, growth is not going to be really good at the very beginning, but with a good upturn in the second half of the year.

M
Martin Boeris
Analyst of French Mid Caps

And in other countries and other stakeholders, is there going to be an offset, a slight slowdown? Now this year, for example, facilities, installations, people fear that globally speaking, installations were going to go down to 80 gigawatts with the solar panels, and we maintained at 100. It's going to be another important demand here in this segment.

U
Unknown Executive

No, sales come, actually, from the same place. So -- and this is quite interesting. Gigawatts, 110 actually, closer to 110 than 100, with perhaps even more optimistic forecast. But I just want to say Zhonghuan actually are covering 80% of high-yielding sales, so and other stakeholders are not as -- well, they do a lot of exports. Zhonghuan actually is exporting 50% of its production.

Operator

[Operator Instructions] We have another question from Jean-Francois Granjon from ODDO.

J
Jean-Francois Granjon

Now could you perhaps give us further information, the trends in the next quarters? We are ending up the year on a very nice impetus, and Europe, most especially, and North America with Q4, which is stronger than the annual trend. Now of course, the base of comparison is going to be more stringent in 2019. Now could you tell us for each one of the geographical areas and business segments, perhaps talk to us about the various trends at the very beginning of that fiscal year?

U
Unknown Executive

Well, this is quite difficult. Well, Q1, we believe that Q1 is going to be close to the end-of-the-year impetus. But the bar is quite high. And beyond Q1, in our chemicals -- as chemical markets show appropriate results. Now as far as the rest is concerned, we actually listen to forecast, macro forecast, and what is taking place in the wind energy market. But now we are remaining quite optimistic in this forthcoming year.

J
Jean-Francois Granjon

Now you do not foresee any slowdown or turnaround?

U
Unknown Executive

No. As we said already, we got no concerns. And so far as the solar market, electronics as we said. Now the impetus, the dynamics are not that dependent on the GDP. Now nothing really to write home about in the United States. We just see those growing. The GDP here, I mean, we're just losing a few tens of points. So how can we really evaluate the impact? This is quite challenging.

Operator

We got a question in English. We have a question from Sebastian Ubert from Societe Generale.

S
Sebastian Ubert
Equity Analyst

It was like the previous one about the trends that you have seen in the fourth quarter and also into the start of 2019, which you just kindly answered. So no more question from my side then.

Operator

No other questions. [Operator Instructions] We got another question from [ Nicola Andrew ].

U
Unknown Analyst

A question regarding the graphite capacity usage rates in 2018, and then future capacity in upcoming years?

U
Unknown Executive

Well, actually, and so far as those graphite cancels, 90% this is where we had reached throughout the year, when we had capacity. So that in 2019, we're really up and running here. We increased our capacity by 15%, and now we're really ready in 2019. So we got a wiggle room for the usage -- well, for the generation of growth and for the usage of the capacity. I don't know whether I answered the question.

U
Unknown Analyst

Yes. You did.

Operator

We got no other questions for the time being. [Operator Instructions]

T
Thomas Baumgartner
CFO and Group VP of Finance & Administration

Well, I mean, if there are no other questions, we are going to the meet on the 13th of March at 10:00 for the 2018 results of the group.And thank you once again for your attention, and have a very nice evening everybody. Nice evening.

Operator

Ladies and gentlemen, the conference call is now finished. Thank you for your participation. You can now disconnect.

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