Mersen Ord

Welcome to the conference call on Mersenne's Q3 sales presented by Mr. Luc Timlin, Chief Executive Officer and Thomas Baumgartner, CFO. Participants will be on listen mode only first during the Q&A. You will have the opportunity to ask questions in writing using the chat below the audio player or ask your questions directly by dialing the pound sign plus five on your phone. I will now hand over to the speakers.

Bonjour à tous.

Hello everyone and welcome to this conference on Mersenne's sales for Q3 2025. We posted sales of 285 million euros for the quarter, representing an organic growth of minus 4.3%, which is in line with what we saw in the first half of the year. This brings revenue for the first nine months to 895 million, representing organic growth of minus 4.1%, which is in line with the minus 4% reported at the end of June. We saw contrasted trends in our markets in Q3, strong growth, meaning double digit in rail, wind and power electronic markets, recovery in the silicon semiconductor markets, low level compared to last year in SIC semiconductors, and finally, contrary to our expectations, we did not see a positive turnaround in the solar market during this quarter. For this reason, we've adjusted our targets for 25 to the lower end for organic growth and EBITDA margin. We've also revised our investment plans downwards, and we're maintaining our current operating margin target. I will come back in greater detail to this at the end of the presentation. Without further ado, over to Thomas, who is going to give us a more detailed review of sales. Hello, Luke, and hello, everyone. I will start by commenting The nine months sales before we focus on Q3. Revenue for the first nine months of the year amounted to 895 million euros, as Luke said. The scope impact corresponds to acquisitions in North America in 2024. So the consolidation of JMI for two quarters, the consolidation of Barlow for three quarters, and the consolidation of KTK for three quarters. So as you can see, The scope effect offsets a very unfavorable currency impact amounting to 22 million euros, mainly due in Q3 and due to the conversion into euros of the Chinese RMB and the US dollar and to a lesser extent the Canadian dollar. We continue to increase prices, particularly... in North America for a net total of 12 million euros. Organic decline was 4.1% over the nine months, mainly due to declines in the solar and SIC semiconductor markets this year versus the previous year. So, developments, evolutions varied greatly from market to market. If you look at what we saw in the first nine months, we see that growth in the transport markets with dynamic aerospace and rail and stable EV markets. We also saw a decline in energy markets with solid growth in wind power and a significant decline in solar power. a decline in electronics as well, with a significant drop in SIC semiconductors, quasi-stability in SI semiconductors for the last nine months, and strong growth, however, in power electronics. Limited decline in process industries, with strong growth for electrical distribution, and Decline in the traditional industry, which is very much in line with the macroeconomic context. Last but not least, a slight drop in the chemical market. Let's now specifically look at Q3. First, by geography, starting with North America. As you can see, North America by far is, first of all, stable compared to last year in spite of the negative impact of weak demand for SIC semiconductors. Electrical distribution has been very dynamic, driven primarily by data center and energy network segments. Again, as a reminder, North America is by far the first geography in terms of sales for the company. In Europe, the decline was 5.9%, with The drop in semiconductors and solar, which was offset by the growth in transport. Activity remains buoyant in France, while Germany is down. Last but not least, Asia. The decline in Asia is minus 10.4%, mainly due to slow solar production. business in China and weak deliveries in chemicals India however is confirming its strong growth driven primarily by rail let's now look at things by business segment on the right side here starting with the electrical power segment growth has accelerated in Q3 plus 9.8% after a first half at 4% thanks to stronger demand in electrical distribution, particularly in the United States, and continued dynamic activity in rail, but also wind power and power electronics. The Advanced Materials Division, however, is experiencing a drop in sales, affected by the sharp drop in sales in solar and SIC semiconductors. Deliveries to the chemical and process industries are also down, which is in line with our expectations. However, there were some positive factors, such as the gradual recovery in silicon semiconductors, and there's been a positive momentum in rail and aerospace markets. Back to Luke, who is going to tell us about Q4. Thank you. So, Q4. The company expects for energy markets to pursue its positive momentum in wind power market, and we expect the solar market to remain weak. For the electronics market, we expect, on the one hand, continued recovery of SI semiconductors and a sequential improvement for SIC semiconductor production. and markets which will remain at a low level and on the other hand the continuation of power conversion projects for electricity transmission HVDC that is for transportation markets we expect a positive trend in the transportation markets to continue thanks to rail and aerospace and a ramp up of deliveries for ACC for EV batteries The chemical markets decline in line with expectations. And last but not least, for process industries, you know, evolution, which is in line with the global economic context. As I said in my introduction, we have to take into account the fact, the lack of recovery in solar. And we are expecting organic growth of sales between minus 5 and minus 3%. versus minus 5 and 0% previously. We expect in current EBITDA around 16%. Previously, it was between 16 and 16.5 as a result of the decline in revenue. The forecast of current operating margin remains unchanged between 9 and 9.5%. Declining capex, we'll come back to this, is leading to a drop in depreciation. We continue to be selective in our investment plans and to adapt to our main markets, and therefore, the forecast is now between 140 million and 150 million euros, previously between 160 and 170 million. In conclusion, I would like to emphasize that Mersenne, once again, has demonstrated its strength The strength of its diversified model with certain markets such as rail and power electronics performing well, partially offsetting the economic weakness of other markets such as solar or the SIC semiconductors. We are extremely focused on market opportunities and cash flow generation to support the company's sustainable performance and achieve our 2029 targets, which we confirm. This concludes this presentation. Thomas and I would be delighted to answer your questions. If you would like to ask a written question, please use the chat box below the audio player. If you would like to ask a question directly, please dial £5 on your phone. If you would like to withdraw your question, please press the pound sign and 6 on your phone. Next question from Thomas Renault, Kepler Chevrolet. Sir, your line is now open. Hello, can you hear me okay? Yes, we can hear you very well. I had a first question. You communicated at the end of H1, you communicated the organic growth, excluding SIC and solar. I think it was plus two or plus four in H1. That was my first question. My second question has to do with solar, obviously. How do you explain this counter performance? Is it because there's been a real slowdown in August and September? Is that what's behind this drop? And what is your forecast for 2026 for that specific segment? And how do you see solar in the next quarters as well? Question three, the last question on free cash flow. you have a bit less capex, a bit less EBITDA. Should we still expect free cash flow to be slightly negative for the full year? Thank you. So, to your first question. On growth excluding SIC and solar, I haven't really done the math, but we don't expect, there are no real reasons for it to really change much. The decline is pretty much the same. It's maybe slightly more marked on solar, as I see, but I think we're going to stick to what we said during the presentation. so the question on to the question on the solar and there hasn't really been any deterioration we were already operating at a low level and things haven't really recovering so we the Chinese authorities have given directives for production to be to be lowered But we're still supplying some stock, product stock. I think we must wait for the full year results and see really what happens with the facilities in terms of installations and see what will happen in 2026. It's difficult to say at this point. For free cash flow, I prefer not to comment. We said we were going to increase the debt. With the dividends, we can consider debt will increase. I think it very much depends also on working capital. We will find out more at the beginning of 2026. I would rather not answer your question this evening. Okay, thank you. If I may, I have one last question. on process industries. I'd like to understand what's behind the decline, what markets specifically have declined. I don't think we've seen a decline on that specific segment in several quarters. So what is it? Is it because some markets are really suffering more than others or is it really a global phenomenon? Nothing very specific. We have a lot of large projects on thermal processing, some that have been slightly postponed in time. But in the U.S. things are okay. Maybe things are a bit slower in Europe. That's really what I can say. It's not bad at all compared to other ears. Okay, very good. Thank you. Once again, if you would like to ask a written question, please use the chat located below the audio player. If you would like to ask a question directly, please dial the pound sign plus five on your phone.

s'il n'y a plus de questions.

If there are no additional questions on the phone, we're going to move on to questions on the chat. The first question is coming from Bruno Ertz. What are the SIC sales in Q3 and what are your expectations for I think he meant 2025 for the full year. What are your expectations for the full year, for 2025? I think it's 2025. If not, well, we're not going to give any objectives for 2026. We have a global guidance for 2025. The Q3 SIC was 10 million euros. It will be higher in Q4 because There are some differences between Q3, Q4. There have been some slight evolution, so it will be slightly higher.

So we answered already the question about SICM related to revenue, but next question is any update on the PESIC project, and can you give Can you also give a sense of how electrical distribution performed in Q3? Can you give us a range of growth? And last one is what was the main driver of the growth in the U.S. for electrical distribution?

so the main driver in the US picking up on the last question we talked about the data centers medium voltage electrical distribution lines that is very strong in the US some large distributors are adding some additional stock q3 was really fantastic with an all-time high and our bookings are still looking quite good lately for PSEC. Not much news since last time. You know the silicon carbide markets and the PSEC is pretty much following the same trend as we said before. shipment forecasts have been postponed and We're still operating at very low relatively low levels Mainly for Soytech customers, but there is otherwise nothing new nothing's really specific but for this segment and in terms of growth I think it's above 10. And it also, very electrical distribution, it comes also from price increases. There have been a number of price increases linked to tariffs, to offset some of the tariffs or the effects of tariffs. We have a question from Gilles Choufou. As of 2026 in data centers, we're going to get the new 800 DC volt architecture. Does that architecture require greater use of bus bars? And if yes, what could be the impact on Mersenne? Not necessarily to my knowledge, but there will be additional needs for other products. protection of an 800 volt there has been a lot of growth for us all already especially in the US they use a lot of fuse protections but I do think we have to work more on direct current 800 volts direct current and fuses because it's not the same product as for alternative current AC. That's in summary what I can say. We have a question from Bertrand Faure on capex reduction. Are you postponing them to 2026? In part, in part. But only in part. We will only Go for additional capex if we consider it makes sense to do so. So it will be later. We have no additional questions in the chat. And I believe we have no more questions on the phone. We're just going to give you one more minute. Should there be any final questions, either on the phone or chat? Okay. There are no additional questions. We will see you again January 28th for the 2025 results. Thank you very much for your attention, and have a pleasant evening, everyone. Bye-bye now. Welcome to the conference call on Mersenne's Q3 sales presented by Mr. Luc Timelin, Chief Executive Officer and Thomas Baumgartner, CFO. Participants will be on listen mode only first during the Q&A. You will have the opportunity to ask questions in writing using the chat below the audio player or ask your questions directly by dialing the pound sign plus five on your phone. I will now hand over to the speakers.

Bonjour à tous.

Hello, everyone, and welcome to this conference on Mersenne's sales for Q3 2025. We posted sales of 285 million euros for the quarter, representing an organic growth of minus 4.3%, which is in line with what we saw in the first half of the year. This brings revenue for the first nine months to 895 million, representing organic growth of minus 4.1%. which is in line with the minus 4% reported at the end of June. We saw contrasted trends in our markets in Q3, strong growth, meaning double digit in rail, wind and power electronic markets, recovery in the silicon semiconductor markets, Low-level compared to last year and SIC semiconductors and finally contrary to what now to our expectations would did not see and a positive Turnaround in the solar market during this quarter for this reason. We've adjusted our targets for 25 to the lower end for organic growth and EBIT da margin we've also revised our investment plans downwards and and we're maintaining our current operating margin target. I will come back in greater detail to this at the end of the presentation. Without further ado, over to Thomas, who is going to give us a more detailed review of sales. Hello, Luke, and hello, everyone. I will start by commenting the nine months sales before we focus on Q3. Revenue for the first nine months of the year amounted to 895 million euros as luke said the scope impact corresponds to acquisitions in north america in 2024 so the consolidation of jim eye for two quarters the consolidation of barlow for three quarters and the consolidation of ktk for three quarters so as you can see The scope effect offsets a very unfavorable currency impact amounting to 22 million euros, mainly due in Q3 and due to the conversion into euros of the Chinese RMB and the US dollar and to a lesser extent the Canadian dollar. We continue to increase prices, particularly in North America for a net total of 12 million euros. Organic decline was 4.1% over the nine months, mainly due to declines in the solar and SIC semiconductor markets this year versus the previous year. So, developments, evolutions varied greatly from market to market. If you look at what we saw in the first nine months, we see that growth in the transport markets with dynamic aerospace and rail and stable EV markets. We also saw a decline in energy markets with solid growth in wind power and a significant decline in solar power. a decline in electronics as well, with a significant drop in SIC semiconductors, quasi-stability in SI semiconductors for the last nine months, and strong growth, however, in power electronics. Limited decline in process industries, with strong growth for electrical distribution and Decline in the traditional industries, which is very much in line with the macroeconomic context. Last but not least, a slight drop in the chemical market. Let's now specifically look at Q3. First, by geography, starting with North America. As you can see, North America by far is, first of all, stable compared to last year, in spite of the negative impact of weak demand for SIC semiconductors. Electrical distribution has been very dynamic, driven primarily by data center and energy network segments. Again, as a reminder, North America is by far the first geography in terms of sales for the company. In Europe, the decline was 5.9%. With The drop in semiconductors and solar, which was offset by the growth in transport. Activity remains buoyant in France, while Germany is down. Last but not least, Asia. The decline in Asia is minus 10.4%, mainly due to slow solar activity. Business in China and weak deliveries in chemicals. India, however, is confirming its strong growth, driven primarily by rail. Let's now look at things by business segment on the right side here, starting with the electrical power segment. Growth has accelerated in Q3, plus 9.8% after a first half at 4%. thanks to the stronger demand in electrical distribution, particularly in the United States, and continued dynamic activity in rail, but also wind power and power electronics. The Advanced Materials Division, however, is experiencing a drop in sales, affected by the sharp drop in sales in solar and SIC semiconductors. Deliveries to the chemical and process industries are also down, which is in line with our expectations. However, there were some positive factors, such as the gradual recovery in silicon semiconductors, and there's been a positive momentum in rail and aerospace markets. Back to Luke, who is going to tell us about Q4. Thank you. So, Q4. The company expects for energy markets to pursue its positive momentum in wind power market, and we expect the solar market to remain weak. For the electronics market, we expect, on the one hand, continued recovery of SI semiconductors and a sequential improvement for SIC semiconductor products. which will remain at a low level, and on the other hand, the continuation of power conversion projects for electricity transmission, HVDC. That is, for transportation markets, we expect a positive trend in the transportation markets to continue thanks to rail and aerospace and a ramp-up of deliveries for ACC for EV batteries. The chemical markets decline in line with expectations. And last but not least, for process industries, you know, evolution, which is in line with the global economic context. As I said in my introduction, we have to take into account the fact, the lack of recovery in solar, and we are expecting organic growth of sales between minus 5 and minus 3%. versus minus 5 and 0% previously. We expect a current EBITDA around 16%. Previously, it was between 16 and 16.5 as a result of the decline in revenue. The forecast of current operating margin remains unchanged between 9 and 9.5%. Declining capex, we'll come back to this, is leading to a drop in depreciation. We continue to be selective in our investment plans and to adapt to our main markets, and therefore the forecast is now between 140 million and 150 million euros, previously between 160 and 170 million. In conclusion, I would like to emphasize that Mersenne once again has demonstrated its strength the strength of its diversified model with certain markets such as rail and power electronics performing well, partially offsetting the economic weakness of other markets such as solar or the SIC semiconductors. We are extremely focused on market opportunities and cash flow generation to support the company's sustainable performance and achieve our 2029 targets, which we confirm. This concludes this presentation. Thomas and I would be delighted to answer your questions. If you would like to ask a written question please use the chat box below the audio player. If you would like to ask a question directly please dial pound plus five on your phone. If you would like to withdraw your question please press the pound sign and six on your phone. Next question from Thomas Renault, Kepler Chevrolet. Sir, your line is now open. Hello, can you hear me okay? Yes, we can hear you very well. I had a first question. You communicated at the end of H1, you communicated the organic growth, excluding SIC and solar. I think it was plus two or plus four in H1. That was my first question. My second question has to do with solar, obviously. How do you explain this counterperformance? Is it because there's been a real slowdown in August and September? Is that what's behind this drop? And what is your forecast for 2026 for that specific segment? And how do you see solar in the next quarters as well? Question three, the last question on free cash flow. You have a bit less capex, a bit less EBITDA. Should we still expect free cash flow to be slightly negative for the full year? Thank you. So, to your first question. On growth excluding SIC and solar. I haven't really done the math, but we don't expect, there are no real reasons for it to really change much. The client is pretty much the same. It's maybe slightly more marked on solar, as I see, but I think we're going to stick to what we said during the presentation. to the question on solar. There hasn't really been any deterioration. We were already operating at a low level and things haven't really recovering. So we, the Chinese authorities have given directives for production to be lowered But we're still supplying some stock, product stock. I think we must wait for the full year results and see really what happens with the facilities in terms of installations and see what will happen in 2026. It's difficult to say at this point. For free cash flow, I prefer not to comment. We said we were going to increase the debt. With the dividends, we can consider debt will increase. I think it very much depends also on working capital. We will find out more at the beginning of 2026. I would rather not answer your question this evening. Okay, thank you. If I may, I have one last question. on process industries. I'd like to understand what's behind the decline, what markets specifically have declined. I don't think we've seen a decline on that specific segment in several quarters. So what is it? Is it because some markets are really suffering more than others or is it really a global phenomenon? Nothing very specific. We have a lot of large projects on thermal processing, some that have been slightly postponed in time. But in the U.S. things are okay. Maybe things are a bit slower in Europe. That's really what I can say. It's not bad at all compared to other ears. Okay, very good. Thank you. Once again, if you would like to ask a written question, please use the chat located below the audio player. If you would like to ask a question directly, please dial the pound sign plus five on your phone.

s'il n'y a plus de questions.

If there are no additional questions on the phone, we're going to move on to questions on the chat. The first question is coming from Bruno Ertz. What are the SIC sales in Q3 and what are your expectations for, I think he meant 2025 for the full year. What are your expectations for the full year, for 2025? I think it's 2025. If not, well, we're not going to give any objectives for 2026. We have a global guidance for 2025 for Q3. As I said, it was 10 million euros. It will be higher in Q4 because There are some differences between Q3, Q4. There have been some slight evolution, so it will be slightly higher.

So we answered already the question about SIC-related revenue. The next question is any update on the PESIC project? And can you give... Can you also give a sense of how electrical distribution performed in Q3? Can you give us a range of growth? And last one is what was the main driver of the growth in the U.S. for electrical distribution?

so the main driver in the US picking up on the last question we talked about the data centers medium voltage electrical distribution lines that is very strong in the US some large distributors are adding some additional stock q3 was really fantastic with an all-time high and our bookings are still looking quite good lately for PSEC. Not much news since last time. You know the silicon carbide market, the PSEC is pretty much following the same trend as we said before. shipment forecasts have been postponed and we're still operating at very low, relatively low levels. Mainly for Soitec customers, but there is otherwise nothing new, nothing really specific for this segment. In terms of growth, I think it's above 10. And it also, the actual contribution comes also from price increases. There have been a number of price increases linked to tariffs, to offset some of the tariffs or the effects of tariffs. We have a question from Gilles Choufrou. As of 2026 in data centers, we're going to get the new 800 DC volt architecture. Does that architecture require greater use of buzz bars? And if yes, what could be the impact on Mersenne? Not necessarily to my knowledge, but there will be additional needs for other products. protection an 800 volt there has been a lot of growth for us all already especially in the US they use a lot of fuse protections but I do think we have to work more on direct current 800 volts direct current and and fuses because it's not the same product as for alternative current AC. That's in summary what I can say. We have a question from Bertrand Faure on capex reduction. Are you postponing them to 2026? In part, in part. But only in part. We will only go for additional capex if we consider it makes sense to do so so it will be later we have no additional questions in the chat and I believe we have no more questions on the phone We're just going to give you one more minute. Should there be any final questions, either on the phone or chat? Okay, there are no additional questions. We will see you again January 28th for the 2025 results. Thank you very much for your attention, and have a pleasant evening, everyone. Bye-bye now.