Mersen Ord

Ladies and gentlemen, welcome to Mersenne 2025 full year sales presentation. The webcast will be structured in two parts. First, a presentation by the Mersenne management team. Afterwards, there will be a Q&A session during which you may ask questions in two ways, by submitting a written question in the box below the player, or by clicking the green hand button on the player to ask your question orally. I will now hand over to the Mrs. Boca. Madame, please go ahead.

Good morning and good afternoon to everyone and thank you very much for joining us today. For your information, this call is being recorded and a replay will be available on the investor section of our website at the end of the call. So as it has just been mentioned, a Q&A session will occur after the end of the formal presentation today with Luc Temelin, our CEO, and Thomas Baumgartner, our CFO. I will now turn the call over to our CEO, Luc Temelin.

Thank you very much. 2025 was a busy year marked by a contrasting global environment, and we can say that Mersenne delivers solid performance under these conditions. 2025 was not a uniform year across our markets, but it was a year that clearly demonstrated the resilience of our portfolio and the relevance of our global and diversified footprint. Reported sales for the full year reached 1.186 million euros, representing an organic decline of 3.2%, which is at the high end of the guidance we communicated in October. We faced strong in-wins from exchange rates with the US dollar and the RMB, representing two-thirds of the total exchange rate impact, I would like to stress that these are only conversion impacts as the group is global with an industrial presence where it sets. Throughout the year, we achieved strong momentum across several key markets, wind, energy storage, power electronics, aeronautics, rail and electrical distributions, to name the most important. This helps offset the weakness in the solar and silicon carbide markets that I have already commented on in previous calls. I will now turn over to Thomas who will go into more details.

Thank you, Luc. Hello, everyone. So, as you can see on the slide, the sales evolution of the year was impacted by several factors. So, the first one is currency effect. As Luc mentioned, the depreciation of the Chinese renminbi and US dollar, to name the most important ones, had a significant impact on the reported figures. Amounting to approximately 40 million euros for the full year. This was partly offset or totally offset I must say by the scope effect. The scope effect reflects the contribution of the acquisitions made in 2024 in the US. and also compensated by the pricing power. We reach to increase the price by 1.5% for the full year. Regarding the business performance, we had strong commercial successes in a number of markets. We'll come back to that later on. And conversely, softer market conditions in solar and SIC semiconductors mentioned by Luc earlier on. so only on all we reported full year sales of 1.186 billion euro and now you can see markets by markets what's what happened our first my first comment is to say that our diversified and markets provide us a good level of stability and we could compensate a sharp decline in solar and NSIC semiconductors. As you can see, we had a positive momentum in other markets, fueled by strong drivers, as mentioned on the slide, First, stable and solid growth in wind and energy storage. We benefited also from a return to more stable conditions in the SI semiconductor markets, with the second half of the year much stronger than the first one, the first start. We benefited also from a strong growth in power conversion supported by significant contracts for HVDC lines, undermining our positioning in large scale grid investments. We had also a continued growth and strong growth in aeronautics and rail. We see also some stable markets, or typically EV markets, which were stable, reflecting two opposite side trends. From one end, the growth in vehicles, and from the other end, a decline in charging infrastructure. And then we benefited also from a very strong year in electrical distribution. So many, many markets going well and in growth. And from all what I said, it represents almost 60% of total sales. The rest, the remaining part, concerns process industries, chemicals and conventional energies, which were globally flat compared with last year. So if we break down this performance by geography, we start with North America, because it's by far the largest area in terms of revenue. As you can see, we were resilient with a growth of 0.7% despite the very weak demand for SIC semiconductors. On the other hand, Asia suffered from a decline of 13%. The region was strongly impacted by the solar market in China and weak deliveries. in chemicals. And in the middle, I would say, Europe, the decrease is a combined, but a limited decrease, is a combined result of strong performance in HVDC designs, aeronautics and rails, which was more than compensated by wind markets in process industries, SIC semiconductors, mosquitoes. So if you look now by segment, starting with electrical power, this segment experience move throughout the year with very strong drivers in rail, wind, power conversion and electrical distribution in the US. On the other hand, you can see that advanced material segment is in decline, affected by a sharp drop in solar and SIC semiconductor, as already mentioned. We had also but to a limited extent a small decline in chemical and process industries, which was in line with our expectations, and this was, to a certain level, compensated by dynamic markets such as aeronautics, wind and rail. For the fourth quarter, we experienced a minus 0.5% organic decline compared to minus 4% in Q3, so it's a significant change. This translates into a 2.2% sequential improvement in Q4 compared to Q3 We had also this quarter impact of exchange rate which was more significant, I would say, this quarter than before amounting to minus 18 million euros Just to remind you, the dollar against euro was at 1.05 at the beginning of the year and it was an average of 1.13 of the year and I would say almost 1.16 or 1.17 in the last quarter. More generally, dollar was the most significant impact but we were also impacted by the appreciation of euro compared to most of the currencies. If we look at the regions, Europe has been quite resilient this quarter, with good momentum in chemicals, wind, aeronautics and hail that compensate for the decline in semiconductors. North America performed well, with a growth close to 3%, especially thanks to electrical distribution, which is very strong. By segment, electrical power performed well over the period, thanks to a strong momentum in both power electronics and electrical distribution markets. Advanced materials sales were down by 6.6% of the quarter. with a strong growth in wind power, aeronautics and rail markets, but still a sharp decline in solar and SIC semi-corrector markets. I would say less SIC semi-corrector market this quarter compared to solar. I now turn over back to Luc.

Thank you. Now for the full year, we can be more specific. Current EBITDA margin remains at around 16%, similar to what has been disclosed in October. Current operating margin will be around 9.2%, in the mid-range of the guidance disclosed in October. And finally, we have managed to reduce again the CAPEX level, which will end up being around 135 million euros. I would like to conclude with a few words on 2026. You know that we will disclose our full guidance on the 18th of March, so we will not answer precise questions on guidance at this stage, but I want to underscore an important message. We are focused on Catholic discipline, as was the case in 2026. Already, we will continue to reduce capex in 2026, and this should bring free cash flow back into positive territory in 2026. All the elements we have discussed today are fully consistent with our 2029 roadmap. Despite the challenging and uneven market environment, our strategic priorities remain unchanged. Our roadmap is built on structurally attractive end markets, such as electrification, energy transition, clean mobility, grid reinforcement, and advanced technologies, which will continue to drive demand over the medium term. Our margin ambitions are based not just on market conditions, but also on the key levels at our disposal, pricing discipline, portfolio mix, and operational efficiency. Moreover, we have also focused on being selective in our capex and discipline with working capital to improve free cash flow. Taken together, this gives us confidence in our ability to deliver on our 2029 ambitions.

So if you have questions, please, it's the time for questions.

If you wish to ask a question, you may do so in one of the two ways, by submitting a written question in the box below the player, or by clicking the green hand button on the player to ask a question orally. We have a question from Thomas Renaud from Kepler Chevreux. Please unmute your mic. Go ahead. Mr. Renaud, we can hear you. Please go ahead. Thomas Renaud, please unmute your mic and please go ahead with your question.

okay I will go with the question that we have received on the on the platform so the question is I wish are you still are you a prison sorry on the data center market and what is the level of sales in this particular market the answer is

quickly to to to to to give you a precise the way but against we we are because we we have customer delivery again the data center in time of a critical prediction is easy to find through the distribution and and indirectly as you know there is plenty of electronics or electronics industrial center we are in which is more difficult to to even identify and the trend of this market is easy to see I would say six to yours

in our shoes business and still still good I would say 26 will be nice as well it explained uh parties we had the very very good stuff in North America so one other question

One other question is, can we expect a rebound in SIC in 2026 and the same for solar?

We don't expect a big move in silicon carbide in 2026. We see more something happening in 2027 at this stage of our knowledge. um so that is more difficult to answer because there is a situation in china not easy to understand uh you you i guess you you read already some uh results from some uh chinese company like launching they are not in good shape they are not profitable it seems that the again the this market is trying to be reorganized by The Chinese administration soon we will see but we don't expect something extremely booming in solar this year.

So, more questions, and I will read because it's quite a long question. So, NVDA and Ecosystem Partners are transitioning data center power distribution to 800 VDC architecture to support megawatt scale AI racks, starting in 2027. How is Mersenne positioning its product portfolio, particularly liquid cooler busbar, power distribution blocks and cooling distribution unit to capture this opportunity? More specifically, are you currently engaged in design wind process with hyperscalers or tier 1 OEM for 800 BDC infrastructure? Can you quantify the potential revenue opportunity per megawatt of installed 800VDC capacity versus traditional 54V 400VAC architecture? What is your expected commercialization timeline and when do you anticipate meaningful revenue contribution from 800VDC related products?

We need to hire you, because you are extremely good in your question. First, on the power conversion, in the data center, I think we will cover this new specification. I don't think that they will need more liquid cooling bus bar or cooling device in this case than before. About the question about the voltage and the fact that they will move from AC to DC, should help a little bit the fuse technology because the breaker at this time cannot really cut the current in the DC chain but as well because we see NVIDIA on your question people are working on a solid state breaker and it's more on the end of a company like Schneider but we are quite happy not only on data center to see the direct current coming in our market because it's More interesting for Narsen than the AC. In short, because...

So now we have the question from Thomas Renaud, who was not able to ask this question directly. Could you share with us the Crook light for light performance issue for excluding the solar and SAC markets?

So, yes, in the Q4 it was between 5 and 6%, I don't have the precise figure. In H1, if my memory is correct, it was 3%, something like that. So yes, far better than in Q1.

For any reason why the operating margin is expected to be at the low to mid-range of the guidance while life-for-life growth came in at the top end, is this driven by potential FX effects?

In fact, when you remember, we changed our guidance of sales in October. We didn't change the operating margin, which was large, in fact, and we are in between. So, in fact, this is totally consistent with the fact that we have lower sales than that at the beginning of the year. We have a better margin. We have the mid-range of the margin. So we are better. We are resilient in margin. And this is especially due to the fact that we have lowered the capex. So we have lower amortization.

Could you elaborate on the dynamic in the process industry in Q4 and how you see this segment evolving in 2026?

Q4 was a little bit different between the electrical power, which was really tremendous, very good, I would say, especially, but we said, data center, typically, and it was less not so good in advanced material segment however not so bad as well difficult to predict in 2026 why because it's driven by the macroeconomy by the industrial GDP and as you know in electrical distribution even if the trends you know more electrification more that grid, storage, etc. You need more electrification, so typically more of our product. We know as well that the electrical distribution, the time to market is quite between the order and the sales are quite quick, so it's a bit difficult to predict today. I can't say more. Maybe we'll sell more in March.

So now we'll go with the, I think there are some questions on the phone, if I can say.

So now we have a question from Giovanni Salvetti. Please, sir, go ahead and unmute your mic.

Can you hear me? Yes, I will. Hello everyone, hello everyone, thanks for taking my questions. I kind of, I think I missed the first five minutes, so maybe you already said that. But I have three questions. The first one is that if you can, in a way, break down this price increase across division, is it mainly price increases in electrical power or is it across the all firm? The second question is if I look at your slide I can see that the silicon carbide accounted for 5% of total sales in 2025 which means basically 59 million which would imply a fourth quarter of 20 million, which is quite above what you reported in the past quarters. So I was wondering if you can explain why they have kind of accelerated in Q4 and what is a rough range you can expect for 2026. And the last one is on CapEx. Is this reduction in the CapEx related to, let's just say, a growth that is lower than what you had in mind, or is it just because Do you think you can deliver the same growth with lower CapEx needs? Okay, I will start with the price and the pricing.

It's more important in electrical power than in advanced materials. And more important in the US, as you can imagine, than in Europe and in Asia. And in fact, you certainly note that the pricing effect is more important in Q4. especially because we have some types but it's limited and we totally covered this type increase by pricing That is the first question. The second one. Silicon carbide. Yeah. So the second carbide, in fact, when we say 5%, it's about 5%. If you want the figure, it's around 55 million euros for the full year. And yes, the Q4 was better than the Q3 with around 15 million euros, not 20, 15. And in fact, yes, we said that it will recover slowly.

No, but it's quite difficult to explain by the number because we have many 4-5 big customers all are not at the same level of inventory coming from the past that means one is asking a little bit more end of the year than the other but at the end their range will be a little bit better in 2026 but we had already discussion before we don't see a dramatic increase on silicon carbide demand next year but we see a growth. We see a growth. The capex we could deliver more but as you may know we invest quite a lot two years ago I would say to reach the demand that everybody were asking us. It's a huge demand in silicon carbide but since this date this demand decreased quite a lot. That means we have started to invest and Concerning the demand for the next two years, we decided to reduce as much as possible, but most of the capex was already spent. This is why we tried to be focused on having less and less capex, but the amount is still high.

Okay. Thank you very much. Thank you.

As a reminder, if you wish to ask a question, you may do so in one of the two ways, by submitting a written question in the box below the player, or by clicking the green hand button on the player to ask your question orally.

So I will continue with the question we received. So can you confirm the organic growth for the full year without solar and SIC?

Yes, it's a little bit. It's less than 4%. It's between 3.5% and 4% for the full year.

Then the second question is with a low level of capex at 135 million euros, can you forecast a free cash flow close to breakeven in 2025?

You remember that I said that it would be difficult to reach a free cash flow in 2025 and I think I will make a teasing, I don't know, we will give some idea in March. So you will wait for that answer.

One more question on SIC. I read the question, but I think this is not a confirmation. Could you confirm that H2 cells in SIC are superior to H1? I can answer that it's not the case. We didn't say that. We say, and maybe it was not clear enough, that for a silicon semiconductor, H2 was superior to H1, but it's not the case for...

In SIC, it's more or less stable between H1 and H2. But in H1, we benefited from Q2 especially. Remember, we've done a very good Q2. In fact, we benefited from payments from customers in the frame of the integration of our contracts.

So one more question from Bruno Herz. Are you still working on the SmartSeq project?

Yes, we are still working, but I'm not sure that... But you have realized the question. The market at the end is the same as in Silicon Carbide. SmartSeq and Silicon Airman, the same end market, EV. And it showed on like the Silicon Carbide in terms of commercial activity. I would say in Soitec they are not very busy, but in Mersenne we still have some things to do in the technical aspect the next six months to be absolutely ready to supply. Yes, we are still working, we are still starting equipment as a schedule.

so one more question once you have completed your committed capex program how much more capacity will you have as a percentage of 25 volumes we need to come

two years ago, because we did this announcement as a big part of the capex on advanced materials, because we had few on the ethical side. We had to address the silicon carbide demand, and we decided to invest to move up by four thousand tons of isosalt graphite to cover this market at the beginning and this is always the possibility of the group now we need to see this demand coming back and at this state we have quite a lot extra capacity to address this market

yes we're not in the same person each really I would say I don't think he could keep the same goal may be a little bit more or money of a a lady available to this so I don't have other question on the on the platform so maybe I don't

As a reminder, if you wish to ask a question, you may do so in one of the two ways, by submitting a written question in the box below the player, or by clicking the green hand button on the player to ask a question orally.

So if no question, we look forward to seeing you on March 18th for the full year result. It will be in Paris. So if you are in Paris, you can join the meeting in person at 10 a.m. It will be at La Maison des Travaux Publics, rue de Berry, in Paris. Very good to find. Thank you very much.

Thank you.